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Old 03-05-2013, 09:06 AM
 
17,749 posts, read 15,026,257 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?
Well it means any debt pyramided on the dollar would be repudiated to some extent.

Perhaps its best to explain my model of value systems. I don't use economic models which I believe to be farcical. Psychologists are far better at explaining behavior and Maslow's hierarchy of needs tends to suit my view. One pole is rather objective to the species like fresh water and the other is socially based. We are in the climate of social upheaval thus why the pendulum swing to the more objective value systems. Like the dialog on virtue, is virtue recognized objectively by the gods, or is virtue defined by the want of the gods?

So for example what if the king ate caviar? What would caviar be worth? Let us say there was only enough for the king and his royal house. Suppose again its an acquired taste and there is no universal demand. Let us also suppose there was a small island that supplied the caviar. What would the island be worth? Now what we can see here is only one attached node to demand in high places against the rather common supply of fresh water.

Suppose there was a surplus of caviar one year. What would happen to the surplus? Would it not become a store of value? Suppose again people became accustomed to using it as a store of value. Would they also not use it in trade? Suppose again that on a lean year the king wanted the caviar. What would happen to trade dependent on the liquidity of canned fish eggs?


Suppose again there is a coup that topples the king and the royal house become beggars? What happens to those who fish for caviar? What happens to the island? What happens tot he trade denominated in caviar?


Quite simply everyone will be impacted in some way. This is certainly the main problem with sovereign debt currency. It lives and dies with the Don. However how do you keep the sovereign from creating its IOUs since they wish to spend them and everyone wishes to own the debt of the Don.

Suppose again an enforcers likes a Browning 45 and all he has is an invitation to the Don's daughter's wedding. How do we stop him from trading with it given its great values. Suppose he trades it for the 45. The person who traded knows it will become worthless. However he does not care given its convertibility to the wedding next week. What it will be worth is of no consequence. Now how many liquid assets do we have? ...:

1 invitation to the Don's daughter's wedding
1 Browning 45


How many will we have after a week?

1 Browning 45


We will be in a Don's daughter wedding invitation liquidity crises because the Don owes nothing? We have certainly lost a store of value and a liquid asset until the Don goes into debt again by making good on an invitation.

Last edited by gwynedd1; 03-05-2013 at 10:13 AM..
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Old 03-05-2013, 09:33 AM
 
Location: Fredericktown,Ohio
6,515 posts, read 4,152,670 times
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I think there has been movement by the rest of the world to dethrone USD as the worlds reserve currency. You might have noticed that China and Russia are trading using there own currencies. Both countries have been buying up a lot of gold, hmmm wonder if either country or both is going to back their currency with gold? China also has other trading partners in the region trading in their currencies.

This is not like a Iraq situation where they were selling oil in their own currency and we whipped their a$$ and immediately Iraq went back to USD. We are talking about 2 powerful countries. So I think there is going to be a move away from USD because they are sick of our game of printing money and devaluing their holdings {China}.

Now some people use the argument of the U S has 300 million customers and other countries would cut their own throat. But could there be a day where China/Russia currency/currencies are stronger then USD by a lot? China has 1 billion people that could be unleashed with more purchasing power plus Russia's population.

Would China really be in a bind because their currency is stronger and thus prices rose in the U S? Or would it be the American consumer that was up sh** creek and paying more? Could China make up for maybe? a slow down in exports by a increase in their own consumer spending? I think Russia/China are already in the drivers seat and we just do not know it.

Why would the rest of the world sit by and let us spend and borrow and devalue are currency with out taking action? Is it because of the BS of American exceptionalism? If you were other countries would n't you be trying to topple USD as the worlds reserve currency? I think headed by China/Russia the world is working on it.
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Old 03-05-2013, 09:36 AM
 
Location: The North
4,962 posts, read 8,677,165 times
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Quote:
Originally Posted by pie_row View Post
But the second largest manufacturing base. China is bigger.
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?
Your argument applied to China takes on a whole different meaning.
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
We don't have to reach that point before we have a panic.
We are loosing diversity in our market place.
I guess the world is going to end.

China has value in the world economy, but until their currency is not soft pegged and isn't subject to non-convertibility restrictions it pretty much operates as something different. It still isn't a big seller of services and its working on moving up the value chain. It could one day be another Euro, or it could all blow up. We just can't infer too much at this point.

