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Guest Post: Why the U.S. Dollar Is Not Going to Zero Anytime Soon
Submitted by Charles Hugh Smith from Of Two Minds
Why the U.S. Dollar Is Not Going to Zero Anytime Soon
The market considers a variety of inputs in pricing the value of a floating currency. The dollar has more going for it than is generally understood.
The conventional view looks at the domestic credit bubble, the trillions in derivatives and the phantom assets propping the whole mess up and concludes that the only way out is to print the U.S. dollar into oblivion, i.e. create enough dollars that the debts can be paid but in doing so, depreciate the dollar's purchasing power to near-zero.
This process of extravagant creation of paper money is also called hyper-inflation.
While it is compelling to see hyper-inflation as the only way out in terms of the domestic credit/leverage bubble, the dollar has an entirely different dynamic if we look at foreign exchange (FX) and foreign trade.
Many analysts fixate on monetary policy as if it and the relationship of gold to the dollar are the foundation of our problems. These analysts often pinpoint the 1971 decision by President Nixon to abandon the gold standard as the start of our troubles. That decision certainly had a number of consequences, but 80% the dollar's loss of purchasing power occurred before the abandonment of dollar convertibility to gold.
The depreciation from 1971 on looks rather modest on this chart. Clearly, dropping the convertibility of the dollar to gold did not change the overall depreciation dynamic much; the dollar had been losing purchasing power since the turn of the century.

Here is the dollar's purchasing power plotted by another source. Note how the purchasing power fluctuated significantly in the 19th century. The emergence of the (privately owned) Federal Reserve as the issuer of the dollar accelerated the dollar's depreciation--a decline interrupted only by the deflationary Great Depression.

To understand the dollar's primary role as a means of exchange for trade, let's start with the relative size of the foreign exchange market. The FX markets trade some $2 trillion a day, far larger than either the credit or stock markets.
Fiat currency is the ultimate phantom asset. It is quite miraculous when you think about it. We print some symbols and images on a piece of paper, and we can exchange that intrinsically worthless paper for real goods and materials: oil, electronics, vehicles, and so on. That magic privilege is certainly worth maintaining.
So why would anyone trade real tangible wealth (say, oil) for specially printed paper? There are basically three reasons:
1. They can use the paper to buy goods and services from other nations.
2. They can buy bonds with the paper money that will draw interest and be paid as promised.
3. When the money is withdrawn to exchange for goods and services, it has retained the vast majority of the purchasing power it held when deposited.
If we look at the charts above, we might wonder why anyone would accept U.S. dollars (USD) as payment for real goods when it so steadily loses purchasing power. The answer can be found by re-reading the three conditions above: if the USD draw interest, and that income is larger than the loss of purchasing power, then the money will still retain its purchasing power when withdrawn.
For instance, if the USD deposits draw 5% annual interest and the USD loses 3% of purchasing power every year, the owner of the dollar still earned a 2% positive return.
There is another interesting feature of interest-bearing bonds: as interest rates decline, the bond rises in value. This sets up the delicious irony of the Chinese whining about their $1 trillion in U.S. Treasury bonds earning such low yields, while in fact their holdings have greatly increased in value as interest rates have declined.
But what underpins a fiat currency's purchasing power? Ultimately, the value of any paper (free-floating) currency is based on the issuer's ability to enforce claims on reliably stable income streams and assets.
Any nation that promises to pay interest on bonds denominated in its currency must be able to enforce its claim on the national income via taxation. If the national income is too unreliable or unstable to support the claim, the international community loses faith in the currency and it depreciates to zero even if the currency isn't printed with abandon.
In other words, the value of the currency as an international means of exchange is not just a function of monetary policy or money supply; the market "prices" a free-floating currency on a number of factors, all related to the three above points.
We all understand gold is an asset. The key to understanding Nixon's decision to break the international convertibility of the dollar to gold was the transition of the U.S. from a net exporter to a net importer.
In the 1960s, France famously demanded that the trade imbalance between the U.S. and France be settled in gold: when the U.S. ran a trade deficit with France, the "amount due" France had to be paid in gold.
Once U.S. domestic oil production peaked and it became necessary to import oil, the U.S. became a net importer in a deeply structural sense. With the dollar convertible to gold, eventually the exporting nations would have ended up with all the U.S.'s gold, and that was not going to happen.
The solution was to float the dollar and trade paper money for the oil.
(There is another fundamental reason why the U.S. became a net importer not just of oil but of finished goods and raw materials, and we'll look at that later.)
But the magic of trading paper for oil could only be maintained if the paper retained the vast majority of its purchasing power over typical investment timeframes.
In this, the U.S. held the immense advantage of issuing the reserve currency, i.e. paper money accepted globally for payment of debts. But this privilege was not magic; the currency still had to reliably draw interest and retain its purchasing power.
Ultimately, the USD retains its value based on the U.S. government's claim to the nation's immense income stream, its assets and its ability to attract international capital.
We can understand the market's "pricing" of these variables by asking: if we had to hold a currency for trading purposes, i.e. to settle debts resulting from global trade, and we needed to hold some of that currency for five years, which currency would be most likely to retain its purchasing power, based on the income stream, assets and capital flows of the issuing nation?
This question illuminates the varied nature of assets. Yes, gold and oil are assets; but so is enabling the free flow of international trade, for example. We can ask the question somewhat differently: is it within the power of the currency's issuer to mandate its purchasing power five years hence? How much of the market's "pricing" is outside the control of the issuer?
Take the euro as an example. Does anyone seriously believe the European Central Bank (ECB) retains sufficient global control over the euro's valuation to mandate its value five years hence? The currency's viability is in question even now, never mind in five years.
Clearly, much of the market's pricing of the euro's value is outside the control of the euro's issuers; whether they admit it or not is irrelevant.
In a similar fashion, China dares not let the renminbi float lest the market "price in" the instabilities implicit in China's economy and trade. If we were able to tote up true capital flows out of China, it is entirely possible that capital flows have reversed, and more capital is flowing out of China into the U.S. than is flowing from the U.S. to China.
If we don't understand capital flows are assets, then we understand neither capital flows nor what constitutes an asset.
How about Japan? The yen is currently viewed as a "safe haven" due to the great stability and wealth of Japan. But two decades of massive deficit spending and debt accumulation are finally putting pressure on Japan, Inc., and those willing to bet the yen will retain its current purchasing power for five more years are taking on an extraordinary amount of risk that has yet to be priced into the yen.
Once again, the question boils down to how much of the yen's purchasing power is in the hands of its issuers. For 20 years, Japan's domestic purchases of its own debt kept the global market at bay. As domestic savings rates dry up and the ageing Baby Boomers start cashing in their bonds and drawing pensions, the system may finally be exposed to global market "pricing" of risk. That exposure could destabilize the yen's position as "safe haven."
Whatever your calculus, it is self-evident that of all the issuers of major currencies, the U.S. retains the most control over the elements the market uses to "price" the risk that the dollar's value as a means of exchange and store of value is unsettled.
