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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (826)	9/28/1998 6:57:00 PM
From: Freedom Fighter	Respond to of 1722

>>Theoretical question: Why wouldn't pegging a currency against the dollar, gold, etc., be as doomed to create shortages or oversupply as when government attempts to fix any other price?<< It's very complex but here's my 2 cents. That's all I have to offer. I believe a peg CAN work as long as the country has foreign reserves and/or gold equal to the amount of domestic currency that is in circulation. In other words, if everyone wanted to get out of the domestic currency they could get out. But if everyone that wanted to get out, could get out, few would want to. In fact, if you can find a currency fully backed by gold, that's where I want all my money. Switzerland is as close as you can get to perfection. It should be no shock that historically it has the best currency. The problems come up because central banks inflate money and credit at different rates. Those that inflate more rapidly tend to develop trade/current account deficits over the long term. If those excesses reach a critical mass, that's when all hell breaks loose. There are also cyclical influences, interest rates differentials, savings issues, etc.. in these deficits, but generally a trade and current account deficit is a sign of a problem and excess. (hence my long term bearish view of the dollar) Here's some excellent reading on currency boards. It may help. There are also great books on the subject at www.mises.org. erols.com