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Will The US Devalue The Dollar?

Tyler Durden's picture




 

It is well-documented by economists at SocGen and elsewhere, that the world has now entered a race to the currency bottom. Ongoing recent actions by the BOJ, ECB, SNB and all relevant central banks have made this a near certainty. Yet the biggest question mark is how the US will approach the imminent dollar devaluation (and with many trillions in debt overhang needing to be rolled over, the Fed has two options: accelerated inflation or dollar devaluation) - will it be a gradual process or rapid and unexpected. A paper by Darryl Robert Schoon analyzes the various forces at play when evaluating the probability of a dollar devaluation. "Capitalism cannot function unless its constantly compounding debt is serviced and/or paid down. Today, the US, the world’s largest debtor, can no longer pay what it owes except by rolling its debt forward and borrowing more, what the late economist Hyman Minsky called ponzi-financing, financing common in the final stages of mature capital systems...We are in what Stephen Roach, Chairman of Morgan Stanley Asia, calls the end-game, the resolution of past monetary excesses and imbalances, excesses and imbalances that reached never-before-seen heights in the last decade." Nothing too surprising for regulars, yet a good summary of the dilemma facing the monetary authority of the United States.

Via Darryl Robert Schoon

 

 

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Fri, 03/05/2010 - 12:48 | 254914 Missing_Link
Missing_Link's picture

"Will the US devalue the dollar?"

Will a bear shit in the woods?

Fri, 03/05/2010 - 13:19 | 254973 Anonymous
Anonymous's picture

Will the US Govt shit on my porch? Yes, and hopefully just before a census worker shows up.

Fri, 03/05/2010 - 14:35 | 255093 Anonymous
Anonymous's picture

Maybe in the Bretton Woods!:)

Fri, 03/05/2010 - 18:37 | 255524 johngaltfla
johngaltfla's picture

Actually, no.

Let me tell you the story of the 3 Fed Bears.

Papa Bear Volcker went into the home and grabbed the toilet paper after he shit in the taxpayer toilet and said, "This is better than the pinecones in the woods, but still not good enough, but it will just have to do."

Uncle Bear Greenspan went into the house next and said, "Gee, it smells like flowers. Did you really shit it up Papa Bear Volcker?" After he took a shit in the taxpayer toilet he rubbed up the toilet paper and said "This stuff sucks. He whipped out some fresh Benjamins, wiped, and said, "It's better than corncobs but not as soft as RMBS!"

 

Baby Bear Bernanke finally got his chance to hit the taxpayer head. He walked in the door after Uncle Alan left and yelled "My God Uncle Alan, what did you do, eat a banker and shit him out?" The younger Fed bear held it's nose and took a massive shit into the taxpayer toilet, so much so that it took 3 flushes to force it down the drain. Instead of going through the motions and trying the paper like Papa Bear Volcker or using fiat money like Uncle Alan, he looked outside and saw an American taxpayer and snatched him through the window wiping his ass furiously to insure there was nothing left. "Ahhhh, that's just right. I think I'll wipe my ass with the taxpayers for the rest of my life."

 

The moral of the story? When a Fed bear needs to take a shit, run like hell.

Fri, 03/05/2010 - 12:49 | 254916 10044
10044's picture

Question is "when", not "will". My guess within the next 18 mths, welcome to depression 2.0, GOLD bitches

Fri, 03/05/2010 - 13:38 | 255015 Gold...Bitches
Gold...Bitches's picture

GOLD bitches

hey, that's my line...

Fri, 03/05/2010 - 12:51 | 254920 Hondo
Hondo's picture

What have they done since there was a dollar.  We have a lot of data points that confirm their policy which has only accelerated since the 1970's.

Fri, 03/05/2010 - 13:07 | 254948 Internet Tough Guy
Internet Tough Guy's picture

+1.

It's been an ongoing accelerating process for 90 years.

Fri, 03/05/2010 - 13:27 | 254989 Cognitive Dissonance
Cognitive Dissonance's picture

Agreed!

The devaluation started nearly a hundred years ago. The question should really be ......"Will the devaluation of the dollar accelerate exponentially or will it explode into a thousand pieces?"

Fri, 03/05/2010 - 15:47 | 255242 faustian bargain
faustian bargain's picture

+1

"How fast will the US continue devaluing the dollar?"

Fri, 03/05/2010 - 17:42 | 255424 Hughe Crapper
Hughe Crapper's picture

Like a slushfund. They spend it faster than you can lay your egg...

Fri, 03/05/2010 - 12:57 | 254929 Ivanovich
Ivanovich's picture

Just curious.  But if all currencies are being devalued, do any of them actually become worth less to one another?

Fri, 03/05/2010 - 13:20 | 254961 asdf
asdf's picture

no, of course not. That's why devaluation doesn't work.

Fri, 03/05/2010 - 15:38 | 255224 nikku
nikku's picture

Wrong.  They all become less valuable when compared to the only currency that can't be printed: Gold.  Zero Hedgers are often arguing about inflation vs. deflation.  In the final analysis, gold is not a "hedge against inflation."  It is a clear sign of a loss of confidence in government--sometimes expressing itself as a good hedge against inflation (because we see the government QE'ing to infinity).  But it is also possible, that in a debt deflation, the value of money goes up--only not the money that can be printed--real money for thousands of years, gold and silver.  Maybe gold never gets higher than $1100, but because of massive debt defaults, the price of everything gold can buy drops massively.  This is a form of debt induced deflation, even thought the price of everything in dollars or euros will rise dramatically.  Don't get confused by being too dollar-centric.

Fri, 03/05/2010 - 15:43 | 255234 carbonmutant
carbonmutant's picture

This all works as long as gold isn't being alloyed with powdered tungsten.

Fri, 03/05/2010 - 15:49 | 255247 faustian bargain
faustian bargain's picture

No, that condition applies only if that sort of counterfeiting is not detectable, which it is, and directly affects the minter's/certifier's reputation.

Fri, 03/05/2010 - 16:33 | 255315 carbonmutant
carbonmutant's picture

 As long as individuals can afford the sophisticated equipment need to audit purchases or exchanges you can minimize problem. In real life however, most transactions involve much greater risk.

Fri, 03/05/2010 - 16:54 | 255343 faustian bargain
faustian bargain's picture

I don't think individuals need the equipment. I think minters, private certifiers, distributers, etc need to maintain their reputations and will do the appropriate testing.

Fri, 03/05/2010 - 17:17 | 255380 dumpster
dumpster's picture

i am sure this crowd will buy theb 400 oz bars lol

just buy the kuggerands , gold eagles, yadda,

of course thats a 1200 buck hit and most can not come up with 2000 grand

so this tungsten deal ,, is hardly a deterent .. why get cought up in something thaty most will never see,

of course some will never see a oz of gold leo lol

and silver eagles are still a plenty

Fri, 03/05/2010 - 13:14 | 254965 Cursive
Cursive's picture

This is what is overlooked by most observers. All currencies are relative.  The U.S. has its share of problems, but we are better off than the Eurozone, China and Japan.  We also have the biggest guns and that counts for a lot.

Fri, 03/05/2010 - 13:52 | 255024 John McCloy
John McCloy's picture

  Yeah in theory nothing would stop the U.S. from seeming to run itself into the ground along with other currencies and economies while stealthily adding to their gold reserves for the next few years and when the time comes we cannot afford to pay our debt to China we simply say..."Do something about it".

Announce a new commodity basket backed currency and boom America is off to the races. If someone wants to begin a war over it..boom America off to the races. The difference is how will the opposing nation/s fund a war with a destroyed currency and economy? And do you honestly think they are not aware of the impossibility of them defeating the United States in a war? People can criticize military spending but in the end when you can wage war against every power in existence simultaneously and win I suppose the spending was not all too frivolous huh? Such is the benefit of geopolitical control of both the Atlantic and Pacific and the inability for our shores to be invaded.

There is no benefit to waging war and military spending if you cannot loot. I cannot see us spending all this money in the past decade "just in case". These guys want a war and they are going to get one sooner or later. If they can distort the MSM when all the economic data is worsening and wage economic warfare on the middle class right out in the open (Dodd, Gregg, & Schumer) then they can line a war up in a few months time.