There is yet another way to understand the market's valuation of the dollar, and any other floating currency. If you are holding a large amount of a nation's currency, the ultimate value of that currency can be discovered by what you can buy in the issuer's nation with its paper money. If restrictions on foreign ownership crimp what you can buy, the currency's value reflects that. If there is relatively little of value to buy, or the risks of ownership are high, then once again the market will mark down the "price" of that currency.
Despite its myriad problems and challenges, the U.S. allows a fairly broad range of foreign ownership of land, corporations, etc. If you have surplus dollars, you can buy property or an oil well in the U.S. It may not produce much oil, but the output can be sold domestically and its value is relatively easy to calculate. The U.S. economy is vast and there's a wide variety of things and assets to buy with your dollars. In other words, there is a vast market that will accept your dollars in exchange for tangible goods and assets.
I have made the case technically for over a year that the U.S. dollar has reversed its long downtrend and is now in a structural advance. If we examine the multiple dynamics of FX, foreign trade and the market's pricing of currencies, we can discern a strong fundamental case for this advance as well. There is no magic in free-floating currencies, there is only the market discovering the price of numerous inputs, only some of which are easily quantifiable.
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The USD is a barbarous relic.
Markets are coming back hard...from -225 to -175 in 10 minutes. What happened? Did Bennie just announce more hopium?
PPT logs on at 10:30
Off the session lows...
What is missing from this artcle is a chart of immigration. Multiculturalism is literally going exponential, and NOBODY wants to talk about it, EXCEPT for RON PAUL. If Ron Paul doesn't win the upcoming elections, there is little hope for America. Our country and culture have been overunn for so long by multiculturalism that I fear it may be too late.
I agree with your point, but am surprised you would even contemplate Ron Paul winning the presidency at this point. Multiculturism has been a failure, take a look at London, or Paris, and one can see why. The Shiates and their 2nd century beliefs.
As opposed to Christian 1st century beliefs or the prewritten-history orally-transmitted beliefs of the Jews. And, BTW, it was the 7th century when Islam was founded and not long after the Prophet Muhammeds (PBUH] death that the Shi'a split from mainstream Islam - they were looking for dynasty.
The country will most likely spit up into Miami, California, Alaska, north east, Midwest most likely combining with Canada except Quebec, Hawaii, something to that effect.
You can live in your white country and lobby for all the fences you want to build in a few short years.
Unless Americans propagate more quickly, the border will remain open to ensure more consumers are available to fuel corporate interests.
Profits are the goal of TPTB. All current economic models require constant expansion.
Did anybody actually bother to check Ron Paul's immigration proposals?
(crickets)
“As long as our borders remain wide open, the security and safety of the American people are at stake.”
Ron Paul : Extracts from summary of video SECURE OUR BORDERS on RonPaul2012.com – A Matter of National Security:
A nation without borders is no nation at all…
Ron Paul…has been proud to see states exercising their Tenth Amendment rights and protecting their citizens by refusing to comply with the unconstitutional REAL ID law.
While the federal government neglects its constitutional responsibility to protect our borders, it continues to push mandates on the states to provide free education and medical care to illegal immigrants at a time when the states are drowning in debt. This must not be tolerated any longer.
Like most Americans, Ron Paul also understands just how valuable legal immigration is to our country. Immigrants who want to work hard, obey our laws, and live the American Dream have always been great assets.
A matter of Common Sense Reforms: If elected President, Ron Paul will work to implement the following common sense reforms:
* Enforce Border Security – America should be guarding her own borders and enforcing her own laws instead of policing the world and implementing UN mandates.
* No Amnesty - The Obama Administration’s endorsement of so-called “Comprehensive Immigration Reform,” granting amnesty to millions of illegal immigrants, will only encourage more law-breaking.
* Abolish the Welfare State – Taxpayers cannot continue to pay the high costs to sustain this powerful incentive for illegal immigration. As Milton Friedman famously said, you can’t have open borders and a welfare state.
* End Birthright Citizenship – As long as illegal immigrants know their children born here will be granted U.S. citizenship, we’ll never be able to control our immigration problem.
* Protect Lawful Immigrants – As President, Ron Paul will encourage legal immigration by streamlining the entry process without rewarding lawbreakers.
"End birthright citizenship" -- how does Ron Paul think he became a citizen? Is he decended from Native American stock?
Article describing American manufacturing companies who cannot find educated labor to operate their machines.
http://finance.yahoo.com/news/american-manufacturers-importing-workers-154400332.html
The CIA Factbook lists the literacy rate as > 99%. LOLOLOLOL!
Companies need to first try TRAINING Americans before going overseas. And of course that would be cheaper too, were the H1-B immigrants getting a competitive wage, but of course they are not. And the immigrants resume if tailored to the job and the job description tailorder to the immigrants work resume and so no American qualifies and the immigrant has to be trained on the job anyway.
The sole reason these corporations want H1-B visa workers; they are practically the equivalent of modern indentured servants.
The H1-B is being watched like a hawk now by nonUnion labor, especially in software development where the fraud is the worst. We should lower the cap to 5,000 annual fromt he current 65k which is way too high during periods of high unemployment.
Losing a little profit in order to grow the domestic consumer market is the best long term strategy but the corporations dont care about anything past the current quarter and they couldnt give a rats ass about the rest of the nation either.
I don't trust that. We've seen the same thing in the computing industry; Bill Gates running around saying they don't have educated workforce and must import H1-B visas... but the reality is, they just don't want to *pay* what the US market demands of American citizens.
Bullshit. They can't find Americans who are willing to work on a company whim for the same wages as Chinese et al, while living in a 10 to a room company dormitory eating God knows what in the cafeteria or the corner "Howard Johnsons".
No friends, there are no "workers paradise", only the degree of hell you labor in.
Excellent post, Born Patriot.
In fact, multiculturalism is just an excuse for the assault on a single culture, namely the white European Christian culture reflected in the founding documents and the search for individual freedom that defined the beginning of the United States. It has been a white culture of individual freedom but other races that support and fight for this culture have been a part of it; unfortunately, the rogue government that currently controls America is engaging in hate and division. The factions who have not been part of protecting the founding American culture have included such entities as La Raza, AIPAC and the NAACP and the Ford Foundaton, among the many.
This culture of individual freedom must be destroyed, of course, if there’s to be a single, tyrannical control of the world’s people. For no other enemy of world government is as strong as the family-oriented, moral high ground of the worth of the individual and the supremacy of liberty.
The Ron Paul Movement, even beyond the man himself, is the growing hope for stopping the loss of American freedom to the tyrants who use multiculturalism as their weapon.
And the Catholic Church fits where in this "white European Christian culture reflected in the founding documents". And the Deists - you know, the Masons.
But, don't get me wrong, I am not a big multiculturist myself.
“I am not a big multiculturist myself"?
You could have fooled me. The rhetoric of multiculturalism is cherry picking the exceptions to the overwhelming presence of the white European Christian culture that formed the basis for a Constitution to be controlled, not by the church or the monarchy or the pope, but by individual citizens.
Nice. Cherry picking. Actually, I was just trying to understand the scope of "white European Christian culture" and your justification "for the basis for a Constitution". My English ancesters have been in what is now the US since the late 1600s; the Irish and Scottish side, as usual, got to the party a little later.
