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Old 08-04-2010, 03:23 PM
 
Location: Planet Eaarth
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When it comes to Gov't's it is possible to print so much money (monetizing) that it causes money to become worthless (inflation) so as to repudiate (deny or refuse to pay) the debt.

Don't think that such a thing it possible?

Think again 'cause it's not only been done before but it's in process now to erase trillions of dollars in inflated debt. The ablility to print money and thus erase debt make all this talk today just that talk. What the public sees is nothing more than the 3 card monty with the gov't holding the hole card. It's all smoke and mirrors so why worry about it?

An understanding of how this is done does take some study........

Monetizing the Debt - Explanation For Non-Economists, Bankers and Other Laymen | The Prudent Investor

Read the IMF document included.......
Hyperinflation As A Debt Repudiation Device? No According To UBS, Yes According To Recently Declassified IMF Paper | zero hedge

Read section C.....
Foreign Debt: Forgiveness and Repudiation (http://www.uiowa.edu/ifdebook/ebook2/contents/part4-I.shtml - broken link)

There are other documents online but it is possible for gov't to borrow their way out of debt and own nothing. All you need is a printing press. This is also why no one has been able to audit the FED since doing so will expose the whole sham.
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Old 08-04-2010, 03:35 PM
 
Location: Sinking in the Great Salt Lake
12,899 posts, read 18,442,586 times
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They might even get away with it with the inconsequential side effect of wiping out the dwindling wealth of all but the elite too.

Don't forget to make fun of teabaggers and anyone who speaks against it though....
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Old 08-04-2010, 07:08 PM
 
5,092 posts, read 9,600,213 times
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Maybe correct -- except for this part.

Quote:
Originally Posted by Tightwad View Post
. . . . it causes money to become worthless (inflation) so as to repudiate (deny or refuse to pay) the debt. . . .
No sign of that inflation in sight.

There was SO MUCH "money" (credit / plastic currency) wiped out in the credit collapse and housing deflation, that they can print for some years and have no inflationary effect.

So much so that at this point, if they stop, the severe deflationary depression resumes.
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Old 08-04-2010, 07:40 PM
 
Location: Planet Eaarth
8,957 posts, read 16,997,019 times
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Quote:
Originally Posted by Philip T View Post
Maybe correct -- except for this part.



No sign of that inflation in sight.

There was SO MUCH "money" (credit / plastic currency) wiped out in the credit collapse and housing deflation, that they can print for some years and have no inflationary effect.

So much so that at this point, if they stop, the severe deflationary depression resumes.
You say potato I say pototo it's all the same........the debt went poof!
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Old 08-04-2010, 10:53 PM
 
48,519 posts, read 80,998,062 times
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Quote:
Originally Posted by Philip T View Post
Maybe correct -- except for this part.



No sign of that inflation in sight.

There was SO MUCH "money" (credit / plastic currency) wiped out in the credit collapse and housing deflation, that they can print for some years and have no inflationary effect.

So much so that at this point, if they stop, the severe deflationary depression resumes.
Why would you expect inflation now when there is a lack of demand and the fed provides money at such low rates? But in the future they will have to raise rates as it can't stay at 0.25 % forever. don't see it coming but I do see the federal governamnt not replacing the consumer mucg longer and cuts in federal spening such as is going o in europe now coming.Just the lack of federal tax incentives to consumer tht drove much of the growth in past qaurters will take its toll in growth.Its like that the rise in prices we see will be indirect form higher taxes.
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Old 08-04-2010, 11:31 PM
 
5,092 posts, read 9,600,213 times
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Quote:
Originally Posted by texdav View Post
Why would you expect inflation now when there is a lack of demand and the fed provides money at such low rates? But in the future they will have to raise rates as it can't stay at 0.25 % forever.
When Real Estate deflation hit Japan they kept their rates at near zero for a Decade. The interest rates are whatever they wish to make them. It is "their" money and their bank, after all -- not yours or mine.

Quote:

don't see it coming but I do see the federal governamnt not replacing the consumer mucg longer and cuts in federal spening such as is going o in europe now coming.Just the lack of federal tax incentives to consumer tht drove much of the growth in past qaurters will take its toll in growth.Its like that the rise in prices we see will be indirect form higher taxes.
Agreed. And the G20 was pushing along with the IMF for US to cut-back on the life-boat-pump spending the Feds are doing here, now. Want US to follow the austerity model of Europe / Greece (and Argentina, USSR/Russia, and Haiti among others) before US.

I am thinking the roll-over of the US .gov fiscal year (EOM September, 2010) followed by the November 2010 elections will be followed by cut-backs on Federal Spending. And THEN . . . watch the next leg of the Deflationary Depression drop out beneath US.