Fri, 03/05/2010 - 14:10 | 255059 Anonymous
Anonymous's picture

"And do you honestly think they are not aware of the impossibility of them defeating the United States in a war? People can criticize military spending but in the end when you can wage war against every power in existence simultaneously and win I suppose the spending was not all too frivolous huh? Such is the benefit of geopolitical control of both the Atlantic and Pacific and the inability for our shores to be invaded."

That is a bold statement, and not necessarily true.

Sat, 03/06/2010 - 13:42 | 256185 Andrew_Miller
Andrew_Miller's picture

I think he means USA can nuke every other country and sustain a nuclear response from some of them who would be able to retaliate.

Fri, 03/05/2010 - 14:16 | 255066 Cognitive Dissonance
Cognitive Dissonance's picture

"....then they can line a war up in a few months time."

At any moment, there are dozens of wars ready to be spooled up in days or weeks. The Pentagon is filled to the brim with various contingencies, what-ifs and various other sundry war plans, all of course strictly defensive in nature. In fact, the military brags about their "readiness" to attack whenever that late night Presidential phone call is placed, assuming of course that the powers-that-be deem it necessary to actually let the President know before the fact.

Fri, 03/05/2010 - 14:21 | 255076 John McCloy
John McCloy's picture

 Absolutely. War is just like business for an economy. If JFK were not in office in 1962 we would have invaded Cuba when the Russians snuck missiles in. One can also state that only because JFK was in power did Kruschev move the missiles into Cuba. That is what worries me about Pres. Obama, and I believe Putin has some very lofty ambitions of restoring Russia to a rival superpower. 

Obama gives him that window. The Soviet is well aware that they can begin passive aggresive movements of the chess pieces and all the President is good for is a potential finger wagging while they continue to amass strength. We already cracked on the missile shield. I may not agree with our monetary policy however tampering with the CIA is something I do not recommend. This relative "peace" we are enjoying is well overdue for disruption and certainly not short of catalysts.

Sat, 03/06/2010 - 14:11 | 256204 Andrew_Miller
Andrew_Miller's picture

I think you exaggerate Putin's ability and willingness to amass power. Currently Russia is ruled by comprador robber barons and Putin is their willing partner. Russian "elite" doesn't associate itself with the country. They keep their money abroad, they often keep their families abroad and they consider Russia as a cow to milk. And they are not feeding the cow.

As far as the Russian military power is concerned consider the following anecdotal evidence from the latest "war" with Georgia:

The military headquartes of 58th army motorcade began advancing into the Ossetia territory and due to inability of staff officers to properly orient themselves on the terrain the motorcade was ambushed by the georgian specnaz. Anatoly Khrulev, the chief of the whole operation was seriousely injured.

Fri, 03/05/2010 - 14:41 | 255103 A_MacLaren
A_MacLaren's picture

"...run itself into the ground along with other currencies and economies while stealthily adding to their gold reserves for the next few years..."

Is this a mix of reality and wishful thinking?

All fiat currencies will ultimately return to their intrinsic value.

As for adding to gold reverves, perhaps there is a reason Ft. Knox hs not been auditted since the Eisenhower years.

 

Fri, 03/05/2010 - 15:48 | 255244 Master Bates
Master Bates's picture

Are you serious?

We can't even win a war against a shithole country like Afghanistan, and here you are saying we can beat everybody in the world simultaneously?

In case you noticed, we've spent trillions of dollars chasing 20 guys on camels with boxcutters, and we still haven't won after nine years now.
But oh yeah, bring on the rest of the world...

Fri, 03/05/2010 - 16:17 | 255283 Shameful
Shameful's picture

At the risk of sounding crazy, are we really looking for some camel riders with box cutters?  Seems to me opium production is up in Afghanistan, I also sem to remember a little CIA drug running I learned about from history in the 80s.  Hells bells also history tells us the CIA set up the Mujaheddin to fight the Soviets.  So I think it's fair to say that we are not looking for evil cave dwellers.  But Afghanistan is right on top of Russia and is close to China's oil and gas pipelines.  And those need to be protected after all, even Clinton warned the Chinese that if they did not back sanctions against Iran that someone could cut of their energy supply...surely she meant men with box cutters.

We both know that we will never leave Iraq or Afganistan untill we bankrupt.  Big O ran on getting us out of Iraq, turns out that was pillow talk too.  So neither party wants out of the wars.

But otherwise I agree.  We take on the world and we get our teeth kicked in.  We spend a shitload of money and we are not all that impressive.  Have a few cool super weapons, but still nothing that trumps the nuke systems we have had for 30-40 years ago, and no real defense against those same systems.

Fri, 03/05/2010 - 16:59 | 255353 Cognitive Dissonance
Cognitive Dissonance's picture

No Shameful, there is no risk of you sounding crazy to the people who desire the application of common sense, logic and independent thought to the many issues most are too frightened to even glance at, let alone investigate. You just sound crazy to the trolls who's only purpose is to disrupt and demoralize those who are willing to speak truth to power.

The real purpose of the myth keepers and thought police is to keep the mind controlled masses from straying outside the grazing area. They gotta zing a few cattle every now and then when they catch them wandering too far outside the "permitted thought zone" in order to teach the rest a lesson.

After all, it's for the greater good. Right?

Fri, 03/05/2010 - 20:53 | 255637 geopol
geopol's picture

MB?

Fri, 03/05/2010 - 16:57 | 255352 Anonymous
Anonymous's picture

That would be camel jockeys you refer to MBater.
To save you time reading your history and allow more time for another tug, Afghanistan can never be won, not now not never ...

Fri, 03/05/2010 - 20:52 | 255691 geopol
geopol's picture

MB

The ongoing civil war in Afghanistan is merely a pretext, a cover story designed to provide the United States with a springboard for a geopolitical destabilization campaign in the entire region which cannot be publicly avowed. In the blunt cynical world of imperialist aggression à la Bush and Cheney, a pretext might have been manufactured to attack Pakistan directly. But Pakistan is far too large and the United States is far too weak and too bankrupt for such an undertaking. In addition, Pakistan is a nuclear power, possessing atomic bombs and medium range missiles needed to deliver them. What we are seeing is a novel case of nuclear deterrence in action. The US cannot send an invasion fleet or set up airbases nearby because Pakistani nuclear weapons might destroy them. To this extent, the efforts of Ali Bhutto and A.Q. Khan to provide Pakistan a deterrent capability have been vindicated. But the US answer is to find ways to attack Pakistan below the nuclear threshold, and even below the conventional threshold. This is where the tactic of exporting the Afghan civil war to Pakistan comes in.

The architect of the new Pakistani civil war is US Special Forces General Stanley McChrystal, who organized the infamous network of US torture chambers in Iraq . McChrystal’s specific credential for the Pakistani civil war is his role in unleashing the Iraqi civil war of Sunnis versus Shiites by creating “al Qaeda in Iraq ” under the infamous and now departed double agent Zarkawi. If Iraqi society as a whole had lined up against the US invaders, the occupiers would have soon been driven out. The counter-gang known as “Al Qaeda in Iraq ” avoided that possibility by killing Shiites, and thus calling forth massive retaliation in the form of a civil war. These tactics are drawn from the work of British General Frank Kitson, who wrote about them in his book Low Intensity Warfare. If the United States possesses a modern analog to Heinrich Himmler of the SS, it is surely General McChrystal, Obama’s hand-picked choice. McChrystal’s superior, Gen Petraeus, wants to be the new Field Marshal von Hindenburg – in other words, he wants to be the next US president.

The vulnerability of Pakistan which the US and its NATO associates are seeking to exploit can best be understood using a map of the prevalent ethnic groups of Afghanistan, Pakistan, Iran, and India. Most maps show only political borders which date back to the time of British imperialism, and therefore fail to reflect the principal ethnic groups of the region. For the purposes of this analysis, we must start by recognizing a number of groups. First is the Pashtun people, located mainly in Afghanistan and Pakistan. Then we have the Baluchis, located primarily in Pakistan and Iran. The Punjabis inhabit Pakistan, as do the Sindhis. The Bhutto family came from Sind.

