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Please read my latest entry and post your comments here:
http://pensionpulse.blogspot.com/2010/05/is-world-heading-towards-parity.html
Thank you,
Leo Kolivakis
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Of course we are headed to parity. All developed countries share the same malaise and since all currencies share the same fiat base, then all paper is worth the same - nothing. There is little point in recognizing adjustments for earning power from country to country to repay the debt associated with any one currency as the debt loads are all essentially unrepayable. The more interesting question is what is the effect of this parity on the currencies of the other countries such as China, the Emirates, Saudi Arabia and the BRIC countries?
I think what you are getting at is that we are heading for a world where everyone is similarly impoverished. The ultimate parity.
I would have said the same thing but not as well.
The only viable universal currency parity is gold based.
If Europe can't manage a single fiat currency neither can the entire world.
Parity makes perfect sense.
At zero.
as ludwig von mises already stated in 1928 the ultimate goal for central banks to rule the world is to introduce one global currency
As stated long before that, the ultimate goal is actually this:
"He causes all, both small and great, rich and poor, free and slave, to receive a mark on their right hand or on their foreheads, and that no one may buy or sell except one who has the mark or the name of the beast, or the number of his name."
Don't miss this opportunity to go all-in with the one true and living God.
Mammon is a poor alternative.
Ok I'll file that away for future reference. Meanwhile I have a family to feed.
GLOBAL DAY OF JUBILEE. The people of the world become debt slaves perpetuity, but the governments all get bailed out.
How about subparity?
Deleted.
Yes, but as mentioned by Panafricanfunk (if I recall correctly) a few days ago, the point of slashing public sector wages and social benefits is to augment the value of government debt for the debt holder's benefit. As I've said in the past, government bond holders should take the haircut, not public employees or social services recipients.
IOW, lenders should not have lent to the state money to allow the state to provide benefits in excess of what could naturally be maintained in the absence of debt. Therefore, the reduction of public sector wages and social benefits should be to the level the state and society are able to set in the absence of debt. Any reductions beyond that amount are there purely for the benefit of soveriegn debt holders (that is, yet another subsidy for the lenders who should never have lent in the first place).
thanks, great point...any country that been thru 30 years of IMF debt repayment should know this....default/haircuts and move on...a bankrupt country will face many of the issues of bankrupt individual, hard to get credit etc...but they won't be debt slaves for the rest of their lives...IMF was almost out of business due to their horrible reputation...but now they are back.
Bailout of Greece via IMF etc is not a bailout for Greece's benefit, they would be better off defaulting, its a bailout of the German, French and other banks.
Does this make any sense to anyone?
"raw power is supporting soul, gotta son called rock n roll."
I remember Meat Loaf singing the following from the RHPS:
"Hot patooti, bless my soul. I really love my rock and roll"
How about The Cramps with "You gotta live until you're dead you gotta rock till you see red"
Leo, Two days ago you were arguing that "A little QE was a good thing". Now you are suggesting that QE leads to crisis. So which is it? You should make up your mind.
My answer is that QE=Death.
It is just is a question of time. The EU is now dying. America is saved for the moment only because the crisis appears to off our shores. It isn't. The problems of the EU are coming here, and QE will be the reason given in the history books for the collapse that is coming.
Any Central Bank that resorts to quantative easing is admitting that it is BANKRUPT. The system needs to be reset... collapse? we have just not admitted it yet but it is coming.
Well said, Bruce.
Leo's post are starting to appeal only to those that suffer with schizophrenia.
Bruce,
Pick up a copy of Graham Turner's book, No Way to Run an Economy. He clearly demonstrates that QE got us out of the Great Depression, and provides ample evidence of this. It's not QE that will kill us, it's the fact that we're postponing tough fiscal choices. So as we increase QE, but neglect fiscal restraint, we avoid the underlying problem, effectively masking it hoping we can grow our way out of it.
It's too early to tell whether QE will help us out of this mess. I still expect risk assets to be bid up as the tsunami of liquidity works its way into the financial system. But another financial bubble is not the solution either and ultimately we risk a prtracted bout of deflation. Maybe that's why currencies are behaving this way.
if monetized debt was used for productive, practical goods and services, employing people while improving the nation but it is used to give banks reserves and trading profits... QE bad, very bad.
Leo,
I question your analysis of history. The US created a big debt bulge in the post depression/WWII period. But that was not QE. They sold savings bonds. They had bond drives all over the country. They featured war hero's as they guys selling the notes. The country lined up to buy these and private savings was channeled to meet the demand.
That is not QE. QE is when the central bank buys the bonds that the treasury issues. Instant money creation.
I asked you this the other day. Please show me any case in history where QE has worked. It never has, it never will. The best example of QE is Argentina.
