You are here:
Economics/economics
Advertisement
Question
When people earn money in other countries and bring them back to their own country does it fuel inflation? If no how this 'surplus' money is taken care of?
Thank you for a most interesting couple of questions, Swapnil. Please allow me to make an assumption: the money they bring back to their own country is in cash.
If that is the case, then there is no impact on inflation because there is no effect on the money supply in the 'home' country (the one where they took the money to). If, for instance, a Mexican national takes U.S. dollars to Mexico, the money must be exchanged for pesos. That is like 'making change' - swapping a 100-peso bill for five 20-peso bills. There is no change in the Mexican money supply, so there is no inflationary impact.
I don't know what you mean by 'surplus money,' but I assume you're referring to money that the Mexican central bank did not have a hand in creating. I think 'surplus money' is a not-great phrase because it implies, at least to me, that the central bank can do no wrong and that if it is 'in control' of the money supply, everything will be fine. Well, I think the last years of the U.S. Federal Reserve System under Chairman Alan Greenspan provide ample evidence that central banks can do plenty of wrong. In fact, I can make a pretty good argument for the abolition of central banking. The problem with it is that central bankers ALWAYS miss their target. They either keep interest rates too low for too long (which is what Greenspan did, thus enabling the housing bust in the U.S. that has triggered 'The Great Recession' worldwide) or they prop them up for too long (resulting in slower economic growth, higher unemployment, and more misery for everyone). That's no reflection on Greenspan, per se. It is just a truism about the human condition: no single body can predict markets perfectly.
That is why markets should be left alone to function as only markets can. The more government intervention there is in markets, the greater is the uncertainty in those markets. They either stop functioning altogether or function poorly. We have seen first-hand examples of that in the U.S. this year with credit markets and banking. No one knows what on earth this nutty new Administration with its crooked Secretary of the Treasury ("TurboTax Tim" Geithner) will do next, so banks make few loans, despite being awash in unused cash. It's crazy.
That's probably more than you ever wanted to know, but that's my take on it. I hope I've been responsive to the questions you've raised. Please do me the favor of completing the rate-the-expert email you'll receive on the heels of this one. Your ratings and comments help me do a better job of helping folks like you who ask such interesting questions.
Take care--
Warren Miller
Related Articles
- Alan Greenspan - Profile of Federal Reserve Chairman Alan Greenspan
- Exchanging Money in Mexico - Mexico Currency Exchange - Mexican Peso Exchange Rate
- US Current Account Deficit - A Primer on the US Current Account Deficit and Its Threat to the US Economy
- International Banking - International Moving and Money - Foreign Banking
- Email Scams - The Nigerian Email Scam
Warren D. Miller, CFA, CPA, ASA
Expertise
My expertise in economics is limited to three sub-disciplines: Austrian economics, industrial organization, and evolutionary economics. Questions dealing with macroeconomics and other sub-disciplines of the subject should be submitted to those who have the appropriate expertise. N.B.: I DO NOT ANSWER QUESTIONS MARKED 'PRIVATE' because I believe that knowledge should not be hoarded. I also believe that such questions are likely to come those trying to cheat. Also, as one who was a full-time academic for half a decade, I can recognize test/homework questions several time zones away. Do not demean yourself by submitting such questions to me. Those who do so are cheating; I WILL call you out publicly. I have a zero-tolerance policy for cheating and dishonesty. In addition, please don't emulate the businessman who posted a request for help in August 2008. He expressly denied that he was seeking "investment advice" and said that his query was for, and I quote, "educational and informational purposes." Later, he allowed as how his questions related to the possible purchase of a $500K piece of equipment. I said I thought he had misrepresented himself. Bottom line: high-end business consulting is how I make my living. I am the sole support for my family. Please respect that fact and don't try to get for free what our clients pay for. If your company is big enough to have a sophisticated problem, it can afford to pay for the expert advice we and others provide. Beckmill Research, LLC, is a 95-octane firm. We're small, but we've been at this for nearly 20 years. We know what we're doing. Segue: Early on, some asked me for career advice; I gave it. I now get many such requests. The demand for a valuable good that is free is unlimited, so I now charge for that advice. Email me: cfa2005@gmail.com. Finally, PLEASE DO NOT ASK FOR INVESTMENT ADVICE. I am not licensed to provide such advice. If you want such counsel, talk to your financial planner or other financial adviser.
Experience
I work with Austrian economics (which differs in major respects from the traditional economics), industrial organization (which is about industry structure, conduct, and performance), and evolutionary economics (almost, but not quite, the economic analog of its biological counterpart) every day in my work. I appraise closely-held businesses, provide exit-planning services, and offer high-level strategic analysis, advice, and solutions to CEOs and owners of mid-sized businesses. Understanding, applying, and writing about these disciplines is an essential part of how I have made my living since 1993.
Organizations
CFA Institute, Strategic Management Society, American Society of Appraisers, Academy of Management, Culver Legion, National Association of Scholars.
Publications
CFA Magazine, Strategic Finance, Valuation Strategies, Journal of Advanced Property Economics, Harvard Business Review, American Fly Fisher, CFA Digest, CPA Expert, Business Valuation Review, among others
Education/Credentials
Chartered Financial Analyst designation (2006);
Accredited Senior Appraiser in Business Valuation (2006);
Certified Public Accountant (1992);
MBA - Oklahoma State University (1991);
Completed all of my Ph.D. coursework in strategic management - Oklahoma State University (1983-87);
BBA in finance and accounting - U. of Oklahoma (1975)
Awards and Honors
Business Valuation Volunteer of the Year (2001) - American Institute of CPAs;
Winner - Oklahoma Humorous-Speaking Contest - Toastmasters International (1971)
Past/Present Clients
Names are confidential. However, the "sweet spot" of our target market is companies that are too big to be small and too small to be big. Usually, those are companies with employees in the 15-to-100 range. At the low end of that range is where companies can first take advantage of the specialization of labor. However, having everyone do everything is a tough habit for many--most, I would argue--small enterprises. That is why they not only remain small, but also fail to survive beyond a second generation. Only 5% (one in twenty) companies make it to the third generation of ownership.
©2012 About.com, a part of The New York Times Company. All rights reserved.