Global money-printing signals economy in freefall.

originally posted by: Vroomfondel
You think the riots are bad now? Wait until the checks stop coming...

There will be a reset, and sooner rather than later. We will end up with a new form of currency. Think Germany in 1923. The same thing is happening now, only it is taking longer because in 1923 the German banks weren't pumping billions of dollars in to the system to hold off deflation. The real problem is there is a correlation between deficit and inflation. Uncontrolled deficit equals uncontrolled inflation. Our deficit is out of control.

Some people in Germany survived by buying gold. Many people in the US are trying to do the same thing but the problem is that they are buying paper title to the gold in many cases. That paper will be as worthless as the currency when the defecation impacts the rotary oscillator.

The people who own things are probably going to be alright. Whats yours is yours. The people that are financed to the teeth are probably going to be alright. The debt will be erased overnight and they will simply start over. Its the people in the middle, who have half their home and half their car paid for, and have half a retirement in a 401k, that will get hurt the most. They don't own much and the money they do have will disappear in the reset, along with the things they were paying off - like their homes and cars.

Yes the US is exactly like Germany; apart from having not just lost a major war, not owing massive debt in a foreign currency and not having had some of your most productive industrial land taken over by France ( I will admit to some
uncertainty about the last one, the French can be pretty sneaky).

If a uncontrolled deficit equals uncontrolled inflation then why are we not seeing mass inflation in the US over the last few years? Why has Japan ran a huge deficit for decades with little inflation?

The US has relatively high under/un employment and lots of spare capacity, Running a deficit is entirely the correct and required thing to be doing these circumstances.

The problem isn't too much or too little money in the system but that the money that was created via qualitative easing has basically just increased bank reserves not stimulated demand. A far better use of the deficit would have been to cut taxes and increase government spending.

a reply to: chiefsmom

Interesting question. If memory seerves correctly it started in 2008 in response to the crisis. The Federal Reserve board drastically lowerd rates to pump up liquidity to keep the banks open. Since then they kept rates low to stimulate the economy.

It has worked, but very slowly because of the headwind of deflation caused by over capacity to produce and weak demand.

originally posted by: ScepticScot

originally posted by: Vroomfondel
You think the riots are bad now? Wait until the checks stop coming...

There will be a reset, and sooner rather than later. We will end up with a new form of currency. Think Germany in 1923. The same thing is happening now, only it is taking longer because in 1923 the German banks weren't pumping billions of dollars in to the system to hold off deflation. The real problem is there is a correlation between deficit and inflation. Uncontrolled deficit equals uncontrolled inflation. Our deficit is out of control.

Some people in Germany survived by buying gold. Many people in the US are trying to do the same thing but the problem is that they are buying paper title to the gold in many cases. That paper will be as worthless as the currency when the defecation impacts the rotary oscillator.

The people who own things are probably going to be alright. Whats yours is yours. The people that are financed to the teeth are probably going to be alright. The debt will be erased overnight and they will simply start over. Its the people in the middle, who have half their home and half their car paid for, and have half a retirement in a 401k, that will get hurt the most. They don't own much and the money they do have will disappear in the reset, along with the things they were paying off - like their homes and cars.

Yes the US is exactly like Germany; apart from having not just lost a major war, not owing massive debt in a foreign currency and not having had some of your most productive industrial land taken over by France ( I will admit to some
uncertainty about the last one, the French can be pretty sneaky).

If a uncontrolled deficit equals uncontrolled inflation then why are we not seeing mass inflation in the US over the last few years? Why has Japan ran a huge deficit for decades with little inflation?

The US has relatively high under/un employment and lots of spare capacity, Running a deficit is entirely the correct and required thing to be doing these circumstances.

The problem isn't too much or too little money in the system but that the money that was created via qualitative easing has basically just increased bank reserves not stimulated demand. A far better use of the deficit would have been to cut taxes and increase government spending.

Coming out of the war as you mentioned was part of the problem in Germany. They were fairly isolated economically. International trade was pretty much non-existent at that time so supply and demand was purely internal meaning growth was stagnant.

