Yahoo! Finance should stop publishing Robert Kiyosaki, who is a mercantilist hack

Others have already done a better job of debunking Robert Kiyosaki in general, but right now he's said a few ridiculous things that need to be debunked in particular. His recent essay on the declining value of the dollar promises more than it tries to deliver, and still delivers nothing worthwhile. His thesis is pretty unoriginal: We're importing stuff and exporting dollars, and it can't go on forever. All as true as it needs to be, but reciting the facts doesn't give you any information on how to benefit from them. That's where financial literacy comes in -- or, in its absence, Kiyosaki's blatherings.

He starts with a charming story about black-market currency trading in Hong Kong, pointing out that "Although the money I saved wasn't substantial, the lessons it offered in currency exchange were priceless." Interestingly enough, he never gives us these lessons. We have no idea what his 2% return on currency trading taught him, because the rest of the essay never mentions the incident or anything one could learn from it (noticing a price discrepancy should teach you that when governments have a stated rule but limited means of enforcement, breaking an economically nonsensical law can be net beneficial. That's an argument for a different post).

In 1971, President Richard Nixon changed everything by removing the U.S. dollar from the gold standard. Suddenly, the dollar was still the world's currency, but now it was backed by nothing. The United States was free to print as much money as it wanted, and the world went along.

All currencies are 'backed' by the fact that exchanging dollars for whatever you want is much easier than bartering for what's wanted by the person who has what you want. This isn't inconsequential -- it's basically true of any commodity that anyone has ever owned but not intended to consume. Currencies just happen to be a highly evolved and very specialized manifestation of the same concept that underlies everything from math to language to art: It's usually easier to think about, manipulate, and analyze representations of a thing than the thing itself. Money, as a representation of value, has a value greater than the 'zero' Kiyosaki offers as a fair price for the US dollar.

Because of this change, understanding foreign exchange became a bit more complex. Today, to understand the world of currency, you need to think a little differently -- essentially because things don't make sense.

What doesn't make sense? Since the end of the Bretton-Woods agreement, currency prices have been determined by supply and demand, just like everything else in the economy.

For example, today, the United States is perceived to be the richest country in the world. In reality, though, we're the biggest debtor nation in the world. And who are we indebted to? What many consider to be a Third World country: China.

Wealth and debt aren't mutually exclusive. Just look at KKR. Financial markets exist because the people with money are not necessarily the people who can earn the best return on money. As it happens, many foreign investors are entirely willing to bet that the US will remain an excellent place to invest. And as long as they're giving us the capital, why not make it so? The alternative is for us to accept lower returns in exchange for giving foreign companies lower returns (and, of course, decreasing the value of what we can import from them, harming their economies and making us materially worse off). To the extent that Kiyosaki isn't recommending reduced trade, his statements don't make sense. To the extent that he is, his statements are wrong.

The irony is that many Americans think we're rich and China is poor. Exactly the opposite is true.

I seriously doubt that anyone in the US or China (besides Kiyosaki himself) believes that this is true. Since Adam Smith explained it all, no informed economist has associated wealth with the quantity of savings that a government has built up. On the contrary, wealth is the result of trade, and trade is the result of non-interference with trade, whether by politicians or the demagogues who egg them on.

This excess funny money causes people to feel rich and almost everything to be more expensive. Today, stocks, real estate, automobiles, and gasoline become more expensive as the dollar becomes cheaper.

As usual, this is only marginally true. If we borrow money to import cheap cars and gas from overseas, it's pretty doubtful that our cars and gas will get more expensive. Inflation is caused by excess liquidity -- and if foreign central banks are sitting on bales of cash instead of putting it in the hands of consumers, they're obviously decreasing liquidity. And that should make you pause for a moment: Why would anyone hoard dollars if dollars are likely to decline? If Kiyosaki is right, Chinese and Japanese central banks are leaving billions on the table by stockpiling when they should be selling like mad. Unless they know something he's oblivious to (a nearly infinite domain). Every time a bank exchanges Yen or Renminbi for dollars, it's making a bet that Yen and Renminbi will underperform dollars. It's one thing to claim that they're making a misguided bet -- another entirely to pretend that they're completely ignorant of the consequences of their decisions.

