Fed Minutes: We Have Not Yet Even Begun to Print! 31 comments
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The Federal Reserve is a unit of quasi-government, with no taxing authority or income of any kind, except that obtained from the U.S. Treasury and its client banks. However, it can and does create money, in the form of liquidity, which it then sends to banks. The liquidity that it releases into the market has the net effect of diluting the value of the U.S. dollar.
The Fed has extended credit to Fannie Mae, Freddie Mac, various banks, and insurance companies. It has “borrowed” this money from itself by increasing its balance sheet from $900 billion to the current $2.1 trillion. According to a speech given by Ben Bernanke to his client banks on April 3, 2009, the Federal Reserve will purchase cumulative amounts of up to $1.25 trillion of agency MBS and up to $200 billion of agency debt by the end of the year, and up to $300 billion of longer-term Treasury securities over the next six months, for a total increase in Fed spending of $2.95 trillion. This information is repeated in the Fed Minutes, today.
Federal Reserve lending can be viewed as actually an “off-balance-sheet” type of spending for the United States. According to an estimate released by the Congressional Budget Office in early March, 2009, the U.S. Treasury, itself, will be forced to borrow $1.8 trillion in 2009. You need to reduce the amount "spent" by the Fed, to the extent that some of its balance sheet consists of loans from the Treasury, and, if you count them twice, you would be overestimating the size of the total deficit between the two entities. The U.S. fiscal year begins October 1, 2008. Together, the deficit spending for 2009 will probably amount to $4 trillion when we include the Federal Reserve’s "spending" and subtract the loans from the Treasury. It might be a little less, depending on how you interpret the various balance sheet items. But, this total does not include unfunded liabilities for social security and medicare.
Historically speaking, the percentage of deficit spending is now in the same general range as Weimar Germany in the first half of 1919, while it was still in a minor depression and immediately before the onset of hyperinflation that eventually reduced the German Reichsmark by 1923 to a value that was 1/Trillionth of the exchange value it held in 1913. In some ways, our situation is worse than that of Germany in 1919. For example, our private debt is considerably higher. The private debt to GDP ratio is higher now than at any time in the known history of any modern industrialized civilization. In both absolute, and percentage terms, it exceeds the level of private debt in the Germany economy back in 1919. In other ways, though, we are better off. We are lucky enough to own the world's reserve currency (at least for now). That means the Fed has the opportunity to suck money from other countries, like China, who may be hesitant to liquidate dollar holdings quickly, for fear that doing so will speed up the inevitable implosion.
But, the Fed is not done. Apparently, the incredible amount of money-printing that they've already done is not enough. Many FOMC committee members, amazingly enough, want to print yet more this year! Do these people know nothing about economic history?
It can be summed up with one quote from the minutes, released Wednesday at 2:00 PM:
Members agreed that the monetary base was likely to grow significantly as a consequence of additional asset purchases; one, in particular, stressed that sustained increases in the monetary base were important to ensure that policy was consistently expansionary. Members expressed a range of views as to the preferred size of the increase in purchases. Several members felt that the significant deterioration in the economic outlook merited a very substantial increase in purchases of longer-term assets...
What more can I say that the Fed hasn't already said in this paragraph? These people intend to print an amount of new dollars which has had no precedent, in a major industrialized nation, since the days of the Weimar Republic in Germany. Ben Bernanke says he can remove this "liquidity" from the system when appropriate. But, does he take us all for fools? How can he possibly "remove" the new dollars without precipitating the depression he says he wants to avoid?
What we think is huge now, is merely the beginning. Hold onto your hats, folks! You'd better. You may not be able to afford one next year. Your dollars will be worth a mere fraction of their present value in the next few years. Whether the devaluation is 1/Trillionth or 1/10th, the effect will be to wipe out the American middle class for a generation.
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This article has 31 comments:
Haven't figured it out yet? Ok, fine. I'll cough up the answer. Bernanke is assuming, rightly, that no recovery can occur until housing bottoms. He is trying to force the bottom in home prices to occur earlier rather then later, by buying up mortgage securities to allow the banks to originate more mortgages and, more importantly, refinances, and to force mortgage rates down.
Secondly, the Fed is buying up treasuries as a foil against sellers. This move is designed simply to DELAY inflation. He knows very well that it is a temporary measure. The point is to delay inflation... delay the point where he is forced to increase the fed rate, such that it occurs after homes have bottomed and after the recovery has gotten up a little steam. That is all he is trying to do here.
