Is the U.S. Solvent? 67 comments
Nicholas Jones
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Doom and Gloom, Get it Straight!
There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place. -Telegraph 1/6/09
That quote comes courtesy of Professor Willem Buiter of the London School of Economics. As you know, little comes from the world of academic economics that I agree with. We have an exception here although Professor Buiter and I disagree on how we'll get there.
The "dollar demise" story is one that has been beaten to death up until now. It's been covered, denounced, called un-American, and with the recent dollar strength, it's been all but dismissed. The problem with all the coverage is that the overwhelming majority of analysts, just like Professor Buiter, have the means wrong. They don't understand how this process will shake out.
The fundamentals of the dollar's weakness are apparent and discussed everyday. The problem is that they're discussed in some other context. Let's start by taking an issue I've covered extensively in prior issues of B&B.
Balancing the Budget Deficit
If you are a reader of mine, and/or can figure logic beyond a 5th grade level, the bearish fundamentals surrounding the treasury market are blatant. Let's take a look at this -- keeping the dollar in mind.
Our budget deficit, like Clifford the dog, is big and red. We are already looking at a $1.2 trillion budget deficit, and that doesn't include Obama our savior's stimulus package that will probably increase our deficit by another 2/3. I promise you it won't stop there. Our new left of left fiscal policies are set to only loosen further as this fiscal irresponsibility grows in mass.
As our nation's liabilities grow, it becomes ever more constraining and difficult to make payments. Look at it this way. If you were racking up the credit card debt, it is more expensive in the long run to make the minimum payment, than it is to simply pay off the debt. That is what we're currently experiencing.
One way to ease the burden of our massive debt is to decrease its real value. In other words, regulators can inflate the money supply. In theory, the Federal Reserve could inflate the value of our deficit to zero if they wanted. It obviously worked well for the likes of Zimbabwe and Weimar Germany.
Contrary to the past several months, inflation hasn't been the notable "flation" discussed. Obviously it's the deflation that regulators have been worried about, or at least want you to worry about. Just as inflation reduces the value of our nation's debt, deflation does the exact opposite.
This is one of the main reasons deflation will not be tolerated. The end game here would simply be default on an unpayable deficit. Then there's the other scenario: reflation.
With deflation scaring the pants off our nation's leaders, regulators are doing everything in their power to combat it.
In prior issues of B&B, we looked at the alarming numbers regarding the recent monetary inflation. Let's revisit some of those statistics.
The Federal Reserve has already lent over $2 trillion through its different lending facilities. The recipients of this money have not been released. Bloomberg has recently filed a suit under the U.S. Freedom of Information Act to find out who this money was going to. The Fed has denied access to the information. This does not pertain to the topic of inflation, but is another example of outright criminal behavior undertaken by the authorities.
Anyway, from the middle of September to the beginning of November, the Fed has increased facilities lending by $1.23 trillion marking an increase of some 138%...in just 12 weeks!
After Lehman Brothers went bankrupt, regulators entered panic mode. For those who don't know, when regulators panic, they hop in their expensive Mercedes, or Lincoln, or whatever fancy car they drive, and head straight to the printing presses. They flip the switch from "Jesus was printing a lot of money" to "Holy Hell warp speed," and that's exactly what they did.
By the end of October, year over year money supply growth was 38%. For those of you who don't know, when everything is shaken out, money supply growth exactly equals price inflation. The last time the money supply was growing at something remotely close to the 38% figure was in 1939 when money supply growth was 28%.
Little did we know that we were just getting started. Once the first week of Dec. rolled around the Federal Reserve really kicked it into gear. In Dec. 2007, the monetary base was $836 billion. In Dec. 2008, the monetary base is $1,479 billion. That's a growth of 76% year over year.
There's an interesting little twist here. Leading up to the Lehman Brothers collapse, the Federal Reserve held the monetary base relatively steady. This means that the majority of the staggering 76% money supply growth has taken place in the last three months. That's an annual rate of approximately 300%.
If that isn't enough, I guess pictures speak louder than words.
So here's the deal. The U.S. is growing both its budget deficit and money supply on exponential levels. Once all of this money starts to show up in the prices of goods -- look out. When inflation takes grip it is going to move fast.
The problem is that this massive growth in the monetary base will make it more difficult and more expensive to finance our nation's debt at a time when we need more financing than ever.
When we begin to struggle financing our debt, the next step is to monetize. This step is one that the Fed and Treasury have already embarked on. Monetizing the debt is simply when the Treasury write the notes and the Federal Reserve prints the money to buy them. Obviously, pending the size of the unfinanced debts, this is very destructive on the domestic currency.
