Guest Post: Apocalypse Not: The Dollar

Tyler Durden's picture

Submitted by JM

Happy Holidays and God bless.   If the season brings you peace, congrats.  If the year has been painful on the job or financial front, accept my sincere wishes that the coming one brings better times.

It’s the holiday season:  whoop-dee-doo and conspiratorially enjoying KOSHER wine, not getting up early to watch Bloomberg (sorry Scarlet), and in general dispelling gloom.  I can’t offer anyone gloom-dispelling economic data, because I don’t see much but government socialism coming out of Pandora’s Box.  I do offer data that moderates fears of a specific kind of apocalypse:  a currency crisis.

The apocalyptic flavor of the month is dollar crisis. One should take the possibility seriously.  The data does offer reasonable assurance that it won’t happen anytime soon.  Yes, even in spite of massive (but not unprecedented) fiscal and monetary craziness, a socialist president, a populist legislature, and seething people just itching for the whole outhouse to go up in flames.  Why doesn’t it make sense that the dollar should be out on its rear while gold or oil and their devotees dance in the street?

Because those distinctly American circumstances don’t incorporate a wide enough range of vision.  The issue isn’t about the United States in a vacuum.  It is about the United States as a reserve currency country whose debt acts as the world financial system’s risk-free collateral.  Before any imminent implosion of the dollar, there is a whole zoo of more flawed economies like Dubai and Greece and dozens of others that would fall.  As old as history itself is the truth that the last ones standing claim the spoils of victory.  The United States has the 61st highest public debt ratio in the world. 

I built a model to understand currency crisis events better using data from fourteen financial crises occurring in the last 25 years.  The data used admits no examples of total military demolition or war, although such crises naturally accompany conquest. 

The model specifies two mechanisms that drive tectonic currency shifts and a big residual.  This means that the quantifiable probability of a currency crisis hinges on:  1) deposits to GDP and 2) public sector debt to GDP and 3) the Unquantified.  

The Cast

It isn’t just a rouges gallery of prodigal sons under consideration (UK and USA excluded, because their stories aren’t over by a long shot).  It’s an eclectic mix of times, places, Swedes, and Thais.  And yes, everyone’s favorite sad sack—Argentina—shows up four freaking times.  In broad brushstrokes, the case studies present three crisis profiles, although there is no doubt that a lot of intermixture is present in nearly all countries.

  • Bank credit booms are common factors in 6 of the financial crises (Argentina ’95, Finland ’91, Japan ’97, Korea ’97, Philippines ’97, Sweden ’91)
  • Bank insolvency and system-wide bank runs were the common factor in (Argentina ’81, Indonesia ’97,  Korea ’97, Ukraine ’98) 
  • Unsustainable fiscal imbalances and current account problems were the cause of four very nasty currency (and sovereign debt) crises (Argentina ’89, Argentina ’02, Russia ’98, Thailand ‘97).

Bank credit booms end in bank credit busts that typically require serious debt repudiation and nationalization (maybe not in name) of the banking system.  Bank insolvencies not remedied through capital injections or bank balance sheet repair end in a run on the country’s financial system.  Repairing the balance sheets is not easy, and often associated with the residue of prior government direction of credit.  The nastiest of all financial crises are the result of government failure to show fiscal restraint.  More information can be found here and here.

The Goods

The whole idea of a currency crisis is a study in extremities:  pure tail risk explanation.  I explored these extremes using the database of Luc Laeven.  Yes, I know predictive models are not a perfect fit for reality… the logistic model I used is just an objective way to organize available information free of emotional and a chunk of cognitive bias.  I didn’t use all available data, as some of it is ill-conditioned; some is too complicated; and with some it just didn’t seem worthy of violating simplicity.

The story the data tells. 

