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How will this effect the Dollar?
Thanks for the chuckle. "the world's debt is denominated in USD" . Ok captain obvious - that is because it it mostly our debt, which is the whole point, afterall.
Negatively, but not immediately, as there have been no real recent developments. Implementation was accelerated during the last US credit crisis, but then slowed with the real estate crash in Dubai. Look for it to accelerate again when Bernanke & Geithner create the next US credit crisis.
You are whistling past the graveyard. It is a fiat currency collapse and it is already here. One day you will pull into the gas station and realize "interlocking stability of debtors and creditors" is bullshit. Debt is being repudiated daily, by home owners, by banks, and very soon by nations. The lesson of 2008 is interlocking instability.
"It takes years, even decades for a reserve currency to dissipate"
Yo, smart guy. You think dollar destruction just started? It HAS been years and . . .even . . . decades.
And there really have only been a few reserve currencies in the history of the world. Guess what, the dollar occupies that position now because all the others failed!
Not a matter of if the dollar collapses, it's only when.
And, what you obviously fail to understand is that the Japanes benefit from the fact thattheir debt is held by their own people. As bad as it is over there, they don't have debtor nation status. They are a highly poductive society that can be said to have taken the LONG view of debt pay down to their own people. Good luck with us. We are loaded to the gills in personl and government debt (with a fair amount of corporate debt as well.) We have no savings rate to speak of and make very little. The dollar and military are our main exports. They are both poised for and historical epic crash.
To put it simply:
Japan = bad demographics + huge corporate debt + heinous bank balance sheets + minimal personal savings + 250% gov debt to GDP
USA = not bad demographics + huge personal debt + heinous bank balance sheets + minimal/zero personal savings + 90% gov debt.
We can discuss the particulars all day, but the similarities are striking, and with minimal personal saving, the no external debt issue, while true, looks stretched thin. One could argue that America is in better shape to replace marginal buyers with savers' money.
I'm not making comments as to what is desirable or right or fair. Just saying how I see it and could be worng just like the next guy.
Japan = high personal savings (which means the government could issue all that debt, even tho rates were kept arbitrarily low, so that they yen wouldn't appreciate too much & kill their exports & jobs).
US = very low personal savings rate which only picked up a couple of years ago once people figured out that house prices wouldn't skyrocket indefinitely.
And what is the rate of growth in government debt between the two countries (excluding the effect of the recent earthquake/tsunami natural disaster)?
The US was on the verge of hyperinflation back in the late 70s after Nixon took the dollar off the gold standard, despite being in a much more advantageous economic position than it is today.
It was only Volcker raising interest rates to loan shark levels that saved the $US back then - unfortunately we are heading for a repeat occurence on the $US, except this time the US is in a much weaker position economically relative to Europe, and emerging markets of China, India, Brazil, Russia, etc.
And I'd be a bit concerned about the middle east too, where the US government is up to its neck in supporting & upholding oppressive, failed regimes for decades so they could access cheap oil - I suspect the US will pay a price (perhaps higher oil priced in a new reserve currency) when those regimes are held to account by their people.
There will come a tipping point to the growing realization that the US monetary & fiscal policy is out of control, which even military superiority won't be able to hold back.
When it is reached, the collapse will be quick, complete and irreversible.
Why wouldn't a reverse currency swap to the Fed mitigate a collapse?
BTW I tend to get strident when it comes to the dollar's destruction. It is just so damn criminal. I think the article was well written but don't believe the comparison to Japan is apt (i've heard before.) Japan is essentially a nation of hard-working, homo geneous slaves who don't write down debt as a matter of personal honor. We don't RE-PAY debt as a matter of personal lifestyle. We will never vote for austerity as we are neither homogeneous (adhering to same values) nor hard-working.
Exporter nations aided by their financial facillitators have subsidized our excess to slowly drain our wealth creating machines over decades. Yes, those same decades during which the dollar has been systematically debased. Now, the parasite is leaving the host because the "blood" -- the strength of our economy in the form of a strong currency -- has been sucked dry.
"They would never let the dollar collapse because it hurts them just as much as us" you say? Well, look at where the world's productive resources reside -- most important among them a hard working populace. Then ask yourself "Why wouldn't they?"
(I also don't agree with our 'positive demographics'. Most of our "growth" comes in the form of recent arrivals to the US and their progeny. I have nothing against these folks and believe many are excellent additions. However, the strains on the system in the form of use of government resources that are not adequately replaced by tax revenue actually makes our systemic problems more acute.)
