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Old 03-04-2013, 01:08 PM
 
17,752 posts, read 15,115,073 times
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Quote:
Originally Posted by oaktonite View Post
The "supply" you seek is called GDP. It is the real goods and services produced by an economy that back both the currency and the debt of the nation issuing them. The US currently produces about 22% of everything produced anywhere in the world. Until that somehow changes, US debt and US currency will continue to be very highly valued in the world.
I am impressed. Rarely do I see the whole equation. Its usually a rant about Wiemar and Zimbabwe with no objective rational for the money supply balanced against the real economy. I have asked for the perfect nominal amount of money. What should a loaf of bread cost? Should it be 10 cents or 3 dollars? I would even take the estimation in trillions of dollars. How many trillions in nominal USD should we have? I usually cannot even get a straight answer about inflation. Some tell me its money supply and not a general rise in prices while others tell me that food and oil are going up while wages are not. That's "inflation" to some people. Everything passes for "inflation". People in the streets have no money and product isn't moving, yet this is supposed to be too many dollars chasing too few goods. I see pictures of money flying out the window and wheel barrows full of money. Yet, who has the money?

Inflation just means bad and what ever I want it to mean.





Quote:
As for hyperinflation, it occurs when marketable GDP collapses, especially where conversion of local currency into other currencies can be easily accompished. In Weimar Germany, war reparations were sucking large portions GDP away. That left next to nothing for regular people to buy. In Zimbabwe, years of civil war, a collapse of property rights, and wanton violence resulted in rates of death and emigration that left farms and factories destroyed and nobody around to grow or make anything. Again, who would want coupons good only at a store that has nothing on the shelves for people to buy? Slightly different situation in the marginal case of Argentina. There, GDP did not collapse as in Germany or Zimbabwe, but fears of its at least dramatic worsening came about when conversion of pesos into US dollars could easily be done by anyone. Guess what happened. Everyone converted pesos as soon as they got them, driving the price of the peso down and down and down.

And by the way to others, the number of minimum wage workers and the typical magnitude of an increase in it are too small even when multiplied together to have any measureable effect on either unemployment or inflation.
I tend to agree with all of it. Hyperinflation is the result of foreign creditors and weak sovereign states. The last thing to die is the ability to print. The ability to tax what is printed dies before that and that is when true hyperinflation occurs. I get pretty sick of listening to Germany or Zimbabwe as examples when we have had several global depressions. We are also in the middle of the biggest labor glut the world has ever seen. While the USD may fall into disrepute as a savings vehicle, it will be quite some time before we come close to have wage pressure and any sign of inflation from industry. We will have to contend with some asset inflation but we are making it worse by not employing people to solve those bottlenecks which are physical, monopoly, regulatory, and externality based.

Last edited by gwynedd1; 03-04-2013 at 01:20 PM..
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Old 03-04-2013, 03:45 PM
 
Location: 3rd Rock fts
745 posts, read 944,238 times
Reputation: 304
Default It’s called Moral Hazard

Quote:
Originally Posted by va_lucky
I know nothing about economics. However, something sticks out to me.
For someone who knows nothing about economics, you sure know how to sniff out problems.

Since the late 1990s, standardized tax incentives/decreases were substituted for wage inflation. Now Big Business/Banksters want the USGovt/Taxpayer to foot the bill for everything else—labor, materials, financing, etc... You see, their shareholders have efficiently/thoroughly squeezed out profits; any further costs will be a drag on their balance sheets.
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Old 03-04-2013, 06:59 PM
 
Location: The North
4,982 posts, read 8,733,371 times
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Quote:
Originally Posted by pie_row View Post
A run on USD would cause hyper inflation. In our case it could be external rather than internal things that pushed it forwards.
This is true but first tell me why there would be a run. A constitutional crisis could do it too. A massive fraud could cause hyperinflation. However one must deal with likelihood of these things happening. They are not theoretically impossible, but they are pretty close to it given current circumstances.