I am surprised that the IMF will participate in the EU bailout. They are dead set against QE. It is the worst possible policy option. It has never worked. It will fail miserably this time as well.
From the FT blog, written back in Ocotber 2008:
Why we should aim for quantitative easing October 10, 2008By Graham Turner
The markets have given their emphatic response to the banking bailouts put forward in the UK and US. Both rescue packages are flawed and will fail to stem the slide into not just recession, but possibly a global depression.
These bailouts were aimed at the symptoms, rather than the cause. Money markets are frozen because nobody knows how far property prices will slide, or the scale of losses banks will suffer. Banks are deemed insufficiently capitalised for the same reason.
The policy response of Western governments has, therefore, been back to front. If they solved the underlying problem – chronic property deflation on a scale not seen since the 1930s – liquidity will eventually return.
There is only one conventional policy that will work: deep interest rate cuts followed by a shift to quantitative easing.
Last week’s coordinated rate of just 0.5 per cent was token. Japan slashed its overnight rate to zero during its long economic downturn. If the US and UK want to get Libor rates to fall, then they should start by pushing overnight borrowing costs down to 0.0 per cent.
But, as we saw in Japan, that may well not be enough. The recapitalisation of banks in 1998 is often cited as a successful intervention that turned the corner for Japan. That is not true. The stock market did not hit its lows until April 2003.
The tide only turned when long term interest rates were pegged down at low levels too, with the Bank of Japan buying government debt. This is the essence of quantitative easing. The Ministry of Finance was also allowed by the US administration to intervene in the currency markets and drive the yen down.
Clearly the latter is not an option for the world economy. But driving down both short and long term rates is a far better policy weapon than the current stream of government initiatives, which will wreak havoc with the public sector finances.
Today’s partial recapitalisations of banks are not the answer because they will accelerate the slide into a debt trap. In the absence of radical monetary easing, the increased government borrowing to fund quasi nationalisations will ensure bond yields remain elevated. We are repeating many of the mistakes made by successive Japanese governments during the 1990s. They allowed the JGB curve to steepen and that delayed the much needed decline in borrowing costs. It would be better if governments in the West simply nationalised struggling banks outright. But even this still has to be funded through quantitative easing, otherwise, there will be classic crowding out as idenitified by Keynes.
Indeed, Japan saw its public sector debt burden soar from 65% to 175% of GDP between 1990 and 2005. This increase in public spending was not Keynesian. For much of this period before the BoJ started buying government debt aggressively, it caused bond yields to remain elevated relative to short rates. Lending rates did not fall quickly enough, and Japan became embedded in a cycle of debt deflation.
The US, UK, and many others are heading in the same direction. In Japan, property prices are still falling 18 years after the bubble burst. The Nikkei 225 has slumped 79% since the end of 1989. A commensurate collapse in asset prices across the rest of the Industrialised West will inflict grevious damage on savings, pensions and public services. Unemployment will rise remorselessly.
There is no guarantee that such a radical monetary policy will succeed. Central banks may have left it too late. Cutting the Fed funds target to 0% is necessary, but is unlikely to suffice. Driving the 30-year Treasury yield down to Japanese style levels, of 1% or so, may not be enough either.
Leaving it this late means the impact of these policies will be severely diluted. Monetary reflation only works if it is adopted in time. Had Japan cut interest rates and introduced quantitative easing much earlier during its long economic downturn, it could have avoided much of the deflation that scarred the nation.
However, the US and UK authorities should still act. Governments were slow to respond following the stock market tumble of 1929. Nevertheless, from 1932 onwards a Keynesian monetary policy did play its part in slowly turning the tide.
The UK has more room for manoeuvre. Short rates remain at penal levels, and the housing market has only been turning down for a year, compared to nearly three in the US.
But the risks remain huge. With one honourable exception, the MPC has unforgivably exaggerated the inflation risks. The FOMC has miscalculated too. Commodity prices are plunging. The reality of the emerging markets boom has been laid bare by the brutal sell-off seen over recent weeks. Much of their economic growth was not predicated on ‘globalisation’, but a surge in private domestic credit, in many cases, bigger than that seen in the West. So far, the downturn in the world economy has been driven by a retrenchment of the Western consumer. It will now be accelerated by a contraction of emerging market demand.
Inflation will drop like a stone over the next two years. It was never the predominant threat. Debt deflation has always been the more sinister curse. It is an ugly combination that can prove almost impossible to eradicate once central banks fall behind the curve, as they have done in the West.
Graham Turner of GFC Economics is author of “The Credit Crunch” (Pluto Press)
You quote a guy who has this to say:
"There is only one conventional policy that will work: deep interest rate cuts followed by a shift to quantitative easing."
