Quotation of the Day…

by Don Boudreaux on July 5, 2018

in Debt and Deficits, Financial Markets, Myths and Fallacies, Prices, Reality Is Not Optional

… is from page 155 of Todd Buchholz’s 1995 book, From Here to Economy:

For all the glamour, players in the currency markets get by on hard work and tough analysis. Before speculators place their bets, they try to figure out the answers to key questions like, Is the central bank acting responsibly on monetary policy? Is the government allowing social spending to spin out of control beyond the means of the taxpayers? Are the politicians honestly portraying the country’s ability to meet its debts? If the answer to any of these questions is no, the currency traders will swoop down and dump the nation’s currency until leaders deliver honest answers.

DBx: Economically uninformed people regularly accuse speculators of driving economic reality – of, say, causing a country that would otherwise suffer no problems with its public fisc to suddenly be face-to-face with fiscal challenges that threaten great economic damage to its citizens as well as threaten its government’s hold on power. In truth, speculators simply cause underlying economic realities to be revealed sooner than otherwise.

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