  • “Creditor’s rights” from 1 to 4 (4 = best) is just subjective garbage and it shows.    (Pr  > χ2= .6882 sucks in every way)
  • Current account doesn’t matter much in the model precisely because there are actually three distinct channels through which currency crisis are born.  Korea, Japan, and others had no balance of payments problems but still had financial crises.  (Pr  >  χ2 = .9174… even this sucks)
  • Depositor insurance really has no value in this model at all.  This is probably the result of mixed effects—simultaneously positive because depositor insurance fosters confidence in the financial system, negative moral hazard problems because the buyer doesn’t beware when she should. (Pr  >  χ2 = .9449… totally sucks…)
  • Now we are getting somewhere:  public sector debt/GDP.  It is a clear signal of a government financial health, i.e., living within its means.                                     (Pr  >  χ2= .1563… not utterly lousy)
  • Deposits to GDP is quite interesting.  As the ratio goes up, the probability of a currency crisis goes down.  Governments (elected or autocratic) have strong incentive to protect the saved capital of its citizens, meaning its currency.  The more deposits stored in the financial system, the stronger the state protection of the currency.  (Pr  > χ2 = .1322… not horrible for a logistic regression)

Hard Core Data Porn

The model fit wasn’t great.  Even the most significant parameters indicate only a weak contribution to implied probability.  Some combination of the variables and more sophisticated calibration could very well result in greater significance, but model risk and over-fitting are things to avoid.  You can see the parameter results in Table 1.

The results can be visualized in Chart 1, which graphs the deposits-to-GDP-ratio to the estimated probability of a currency crisis.  Countries with low deposit to GDP ratios uniformly show higher default probability.  There is a clear logic in this:  your elected and appointed officials don’t like, respect, or even give a shit about you.  But they do fear for their jobs.  Seems governments of all composition are somewhat careful to stop screwing around before you get real pissed.  Ninety-nine percent of respondents are against raising the debt ceiling?  Fed audits?  Glass-Steagall coming back?  We’ll see what the mid-terms heave up. 

Stop Worrying and Love the Dollar: The Risks

With a deposit to GDP ratio in the United States 80% and rising, the probability of a currency crisis by government tinkering with the financial system has a likelihood fading like Lindsay Lohan’s career.

A more realistic channel is through explicit government failure to correct an unsustainable fiscal position, and as a result goes crash and burn like Russia, Thailand, Argentina (’89), and Argentina (’02).  To me, this is a question of the central bank balance sheet, as they have been sustaining the current fiscal hubris. 

The “balance sheet” risk of a dollar crisis reduces down Federal Reserve solvency.  The chart below shows a theorized Fed balance sheet with insolvency condition at the bottom (hat tip:  Willem Buiter).  That steaming pile of MBS isn’t the Fed’s only risk.

So long as seignorage income exceeds the cost of business plus payments to the Treasury all is well.  The problems are:

  • Seignorage is limited when the central bank must repay TIPS, because they are CPI linked.  If TIPS issuance becomes too large, recapitalization by the Treasury is the only way out of insolvency.  The Fed becomes Citi, and the dollar gets really scared.
  • Defaults on the (non-performing?) MBS the Fed acquired through direct purchases and unsecured lending to the private sector is the other concern.  Problems arise when seignorage can’t generate sufficient income to cover the losses.  Money printing does not always get a free ride. 

These are non-trivial risks.  But given that the Fed has been able to borrow billions of dollars at essentially 0%, and the MBS securities probably are generating at least some yield, I’m not losing any sleep yet.  The greatest benefit of having the reserve currency of the world is that the United States issues exclusively dollar-denominated debt.  Don’t screw it up by issuing a lot of TIPS, idiots.

The risk I most concerned with is that nature of the universe is unforgiving of mistakes.  It is an unquantifiable risk:  a powerful take-away of the model is its insufficiency.  Quantitative exercises may be free of emotional bias, but they are not free of assumptions.  And the big assumption spoken here is linearity.

Here’s hoping Benny, the squid, and Santa’s ‘lil hermaphrodite (Timmy Geithner) don’t base their lives on linearity just because it is tractable and easy.  The diagram below shows why.  The dashed blue line represents assumed linearity:  the implication is that Fed can manipulate the dollar exchange rate however it wants by applying appropriate incremental interventions.  If they screw it up, they’ll just intervene differently until the situation is reversed.  However, if the world reacts to interventions in a non-linear way, then applying incremental interventions can result in sudden and irreversible shifts from reserve currency status to toilet paper (the red arrow).  The world almost surely lies somewhere between these two regimes.  But nobody knows the exact functional form of the world, so hedge accordingly.

