Does it upset you when you see a country mismanage its economy and then get rewarded by a bullish local stock market?  It always happens in the same way. First the politicians make promises they can’t keep. Then they print more local currency in order to try to make things happen. That makes each piece of currency worth less and the currency gets devalued. Then, because the local currency devalues, companies that trade internationally tend to do better  in local currency,  and their stock goes up on the local market. This currency devaluation in turn causes imported prices to go up and the government hits their two percent inflation target. The government then says what a great thing they have done and continue on with an aura of success, even though the whole problem was originally because of their own mismanagement. The people who win in this scenario are the elite “One Percent”. The people who lose are the general population. Isn’t it time for someone to address this problem? Isn’t it time for Wall Street to build the “Global Stock Market.”

Global Deflation and Currency Devaluation

The over-riding problem in the world right now is that there is a rising wave of deflation. The opposing forces of inflation and deflation are still at their eternal “tug-of-war”, but the forces of deflation seem to be getting the upper hand.  On the inflation side are low interest rates, money printing and government infrastructure spending. On the deflation side are ageing demographics, overcapacity of commodities, and high global debt levels.  Now, after thirty years of inflation, it appears as though the forces of deflation are winning. Technology is cutting jobs. International trade is slowing, and emerging markets are not emerging any more. The world is now entering  a period of slowing global economic growth. Countries are now responding to this global stress by devaluing their currencies so that they can export deflation and import inflation. It is a “currency race to the bottom”. One of the key problems with currency devaluation is that it hides many problems and makes it very difficult  to measure a country’s relative success. 

Eliminate Financial Relativity

The problem with using local currency in the world of global economics is that much of the general population gets hurt.  They tend to focus on their finances in local currency and believe that things are actually better than they are. They don’t realize that they have just lost a large part of their global purchasing power. They are misled into thinking that they are doing better. A more standardized and  intuitive way of tracking both local and global financial progress  would be if everything was measured in a standard global currency, say the U.S. dollar, and reported centrally on a global stock market.. Corporate financial results around the world would be all be tabulated and presented  in U.S. dollars. All business discussions and decisions would be made in U.S. dollars. All reporting would be made in U.S. dollars. Currency devaluation would then be taken out of the equation entirely. The playing field would be immediately levelled as if everyone were an investor sitting in New York. Under this new model everything is even. Everyone is equally informed. However this new model does bring to the forefront some interesting concepts.

For example, under this new system,  if you were in Europe and you experienced a ten percent currency devaluation how would it be reported? It would be reported to New York, the world, and also to local citizens that you experienced ten percent deflation, because, to an observer in New York, it would appear that all your prices went down ten percent. If you then experienced three percent local inflation but your currency went down ten percent, how would it be reported? It would be reported to New York, the world, and also to local citizens that you experienced roughly seven percent deflation. If you put your money in a local bank at three percent interest and your currency went down ten percent  it would now be reported to New York and the world  as seven percent negative interest rates.   As you can see, using a standardized currency and a centralized market can standardise global measurement but it can also change the global results. For example, a central market in U.S. dollars would show that global deflation and negative interest rates can’t be hidden any more. They are already here, all around the globe.

Tracking transactions  in local currencies is a great solution for governments and central bankers in distress because it can hide a lot of mistakes. However, it can also make it difficult for all parties to fully understand what is happening economically, and can actually be misleading. Under a standardised global market (in U.S. dollars)  the economic truth will always show through and everyone will be on an even playing field.  It will become immediately obvious to both local citizens, international investors, what is actually happening and who the winners and losers are. When you operate in a standard global currency everything becomes more obvious, and more straight forward.  Isn’t it time for a Global Stock Market? Then you wouldn’t  have to be  Albert Einstein to see through the relativity.