Sun, 03/07/2010 - 23:44 | 257398 Anonymous
Anonymous's picture

You know nothing about history. The mighty Romans could not conquer the Afghans. The Persians ditto. The British broken too in their attempt. The Russians at the peak of their power, broken. We are playing at civilizing these people; perhaps it will work. We (the USA) have a pretty good system & the Afghans aren't stupid, they see what success we have had. Just because they are poor & remote does not make them a 'shithole' country. On the other hand we cannot take on the whole world. Nazi Germany made that mistake. Whatever you think of our leadership they wouldn't go there. Finally, The US revolutionary army wasn't much more than 20 guys on camels with boxcutters when we beat the mighty British in their prime.

Thu, 03/18/2010 - 16:37 | 269664 jailnotbail
jailnotbail's picture

You'd be correct if the mission was to 'defeat' the Afghans, or the 100 Al Queda in country, or the Taliban, or whoever is the enemy of the week.   But it's not. Just as in Iraq the real mission is to maintain a presence because it's ideally situated for a number of strategic purposes. And then there is that lucrative opium trade..When tax revenues are way down it's hard to resist skimming some of that action.

Fri, 03/05/2010 - 16:47 | 255334 Anonymous
Anonymous's picture

That's one sick way of interacting with neighbors. What difference is that from the stand over tactics of the Mafia of a gang. SICK!!!

Fri, 03/05/2010 - 16:58 | 255355 faustian bargain
faustian bargain's picture

I think the military-industrial complex sees a pretty good benefit to military spending, regardless of looting. "Looting the US economy" is more like it. Taxes are one thing, but without the invisible flat tax of inflation, the war machine boondoggle loses a lot of steam.

Fri, 03/05/2010 - 20:56 | 255694 geopol
geopol's picture

The US and NATO strategy begins with the Pashtuns, the ethnic group from which the so-called Taliban are largely drawn. The Pashtuns represent a substantial portion of the population of Afghanistan, but here they are alienated from the central government under President Karzai in Kabul, even though the US puppet Karzai passes for a Pashtun himself. The issue involves the Afghan National Army, which was created by the United States after the 2001 invasion. The Afghan officer corps are largely Tajiks drawn from the Northern Alliance that allied with the United States against the Pashtun Talibans. The Tajiks speak Dari, sometimes known as eastern Persian. Other Afghan officers come from the Hazara people. The important thing is that the Pashtuns feel shut out.

The US strategy can best be understood as a deliberate effort at persecuting, harassing, antagonizing, strafing, repressing, and murdering the Pashtuns. The additional 40,000 US and NATO forces which Obama demands for Afghanistan will concentrate in Helmand province and other areas where the Pashtuns are in the majority. The net effect will be to increase the rebellion of the fiercely independent Pashtuns against Kabul and the foreign occupation, and at the same time to push many of these newly radicalized mujaheddin fighters across the border into Pakistan , where they can wage war against the central government in Islamabad . US aid will flow directly to war lords and drug lords, increasing the centrifugal tendencies.

On the Pakistani side, the Pashtuns are also alienated from the central government. Islamabad and the army are seen by them as too much the creatures of the Punjabis, with some input from the Sindhis. On the Pakistani side of the Pashtun territory, US operations include wholesale assassinations from unmanned aerial vehicles or drones, murders by CIA and reportedly Blackwater snipers, plus blind terrorist massacres like the recent ones in Peshawar which the Pakistani Taliban are blaming on Blackwater, acting as a subcontractor of the CIA. These actions are intolerable and humiliating for a proud sovereign state. Every time the Pashtuns are clobbered, they blame the Punjabis in Islamabad for the dirty deals with the US that allow this to happen. The most immediate goal of Obama’s Afghan-Pakistan escalation is therefore to promote a general secessionist uprising of the entire Pashtun people under Taliban auspices, which would already have the effect of destroying the national unity of both Kabul and Islamabad .

Fri, 03/05/2010 - 22:50 | 255787 swmnguy
swmnguy's picture

Great analysis, very well put.  Not widely available in the US, but clearly the only context that makes any damn sense.

Fri, 03/05/2010 - 13:51 | 255033 Anonymous
Anonymous's picture

we are better off.. how?

Fri, 03/05/2010 - 13:30 | 255000 Pladizow
Pladizow's picture

In varrying degrees - but all devalue relative to gold.

Fri, 03/05/2010 - 12:58 | 254931 BobPaulson
BobPaulson's picture

The real question is whether the exponent on the semilog graph is going to suddenly change, because devaluation is the norm or steady state fractional dilution. A catastrophe comes when the exponent changes or the growth is more than exponential, something like a factorial function, then you're hooped. The Weimar scenario was not able to maintain a steady fractional dilution, so the exponent of the function constantly grew - I'd be curious to know if anybody has fit that curve. exp(x^2)? 

Fri, 03/05/2010 - 13:08 | 254934 hedgeless_horseman
hedgeless_horseman's picture
ANNOUNCER: If you’ve been on California roads lately, you may have noticed Californians getting back to work. It’s work that helps improve our communities…paid for with bonds (not real work, paid for by employers).

(Sound design out.  Music up.)

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During an early order period, individual investors like you will get first pick of bonds in available maturities, before the large institutions (that wouldn't touch these with a ten foot pole). And you won’t have to pay an upfront sales commission. This special pre-sale ends on March 10th. So talk to your broker or visit BuyCaliforniaBonds.com.

We’re getting back to work with the help of California bonds. Let’s keep the momentum going. Again, that’s BuyCaliforniaBonds.com. LEGAL ANNOUNCER: This ad is provided by the California State Treasurer’s Office. This ad is not an offer to sell nor a solicitation of an offer to buy bonds. (It is really more of a prayer request) Bonds may only be purchased through a broker and through an Official Statement.

 

Fri, 03/05/2010 - 13:12 | 254957 MarketTruth
MarketTruth's picture

Just like the Re-Build America bond, only far worse.

Gold bitches!!! (copyright 2009 Chumbawumba)

Fri, 03/05/2010 - 13:57 | 255040 Anonymous
Anonymous's picture

Gold bitches!!! (copyright 2009 Chumbawumba)<<<<

ha ha, speaking of the devil.....

Fri, 03/05/2010 - 13:01 | 254937 asdf
asdf's picture

devalue against what?

 

and China won't lose any money when they revaluate their currency, read:

 

http://mpettis.com/2010/02/what-the-pboc-cannot-do-with-its-reserves/

Fri, 03/05/2010 - 13:11 | 254955 Internet Tough Guy
Internet Tough Guy's picture

It's a popular lie that currencies devalue against each other.  In fact, all currencies devalue against real goods.

Fri, 03/05/2010 - 13:18 | 254971 asdf
asdf's picture

that would be inflation. Inflation will be very subdued in the next several years, no matter what the FED will do.

Fri, 03/05/2010 - 13:25 | 254987 Internet Tough Guy
Internet Tough Guy's picture

I don't agree with your definition of inflation. Also, I disagree that prices aren't rising. Why is oil over 81, gold over 1100, etc?

Fri, 03/05/2010 - 13:39 | 255016 asdf
asdf's picture

commodities are up because there's a lot of free money out there and interest rates are artificially low. So, some traders might think that the probability that commodities will rise by more than ~2% a year is very high and therefore a better investment than treasuries.

 

http://pragcap.com/wp-content/uploads/2010/03/costs.png

inflation? 

Fri, 03/05/2010 - 15:02 | 255136 Internet Tough Guy
Internet Tough Guy's picture

commodities are up because there's a lot of free money out there and interest rates are artificially low

 

Isn't that your (not my) definition of inflation?

Fri, 03/05/2010 - 17:26 | 255399 Sancho Ponzi
Sancho Ponzi's picture

It doesn't matter if you call it inflation or deflation. What is happening is a loss of purchasing power fueled by lower wages, rising commodity prices, contracting credit, money printing, etc. Wages decline rapidly in deflationary times, and downward price rigidity for products results in a reduction of purchasing power.  Zero interest rates compound the problem by incentivizing speculation in commodities. 