While some people do become richer in this system, funny money actually punishes working people who save money. It devalues the value of your work and your savings, even though you may feel wealthier.

Finally! There's a hidden good point (though a bit of a cliché) in the essay: Inflation does, indeed, devalue savings while making you feel richer. If your bank account compounds at a merry 5% per year while the dollar loses 10% of its purchasing power each year, at the end of a decade you'll see a 63% nominal gain that actually amounts to a 43% real loss.

Since they can't spend those dollars at home, they simply lend them back to us so we'll buy more of their products. That would be like me going to my local grocery store and asking them for a loan so I could buy their tomatoes. A logical person would say, "That makes no sense." Yet it's exactly what happened after 1971, and to many highly educated people -- bankers and politicians, for instance -- it somehow does make sense.

The analogy breaks down in two places. First, the grocer's IOU, in this case, is an incredibly liquid product that can be exchanged nearly anywhere for approximately anything. If the grocer doesn't have any comparably liquid place to keep his financial resources, the trade could make sense. Second, we aren't just squandering money by buying 'produce'. We're using the investments to create the chips, software, movies, and music that more or less every global consumer is going to end up paying for. One thing macroeconomists tend to forget is that Americans are among the world's most jaded consumers -- we've been bombarded with ads all our lives, and tend to have a pretty decent memetic immune system for shrugging them off. Third-world consumers aren't so lucky; American clichés and catchphrases can be resurrected elsewhere with impunity and used to market all sorts of goods that American consumers have gotten tired of. This is, of course, one of the reasons we're hated for 'invading' other countries with brand-named, trade-marketed, mass-marketed goods. But it's also why McDonald's, Coca-Cola, and Starbucks have remained growth stocks for longer than anyone could have expected. Most of us have learned not to discount American companies' tendencies to never run out of third-world markets to overrun, giving us high-margin exports that simultaneously justify our trade deficit and other countries' investment in our companies.

Over the years, the yen got stronger and the dollar got weaker simply because we, as a nation, printed more and more money, all the while consuming more and producing less. Japan would lend us money and we would buy their products. Japan's economy boomed, and so did ours.

That's half of the story. It's the half that you'd guess if you hadn't done any research. What actually happened was a bit more complex: The Japanese central bank kept their currency artificially valuable to stimulate exports so they could accumulate foreign assets, which scared a few people and ended up harming them more than anyone else. They're still dealing with the consequences of that move, one of which is a persistently overpriced currency and an incredibly tortuous banking system.

The irony is that we accuse China of playing games with their money. It's more honest to say that China just isn't willing to play the game we want to play.

There are some sloppy collective nouns, here. "We," the consumers and investors of America, are indeed borrowing more than we save, importing more than we export, etc. But "China" is a bit more monolithic: Their fiscal policy is not determined by collective actions of hundreds of millions of individual agents -- it's artificially decided by their central banks, which have, indeed, been keeping the Yuan at a specific and artificial value. An action that makes sense when allowed is not the same when coerced (this is the difference between accepting a free sample and shoplifting an equally free sample, or saving for retirement instead of being taxed to pay for someone else's retirement). Drawing some kind of equivalence between what one group of individuals decides and a decision imposed on another group of individuals explains nothing.

If the oil-producing nations stop accepting the dollar and switch to gold or the Euro, things will definitely get sticky. The world might be tipped into a global recession and possibly even a depression.

Economic events are usually more continuous than that. An increasing number of countries may switch from the dollar to the Euro (if only to satisfy their more esoteric needs), but this will be reflected in gradually changing exchange rates, which will tend to produce exactly the actions that correct for the problem in question: As the dollar gets cheaper (because, for example, it's being dumped for Euros), US exports get cheaper for overseas consumers, while overseas goods get more expensive for Americans, tilting the balance in the other direction. The only way currencies can be persistently out of whack is if some form of regulation keeps them from tending towards their proper value. And since Kiyosaki can't reduce US imports by force of argument or force of will, it looks like his only serious hope would be to push for legislation. In short, the only way this imaginary problem will become real is if we take his advice and try to solve it.