What annoys me about using such a term is who uses it and how they use it. Dont like the policies of a government or its central bank? Just throw out hyperinflation or deflation and act like its a certainty if they dont see the wisdom of your ways. This is bullcrap, serious economic conditions happen for very specific reasons, not because someone theorizes it could happen and then tries to build credibility in something they are not credible in. Real, serious people work for the Fed, the President, the Treasury among others and the truth about hyperinflation is well understood to them. They dont ignore it.
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Old 03-04-2013, 08:44 PM
 
621 posts, read 550,323 times
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Quote:
Originally Posted by gwynedd1 View Post
While the USD may fall into disrepute as a savings vehicle,
Would it be possible to have a limited discussion about just this thing.


What is likely to happen when the dollar falls into disrepute?
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Old 03-04-2013, 09:24 PM
 
621 posts, read 550,323 times
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Quote:
Originally Posted by Willy702 View Post
This is true but first tell me why there would be a run.
The Fed is charged with keeping the markets from falling. If something happens and someone panics and starts selling T-bills the Fed will start buying them to support prices. This could cause a feed back loop that gets more selling and more buying.
Quote:
Originally Posted by Willy702 View Post
A constitutional crisis could do it too. A massive fraud could cause hyperinflation.
Like telling everyone the unemployment rate is less than 10% when it is over 17%? That was true in November of 2010. Like the Mortgage back securities fraud?
Quote:
Originally Posted by Willy702 View Post
However one must deal with likelihood of these things happening. They are not theoretically impossible, but they are pretty close to it given current circumstances.
Really?
Quote:
Originally Posted by Willy702 View Post

What annoys me about using such a term is who uses it and how they use it. Dont like the policies of a government or its central bank? Just throw out hyperinflation or deflation and act like its a certainty if they dont see the wisdom of your ways.
A fiat currency is based on faith. I believe it to be worth something so I take it in trade for something else. Belief and reality have an interconnection. Over the long term economic interrelations tend to hold true. To few units of exchange for the demand tend to get you an economic depression. To many tend to get you inflation. Under normal conditions the availability of credit tends to limit inflation. Falling asset values tend to get you deflation. The reason being is that you can't get a loan on an asset that is falling in price.


My buddy just pulled his retirement funds out and has moved them off shore. Close to $1 million. He has lost faith in the system. If too many people do that then you get a run on USD.
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Old 03-04-2013, 10:51 PM
 
1,444 posts, read 2,028,403 times
Reputation: 584
hahahahaah!

Just looking to see if there is any light at the end of this tunnel. I am very "va_lucky" to have you all take the time to explain this to me.


Quote:
Originally Posted by DSOs View Post
For someone who knows nothing about economics, you sure know how to sniff out problems.

Since the late 1990s, standardized tax incentives/decreases were substituted for wage inflation. Now Big Business/Banksters want the USGovt/Taxpayer to foot the bill for everything else—labor, materials, financing, etc... You see, their shareholders have efficiently/thoroughly squeezed out profits; any further costs will be a drag on their balance sheets.
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Old 03-04-2013, 11:09 PM
 
Location: The North
4,982 posts, read 8,733,371 times
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Quote:
Originally Posted by pie_row View Post
The Fed is charged with keeping the markets from falling. If something happens and someone panics and starts selling T-bills the Fed will start buying them to support prices. This could cause a feed back loop that gets more selling and more buying.
Like telling everyone the unemployment rate is less than 10% when it is over 17%? That was true in November of 2010. Like the Mortgage back securities fraud?
Really?
A fiat currency is based on faith. I believe it to be worth something so I take it in trade for something else. Belief and reality have an interconnection. Over the long term economic interrelations tend to hold true. To few units of exchange for the demand tend to get you an economic depression. To many tend to get you inflation. Under normal conditions the availability of credit tends to limit inflation. Falling asset values tend to get you deflation. The reason being is that you can't get a loan on an asset that is falling in price.


