International Trade?

[Austi Scot]

Scott,I understand that Norius is developing an economy. It has been mentioned in passing to me that Shireroth might consider opening trade. As Minister of Trade here in Shireroth I am interested but I don’t want to open such discussions without the input from your Ministry and from the government here in Shireroth.Should such talks be opened I would like there to be an overriding principle. That being that people from Norius can open a business in Shireroth and operate according to our economic model and that people from Shireroth can open a business in Norius and operate according to there law – but that anyone from the other country would first have to have a business in their home country. The one in the other nation would be a branch office. Also, the business owner would have to hire at least one national. Is this something that you think Shireroth might be ready to do as part of our foreign relations?Austi

[Scott Alexander]

I would be happy to assist you in working with this in any way possible.However, from what Conrad has told me, Norius is to have strict rules on who it will and will not have trade agreements with. Particularly I believe he wants other nations to adopt the Norian economy before he will open any sort of exchange rate. I will clarify those with him when I see him later and we shall see what can be done.

[Erik Mortis]

Than let us find another nation!...Establish a treaty that sets down the exchange rate.. and let the money flow! Erik Mortis BrookshireCommoner of Alexandretta

[SSFSX17]

Not so fast there, Mr. Brookshire. If we "let the money flow" as you say, then a number of things may happen:1) Some crazy guy like George Soros could do something like this:- Borrow a bunch of Shireroth Erb or establish some really hefty Shireroth credit accounts, or even short a lot of Shireroth business stocks.- Buy / invest in a lot of assets that are most certainly not in Shireroth with the money.- Bet on those other places becoming prosperous while Shireroth simultaneously is in an economic downturn. It doesn't even have to be a big downturn for the strategy to work.- The guy makes a lot of money and is perfectly able to pay back the Shireroth Erb value of everything he borrowed. But that doesn't help Shireroth at all because if the guy's strategy worked, the value of the Erb should be falling quite a bit thanks to a secret smear campaign.- This is exactly how the asian financial markets of '97 - '99 were crashed. On purpose.2) Shireroth could potentially experience a heavy "drain" of some sort. IE, everyone in Shireroth starts to invest heavily in foreign markets, which pulls a load of money out of Shireroth's own economy. The currency would hyper-DEFLATE and leave many debts unpayable. The bank could try to remedy this situation by distributing more money... but then the foreigners could just start warning that their own assets were reaching the limits of growth for a while. Shiririthians would be urged to sell all their foreign investments while they still can, bringing a bunch of money back into Shireroth's economy and causing hyperinflation that would leave a lot of Shireroth's stuff worthless compared to other countries. If Shireroth did not have a trade surplus by the time this would happen, then Shireroth would get very screwed. The United States of America can get away with this strategy because it can hope that the devaluation of the dollar will let it export more. But even to the USA, it's very risky.3) Radically different economic systems can be very very very very bad for at least one of the countries involved. Shireroth's money distribution happens when Austi Scot decides to give all the government workers a paycheck just for being government workers, whereas Norius (so far) has only paid people when they have actually written something of use to the government. The Shireroth Erb would become so devalued in the face of the Norius Karnal that:- It would be impossible for Norians to invest in any part of Shireroth without just plain losing the money. It would also be impossible to sell any Norian product to Shiririthians, since the price in Erb would be extremely high.- It would be impossible Shiririthians to invest in any part of the economy of Norius because the Erb price could end up too high to even buy one unit of anything. The few Shiririthians lucky enough to invest in Norius assets would become incredibly rich, but they would be discouraged from cashing in on their investments. If the lucky Shiririthians were to finally sell their Norian assets and get Erb cash back, this would result in heavy inflation of the Erb. And unless Shireroth is ready to start exporting en masse, Shireroth would get screwed.Ultimately, you can learn this about the economy: If you're not good at math or seeing mathematical relationships, then forget about it!I may post some crash courses in various economic aspects in the University if I find that the peoples' knowledge base required for an active economy is... well... not there.

[Scott Alexander]

Quote:- This is exactly how the asian financial markets of '97 - '99 were crashed. On purpose.Kind of off topic, but could you explain this comment?

[SSFSX17]