I understand about the dollar destruction. Asian countries have done it purposefully to stimluate export--i.e., work towards full employment. It's own turn now, and nothing is going to stop Ben. We need exports because there is nothing left in the US that hasn't been canabalized. This is the thinking at the Fed and White House.
A strong dollar makes labor markets weak. The debt binge was a fake way to supplement inxcome. it is unsustainable. Either way you look, we are all going to be a lot poorer when this is over.
This is simply a way to take advantage of the trend.
Swap idea is monetary sophistry, not a monetary solution.
It's just what they do. People with printing presses can borrow from each other can kick the can down the road a long, long, time.
I agree they can/will try. But one of the benefits of knowledge is time compression. Unfortunately, the interplay of time compression and knowledge in this case makes the effectiveness of "extend and pretend" policies less and less.
This has been well-documented on this site when it comes to state sponsored (allegedly) FX market operations. The half-life of these moves has reduced from months to weeks to days to minutes . . . and ultimately worsens the evntual collapse.
Indeed, I was thinking just the same.
0,04$ in 1920 bought you the same stuff you buy for 1$ now.
How would you call that otherwise?
Since 1970, the dollar devalued 400%. 10% A YEAR ON AVERAGE!
Like I said, this has good and bad effects. One, it eases the adjustment on labor markets, and two it makes tech innovation more amenable.
A gold standard would alter markets and the rate of innovation massively for the worse... unless you are creditor.
That's not true historically. You look at the mid nineteenth century to the end of the gold standard and you see the greatest amount of innovation in mankind's history. Real production, real tech advances, rapid spread of those and real growth, not just inflated GDP's. Gold standards give a fixed measuring point for trade and trading labor.
I can take a gold Panda, Maple Leaf, Eagle or plain ounce and trade it anywhere in the world. No one really cares what is printed on it. It will buy different amounts of labor and "stuff" in different parts of the world, but the measurement is at least the same, just like one foot equals one foot in the U.S. or China. You can change the measurement to meters but the measurements are still the same. No one gets cheated in these transactions.
The natural course of history and currencies with intrinsic value should be DEflation, not inflation. A dollar should buy more in the future, not less due to increased efficiency, productivity and innovation. Frankly, that's good for everyone when managed properly. However, our societies are all based on inflation which is good only for debtors and those who manage money. Governments are net borrowers and through the tax code give us incentives to become net borrowers.
Gold standards have their problems but they do not reduce innovation at all by any historical measures.
The rate of innovation compresses into the twenetieth century by number of patents or any other measure eclipses any other time period hands down. Period. This may be because most of the century was inh a state of perpetual conflict, I think not.
Low interest rates makes it easier to take long term risk and tech gambles. High interest rates puts the focus on short term gains with established cash flows. This is the benefit of paper money.
Well, I won't disagree with the interest rate statement. The flip side is simply the availability of money for risk. This should be priced into interest rates so that it is low when lots of money is available and high when short. However, venture capital perhaps at no interest but just a piece of the action comes into play, as well. Perot, Gates and Jobs were not heavily capitalized as they started.
My point is that the gold standard was not an impediment. I would argue that regulation, litigation and manipulation (of currency) are a bigger hindrance, now.
Paper also pays for wars and financed all those lovely twentieth century conflicts which were a waste of humanity and material.
This comment gave me something to think about. These are very good points, especially about the war and state can fund it by printing. The issue of low interest rates means that credit risk gets a sudsidy, and thiungs like junk bonds get bought.
I'm not sure in a godl standard poeple would part with their money in risky enterprises nearly as much, and this could slow innovation in things like fusion energy, or cancer cures, or whatever. This may be good or bad... I think bad.
Best post in a week or two! . Straight talk that hits the mark ......But, I will still keep 10% gold...
(just in case :-)
10%,better than nothing.
If you believe what this dude say's,you'll be fine.
My wonderment is he failed to mention that trash Gold, is being sucked up like Dom Perignone at a frat party,when everyone finds out it's free.
CB's, and oh, a few other nations are seemingly having orgasmic love fest's snagging all they can find, or afford.
He also assumes, that WHEN the mkt crashes again, the people holding will fall for the same old crap, as last time.
How did you fare, those that kept it?.I think NEXT time, people will be far smarter.
Silly Rabbit,FRN's are for kids, Gold is For Rabbits.
No collapse? Nonsense. With enormous outstanding debt how can the currency slowly fall in value to half what it's worth today? If dollar holders get wind of the move they will rush to be the first to dump. This is like announcing to a theater audience that half the theater ceiling will cave in and expecting that half the people will remain seated. When Americans ffinally lose faith in their currency watch out below.
The dollar backed by the full faith and trust of the U.S. Government......Baaaawwhaaa.