In times of high inflation, high borrowing costs and price increases lead to a loss of purchasing power as private sector wages cannot keep up with inflation.

Fri, 03/05/2010 - 13:30 | 254996 Anonymous
Anonymous's picture

That assumes, does it not, an orderly devaluation? If the dollar or any other currency experiences a sudden crisis in confidence, then all bets are off as a stampede into real assets will occur leading to hyper-inflation. In that case, what the Fed does or doesn't do is immaterial, no?

Fri, 03/05/2010 - 13:31 | 255002 Anonymous
Anonymous's picture

That assumes, does it not, an orderly devaluation? If the dollar or any other currency experiences a sudden crisis in confidence, then all bets are off as a stampede into real assets will occur leading to hyper-inflation. In that case, what the Fed does or doesn't do is immaterial, no?

Fri, 03/05/2010 - 13:34 | 255012 DiverCity
DiverCity's picture

That assumes, does it not, an orderly devaluation?  If a sudden crisis in confidence in the dollar or any other currency occurs, then there's a stampede into real assets.  This is hyper-inflation and what the Fed does or doesn't do is immaterial, no?

Fri, 03/05/2010 - 13:27 | 254940 Cognitive Dissonance
Cognitive Dissonance's picture

Many people fail to recognize that since Nixon and company removed the US (and by extension, the world) from the international Gold standard, we have all been participating in one grand economic experiment. This statement doesn't presume Gold to be good or bad, just that the Gold standard was/is well understood and has a long history as the basis for an economic system.

The economic world since 1971 is not at all well understood, with most academics and other so called "experts" explaining the process viewed from the backseat, using plenty of rationalization and number fudging to justify working from an assumption and then moving backwards to the reasons and casue. They are making this up as they go along folks. While the systems will constantly assure us everything is under control, since we crossed over to the Twilight Zone of unlimited fractional reserve banking and perception based reality, it doesn't appear that it will end well.

   

Fri, 03/05/2010 - 13:53 | 255036 Mission Stupid
Mission Stupid's picture

The fiat currency experiment plods along, crushing the worlds nets worth.  Everything will appear to be under control as we deal with ever increasing prices on commodities.  The straw that breaks the camel's back will be when food prices in developing countries accelerate significantly faster than the purchasing power of the population.  Free trade, coupled with US gov't subsidies for American farmers (which I’m a fan of; I want to eat), will crush the international market as we will be (are) the only ones who can realistically afford to produce food, yet can't turn a profit when selling it on the international market because of purchasing parody.  Big Mac index anyone?  Remember rice prices from a year or two ago, or the sugar cane prices from earlier this year?  When people don't have access to food at reasonable prices we quickly traverse across the supply and demand curve causing a gnarly snowball effect.

Fri, 03/05/2010 - 14:50 | 255118 Anonymous
Anonymous's picture

"Free trade, coupled with US gov't subsidies for American farmers (which I’m a fan of; I want to eat), will crush the international market as we will be (are) the only ones who can realistically afford to produce food, yet can't turn a profit when selling it on the international market because of purchasing parody. Big Mac index anyone?"

Well technically we are still paying the higher prices for food via taxes/debt/monetary-expansion. Gov't just trying to hide food-inflation by pushing the tab across a graduated timetable... just imagine what the cost of food would be without it? Can you smell the food riots in the air??? I definetly agree that subsidized farming is the one of the most under-appreciated scams that gov'ts pull to control their populations. Plus there are other consequences of gov't subsidized farming.... check out the film Food Inc.

Fri, 03/05/2010 - 17:58 | 255457 Anonymous
Anonymous's picture

The dollar is a purchasing parody isn't it?

Fri, 03/05/2010 - 19:33 | 255604 Mission Stupid
Mission Stupid's picture

Yes it is, but my usage was a Freudian slip.

Fri, 03/05/2010 - 14:56 | 255127 Anonymous
Anonymous's picture

F*** farmers and their federal farm welfare.
If they can't make a go of it, they shouldn't own a farm.

Fri, 03/05/2010 - 15:12 | 255157 Ned Zeppelin
Ned Zeppelin's picture

How do you derive nourishment?

Fri, 03/05/2010 - 17:48 | 255437 Anonymous
Anonymous's picture

The same way your customers rely on your product without involving government subsidies.

Or are you on the gravy train too?

Fri, 03/05/2010 - 15:46 | 255240 Mad Max
Mad Max's picture

Yeah, that would be a great idea.  Unfortunately the government's tentacles are all through farming since the 1930's.  You could sever them completely and then get rid of farmer welfare.  But anything less and you simply favor some farmers over others (which of course already exists to some degree).

I'm not praising the farm welfare system we have, just saying that reform would need to be essentially instant and universal, no exceptions.  And the chances of that with the current Congress are less than zero.

And, for the time being, where does your food come from?

Fri, 03/05/2010 - 17:04 | 255360 faustian bargain
faustian bargain's picture

Same place it always does, just at a higher price. Meet the inflation that's been hiding in the closet.

Mon, 03/08/2010 - 00:04 | 257412 Anonymous
Anonymous's picture

Agribusiness took over everything about the 60's. They (ADM, Cargill etc) get all the benefits of the subsides. Family farms are basically extinct.

Fri, 03/05/2010 - 13:05 | 254943 SDRII
SDRII's picture

BHP struck a 55% increase in coking coal this amd and Mittal talsk of an 80% increase in iron ore y/y. Salzgitter missed outlook saying any volume gain will be offset by rising input costs. Add it up and that means more restructuring programs circa 2010 - e.g. more layoffs. When those estimate "beats" come in or better same stores, the right question is price vs. volume.  

Fri, 03/05/2010 - 13:06 | 254945 Internet Tough Guy
Internet Tough Guy's picture

This is why I don't run with the equity bulls.

Even when the government...er, stock market, goes up, the real value of the USD goes down. Measure it against any commodity (including housing, even after a popped speculative bubble) and see this is true.

Now factor in capital gains taxes and what would have to be the return to get ahead in stocks? Way too much for me. I'll stick with gold for wealth preservation.

Fri, 03/05/2010 - 13:08 | 254949 BlackBeard
BlackBeard's picture

DUh....

Fri, 03/05/2010 - 13:08 | 254951 asdf
asdf's picture

I liked the comment from Ando on alphaville

http://ftalphaville.ft.com/blog/2010/03/04/165161/morgan-stanley-mulls-debtflation/

That wealth can't be realised because not enough people can afford to pay present house prices, thus it is nominal wealth and not real.

This is really basic but if leverage levels are unsustainable, whether at household, corporate or sovereign levels then either:

(a) more income goes on debt servicing and reduction so other outgoings have to be reduced (i.e. service and job cuts at govt level or reduced consumption/discretionary spending at household level). This is the austerity option.

(b) outright default, which destroys any borrower regardless of whether an individual's, company's or nation's financial credibility for 5-10 years and makes new borrowing either impossible or punitively expensive. Individuals, businesses and nations avoid this at almost any cost as the punishment that accompanies default is required to force repayment and servicing of debt.

(c) make the debt worth less. At the consumer level this isn't really possible through personal action except by getting a big pay rise or other positive change in financial circumstances. Governments can do it by deliberately inducing higher inflation and lowering the value of the currency, but the cost to the population is enormous regarding wealth destruction for savers and hardship for the poor and lower middle classes. 

And this is the key bit: 

it makes NO difference to already indebted households unless:

(i) they have access to non-domestic currency assets/revenue - unlikely for the majority - just an option for the wealthier.
(ii) their domestic assets and revenue streams keep up with inflation.