The "White Christian culture" likes to overlook facts, such as for the first 100 years or so, the USA's economy was built by the labor of black slaves. The only reason America ever had a white christian culture at all was thanks to the genocide of the people that were already on the continent, which was conquered by violence, theft, and cunning. "Christian" indeed.
Fuck off back to the 1800s with your white superiority garbage.
Using the official CPI numbers it took $411 1971 dollars to buy $100 1913 dollars.
It took $559 2012 dollars to buy $100 1971 dollars.
It took $2298 2012 dollars to buy $100 1913 dollars.
You missed something there guest blogger.
Also gold was $18.93 an ounce in 1833 and $18.92 in 1913.
Tyler I am calling propaganda card out on this.
"Once U.S. domestic oil production peaked and it became necessary to import oil, the U.S. became a net importer in a deeply structural sense. With the dollar convertible to gold, eventually the exporting nations would have ended up with all the U.S.'s gold, and that was not going to happen.
The solution was to float the dollar and trade paper money for the oil."
The gold solution was to cheapen the dollar making imports more expensive creating a need to export and a need to ration imports with pricing mechanisms.
If we had done this in 1973 oil would have been $10 a gallon and America would have transitioned to more fuel efficient everything decades ago.
Screwing other people up the ass with worthless paper is not cool. This shit will come back to haunt America in the coming decades.
You forgot about the 2 tiered gold market. The Saudis get a certain amount of gold for their oil. They sell cheap oil when its priced in gold. Say 10,000 barrels an ounce.
Then they decided to keep the gold price within range of mine production costs (this is the gold market that we play in) through a futures market they set up in 1974. The oil for gold part worked but the assumption was that if they kept the second tier gold price above production costs that this would lead to ever increasing mine output and discoveries. That didn't pan out and it wont. That is why they created even more paper gold. GLD silver ect...
http://freegoldobserver.blogspot.ca/2011/09/is-euro-system-next-monetary...
upvote/downvote this post for the above one.
Protip: If you italicize the first line (even if it's a blank space), you pooch the vote buttons.
For quotes, current best practice is to do is leave a blank line, then place the cursor at the end of the first quote, then hit the quote button.
Very informative tip. +1
If you look at the html source for Spitzer's post, you will see it is NOT italics that is the problem, he used blockquote. Italics are just a CSS style applied to blockquote.
My post is easily voted on even though I used em (emphasis, ie. italics)
thanks , didnt know that...
Screwing other people up the ass with worthless paper is not cool. This shit will come back to haunt America in the coming decades.
I actually disagree with that. The author of the original paper is a proven idiot and I would not take seriously anything that he is saying. What is basically misunderstood by people who predict the end of Dollar is that the crisis of capitalism is a crisis of overproduction. It was not unusual to see during previous recessions that a lot of goods were simply exterminated cause nobody could afford them (deflationary spiral). Some people had the idea to destroy excessive amount of US houses to resolve the current real estate crisis. Intuitively, such actions make no sense. What is well known is that free distribution (redistribution) of goods and services does not work (hence, a complete failure of Marxist doctrine). Printing money is another way to address the issue of distribution of excessive goods and services. US has a privilege of money printing as a host of world reserve currency. This privilege is based on general wealth of (a part) of population and military and intellectual power. As long as these factors exist, the privilege will be in place and hence US population will generally benefit by absorbing excessively produced goods and services.
This is as simple as that. One can argue that this is unfair but it is quite idiotic on (a part) of US population to complain about it rather than enjoy free goodies...
I think Tyler just posted this as a possible USD top tick contender. Funny how ppl always get bullish at the top. The last time the Euro was at this level, it had a bull run to almost 1.50
No shit. As Marc Faber has said, depression in the US reduces the quality of treasuries because the the US economy(taxation) plus the economies of the US's creditors are what gives the dollar value currently.
The charts in this article supposedly showing the decline in the purchasing value of the US dollar are utterly whacked, unrepresentative of ANY other data purporting to show the same monetary phenomenon, and in short are nothing but lies.
The US dollar had lost MORE of its value between 1900 and the end of the gold standard in 1933 than it has since 1933? Really? Where is this guy getting this shit? Does he REALLY expect anyone to buy this bogus and disingenuous spin? I am insulted to even read such outrageously untrue claims, much less here on ZeroHedge.
I call total bullshit on this article.
Who ghost-wrote this crap for CHS, Jon Nadler himself?
Tyler, you should be ashamed of yourself for even posting such blatantly dishonest pro-bankster, pro-fiat garbage.
"Everything's fine! We have lots of free credit to give away. Want that danky $250K loan? You got it son! Take out that new mortgage and buy yourself that three-series you always wanted while you're at it. 2.9% APR for a year, brotha - never mind your $50k job... we got your back for now - you can worry about taking care of shit later. Swipe away boys, swipe away!"
Pay no attention to the fact that I don't consider it my debt and I'm not going to pay it.
Sad to see USD bulls using this kind of dogshit analysis to bolster their arguments for the "strong dollar" mantra. This TA (more like twisted logic) is laughable.
So cue the debt ceiling increase in few weeks and a few trillion more piled on. Bullish right? But of course,...it's the "safety" of the USD.
This article misses so much. Looking at 1900 as a baseline means looking at the idea of purchasing parity based on buggy whip producers and importers of bananas, and not considering trade tariffs, slave labor (seriously) and an efficient market for the relative value of currencies.
He is an elegant writer... however he fails to explore the fact that when bond vigilantes decide to move their money because they have decided that they can generate yield elsewhere or are detecting systemic risk, once the USD starts to move, interest rates will start to rise and we'll see REAL inflation, not this pittance we've seen as of late at WalMart. When this comes, Mr. Market won't be able to stop the tsunami.
akak said:
I usually find something of value in the articles by CHS, even when I disagree with him. I'm going to have to concur with akak on this one, though. It's like this one was just phoned in. The dollar values seem a bit preposterous, especially considering that the dollar has lost at least 95 percent of its purchasing power since the creation of the (non)Federal Reserve(less) Bank system.
CHS has also confused extremely high inflation (a monetary phenomenon) with hyperinflation (a political phenomenon):
No, the process of extravagant creation of paper money can lead to an extravagant rate of inflation, a monetary phenomenon that might trigger hyperinflation. The only thing that inflation has in common with hyperinflation is nine letters arranged in the same order. Hyperinflation, a political phenomenon, is the widespread loss of faith in a currency. It occurs when a critical percentage of the population realizes that the true value of their currency is pretty close to the recycling value of newsprint. That's why they are desperate to get rid of it by buying anything tangible.
The dollar will always have some value to those who owe debts denominated in dollars, as it can be used to extinguish that debt. I eventually hope to be able to pay off my mortgage with a roll of silver eagles. Once I am debt free, though, dollars become worth a whole lot less to me.
I won't say that this article sinks to the level of being ghost-written by Jon Nadler, as its stench would rival that of a dead raccoon that's been lying in the sun for a weeklong stretch of 95 degree heat and has bloated to the size of a beachball. I will say that I've come to expect better from CHS.
ROR!
At least CHS, unlike Nadless, did not include any gratuitous slams against "Armageddonist Doommongers" or "Radical Goldbug Extremists".