As for a 10% drop and a banking problem, that is a banking problem. I'm still not exactly sure how a 10% drop causes issues since exchange rates create winners and losers with every move. The USD didn't lose value in 2008 despite big banking problems. The way a panic about the dollar and specifically the dollar would work is if the US was operating completely in another direction from the world. If the US was undertaking current policy while the rest of the world was jacking up interest rates and generating surpluses. It has to be an outlier to cause a panic. Right now I see most of the industrialized world operating fairly similarly to the US. Canada and Australia are really the only contrarians at the moment and their economies are just not big enough to create imbalances worldwide. Even with that both are keeping relatively low interest rates.

I am trying to think of a way another crisis could take away demand for the USD but I just can't think of any. Whether you want to admit it or not the world revolves around stability in the dollar and when the dollar gets even a little unstable the world will act in ways to regain stability and keep exchange rates at least within reasonable distance of where they have been.
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Old 03-05-2013, 10:26 AM
 
17,749 posts, read 15,026,257 times
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Quote:
Originally Posted by Swingblade View Post
I think there has been movement by the rest of the world to dethrone USD as the worlds reserve currency. You might have noticed that China and Russia are trading using there own currencies. Both countries have been buying up a lot of gold, hmmm wonder if either country or both is going to back their currency with gold? China also has other trading partners in the region trading in their currencies.

They have to run trade deficits to be the world currency. Unless they owe, their debt is not liquid. Like my example about the Don's invitation it is of no use after the party. Too many Yuan go back to China.


Acquaint yourself to Triffin's observation:


[SIZE=-1]If the United States stopped running balance of payments deficits, the international community would lose its largest source of additions to reserves. The resulting shortage of liquidity could pull the world economy into a contractionary spiral, leading to instability.[/SIZE]
Money Matters, an IMF Exhibit -- The Importance of Global Cooperation, System in Crisis (1959-1971), Part 4 of 7


US is our debt but its the world's liquid assets. We have the same problem. In order for private assets to rise, the public must go into debt. For China to become the reserve state it must owe, it cannot be owed or run a surplus because it will extinguish those liquid assets. The sovereign does not pay off, they owe.





Quote:
This is not like a Iraq situation where they were selling oil in their own currency and we whipped their a$$ and immediately Iraq went back to USD. We are talking about 2 powerful countries. So I think there is going to be a move away from USD because they are sick of our game of printing money and devaluing their holdings {China}.
Certainly it is not.

Quote:
Now some people use the argument of the U S has 300 million customers and other countries would cut their own throat. But could there be a day where China/Russia currency/currencies are stronger then USD by a lot? China has 1 billion people that could be unleashed with more purchasing power plus Russia's population.

Would China really be in a bind because their currency is stronger and thus prices rose in the U S? Or would it be the American consumer that was up sh** creek and paying more? Could China make up for maybe? a slow down in exports by a increase in their own consumer spending? I think Russia/China are already in the drivers seat and we just do not know it.

Why would the rest of the world sit by and let us spend and borrow and devalue are currency with out taking action? Is it because of the BS of American exceptionalism? If you were other countries would n't you be trying to topple USD as the worlds reserve currency? I think headed by China/Russia the world is working on it.
They have to become like us. They need to spend more than they make. They must make enough debt to allow liquidity. Do you not see the irony? The best reserve currency is that which is worth something, but is never collected. The Don must never hold the wedding else the liquid sovereign capital disappears.


Not very intuitive which is why I can only hope for about 5% of the light bulbs to go off. You will be lucky if you disagree for if you agree, you will become like Cassandra. You will tell the truth, but it will appear to be insanity.

Last edited by gwynedd1; 03-05-2013 at 10:38 AM..
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Old 03-05-2013, 10:58 AM
 
621 posts, read 547,195 times
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Secrets Of The Plunge Protection Team


Quote:
Originally Posted by Willy702 View Post
I guess the world is going to end.

China has value in the world economy, but until their currency is not soft pegged and isn't subject to non-convertibility restrictions it pretty much operates as something different. It still isn't a big seller of services and its working on moving up the value chain. It could one day be another Euro, or it could all blow up. We just can't infer too much at this point.

