STAFF NEWS & ANALYSIS
Global Trade: Another Fiat Money Production
By Staff News & Analysis - July 05, 2013

Unprecedented Globalization … A couple of weeks ago I posted a chart showing the long-term trend of world trade in manufactures relative to world production. The paper I took the chart from, however, only went up to 2000. And I decided to update it for the next edition of Krugman Obstfeld Melitz. And it's pretty striking: You see the interwar trade decline; the growth in world trade after World War II didn't return to 1913 levels of globalization until around 1970. But since then, trade has grown incredibly. Interestingly, the big tariff cuts in GATT rounds had already happened; what we're looking at here is trade liberalization in developing countries plus containerization, and the emergence of massive vertical specialization (iWhatevers being made in many stages in different countries). – Paul Krugman, New York Times

Dominant Social Theme: This expansion of global trade is great – and so unexpected.

Free-Market Analysis: Paul Krugman is obviously gratified that world trade is growing though in this little article, he hastens to say there is "no moral" to the point he is making.

But globalists are always happy when global trade expands. And Krugman is nothing if not a globalist.

Here's the chart:

It seems fairly clearcut and certainly shows that global trade has picked up strength since 1997 as Krugman suggests. But from what we can see, global trade really began to pick up after 1971, when the dollar was taken off the gold standard and turned into the world's "petrodollar" reserve currency.

This fits into a larger paradigm that we often try to explain. Fiat money is corrosive not only because it creates great booms and busts but also because it is ultimately a device that distorts economies even when it is "succeeding."

We hardly know what a REAL economy would like as we have not experienced one for nearly a century – which is when the current boom in central banking began.

At the beginning of the century there were just a handful of central banks and today there are around 150, most supervised by the Bank for International Settlements.

Bankers run the world's economy and by constantly stimulating the money supply, they can literally generate entire industries that would not otherwise exist.

Sure, we'd still have airplanes, cars and computers without monetary stimulation. But perhaps the pace of innovation would be slower, or perhaps there would be less variation. Maybe, the "creative destruction" of capitalism would not be so fierce. Societies would be more rural and agrarian. Cities would be smaller. Federalism would be less invasive.

Fiat money tends to favor urbanization, manufacturing and endless innovation. But not all innovation is created equal. How many times can you reconfigure a Barbie Doll? Do people need to be able to fly to Las Vegas … whenever, on demand?

Expanding world trade is surely a product of a surfeit of fiat money. Krugman doesn't think so of course. He believes that wise governments have reduced tariffs and negotiated splendid trade pacts that result in beneficial commerce worldwide.

But much of this commerce is surely in gewgaws and desultory items that simply wouldn't be produced or traded absent the torrents of fiat money that now surge around the globe.

In the 1980s, Japanese central banking revved up and "made in Japan" became a familiar slogan. In the 2000s, Westerners became familiar with "made in China." In both cases, domestic banks printed money that was used to buy Western debt. In return, Western consumers, especially in the US, were apparently directed via various trade pacts to buy Japanese and then Chinese products.

This sort of framework might better be called "managed" trade than global trade. It is a product of fiat money manipulation surely – and we will never know how much of it was "real" because it is not possible to separate out the effects of monopoly fiat money printing.

After Thoughts

But one thing is for sure. Krugman's chart, like his analysis, is simplistic. The cause-and-effect he enunciates leaves out the manipulations of Money Power.

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