Third, Bernanke recognizes that the only people capable of restarting the economy is our huge middle class. Guess who is refinancing right now? Those refis are putting hundreds of dollars into the pockets of every middle class family who still has a job (which is 90% of them, by the way)... and not just once. But EVERY MONTH. This isn't the worthless tax cut that Bush did last year. This puts real money into the hands of millions of people who will save some of it and spend some of it. Every month. For the next 15-30 years.
Bernanke knows that inflation will happen down the line, and he has made it very clear that he will act to limit it. If he can keep inflation under 5% as the cost of getting us out of this mess, then it will have been money well spent.
Now do you get it?
-Matt
It is unfortunate that our educational system creates persons, like Bernanke, who are so narrowly educated, and focused on only one event. America's economic leadership is narrowly focused on the Great Depression. They do not see what I, and other men with a broader education can clearly see.
This era has the most in common with 1919 Germany, not the Great Depression era in America. In fact, the name that the American economists, including Bernanke, have given it, is not the name given to the Great Depression era, in the 1930s. American economists are calling our present situation the "Credit Crunch". They are doing this, while being blissfully unaware that German economists called the post WWI depression, in 1918 by the exact same name.
With all respect, Keynesianist interventions did NOT solve the Great Depression, but in fact CAUSED it. What brought us out was WW II, related technological advances, and manufacturing base being highly utilized after we destroyed others' bases -- our exports spiked. Maybe we are agreeing, but coming at it from different angles -- we seem to agree that this monetary policy is going to wreak havoc, and will severely punish the middle class, particularly those prudent savers!
" the onset of hyperinflation that eventually reduced the German Reichsmark by 1923 to a value that was 1/Trillionth of the exchange value it held in 1913. "
Yep, we are currently fighting on two fronts with half of male population in the army, revolts at home, total unionization, and proletariat revolution knocking on our door. Very soon we will be defeated in this war, and the winners will levy huge repatriation taxes on us, equal to a sizable chunk of our GDP... LOLOL!!!
Go figure.
On Apr 09 03:46 PM Avery Goodman wrote:
> Matt, it is rather clear that you "don't get it". In fact, it is
> clear that you have no background in economic history. Everything
> that is being done now has been done before. It did stop the depression
> back then, but it ended in hyperinflation. The same is going to
> happen this time around.
>
> It is unfortunate that our educational system creates persons, like
> Bernanke, who are so narrowly educated, and focused on only one event.
> America's economic leadership is narrowly focused on the Great Depression.
> They do not see what I, and other men with a broader education can
> clearly see.
>
> This era has the most in common with 1919 Germany, not the Great
> Depression era in America. In fact, the name that the American economists,
> including Bernanke, have given it, is not the name given to the Great
> Depression era, in the 1930s. American economists are calling our
> present situation the "Credit Crunch". They are doing this, while
> being blissfully unaware that German economists called the post WWI
> depression, in 1918 by the exact same name.
That's right...Mr. Bernanke has been wrong about almost all his predictions concerning the course of this crisis since the beginning. Where, then, can anyone obtain confidence that he knows more than we do, now? Should we throw away our common sense, when we have been correct consistently, over the past 4 years, and he has been consistently wrong?
What confidence can the American people have in this man, or others in Washington, in light of what has happened? What assurance do we have that they know much, when they first failed to regulate, and, then ended up completely wrong on almost all economic projections, one after another?
I submit that neither Bernanke, nor his comrades, such as Timothy Geithner, know what they are doing. He and the others in that crowd in Washington DC, are convinced that if they throw money around, it will land somewhere, and help things. To this goal, they have now pressed the accounting standards board to legalize what is essentially accounting misrepresentations by removing of "mark to market" accounting. That, of course, was inevitable.
So, millions of Americans are better economists than Bernanke.
The mass "throwing of money" has resulted in what will eventually be a stealth transfer of wealth from those who earned it, to those who have political clout. It is the same process that occured in post World War I Germany. It is done through heavy inflation, which is a stealth tax upon the people.
Indeed, transfers of wealth are the key to understanding why this crisis mirrors the German hyperinflation, and not the Great Depression experienced by 1930s America. To fixate on the Great Depression is to ignore the true problem we face.