Is (ii) possible in the UK? Let's see... 
Property assets - already massive bubble prices and stretched affordability, so no scope for inflation beating returns on a meaningful scale without either a return to the incredibly loose lending standards that caused the problem in the first place, or unless wages rise significantly across the board. Unlikely unless money printing goes directly into higher wages, reinforcing an inflationary spiral and risking hyperinflation.
Stock markets - will probably outperform other investments, particularly share prices of companies earning principally non-sterling assets, but not enough of the nation's wealth at household level is invested in shares for it to act as meaningful protection against inflation. Again, only a form of protection for the already wealthy.
Savings - will be utterly destroyed by high inflation unless interest rates rocket, which won't happen unless inflation gets out of control
Wages - see property point above. Wages can't be allowed to keep up with high inflation without reinforcing the inflationary spiral, thus the already indebted households will get none of the benefit of sovereign debt erosion and in fact will be even more stressed by imported inflation.

Now will someone at the FT please hold BoE/Treasury officials/the government to account regarding some of this if it emerges over the next few months that they are indeed deliberately pursuing inflationary policies?

Fri, 03/05/2010 - 13:45 | 255025 SteveBob
SteveBob's picture

"Governments can do it by deliberately inducing higher inflation and lowering the value of the currency, but the cost to the population is enormous regarding wealth destruction for savers and hardship for the poor and lower middle classes."

This is the point.  The current Administration (and possibly both Rs and Ds) want to undermine and destroy the Middle Class and cause enough hardship on the Poor and Lower Middle Class that they are open to govenment control and a European-style Socialism and even Left of that.

One-world CCY and one-world goverment is the goal of these S.O.B.s

 

Fri, 03/05/2010 - 14:02 | 255045 Cognitive Dissonance
Cognitive Dissonance's picture

Control in every facet imaginable (and a few unimaginable) was, is and always will be behind the actions of the powers-that-be and their lackeys, aka governments, corporations and their respective leadership.

Fri, 03/05/2010 - 13:13 | 254953 MarketTruth
MarketTruth's picture

Will The US Devalue The Dollar?

Does Snow White like the Seven Dwarfs?

Is De'Nile a rivier in Egypt? ;-)

Does oBOMBa's teleprompter lie?

Is gold @ over $1100/oz right now?

Does bears shi...

Oh, you get the idea.

Fri, 03/05/2010 - 13:11 | 254956 Species8472
Species8472's picture

How do you devalue a fiat currency? Since it's not linked to gold or anything else, you can't change the price of what backs it. So how do you devalue, just declair it to be so?

 

 

Fri, 03/05/2010 - 13:18 | 254970 dumpster
dumpster's picture

sure your 1000 bucks is now worth 333... a starbucks priced at 2.00 is now 6.00.. gas 9.00 a gal.  a loaf of bread .. 6.00..

why we say so.. get gold ..

Fri, 03/05/2010 - 13:30 | 254999 10044
10044's picture

You wake up one day, turn on the tv, it says u have to go to the bank and get one new dollar for every 3, that's 30% devaluation for you. Gold will tripple in price to stay even.

Fri, 03/05/2010 - 15:53 | 255255 Master Bates
Master Bates's picture

And then you really wake up and realize that it was just wishful thinking from the goldbugs.

Fri, 03/05/2010 - 16:14 | 255278 mkkby
mkkby's picture

Everything would triple in price.  There would be no change in net worth.  In order to have a meaningful devaluation it would have to be against something.  Look up the Plaza Accord of 1985.

Fri, 03/05/2010 - 17:06 | 255363 faustian bargain
faustian bargain's picture

what do you want to bet your income would not triple in price.

Sat, 03/06/2010 - 00:39 | 255856 MarketTruth
MarketTruth's picture

Bet? How about one KG of 999 gold (32.15 troy ounces standard new production JM bar) that if the USA devalues the currency that wages will go up less than the real rate of the currency devaluation. Are you TRULY willing to make this bet?

The USA has devalued currency before to a degree during gold confiscation and indeed any pay raise was generally LESS than the true rate of inflation.

Remember, just because a candy bar is the same price, it could consist of less qty of product. This is the same as currency devaluation (inflation).

 

Fri, 03/05/2010 - 14:02 | 255044 Anonymous
Anonymous's picture

A fiat currency is, as you stated, backed by nothing OTHER than its current level of existance, aka rarity. If you live on an island with an economy of coconuts, fish, and bananas(pre-agriculture)... and the common currency being used are sharks' teeth. So the currency remains at a stable level since shark teeth are rare and only a miniscule amount of new shark teeth are introduced to the economy.

Now lets say that the island folk decide to switch to palm frond blades as the new currency. Since the island is flooded with palm fronds, the amount of currency skyrockets and its value relative to the constant level of fish, bananas, and coconuts diminishes. Hence, instead of it costing 5 shark teeth for 1 fish, it now costs 40 palm fronds for one fish.... and the price keeps rising on a daily basis because people keep introducing more and more palm fronds to the economy. So lets say a week later, it now costs 300 palm fronds for 1 fish.

That is how you devalue a fiat currency. Instead of using sharks teeth, we would just use paper BACKED by a rare commodity or the actual commodity itself. And instead of palm frond, we have paper and ink or bits and bytes. Just print/input more and more into the system, and its value will continue to decrease relative to how much is in the system.

Now one could naturally say "Hey, your money sucks and I'm not using it anymore, I'm going to use something else." The reason this doesn't happen is because today nobody real knows any better (very simply put), and those that do have a hard time speaking in anything other than vowels when they have a gun barrel in their mouth. The entity holding this gun, (enter federal entity in power in which you reside here).

Fri, 03/05/2010 - 15:12 | 255155 Species8472
Species8472's picture

That inflation, we want to devalue. The article points out there is a difference.

 

Fri, 03/05/2010 - 15:42 | 255232 Anonymous
Anonymous's picture

Point taken, check this out:

http://www.economicpolicyjournal.com/2009/12/major-north-korea-currency-...

Literally by "Royal Decree".

Fri, 03/05/2010 - 16:15 | 255279 faustian bargain
faustian bargain's picture

You can totally change the price of what backs the US dollar (i.e. debt). That's why it's called fiat...it is whatever they want it to be. And they want it to be worth less and less, so they make more and more of it, both physical and digital, and send it out into the world..."fly away, be free".

Fri, 03/05/2010 - 16:20 | 255292 faustian bargain
faustian bargain's picture

...i see that the critique at hand is aimed at the word 'devalue', versus 'inflate'. I think that's talking borderline semantics. The 'value' of a dollar is what people will pay for it, so if its supply is intentionally inflated, it is de facto being 'devalued'. But I'm no economics major so these distinctions don't have much meaning to me.

Fri, 03/05/2010 - 13:12 | 254960 Don Smith
Don Smith's picture

^VIX @ 17.76.  Time to load up on VIX 20 calls?

Fri, 03/05/2010 - 13:14 | 254966 Slewburger
Slewburger's picture

Will the US devalue the Dollar?

Rhetorical question?

Fri, 03/05/2010 - 13:30 | 254998 merehuman
merehuman's picture

trim the edges, bleach out the color. When i said 1/2 a dollar , thats what i meant.

Hand me those scissors please?!

Fri, 03/05/2010 - 13:19 | 254976 godfader
godfader's picture

The Japs are trying to devalue the JPY for over 10 years now. How successful have they been?

Fri, 03/05/2010 - 15:54 | 255260 Master Bates
Master Bates's picture

Japanese unemployment is roughly 5%.

I guess that they're doing a lot better than we are!

Fri, 03/05/2010 - 13:22 | 254980 waterdog
waterdog's picture

We are in some serious trouble.

 

Fri, 03/05/2010 - 14:32 | 255088 John Self
John Self's picture

You might be on to something.  Somebody ought to start a web site about that....

Fri, 03/05/2010 - 15:47 | 255241 Mad Max
Mad Max's picture

Great idea!  It could even have a movie theme.  Like maybe after some cult movie that involved the financial system.

Fri, 03/05/2010 - 16:22 | 255298 faustian bargain
faustian bargain's picture

it'll never work.

Fri, 03/05/2010 - 13:23 | 254984 AnonymousMonetarist
AnonymousMonetarist's picture

Q: 'Will The US Devalue The Dollar?'

A: Does Charlie Daniels Play a Mean Fiddle?

Fri, 03/05/2010 - 14:04 | 255049 Mission Stupid
Mission Stupid's picture

Is too tall George too tall?

