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Old 10-02-2013, 08:20 AM
 
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Originally Posted by shaker281 View Post
Why would a trillion dollars of (borrowed) government spending not be equivalent to a trillion dollars of (borrowed) mortgage money? Both are fueling the economy are they not? Or is it because the government was spending a trillion and the banks were lending another trillion?

There is no short term difference. Both of them are a money supply. With mortgages however there is a debt deflation day of reckoning as we just saw. What I am saying is that now there is no mortgage debt growth at all unlike the housing boom. So to have a similar economy with 1 trillion in mortgage debt per year, we would need trillion dollar deficits, for example.
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Old 10-02-2013, 09:24 AM
 
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Originally Posted by shaker281 View Post
That is very interesting!

An ad from a financial house states that "a quarter of all goods & service produced in all of human history have been produced in just the past 10 years". I do not know if this is precisely accurate, but I suspect it is mostly true.

Does that not imply that the money supply must expand to keep up? As such, would not any fixed currency be doomed to failure?
Anytime you fix or peg currency you are limiting your country in flexibility and strength when it comes to times of economic weakness. So non-monetarily sovereign countries like Greece are inherently weaker. Countries that tie or peg their money to ours or another currency are also strapped. No country on earth today uses gold or is pegged to gold for much of the same reasons. Persistent deflation or worse. Lack of central control on value and supply of the currency.

Any expanding nation needs more money moving forward.

Be Careful What You Wish For: the Balanced Budget Amendment | The Moderate Voice

In a generation our country will need many more $T's in money just for HC expenses. That money will have to be created. Either through our private banking system, where most of our money is generally derived, or centrally through Fed/Treasury money creation systems. Has to be.
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Old 10-02-2013, 10:13 AM
 
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Originally Posted by Hoonose View Post
Anytime you fix or peg currency you are limiting your country in flexibility and strength when it comes to times of economic weakness. So non-monetarily sovereign countries like Greece are inherently weaker.
Greece has a mature population with little or no natural growth.

But your comment does not apply to all countries. Ecuador and El Salvador both switched to the US dollar for different reasons. Ecuador switched to the dollar because it's own currency was so destablized by the El Nino (the weather pattern) that it's biggest banknote was worth US$2. The currency was worth very little outside of buying and selling some local groceries. El Salvador switched because so many of it's people work in the USA that most of it's income is from money being sent home by family members. The currency was stabled but it was costing more to maintain a currency then to simply forego seignorage completely and just use the dollar.

Many other countries have their currency pegged to the dollar, and many have treasury bonds to cover the full value of banknotes issued.
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Old 10-02-2013, 10:19 AM
 
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Quote:
Originally Posted by shaker281 View Post
Why would a trillion dollars of (borrowed) government spending not be equivalent to a trillion dollars of (borrowed) mortgage money? Both are fueling the economy are they not? Or is it because the government was spending a trillion and the banks were lending another trillion?
It depends on how, where, why and how fast the money was created, and in what economy.

For instance $1T of relatively rapid TARP like central money would have different economic implications and impacts than Millions of private sector conventional mortgages taken out over say a decade all throughout the USA. If our economy was on a high burner, there of course would be no reason for anything like TARP, and all those mortgages would be inflationary.
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Old 10-02-2013, 10:38 AM
 
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Originally Posted by PacoMartin View Post
Greece has a mature population with little or no natural growth.

But your comment does not apply to all countries. Ecuador and El Salvador both switched to the US dollar for different reasons. Ecuador switched to the dollar because it's own currency was so destablized by the El Nino (the weather pattern) that it's biggest banknote was worth US$2. The currency was worth very little outside of buying and selling some local groceries. El Salvador switched because so many of it's people work in the USA that most of it's income is from money being sent home by family members. The currency was stabled but it was costing more to maintain a currency then to simply forego seignorage completely and just use the dollar.

Many other countries have their currency pegged to the dollar, and many have treasury bonds to cover the full value of banknotes issued.
I agree with you. Very weak countries like Zimbabwe have similar reasons to peg to the USD and comparatively speaking it strengthens them at this time. Down the road as these countries gain substantial strength this could be a hindrance, and reverting back to their own fiat may cause problems.
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Old 10-02-2013, 01:27 PM
 
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Originally Posted by PacoMartin View Post
Greece has a mature population with little or no natural growth.

But your comment does not apply to all countries. Ecuador and El Salvador both switched to the US dollar for different reasons. Ecuador switched to the dollar because it's own currency was so destablized by the El Nino (the weather pattern) that it's biggest banknote was worth US$2. The currency was worth very little outside of buying and selling some local groceries. El Salvador switched because so many of it's people work in the USA that most of it's income is from money being sent home by family members. The currency was stabled but it was costing more to maintain a currency then to simply forego seignorage completely and just use the dollar.

Many other countries have their currency pegged to the dollar, and many have treasury bonds to cover the full value of banknotes issued.
The way I would put it is that anytime a country pegs its currency it that it limits its ability to project its influence. Banana Republics have very little power to project when it comes against internationally fungible currencies. The US just by existing is a massive destabilizing influence.
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Old 10-02-2013, 02:43 PM
 
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Originally Posted by gwynedd1 View Post
The way I would put it is that anytime a country pegs its currency it that it limits its ability to project its influence. Banana Republics have very little power to project when it comes against internationally fungible currencies. The US just by existing is a massive destabilizing influence.
As I said earlier, both El Salvador and Ecuador felt the reasons to switch to the dollar made up for the loss of seigniorage by issuing their own currency. The primary reason for switching is to have access to banking and lending of money with a stable currency. The goal is to increase investment in the country, and in El Salvador's case to eliminate the need to change remittances from the huge American work force into another currency.