1) Post WW I Germany was the biggest debtor nation in the world, at that time. Debtor nations are dependent upon foreign cash flows. In contrast, in the 1930s, like Japan in 1990, the U.S. was the biggest creditor nation in the world. That is why Germany had hyperinflation when it printed money, while 1990s Japan and 1930's America had deflation as they did the same thing. Because we are the biggest debtor nation in the world, the current money printing will result in hyperinflation, NOT deflation.
2) Post WW I Germany had just finished fighting a major war on borrowed money, without properly budgeting or taxing. The USA has just fought, and continues to fight, multiple wars on multiple fronts that, while not quite as "big" as WW I, have been extraordinarily costly. We use a professional army, and its pay and equipment add huge costs. We have failed to budget these wars, and have borrowed money, instead, in order to fight them. By contrast, from an economic point of view, late 1920s and early 1930s America was a net "beneficiary" of WW I, which resulted in huge debts being owed to the USA, and the first stage of the rise of the U.S. dollar to replace the British pound as an international medium of exchange.
3) Post WW I Germany was heavily dependent upon the import of foreign raw materials. Indeed, the USA was one of its biggest creditors. The USA is no longer a creditor. It is now very dependent upon the import of foreign raw materials and finished goods. The temporary improvement in trade figures will disappear as the fake recovery gets under way. By contrast, in the 1930s, the U.S.A. was one of the biggest exporters of raw materials.
4) Post WW I Germany was heavily dependent upon foreign cash flows to plug holes in its budget after the War was over. Sales of bundesbonds to foreign buyers, including the American financier, J.P. Morgan, were critical. The USA is now even more dependent upon foreign cash flows. Sales of huge numbers of Treasury bills, notes and bonds are critical, especially to China, who, unlike America to Germany in 1918, is currently a strategic competitor.
5) Germany was not the only nation affected by the post-War depression and the so-called 1918 "credit crunch." All of Europe experienced it. Not all countries, however, followed the same path to ruin. Similarly, the whole world is now experiencing the so-called "credit crunch".
6) Germany led Europe in the effort to spend its way out of the post-war depression. The USA is now leading the world in an effort to spend its way out of this depression. At first, Germany seemed to "recover" from the depression. Soon, America will seem to "recover" from this depression, in a similar manner. In 1919, many admired the Reichsbank. Employment rose, unemployment fell...economic output exploded -- or seemed to, at first. No doubt, that will be the case, again, this time as America leads the way into a fake recovery. Most of Germany's recovery amounted to irrational production of relatively useless goods and services. The industrial bailouts were improperly allocated and colored by the illicit transfer of wealth that is inherent when a nation chooses to print up new money. The same will be the case now, with America.
7) Like America, now, in post WW I Germany, money flows continued for quite a while, in spite of the flawed policies of the Reichsbank. American trade interests, for example, supported the German spending on U.S. raw material products, because Germany was one of their biggest markets. The USA played a similar role with respect to the Weimar Republic as China plays now to the USA. It was Germany's biggest creditor. It is quite likely that money flows to America may continue for an even longer time. However, eventually, they will be cut off.
8) Like the foolish foreigners who now buy U.S. bonds, even the otherwise savvy American financier, J.P. Morgan, were generally convinced by officials of the Reichsbank, that the problems were temporary, and that the mark would regain its value with time, just as buyers of Treasury debt are now convinced that the dollar will retain value. The U.S. has a distinct advantage in this, because it is able to pump up its currency with credit default events that must be settled in dollars. This results in a direct benefit to the dollar in terms of exchange value, and allowed the Fed to obtain foreign currency swap lines. The swap lines were obtained because foreign central banks temporarily needed to supply dollars to financial firms who needed to settle CDS events. So, the temporary party will go on longer in America, until the world's patience is finally exhausted.
9) The Reichsbank claimed that it could control the events it created, just as the Federal Reserve does now. Questionable statistics were regularly published, just as is now the case in the USA. German authorities believed, just as American authorities now believe, that the perception is more important than economic reality. Eventually, however, when the foreign cash flows dried up, reality reasserted itself, and the German economy entered hyperinflation.
10) Finally, most tellingly, the German "professional" economists called the 1918 post war depression, prior to the hyperinflation, "the credit crunch", and the prevailing complaint was that banks were hesitant to lend money. Unwittingly, American professional economists, including Mr. Bernanke, have dubbed the present crisis with the same name. A frightening coincidence...
