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Invisiblezorbman
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Re: ZIRP [Re: phi1618]
    #9453498 - 12/17/08 11:45 PM (15 years, 3 months ago)

Quote:

Nobody really knows what's coming down the road, certainly not those in power who are blinded by their own light...




True but that's not to say certain events aren't much more likely than others.


--------------------
“The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”  -- Rudiger Dornbusch

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OfflineSeussA
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Re: ZIRP [Re: zorbman]
    #9454248 - 12/18/08 03:02 AM (15 years, 3 months ago)

> I am much more concerned about inflation than deflation.

Then you have less understanding of how a fractional reserve system works than I do.  That is like saying "I would much rather not turn in an assignment and get a 0 rather than turn it in late and get 50%."  Deflation is self-consuming.  Once it gets started, it cannot be stopped (by any means that I can think of).  Inflation is ugly, but at least it can be controlled.

Think of the fractional reserve system as a Ponzi scheme.  Deflation is the equivalent of all the investors coming at once and cashing out.

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OfflineScavengerType
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Re: ZIRP [Re: Seuss]
    #9454880 - 12/18/08 08:19 AM (15 years, 3 months ago)

wouldn't nations selling US currency prevent deflation? I mean many countries that hold USD would be glad to get their money back and likely sell some quite willingly.


--------------------
"Have you ever seen what happens when a grenade goes off in a school? Do you really know what you’re doing when you order shock and awe? Are you prepared to kneel beside a dying soldier and tell him why he went to Iraq, or why he went to any war?"
"The things that are done in the name of the shareholder are, to me, as terrifying as the things that are done—dare I say it—in the name of God. Montesquieu said, "There have never been so many civil wars as in the Kingdom of God." And I begin to feel that’s true. The shareholder is the excuse for everything."
- Author and former M6/M5 agent John le Carré on Democracy Now.
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Offlinephi1618
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Re: ZIRP [Re: Hotnuts]
    #9455680 - 12/18/08 11:51 AM (15 years, 3 months ago)

Quote:

Hotnuts said:
It takes time to collect data. That's why data for a month is released on the month ahead. You can't rely on trends or forecasts for solid economical data. If that were the case, data and markets would be turned upside down. Practically useless. 




Yep - the economists at BLS, NBER, etc. are good at figuring out what happened a while ago (which is not as easy a job as it sounds), but less good at figuring out what's going to happen in the future.

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Offlinephi1618
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Re: ZIRP [Re: ScavengerType]
    #9455716 - 12/18/08 11:59 AM (15 years, 3 months ago)

Quote:

ScavengerType said:
wouldn't nations selling US currency prevent deflation? I mean many countries that hold USD would be glad to get their money back and likely sell some quite willingly.




You need to look at why and how different countries accumulate USD reserves and what the effect of selling their reserves on the domestic economy would be.

Consider China, for a particularly important example. They  keep their currency weak by purchasing US assets in order to subsidize their export industries. It is a national embarrassment and subject of resentment toward the West that many of their investments have performed poorly, but ultimately the purpose of the investment isn't to generate wealth in itself but to promote domestic industry. Also, any significant sale of US assets would cause the mark-to-market value of their reserves to decline, which would cause more embarrassment for the government.

When the dollar was strengthening on the back of global deleveraging, the Chinese actually caused their currency to depreciate against the dollar to slow its rise against the Euro. How did they do that? Simple - buy dollars.

Until the political landscape changes drastically - and an economic crisis could do that - Chinese authorities will be stuck buying our paper. It's not sustainable in the long term, but how do you know how or when the existing world order will unravel?

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Invisiblezorbman
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Re: ZIRP [Re: Seuss]
    #9455870 - 12/18/08 12:30 PM (15 years, 3 months ago)

Quote:

Deflation is self-consuming.  Once it gets started, it cannot be stopped (by any means that I can think of).




So you think the current deflation is unstoppable?

Quote:

Inflation is ugly, but at least it can be controlled.