The article was still a piece of crap, but I guess it is a small price to pay for being free for one full day on ZH from the incessant babble about 'US Citizenism'. Make me laugh!
A bankers wet dream is finding life on another planet with the means of getting a printing press there
Would not surprise me at all to see a +200 close today
New slogan contest for the USD -
"Hey... we're better than Charmin."
"At least we aren't the Euro!"
"We suck... but the Yen blows and swallows!"
Market algos correlate to the EUR/USD and when it ramped up over 40 pips the algos took the market with it. My guess is that the Swiss are either buying a motherload of Euros or some repatriation is going on.
The Dow is down from where it opened this morning. Silver is up almost 1% from where it opened this morning.
We could have a good run of days here when it will be quite profitable to buy PM at the open and sell at/near the close, as the banks focus on suppression in the after hours. JMHO
the e-mini S&P hit the 76% retracement on the daily chart at 1332 around 10am
Algo's on a stop hunt
Maybe, but until The Fed and foreign entities stop buying it (for whatever reason), the hyperinflation crowd is going to be sadly disappointed:
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/...
Are there other variables that could change that? Sure, but so far, none on these boards have conclusively made the argument. When I asked, I get the standard "buy gold, buy guns" mantra epidemic of that camp, with no intelligent discussion or data and or analysis. The kind of people that used to answer those kind of questions with insightful analysis no longer post here.
Yes. If the economy is supposedly only expanding at 2%, then how is the entire country going to pay it's bills on 28% interest credit cards?Hint: the government tells LIES. They always expand the economy enough to keep the people on the treadmill. Don't forget the expansion required for property taxes, income taxes, gas taxes, inheritance taxes, etc. At bare minimum, if you DO THE MATH, the money supply is increasing at 8% per year.
Money supply, adjusted/unadjusted:
http://research.stlouisfed.org/fred2/series/AMBNS
http://research.stlouisfed.org/fred2/series/BASE/
Much like all things bad, The Fed discontinued the M3 and Sallie Mae Series (unrelated). Yes, the money supply is exponential, however, my argument is that this has been happening for three decades in one way or another. My question to you, or anyone else, is "how long" if one "does the math" (which I don't think we have all the variables) can this keep going. My argument, based on the past thirty-years, is that it can keep going for a very long time:
http://research.stlouisfed.org/fred2/series/CUUR0000SA0R
http://research.stlouisfed.org/fred2/series/CPIAUCSL
If not, why and how, as the data shows it can perpetuate, abet have very bad result/consequences for a lot of Americans (and fraud globally).
Yes, it can go on indefintely. The plan is to elevate the purcahsing power of other nations, so that the consumer base is expanded. Currently, only 1/7th of the world's population can comfortably consume large corporate products. In order to expnad perpetually, global markets have to be strengthened to allow more consumers to feed corporations.
Short-term pain felt by Americans will give rise to even greater wealth in the long run.
See BEA reply/question below, major markets are not growing, their currently in a state of contraction. If there's a solid emerging economy that can make up the contraction(s), then please show it.
A Prison Labor Death Camp can continue for eternity
Even Zimbabwe could take all the Zero's off its currency and continue to print
All paper currencys can go on for eternity as long as the youth can be brainwashed generation after generation to point loaded guns at their fellow citizens, friends and neighbors, and pull the trigger
BUY PHYSICAL GOLD AND EDUCATE YOUR OWN CHILDREN NOT TO GROW UP TO BE MURDURERS
In particular, they lie in terms of the names they use to describe money and debt. Expanding the economy really means increasing indebtedness. It sounds good when it's really bad. That's the way they roll.
Now, by law the government can not print money, but it can go further into debt by borrowing money. That's why the Fed was created in the first place. To allow the government to borrow money in ever greater amounts indefinitely. That's inflation. Plot national debt vs. real inflation. There is a tacit and secretive understanding that the debt will never be paid back. In fact, since all money in existence was issued as debt, if it were paid back there wouldn't be any money! Understanding that is a big step towards understanding the bankster/politicons game. However, at some point it could become obvious to even the most dim-witted citizen that there not only no hope, but also no intention of ever paying off national debt, and when confidence is sufficiently lost the game collapses.
The real question is what will it be replaced with? You can bet your bottom dollar that they'll immediately try to set up another skimming operation like the Fed.
U.S. exports are currently at record highs. Manufacturing is relocating to southern states and the U.S. will experience a period of expansion where American exports help to stabilize the financial markets. Foreign markets will gladly continue purchasing USD to access the goods produced by the US.
http://www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm
Not sure that quantifies for a sole reason of a turn-around. Exports, according to The BEA (used the excel data) has gone up for 20 years, the exceptions being 2002 and 2010. The same could be said for Imports, exceptions for 200-2010 with a strong rebound in 2011, still carrying us with it a $50 billion deficit. Throw in 3-month trending global MSI/PMI contracting prints, with our own hovering near contraction, not sure that's convincing enough data.
MCD misses in Q2 citing strong dollar
http://www.reuters.com/article/2012/07/23/us-mcdonalds-results-idUSBRE86M0IG20120723
I am looking more long term. Yes, the current economic data suggests contraction, and may very well be worse due to money values, but I feel the eventual economic recovery in the U.S. will be led by a resurgence of manufactured goods exported to mature BRIC nations. Once Europe stabilizes, the financial markets can move their attention back to growth markets.
The trade deficit is trending lower. And continued high levels of inports clearly signifies consumption by corporations and consumers.
John S., you might want to consider this by Green River at Seeking Alpha here:
The US Manufacturing sector currently employes less than 12M people and produces more than 20% of world manufacturing output.
If you DOUBLED the size of the manufacturing sector, it would employee the ~12M 'official unemployed' - and then the US could produce 40+% of world manufacturing output.
Or if you QUADRUPLED the manufacturing sector, it would employee the ~12M 'official unemployed' + the 25M or so 'unofficial unemployed' - and then the US would them be in position to supply 80% of world manufacturing output.
Do either of those seem remotely possible? And, then, what would happen to the rest of the industrialized world?
Simply, we've reached the a point where about 60M workers - a fifth of the US population, 1% of the world's population - could produce the entire world's manufacturing output if they were all as efficient as US workers.
Manufacturing, important as it is, is not going to provide significant employment gains EVEN as output continues to grow at 2-3%/yr. Automation had eliminated the need for unskilled assembly line workers, at least outside of Asia, and even huge investments in US facilities, such as the new Airbus plant in Alabama, result in minimal job growth. Typically, it takes more than $1M in new plant and equipment for each job created. Want to create a million manufacturing jobs? It takes about $1 TRILLION in capital expansion to do it; and probably about 100M in new world population to absorb that output.
Manufacturing employment, once the backbone of our economic system, will never again be an efficient or fair way to divide the economic pie. The sooner we realize this, the sooner we can begin to adapt to a POST-industrial society.
But there are forces working to renew US manufacturing.
http://www.areadevelopment.com/newsItems/6-26-2012/severstalna-steel-facility-opening-dearborn-mi-2549876.shtml
Americans need to work harder to remain competitive,
http://finance.yahoo.com/news/american-manufacturers-importing-workers-154400332.html
Thank you for the response, and I understand the point of efficiency in US production methods, but to extrapolate the doubling or tripling of US workers to portray an economy that can sustain all global producation is not logical.