AAA Super-Senior Nihilism?  Come On, Guys…

It is a strange human perversity that bad times make some welcome complete annihilation as a transformative event.  Perhaps it’s just a desire to escape mediocrity—a reset switch that puts everyone back to ground state.  I guess such a reset seems so much easier than the pain-staking process of wealth-building and just plain dealing with the Latvian gambit front and center.  It is not. 

Are there risks in a long dollar position?  Sure.  But there are risks in eating smoked herring and choking to death.  The real issue is the characterization of that risk, and the expected cost incurred if the event is realized.

But as far as the data suggests, we are not at the culmination of the Kali Age when the earth is wanting in tranquility, strong in anger, rising in power, and soon falling.  It could have happened already.  It’s not like the twentieth century wasn’t thoroughly awful what with concentration camps and gulags and the Cultural Revolution… I’m stopping now. 
Cosmic carnage as a fine diversion!  Pity that mundane reality sours the fantasia. 

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SWRichmond's picture

What happens to the reserve currency when its host has to recall its armies from around the globe?

shadowboxer's picture

 ...the armies will be recalled to quell the revolution in the streets when they realize the bankers, with fed complicity, have stolen the efforts of their lifes work.

 A few well placed generals might possibly turn the armies on Wall Street and the fed, seize banks, gold and salvageable assets allowing the country to find a new starting point.

 After that there ought to be a plan to put the nation back on track (and fast) - time would be better spent by the discussion forum figuring out this objective rather than "feel good" data trying to rationalize the sad situation that exists today. Lest we idly watch todays rationalization becom tomorrows One World Govt that ultimately devolves into One World Armageddon.

  ...sometime Satan,

    come as a man of peace. (-Dylan)

dnarby's picture

There will be a total changeover in gov't before that happens.

The military leans much further Right than the rest of the population, and has this funny tradition of swearing an oath to the constitution vs. whatever OGO happens to be 'in power'.

Hammer59's picture

The American military could'nt find their collective ASS with both hands...and their ass! Explain to me how 2 countries with no airforce, no navy, no sat/com., no tanks, no mortar, no standing armies, no drones, no smart bombs have managed to engage and defeat the military of a "superpower" for over eight years now? You get what you pay for--the spawn of the poor, inept and incapable of victory, led by inept and impotent leaders who prolong this shameful defeat to enrich the military industrial complex bleeding America to bankruptsy, ala the Soviet Union.

GeoffreyT's picture

Hammer59,

You aced that, brah... the flag-waving wannabe-jarheads are your bitches now.

I have a boner now from an overdose of awesome.

Cheers

GT

SWRichmond's picture

Go ahead and stick that boner into some other bearded academic.

Anonymous's picture

Wrong. The "failure" you're observing is the inanity of trying to fight a "moral war". We attack only "military targets" and avoid the deaths of "civilians".

This of course is historically absurd -- even for America -- whose greatest military successes have all rested on mass civilian casualties.

America could quell opposition in any of her military theaters quite quickly by adopting a policy of civilian retribution. (ie: A combatant's home town, family and neighbors will pay the ultimate price). While morally horrific, this is historically how wars are won -- and how cross-cultural power has been maintained. The Ottomans knew this. The British knew this (until the moral sea-change back home stayed their hand). And the Chinese know this today.

The question ultimately is one of identity: Do you want to be a military power? Because if you do, there is only one way to successfully project and maintain that power. Adhering to a moralist/humanist ideology will result in a failed and (as you pointed out) "inept" military. War is war, and in it's 'effective' form, it is both morally repugnant and absolutely defined.

SWRichmond's picture

Obviously you don't know jack shit about jack shit.  The military was never meant to be an occupying force.  The military breaks things, it doesn't build them.  Statists desperately need such a force to institute their heaven-on-earth, though, resistance is not to be allowed, so the obvious choice was to try to remake the military into one.  They failed but are unwilling to admit it, and it's not their kids who are dying and being maimed so who cares, right?

The constabularization of the military happened in parallel with the militarization of the police, or didn't you notice?  Eventually, all of this force is meant to be turned inwards.  It always is. 

As for your comments about the MIC, I agree.  But this next thing is completely uncalled-for:

You get what you pay for--the spawn of the poor, inept and incapable of victory,

Wear that attitude on your sleeve, please.  I'm sure someone will have something just for you.