Argentina considered replacing the peso with the dollar in 2000. But the U.S. government would receive the seigniorage that the Argentine government now receives (roughly $750 million in 2000 , or around 1.2 percent of Argentina's federal government budget). Instead they elected to issue a new peso pegged at 1:1 with the dollar. Eventually that system collapsed.

To reduce the loss of seigniorage as an obstacle to official dollarization, Senator Connie Mack and Representative Paul Ryan introduced the International Monetary Stability Act (S. 1879 and H.R. 3493) in November 1999.

Essentially the Act put a series of requirements on any country that wanted to dollarize (money laundering laws, and agreement never to print their own currency again). In exchange the US would essentially give them the banknotes needed to dollarize, less a small fee to produce and ship the notes. At some point the government would receive yearly payments to offset their seignorage loss. The Senator felt that the USA would benefit from a more stable country that would become a bigger trade partner and lower immigration from a more stable country.

Under the act there would be no coercion for any country to dollarize, but it would be open to any country that wanted to do so. Ecuador was very excited about the proposed act, but when it was shot down in committee they decided to dollarize anyway.

=================
At this point, if any country wants to leave the EMU, they may have to adopt an electronic currency, since it will be almost impossible to reintroduce a new set of notes and coins. Needless to say, the Euro will still circulate for private transactions, but pay will be done in an electronic drachma, and stores will be required to accept electronic drachmas. It won't be pretty, but it may be the only practical thing to do.

Sweden as a member of the EU, but not the EMU, may be the first country to adopt an electronic currency. They are the only country in the world (to the best of my knowledge) who are actually decreasing their circulation of banknotes and coins. There are no plans to eliminate a denomination, but they are simply reducing the number of notes. Their biggest banknote is worth US$156, $78, ... down to $7.83 and $3.13 for their smallest notes.
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Old 10-02-2013, 03:04 PM
 
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Originally Posted by PacoMartin View Post
At this point, if any country wants to leave the EMU, they may have to adopt an electronic currency, since it will be almost impossible to reintroduce a new set of notes and coins. Needless to say, the Euro will still circulate for private transactions, but pay will be done in an electronic drachma, and stores will be required to accept electronic drachmas. It won't be pretty, but it may be the only practical thing to do.

Sweden as a member of the EU, but not the EMU, may be the first country to adopt an electronic currency. They are the only country in the world (to the best of my knowledge) who are actually decreasing their circulation of banknotes and coins. There are no plans to eliminate a denomination, but they are simply reducing the number of notes. Their biggest banknote is worth US$156, $78, ... down to $7.83 and $3.13 for their smallest notes.
I think Greece would first have to demand that their private sector take Drachma as payment in providing goods and services to their central Gov't. And from that day forward all taxes would have to be paid in Drachma. Then have at it! I wouldn't want to live or visit until it all settled down. In fact my daughter was there a few summers ago giving a Medical talk, and I insisted she keep some USD hidden on her person. For this same reason.
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Old 10-02-2013, 04:41 PM
 
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Originally Posted by Hoonose View Post
I think Greece would first have to demand that their private sector take Drachma as payment in providing goods and services to their central Gov't. And from that day forward all taxes would have to be paid in Drachma. Then have at it! I wouldn't want to live or visit until it all settled down.
Essentially all currency is given value because the state government will only accept it for taxes. I think one question would be would the Greek drachma be set at it's original exchange rate of 340.75 GRD to the Euro, or would a new drachma be set on parity with the Euro. Presumably there would be a mad dash to turn bank accounts into paper currency in the Euro. Perhaps commerce would seriously slow down as no one wants to buy anything for far of giving up their currency.

It is not too hard to imagine Sweden eliminating it's 1000 krone banknote (=116 Euros) and trying to encourage electronic transfers. More radical decision would be to eliminate the 500 krone banknote and keep only the 200 krone or lower. If they did such a move, then larger Euro banknotes would circulate within the country for private transactions. But I don't think that would destabilize the country.

But if Greece adopted an electronic currency, you can imagine a lot of physical fights.
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Old 10-02-2013, 05:48 PM
 
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Originally Posted by PacoMartin View Post
Essentially all currency is given value because the state government will only accept it for taxes. I think one question would be would the Greek drachma be set at it's original exchange rate of 340.75 GRD to the Euro, or would a new drachma be set on parity with the Euro. Presumably there would be a mad dash to turn bank accounts into paper currency in the Euro. Perhaps commerce would seriously slow down as no one wants to buy anything for far of giving up their currency.

It is not too hard to imagine Sweden eliminating it's 1000 krone banknote (=116 Euros) and trying to encourage electronic transfers. More radical decision would be to eliminate the 500 krone banknote and keep only the 200 krone or lower. If they did such a move, then larger Euro banknotes would circulate within the country for private transactions. But I don't think that would destabilize the country.

But if Greece adopted an electronic currency, you can imagine a lot of physical fights.
Like I said, I wouldn't want to be there if and when it happens.
Isn't it grand that we are monetarily sovereign with freely floating exchange rates off the gold std?
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