For more information about the German hyperinflation experience, read the following book. It was written long before the current crisis, and even before the full impact of the Great Depression hit the world, back in the 1930s. Thus, it has no bias. It will be an eye-opener for the "doubting Thomas".
Turroni-Bresciano, Constantino, The Economics of Inflation – A Study of Currency Depreciation in Post-War Germany (George Allen Unwin 1931)
As long as dollar remains the reserve currency - America still has a chance, currently there is no alternative to the $ - we just saw what came out of G20. Whoever is still buying treasuries.
I am evenly divided between inflation lack and deflation. Deflation case is simple - too much surplus capacity, lack of credit (the bubble is over), loss of earnings - job losses and pay cuts. Govt. is trying to and money to people by various means but not succeeding much.
Like Yogi Berra said - "that is why you play the game". We just have to wait and see how it plays out.
By next year you will be lucky if that is the margin of error on the estimates for inflation.
On Apr 09 03:32 PM MattZN wrote:
> The author isn't thinking clearly. What Bernanke is doing is obvious.
> Think about it. He knows very well what the risk of inflation is,
> he isn't an idiot.
>
> Haven't figured it out yet? Ok, fine. I'll cough up the answer. Bernanke
> is assuming, rightly, that no recovery can occur until housing bottoms.
> He is trying to force the bottom in home prices to occur earlier
> rather then later, by buying up mortgage securities to allow the
> banks to originate more mortgages and, more importantly, refinances,
> and to force mortgage rates down.
>
> Secondly, the Fed is buying up treasuries as a foil against sellers.
> This move is designed simply to DELAY inflation. He knows very well
> that it is a temporary measure. The point is to delay inflation...
> delay the point where he is forced to increase the fed rate, such
> that it occurs after homes have bottomed and after the recovery has
> gotten up a little steam. That is all he is trying to do here.<br/>
>
> Third, Bernanke recognizes that the only people capable of restarting
> the economy is our huge middle class. Guess who is refinancing right
> now? Those refis are putting hundreds of dollars into the pockets
> of every middle class family who still has a job (which is 90% of
> them, by the way)... and not just once. But EVERY MONTH. This isn't
> the worthless tax cut that Bush did last year. This puts real money
> into the hands of millions of people who will save some of it and
> spend some of it. Every month. For the next 15-30 years.
>
> Bernanke knows that inflation will happen down the line, and he has
> made it very clear that he will act to limit it. If he can keep inflation
> under 5% as the cost of getting us out of this mess, then it will
> have been money well spent.
>
> Now do you get it?
>
> -Matt
Personally, I would put more faith in what my local barman had to say!
On Apr 09 08:33 PM drbob66 wrote:
> Yeah, another internet blogger who thinks he's a better economist
> than Ben Bernanke. And this one's a lawyer!
>
> Go figure.
Since I created the earlier response entirely myself, I am gratified that you think it to good enough for you you conclude I must have "snipped it"! Instead of spitting out bile, however, I suggest that you would be better served by reading the book, whose full citation I have already given you.
that you think it good enough for you conclude I must have "snipped it"! Instead of spitting out bile, however, I suggest that you would be better served by reading the book, whose full citation I have already given you.
I should have said that I think you are missing the fact that all the money used to reduce mortgage rates, and used to bail out insolvent banks, must come from somewhere. It can be printed, but money derives value from rareness. When you take away the rareness, it has less value. Reducing the value of money is a stealth theft from the current holders of that money who may be locked into CDs, bonds and other fixed income investments.
Primarily, the money will come from pensioneers, diligent savers and other people who are frugal and, for one reason or another, can no longer take big risks with their money. They have trusted our government, and chosen to keep their money in bank deposits, and bonds, and depend on fixed income. That, of course, means the government is essentially stealing the money from one part of the population to give it to another.
Redistribution of wealth without the consent of the governed, is wrong. Remember the words "taxation without representation!". It was the rallying cry of our American Revolution. In my view, far more harm is caused by trying to inhibit normal economic cycles than by allowing them to happen. It is not the government's role to declare winners and losers, and to steal from one to give to another, especially when the theft is not in the form of above-board taxation.