You have a real blind spot when it comes to inflation but you are not alone. Most of our current policy makers share that trait. It's always what you don't see coming that nails you. People are forever fighting the last war. For example Fed chairman, Ben Bernanke, is a student of the Great Depression and believes it was caused by a decrease in the money supply. I think he is basically correct but he is going much too far the other way like a drunk driver swerving and over-correcting after the deer crosses the road. His policies are incredibly inflationary.

You also ignore the fact that inflation, like deflation, has a negative feedback version which is uncontrollable. It occurs when consumers realize their currency is losing its purchasing power. So they quickly spend what money they have before it loses any more value. As a result money changes hands faster and faster while prices rise exponentially which has happened many times throughout history.. This is known as the "velocity of money". Right now most of the money being created is being stuffed under people's mattresses. The velocity of money is low. But when it comes out to play you will see what I mean.

Inflation and deflation are two sides of the same coin. Deflation destroys debt through defaults and bankruptcies, hyperinflation by debasement and loss of purchasing power. However, they are not equal in effect as hyperinflation carries far greater risk for the United States due to its unique role in the world.

Hyperinflation destroys the currency along with the middle class so necessary for a democracy to flourish. When the people lose their currency it is a devastating psychological blow representing an enormous loss of faith in their institutions. That green dollar really means something to people..In God We Trust..the pictures of the founding fathers, etc. Take that away and it's as if the ground has given way beneath their feet. It's no wonder that hyperinflation has often been associated with tyranny.

Deflation is no picnic but you can work your way out of it.

In the 1930s Britain and the US emerged from their deflationary depressions.

Germany had hyperinflation and got Hitler.


--------------------
“The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”  -- Rudiger Dornbusch

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OfflineSeussA
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Re: ZIRP [Re: zorbman]
    #9456140 - 12/18/08 01:24 PM (15 years, 3 months ago)

> So you think the current deflation is unstoppable?

It is too soon to tell if we are in a deflationary spiral or not.  We should know by the end of the 1st quarter next year after Obama has had a few months in office and the new rates set by the Fed have filtered through the system.

> Deflation is no picnic but you can work your way out of it.

No, you can't.  Once a deflationary spiral sets in, you are doomed... the system comes to a halt and everything fails.  There is no 'working your way out of it'.  Inflation, you can work your way out of, deflation (if it sets in) you cannot.  Inflation is ugly, deflation is death.  (My statements assume a fractional reserve banking system.)

Phi1618, you can explain this a lot better than I can. Please, do so!  (Even if I am wrong...)


--------------------
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Offlinelonestar2004
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Re: ZIRP [Re: Seuss]
    #9456232 - 12/18/08 01:47 PM (15 years, 3 months ago)

Panic of 1873 Redux?

Was the Great Depression really THE Great One? Apparently not, according to Scott Reynolds Neslon, 19th century historian. The Real Great Depression was the Panic of 1873 [fixed]. The parallels to present day, he says, are unnerving and uncanny. I include practically the entire piece. It is well worth the read.




That crash came in 1873 and lasted more than four years. It looks much more like our current crisis.


The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.
But the economic fundamentals were shaky. Wheat exporters from Russia and Central Europe faced a new international competitor who drastically undersold them. The 19th-century version of containers manufactured in China and bound for Wal-Mart consisted of produce from farmers in the American Midwest. They used grain elevators, conveyer belts, and massive steam ships to export trainloads of wheat to abroad. Britain, the biggest importer of wheat, shifted to the cheap stuff quite suddenly around 1871. By 1872 kerosene and manufactured food were rocketing out of America's heartland, undermining rapeseed, flour, and beef prices. The crash came in Central Europe in May 1873, as it became clear that the region's assumptions about continual economic growth were too optimistic. Europeans faced what they came to call the American Commercial Invasion. A new industrial superpower had arrived, one whose low costs threatened European trade and a European way of life.
As continental banks tumbled, British banks held back their capital, unsure of which institutions were most involved in the mortgage crisis. The cost to borrow money from another bank — the interbank lending rate — reached impossibly high rates. This banking crisis hit the United States in the fall of 1873. Railroad companies tumbled first. They had crafted complex financial instruments that promised a fixed return, though few understood the underlying object that was guaranteed to investors in case of default. (Answer: nothing). The bonds had sold well at first, but they had tumbled after 1871 as investors began to doubt their value, prices weakened, and many railroads took on short-term bank loans to continue laying track. Then, as short-term lending rates skyrocketed across the Atlantic in 1873, the railroads were in trouble. When the railroad financier Jay Cooke proved unable to pay off his debts, the stock market crashed in September, closing hundreds of banks over the next three years. The panic continued for more than four years in the United States and for nearly six years in Europe.