Anonymous's picture

+1

The Western Powers That Be decided Americans would the world's warrior class. Our only export anymore is violence, so threatening and carrying out violence is our job. Winning wars not so much. The job of the warrior class is to protect the interests of the ruling class and the ruling class hires the best. We can imagine ourselves knights of the Realm. The reality is we're hired thugs.

We're not "winning" these wars because we're not SUPPOSED to win them. War is a jobs program. It's all we know how to do anymore; we don't MAKE anything but trouble. Afghanistan and the War on Drugs are about the cocaine and heroin trades, which finance covert ops and and keep our banking system solvent. Wars on everything else are about stealing resources. For this the west needs sentries.

In the end this is about more than oil and gas: This is about the US dollar hegemony during the down side of a FRB Ponzi. If there is peace our economy collapses. If there is peace our economy collapses. If there is war, the world may eventually decide its had enough and just dump the dollar en masse. The saber rattling and occupations are the middle ground.

How can people cannot plainly see this is beyond me.

Anonymous's picture

The military was never meant to be an occupying force

Bullshit. History proves you wrong on this score. The military can't occupy only so long as it is prevented from occupying. Applying the lessons of Lord Cromer in Afghanistan and Iraq and grasping the nettle would quickly turn the situation there around....assuming our political leaders were capable of growing even one-half a pair as potent as that possessed by the typical Victorian Imperialist.

GeoffreyT's picture

Yeah, because Victorian Imperialism was such a terrific long-term play by the English - remind me... how many Anglo-Afghan Wars were there? (The First - 1829-1832, was basically the beginning of the end for the British Army, who have not won a war by themselves since).

Every two-bit failing Empire has seem some strategic importance in trying to take and hold Afghanistan... and that's the reason it's referred to as 'graveyard of Empires'. But this time it's Yanks, so this time it's different...? Spare me.

Every idiot warmonger in history has used 'Gott Mit Uns" (or a variant) to justify their rapine, and American Exceptionalism is no different: ramping up the brutality (by putting on of the US's death-squad leaders in charge) won't do anything sensible.

Yanks think history started in 1789 and that nobody was abolishing slavery before Lincoln decided to use the idea as a propaganda ploy... as a result of historical ignorance and chauvinism, they have replicated the stupidity of Crassus in Mesopotamia, and of the British in Afghanistan.They didn't even learn from Vietnam, for fuck's sake.

It's not going well, and it will end worse.

Vae Victus... 'coz when the US falters there will be motherfuckers lining up round the block to get some payback.

 

GT

 

 

SWRichmond's picture

After that there ought to be a plan to put the nation back on track (and fast) - time would be better spent by the discussion forum figuring out this objective rather than "feel good" data trying to rationalize the sad situation that exists today.

I agree completely.  First and foremost, we will need real capital, and the good will of the public.  There are lots of people (here and elsewhere) who believe that the average American is a weak, weak-minded, American Idol-watching moron.  They are wrong.  There remains a core middle class with solid values, work ethic, and ...anger, born of betrayal.  The good will of the public will be fleeting at first but can be solidified with revelations of truth and successful prosecutions of the current crop of conspirators (Wall Street, Congress, etc).  The greatest danger of course is the rise of a charismatic strongman.

America's strength has always been its willingness to release the human spirit to build, create, innovate, and reap the rewards.  That is the starting point IMO; that is where we must return to.  We want high value-added industries and the jobs that go with them.  Europe is still trapped in its rigid guild / class system and regulatory state socialism, and probably always will be.

Simplistic, I know.

geopol's picture

Since 1913 96% devaluation....4 pennies   not? Tyler, fuck the graphs

 

gookempucky's picture

Well said Geopol---graphs looking forward-what a load of krap.

Detroit just announced 50% UE---looking good

Cinci just went up in flames -default

KC  bonds downgraded

YRC just announced BK sold(bank repoed) HDqtrs in KC

38 million on food stamps (SNAP)

National Debt 12 trill 127 bill

Debt to GDP ratio 85%

Small business asset's collapse from 7.2 trill now 4.8 trill (just since May 2009)

Corp assets collpase from 17 trill now 13 trill-same time frame

State rev 1 trill 87 bill--state debt- 1 trill 52 bill

Local rev 1 trill 72 bill--local debt-- 1 trill 467 bill

California--lookin good

All Arizona/NM state reststops closed-have to make it to texas to piss.