Even Ben Bernanke, and his mentor, Milton Friedman, believe that the Great Depression was caused by the Federal Reserve, which reduced the money supply. The reason for the reduction was that the U.S. was on a quasi-gold standard, having previously exited the "pure gold standard" and, in the 1920s, it printed more dollars than it had gold. When people began flocking to convert dollars, which they had lost faith in, into gold, the government ran out of gold, leading to the infamous gold confiscation order of FDR.
Some people may benefit from artificially lower interest rates, but it harms the economy overall. It creates imbalances in the allocation of investment resources, and the money must ultimately come from somewhere, whether by honest taxation, or by stealth taxation through inflation and transfer. But, ultimately, the end result is transfer of wealth, decided by the Federal Reserve, with some input from the government, but without the consent of the owners of property. That is also true of bank bailouts, which, since they benefit those clearly at fault for this Crisis, are even more insidious.
The net effect is to create high levels of moral hazard. You could, potentially, also argue that, from a constitutional law standpoint, that this type of activity violates our Constitutional protection from government seizures of private property.
The Federal Reserve Transparency Act of 2009, H.R. 1207 already has a lot of sponsors in the House, and has been sent to the House Committee on Financial Services. A similar bill, 604, in the Senate is known as the Federal Reserve Sunshine Act of 2009, and was introduced by Senator Bernie Sanders. This bills, when passed, will go a long way toward reforming the Federal Reserve.
Hopefully, we will see more Congressional oversight of the Federal Reserve, and some of the more egregious abuses will end. It is unlikely, however, that this will happen fast enough to stop what the Fed is doing now. A deep and fast devaluation of the U.S. dollar is inevitable. How deep and how fast is really anyone's guess.
Nice article. I am also an amateur economic historian but followed and agreed with more or less with everything except your conclusion about the timing and severity of dollar devaluation - not saying its not possible but I think the key factor is not enough information is available to anyone to figure it out.
Your comparison to Weimar, though relatively accurate on the monetary side, fails to take account of what I termed "credetary deflation". Basically if credit deflates due to loss of confidence on OTC derivatives, how is anyone going to know what will happen to the dollar? We simply don't have the information necessary. I wrote about this in the below articles if you happen to be interested.
www.nolanchart.com/art...
www.nolanchart.com/art...
At any rate, no matter how hard the PM markets get slammed in the coming months (what normally happens when the money supply is increased - central bankers have all read Volker's "only regret" from his 1980-era memoirs), an ounce of gold is an ounce of gold and an ounce of silver is an ounce of silver.
I agree that it is impossible to know how deep the devaluation is going to be, or when the "critical" mass of money printing will happen such that the "chain reaction" and melt down will occur. But, it really isn't a matter of "if" but rather of "when", and I think we agree on that also.
I suspect that the devaluation of the U.S. dollar will be many orders of magnitude less than the one in Germany 1919-23, but that is probably because I am fundamentally an optimist. I sound like an optimist in this article, but the pessimism is only because of how very grave the current situation is.
That being said, even if the devaluation is many orders of magnitude less than Weimar Germany, it could be well beyond anything you and I can now imagine. There is a huge distance between 1/Trillionth and ???, and most of that distance is deeply disturbing.
It is also unwise to either say that this is just like 1923 in Germany, or 1931 in the US. It is like both in many ways, and in others like neither.
The folks who demand a stop to the "printing" would probably be signing a different tune if they wake up one day with no food on the grocery store shelves. And the folks who argue the other side might find themselves in that same situation.
But either side you are on, you have one luxury that US policy makers do not. You and I can wake up every morning, not worrying that in 50 years your name will be written into the history books as the man who hastened the end of western civilization.
Justice is slow and frustrating, but it is sure, from my experience. The first order of business is cutting the tentacles of the international banking institutions that are squeezing the life blood out of Washington DC. We must do this by breaking up banks that have grown so large that they are a danger to the system. Second, we need to massively reform all regulatory institutions, including removal of exclusivity from organizations like CFTC, and empower state law enforcement to take the lead. Third, we need to punish the wrongdoers, in order to instill a sense of personal responsibility.
Shareholders should not be the ones paying the price for CEO misfeasance, but, in the past, that was almost universally the case. Executives who do evil, should be forced to pay a price for what they have wrought. We haven't even gotten to step 1 yet and that is disheartening I admit.