There is no more trust and very little faith.......Epic Fail, hello Motto.
Dollar is back by Daisy Cutter White Phosporus, Depleted Uranium, B52, Unmanned Drone, Black Water Mercernaries........................Who dares to not trust the Dollar??
Using fiat (US military backed) dollars to buy goods from China and oil from the Arabs is a much easier way to get what we want for free without having to attack them. It's only when they won't accept fiat payment for their real goods, that we have to fire up the military machine.
Countries have been using auxiliary forces to offset deficiencies in their professional military for thousands of years. The Romans were using them in 200BC (http://goo.gl/S8xlO).
You're right, of course, and I'm no fan of Black Water, but let's use honest language.
Right you are Sir!.
And how did that end for the Romans?.
Of course, it did take the Romans another 600 years to fall. But they couldn't dabase their currency with the click of a mouse either.
Romans owned people. Whenever they ran into economic problems, they fought wars of subjugation to rob human resources and whipped their slaves harder. That artifically alleviated many of their currency problems as the world was younger and their were millions to enslave. Think a bank robber who robs one bank a year for $150,000 and supports his family with it. May work for the first several years, but sooner or later you run out of banks to rob/someone who doesn't like getting robbed stops you. When the gig is up, its up.
By the end, they f**ked things up so bad, they were begging/bribing barbarians to save them from babarians (and themselves.)
No collapse... weaker and weaker, devalued almost to nothing, but yet the dollar will ot collapse. The author has his reasons, but why take the long way round? I say no collapse because what other currency has a triangle on it that says "New World Order?"
It's the sexiest paper out there. Nothing else comes close! You can learn everything about alchemy and black magic from the Dollar Bill if you study it carefuly enough.
What you say is not impossible, but it is not likely in my view. Dollar weakness is a way to make the debt serviceable, and it is by design. It is default in miniscule particles instead of default as an all or nothing.
I also think your perspective is too domestic. Commodity inflation here may be bad, but it is worse elsewhere. Try China, Vietnam, actually anywhere else. Did you know that a Chinese company I know was fined for illegally hoarding US dollars?
Central banks know that a dollar collapse would be horrific to them, nbo one would benefit. So if needed, they'lll throw the swap lines in the other direction.
"It has baby boomers—arguably the most selfish, irresponsible jackasses the world has ever seen."
Please do tell, most interested in this perspective, unless it was used in sarcasm.
I think this is the same guy that regularly bashes boomers. By the way he personalizes his hatred for an amorphous demographic group, I figure he was sexually abused by a boomer and needs to vent his repressed pain through online screeds.
.... It's 'arguable' alright, because the boomers are the demographic that have paid the most into the big government Ponzi schemes whose existence predated them. They'll be the biggest losers of all time. The sounds coming from Washington DC these days are the sounds of the all the boomer promises and social contracts being broken -- after decades of the boomers paying into them.
The Gen Xers and Gen Yers don't have what it takes (or the numbers) to make good for their own generations. Their easy out is to rationalize killing off the boomers (Obamacare) and steal their property.... 'progress' these means that they're working on it.
You boomers need to stop smoking weed. I don't hate anybody. I see the source of our troubles--the corruption, the fraud, the creepiness that is Goldman as in the large a political failure to put a stop to it. You guys were in charge in terms of votes and leaders. Not only are not stopping the failures, but they started on your watch. Most boomers have saved little for retirement, stat speaking.
And yet it remains everyone's fault and problem but your own. You aren't the only people balming others of course. Just that you're going to eat the proverbial shit sandwich worse than anyone and most can't even see it at point blank range.
I'm a late boomer and while there are legit criticisms of that generation, realize it is an artifact. Most of the problems we have today stemmed from long before boomers. Fed in 1913, about 33 years before the first boomers. Socialism Security and the massive spread of Federal agencies, 1936, ten years before boomers. The Great Society programs and Medicare 1966. Boomers were not yet voting and were between 20 and 2 years old. Gold standard falls, 1971. Still a bit early for boomers. DE, EPA, etc, 1976. Now the boomers are just starting.
All the seeds for the crap that is happening now were planted long ago. Can you blame boomers for not fixing it? Well, yes, but no one has been up against this stuff before and guys the age of Pelosi and Reid (preboomers) defend this stuff tooth and nail.
Best put the blame where it belongs and frankly, I don't believe the generational thing much. It's more an evolutionary thing that developed over time and multiple generations. It will reach it's natural conclusion.
I agree, this isn't all about babay boomers. But when I hear all the blamestorming, I think of Japanese people that have lived in tents for months inKobe and Fukushima. We in contrast default as a convenience. It's breathtkaing and pathetic. How the rest of the world must look at us if they only saw through Zero Hedge.