The reason we are not already seeing massive inflation is due at least in part to the deflation efforts of pumping billions in to the economy. But that is going to backfire. As you noted, instead of jump starting the economy corporations and some individuals are hoarding cash waiting for better days. Hoarding and huge cash reserves can also cause hyperinflation. It is just a matter of time when quantitative easing fails to take hold and spur economic growth.

I disagree regarding the deficit. It was neither desired nor appropriate. Pumping billions in to the economy was meant to jump start business, get production going again, and put people back to work. The idea was to reduce un/under employment and reduce dependence on government aid, and decrease trade deficit. That would not be accomplished, as we have seen, by maintaining a high deficit amid low employment and production. Becoming a nation of buyers rather than makers is not the answer to low income and credit problems.

Inflation is on its way. This is taking longer than it did in Germany for many reasons, the most important of which were mentioned above. But it will happen. It cant be avoided any more. When currency cant or isn't backed by real value, gold etc, it relies on confidence - the willingness of others to believe the currency has equivalent value. It is becoming fairly obvious now that global confidence is fading, not just in US currency, but in many world currencies. This above all else is why I believe one world currency is destined to become reality. If enough nations lose confidence in the popular currency of the time there is no choice but to replace it with something else.

a reply to: Vroomfondel

Confidence in the US dollar still seems pretty high in international markets. Demand for US sovereign debt remains high, despite low interest rates.

Quantitative easing failed (well I worked on some levels just not as much as it should have) because it was based on a totally inaccurate view of how the economy works. All it did was expand the base level of money that banks held in reserve. This was never going to increase borrowing as there was insufficient demand in the economy for new loanable funds. It did provide some much needed stability in the banking system but it didn't provide much bang for the buck in the real economy.

If instead the government had reduced income taxes , probably at a fraction of the 'cost', then there would have been a real increase in demand and people would have been able to make mortgage/loans payments in the first place. Instead the approach taken saved the banks but left the consumer debt in place.

Outside a few economic doom porn sites i don't see any real danger of a collapse of confidence in the Dollar. It is likely to remain the world's main reserve currency for a number of years yet and even if eventually overtaken that is far from a disaster for the US economy. 'Experts' saying otherwise are probably trying to sell something.

a reply to: ScepticScot

I respect your opinion, but I must disagree.

Confidence in the currency is based more in the fact that the average person doesn't fully understand how the economy works and the fact that people have an extremely deep discount rate. As a whole, people have evolved to ignore a problem until it is staring them in the face. They need some environmental queue to spur them into action. Without it, especially in the absence of sufficient economic education to recognize the queue in the first place, there is nothing to alert them to the fact that there is a serious issue that needs to be resolved.

While I agree with your assessment of quantitative easing, I disagree in the nature of the core problem. The banks and major corporations, as well as some individuals, took the extra cash being pumped in to the system and hoarded it instead of using it. Large cash reserves alone are a queue for inflation. As serious as that is, it still does not even mention the real issue of debt. We are nearing the 20 Trillion mark. As you pointed out, today global confidence in the dollar is fairly sound. What will happen though, the first time some foreign nation calls in our debt and we are unable to pay? Confidence will plummet. That is the moment of bankruptcy.

Like yourself, most people hear about these potential disasters; failed economy, climate change, running out of water, etc, but they picture those things as being in the future. That has an emotional weight of zero to the average person. Its only when they see for themselves that the threat is real and immediate that they even begin to react. By then it is often too late.

All of the conditions present in 1929, 1978, and 2008 are present right now. The only difference is that they are much worse now than ever before. Unprecedented efforts to avoid collapse have delayed the event but are destined to fail. My gut says within five years there will be a major reset of some kind, most likely a global currency. In 2010 the US Treasury started talking about a global currency. Amid the economic collapse of some nations and the falling out of the Euro the possibility of instituting a global currency inches ever closer.

originally posted by: Vroomfondel
a reply to: ScepticScot

I respect your opinion, but I must disagree.