The long-term effects of the Panic of 1873 were perverse. For the largest manufacturing companies in the United States — those with guaranteed contracts and the ability to make rebate deals with the railroads — the Panic years were golden. Andrew Carnegie, Cyrus McCormick, and John D. Rockefeller had enough capital reserves to finance their own continuing growth. For smaller industrial firms that relied on seasonal demand and outside capital, the situation was dire. As capital reserves dried up, so did their industries. Carnegie and Rockefeller bought out their competitors at fire-sale prices. The Gilded Age in the United States, as far as industrial concentration was concerned, had begun.


As the panic deepened, ordinary Americans suffered terribly. A cigar maker named Samuel Gompers who was young in 1873 later recalled that with the panic, "economic organization crumbled with some primeval upheaval." Between 1873 and 1877, as many smaller factories and workshops shuttered their doors, tens of thousands of workers — many former Civil War soldiers — became transients. The terms "tramp" and "bum," both indirect references to former soldiers, became commonplace American terms. Relief rolls exploded in major cities, with 25-percent unemployment (100,000 workers) in New York City alone. Unemployed workers demonstrated in Boston, Chicago, and New York in the winter of 1873-74 demanding public work. In New York's Tompkins Square in 1874, police entered the crowd with clubs and beat up thousands of men and women. The most violent strikes in American history followed the panic, including by the secret labor group known as the Molly Maguires in Pennsylvania's coal fields in 1875, when masked workmen exchanged gunfire with the "Coal and Iron Police," a private force commissioned by the state. A nationwide railroad strike followed in 1877, in which mobs destroyed railway hubs in Pittsburgh, Chicago, and Cumberland, Md.


In Central and Eastern Europe, times were even harder. Many political analysts blamed the crisis on a combination of foreign banks and Jews. Nationalistic political leaders (or agents of the Russian czar) embraced a new, sophisticated brand of anti-Semitism that proved appealing to thousands who had lost their livelihoods in the panic. Anti-Jewish pogroms followed in the 1880s, particularly in Russia and Ukraine. Heartland communities large and small had found a scapegoat: aliens in their own midst.


The echoes of the past in the current problems with residential mortgages trouble me. Loans after about 2001 were issued to first-time homebuyers who signed up for adjustablerate mortgages they could likely never pay off, even in the best of times. Real-estate speculators, hoping to flip properties, overextended themselves, assuming that home prices would keep climbing. Those debts were wrapped in complex securities that mortgage companies and other entrepreneurial banks then sold to other banks; concerned about the stability of those securities, banks then bought a kind of insurance policy called a credit-derivative swap, which risk managers imagined would protect their investments. More than two million foreclosure filings — default notices, auction-sale notices, and bank repossessions — were reported in 2007. By then trillions of dollars were already invested in this credit-derivative market. Were those new financial instruments resilient enough to cover all the risk? (Answer: no.) As in 1873, a complex financial pyramid rested on a pinhead. Banks are hoarding cash. Banks that hoard cash do not make short-term loans. Businesses large and small now face a potential dearth of short-term credit to buy raw materials, ship their products, and keep goods on shelves.
If there are lessons from 1873, they are different from those of 1929. Most important, when banks fall on Wall Street, they stop all the traffic on Main Street — for a very long time. The protracted reconstruction of banks in the United States and Europe created widespread unemployment. Unions (previously illegal in much of the world) flourished but were then destroyed by corporate institutions that learned to operate on the edge of the law. In Europe, politicians found their scapegoats in Jews, on the fringes of the economy. (Americans, on the other hand, mostly blamed themselves; many began to embrace what would later be called fundamentalist religion.)


