@yawn: Well, one reason to worry is the Great Depression, which was largely cause by deflation: There was a pretty open market back then and it never returned to equilibrium.

Of course inflation killed ancient Rome, and Ming Dynasty China, leading to 200-some years of foreign rule.

We don’t know the actual value of currency because the value of individual commodities (including services, which are generally traded domestically: import/export isn’t everything you know) is always uncertain. There’s no divine measure telling you what people want to purchase and how much they’re willing to purchase if for. Further more, it goes beyond basic supply/demand because middlemen and investors will intentionally tamper with prices for reasons that are independent of the demands of the markets.

The low Yuan was entirely different. They were pegging the Yuan to the American Dollar because the American dollar was incredibly stable. China was risking severe devaluation of their currency, so pegged currency + a sudden burst of heavy exports was the perfect strategy to build their economy. Understand that China was moving from 0 industrial base and minimal infrastructure to modern in the course of 30 years. It’s OK for them to have a low-value currency because they still have a lot of room to grow economically.

However, that isn’t a viable solution for America, because 1) Who would America peg their currency to? They are on top. 2) Everyone in the world depends on America being a strong currency, and it would piss a lot of people off if they devalued their currency intentionally. 3) Americans are used to being rich. Chinese are used to famine and subsistence living. The Chinese are still impressed by being able to afford washing machines. China’s economy is growing fast but they still don’t have nearly the same standard of life as Americans expect.

So, in conclusion, prices are so frequently in flux worldwide that any trend that goes too strongly against the equilibrium could potentially spiral out of control. Does that help?

Fair points as well: I was really giving a status quo answer :\

I would really like to see a more balanced world economy. It’s not necessarily that I don’t want America to be successful, but it would be nice if there were a wider range of stable currencies. Hell, I’d also like to see a world where every country including the US has a balance between industry/agriculture/service+finance. Feels safer.

The problem is, I can’t really image what kind of world would it be like. USD, EOI and a service-based developed economies have been headcornerstones since before I was born. I’m just not used to thinking any other way.