Confidence in the currency is based more in the fact that the average person doesn't fully understand how the economy works and the fact that people have an extremely deep discount rate. As a whole, people have evolved to ignore a problem until it is staring them in the face. They need some environmental queue to spur them into action. Without it, especially in the absence of sufficient economic education to recognize the queue in the first place, there is nothing to alert them to the fact that there is a serious issue that needs to be resolved.

While I agree with your assessment of quantitative easing, I disagree in the nature of the core problem. The banks and major corporations, as well as some individuals, took the extra cash being pumped in to the system and hoarded it instead of using it. Large cash reserves alone are a queue for inflation. As serious as that is, it still does not even mention the real issue of debt. We are nearing the 20 Trillion mark. As you pointed out, today global confidence in the dollar is fairly sound. What will happen though, the first time some foreign nation calls in our debt and we are unable to pay? Confidence will plummet. That is the moment of bankruptcy.

Like yourself, most people hear about these potential disasters; failed economy, climate change, running out of water, etc, but they picture those things as being in the future. That has an emotional weight of zero to the average person. Its only when they see for themselves that the threat is real and immediate that they even begin to react. By then it is often too late.

All of the conditions present in 1929, 1978, and 2008 are present right now. The only difference is that they are much worse now than ever before. Unprecedented efforts to avoid collapse have delayed the event but are destined to fail. My gut says within five years there will be a major reset of some kind, most likely a global currency. In 2010 the US Treasury started talking about a global currency. Amid the economic collapse of some nations and the falling out of the Euro the possibility of instituting a global currency inches ever closer.

Thank you for a very detailed and courteous response. I will reply specifically to the the debt issue with you believe to be the main concern.

The scenario you describe of a foreign nation calling in the debt is a non issue for a number of reasons.

First of all only about a third of US debt is held overseas, and of that held overseas it is spread over a wide number of countries.

Secondly they cant actually cant do it, US government debt has a wide range of redemption dates, all a holder can do is get paid the value at redemption or sell on a secondary market. They cant ' call in the debt'.

Thirdly countries that buy US debt do so because they want to sell goods to the US. Most the large countries buying debt have export led economies at the moment and while this will change it will take a long time to happen. I would also suggest at the moment there are still a lot of poorer countries willing to sell real goods to the US and takes china or whoever's place.

Fourthly the US doesn't need to sell debt overseas, By doing so it is supporting the value of the dollar which allows it to run a larger trade deficit than it could otherwise. This allows the US to enjoy cheaper goods but arguably at the cost of domestic jobs, The US is lucky in that it has vast natural resources so there is very little it actually needs to import and drop in the value of the dollar causing short term price jumps isn't as big a deal as it would be too many other countries.

Firth and final point is that there is no scenarios where the US can not afford to pay its debt as the debt is entirely in dollars. When a US bond expires funds that are marked in one account at the US reserve are simply moved to another. The US can not go bankrupt and it can not run out of money, Worrying about that is worrying about entirely the wrong problem.

What the US can run out of is ability to make real goods and services. That is why having such large levels of un/under employment , with the loss of potential productivity and skills that entails, is the to me the real dilemma the US and other advanced economies face.

A final point on the Euro, I think you are right that there is a real potential(almost an inevitability) of countries leaving the euro (unless it is seriously reformed), however I think that is a demonstration of why transnational currencies just don't work.

originally posted by: ScepticScot

originally posted by: Vroomfondel
a reply to: ScepticScot

I respect your opinion, but I must disagree.

Confidence in the currency is based more in the fact that the average person doesn't fully understand how the economy works and the fact that people have an extremely deep discount rate. As a whole, people have evolved to ignore a problem until it is staring them in the face. They need some environmental queue to spur them into action. Without it, especially in the absence of sufficient economic education to recognize the queue in the first place, there is nothing to alert them to the fact that there is a serious issue that needs to be resolved.