It will take me a year to finish this list while the Almighty Great Dollar carries us all-what a joke--- O is what the dollar is worth.

 

WaterWings's picture

Try it this way: 38 million on food stamps (Oh, SNAP!!)

Kudos for this post, especially Apoc for the fascinating post that nods my head (wags the dog? I cross my fingers Leo's position doesn't play out - and oh! how the contrarian can thrive!).

If it weren't for all the TV zombies in this nation we could oust the money changers - but I am not without my own faults.

perpetual-runner-up's picture

That is something I have been kicking around...as a gold and moreso silver bug I keep coming back to this as a thought...

Add to it the fact that if anyone trying to call us on this stuff we say f--- u, grow your own food then....

Could it be that the country comes fill circle and reverts to its farming beginnings?  So in the end we sell paper (money), technology (innovative tech) and food...

 

it is possible that my thoughts are more country related than dollar related which the dollar could still be screwed...

 

i dunno...

dnarby's picture

I see you're starting to catch on why we subsidize farmers so heavily.

Stevm30's picture

The world has never seen the kind of fiat monetary system that we have been living under for the past 38 years, so any reference to history should be seen in that context.  What is the most accurate way to guess the future?  Use common sense.  Would you keep lending to someone who spends with abandon, and is doing nothing to get their finances in order?  Would you keep lending to someone who is giving you IOUs and telling you they'll only pay you back with more IOUs? 

Eventually this charade ends... it will end with high interest rates, that we will have an extremely hard time paying off, without more money printing, or it ends with a collapse of the currency.   Despite claims to the contrary, the world at large is already trillions of dollars long the dollar. 

Drawing a meaningless chart on a graph doesn't moderate hard realities.  Saying that people who call the dollar fiat bluff as having a "desire to escape mediocrity" is an ad hominem, that underscores the flaccidness of your argument.

jm's picture

Common sense looks at data.  There are 60 nations including France and Germany with a much worse debt profile than the US.

I don't disagree with your assessment of the current US fiscal insanity.  But the data suggests that it won't last.  There will be a reaction to the actions of Ben, the squid, and the lil' hermaphodite long before we reach a currency crisis.  The beginnings of this reaction you can see shaping up now.

 

saturno_v's picture

 

What kind of reaction are you seeing JM?? Other than talk....

jm's picture

Well, talk is where it starts.

And I can easily see politicians notice the justified public outrage and act to exploit it to his advantage.

Note Glass-Steagall, Repubs don't vote for debt ceiling raise, opposition to Ben, etc.

Don't get me wrong.  Politicians are all equally worthless in my sight.  But there will be some that will do the sane thing if even for the wrong reasons.

We'll see if I'm wrong when the mid-term elections come around.

saturno_v's picture

 

JM

 

I really hope you are right

 

My fear is that when things will really get bad for the general populace the temptation to use the printing press will be irresistible and then all bets are off.....Germans, Hungarians, Brazilians, Yugoslavians, Argentinians and Zimbabweans authorities knew very well what the consequences of the printing press were...still they did it anyway....

However my desire for a reset is not to escape mediocrity...I just don't think this is a system worth keeping (or maybe is damaged beyond repair in the long run)...I wish we could have sound money and a full reserve banking system....I know I'm dreaming....

sgt_doom's picture

Too late for Glass-Steagall -- that only helped when there was an economy -- there is NO economy.

Ben's done too much damage now --- pumping other's central banks to buy American treasuries only lasts so long.....

The mid-term elections are arbitrary.  When the knives are unsheathed, the politics will no longer matter.

THE DORK OF CORK's picture

Comparing Sovereign debt levels of countrys is a absurdity in a world where private debt is socialised.

The overall debt level of both France and Germany is much lower then the USA - although TD illustrated the complexity of the subject and I may be missing something here.

sgt_doom's picture

Their debt profile is not worse the the US, they are only consistently more honest about their debt profile, and far more importantly, they have altered the financial regulations in a positive manner, while the USA continues its downward spiral of reg arbitrage!

And these other countries still have a semblance of an economy -- some of the actually still create, manufacture, produce and sell their stuff!  Can't you comprehend that?