On Apr 09 03:21 PM Cetin Hakimoglu wrote:
> Sorry, but I disagree with your article, which is obviously an appeal
> to populism.
Red herring
Deficits aren't bad for the economy if creates growth
> and confidence, and it's accepted fed policy to print money to prime
On Apr 10 11:14 AM Joe Q wrote:
> Why no investigations? Why no indictments?
>
> www.pbs.org/moyers/jou...
Share | Email | Print | A A A
By Scott Lanman
April 10 (Bloomberg) -- Policies aimed at easing home-loan terms for troubled borrowers may not be as effective in preventing foreclosures as more-direct aid to homeowners, Federal Reserve economists found.
Job losses and falling home prices have a bigger impact on delinquencies than mortgage terms, and modifications aren’t necessarily a better deal for investors than foreclosures, according to a paper by two current and one former economist at the Boston Fed Bank and one Atlanta Fed researcher.
The conclusion poses a challenge to housing advocates and to some extent the prevailing views of President Barack Obama’s administration, Fed officials and other U.S. regulators. Obama announced a $75 billion plan in February that concentrates on refinancing or modifying loans for as many as 9 million homeowners.
“One of the most influential strands of thought contends that the crisis can be attenuated by changing the terms of ‘unaffordable’ mortgages,” the economists said in the paper posted on the Boston Fed’s Web site today. Yet policies aimed at reducing a borrower’s debt-to-income ratio “face important hurdles in addressing the housing crisis,” the authors said.
Instead, the government should consider alternatives such as loans to homeowners to bridge the loss of income for one or two years caused by unemployment, or helping borrowers become renters, the economists said.
Boston, Atlanta
The authors include Christopher Foote and Paul Willen, who are senior economists and policy advisers at the Boston Fed; Kristopher Gerardi, a research economist and assistant policy adviser at the Atlanta Fed; and Lorenz Goette, a professor at the University of Geneva and former economist at the Boston Fed.
The paper doesn’t specifically discuss the merits of the White House plan.
The federal government has used policies to encourage loan modifications as a principal tool of attacking the surge in foreclosures over the past year. Fed Chairman Ben S. Bernanke, in a December speech, called for “greater standardization and efficiency” in programs to ease loan terms, while FDIC Chairman Sheila Bair has pressed the Treasury and mortgage companies to step of the pace of modifications.
Eric Rosengren, president of the Boston Fed, said in a January speech that loan servicers should be able to increase mortgage modifications as interest rates decline.
At the same time, many borrowers should be able to refinance through Federal Housing Administration loans, Rosengren said in the speech. Also, some borrowers just won’t be able to make their mortgage payments and could instead receive assistance to move to a rental property, he said.
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.
Last Updated: April 10, 2009 15:33 EDT
On Apr 09 04:36 PM SW Richmond wrote:
>
> On Apr 09 03:21 PM Cetin Hakimoglu wrote:
At any rate, no matter how hard the PM markets get slammed in the coming months (what normally happens when the money supply is increased - central bankers have all read Volker's "only regret" from his 1980-era memoirs), an ounce of gold is an ounce of gold and an ounce of silver is an ounce of silver.
I think what everyone needs to understand is that:
Dollar Reserves = Delinquent US Debt.
It is as simple as that. If Obama was asked to repay tomorrow he simply could not. Indeed, the rate at which he needs to accelerate this borrowing is increasing alarmingly.
Delinquent Debt is normally sold off at Cents on the Dollar, and that is what is going to happen here except it is more likely to be Centimes on the Dollar.
But it is just not a question of Dollar weakness, the whole concept of World Reserve Currency is deeply flawed, and it has taken Chinese Economists to understand this basic truth. To create these reserves it is essential to run massive trade imbalances which ultimate devalue or render worthless the reserves themselves.
Actually, the Chinese model is very clever, it proposes to share the burden of supporting a global means of exchange between the major economies. It would enable the World to trade without falling into the American Trap. Having the dollar as the World's Reserve Currency has provided a delusion of wealth that has enabled the average US Citizen to support a life style well beyond their economic value. In turn, however, this has hollowed out the US economy until it is shell of its former self. Indeed the paradox is so strong that only at the point of implosion has anyone really started to analyze the situation in depth.