My buddy just pulled his retirement funds out and has moved them off shore. Close to $1 million. He has lost faith in the system. If too many people do that then you get a run on USD.
These currency concept arguments are quite lacking in reality. People lose sight of how things would really play out. Its extremely hard for me to see the US dollar having some sort of run which obliterates its valuation. The world is too dependent on USD stability. The rest of the world wouldn't let it go far, they would fight to devalue their own currencies to keep up. There just isn't a way where the rich nations of the world just stand by and say well the dollar is worth 30% of what it is today relative to their currency and it doesn't really matter to us. Such a dollar devaluation would cause a huge advantage to the US economy and the domestic market would be booming after a transition period. The rest of the world would still want to sell into the US market and its 300+ million customers, but with a devalued dollar it just wouldn't work well.

In the end every currency is a fiat currency and every economy depends on faith. Its extremely hard for one to go off the rails without taking others with them.
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Old 03-04-2013, 11:24 PM
 
Location: The North
4,982 posts, read 8,733,371 times
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Quote:
Originally Posted by pie_row View Post
Would it be possible to have a limited discussion about just this thing.


What is likely to happen when the dollar falls into disrepute?
What is "disrepute"? The savings value of the dollar can change in incremental ways, but remember what exactly a dollar does. It buys access into the largest economy in the world. It buys access into a diverse marketplace with a wide variety of goods and services. This is what a dollar in the hands of a person does. It does not represent a government and its policies although many want to imply this.

When you consider what this means, also consider what other currencies mean. Lets take a colon from Costa Rica. What can you buy from Costa Rica? A nice vacation, maybe some coffee, a few manufactured products although they are mostly made to be sold in dollars, hmm what else? Maybe the services of a call center? Land in a nice beachfront area? Decent items, but not exactly the same variety or demand for these things as US dollars. Therefore the USD is convertible on world markets, the CRC not so much. If you gave a dollar to a merchant in India he could turn it into something he desired fairly quickly, give him 1000 colones and he'd have something colorful to pin up to a wall.

This all is simplistic to a degree, but then refocus back on the bigger picture. Until there are economies with more to offer to more people than the US, the dollar is not going to fall into disrepute. The Euro has gained traction despite its localized issues because an economy has finally become relatively competitive to the US. The Yen and the Chinese Yuan, among others not so much. The Aussie and the Loonie are more valuable today because the world does have a need for commodities and these currencies give you access to a variety of them. But neither country is large enough or diverse enough to replace what the US or Europe can provide.

These are the ways to view currency and their relationships to the marketplace, not what a daily exchange rate seems to imply. Exchange rates move based on supply/demand dynamics, but they don't replace the intrinsic value of what currencies do. Just because the Brazil real has strengthened drastically in the last few years does not mean its more important than the dollar in the world markets or that its any chance to replace it on the world stage. Brazil just happens to be taking in huge amounts of investment in a short timeframe, but unless these investments find incredibly strong and sustained traction and drive Brazil to be a more productive and diverse marketplace than the US, they will just moderate over time as investment slows.
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Old 03-05-2013, 04:10 AM
 