Let's get rid of all these damned automation engineers! Yeah that's the ticket. I guess I could find work in, like, ugh, HMMMMMM. I think most of the "trusted engineering work" is done HERE IN TEXAS. Maybe us Texans could just be like our own country or somethin'. I think Texas has the 9th largest economy in the friggin world. I know there's a helluva lot of gas - both below ground and ABOVE. Remember the Alamo Jack!!
The gold standard controlled government spending.
That's the reason they got rid of it.
Now look at us..
Other barbarous relics...
http://doctorbulldog.files.wordpress.com/2010/01/barbara-boxer.jpg
http://gothamist.com/attachments/jen/2011_05_lloydb.jpg
http://www.politicaymoda.com/wp-content/uploads/2012/05/Hillary-Clinton.jpg
http://images.nymag.com/images/2/daily/2010/05/20100504_lloydb_560x375.jpg
http://blogs.sfweekly.com/thesnitch/DiFi%20gun.jpg
http://media.bradenton.com/smedia/2012/06/13/23/51/1oYoYv.AuSt.69.jpeg
http://latimesblogs.latimes.com/.a/6a00d8341c630a53ef01348665bb29970c-600wi
"The USD is a barbarous relic." Compared to what? A new world currency. It will be called the Electronic United Nations Universal Currency Hedge...the EUNUCH
Are we seriously 50 fucking Dow points off the low?
When will BTFD end?
Buy buy buy! its the american way.
Btw the Dow hit 12666.66 on its way to closing green today.
Its almost like anytime a plunge is about to happen, the HFTs and TPTF banks/investment houses start buying up at the behest of their master, good ole Benny.
Oh its not going to 'zero', just .001. OK I see.
It's intrinsic BTU value of 12.44 will be higher.
...which you'd be able to see if that top chart was on a log scale. Based on what's displayed here, there was zero change in dollar purchasing power from 1990 to 2000. If you're going to make a point with charts, at least use ones that say what you're trying to say.
Excellent point. Except that people use the chart formats that illustrate what they're trying to sell. So linear scale here makes the depreciation of the last 10 - 15 years look negligible, instead of showing the consistent percentage decline that it has been. Like holding a stock from 150 down to .05, then being happy if it only falls another .02 because 'hey,it's only .02, not 149'.
After actually reading the piece, I stand corrected. He's not an idiot for using the wrong chart; he's a liar for intentionally misrepresenting the data.
U.S. exports are at an all-time high. Fear of Euro and Yen are driving investors into USD as largest, strongest, and most stable of world currencies. China is unreliable and poses a large risk when considering the Communist control of markets.
USD is gaining strength.
Apparently you haven't actually been to those other countries...
Relative to what?
Zimbabwean Dollar, thingamajigs, widgets, human life, the future.
John Sixpack said:
If you're measuring in terms of units shipped, that's total bullshit. On the other hand, if you're measuring in terms of dollar value of goods shipped, you're being conned by a shrinking yardstick.
It's like buying a 500 square foot hovel forty years ago and selling it today as a 5000 square foot palace. It's still the same hovel; the unit of measurement has shrunk. (Oh, yes, and the property tax has gone up due to the "increased" square footage.)
America! FK Yeah!
Why the USD? Because the American Empire is still in tact, it's military unrivaled and able to project American influence to all corners of the world. This, along with a (current) lack of capital controls make it Almighty.
because we know that military power lasts forever-that's why the Roman Legions are still in control of Europe.
@ott skorzeny
Who's talking about forever? Rome wasn't built in a day and it didn't fall overnight. The USD (or petrodollar) is still the world's currency and will be for the foreseeable future, the existence of SDR's notwithstanding.
Rome's "Legions" didn't run on crude oil... The US military is totally dependent on oil to "force project" (not to mention it's domestic economy to survive by virtue of that same force projection)...
Haven't you heard? http://www.consumerenergyreport.com/2012/07/23/the-navys-biofuels-progra...
Hallelujah green warfare is upon us! It's sustainable! Al Gore approves! No association with Solyndra!
today, the future is not foreseeable. But If you look at the world at present, you can see a few billions of people in Asia, Africa and S. America ready to compete with the Americans and Europeans for their share of the worlds resources. The dollar and euro are two pillars of the fiat currency system, and one of them is already crumbling. If euro goes down, it will be a big blow to the confidence in fiat currency, and may mean collapse in the dollar.
do you have any idea how long it took for the western roman empire to collapse?
ETA: American influence is defined as the goals and objectives of a large and connected supra-national financing syndicate and the supra-national corporations and non-profit/NGO/police orgnaizations that buttress this fascist framework.
Very true. And American citizens reap the benefits of living within the confines of corporate protection. Like courtiers to kings, educated citizens are enriched by the controlling corporations.
What an unpopular fact in a US citizen world.
US citizen middle class enriched by their creatures, the corporations...
Military unrivaled? So are we going to ignore all the issues with the F-22, the inability to rapidly increase ground forces because of the "fitness" of the American youth, or the expert logistics system that literally hemorrhages money. Just because you spend the most money doesn't make you the best, that our parts supply chain runs through china/other foreign powers? And when that money has to be borrowed the moment that money stops the engine comes to a grinding, screeching halt. To say nothing about the multi billion dollar joke carrier fleets are to a major nuclear/missile power.
@Shameful
I guess the next thing you'll tell me is that the Tomahawk and Patriot systems are no better than Scuds? You do realize that the US Armed Forces are not limited to US citizenship? Also, I didn't say that that the US Army is a good occupying force, but the ability of the US military to project its power is unrivaled. Being overweight does not prevent one from having technological superiority in weapons systems. F-22 "problems" notwithstanding, no other country or organization can match the US for air or naval superiority. That's projection, my friend.
Do you believe for a single moment that we could project on a major aka Russia/China? As to the missile systems, run a price check on those bad boys, and how long we could be in operation. I figure once the outside funding ends we could sustain a max 3 months of field operation, 6 if they cannibalize the economy. Remember our imports, and our supply chains. The way to defeat the US would not be to engage our high tech weapons and overcome them, but to cut off outside funding and simply withstand them. Our own logistics would kill us. Also those missile systems mean dick against fellow nuclear powers.
As to limited to US Citizenship you are correct but when the money stops and it's run purely off taxes and inflation how many 3rd worlders are going to sign up to fight for the inflation ravaged wages. The US is a paper tiger that can only fight backwaters and non nuclear powers.
In addition having a military try to prop up an empire after the economy is gutted doesn't work. This is born out historically over and over again, look at the Spanish Empire, or Spain, or even the Ottoman Empire.
+1. Supply chains define every empire.
The US military is unrivaled. The US military has the power to steal your stuff or merely "re-order" your world to their liking. US military runs on oil? Yes. And nuclear. As for oil, who is all over the Middle East?
The post WWII period was a result of the US and USSR militaries re-ordering Europe and Japan. The process was somewhat chaotic. The current re-ordering by the US military is well planned.
Bad logic. Starting from some principles and extrapolating outward, the value of the currency is... etc.
Sorry deductive reasoning only gets you so far.