Leo this guy is dead wrong. Turn on your screen and see the evidence. QE has never worked, it will not work this time. It just buys time and makes the ultimate crash worse than it might have been.
It may already be too late to reverse the consequences of QE. We shall see. History will prove that this is a bankrupt policy. When and if the CBs come out with a policy of no more QE ever, then we will have a chance. But not before.
I am an investor. My voice counts. I will not invest in anything that has an outcome based on the success of QE. Every day a new army of people who think like me are formed. We simply do not believe in this crap any longer. We will determine the outcome of this. Not Sarkozy. Not J.Steigliz and all the others who think this is a reasonable approach.
They need us to play in their sand box. But we choose to play elsewhere.
Bruce,
Graham Turner is one of the best independent economists in the world. He has top institutional clients, and predicted all these crises way ahead of everyone else. At the end of the day, if QE fails, we're doomed. Don't tell me otherwise.
I don't doubt Mr. Turner's credentials. I just think he is wrong. What you are saying is that QE is the only option available. That is not true. It never was. This was a choice that was made to try to sustain something that is not sustainable.
We are now pregnant with QE thanks to guys like Mr. Turner, Steigliz, B.B and all the others. It is a bankrupt policy. When the forces of the market turn on the US (they will) you will come to the "dark side".
Bruce,
You are a smart guy, so let me ask you, what do you think would have happened if these non-market measures were not taken? Unemployment would have soared to 25% or higher. Do you really think the US or Europe can live through another Great Depression? Don't get me wrong, I do realize these bailouts just help banksters, but the reality is the US economy has been recovering, albeit at a very slow pace. I prefer a buffer; you and others here prefer shock therapy. As a person with a social conscience, I can't accept the "do nothing and let them fail" approach. This is just economic suicide. That treatment is worse than the disease.
Leo,
How much has QE helped the euro in the past week? By definition, the purchasing power and the asset values of all the people who hold euros have been impoverished in comparison to almost every other currency in the world due to QE. All those people have been impoverished during the past week.
All that QE has accomplished is that the pain has been spread to everyone instead of only to the guilty. So in this country, instead of a 25% unemployment rate, we have an 18% unemployment rate and, thanks to QE, we have encumbered the future financial freedom of our children and our childrens' children (and thereby impoverished them) so that we don't have to suffer today for the consequences of our actions.
In a world of ZIRP, the only way to stimulate your economy is by devaluing. They knew that QE would kill the euro, and don't kid yourself, that's exactly what they want. Remember, central bankers and the financial elite want to fight off the very real threat of deflation. Devaluing the euro, just like devaluing the dollar, will increase import prices. They're in a battle of their lives, and they know it.
You are compartmentalizing it, Leo. Each currency is not a closed system. There are interdependence factors that will metastasize.
Leo, Yes, the US and EU could live through another depression. At least, those that are prepared can. QE is just a fancy way to take the edge off of what the process really is...counterfeiting. QE harms those that save prudently. It penalizes those that are on fixed incomes, like pensioners. Either course of action, "Bailout" or "Do Nothing" has consequences. The difference is that Bruce and I don't have to directly pay the costs of Do Nothing. Failure is essential in the (formerly) free market. It forces participants to make rational decisions, to be prudent with capital, and perform due diligence. Diminishing or removing the prospect of failure is economic suicide. It's just suicide by sleeping pills, rather than a more graphic method.
Ok, so you can sleep at night knowing that 25%-35% of the population is unemployed? I can't, and while I agree with you that some form of failure (and regulation) needs to be implemented, the Lehman lesson scares the shit out of me.
Leo,
Unfortunately, we are already near the 25% unemployment mark. The SGS ALT-U6 number is cresting 22%. I can sleep, knowing I don't have all my assets tied up in paper, and that I and my family are well-stocked and armed. I realize that much of the populace is not similarly equipped. While another round of Lehman and AIG-like failures would certainly be disruptive, the best course of action would be to let the Bankruptcy system (detestable as it frequently is) dispose of the assets, and get the useful parts/assets of the business re-deployed to productive uses as quickly as possible. Subsidizing failed and failing institutions is not a productive use of labor or capital. Similarly, printing more funny money won't fix the problem. The Fed is trying to do the equivalent of "playing the float" on a checking account. There is a lag between the introduction of QE, and the realization by economic actors that their purchasing power is being eroded. The problem is that this window of time is increasingly shorted due to technology, and the time it takes for increased productivity and economic activity to take holds far exceeds this window. Money is not value, and printing more of it does not increase value economy-wide.