But "higher taxes" will not hit the working folks, as real wages will just keep dropping.
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Old 08-05-2010, 11:10 AM
 
286 posts, read 591,759 times
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The odds of the US government significantly monetizing debt is basically zero. Look at the logistics of it:

- Our nation's creditors aren't stupid. They inhabit one of the most efficient markets in the world, namely the bond market. If the bond market anticipated the US inflation rate was going to skyrocket, to something like 15%, then creditors would demand an interest rate of say 18%. If the US balked, then no one would lend. In reality, creditors would demand a rate of interest much higher because of the increased risk and volatility associated with holding US debt. You would see this in the Yield Curve. The interest rates on longer-term bonds would skyrocket as markets adjusted. Thus far, there is nothing to suggest they have.



- Nations that monetize debt typically aren't functioning democracies or particularly transparent. It's one thing for a Latin American dictator or one-party system to monetize the national debt. It's another for a US president, who is held accountable every 4 years, to monetize debt. Basically it would erase everyone’s savings. This is possible in third world countries, not so possible in modern functioning democracies.

If the US attempted to monetize its debt with an inflation rate of 15%+, then it would be perfectly obvious to everyone. Bond markets would adjust, and it would interfere with the US government’s ability to borrow in the future.

If the US is attempted to monetize with a sudden, unexpected burst of hyperinflation (50%+) is more likely that the US government would collapse or be overthrown, than having the debt "repudiated." Of course, this is assuming they even start such an undertaking without it be leaked. See: Wikileaks and modern journalism.

Also, the “declassified” IMF paper you mention was written in 1989. It says little about the current situation.
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Old 08-05-2010, 11:23 AM
 
Location: Planet Eaarth
8,957 posts, read 16,997,019 times
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Quote:
Originally Posted by mcredux View Post
The odds of the US government significantly monetizing debt is basically zero. Look at the logistics of it:

- Our nation's creditors aren't stupid. They inhabit one of the most efficient markets in the world, namely the bond market. If the bond market anticipated the US inflation rate was going to skyrocket, to something like 15%, then creditors would demand an interest rate of say 18%. If the US balked, then no one would lend. In reality, creditors would demand a rate of interest much higher because of the increased risk and volatility associated with holding US debt. You would see this in the Yield Curve. The interest rates on longer-term bonds would skyrocket as markets adjusted. Thus far, there is nothing to suggest they have.



- Nations that monetize debt typically aren't functioning democracies or particularly transparent. It's one thing for a Latin American dictator or one-party system to monetize the national debt. It's another for a US president, who is held accountable every 4 years, to monetize debt. Basically it would erase everyone’s savings. This is possible in third world countries, not so possible in modern functioning democracies.

If the US attempted to monetize its debt with an inflation rate of 15%+, then it would be perfectly obvious to everyone. Bond markets would adjust, and it would interfere with the US government’s ability to borrow in the future.

If the US is attempted to monetize with a sudden, unexpected burst of hyperinflation (50%+) is more likely that the US government would collapse or be overthrown, than having the debt "repudiated." Of course, this is assuming they even start such an undertaking without it be leaked. See: Wikileaks and modern journalism.

Also, the “declassified” IMF paper you mention was written in 1989. It says little about the current situation.
Then how does one account for the loss of buying power is to the point where the U.S. dollar is now nothing but a fiat currency? Millions lost trillions in savings and investment in the recent deflationary period that almost collapsed the worlds economies. Where is all that money today?

Then there is the stonewalling that the Fed has done , and still is doing, concerning a audit to show where the money went or is.
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Old 08-05-2010, 01:01 PM
 
286 posts, read 591,759 times
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Quote:
Originally Posted by Tightwad View Post
Then how does one account for the loss of buying power is to the point where the U.S. dollar is now nothing but a fiat currency? Millions lost trillions in savings and investment in the recent deflationary period that almost collapsed the worlds economies. Where is all that money today?

Then there is the stonewalling that the Fed has done , and still is doing, concerning a audit to show where the money went or is.
The U.S. Dollar has been a fiat currency for over 30 years.

The loss of income has not been the result of inflation. You would know if this were the case: a Pepsi would cost you 10 dollars.

People lost money because they unknowingly bought financial instruments and assets that were over-priced and risky. That and they used debt to finance consumption goods (nice cars, vacations, etc.) as well as assets that would only decrease in value.

When there is a new technology or an innovation, these sorts of bubbles tend to happen—railroads, e-commerce, etc. The latest innovation that set it off was the increased ability of financial markets to diversify certain types of risk. With hindsight, we know investors overestimated this ability.

Add in easy credit conditions, misguided public policy, clueless rating agencies, and unscrupulous mortgage lenders, and you get the financial crisis of 2008—i.e., the biggest financial bubble in the history of mankind.