The truth is that whereas the US economy is vast, its paper currency is still worth hmm, let me see, yup, zero. Trade it now for something tangible.
The connotative value of the USD is in fact zero, but the the denotative value may hold or continue to rise for longer than you can stay solvent trading against it. Sure buy productive assets, but they may cheapen against the doillar for a very long time to come.
that top chart only shows up to 2003?
One tends to do things others want when a gun is being held to their head.
See: TARP, NAFTA
People will do ANYTHING for a green colored dollar, because they don't make Gold colored dollars yet. All they have to do is put a few nanoparticles of Gold inside the paper's fibers and they would destroy every other currency in the world. That is if China doesn't do it first. Who knows, there might already be nanoparticles inside of their bills
THAT WOULD RENDER THE DOLLAR AND THE ENTIRE UNITED STATES MILITARY POWERLESS OVERNIGHT
You think it can't happen?
Investments in fiat currency based assets are maybe not what they seem, especially if you don't have access to them PHYSICALLY
GOT GOLD?
ZEROHEDGE gets a little mention in The New American :
IMF Scandal Brews as Official Slams Incompetence, Suppression of Information
... “The rats everywhere are now jumping furiously off the Titanic,” noted the financial site ZeroHedge in its coverage of Doyle’s criticism,...
http://thenewamerican.com/economy/markets/item/12174-imf-scandal-brews-a...
Who said 0 ?
Mind you in 1912 dollar purchasing power we are at 3%.
What 3% between friends.
.3 %
fixed it for you
Government bonds= claims to the tax slaves. Govt bond buyers are just part of the modern day slave trade, aka fleecing of taxpayers.
Dear Mr. Smith, and what happens if there is an international confidence crisis in U.S. treasuries - what does the Federal Reserve Note (refuse to call it a "dollar") go to then ? The money has already been printed for the FRN to hyperinflate. It's just sitting in foreign accounts. Waiting. As soon as they start trading in those FRN's for real things like your oil wells, there well be a panic run into real things and that IS hyperinflation, and the currency quickly goes to ZERO.
If you had enough German Marks in Weimar times you could still by stuff too. It never went to "zero". Not going to "zero" is not a good argument for value.
"For instance, if the USD deposits draw 5% annual interest and the USD loses 3% of purchasing power every year, the owner of the dollar still earned a 2% positive return."
When did you write this?
ROFL - No shit - where are these 5% CD's or bonds or dividends ???
And what happened to inflation? 5% on USD deposits and no inflation. Yeah, right.
If we look at the charts above, we might wonder why anyone would accept U.S. dollars (USD) as payment for real goods when it so steadily loses purchasing power. The answer can be found by re-reading the three conditions above: if the USD draw interest, and that income is larger than the loss of purchasing power, then the money will still retain its purchasing power when withdrawn.
For instance, if the USD deposits draw 5% annual interest and the USD loses 3% of purchasing power every year, the owner of the dollar still earned a 2% positive return.
At the moment, you are earning a negative 2% real return on cash. That is, if you believe the CPI. More like negative 5%, which is officially what the Saudi's are earning on their cash.
There is another interesting feature of interest-bearing bonds: as interest rates decline, the bond rises in value.This sets up the delicious irony of the Chinese whining about their $1 trillion in U.S. Treasury bonds earning such low yields, while in fact their holdings have greatly increased in value as interest rates have declined.
Now that real yields are negative, and have been for some time, its costing you to hold bonds. Nominal rates may soon also turn negative. So you think rates will go even more negative?
The only reason the dollar is holding up is Oil.
Once the succesion issue is firmly resolved in Saudi,there may well be a
change coming.
The Nixon deal made sense in 1971.Those factors no longer apply from the
Saudi point of view.
The only 'fly in the oitment' is Iran.A resolution that neuters Iran,short of war,
could have very large unintended consequences for the dollar.
Heads they win,tails we lose.
Agree. Oil is the key.
'why would anyone trade real tangible wealth (say, oil) for specially printed paper?' Here are the 3 real reasons:
1) Effective result from generations and generations of brainwashing from the dump-down academics and mainstream media
2) The government, the intl banksters and their hitman (the policy force/IRS/FBI/CIA) will ensure the population to continue to accept the fiat paper as legal tenders
3) With all the WMDs that stationed around the world by the US gov. will ensure its world reserve currency status. And they will make sure all oil production nations, especially OPEC to only accept USD as payment, otherwise they will end up like Iraq and Lybia
Without the U.S.S.A's WMDs, nobody would give a fuck for U.S dollars. Its been years the gov and banksters push the traditional savers into the stock markets with their zero or -ve int rate. I believe it's time to wake up and start putting their saving in Gold, food, water and bullets.
Drill baby drill. The Israelis are.
WTF is the point of this article? It reads like a hodge podge of Armstrong and FOFOA without any 'so what'....
Just a few quick comments:
Hyperinflation is a loss of confidence that would effectively destroy a currency. Not a good mechanism for controlled devaluation. Rather it would be simple inflation... or strong inflation. The stronger the inflation, the greater the risk though.
Going off the gold standard was inevitable. But, was not about further devaluation. Rather it was about expansion of debt.
Stronger dollar is a double-edged sword. It ultimately raises the stakes regarding what might need to be done here in terms of monetary policy, and/or what might happen should the game change rapidly elsewhere (and flow of dollars suddenly reverses).
I would've thought that CHS would know what hyperinflation is, but I guess not.
Dollar not going anywhere because it's the tallest midget in the room. No other reason
I saw a midget fight once. The tall one got jumped.
A midget based on what yardstick?
I don't think this guy gets it. How much control an issuer has over some elements of exchange rates isn't very informative per se. Temporary instability isn't very informative either (although important for the short run, i.e. the new 52-week highs in the DXY index today).
What's informative is the likelihood of inflation and/or default RELATIVE to other stores of value, taking liquidity into account.
Debt levels are the best predictor of inflation/default. Or war, to change the opportunity field and address debt by other means.
Draw your own conclusions. Trade-weighted dollar can remain fairly strong in a collapsing world, for a while. But that is not a healthy sign.
He also needs an introduction to log scale charts.
Horrifyingly bad logic here. Make a weak, logically flawed case for fiat and then say, "BTW it doesn't apply to any other fiat other than the USD".
The value of the USD is backed by its guns. You will know things have changed when bases are closed and the boots start coming home.
What's this, then? "Romanes eunt domus"? People called Romanes, they go, the house?
a silver dollar goes for how much?
a twenty dollar gold piece is how much in FRNs?
it's true that you can still buy things with it...for now
better do that.
Nobody is seriously claiming that the USD will go to zero. But a 50% devaluation from current levels either directly of through inflation is not impossible.
Wait, is he seriously claiming that the loss of purchasing power in dollars between 71 and 03 was about half? Really? Now I wasn't alive for all that but pretty sure that is wildly incorrect as I have watched prices more then double in my lifetime. I would gladly pay 2x the average car price for a new car these days, or hell look at education/healthcare expenses. Seems that the official numbers I find are way different than that.
And currencies don't go to 0. Even in the worst hyper inflation there is still the burn value of the paper notes.