Here's the deal. The U.S. needs to finance a lot of debt. Their monetary looseness is beginning to limit their ability to do so. This will only worsen significantly. The more debt we can't pawn off to foreigners, the more we must monetize. When we monetize, we finance our debt at a great cost to our currency. This will only make it more difficult to sell debt, therefore we will monetize. It's starting to snowball now. It's very simple. The longer the treasury market bubble goes, the more immediate destruction is done to the U.S. dollar.
There is only one end game here. Analysts love to discuss whether or not the financial system or Detroit is solvent. Let me tell you, we got bigger problems. The next big question will be: is the U.S. solvent?
Disclosure: No positions.
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This article has 67 comments:
> jack
Obama has publicly stated he's going to stimulate AND cut taxes. Just like his predecessor!
The savior bit is rancorous . Your guy lost. Get over it.
Anyone with a brain is slowly but steadily moving their retirement savings into gold.
YES!
I am cracking up over the "Obama our savior" line...
don't you know "hope" will take care of everything??
America is bankcrupt, everyone but americans seem to be aware of this.
Spreading more than who's wealth around but a fractional value of a reserve from a congressional I.O.U. bonds is more than a deficit spending but still dying a deficit death.
Isaiah 14 - Verse 12
How art thou fallen from heaven, O Lucifer, son of the morning!...
Our problems are huge, but they are not in isolation, China has theirs, Spain, Greece, Iceland, and others are toast, etc. It's all relative.
If we are not sovent, who is?
On Jan 09 09:12 AM birder wrote:
> What is amazing to me is that people keep buying U S debt and at
> give away interest rates. Sort of makes one wonder.
As for the idea that all the newly minted money will suddenly make a tsunami wiping out the economy, it is far more likely those dollars will replace the ones lost in the great deleveraging and one will be hard pressed to see the difference. Except in the ever-growing debt levels.
Anyone that is unable to see that our problems have been created by Republicrats - both of our ruling parties TOGETHER - just isn't paying attention or is so totally biased they cannot objectively analyze the facts. BOTH parties are championing the bailouts. Even his ellow Republicans think Ron Paul is a crackpot nutjob.
Proponents of fiscal responsibility in DC are about as rare as virgins in a bordello.
On Jan 09 10:22 AM axelrod608 wrote:
> >> "Obama our savior's .... "new left of left fiscal policies"
> >> Cut the partisan sniping and explain to us how the right of
> right policies of the past 8 years didn't get us INTO this mess we're
> in.
>
> As for the idea that all the newly minted money will suddenly make
> a tsunami wiping out the economy, it is far more likely those dollars
> will replace the ones lost in the great deleveraging and one will
> be hard pressed to see the difference. Except in the ever-growing
> debt levels.
>
> Anyone that is unable to see that our problems have been created
> by Republicrats - both of our ruling parties TOGETHER - just isn't
> paying attention or is so totally biased they cannot objectively
> analyze the facts. BOTH parties are championing the bailouts. Even
> his ellow Republicans think Ron Paul is a crackpot nutjob.
>
> Proponents of fiscal responsibility in DC are about as rare as virgins
> in a bordello.
"What is amusing/bemusing is that with all the focus and questioning on how the US will finance its fiscal deficit, it was Germany that had a failed bond auction this week, as they were only bid on 87% of the offering size. Bid to cover on the US 10 year auction, meanwhile, was 2.5. Food for thought with respect to the euro, for sure."
Perhaps you should get over yourself, or at least switch to de-caf. We're all here trying to hear from all possible angles, and get our individual direction. Its a muddled mess, and no one has all the answers.
On Jan 09 09:40 AM bosun.j wrote:
> Yet more of that knee jerk American exceptionalism! Get over yourself!
>
>
Having enough cash on hand to immediately pay all its debts today if needed? Well, any government that issues its own currency can print the cash to do that.
Having more assets than liabilities? Calculating the liquidation value of government assets is tricky, because those assets only have value in the presence of that same government you are liquidating! How much would you pay for some of the former government's real estate in Somalia?
Ability to service debt? Again, any government that issues its own currency will always have the ability to create the currency to make its debt payments. The only way the govt. could default is if it REFUSED to make the payments for whatever reason or if the loans were due in a foreign currency that people refused to exchange for that government's currency.
Thus, measures of business solvency cannot be applied to a government. Only estimates of inflation risk and measures of forex flows matter to investors. I agree that the risk of future inflation seems higher than treasury rates imply, but that is because capital is fleeing from other parts of the world where inflation or devaluation seems even more likely. TIPS are predicting 1-2% US inflation for the next 10 years. Yet, it seems to me that the current bout of deflation could be finished off within months.
Of course, that could start happening tomorrow, which is why having gold in one's portfolio isn't a bad idea. Even the remotest possibility of a dollar default happening is enough to make one want to invest in gold. Just think twice about how big a proportion that hedge needs to be, and understand the mechanics of inflation and why we aren't seeing any despite this insane increase in the supply of USD.
