pimpjui

Is Inflation a Fact… Or Just an Opinion? Part II

"The world is currently operating under a fiat currency discipline: meaning no major currency is backed by anything of real value."

You already gave us the answer. If currency debasement is the worst thing the US does, then it has very good company (e.g Switzerland).

Fiat currency is not about how much is printed. By definition, it is already worthless.

It's about confidence levels in the government that issues it. It should be painfully clear that for various reasons, most of the world still has great confidence in the US system.

The most probable inter-dependent reasons are:

1) US military might trumps all (if you can get nuked into oblivion, the expected value of your currency will be worth less than that of the nuker.)

2) US market liquidity is tops, hence the liquidity premium of the currency.

3) US market elasticity. Name one 1st world market that can drop 40% and at the same time keep the standard of living for its people at pretty much the same level. The UK is probably the only close 2nd.

The Fallacy of Floating Exchange Rates

Your hypothesis violates basic economic theory. If speculators cause prices to rise, then they must cause prices to fall. Therefore, it must have been speculators causing the yen to become weaker before, an now they are causing it to become stronger. Who are these speculators, and how do they magically, on aggregate, win all of the time? If this was such a one way bet, all speculators would pile in causing a reverse of the phenomenon.

Seven Reasons Why a Weak Dollar Hurts America

I find your arguments quite interesting. At the same time, I wonder why the exact opposite is happening. I have provided some ideas below.

If the Fed's goal is to stimulate domestic consumption, then a weak dollar helps by making domestically produced goods cheaper than imported ones. I guess the assumtion is that there should be more Americans buying Ford cars versus taking vacations in Europe. I have found that most Americans are oblivious to the real reduction in purchasing power of dollars abroad, and are quite happy if the Fed drops interest rates so low that it appears that their house values are going up (I guess they take out a line of credit against their home to buy the Ford).

It depends on who you consider to be investors. If you mean countries like Saudi Arabia, Japan, even China, then the answer could be pretty Machaivellian. Saudia Arabia and Japan are forced into buying our debt. Saudi is a US puppet regime. That oil belongs to the USA. Japan, well, we heck, the US nuked them, and we still have 50,000+ troops occupying Japan. Of course they will buy our depreciating "assets".

China (or more specifically, the Chinese government) on the other hand, is desparately trying to keep a lid on social unrest and possibly revolution. Ironic that the way to do that is capitalism. It works for both the US and the Chinese government, at least at the moment.


If America is trying to walk down the price curve, the American worker could wind up like his Chinese or Indian counterparts. The reality is that Americans are too expensive compared to Chinese and Indian workers, even if American quality is better. What America needs to do is make American skilled labor (service, manufacturing) better by improving worker skill. This is a tough nut to crack.


The US government will never do anything that will decrease it's power over the American people. Confusing tax codes gives control. When you say federal spending, you really mean miltary spending. With out it's weapons systems, the US would be reduced to the status of, say, Brazil. Don't expect any reduction in military spending anytime soon. Ironically, the USA is better at encouraging productivity than any country in the world. I think the main problem is that the people and the country, are in to deep of a mess to get out with out a lot of pain and more specifically, huge transfers of wealth.