Fri, 03/05/2010 - 15:18 | 255175 Anonymous
Anonymous's picture

Who the heck is too tall George?

Fri, 03/05/2010 - 16:23 | 255301 faustian bargain
faustian bargain's picture

Ed 'Too Tall' Jones

Fri, 03/05/2010 - 17:50 | 255439 Mission Stupid
Mission Stupid's picture

That's it!

Fri, 03/05/2010 - 15:55 | 255264 Master Bates
Master Bates's picture

No.  He had a stroke shortly after that commercial.

Fri, 03/05/2010 - 13:34 | 255010 Bolweevil
Bolweevil's picture

"Funny" how the term Ponzi isn't so dirty anymore. I have officially been desensitized.

Fri, 03/05/2010 - 13:50 | 255028 Anonymous
Anonymous's picture

Why not devalue debt?
Say by 30%.
Don't have to even swap the paper since all treasuries are just computer entries.
Less than 1 trillion in paper money.
More than 14 trillion in treasuries.
All the investors are tapped out.
Time to start a new ponzi.
Why devalue the money that produces 20% or more a year in taxes.

Fri, 03/05/2010 - 13:59 | 255042 Anonymous
Anonymous's picture

I can read only 5 pages... wht abt the rest ??

Fri, 03/05/2010 - 14:05 | 255050 Anonymous
Anonymous's picture

Devalue? of course not,
Debaising? of course, what other options do they have ?

Oil is the new money. Brent is about to break trough the 80 barrier

Fri, 03/05/2010 - 16:22 | 255297 mkkby
mkkby's picture

Thank you!  Finally someone with working gray matter.  We can't devalue as long as every other country is racing to devalue theirs the fastest.  We can only debase.

Everyone on this site seems to think the Fed exists to enrich the banks.  If that is true, would they really devalue and give debtors a free lunch, destroying the bank's value at the same time?

Fri, 03/05/2010 - 16:26 | 255309 faustian bargain
faustian bargain's picture

Do you think the banks really want to own money?

Fri, 03/05/2010 - 14:06 | 255051 IveBeenHad
IveBeenHad's picture

its been posed and no one answered. how do you value a currency that is not pegged to anything ? please help me undeerstand! 

Fri, 03/05/2010 - 16:28 | 255311 faustian bargain
faustian bargain's picture

It's 'pegged' to our future taxes.

Fri, 03/05/2010 - 14:06 | 255052 Anonymous
Anonymous's picture

Silver,Byatches!

Fri, 03/05/2010 - 14:11 | 255060 Anonymous
Anonymous's picture

All scenarios offering lower dollars as an imaginary exit of debt,asume that there is something to export in the devaluing country. the problem is that the US unique in that its trade deficit is very high,and its corrency is the world reserve currency. So, a devaluing of whatever percent to the dollar will instantly shoot the gas pump prices up,and we all know that this affect US prices higher than anybody else. If in doubt,look at the point of infliction in 2008,and how the pyramide started crumbling after oil=$140.I don't know what is the solution,but any short cuts like these,will be short cuts that lead to a dead end road. Slow and long term steps are the only solution. Lowering labor unit cost and incentivising businesses to relocate their manufacturing to the US. Slow and steady deflation I see has a much better chance of working out...

Fri, 03/05/2010 - 14:12 | 255061 dumpster
dumpster's picture

listen carefully  the dollar is pegged to hamburgers

 

a macdonalds sells for 1.25  world wide  .. adjusted to local currencies

in the usa .. when they devalue the buck... you have 1000   in the bank .. next day offically you have 333,,

the macdonalds is now 3 bucks ..

inflation is a monetary event ,, slow at first now at 16%  then over night a hyperinflation ,, get gold  

Fri, 03/05/2010 - 14:57 | 255128 pidge
pidge's picture

with all due respect, dumpster, you didn't answer the question it seems.  You merely desccribed the effect, which is a rise in prices (often confused as the definition of inflation)  How is devaluation achieved in an instant, as opposed to a long slow process of dilution of the money supply, the monetary event we are so blandly accustomed to.   

Fri, 03/05/2010 - 16:34 | 255316 faustian bargain
faustian bargain's picture

Oh...is that what 'devalue' means? Something that happens in an instant? In that case I don't know if it's possible, unless you're just talking about futures or something.

I take 'devalue' to simply mean something done intentionally, regardless of the resulting schedule. I didn't realize the definition had a deadline built in.

Mon, 03/08/2010 - 19:25 | 258400 Anonymous
Anonymous's picture

One problem; I wouldn't feed my dog a McDonald's, those things are NASTY.

Fri, 03/05/2010 - 14:20 | 255075 Anonymous
Anonymous's picture

Q: How does the USA solve this financial problem?
A: Starting the WW-III in Europe and blaming Iran and on the 1st. black president
For a war USA need petrol. They’ve been in Mexico since Mex. have become "independent." (of what?)
USA are now in Irak ( you remember how they got in there)
USA are close to Iran ( saving the world from the Afganistan’s drugs!)
Now they get closer to Venezuela. ( being friendly with the Columbian drug Cartel!?)

Fri, 03/05/2010 - 14:22 | 255077 dumpster
dumpster's picture

Propaganda proceeds by psychological manipulations, character modifications, and the creation of stereotypes useful when the time comes.
The two great routes that propaganda takes are the conditioned reflex and the myth.” Jacques Ellul

Fri, 03/05/2010 - 14:25 | 255083 Lux Fiat
Lux Fiat's picture

Interesting article, but I don't agree with everything...

3rd paragraph - "The US caused the 1930s deflationary depression..."  This is a grossly simplistic view of the 1920s and 1930s, as is his extension of this corrolary to today. 

For a much more circumspect and nuanced view of that time frame, I would highly recommend Kindleberger's "The World in Depression".  The parallel between France's currency policies in the wake of WWI and those of China more recently, and the resulting economic instability, are eerie.  Global economic overcapacity and massive debt overhang mirror the agricultural overcapacity and debt overhang of the 1920s (when agriculture accounted for much more of the global economy).  With the aid of hindsight, why did the WTO ever allow entry to a country that did not have a floating currency?

As for potential exits from our current economic quandary, Mr. Schoon seems to be forgetting another possiblity.  The US could actually decide to confront its problems head on, and restore fiscal sanity.  This would require just about every sacred cow getting butchered - social security, medicare, medicaid, GSEs, TBTF "private" entities, state and local pensions, etc.  It would also require making very hard choices to greatly reduce the activities that federal, state and local governements perform.  In the short run, it would at best trigger another recession (assuming we ever came out of the "prior" one).  But it would likely build a strong foundation from which to progress by the time my kids are adults.

Before you snicker, and say that this will never happen (and perhaps correctly), I would point out signs of change on the ground that lead me to believe that more and more people on the ground are starting to "get it".  Debra Medina in Texas won 18% of the Republican primary vote, even with the "truther" fiasco.  Look at what the Governor of New Jersey is saying, and more importantly, doing.  Look at what various local municipalities and cities are starting to do (previously unthinkable) as they hit the debt wall and can't print their way out of it (Mike Shedlock's blog is a litany of interesting stories along this line).

Just as some states such as Colorado had a law that limited growth of government to a combination of population growth and inflation (others are considering it), I would love to see the same applied at the federal level along with a true balanced budget requirement (no masking the real deficit with entitlement "surpluses" or off-budget liabilities ala Enron), with perhaps a 10 yr stepped phase in - no backend BS.

It would be nice if this kind of rethinking could be achieved without another catastrophe, but given human nature, vested interests, and inertia, likely not.

Fri, 03/05/2010 - 14:45 | 255108 DiverCity
DiverCity's picture

I truly like your optimistic perspective, even if all it really amounts to is allowing for the possibility that it could happen.  I agree it's unlikely but we can always hope.

Fri, 03/05/2010 - 15:03 | 255139 Ned Zeppelin
Ned Zeppelin's picture

The author also made the common mistake of mixing unfunded social safety net promises (Medicare, Social Security) with sovereign debts, which are quite different.  The unfunded promises can be erased without a "default" occurring (although the civil and political consequences may be quite daunting.) But those promises will be the first to go WTSHTF.