While I agree with your assessment of quantitative easing, I disagree in the nature of the core problem. The banks and major corporations, as well as some individuals, took the extra cash being pumped in to the system and hoarded it instead of using it. Large cash reserves alone are a queue for inflation. As serious as that is, it still does not even mention the real issue of debt. We are nearing the 20 Trillion mark. As you pointed out, today global confidence in the dollar is fairly sound. What will happen though, the first time some foreign nation calls in our debt and we are unable to pay? Confidence will plummet. That is the moment of bankruptcy.

Like yourself, most people hear about these potential disasters; failed economy, climate change, running out of water, etc, but they picture those things as being in the future. That has an emotional weight of zero to the average person. Its only when they see for themselves that the threat is real and immediate that they even begin to react. By then it is often too late.

All of the conditions present in 1929, 1978, and 2008 are present right now. The only difference is that they are much worse now than ever before. Unprecedented efforts to avoid collapse have delayed the event but are destined to fail. My gut says within five years there will be a major reset of some kind, most likely a global currency. In 2010 the US Treasury started talking about a global currency. Amid the economic collapse of some nations and the falling out of the Euro the possibility of instituting a global currency inches ever closer.

Thank you for a very detailed and courteous response. I will reply specifically to the the debt issue with you believe to be the main concern.

The scenario you describe of a foreign nation calling in the debt is a non issue for a number of reasons.

First of all only about a third of US debt is held overseas, and of that held overseas it is spread over a wide number of countries.

Secondly they cant actually cant do it, US government debt has a wide range of redemption dates, all a holder can do is get paid the value at redemption or sell on a secondary market. They cant ' call in the debt'.

Thirdly countries that buy US debt do so because they want to sell goods to the US. Most the large countries buying debt have export led economies at the moment and while this will change it will take a long time to happen. I would also suggest at the moment there are still a lot of poorer countries willing to sell real goods to the US and takes china or whoever's place.

Fourthly the US doesn't need to sell debt overseas, By doing so it is supporting the value of the dollar which allows it to run a larger trade deficit than it could otherwise. This allows the US to enjoy cheaper goods but arguably at the cost of domestic jobs, The US is lucky in that it has vast natural resources so there is very little it actually needs to import and drop in the value of the dollar causing short term price jumps isn't as big a deal as it would be too many other countries.

Firth and final point is that there is no scenarios where the US can not afford to pay its debt as the debt is entirely in dollars. When a US bond expires funds that are marked in one account at the US reserve are simply moved to another. The US can not go bankrupt and it can not run out of money, Worrying about that is worrying about entirely the wrong problem.

What the US can run out of is ability to make real goods and services. That is why having such large levels of un/under employment , with the loss of potential productivity and skills that entails, is the to me the real dilemma the US and other advanced economies face.

A final point on the Euro, I think you are right that there is a real potential(almost an inevitability) of countries leaving the euro (unless it is seriously reformed), however I think that is a demonstration of why transnational currencies just don't work.

And you as well.

Your statistical data is spot on. It is with the logistical data that our opinions diverge.

All debt, regardless of prior agreement, must be paid at some point. We as a nation can not keep pace with our own debt to ourselves. The deficit increased 121% while revenue increased 71%. And that from a workforce already overtaxed. The most frightening thing is that if the entire earned income of taxpayers in this country went toward our debt we would barely break even.

It is true only one third of our debt is owned by other nations. But it only takes one event of non-payment to cause bankruptcy, or at the very least lost confidence in the dollar. Confidence is the key word here. As a nation we have already been downgraded for borrowing. Lenders look at income/debt ratios for everyone, including nations. The confidence is waning. Slowly, yes. But it is waning. I think it will only take one significant event to shock the system into action. What that will be exactly, I can not predict. But I believe it will happen.

Speaking globally paper money is a relatively short term experiment. It has only been around for about 150 years. Prior to that it was coin with tangible value. Everyone traded copper, silver and gold. The idea of harboring gold and trading paper notes was only accepted grudgingly and viewed very skeptically at first. That skepticism will return, and in greater degree.