This comment is mostly based on Paul Krugman's writings (http://www.pkarchive.org). Specifically, I am drawing from his 1999 book "The Return of Depression Economics," where he describes how infamous hedge-fund-guru George Soros dumped the asian financial markets into a liquidity trap in the years 1998-99.The liquidity trap itself is something else entirely. Basically a liquidity trap goes like this:1) People discover that they need to eventually pay off their debt/credit, or their creditors are just plain putting the squeeze on. Or, the currency starts to devalue and people start panicking and dumping their assets in that currency as fast as possible, lowering the value of the poor country's economy as a whole.2) People do not consume / invest as much. Instead, they save up money to pay off the debt. Or even just plain saving up raw cash. Saving up is not "investing" because, in the economic sense, "investing" mostly means giving money to someone else or buying a specific product for the purposes of increasing capabilities later.3) But, because nobody is consuming / investing, companies also do not get as much income. Nobody is buying anything, so the companies don't earn income from selling their stuff.4) Companies could get to the point where they have to slash their own capabilities. This includes firing people, purposely destroying crops, closing offices, dismantling factories, etc etc.5) Steps 1 - 4 are compounded until a bunch of people line up for soup kitchens and live in cardboard boxes. Communities of cardboard boxes are known as "Hoovervilles." People pull their empty pockets inside out to demonstrate the emptiness of their pockets, and these are known as "Hoover Flags." George W. Bush can only dream of having such things in HIS honor.George Soros PLOTTED to devalue the British pound in '92 and he pulled it off, too. This happened to give Britain some much-needed stimulus in exports, which I doubt was George's intention.As I have described in my previous post, hedge funds can purposely induce step 1 and the rest just kinda follows. A liquidity trap is when nobody wants to spend their money because they're busy saving it up and living on a glass of water and a few slices of bread per day. Or even just plain trying to save up lots of money because they thing the market will go badly - which it will if they keep this up! Liquidity traps are very dangerous for basically anyone.John Maynard Keynes, a guy from the 1930's, proposed that it is the government's job to move economic levers. That is, the government does what it can to stimulate the economy and break out of the liquidity trap.Fiscal Policies:- Increase government spending on public projects, job training, etc etc- Cut taxes so that people have more money to spend.Monetary Policies:- Purposefully inflate the currency so that the economy's boom cycle is halted. The theory is that halting a boom will also prevent a bust. This didn't work out for southeast asia.- Threaten to inflate the currency if people don't start buying soon. The purpose is to devalue cash savings, so that people will see that it is better to spend now than let their savings become devalued.Trade Policies: (warning: these have major consequences!)- Impose tariffs on imports so that people buy local products more. Tariffs are taxes on imports.- Give subsidies to domestic companies trying to export overseas. Japan's government would essentially collude with its big businesses to look for an up-coming market like, say, RAM chips for mainframe computers or home entertainment consoles, give those businesses a bunch of irresponsible loans, and let the businesses go forth and dominate the target areas throughout the world. Japan suddenly experienced what Paul Krugman believed to be a liquidity trap starting in the early 90's.Liquidity traps and recessions aren't the same thing. While recessions can induce liquidity traps, they don't have to. Or you could be in a liquidity trap yet your economy stay mostly the same. Japan was in this kind of zero-growth situation. The Nikkei is trying to rally, but we have to keep watching to see what happens.The United States of America didn't help the asian financial crisis, either. They told the southeast asian governments to do the exact OPPOSITE of all these things. The idea was to show investors: "Hey, look at what we're willing to do! You'd best have confidence in our economies because we were willing to do such stupid stuff!" This didn't work. At all. Which prompted this megalomaniac from Malaysia named Prime Minister Mahathir to proclaim that the 1st world was staging an anti-asian conspiracy. Not exactly, but hedge funds are pretty evil in today's world.I'm not even an Economics or Business major (I'm a Computer Science major) but I've learned quite a bit in the past year of independent study. Economics is so simple that you can try to do a lot of your own independent study and thought experiments and expect to be more knowledgeable than I am right now in about 120 days.

[Erik Mortis]

This is why I stay out of economy...hehe Erik Mortis BrookshireCommoner of Alexandretta

[SSFSX17]

Simply by laying down somewhere or eating food you are involved in the economy. Of course, it's your choice to stay out of Shireroth's economy, but I believe that micronational economies are harder to do really bad things to than real ones.

[Erik Mortis]

Well.. on the technical side I stay out. I myself own a company.. Erik Mortis BrookshireCommoner of Alexandretta

[Phoenix the Risen]

"I may post some crash courses in various economic aspects in the University if I find that the peoples' knowledge base required for an active economy is... well... not there"Please do. Of course, get permission first... but you tend to rant a damned lot about the economy, but it's all in different places, so I have a hard time following it chronologically. If you were to put your rants into lectures, it would really help me understand it more.Just keep in mind that this is a Micronation, and not a RL Nation. A lot of your worries don't really apply to Micronational economics, the same way most other RL laws and issues don't apply... Phoenix the Risen - Dutchess of Kildare - Political Nuisance but at least She gets the job done. - Official Genkher of Gryphon Avocatio's Cool Short Sig and Gryphon the Pure's Awesome Tables! - COME BACK, STEVE!!! -"To quote a former Kaiser.... 'Shireroth doesn't give up land....'" ~UEC (Quoting Kaiser Letifer I), In response to claims on the Raynor Isles"To paraphrase a former Kaiser: 'Here! Take Amity for free! And that other half of Mar Sara too!'" ~SaiKar LumEth, (Paraphrasing Kaiser Mog I) In response to UEC"To paraphrase a former angry mob "DOWN WITH THE EVIL LAND-GIVING AWAY KAISER! REVOLT! REBELLION! CIVIL WAR!" ~Scott Siskind, (paraphrasing the Letifer Rebellion group) In response to SaiKar LumEth"I HEARBY QUESTION THE KAISERESS AUTHORITY!" ~Gryphon Avocado (Switching Day)