Indeed, CHS is absolutely full of shit on these wild claims of his regarding the loss of the US dollar's purchasing value over the years.
I HAVE been alive, and conscious, since 1971, and I can tell you that overall prices were at LEAST five or six times higher in 2003 than they were in 1971. I don't know how this fool expected to have any but the youngest and most historically ignorant of readers buy into his specious and dishonest claims regarding the "strong" US dollar, but as for me I am going to dismiss all of the writings of this bastard from this point forward, as he is clearly nothing but a dishonest and disingenuous cur.
Get the feeling he may have 'outsourced' the article. Usually a fan of his work.
We grew up using the 'White Castle bag count' inflation metric. You know, the slogan was 'Buy 'Em By The Sack' but the metric was how many for a dollar? They went from ten cents to 12 in 1950...1967 14...then 27 cents in the early 1980s. Now...I'll let you know after I run over there...like 50 or 60 cents.
And by the way, DID YOU KNOW:
In keeping with trends in the burgeoning foodservice industry, White Castle was also concerned about the nutritional value of its hamburgers. The company hired the head of the physiological chemistry department at a Big 10 university to spend a summer studying the food value of its burgers. The chemist hired a student as test subject, asking him to eat nothing but White Castle hamburgers for the entire summer. At the end of the period, the student was found to be in good health, despite the fact that he was 'eating 20 to 24 hamburgers a day during the last few weeks.' The professor recommended that calcium be added to the flour used in the buns and suggested a specific weight ratio of meat to bun to provide a more nutritious balance of proteins, carbohydrates, and fat. White Castle complied, and altered its recipe only slightly since that time.
Jim in MN said:
That's at least as valid as anything put out by the BLS.
BTW, you left off the second half of the White Castle slogan:
...puke 'em by the roadside. ;)
Also known as the USD-SLD, or the quantity of Sliders that a dollar can buy. The alternate measure, SLD-USD, is the cost of a single Slider priced in dollars, but this was never as popular as USD-SLD because nobody ever bought a single Slider.
Jim, your contribution to the field of economics in just this one post eclipses the lifetime output of Paul Krugman. Because that could be construed as damning with faint praise, I want to specify that I mean that as a compliment.
The things that virtually all people have difficulty understanding is large numbers and change over time. People just cannot relate.
We cannot comprehend a trillion dollars
We cannot comprehend a billion people
We cannot comprehend how something could be worth 3% of what it was worth in 1913 and still be viable.
Inertia is one massive mo-fo to mess with.
Good article, but all the focus is currency-vs-currency, when what matters is paper-vs-physical. All paper currencies fluctuate about each other with some regularity, even as they're getting flushed down the toilet.
the difference between epsilon and zero is infinite when piled one on top of the other respectively in divisive mode!
"Fiat currency is the ultimate phantom asset. It is quite miraculous when you think about it. We print some symbols and images on a piece of paper, and we can exchange that intrinsically worthless paper for real goods and materials: oil, electronics, vehicles, and so on. That magic privilege is certainly worth maintaining."
This kind of comment really pi$$es me off. First, it isn't miraculous. Second, it's theft. Third, the "magic privilege" of stealing should not be maintained.
I've stated for a long time that the dollar will be the last and strongest currency standing. This is not a popular ZH view because it flies in the face of observable financial reality. But with every nation desperately devaluing their currency, the all-important aspect of perception comes into play. The years and effort that went into establishing the dollar as a global currency are paying off and are not going to disappear overnight.
As to why folks continue using the dollar, the main reason is lack of a competitor and the trouble of changing to another unit. Who in their right mind would use the Euro? For that matter, neither Chinese or Indian currencies can begin to compete on a global basis. There is a built-in bias with rules and procedures established specifically for a dollar. In the end, it will fall, but don't expect anything soon.
Folks can yell all they want but the dollar will only go higher since, after all, its strength is based on a comparison with other currencies.
There are only 2 reasons why USD still can buy you goods
- - The Arabs still sell oil only for USD
- - China has $3.3 trillion and they still believe they will able to buy something for these USD
The thing is, we don't actually need hyperinflation to have a real mess. 50% inflation per month is a lot of inflation. Inflation is already running at about 4% right now (judging by things that I think are important - like food and gasoline).
If inflation hits just 10% a year, you will have a confidence crisis in US bonds as people wonder why they are being paid 1.4% interest (on ten year bonds) as they lose 10% a year.
Those who talk of hyperinflation underestimate the serious consequences that even mildly elevated inflation will have.
And those who think we are seeing deflation are quite simply self-delusional and never shop for groceries or buy gasoline (either because they live in a cardboard box, or because they live in a mansion with an army of servatns).
And please, learn how to use a logarithmic scale...
+1
The US dollar will collapse as soon as we run out of zeros.
Tying currencies, incl the USD, to gold only provides a "forced" discipline on banks and governments. However, history has shown that these golden chains are the only thing that ultimately restrains central banks and governments from doing the things that have gotten us into this mess (and all other currency messes) in the first place. It has become abundantly clear throughout history that governments do not know how to stop spending the people's treasure and that CBs do not know how to contrain themselves from over-levering the fractional reserver system beyond what it can handle.
Is Charles Hughes a moron? Using an absolute value on the y-axis? Are you fucking kidding me? At a $1.00 baseline in 1900, a $.01 drop is only 1%. In 1970, when the dollar is at $.10, a $.01 drop is 5%. Of course it is going to appear as if the dollar hasn't done much declining since 1970 - HE'S USING ABSOLUTE VALUES.
Also, why no inclusion of 2002-2012 in your charts, Charles?
An interesting view is that Ginnie Mae 5% 30 year MBS TBA have hit $110 DESPITE all time low 10 year Treasury rates.
Oops! Refis aren't happenin' fast enough for the Administration. Watch them apply MORE juice.
http://confoundedinterest.wordpress.com/2012/07/23/ginne-mae-30-year-mortgage-tbas-hit-110-for-5-coupon-as-10-year-treasuries-decline/
Terms get mooshed together, the result is meaninglessness. 'Value', 'Worth', 'printing', 'currency', 'money'. What do all these words really mean?
In debt-money systems, the vast majority of all that is considered money is really debt, or obligations by one to another. Excess debt cannot be 'eliminated' by 'printing' which is to substitute one kind of finance debt for other kinds. This includes the creation of currency: in our debt-money system currency is another form of debt. What changes are the custodians of debt, from private hands generally to the public. This process 'works' because it is believed that governments do not 'die' or become insolvent (they can do both).
The public entity outlives debtors and creditors or both assets and liabilities are transferred onto the (same) public sector balance sheet so that they might be cancelled.
Capital is never an asset b/c all assets are debts or claims against capital.
The government can issue currency on its own account (not borrow it but issue fiat currency) greenbacks (US Notes) and use these to retire debts, by doing so both the debt AND the currency are extinguished. The outcomes are dire: destruction of banking and deflationary spiral.
Banks can't compete with an entity that creates money-by-fiat in place of finance creating debt-by-fiat. Meanwhile, currency is destroyed as debts are repaid which reduces the supply of money while increasing the real cost of retiring remaining debt.
The dirty secret of credit is that small debts are by necessity repaid while large debts are intended to be refinanced endlessly. Since the financing process is by itself expansionary, large debts are self-liquidating.
