I fail at economy, so please tell me how...

[Shrymp]

GDP and CPI affect demand :P

Of course they do. Poor choice of words on my part; I was trying to be more specific, I suppose.

[namelessone]

Macroeconomics is a force beyond human understanding. Did you ever wonder why "macroeconomics" sounds similar to "necronomicon"?
=)

[Purple Glow]

OK, i'm really really terrible at anything related to economy, But, i find it very interesting.

Now, what i wanna ask is probably simple to those who do know about economy:

For example : I live in Germany so we use Euro. My father lives in Brazil, and the brazilian currency is called Real - R$. Three to two years ago, if he wanted to buy € 1,00 Euro, he needed R$ 3,00 REAIS.

Last year, he needed R$2,70 REAIS to buy €1 Euro.

Now, 7 months into 2011, he needs R$2,30 REAIS to buy €1 Euro.

Question is, what makes this difference? How did the Euro lose it's value, and meanwhile, Brazil's currency went up?
For that matter, how is it X Country's currency is valued against Y country's currency?

I hope i have made myself clear enough,
sorry if my english is bad, it's my 5th language :X

Currencies are not fixed in value.

A "dollar" originally was a silver coin, not paper. This had a fixed value. But, keeping large quantities of silver coins in your house invites thieves. So, people came up with the idea of storing their silver coins in large vaults. Other people came up with the idea of starting a vault business. They set up a very large, very secure vault and opened their doors to the public to have them store their silver coins with THEM. In exchange, their customers got a receipt detailing just how many silver coins they had stored with them.

These "vault businesses" are known as BANKS.

The receipts were better known as "promises to pay" or notes. Customers eventually got lazy and decided that it was too much trouble to withdraw their silver coins to buy something. It was easier to trade the receipts/notes amongst each other. To make it easier to trade receipts/notes, customers demanded not just one receipt/note, but a bunch of them denominated into smaller units. So if you had 453 silver coins in the vault, you might ask for 453 individual receipts/notes, each promising to pay the bearer 1 silver coin upon being presented at the bank.

In the US, the federal government was in the receipt/note printing game. They were the only legal entity to issue these receipts/notes. The US backed these notes with their own supply of silver coins. But no-one usually withdrew the silver, they just kept trading the notes.

Then the government got tricky.

They decided that since no-one ever withdrew the silver coins, they could print more receipts/notes than there were silver coins to back them up. That way, the government could stimulate the economy, or fund government programs, and no-one would be the wiser. Unfortunately, people DID catch on, and the value of the notes began to fall to rebalance to its true value versus the amount of silver coins in store.

Then came 1971. The US defaulted on its promises to pay. The US essentially declared bankruptcy. They would no longer pay the bearer of a receipt/note on demand the amount of silver it promised. Inflation went crazy as the value of the paper receipt/paper dollar crumbled.

From 1971-2011, we've been experimenting with a new currency system. In this system, the receipts/notes/currencies are not backed by silver coins. They are backed by faith in the stability of the country, and its credit rating. If a country takes on enormous amounts of debt, damages its credit rating, and becomes unstable relative to other nations, investors will dump that country's currency in the global marketplace, causing its value to fall.

Faith-backed currencies have an extremely poor track record in 4000 years of recorded history. The average lifespan of such currencies is 30 years, before the political class run the debts up so high that they bankrupt whatever nation that tries it. The US has made it 40 years, but its trying as hard as it can to bankrupt itself with supermassive debt spending under President Obama. Even worse, the republicans, who have been trying to control the debt spending, are getting smeared in the press and the public is turning against the idea of controlling the debt.

So I'd say the US is well on track to follow a typical nation trying this scheme and go bankrupt. History books, 200 years from now when current events are far enough removed from politics, will note that Obama's biggest achievement was bankrupting the United States.

You have two choices when it comes to money:

1. A currency backed by silver or gold. The money is sound, but the financial system is somewhat inflexible because it becomes more difficult to borrow money.
2. A faith-backed currency. Borrowing money is easy, facilitating capital ventures and creating a vibrant system. But the money is only as sound as the politicians are honest. And unfortunately, humans are DEEPLY flawed, and they rapidly lose control of themselves, debt spend like mad in this scenario, and ruin the money and the country.

Your choice.

In practice, there tends to be a "grass is greener on the other side of the fence" effect. (an old saying that refers to wanting what you don't have) When currency is backed by silver or gold, people focus on how better things would be if credit was easier to get. When you have a faith-backed currency, people focus on how nice it would be to have a stable currency and stable nation.

[Deladeu]

Value of currency has a lot to do with how high or low interest rates are in whatever country. In a simple model, if rates are high - investors will dump all their money into that country to take advantage and make money just from interest.

This doesn't take into account economic performance / stability. If that is taken into account and put into the model you start to get a clearer picture of why Brazil's currency is still so cheap. Brazil's location on the globe, poverty, political instability in the South America's as a whole means investors are cautious to move money in the area.

On the other hand, a place like Australia, has one of, if not the, strongest currency's in the world because of high rates (when compared to the 0% of Japan etc.), strong economic performance compared to the rest of the world, one of the most socially and politically stable countries in the world and an abundance of resources that China wants.

[Deleted]

snip...

Okay, long post, rather informative, but please... keep the democrat-bashing out of it. Doesn't help in the slightest.
Yes, the government under Obama spent money. Yes, he is democrat. NO, republicans are NOT angels sent from god (atheist here, just saying, no believing) to fight against the demons under Obama.
Ever heard of President Bush? Yes, I mean that one, both of 'em. Starting huge wars and spending a shitload of money for said warfare is not exactly helping to fight bankruptcy. Attacking Iraq because "they have weapons of mass destruction" and then not finding any is a tiiiiiiiny bit bad for economy, believe it or not. Cause saying one thing and attacking a country, when it turns out that you lied from the beginning is raaaaather bad looking to foreigners, who you want to invest into your country.

All I wanna say is: Good post, but please keep politics out of it. You seem like a nice guy, but the hate for democrats and love for republicans is not needed here, there are a shitload of threads on that topic already. (and yes, I dislike republicans, but that's understandable, I'm not from the USA)

[Purple Glow]

Okay, long post, rather informative, but please... keep the democrat-bashing out of it. Doesn't help in the slightest.
Yes, the government under Obama spent money. Yes, he is democrat. NO, republicans are NOT angels sent from god (atheist here, just saying, no believing) to fight against the demons under Obama.
Ever heard of President Bush? Yes, I mean that one, both of 'em. Starting huge wars and spending a shitload of money for said warfare is not exactly helping to fight bankruptcy. Attacking Irak because "they have weapons of mass destruction" and then not finding any is a tiiiiiiiny bit bad for economy, believe it or not. Cause saying one thing and attacking a country, when it turns out that you lied from the beginning is raaaaather bad for foreigners, who you want to invest into your country.

All I wanna say is: Good post, but please keep politics out of it. You seem like a nice guy, but the hate for democrats and love for republicans is not needed here, there are a shitload of threads on that topic already. (and yes, I dislike republicans, but that's understandable, I'm not from the USA)

1. Bush's debt spending PALES in comparison to what Obama is doing.
2. The republicans in congress REVOLTED in October 2008 against Bush's debt spending, voting down the first attempt of TARP.

The more fiscally sound of the two parties is the republicans, no question. Its also apparent the American public wants more debt spending, from their disapproval of the republican attempt to stop it. Its very obvious the US is on the path to bankruptcy. There is no political will to stop it.