The post-panic winners, even after the bailout, might be those firms — financial and otherwise — that have substantial cash reserves. A widespread consolidation of industries may be on the horizon, along with a nationalistic response of high tariff barriers, a decline in international trade, and scapegoating of immigrant competitors for scarce jobs. The failure in July of the World Trade Organization talks begun in Doha seven years ago suggests a new wave of protectionism may be on the way.

http://angrybear.blogspot.com/2008/11/panic-of-1873-redux.html


--------------------
America's debt problem is a "sign of leadership failure"

We have "reckless fiscal policies"

America has a debt problem and a failure of leadership.

Americans deserve better

Barack Obama

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Invisiblezorbman
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Re: ZIRP [Re: Seuss]
    #9456392 - 12/18/08 02:17 PM (15 years, 3 months ago)

> So you think the current deflation is unstoppable?

Quote:


Seuss said:
It is too soon to tell if we are in a deflationary spiral or not.




But you just said, " Deflation is self-consuming.  Once it gets started, it cannot be stopped.." Aren't we experiencing deflation right now?

> Deflation is no picnic but you can work your way out of it.

Quote:


Seuss said:
Once a deflationary spiral sets in, you are doomed... the system comes to a halt and everything fails.




Of course that is false. Both the US and Great Britain emerged from their respective depressions in the thirties and enjoy tremendous economic power today.

Quote:


Seuss said:
Inflation is ugly, deflation is death. 




Hyperinflation spells the death of the currency and the middle class without which democracy cannot survive. You lose everything after your foreign creditors descend to pick over your bones, acquiring your assets at bargain basement prices. Paper wealth is destroyed while the titles to real wealth flow out of the country to countries which actually have savings leaving the economy as a burned-out cinder.

Lonestar: The depression of 1873 was known as 'The Great Depression' at the time until what we now know as TGD came along.

Maybe we should start numbering these things like our World Wars to keep track of them. :grin:

Edited by zorbman (12/18/08 02:24 PM)

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Offlinelonestar2004
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Re: ZIRP [Re: zorbman]
    #9456402 - 12/18/08 02:20 PM (15 years, 3 months ago)

Zor did you read the link i posted in money matters?

"what if some kind of global coalition – say a trillion-dollar sovereign wealth fund allied with several countries around the world – banded together to create a gold-backed alternative to the dollar?"


what do you think?


--------------------
America's debt problem is a "sign of leadership failure"

We have "reckless fiscal policies"

America has a debt problem and a failure of leadership.

Americans deserve better

Barack Obama

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Invisiblezorbman
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Re: ZIRP [Re: lonestar2004]
    #9456567 - 12/18/08 02:59 PM (15 years, 3 months ago)

Quote:

"what if some kind of global coalition – say a trillion-dollar sovereign wealth fund allied with several countries around the world – banded together to create a gold-backed alternative to the dollar?"

what do you think?




I think we will see that or something similar in the next few years.

Debt-based money is a dead end road.


--------------------
“The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”  -- Rudiger Dornbusch

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Offlinephi1618
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Re: ZIRP [Re: Seuss]
    #9456866 - 12/18/08 03:54 PM (15 years, 3 months ago)

Here's another description about the consequences of the crash of 1873 in the US:
from "Devil Take the Hindmost" by Edward Chancellor, p186:
Quote:

(stock exchanged closed Sat., Sept. 20, 1873)The Stock Exchange reopened after ten days.... Throughout the following winter factories closed down, railroads discharged employees, banks failed, wages were cut, and money was hoarded. By the end of 1873, over five thousand commercial failures had been announced, among them the Northern Pacific Railroad and nearly fifty New York brokerages. In January, a crowd of unemployed protesters rioted in Tompkins Square, New York, and were charged by mounted police armed with billy clubs. The depression continued for the remainder for the remainder of the decade. By 1877, it was estimated that only a fifth of the labour force was in regular employment. Strikes and unrest became frequent. The conflict between capital and labour escalated into violence with the terrorist activities of the Molly Maguires in the Pennsylvania coalfields and the riots in Pittsburgh during the Great Railroad Strike of 1877...