Fri, 03/05/2010 - 16:23 | 255304 nikku
nikku's picture

It's not a mistake. The "S" that hits the fan is the whole freaking Baby Boomer generation who are counting on those government obligations actually being honored.  You think Greece is the only place where riots happen?  You really think the politicos have any spine to cut those "promises?"

Fri, 03/05/2010 - 16:39 | 255321 faustian bargain
faustian bargain's picture

Personally, I see Social Security as a debt the government owes me, since they took my money to fund it. I could have been paid that money (and the money they took from my employers) directly, but instead they wanted to play with it so they borrowed it from me by force. That's much more than a promise, it's a debt.

I have no doubt they can (and probably will) erase that debt, but I will consider it a default no matter what name they put on it.

Fri, 03/05/2010 - 14:34 | 255091 Anonymous
Anonymous's picture

Can someone, please, explain how devaluation can be administered. Do we wake up one morning and reading the morning paper we realize Obama has issued a decree that doubles the cost of everything?

Fri, 03/05/2010 - 16:42 | 255328 faustian bargain
faustian bargain's picture

It could happen that way, but it could also happen that people wake up one morning and realize their money is worth half what it was 10 years ago, and get pissed off about it.

Fri, 03/05/2010 - 14:59 | 255109 Real Estate Geek
Real Estate Geek's picture

Sorry, but I'm still learning this stuff.  Having said that . . .

If the PTB formally decide that they're going to devalue the US Dollar, what is the actual mechanism of doing so?  Is it something so crude as formally issuing new bills--let's call them "bluebacks"--and saying that all must turn in x greenbacks to receive a blueback?  That's my understanding of what happened in the DPRK a few months ago.

Or in the US would that even be necessary?  Would the PTB just declare that all account balances would be divided by x, and the invisible hand would automatically effectively devalue the greenbacks already in our possession?

TIA.

Fri, 03/05/2010 - 15:06 | 255143 Lux Fiat
Lux Fiat's picture

I'm still learning myself.  Other more knowledgeable folks may have some clearer-cut ideas as to the mechanics of a formal devaluation.

From my perspective, the Federal Reserve, legislative and executive branches, whether intentionally or inadvertently, have been engaged in stealth devaluation of the dollar against many real and hard assets for quite some time.  If they continue their current policies - running excessive deficits and underreporting inflation (i.e. CPI), the stealth devaluation will continue.  The problem with this approach is that is it unsustainable. 

From my perspective, a formal devaluation that is NOT done in conjunction with meaningful fiscal reform, is probably even worse than the status quo in terms of the message it sends to the global capital markets.  If we have the will power to do meaningful fiscal reform, is a devaluation needed?  Guess it depends on how far down the rabbit hole we are.  Wish I knew.

Fri, 03/05/2010 - 16:35 | 255320 Agent P
Agent P's picture

So that's why we have $2 bills...

Fri, 03/05/2010 - 15:04 | 255140 Anonymous
Anonymous's picture

Nice scary article....to bad debt issued by a sovereign nation in it's own currency isn't the same as household or corporate debt. Please folks, go over to Bill Mitchell's blog and spend some time educating yourselves about monetary theory. http://bilbo.economicoutlook.net/blog/

Fri, 03/05/2010 - 15:06 | 255142 Anonymous
Anonymous's picture

Purchasing power parity requires local currency conversion to the world reserve currency.

If the reserve currency was to do a 10 to 1 consolidation?

Meaningless games will not be played.....it's all about consolidation of power.

Seriously, if you put your nose too close to the grindstone, all you do is lose skin.

40muleteam borax

Fri, 03/05/2010 - 15:09 | 255151 Anonymous
Anonymous's picture

Since the dollar has already been devalued that just leaves inflation but with economic contraction that will be difficult which means that the Fed will have room to monetize some more and get away with it. There is room to raise taxes and, just as Greece is doing, expenses will be cut when the time comes.

The problem with a monetary analysis is that it leaves out that the US happens to be blessed with more resources than any other country with possibly Brazil a close second. The US still has the capability to sustain itself to a greater extent than most other developed countries. If things get to the point that all hell is breaking lose around the world, commodities will crash not soar.

Fri, 03/05/2010 - 15:11 | 255153 Ned Zeppelin
Ned Zeppelin's picture

Do not fret over the mechanics of how devaluation would be carried out.  This article, while containing many valid points, sets forth the view of the "gold bug," one that makes the point . . . well, "that it is all about owning GOLD, b*tches."  That is, the way to protect yourself against devaluation is to own something else that cannot be devalued, since it has "value" that is fixed and objective, as opposed to the relativistic world of fiat currencies.  But a 55 gallon drum of oil might (and does) serve the same purpose, as does a bushel of wheat, or a share of stock in a "real" company.  Or guns, ammunition or 12 year old single malts, if you want stores of value that do double duty and might come in very handy should devaluation occur.  

You don't have to buy into that - many posters here do, and it is certainly a point of view with substance behind it.  But a good discussion of how fiat currencies could work is also fair game. 

Fri, 03/05/2010 - 15:12 | 255159 merehuman
merehuman's picture

Said "vested interests " appear to be killing the country. Is that their goal or is it just cowardly ass covering under the influence of greed?

I see us, the population as being under attack from our own greedy bastards while other countries have their own reasons for our destruction. Some (China) may have a long term plan . Since flooding our markets with their cheaper earth minerals in the 90s and flooding our markets with their cheap goods since then ,many of our businesses have closed or moved production to China. They have seduced us with our own greed.

War appears more like an outcome.

Should all the people bear the karma of the few?

This then is the price of our collective ignorance, apathy and delusion?

Since this is a nuclear age, where seconds , words and trust and lack of same can have fantastic consequence of destroying most life on Earth.... I too feel the danger.  I bet most of you have considered this, but none of us want to. Yet this is where things are heading.

Can we affect the outcome , since it will indeed affect us all?

Fri, 03/05/2010 - 15:35 | 255218 Lux Fiat
Lux Fiat's picture

War has been a time-honored tactic by so-called leaders to divert the energies and attentions of a disaffected populace during times of economic distress.

However, I have another perspective on the statement "I see us, the population as being under attack from our own greedy bastards..." 

If most people of voting age want to look at one of the biggest causes of our current fiscal problems (which have been decades in the making), they have only to gaze in the mirror.  To many people don't vote at all.  To many people who voted threw common sense to the wind for years and believed politicians when they told them there was such a thing as a free lunch.  To many people who are receiving the immediate largess from overspending aren't contributing a dime to pay for it.  We need a lot more people to clue in to the fact that the free lunch is laced with arsenic.

Fri, 03/05/2010 - 15:14 | 255163 jc125d
jc125d's picture

Could be we will soon get the Amero as our regional currency, turning in our dollars at really bad rates. Could be time to examine how it happened when our friends 'over there' got the Euro pushed on them.

Fri, 03/05/2010 - 16:23 | 255303 Anonymous
Anonymous's picture

Personally, I think this would be a more viable option stictly due to the fact that people wouldn't truly know what to take from such a move, hence greatly reducing political risk or any chance of mob revolutions.

If (insert whatever prez/tres sec here) were to go on tv and state "Please turn in your $10 bills for $100 bills, everything is going down a peg", even the most apathetic of peoople would become mad enough to hit the streets and all political bias would go mute.

But if the announcement came out that we are adopting a new "strong" currency, it would have a differenct psychological impact on people. A lot of people wouldn't know whether they should be furious or breaking out in block parties.

Fri, 03/05/2010 - 15:27 | 255198 Econophile
Econophile's picture

Why go to all the trouble of devaluing when the Administration will do it for us: debt, debt, debt, Fed pumping, etc., etc.