When we point our fingers at the leaders that WE ELECTED for their fiscally irresponsible policies, our other three fingers are pointing back at us for consistently electing them in the first place. Sorry people, but in a democracy it's the public's fault.
On Jan 09 10:22 AM axelrod608 wrote:
> >> "Obama our savior's .... "new left of left fiscal policies" >>
> Cut the partisan sniping and explain to us how the right of right
> policies of the past 8 years didn't get us INTO this mess we're in.
>
>
> As for the idea that all the newly minted money will suddenly make
> a tsunami wiping out the economy, it is far more likely those dollars
> will replace the ones lost in the great deleveraging and one will
> be hard pressed to see the difference. Except in the ever-growing
> debt levels.
>
> Anyone that is unable to see that our problems have been created
> by Republicrats - both of our ruling parties TOGETHER - just isn't
> paying attention or is so totally biased they cannot objectively
> analyze the facts. BOTH parties are championing the bailouts. Even
> his ellow Republicans think Ron Paul is a crackpot nutjob.
>
> Proponents of fiscal responsibility in DC are about as rare as virgins
> in a bordello.
The author doesn't mention - doesn't even give one word - to the massive reduction in the money supply that has occurred as banks have retrenched. Since everybody knows that what the Fed is doing is inflationary, why don't we have inflation? There must be a reason, right? It's not because we're in a recession - we've had inflation during contractions before. It's because this time, unlike any other time since the early 1930s, the banking system has cumulatively reduced its leverage significantly, and most money supply growth occurs in the private sector.
Here's how it works. Suppose the Fed buys a T-bond from an individual, who then deposits the money into a bank. That's money supply growth, as the Fed is putting money into the system that wasn't there before. Because the bank needs to keep only a fraction of its deposits in reserve, it can lend the rest. So if the reserve requirement is 10%, the bank can then loan 90% of the deposit. That 90% is used for a transaction, and the money is deposited in another account. 90% of that amount can then be lent, and so on. This is typically described as the money multiplier, and follows the formula of
Money supply growth = 1 / reserve requirement
It should be apparent that most money supply growth occurs due to private sector activity.
So what's happened recently? Banks across the board have realized that they have not properly quantified risk, and are in fact in far more precarious circumstances than previously thought, due to sub-prime loans or CDS or whatever. So they have moved to increase their capital positions by reducing their overall leverage and credit exposure. How do they do this? By reducing lending (or stopping altogether), by closing lines of credit, and by increasing deposits. If all banks stop lending (which is close to but not quite what happened), private money creation stops. Worse, as loans are paid off and banks choose not to lend that money again, the money supply contracts.
With banks reducing lending to improve their capital positions in the face of losses and risks that are hard to quantify right now, private money supply creation has been negative. The massive increase in the Fed balance sheet is a direct countermeasure against this negative money supply growth. That's why it's not inflationary right now.
The trick comes when banks become comfortable with their risks again, and begin to lend normally. Then, overall money supply growth may be too high, with inflation resulting. The Fed must act with the right actions at the right times. There's no guarantee they'll get it right, but there's no guarantee they'll get it wrong, either. And what they have been and are doing is absolutely right.
Maybe in another post I'll discuss how wrong the author is about the reasons the government fears deflation.
On Jan 09 09:51 AM Long John Silver wrote:
> When the Fed starts buying up all the new Treasuries that need to
> be issued, exactly how does that result in monetizing the debt? I
> know intuitively that this must be correct, but technically, how
> does the money that the Fed gives the Treasury get into circulation?
> Is it through government expenditures (e.g., procurement on contracts,
> Social Security payments etc?). Insights?
>
Thanks very much for your common sense lesson in macro economics... things are never quite so simple as they seem. I look forward to your post on deflation, it's causes and potential solutions, and how current "bailout" plans will affect deflation.
BD
On Jan 09 10:45 AM BS Detector wrote:
> Nothing like an explosive headline followed by really weak analysis.
>
>
> The author doesn't mention - doesn't even give one word - to the
> massive reduction in the money supply that has occurred as banks
> have retrenched.
No demand, and the supply guys are holding tight. That is no recipe for inflation.
On Jan 09 10:45 AM BS Detector wrote:
> Nothing like an explosive headline followed by really weak analysis.
>
>
> The author doesn't mention - doesn't even give one word - to the
> massive reduction in the money supply that has occurred as banks
> have retrenched. Since everybody knows that what the Fed is doing
> is inflationary, why don't we have inflation? There must be a reason,
> right? It's not because we're in a recession - we've had inflation
> during contractions before. It's because this time, unlike any other
> time since the early 1930s, the banking system has cumulatively reduced
> its leverage significantly, and most money supply growth occurs in
> the private sector.