It will indeed last, as this is the only way to continue the Ponzi-tontine scheme.  Witness the latest backdoor insurance (and pharmaceutical) industry bailouts ("Public Option").

Witness the cap-and-trade scam, with carbon derivatives from Blythe soon to be coming out the wazoo!

And the beat goes on.......

Harbourcity's picture

This is the truth.

 

Look who is Time man of the year... that should tell you something.

 

Sig's picture

Debt to GDP is currently at 85%.  We are number 11 on the list you linked too - assuming the ratios are unchanged in the other nations listed.  Next year, debt to GDP could be 100%.

 

Not to mention, our GDP numbers are heavily over-estimated.

sgt_doom's picture

Your points, Stevm30, are both cogent and well thought out. (The poster, JM, following, is wrong on all counts.)

The post itself is waaaay off, as you have so intelligently pointed out.  And a "socialist president"?????  I'd call "Barry the Bankster" many things, but socialist is definitely not one of them -- unless he was referring to Michael Parenti's term for the American economy: a socialist plutocracy?

Historic models are rendered useless in the present, as useless as those godawful creations (Excel models???) from JPM et al., predicting the performance of subprime and ninja loans based on zero historic data (as they were a completely new category --- when the model doesn't fit the history, or the history doesn't fit the model --- ABANDON!).

Obvious predictions for what remains of the American economy (and during the past several years, when that financialization -- or great financial engineering bubble -- now exceeds 60 percent -- there is no real economy):

Unemployment will rise in 2010.

Unemployment will rise in 2011.

Unemployment will rise in 2012.

After that....it's anybody's guess!

jm's picture

Don't call logistic regression maximum likelihood estimates 'Excel models'.

Rising unemployment won't kill the dollar.

Anonymous's picture

Currency without confidence. Entire mortgage market propped. Liberal accounting standards mask the depth of impairments. Term of debt shortening with celerity. Monetization ('nuf said). Deindustrialization. Expenditures especially military, interest, entitlements outstrip any ability to fund. Structural, irreparable deficit. Chronic unemployment. Guidotti-Greenspan rule fail. Finance consuming over 35% of GDP. Systemic fraud and cover-ups.

How far in denial can a terminal patient be?

All the happy talk and hopium and zippidee doodah in the world won't cure the ill.

Time to recognize the signs and heralds or suffer the consequence of ignorance.

WaterWings's picture

Stop smoking that Golden Jackass. No, really though, it's good stuff. +1

Anonymous's picture

Actually Willie (& Faber) agree with JM - to a point. The US will tread water longer than a number of other players. The fall will be as dominoes, and the paper WILL ALL go to shit against physical PMs. There will likely be a scrabbled together reset, but hard assets will never again be subsumed to the bullshit promises of the alchemists. This is the best case scenario, unfortunately.

Anonymous's picture

Yes, and with the greatest entitlements going to the Oligarchy.

saturno_v's picture

 

A little too much of mathematical masturbation in my opinion....along the reasoning "subrime mortgage can never go belly up in large numbers" or "Real Estate will always go up", etc...

 

One little observation....the US public debt ratio figure on the CIA web site is a 2008 est....pre-crisis.

 

Wikipedia report a list where US stand in 22th position at 60.8% GDP...and this was pre-crisis also...in front of Argentina (51%) and some other countries you mentioned which experienced currency crisis.

http://en.wikipedia.org/wiki/List_of_countries_by_public_debt

 

Japan is at 200% GDP and never blew up versus the other countries that did (very little external debt and with a trade surplus...so the investing public, correctly or not, assume that at the moment they can still service their enormous obligation)

 

There are so many variables in play that can lead to a currency crisis, and trying to model one mathematically is misleading IMHO.

 

Because the US Dollar is the world reserve currency, the investing public may reasonably expect more fiscal discipline than Argentina...doesn't necessarily means they are going to cut us more slack.

 

 

jm's picture

Your point is well taken about the accuracy of govvie debt ratios.  I picked one, hopefully it's objective.

True debt ratios have gone up post-2008, but they've gone up for pretty much every country.

I don't know the debt ratios for every instance in Argentina, but the real bad one in 2002 their public debt level was 140% of GDP.