Fri, 03/05/2010 - 15:31 | 255207 Anonymous
Anonymous's picture

I own some gold and silver, but I have no doubt in my mind that if the currencies of the world tanks, it will be 1932 all over again but on a global scale. The next currency will HAVE to be backed with something. We will return to currencies backed by precious metals and guess what? They are going to confiscate my gold and silver and give me paper for it in the amount THEY deem it's worth. They will destroy the precious metal market by outlawing it's private ownership just like they did in 1932. Problem is that it will be done on a global basis so there won't be anywhere to hide it like back then. TPTB aren't going to allow me to profit while the majority of the population takes a haircut. Crazy? Maybe, but makes just about as much sense as many other theories I read.

Fri, 03/05/2010 - 16:39 | 255322 nikku
nikku's picture

If you have enough gold to worry about (many never turned in their small amounts of gold back in 1932), you are crazy to store it all in the US.  Swiss banks, even though you have to report to the US government, will not help the US steal your real money.

Fri, 03/05/2010 - 15:39 | 255227 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Current seas.  Hmmm....I have much anticipation for reading the thoughts of this article.  Certain one's that ZH prints are of the most use, Thunderroads being one.  Gold is a little discussed topic; by this I mean in population.  Due to the gold bugs nature, it is often discussed, but how few gold bugs? 

The devaluation should especially be at the forefront of all "investors" minds, but also should be made a public debate by Treasury, the Federal Reserve Bank, and the White House and Congress, so as to inform the people of America that there will continue to be big changes in the world's economies.

Qs: How? -continued slowly over the next year or two, or with a banking holiday?  and, When?  holiday next fall?  False Flag to set the stage? 

Fri, 03/05/2010 - 16:15 | 255284 Anonymous
Anonymous's picture

Unfunded social programs can also become funded by taxes. Tax the rich-- they have more than their share (the highest since 1929). Cutting social programs like social security without taxing the rich is a sure-fire recipe for socialist revolution. You better fucking believe it. The rich do nothing productive, and receive a disproportionate share of the profits of any and all productive capacity. The service they provide (capital to build productive capacity) can be more efficiently handled by democratic means.

No one complained about unfunded social programs in the 50s. Instead, we built the interstate system that we can't even properly afford to maintain anymore. How? 70% income tax for the top tax bracket and record income equality. Government programs allowed banks to issue mortgages. Lo and behold, the economy grew like crazy.

Socialism works, bitches. If you really care to bring up the failure of the USSR, remember that they built their nation up from complete devastation at the end of WWII to compete effectively with the largest economy in the world, whereas our factories were never bombed. We may have kept our lead, but it was a hell of a lead. And though they collapsed economically, 20 years later we are hardly better off...

One thing about socialism is that it actually works better at medium scales, and when it is entirely voluntary. Unified action is undeniably powerful. Consider the rise of the corporation-- although it is more of a microcosm of fascism with its rigid hierarchy, it highlights the ability of groups of people acting in solidarity to create wealth.

If you disable the social support programs, you will cause unbearable hardship, political instability, and quite possibly the dissolution of the United States. That world government thing you're so afraid of? Your prescription for the economy moving forward is the surest way to get there.

Fri, 03/05/2010 - 16:53 | 255342 Agent P
Agent P's picture

Holy shitballs!!!  Are you fucking serious?  You're living in the wrong country, comrade...get the fuck out!

Fri, 03/05/2010 - 16:58 | 255354 Anonymous
Anonymous's picture

Let's keep this simple:
Stalin killed millions of his own people under the flag of Socialism and its wonderous rewards.
Mao killed millions of his own people under the flag of Socialism and its wonderous rewards.

People are dictated by motivations. Some people have greater appetites than others. The purpose of society is to allow people to express their desire to fill these appetites in a manner in which (ideally) will not harm anybody else. Socialism places a damper on the pursuit of personal fullfillment based on the popular notion (read mob mentality) that all qualities of desire are equal, and that all methods or choices of personal fullfillment are equal. Simply put, this popular notion is absolutely false.

The abilities and desires of a fry cook are not within the same realm of the abilities and desires of a heart-surgeon as one requires much greater sacrifice, determination, and intellect to achieve. Such vast level of constitution eliminates the abilities and desires of many people, hence putting such an achievement at level of rarity that surpasses that of the fry cook's. Yet, if society has placed a barrier which attempts to disrupt the harmony of convictions and rewards, then there will be an imbalance which may have devestating results on that society, such as a shortage of heart surgeons since those who would potentially pursue such a profession would receive the same level of reward doing something of less value.

I understand if you have a contrarian belief or understandings, but think about what you just stated. You just stated that it is justified for governments to exterminate millions of its own people to build trains, planes, and other fun things. If that is the case, please do everyone else a favor and put a .45 to your head and spare us your troll propaganda and misstatements.

Fri, 03/05/2010 - 19:44 | 255625 msjimmied
msjimmied's picture

"The purpose of society is to allow people to express their desire to fill these appetites in a manner in which (ideally) will not harm anybody else."

True...but ideals or principles do not exist anymore. Go beyond the known isms. What we have is a crisis of too many outmoded isms. None of them worked. Government, as it exists, to act as a fulcrum between the people and corporations does not work either. All our book knowledge and theories are out the window. Everything we know is crumbling before our eyes...time to find a new paradigm.

 

Fri, 03/05/2010 - 18:04 | 255463 Lux Fiat
Lux Fiat's picture

Took a history course in college taught by a self-described communist because I don't believe in knee-jerk reactions and unquestioning dogma.  The professor did make an interesting and seemingly valid case that at least from the gilded age and onward, broadbased public debate over serious and divisive issues has been on the wane.  Clearly, continuing voter apathy has allowed greater and greater concentration of influence in the hands of fewer people and entities, and the judiciary.

However, communism and socialism both suffer from a fatal flaw in that they assume/require that everyone will pitch in happily and with gusto for the sake of the greater good.  From my perspective, this ignores a fundamental part of human nature - many need motivation (survival, chance at a better life, etc.) to become productive members of society.  Humans by nature are also very hierarchical and territorial.  Economic and social systems that recognize and embrace these characteristics will allow people to thrive.  Economic and social systems that don't will ultimately result in a death spiral, with totalitarianism along the way as force and coersion are required to suppress or fruitlessly attempt to change normal human behavior. 

Also, if the USSR is so wonderful, why is it that people who dare to differ to disagree with the government often wind up dead or in prisons that make ours look like the Ritz?

Fri, 03/05/2010 - 19:30 | 255601 Anonymous
Anonymous's picture

Sounds like we could be just like good ol' Weimar, we could have fights between the fascists and communists in the streets.

Too bad the "communists" in this country are just a bunch of punk college kids who'd shit their pants when a rifle gets pointed in their face.

Dissolution would not be bad, regionalism is likely to be a reality in a world constrained by finite resources.

Fri, 03/05/2010 - 20:28 | 255673 Crime of the Century
Crime of the Century's picture

No one complained about unfunded social programs in the 50s.

And then came LBJs Great Society, and then fun time in the big cities. How did progressive "model city" Detroit fail again? Let me emphasise that again. Detroit was a Government Model City. The closest we have come to a real socialist experiment. Yeah, you'll get it right - next time...


Fri, 03/05/2010 - 23:02 | 255796 Lux Fiat
Lux Fiat's picture

Are you for real, "Anonymous", or did you just put this out there to bait (successfully) a bunch of readers?

Fri, 03/05/2010 - 16:25 | 255305 CheapKUNGFU
CheapKUNGFU's picture

Nothing to add, other than my signature!

 

I am not Chumbawamba, buy gold 'n' silver... bitches!
I trade the FX markets, nothing turns me on more than turning the digital bullshit (fiat) money into a debt free life... heh
CheapKungFU

Fri, 03/05/2010 - 20:07 | 255645 Anonymous
Anonymous's picture

Full Spectrum Dominance. Bitches

Sat, 03/06/2010 - 08:08 | 255974 Grand Supercycle
Grand Supercycle's picture

 

I'm still expecting a good Dollar rally this year.

http://www.zerohedge.com/forum/market-outlook-0

Sat, 03/06/2010 - 10:44 | 256020 Anonymous
Anonymous's picture

purchasing power of the buck has already been reduced to about 5 cents. elvis has left the building.

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