Leo, you are a smart guy, right about many things. On this QE thing you are just plain wrong. It is, and never has been, the right thing to do. No need to pursue lengthy reasoning on this matter at this point. Others here have said it already. You are just in the wrong camp. Now, with that said, I'm moving right along. Looking forward to your next missive.
There are a lot smarter guys than me who also see the value of QE. To say "I am just plain wrong", you also need to come up with an alternative. Shock therapy?
Well, since you asked, the answer is yes. Sooner or later the shock will come. We can have it now, or later. If now it will be less severe than later. We can wipe up the mess with a sponge today, or take a hammer and chisel to it later. Less work, less pain today. More pain, more work later. Our great country has been pampered to the point that nobody can lose, nobody is second best, everybody gets a trophy, and assets always go up in value. Apologies to Garrison Keillor.
+1,000,000,000,000 and counting.
IMF gets payment preference over all others, sorry suckas when everyone else takes a haircut on their bailout contribution, IMF will get theirs.
Leo, aren't QE and and postponing tough fiscal choices the same thing?
Yes and no. QE is being used as a by monetary authorities to provide enough liquidity to the banking sector so credit can flow into the real economy. The tough choices I am talking about is on entitlements, pensions and taxes, basically political choices. One has immediate effects, the other is more of a long-term structural problem.
Understood. But IMO both are long term structural. Credit isn't flowing into the real economy, but rather being used to monetize debt, (allowing us to avoid tough choices) and enrich TBTF. Meanwhile TBTF rakes in billions and the can gets kicked a little closer to the brick wall.
James Galbraith is an economist and the Lloyd M. Bentsen Jr. chair in government and business relations at the University of Texas at Austin. He's also a skeptic of the prevailing concern over America's long-term deficit. With many people now comparing America's fiscal condition to Greece, I spoke with Galbraith to get the other side of the argument. An edited transcript of our conversation follows.
EK: You think the danger posed by the long-term deficit is overstated by most economists and economic commentators.
JG: No, I think the danger is zero. It's not overstated. It's completely misstated.
EK: Why?
JG: What is the nature of the danger? The only possible answer is that this larger deficit would cause a rise in the interest rate. Well, if the markets thought that was a serious risk, the rate on 20-year treasury bonds wouldn't be 4 percent and change now. If the markets thought that the interest rate would be forced up by funding difficulties 10 year from now, it would show up in the 20-year rate. That rate has actually been coming down in the wake of the European crisis.
So there are two possibilities here. One is the theory is wrong. The other is that the market isn't rational. And if the market isn't rational, there's no point in designing policy to accommodate the markets because you can't accommodate an irrational entity.
EK: Then why are the bulk of your colleagues so worried about this?
JG: Let's push a bit deeper on the CBO forecasts. They publish a baseline set of projections. One of those projections holds the economy will return to a normal high-employment level with low inflation over the next 10 years. If true, that would be wonderful news. Go down a few lines and they also have the short-term interest rate going up to 5 percent. It's that short-term interest rate combined with that low inflation rate that allows them to generate, quite mechanically, these enormous future deficit forecasts. And those forecasts are driven partially by the assumption that health-care costs will rise forever at a faster rate than everything else and by interest payments on the debt will hit 20 or 25 percent of GDP.
At this point, the whole thing is completely incoherent. You cannot write checks to 20 percent to anybody without that money entering the economy and increasing employment and inflation. And if it does that, then debt-to-GDP has to be lower, because inflation figures into how much debt we have. These numbers need to come together in a coherent story, and the CBO's forecast does not give us a coherent story. So everything that is said that is based on the CBO's baseline is, strictly speaking, nonsense.
EK: But couldn't there be a space between the CBO being totally correct and the debt not being a problem? It seems certain, for instance, that health-care costs will continue to rise faster than other sectors of the economy.
JG: No, it's not reasonable. Share of health-care cost would rise as part of total GDP and the inflation would rise to be nearer to what the rate of health-care inflation is. And if health care does get that expensive, and we're paying 30 percent of GDP while everyone else is paying 12 percent, we could buy Paris and all the doctors and just move our elderly there.
King Dollar also backed by military power. Guns, gold and gasoline, ladies and gentlemen.
"raw power is supporting soul, gotta son called rock n roll." - Iggy Pop
Errr, due to differences in size, population, assets etc. I doubt that parity is possible.
Of course, but it is possible we're going to see currencies migrating towards parity because of all this QE in reaction to sovereign debt concerns?
Leo, Good article, thanks.
I maintain that the flight to the dollar is simply a matter of USD being the least stinky turd in a giant pile of really really stinky turds.
How true, Colonel. It will only smell when the other stinky turds get neutralized.
For now, though, the USD is the shiznit... until it's not.
In other words, it's time to parity like it's 1999.
I can't believe I just said that.