One of the key things I found was that the ratio of deposits to GDP is important, presumably because citizens demand capital protection (read: no dollar crash) at some point.

I thought I was clear that there are a lot of unknowns, and I don't dismiss different opinions on the subject. I even made a case for why to hedge the dollar.

There are strong reasons why a dollar collapse is not looming.  

saturno_v's picture

 

I bet one of the reason that is kepping us up is our reputation and let's not forget that at the end of the day the really backing of the dollar are our enormous military might...even if that is coming under scrutiny recently.

 

However in the Argentina 2001 crisis there is the peg to the dollar and the dollar denominated bonds (which they blew up) that played a role so the comparison is misleading. 

jm's picture

Not sure what you mean. I don't compare Argentina to the US.  I looked at a basket of fourteen economic basketcases to find meaning.

saturno_v's picture

 

I meant that every crisis is different and it has its own peculiarities

jm's picture

Full agreement here.  But there is some sense in which history rhymes, no?

sgt_doom's picture

I agree with all your points, saturno_v, and disagree with everything JM proclaims.

But most of all, having read through the IMF doc, it is quite simple minded, and far too simplistic.

Anonymous's picture

I believe your are not including entitlements in your debt to gdp ratios...all that work and the calcs are wrong. Sad

jm's picture

Not so sad.  Other countries hide their largesse as much as we do, if not moreso.  That particular element may be skewed because of it, but at the end of the day the mechanism holds together.

Anonymous's picture

Arguing that the dollar will remain strong because holders (who may be historical enemies) won't short it or move to dispose of its risk is akin to believing oneself a houseguest with all privileges because you are holding a gun to the temple of a favoured wife.

Fear and extortion do not a strong coalition make. And in this lull in dollar collapse, be assured that large holders of US currency are probing every means by which they can offload, hedge, and/or minimize their exposure.

This credit collapse event has not shaken confidence but irretrievably destroyed it. All the confidence currying is empty. Once bitten, twice shy. Many times bitten, and lately exsanguinated, done for good.

jm's picture

Not sure where you are getting fear and extortion out of what I'm saying.

be assured that large holders of US currency are probing every means by which they can offload, hedge, and/or minimize their exposure.

Note that Treasuries spiked when CIT went bankrupt, and also when the Dubai shock came out at Thanksgiving.  And gold got crushed.  

Once bitten, twice shy... think you're right on the equities front. 

sgt_doom's picture

There are too many discrepancies with everything you have said to take them apiece point by point, but suffice to say:

After the S&L crisis of the '80s, around one thousand executives went to jail.

So far, the perps have not only NOT GONE TO JAIL, they have been reappointed to the Obama Administration!

'Nuff said.....

jm's picture

Take 'em apart point by point.  I dares ya.

 

SWRichmond's picture

I tried that with some of your earlier stuff and all I got for a response was "We'll see."

jm's picture

Do it.  Much of what you've said in the past and on on this topic has been crazy-ass rant.

SWRichmond's picture

OOO, testy.  If you'd like to support your contention (crazy-ass rant) with references, please enlighten us. If you'd like me to show where you've replied with "We'll see", here it is:

I responded to one of your articles (Japanification) with this: http://www.zerohedge.com/article/guest-post-japanification#comment-154758

You replied thus, offering only "hope" (hmmm, sounds familiar): http://www.zerohedge.com/article/guest-post-japanification#comment-154775

"My hope is that there is a happier ending to the fractured fairy tale. 

It is possible if governments align their commitments to revenues.  We'll just have to see if it happens."

In reply, I asked for more information:

"What measures can be put into place that would result in your hopeful outcome?  I'd love to hear them.  Whatever they are, from where will the political will emerge to implement them?  I don't think they can be implemented until the system has already collapsed, and such a collapse reveals government and central banking to be incompetent frauds.  Once the paradigm is broken, we are talking revolution not evolution."

You didn't reply.  I am forced to believe your "analysis" is unsupportable.

 

So again, I "hopefully" ask for your hopeful plan.  I asked one of your compatriots-in-words, and he hasn't yet responded either:

http://www.zerohedge.com/article/apocalypse-not-dollar#comment-167300

 

 

jm's picture

You want policy advice, bother someone else.

You want to present point by point contras to what I presented, I'm game to trash or agree with them.