>
> Here's how it works. Suppose the Fed buys a T-bond from an individual,
> who then deposits the money into a bank. That's money supply growth,
> as the Fed is putting money into the system that wasn't there before.
> Because the bank needs to keep only a fraction of its deposits in
> reserve, it can lend the rest. So if the reserve requirement is 10%,
> the bank can then loan 90% of the deposit. That 90% is used for a
> transaction, and the money is deposited in another account. 90% of
> that amount can then be lent, and so on. This is typically described
> as the money multiplier, and follows the formula of
>
> Money supply growth = 1 / reserve requirement
>
> It should be apparent that most money supply growth occurs due to
> private sector activity.
>
> So what's happened recently? Banks across the board have realized
> that they have not properly quantified risk, and are in fact in far
> more precarious circumstances than previously thought, due to sub-prime
> loans or CDS or whatever. So they have moved to increase their capital
> positions by reducing their overall leverage and credit exposure.
> How do they do this? By reducing lending (or stopping altogether),
> by closing lines of credit, and by increasing deposits. If all banks
> stop lending (which is close to but not quite what happened), private
> money creation stops. Worse, as loans are paid off and banks choose
> not to lend that money again, the money supply contracts.
>
> With banks reducing lending to improve their capital positions in
> the face of losses and risks that are hard to quantify right now,
> private money supply creation has been negative. The massive increase
> in the Fed balance sheet is a direct countermeasure against this
> negative money supply growth. That's why it's not inflationary right
> now.
>
> The trick comes when banks become comfortable with their risks again,
> and begin to lend normally. Then, overall money supply growth may
> be too high, with inflation resulting. The Fed must act with the
> right actions at the right times. There's no guarantee they'll get
> it right, but there's no guarantee they'll get it wrong, either.
> And what they have been and are doing is absolutely right.
>
> Maybe in another post I'll discuss how wrong the author is about
> the reasons the government fears deflation.
On Jan 09 09:51 AM Long John Silver wrote:
> When the Fed starts buying up all the new Treasuries that need to
> be issued, exactly how does that result in monetizing the debt? I
> know intuitively that this must be correct, but technically, how
> does the money that the Fed gives the Treasury get into circulation?
> Is it through government expenditures (e.g., procurement on contracts,
> Social Security payments etc?). Insights?
>
"Voters get what they vote for, and for a generation American voters have rewarded politicians who promised to lower taxes, raise spending, and build massive debts for the next generation to pay off. Nobody who advocates raising taxes, reducing spending, and paying off the debt could ever be elected to Congress or the presidency.
When we point our fingers at the leaders that WE ELECTED for their fiscally irresponsible policies, our other three fingers are pointing back at us for consistently electing them in the first place. Sorry people, but in a democracy it's the public's fault"
Using that logic, the Jews, Gypsies and gays in Germany shared the blame for Hitler's election. I'm not buying it.
I supported Goldwater. I have a perfect record on never once voting for the winning candidate in any Presidential election. Mostly I voted for third party candidates that championed responsible policies. I am a TRUE conservative. There are currently less than a dozen TRUE conservatives in Congress.
I consider both of the ruling parties to be unAmerican and proponents of unConstitutional policies. A brief look at the last decade of legislation with all its unfree trade deals and oozing with earmark pork reveals the truth the mainstream wants everyone to ignore - Republicrats support the interests of big business and special interests and don't give a damn about individual Americans.
American education is so hopelessly dysfunctional; people grow up believing in the fairy tale that our government is one of, by and for "the people". Total fantasy.
Our dysfunctional government was caused by ignorant, brainwashed voters, not by the American people at large. Over the decades I have done everything I can to change things. I rant and rail and NOBODY seems to give a damn about our dysfunctiona government.
You may be responsible for government by Re[publicrats. I am not. When you go to the polls, if you vote for a Republicrat, YOU are the problem.
- nothing like a good rant to get the day rolling -
lewis: You are correct that velocity is needed for inflation. However, if great quantities of money are being printed and people are "stuffing it under their matresses" while prices are remaining low, it will only be a matter of time before the urge to pull it out from under the mattress and buy a bunch of that cheap stuff will be overwhelming. THEN you will have your hyperinflation. Only a matter of time.
It looks like "change in Washington" still means that the contents of our pockets are headed there.
Wake up and smell the bovine excrement!
On Jan 09 01:12 PM Howard_T wrote:
> So what happens when the US Dollar loses its value? Well, as I see
> it, it loses value against other currencies, making the goods and
> services we get from those other countries a lot more expensive.