Confusion exists between this expansionary inflation (of finance credit) and currency arbitrage (hyper-inflation). Most analysts do not understand the difference ...
Debt-money system is set on 'bankrupt' as economic activity does not produce sufficient surpluses to retire debts taken on to bring economy into being. Driving a car does not pay for the car or for the fuel that is burned up in the car. These things X 800 million-plus fuel infrastructure, car factories, housing/business 'developments', highways, militaries, governments, etc. are subsidized by massive amounts of finance credit ... the Real QE. This amounts to hundreds of trillions of dollars, yen, yuan, sterling, euros, etc.
No debts = no industries, no conveniences, no cars, no bullshit.
Charles Hugn makes a conventional quantity of money argument. However, the real issue is 'quality'. First of all, money has worth never value. When money gains value it ceases to be money, it becomes 'dangerous'.
Here is the problem: money -- dollars -- are useful because they can be traded for any good in the world: here is another term, 'utility'. This unlike other currencies such as the yuan. Dollars buy any- and all Chinese goods and all US goods, as well. Yuan can be used to buy Chinese goods but anyone buying US goods needs dollars. It can be said that dollars are proxies for the world's goods. Other currencies, not so much.
At some point (as is happening on occasion) the dollar becomes the proxy for the inputs needed to manufacture the goods rather than for the goods themselves. There are many pathways to arrive at this perception (and all of them are being tread upon currently). The most common reason is the realization that the goods themselves are worthless junk.
The input in question is petroleum: when the dollar = proxy for petroleum it will be hoarded, there is no question about it: this is the real 'flight to quality' as well as rear-guard action to defend what remains of modernity and 'convenience'.
The amount of petroleum available will equal the amount of currency in circulation. If the dollar or other predominant currency is depreciated (by adding more into circulation) it will be rationed by producers (by one means or another including war) and another currency (or gold) will take its place. The outcome is an increasingly hard dollar, impossible to find (along with petroleum fuel that is impossible to afford).
The dollar will become a currency with value. Consider that nobody will trade gold for oil so that stupid billions can simply drive around in circles in bloatmobiles. Nobody will trade dollars to do the same thing. If it comes down to gold- or gold analogues versus the auto- and related industries the winner will be gold and the industries will all die.
I personally can't wait I hate all cars. They are death to this world, the only world we have.
Needless to say in any hard currency world there will be no credit at all: credit annihilation. Fuel availability will be a tiny fraction of what is used today, probably less than 10% of current use in the US (- 1.8mbpd). This MAY be enough to run USA industrial agriculture ... but maybe not! Remember the military will want to bogart all the production that remains in the US for itself. There are reasons for all of the 'national security' bits and pieces of legislation passed by our blessed government. They already know the US govt will have to cut of the childrens' fuel supply for their toys.
When could this 'fuel proxy' perception shift take place? Maybe tomorrow.
BTW, this dynamic took hold during the early 1930s in the US and elsewhere in the world. Nuttin' new under the sun.
+1 interesting angle. Like U view on cars
Please post more often!!
http://www.economonitor.com/lrwray/2012/07/23/why-were-screwed/?utm_source=rss&utm_medium=rss&utm_campaign=why-were-screwed&utm_medium=twitter&utm_source=twitterfeed
<<the U.S. Dollar Is Not Going to Zero Anytime Soon>>
Neither are exports.
At the end of the day, the dollar should be deemed worthless when it can be created out of thin air at the discretion of the Fed and the US's fiscal irresponsibility. Which is where a tangible asset needs to be a backstop for the government's outrageous entitlements where they think they can spend trillions more than we have and expect to pay it off with inflated(worthless) dollars.
Just like avidtango wrote above, the dollar is not going away any time soon. Why? Cos the world trusts no one else more than the American economy to produce and innovate. The dollar represents us. The people that go to work every day and make it happen and also at what numbers we do it. Meaning the USA is not the richest per capita nation but no other nation produces on a per capita basis so highly while being 315 million strong (albeit almost half of that does not produce or directly produces very little - one could make the case that a good "housewife" helps her husband be better at work, lol). Anyway, fiat currency will stay around as long as we live with the dollar at the heart of it, unless another large (in population) country comes along with a workforce which has higher productivity and even more importantly, start innovating more intensly than us. That aint happening any time soon, I have lived and worked at other countries to tell you that most of the world cannot do business to save their lives. Most of them cannot even communicate with each other on a basic....basis. In an unnamed Euro country where I worked for years we'd go in meetings with 3 problems and we'd come out with 5. Zero ability to solve anything mainly because of lack of communication capability and complete lack of ability to focus on anything for more than 23 seconds. Most service workers around the planet are losers compared to a seasoned American corporate employee.
What was the metric for the dollars purchasing power ? Gun powder, gold, food. lumber, how did they factor in changes in availabilty of the product for sale vs competition.
The views on inflation and the conclusions based on these views can be confusing and dangerous. Example, here’re the chart results from The Rise and Fall of the Dollar: 1800 to 2009, Ludwig von Misses Institute:
The value of a dollar issued in 1800 went below its original purchasing power once, to $.93; its purchasing power was $2.04 in 1913 when the Federal Reserve took control of the U.S. monetary system. By 2005, the dollar’s purchasing power had dropped to $0.08. The killer inflation has been raging since the creation of the Federal Reserve System – which incidentally was the reason for the System.
http://blog.mises.org/10553/the-rise-and-fall-of-the-dollar-1800-2009/
There’s also been misinformation about who’s primarily responsible for the exit from the gold standard.
Former Fed chair Paul Volcker, who served under Nixon, Carter, Reagan and Obama and is a big proponent of a single global currency, was the major player in moving the USD off the gold standard under Nixon
Wrote Jefferson, a ZH blogger: “Volcker was the prime mover at the Treasury in establishing Bretton Woods II. Not to mention the role Volcker played in moving the USD off the gold standard. Volcker, founder of the G30, and his buddies (e.g. see G-30 manual on derivatives published in 1993) have not only known about but have methodically planned the global monetary regime that is now being instituted in response to the GFC caused by the derivatives time bomb.”
Wikipedia corroborates: “From 1969 to 1974, Volcker served as under-secretary of the Treasury for international monetary affairs. He played an important role in the decisions leading to the U.S. suspension of gold convertibility in 1971... advocating the pursuit of an international solution to monetary problems.”
https://www.google.com/search?hl=en&gs_mss=purchasing+powe+dollar++chart+2013&tok=JOQwJT7-bAt_eRdNpFtpqw&pq=federal+reserve+dollar++chart+2013&cp=16&gs_id=2s&xhr=t&bav=on.2,or.r_gc.r_pw.r_cp.r_qf.,cf.osb&biw=1366&bih=624&um=1&ie=UTF-8&tbm=isch&source=og&sa=N&tab=wi&ei=MXINUO2kK4fD2QXD_JUB&q=purchasing%20power%20dollar%20chart%202013&orq=purchasing+power+dollar++chart+2013
pick any purchasing power chart on this search page and you will see what the real chart looks like and what the real value of USD is and what it will be. Let me tell you a big zero, zilch, nada 0
I rest my case