As for a 10% drop and a banking problem, that is a banking problem. I'm still not exactly sure how a 10% drop causes issues since exchange rates create winners and losers with every move. The USD didn't lose value in 2008 despite big banking problems. The way a panic about the dollar and specifically the dollar would work is if the US was operating completely in another direction from the world.
Or if people come to the conclusion that US is going to print down its debts. Both public and privet.
Quote:
Originally Posted by Willy702 View Post
If the US was undertaking current policy while the rest of the world was jacking up interest rates and generating surpluses. It has to be an outlier to cause a panic. Right now I see most of the industrialized world operating fairly similarly to the US. Canada and Australia are really the only contrarians at the moment and their economies are just not big enough to create imbalances worldwide. Even with that both are keeping relatively low interest rates.

I am trying to think of a way another crisis could take away demand for the USD but I just can't think of any. Whether you want to admit it or not the world revolves around stability in the dollar and when the dollar gets even a little unstable the world will act in ways to regain stability and keep exchange rates at least within reasonable distance of where they have been.
It has to be a black swan event. Unforeseeable looking forwards highly foreseeable in hind sight. (We should have seen what did us in but didn't.) The day is coming when USD doesn't have world wide demand like it does today.


If we restructure our economy so that we can be buying back our national debt as this happens then the transition will be orderly. We aren't going to be top dog forever.
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Old 03-05-2013, 11:12 AM
 
621 posts, read 547,195 times
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Quote:
Originally Posted by gwynedd1 View Post
Acquaint yourself to Triffin's observation:


[SIZE=-1]If the United States stopped running balance of payments deficits, the international community would lose its largest source of additions to reserves. The resulting shortage of liquidity could pull the world economy into a contractionary spiral, leading to instability.[/SIZE]




My thinking on this goes like this. If we inflate our economy and start buying back our national debt, Dollars become more valuable and we have a lot more of them to spend. This will tend to run a trade imbalance. We need to be saving a lot of the increase in nominal value to offset the increase in buying power of the inflated dollars. Outside of the US deflation. Inside of the US inflation.
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Old 03-05-2013, 12:33 PM
 
17,749 posts, read 15,026,257 times
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Quote:
Originally Posted by pie_row View Post
[/font]



My thinking on this goes like this. If we inflate our economy and start buying back our national debt, Dollars become more valuable and we have a lot more of them to spend. This will tend to run a trade imbalance. We need to be saving a lot of the increase in nominal value to offset the increase in buying power of the inflated dollars. Outside of the US deflation. Inside of the US inflation.

The FED is already buying back the national debt , not to mention mortgage debt. What will that do about the non interesting bearing bank notes that replaces the official "debt" as it is so called. The best thing to do is add supply. Unfortunately we don't have a supply of brains. We done run out of that.

What you really are talking about is increasing the buying power of those who would perform some useful and in demand industry. Unless you cut off with taxes saving in rent seeking activity, it will make it worse. That is how we got into this mess. In the 90s Americans were paid a high salary. They rolled that into "savings" that is the means of production. Industry now has to pay workers who pay high rents. Another flood of high wage will flood into asst price appreciation and make it worse. Have to deal with the rentiers. We won't. We will compete with China because they will join us in rentierism. They already are.


The oil workers in North Dakota will not be highly paid for long. It turns into ground rents.


Nation & World | N. Dakota oil boom ignites rise in rents | Seattle Times Newspaper

The skyrocketing cost of living is all the talk at the senior center downtown.
Same thing after the Facebook IPO in the Bay area. Wages will not rise for long relative to the cost of living. Economic rent is all that will ever rise.



The Main Target Of China's Housing Regulations: Home Price-To-Income Ratios - Seeking Alpha


Japan did the same thing. In 1990 they became like us, a high cost society. Real estate absorbs all progress..

Always ignored, and the hard medicine repeated , but never refuted.

Progress and Poverty, Chapter 18
W[SIZE=-1]E HAVE REACHED[/SIZE] a conclusion of great significance. We have shown that rent — not labor — receives the increased production of material progress. Further, we have seen that labor and capital do not have opposing interests, as is popularly believed. In reality, the struggle is between labor and capital, on one side, and landownership on the other.
But we have not fully solved the problem. We know wages remain low because rent advances. Still, that is like saying a steamboat moves because its wheels turn. The further question is, what causes rent to advance? What is the force or necessity that distributes an increasing proportion of production as rent?
How many times does it need to happen? Are we just zombies or something? This is easier than a quick bread recipe to follow.
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