> OK, so what then? Simply, we start by finding cheaper sources of
> goods and services, and that would be right here in the good, old
> US of A. What happens next is the really fun part. People go back
> to work. Jobs are created (as long as our benevolent uncle sugar
> doesn't screw up private enterprise too much) and money begins top
> flow. Didn't some guy named Laffer figure this out a while ago?
> The big priority will be to wean ourselves from dependence on foreign
> goods and services, and by this I specifically mean energy sources.
> I see that "Our Savior" seems to have turned his back on the "all
> of the above" strategy for new energy sources. Nuclear power is
> the quickest and most dependable way to go, but the leftists and
> the NIMBYs won't support it. Wind, biofuels, solar, and the like
> are unproven and/or expensive ways to go, but I notice that all of
> these have a great measure of political backing.
>
> It looks like "change in Washington" still means that the contents
> of our pockets are headed there.
I'm not sure what the distinction is between the "American people" and "voters," but look at it this way: The millions of eligible people who don't vote actually ARE making a political decision - they're saying they're fine with the leadership that the other people are going to vote for. Their apathy shows they support the status quo. Those who don't vote are just as responsible, if not more responsible, than those who do.
On Jan 09 12:53 PM axelrod608 wrote:
> Using that logic, the Jews, Gypsies and gays in Germany shared the
> blame for Hitler's election. I'm not buying it.
>
------------------
>
> Our dysfunctional government was caused by ignorant, brainwashed
> voters, not by the American people at large. Over the decades I have
> done everything I can to change things. I rant and rail and NOBODY
> seems to give a damn about our dysfunctiona government.
>
> You may be responsible for government by Re[publicrats. I am not.
> When you go to the polls, if you vote for a Republicrat, YOU are
> the problem.
>
> - nothing like a good rant to get the day rolling -
1. Shut-down the Federal Reserve.
2. Audit the Federal Reserve
3. Arrest Bernanke and Greenspan for high treason
Buy that self-sufficient farm and the hell and the hell with government.
Forget gold and start bartering..
now back to my suburb existence.
resources inflate from scarcity....leverage and investment create asset and
business growth....not as sure that bailouts in themselves create inflation...
maybe in a sense they quicken the time line of a cycle...time will tell...
I suppose if the bailout money goes back into circulation on the lending
side it creates asset inflation...I assume lending standards will change
so this could be a long process?
Here's a 40+ minute cartoon presenting the problem of how the money system works and why we have a national debt to begin with: video.google.com/video...
And here's a proposed solution: www.themoneymasters.co...
If we demand it, we can get Monetary Reform. Monetary Reform = No National Debt, Controlled Inflation, Lower taxes
1. Fed lends money to banks throught the discount window at the discount rate (fed funds rate + 50 bp)
2. Banks right now instead of lending it out to businesses, individuals etc are afraid. Instead they are hoarding it. They don't really lock the Ben Franklins in vaults. What they do is Buy Treasuries at ridiculously low rates (10-year is now trading at 2.40%). The Fed is basically forcing them to borrow at the window due to the so called "target rate" but that's a topic for another discussion.
So, as of right now the excess monetary supply has not yet hit the real goods market (main street) and that's why we are not seeing any signs of inflation. But at some point the banks will realize that it's stupid to buy T-bills at these stupid levels and find "better" return scenarios in other investments. The spreads between the G-bonds and the C-bonds will close and the corporate market will get flooded with money. That will be the bottom and possibly (if the fed doens't start raising rates quick) the start of runaway inflation like some pundits claim.
So, watch out for the corporate bond market and watch those spreads. Once the banks flood that market with money, it's like a show of confidence that there will be no bankruptcies. The companies basically take all this cheaply borrowed money and start spending it in investments, goods, you name it. Then you have too much money chasing too little goods (i.e. inflation).
My two cents.
On Jan 09 09:51 AM Long John Silver wrote:
> When the Fed starts buying up all the new Treasuries that need to
> be issued, exactly how does that result in monetizing the debt? I
> know intuitively that this must be correct, but technically, how
> does the money that the Fed gives the Treasury get into circulation?
> Is it through government expenditures (e.g., procurement on contracts,
> Social Security payments etc?). Insights?
>
On Jan 09 10:42 AM Chris B wrote:
> Voters get what they vote for, and for a generation American voters
> have rewarded politicians who promised to lower taxes, raise spending,
> and build massive debts for the next generation to pay off.
Pretty sure you have to do some serious twisting to come up with reasoning that we didn't have a balanced budget in FY2000. Fleeting, yes, but balanced.
Government has little control over velocity. We have seen that from its failure to get lending going again. What it can and is doing is changing the Mass. When the velocity picks ups, unless they rapidly rein in the huge amounts of dollars in circulation then they will lose control totally.