My belief is that whilst the Chinese do not want the Dollar to continue as the World Reserve Currency, they have managed to solve the paradox. For this reason, the last thing they are actually seeking to do is to supplant the dollar. And for this reason, the last thing the Europeans either should be attempting to do is supplant the Dollar. Do we really need our turn at getting into this unholy mess? On reflection I think not.
What we all need is a mechanism that allows the orderly recycling of currencies in a free floating and interchangeable manner, that provide real time transparency to markets. Currency reserves should be totally unnecessary. Each country should be able to buy anything in its own currency according to current market valuations.
Ideally, everything (commodities, goods, service etc.) would be priced in basket currency that doesn't really exist but is there as a common reference for price stability. Individual currencies would then fluctuate against this datum, so that when your currency drops the price rises and when your currency rises the price falls.
The Chinese SDR model is obviously a bit crude, and perhaps at some levels unworkable, but it has to be correct in principle. The problem as ever is that it is going to take time and political will to make the necessary changes, and in the short-term the IMF SDRs might be the best solution. Time is something we are all short of, but it is clear that something needs to be done, and quickly, not only protect the investments of the Chinese, but also to secure the viability of the US economy. Without such a new paradigm the US economy is on an irretrievable path to destruction. The illusion of a strong dollar is literally sucking the life blood out of America.
creating and selling uncollateralized securities
All the central banks are engaging in a race to the bottom. The issue is who can devalue paper money the fastest and furthest. They are all schooled in the same narrow minded Keynesian economic philosophy, so they all think alike. Only Germany stands out, because they have a direct connection to the 1919-23 hyperinflation. But, they will eventually be outvoted by the Club Med countries of Europe (Italy, Spain, Portugal, Greece, Cyprus, Malta) and soon as France swings into the currency debasing camp.
I think we will have something like a "worldwide Weimar". The currencies that are likely to collapse the most, and first, into heavy inflation and/or hyperinflation, are the U.S. dollar and/or British pound.
There is no telling what a particular currency will do over a space of a month or even 6 months to a year. Looking at trade flows, I'd say that China and Japan have huge problems. Both are also notorious historical currency debasers. So the yuan and yen are useless (and you can't buy yuan outside of China, anyway)
The Australians, New Zealanders, and Canadians may not do as much printing as a lot of other countries. Even that, however, is questionable, given recent statements by the Bank of Canada. I suspect that the low on the Aussie is in the mid-$1.50 to the US$ range (for the short term) and it is now near $1.40, so it is overbought, and probably will be cheaper in a few weeks to a month or two. Same with NZ$ and C$. When these currencies fall, as I believe they will, they will be the "place to be" for the longer term, at least with respect to that part of any portfolio that must be in cash.
Incidentally, over the next few weeks, I think the U.S. $ will rise, because of various things the Fed and Treasury are doing that I don't have time to fully discuss right now. But, over the long term, the dollar will deeply collapse, as predicted in this article.
i have to disagree that justice is sure even when slow.
clinton gave super computer tech to china in exchange for campaign donations. the donations were not legal. the tech gift disguised as aiding their space program gave icbm targeting ability. the investigation was derailed to the petty issue of monica (between he and hillary) and he still commited perjury.
this was follwed up by george jr. updating and upgrading the "gift".
it seems hardly any office holders (judicial included) have upheld their oath to uphold and defend the constitution.
with respect the law and justice or injustice is for the commoners (us) not for our ruling elitists.
dcb
good subtle one liner. it happens with the consent of the government (not the governed).
i find myself in agreement with painfully aware that the election process is in a worsening state of compromise.
i am no longer sure that an honest concerned american has any chance of breaking through the barriers of elitism, to win an election.
If you read Volker he stated his only regret during the interest rate hikes of the early 1980s was to not have controlled the price of gold.
"Joint intervention in gold sales to prevent a steep rise in the price of gold [in the 1970s], however, was not undertaken. That was a mistake."
The intent of my comment is that in the long run gold and silver will win out. Whether the long run is 1 year, 2 years, 40 years, remains to be seen.
On Apr 10 09:04 PM dcb wrote:
> Can someone please explain the below to me.
>
> At any rate, no matter how hard the PM markets get slammed in the
> coming months (what normally happens when the money supply is increased
> - central bankers have all read Volker's "only regret" from his 1980-era
> memoirs), an ounce of gold is an ounce of gold and an ounce of silver
> is an ounce of silver.