621 posts, read 550,323 times
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Quote:
Originally Posted by Willy702 View Post
These currency concept arguments are quite lacking in reality. People lose sight of how things would really play out. Its extremely hard for me to see the US dollar having some sort of run which obliterates its valuation.
With so much debt bough on leverage a small but rapid movement could cause big problems. A 10% drop would wipe out a 10x leveraged position. Bank run. Panic.
Quote:
Originally Posted by Willy702 View Post
The world is too dependent on USD stability. The rest of the world wouldn't let it go far, they would fight to devalue their own currencies to keep up. There just isn't a way where the rich nations of the world just stand by and say well the dollar is worth 30% of what it is today relative to their currency and it doesn't really matter to us.
Back in 1987 the DOW dropped what was it 25% in one day? People were making trades and they didn't know if their counter-party was solvent. Not good for business. So if the dollar takes a sudden movement the Fed will move to stabilize it. That move is to buy T-bills. The Fed's buying of T-bills is printing cash. You have to do something with that printed cash. Like buy gold, silver, grain, oil, etc. There are a lot of safeguards in place to keep this from happening. But it happened once it could happen again. Not the same way but in a different and unforeseen way.
Quote:
Originally Posted by Willy702 View Post
Such a dollar devaluation would cause a huge advantage to the US economy and the domestic market would be booming after a transition period. The rest of the world would still want to sell into the US market and its 300+ million customers, but with a devalued dollar it just wouldn't work well.
All the rich countries need to devalue their currencies at the same time.
Quote:
Originally Posted by Willy702 View Post

In the end every currency is a fiat currency and every economy depends on faith. Its extremely hard for one to go off the rails without taking others with them.
Is Greece the start of the train wreck? Is sequestration? My buddy is panicking over it.
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Old 03-05-2013, 04:23 AM
 
621 posts, read 550,323 times
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Quote:
Originally Posted by Willy702 View Post
What is "disrepute"? The savings value of the dollar can change in incremental ways, but remember what exactly a dollar does. It buys access into the largest economy in the world.
But the second largest manufacturing base. China is bigger.
Quote:
Originally Posted by Willy702 View Post
It buys access into a diverse marketplace with a wide variety of goods and services. This is what a dollar in the hands of a person does. It does not represent a government and its policies although many want to imply this.

When you consider what this means, also consider what other currencies mean. Lets take a colon from Costa Rica.
What can you buy from China. Or put it this way what can you buy that you need for every day use that isn't from China?
Quote:
Originally Posted by Willy702 View Post
What can you buy from Costa Rica? A nice vacation, maybe some coffee, a few manufactured products although they are mostly made to be sold in dollars, hmm what else?
Your argument applied to China takes on a whole different meaning.
Quote:
Originally Posted by Willy702 View Post
Maybe the services of a call center? Land in a nice beachfront area? Decent items, but not exactly the same variety or demand for these things as US dollars. Therefore the USD is convertible on world markets, the CRC not so much. If you gave a dollar to a merchant in India he could turn it into something he desired fairly quickly, give him 1000 colones and he'd have something colorful to pin up to a wall.

This all is simplistic to a degree, but then refocus back on the bigger picture. Until there are economies with more to offer to more people than the US, the dollar is not going to fall into disrepute.
China is headed there rapidly. China doesn't have to get there before we have a panic. The panic happens when everybody sees that we are going to go there and that because of our irresponsibility with money there is going to be a disorderly transition. “He how panics first panics best.” Reggie Middleton BoomBustBlog.com
Quote:
Originally Posted by Willy702 View Post
The Euro has gained traction despite its localized issues because an economy has finally become relatively competitive to the US. The Yen and the Chinese Yuan, among others not so much. The Aussie and the Loonie are more valuable today because the world does have a need for commodities and these currencies give you access to a variety of them. But neither country is large enough or diverse enough to replace what the US or Europe can provide.
We don't have to reach that point before we have a panic.
Quote:
Originally Posted by Willy702 View Post

These are the ways to view currency and their relationships to the marketplace, not what a daily exchange rate seems to imply. Exchange rates move based on supply/demand dynamics, but they don't replace the intrinsic value of what currencies do. Just because the Brazil real has strengthened drastically in the last few years does not mean its more important than the dollar in the world markets or that its any chance to replace it on the world stage. Brazil just happens to be taking in huge amounts of investment in a short time frame, but unless these investments find incredibly strong and sustained traction and drive Brazil to be a more productive and diverse marketplace than the US, they will just moderate over time as investment slows.
We are loosing diversity in our market place.
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