What is the ultimate outcome going to be?
Well, my guess will be high interest rates and high taxes with an economy stagnated at a much lower level than it is now. It is also likely that this will also result in huge cuts in government services over the medium period.
Frankly, the American Dream is already gone. It is just a question of how much can be salvaged from the wreckage.
On Jan 09 10:31 AM lewisabroad wrote:
> Inflation is all about the velocity of money, not the supply. Sure
> supply can affect velocity, but selling and buying and lending and
> repackaging as derivatives needs to be going on for that supply to
> do anything. You wouldn't get any inflation if everybody was stuffing
> greenbacks in mattresses, even if you were printing a billion dollars
> a second. With all the deleveraging that has been done in financial
> markets the fed actually some time to print at warp speed without
> worrying about inflation. The hyperinflation of the USD that many
> people on these boards worry about has been overstated and overlooks
> the role that i-banks and hedge funds played in hyper-leveraging
> their dollars. Until those positions have unwound and people get
> back to buying and selling again there is very little probablilty
> of inflation.
> Of course, that could start happening tomorrow, which is why having
> gold in one's portfolio isn't a bad idea. Even the remotest possibility
> of a dollar default happening is enough to make one want to invest
> in gold. Just think twice about how big a proportion that hedge needs
> to be, and understand the mechanics of inflation and why we aren't
> seeing any despite this insane increase in the supply of USD.
On Jan 10 02:15 AM BS Detector wrote:
> " The last truly balanced federal budget was under Eisenhower, in
> the 1950s."
>
> Pretty sure you have to do some serious twisting to come up with
> reasoning that we didn't have a balanced budget in FY2000. Fleeting,
> yes, but balanced.
Oh Boy, is that ever going to change!
On Jan 09 08:57 PM Milton wrote:
> It's sad that most Americans don't know how money works in our country.
>
>
> Here's a 40+ minute cartoon presenting the problem of how the money
> system works and why we have a national debt to begin with: video.google.com/video...
>
>
> And here's a proposed solution: www.themoneymasters.co...
>
>
> If we demand it, we can get Monetary Reform. Monetary Reform = No
> National Debt, Controlled Inflation, Lower taxes
experienceiseverything.../
Great job, Dave, thanks.
On Jan 10 06:05 AM Dave Wrixon wrote:
> The saddest thing about Americans is that even those that do get
> it put their faith in gold because even when the whole train wreckage
> is unfolding, they still see the US economy as the only crap game
> in town.
>
> Oh Boy, is that ever going to change!
Perhaps it means having the military and industrial means to seize what ever raw resources by hook or crook from whereever it wants to and funnel those funds into a convoluted vortex of pure unadulterated BS so that it never has to reconcile it's accounts even to it's own people much less the rest of the world's.
The increase in money supply - more accurately the velocity of money as opposed to the absolute amount of money (though the increase in USD will increase the velocity) - is inflationary. I also understand the constitutional right of the Treasury to create/control the money supply (which is largely in the hands of the Fed now) in fear that who ever is in control of the money supply maybe abuse this. Though regardless of backroom dealings between the Fed and the members banks, the Fed returns about 95% of its profits to the treasury.
The Fed Reserve can expand money supply "from nothing" by
1. Print USD and buy US Treasury security (Bills/bonds). This is acutally done electronically rather than printing physical dollars.
2. Manipulation of reserve ratios of their member banks
Not withstanding it it strikes me the Fed and it members bank do not have strict control over the "entire" money supply, for example there is vast money supply in
1. Derivatives market - whose value dwarfs the real money supply
2. Mortage market (from fannie/freddie) that can create "credit"
3. Homeowners who could monetized/cash out their home equity.
4. Money market funds that effectively lend out money deposits
As in interesting note, it strikes me the deflationary "deleveraging" is a result of items 1, 2 and 3 and not the banking system/reserve ratio per se.
And more importantly, each of the above can increase the money supply (velocity) and they are not directy controlled by the Fed. Therefore, I would suggest that a full reserve banking model or a even gold standard backed dollar would help but not be sufficient because it does not address these factors.
In addition, global effects outside of the US often impact prices (create inflation) such as emerging countries (like China) who will bid up the price of commodities or shortage in coffee or oil (as is in peak oil) that will can create inflation.
I'm not sure of the solution, though a global bank/global currency that has control over every "monetary" donimated transaction could provide a better solution. Though solution is even worse for some because this will be at the expense of civil liberties.
I have not opinion in the above more looking for a workable solution that makes sense.
Long Gold, Short USD, Short Treasuries.
On Jan 09 08:57 PM Milton wrote:
> It's sad that most Americans don't know how money works in our country.
>
>
> Here's a 40+ minute cartoon presenting the problem of how the money
> system works and why we have a national debt to begin with: video.google.com/video...