We now know that much of the “economic growth” from 2004-2008 was basically fictitious and financed by debt. Typically, financial investors channel resources towards projects that promote economic growth. Here, it wasn’t the case. What kept the party going (and the economy out of recession) was the Fed keeping interest rates low. Combining the low Federal Funds rate with lackluster economic growth, it decreased the demand for American securities. This in turn lowered the demand for American dollars, leading to the steady devaluation from 2002 onward.
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Old 08-05-2010, 04:55 PM
 
Location: Nebraska
188 posts, read 230,797 times
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Quote:
Originally Posted by mcredux View Post
The U.S. Dollar has been a fiat currency for over 30 years.

The loss of income has not been the result of inflation. You would know if this were the case: a Pepsi would cost you 10 dollars.

People lost money because they unknowingly bought financial instruments and assets that were over-priced and risky. That and they used debt to finance consumption goods (nice cars, vacations, etc.) as well as assets that would only decrease in value.

When there is a new technology or an innovation, these sorts of bubbles tend to happen—railroads, e-commerce, etc. The latest innovation that set it off was the increased ability of financial markets to diversify certain types of risk. With hindsight, we know investors overestimated this ability.

Add in easy credit conditions, misguided public policy, clueless rating agencies, and unscrupulous mortgage lenders, and you get the financial crisis of 2008—i.e., the biggest financial bubble in the history of mankind.

We now know that much of the “economic growth” from 2004-2008 was basically fictitious and financed by debt. Typically, financial investors channel resources towards projects that promote economic growth. Here, it wasn’t the case. What kept the party going (and the economy out of recession) was the Fed keeping interest rates low. Combining the low Federal Funds rate with lackluster economic growth, it decreased the demand for American securities. This in turn lowered the demand for American dollars, leading to the steady devaluation from 2002 onward.
Inflation doesn't show up in every product. A typical house in the 70's only cost about $50,000...what does it cost now? Since the federal reserve was implemented in 1913 we have lost $.95 of every dollar then. Meaning if you held a $1 bill from 1913 it now only has the purchasing power equivalent to what $.05 was in 1913. So you would have lost 95% of your purchasing power by holding that dollar rather than investing it in something that outpaces inflation.

To your argument about bond yields...you're assuming the bond market is efficient, much likes professors were pushing the "efficient market theory" in the 1980's. Meaning you think that whatever is happening today, is where things are SUPPOSED to be priced at. You aren't accounting for the irrationalities in the market place (bond and stock). The average person is swarming to US treasuries because they think it's "safe," in relation to the stock market and countries around the world know that the U.S. is the world reserve currency. Well as far as it being "safe," it doesn't mean much if you get $1.03 back for every dollar you put in if that $1.03 only has the purchasing power of $.90 in relation to when you bought the bond. Just because you end up with more money doesn't mean you increase your purchasing power (which is a mistake the average person doesn't understand, and is why a lot of people that lost money in the stock market are swarming to treasuries).

Second, what happens if we are no longer the worlds reserve currency (looking into the future 5+ years)? If you look at the U.S. from a structural base we may be worse off than Greece, the only reason treasury yields are so low is because people are foolishly believing that the U.S. can't have a financial collapse. Just because we are the "U.S.," doesn't mean it can't happen...much like Citigroup (the largest bank in the world at the time) wasn't too big to fail, a country can not be too big to fail. And the one thing that Citigroup and the U.S. have in common is they were borrowing money to make things artificially look better. For Citigroup it was increased profits, for the U.S. it was increased GDP numbers (or economic growth). When 70% of your GDP number is consumer consumption then it looks good on paper when somebody borrows money and buys a brand new car (tada! Increased GDP). What that number doesn't tell you is now that person must pay off that car PLUS interest, resulting in much smaller GDP numbers in the future until the debt is paid off, or at least down to a reasonable level in which the consumer can borrow to purchase more (or actually use savings to purchase).

But anyway, from a financial standpoint we are the LARGEST debtor nation IN THE WORLD. What on God's green Earth would give anybody, of any rational thought, the idea to flood into treasury bonds? Well just like people flooded into the stock market (even though prices were outpacing inflation, which is historically unsustainable) they are blinded by what's happening beneath the surface. They think the NAME, the United States of America, means that we can not run into financial trouble and therefore treasury bonds are safe. In reality they are no more safe than somebody that bought Citigroup stock at the height of the bubble. Of course the difference is the government can print money to make good those bonds (worse case scenario), which results in severe inflation. And as I said earlier, it matters very little how much you make on your bond interest if your purchasing power is only half of what it was when you bought the bond.

So you are trying to tell us that because people are buying treasury bonds NOW, that there won't be a problem in the future? You sound just like the financial analysts that said there was no stock market bubble because demand was there and profits were high, failing to look at the fundamental structure beneath the surface.

Having said all that, I don't think the US will fail. But I would bet my entire net worth on the fact that interest and inflation rates will be substantially higher 5-10 yrs from now than they are today. In fact I would say they will probably be close (if not higher) to the levels of the 1970's.

Last edited by hskrfan2187; 08-05-2010 at 05:05 PM..
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