While Zero Hedge is focus poitn of discontent, seems like the perception I gotten is that we Americans are weak, spoiled, and incredibly irresponsible.
So we have a duty to repay phoney bank debt that doesn't exist? I'd argue maybe, if we actully understood the nature of money before taking on the obligation. The collective obsfucation of the truth about banking means that banking has no claim on the repayment of its 'loans'.
As for naitional debt, the writing has been very clearly on the wall since 1971 at least. I just feel sorry for the japanese for not being able or willing to default a long time ago.
The people owe the system nothing.
I've said this at least ten timee before and I'll say it again... it is not nothing. It is dollars you borrowed. If it is so meaningless, simply pay back these meaningless things you owe plus the interest you agreed on.
This is why I hate all these theoretical discussions of fractional reserve banking and the nature of money and such... it's not about understanding anything. It is about making excuses to be irresponsible.
Completely disagree JM,
IF there was understanding about what fractional reserve banking was than I would agree. Bank loans (not second stage earned money lending) absolutely does not exist, it is not dollars borrowed at all. It is an electronic sequence of binary code that the banking system agrees to exchange for dollars if people ask for it.
If a loan document had a clause that said 'The object of this loan is an electronic digit created by this bank via a computer entry and is deemed to be interchangeable for central bank money by this or other banks if requested (with notice)' THAN we would have transparency.
I ask you, if it is not about understanding anything and only about making excuses, why isn't it common knowledge? If you think the banks want this system understood i will eat my words.
My main problem is that there is a complete lack of undertanding on the issue, if people knew how banking worked (isn't withholding relevant information from a dependent party to a contract a means to void it?) than at least they could make an informed decision about their participation and support of that system. Hence I do not support the system simply because its structure and form is obfuscated.
'Hence I do not support the system simply because its structure and form is obfuscated.'
'Hence I do not RECOGNISE the system simply because its structure and form is obfuscated.'
My point is very simple. It doesn't matter where it came from. What matters is you agree to pay it. If you don't, you get a foreclosure notice.
That banks get a subsidy from the Fed that enables them to not exercise collateral is a separate, and rotten issue.
Yeah sure, my point is also very simple: bank loans are non-functioning agreements and not repayable due to both no consideration and a material lack of disclosure, or even misrepresentation on the nature of the agreement (ie - representing the bank credit figure as a unit of actual currency).
My point stands - if you think banks want people to understand the lending process I'll eat my words.
Not that it detracts from your article, only that it is not dishonourable to not meet the terms of a materially misrepresented agreement (second-tier earned income loans excluded of course).
I think the logical conclusion to this is that all loans are inherently fraudulent. You turn every loan into a fraud there won't be any and the world will be a much worse place for it.
You are assuming the world would be a much worse place without lending but you cannot prove this, the proliferation of credit can accelerate development but it can also entangle and ensnare - just look at the great work produced by the world bank and the IMF in Africa, their most active area of operation.
Regardless, if a contract is a misrepresentation than it is fraudulent. I will not argue wether the world is better or worse without bank lending only that it is up to society to decide this and to do this society must first understand the lending process, which is obviously not the case at present.
So, if society cannot make an informed decision on bank lending because the truth about bank lending is obscured than it stands to reason that society's only defence against debt entrapment (default), is not morally reproachable in this case.
PS. I would also be willing to argue the point over banks ability to issue credit = social benefit.
Somebody else maybe would do a better job at these issues. It's just too theoretical for me.
You make a good point but this is a sticky point for me. I say that the American people are better than the government we have, yet we reelect Frank, Pelosi and Reid. So, perhaps we get what we deserve.
I think we have systemic weakness in our government that breeds this irresponsible spending...no matter the party.
I think Americans are strong enough to get out of it, but they/we need clear leadership with the correct answers. That's the condundrum because virtually everyone in Congress has the wrong answers or solutions, Republican or Dem. The average guy doesn't really know who to pick.
In line with another poster here, I agree that we as citizens never agreed to or signed up for this debt that we are accumulating. It is identical to identity fraud. Someone has our name and bank accounts and is running up the tab without our express permission. I wish some idiot politician could present it that way. So, in a sense this debt is being run up without our permission and just like fraud, we do not owe it. I am not one for direct democracy but in matters of spending I could almost agree to it. How should someone else be able to saddle us with debt against our will?
Default is proper and the less traumatic of the ways to absolve our oversized debt. Hyperinflation would crush the economy and break down the economic ties and arrangements but its the chickensh*&%t way to do it. Therefore, that path will be chosen.
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