>
>
> And here's a proposed solution: www.themoneymasters.co...
>
>
> If we demand it, we can get Monetary Reform. Monetary Reform = No
> National Debt, Controlled Inflation, Lower taxes
On Jan 10 02:15 AM BS Detector wrote:
> " The last truly balanced federal budget was under Eisenhower, in
> the 1950s."
>
> Pretty sure you have to do some serious twisting to come up with
> reasoning that we didn't have a balanced budget in FY2000. Fleeting,
> yes, but balanced.
If, for the sake of argument, Obama's stimulus plan is successful, that will trigger the burst of the treasury bubble and cause huge spike of interest rate of all kinds, thus tanking the economy back to recession.
If, Obama's stimulus plan is not sucessful, then he will waste all those trillions and put the US deeper in the hole.
Either way, Obama will lose under his stimulus plan and take the blame. He will serve his first and last term, thanks to his stimulus plan.
If Obama is any way smart, he should immediately denounce the stimulus plan and let the painful deleverage process begin, i.e., force the excessive debts into open and be defaulted. Bankrupticies here and everywhere.
After 2-3 years painful adjustment, sometime in late 2011, then Obama can implement the stimulus plan to jump start the economy. without the excessive debts acting as the dead weight, the economy will have a decent chance to bounce back.
Unfortunately, Obama is doomed to fail, thanks to his campaign promise of change (actually, no change, but a slogan) and his choice of not facing and handling the truth( truth is excessive debts and painful adjustment while stimulus plan is kind of like oxycondone)
I chose 2000 specifically because the total debt, when measured in real terms, declined that year. Not the previous two years, when the nominal surpluses were smaller, but 2000 was an actual across the board surplus.
On Jan 10 08:25 PM Kunst wrote:
> I believe the only "balanced" budgets we've had recently were by
> spending the Social Security and Medicare tax receipt surpluses as
> part of the general budget. This makes the deficit look smaller,
> but the total debt still increases year-over-year.
Regardless, someone is going to pay just as someone paid during the Great Depression. China will likely suffer the most in terms of jobs and actual human suffering just as we did in the 1930's because we were financing the world back then.
--Fred
On Jan 09 10:22 AM axelrod608 wrote:
> >> "Obama our savior's .... "new left of left fiscal policies" >>
> Cut the partisan sniping and explain to us how the right of right
> policies of the past 8 years didn't get us INTO this mess we're in.
>
>
> As for the idea that all the newly minted money will suddenly make
> a tsunami wiping out the economy, it is far more likely those dollars
> will replace the ones lost in the great deleveraging and one will
> be hard pressed to see the difference. Except in the ever-growing
> debt levels.
>
> Anyone that is unable to see that our problems have been created
> by Republicrats - both of our ruling parties TOGETHER - just isn't
> paying attention or is so totally biased they cannot objectively
> analyze the facts. BOTH parties are championing the bailouts. Even
> his ellow Republicans think Ron Paul is a crackpot nutjob.
>
> Proponents of fiscal responsibility in DC are about as rare as virgins
> in a bordello.
What troubles me is that we had a shot at electing Ron Paul, who has been saying the same things for decades. He got 5% of the votes, I just hope Obama can find some friends in University of Chicago school of economics and business and who give him good advice.
The rest of the world strangely is in no better shape, they are doing great only when US is consuming and outsourcing. US is still the best show in town.
Why do people just stop at the "No one will want to finance the American Debt", there has got to be something after that.
You hit the nail right on the head.
The government with all its accumulated debt is not in a position anymore where it can save a fundamentally flawed economy.
> "No one will want to finance the American
> Debt", there has got to be something after that.
Yes, money printing galore...!!!
You can only have credit as long there are lenders and those are becoming more and more reluctant to do so, not only in regard to US debt but also internationally.
This is illustrated by Germany's inability to attract enough bids to sell €6bn of 10-year bonds:
www.ft.com/cms/s/0/16c...
If the Chinese increasingly spend their foreign reserves domestically, the same could happen with US treasuries.
I'd like to see a defense of this author's bold statement:
" For those of you who don't know, when everything is shaken out, money supply growth exactly equals price inflation."
I know of no empirical or conceptual proof of money supply growth quantitatively predicting inflation, even roughly, let alone "exactly".
The monetary base chart and all the other charts and tables of the M's are misleading. On the Fed's monetary base, yes it is growing expoentially but there it sits. They can't get it into the economy because nobody want's to lend it and few are qualified to borrow it.
As for the M's, Any M measure which measures money market deposits is fiction. The money isn't there. It's pretend money.
The Fed has now started printing but they are using the money to buy up GSE and private label MBS's. The sellers are taking the cash and buying Treasuries. Look up circle jerk.
