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Old 02-19-2002, 04:46 PM
Posts: n/a
Default Re: An excellent article, a must read for beginner

Well that is a nice goal, truly one size does not fit all in monetary policy. Problem is the ones with most of the money (respected world-wide money) are the ones with the easiest policies around. If your country has negative natural population growth, creative minds that the world demands, and an efficient capital market structure then things are easy. If you have 2.5% population growth, creative minds that want to do nothing more than leave the country, and only a few products the world wants...well yes you have a tougher job. Currency markets try to pound countries for not staying in line with G7 monetary standards, but this is impossible. So then the only two choices are to try to comply and get kicked out of office or to take a stand and try to do things that keep you elected...and then the speculators come and pound your currency and then you promptly get kicked out of office. So you tell me Boris, which is the better choice? Currency markets would be disciplined and orderly if it weren't for the speculators, but ahhh there is no money to be made in that. This is the one area I think wild trading has a definite social and economic cost. Look what happens, speculators overrun a currency and take a lot of profits. Then the country enters great deals of poverty, with the lower level of the population (the ones that actually do all their business in local currency) hurt the most. This crisis causes calls for help which the IMF and the US gladly heed and send money. So in this unvirtuous cycle, rich speculators whose only goal is to overshoot a proper level of a currency end up making lots of money and the American taxpayer, among others, gets to foot the bill for that. Is this really sensible and orderly market-making? If I was in charge, I would make a simple change. It won't solve the problem, but it can take a lot of the steam out of these moves. I would greatly de-leverage the contracts on currency. When I trade with my currency broker, he INSISTS that I use 50:1 leverage. Every two months someone from this broker calls me up asking why I don't take them up on their offer of 200:1 leverage? I guess I must be one of their few customers that makes a profit and they want me to keep loading up, to which I refuse. A sensible way to do this is use 10:1 or 20:1 as the standard allowable leverage in a market. If someone wants more, they should be forced to go through a third party with its costs and trouble. Of course this would elicits cries of foul so I know it would never go through, but it certainly would get a lot of the speculators out and return the currency markets to a status of being a conduit of business needs, not speculative attacks.
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