If and when the Fed prints and gives the money to real people who spend it on real stuff then you can begin to think about inflation but mostly it will be better to think about slowing deflation. It probably will never happen however. The elites will approve and forment a revolution before they will give a cent to a negro instead of a trillion to their institutions.
Waiting for inflation is a fools game. OK, that's an opinion. Just consider it. If you think you know inflation is an absolute certainty then you know nothing. For nothing is absolute.
If, on the other hand, our country would take an unfortunate turn in that direction to become a Nazi Germany alike, as Axelrod608 might have had hinted (correct me if I'm wrong), then I for one would not hesitate in the first instance to leave, even to leave everything behind.
On Jan 09 01:51 PM Chris B wrote:
> I doubt many Jews, Gypsies, and gays voted for Hitler, but the example
> is instructive when faced with the question of what one should do
> when surrounded by a nation full of people who have a warped view
> of reality or who blame others for the consequences of their own
> mistakes. The best answer is get the hell out while you still can!
> People from all ethnic groups who failed to get out of Germany because
> of patriotism, poverty, denial, or family ties suffered horribly.
> Einstein hopped on a boat when he saw the direction things were going.
>
>
> I'm not sure what the distinction is between the "American people"
> and "voters," but look at it this way: The millions of eligible people
> who don't vote actually ARE making a political decision - they're
> saying they're fine with the leadership that the other people are
> going to vote for. Their apathy shows they support the status quo.
> Those who don't vote are just as responsible, if not more responsible,
> than those who do.
>
>
>
> On Jan 09 12:53 PM axelrod608 wrote:
"You can only have credit as long there are lenders and those are becoming more and more reluctant to do so, not only in regard to US debt but also internationally."
And then you link to a story which I assume talks about the recent German debt sale that was undersubscribed. Pray tell, does the article mention that the most recent similar U.S. sale was oversubscribed by 150%? There may well be a time when lenders are less willing to lend to the U.S., but how can you think your statement's credible when 10-year Treasuries are under 3%?
Not only is the author's statement ("For those of you who don't know, when everything is shaken out, money supply growth exactly equals price inflation.") impossible to prove empirically, it's simply wrong according to basic theory. As an economy expands and economic activity increases, there is more demand for dollars to conduct these transactions; the money supply must increase equivalently for prices to remain stable. If the money supply didn't grow, money would be relatively scarcer as the economy grows - this would be deflationary.
On Jan 11 02:35 PM BS Detector wrote:
> bosun.j:
>
> And an hour after I questioned your high commenter rating, mine's
> dropped by 24. On a Sunday afternoon, during which time NONE of
> the articles I've commented on have picked up a single new comment.
> Gee, how strange.
>
> To everybody else, I apologize for these post not contributing to
> the thread, but I felt I had to expose this fraud.
On Jan 11 12:26 AM BS Detector wrote:
>
> I chose 2000 specifically because the total debt, when measured in
> real terms, declined that year. Not the previous two years, when
> the nominal surpluses were smaller, but 2000 was an actual across
> the board surplus.
>
On Jan 11 12:34 PM BS Detector wrote:
> Pink Panther wrote:
> And then you link to a story which I assume talks about the recent
> German debt sale that was undersubscribed. Pray tell, does the article
> mention that the most recent similar U.S. sale was oversubscribed
> by 150%? There may well be a time when lenders are less willing
> to lend to the U.S., but how can you think your statement's credible
> when 10-year Treasuries are under 3%?
"I didn't realize we had gotten the official surplus up enough to cover the SS loan."
It was close. Close as in nominally the debt still increased, but adjusted for inflation it fell.
I neither know nor care what your problem is with me or anyone else. Gong dai wah.
You do seem to have some sort of problem, after all, your nom de guerre tells everyone both your intent and, sadly, your over elevated sense of self worth.
Perhaps applying to your local police academy might better suit you. How much better it will be to take out your rage on those you DEEM to be less than you with your Taser, nightstick, brooom handle, and service weapon. You'll fit right in with that crowd.
Kindly do find yourself some professional help for whatever disorder you are suffering from.
Chok dee.
On Jan 11 06:23 PM BS Detector wrote:
> bosun.j wrote:
>
> "You appear to think very highly of yourself."
>
> I think it's clearer that I think very little of you.
>
>
> "Perhaps that is the reason for your petty jealousies regards scores
> or ratings. Sad. Truly sad."
>
> Maybe. Then again, I'm not the one who put more than 20 negative
> votes on the comments of a person who intimated that you might be
> voting for your own comments.
I also see that your score is down about 30 since I pointed out what you've been doing. I know you won't believe me, and there's no way to prove it, but it wasn't me. This has already been too big a waste of time.