20% of the people were fully employed! Worse than the Great Depression.

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OfflineSeussA
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Re: ZIRP [Re: zorbman]
    #9456957 - 12/18/08 04:12 PM (15 years, 3 months ago)

> But you just said, " Deflation is self-consuming.  Once it gets started, it cannot be stopped.." Aren't we experiencing deflation right now?

It is on borderline right now... The Federal Reserve has just enacted changes to try and keep it from happening.  Will those changes help? I don't know.  It will take time.  You don't have to be an ass about this.  I would like to believe that we can have a mature discussion on the issue.

Everything I have ever read by modern economists claim that in a fractional reserve system inflation is bad but deflation is a killer.  If I am wrong, then I am wrong... but I would like somebody that knows more about the subject than either of us to chime in and say so.

> Both the US and Great Britain emerged from their respective depressions in the thirties and enjoy tremendous economic power today.

I doubt the people that went through the great depression would agree that the system survived.  It took a world war and the death of millions upon millions of people to get the world back on track.  That is a pretty severe sacrifice to right a financial wrong.


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Offlinephi1618
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Re: ZIRP [Re: Seuss]
    #9456965 - 12/18/08 04:13 PM (15 years, 3 months ago)

A deflationary spiral sets in when expectations of deflation and business failures cause additional deflation.

If you expect deflation, you will save your money for another day when things are cheaper, which in aggregate is disinflationary.

If you are unsure about the future, and fear that your job or your wages will be cut, you will scrimp and save, which is in aggregate disinflationary.

If you're laid off, you will spend less money which will reduce inflation.

If your business prospects are poor, you will cut inventories and cancel orders with your suppliers, which is disinflationary.

If you expect that prices for your goods will go down in the future, you will make a sale to cut your inventory now, which is disinflationary.

If your customers cancel their orders or save their money for another day, you will need to cut your orders, lay off your workers, cut wages, and/or go out of business, all of which reduce demand and thus prices.

etc.


Another point is that a credible central bank has the tools to handle inflation, but not deflation. Inflation is combated by raising interest rates to slow the growth of credit. Expectations and the credibility of the central bank play a significant role here; it was necessary to raise interest rates to punitive levels under Paul Volker to bring inflation under control, but once the market experienced the levels to which the Fed would go to control inflation merely the threat of higher interest rates was enough to restrain inflation to reasonable levels for a while.

On the other hand, interest rates can't go below 0 - ZIRP. There is no well established and successful monetary tool to control deflation, though "quantitative easing" and purchasing risky assets are what Bernanke's trying right now, and what the Japanese tried (with limited success) in 2000.

Fiscal policy can possibly counter deflation. The New Deal under Roosevelt coincided with a significant easing in the depth of the depression, and ultimately the price controls and massive deficit spending of world war 2 combined with the transformed post-war world helped end the depression.


Let's be clear though - the depressions of 1870s and 1930s are some of the most painful experiences in American history. Starvation in the US is currently limited to the seriously mentally disturbed, but that won't be the case if the worst happens. Fear deflation, fear depression, and don't take them lightly.

As far as hyperinflation, I personally don't think it's likely here. We might get "hyper"-inflation of 10% a year or more, but we won't be Zimbabwe or the Weimar Republic.

Why? Because there are powerful political interests (domestic bond holders) that stand to loose big in a hyperinflation. In the case of Weimar Germany, their war reparations liabilities were huge and there weren't significant or politically influential domestic creditors. Similarly in Zimbabwe, all the domestic creditors were kicked out of the country before the onset of real hyperinflation.

As long as the political opposition to inflation is strong enough, it is credible and true that the necessary actions to stop inflation will take place before we see 100%/year or greater inflation. If inflation turns around and hits 10% next year, you can bet interest rates will go through the roof.

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Invisiblezorbman
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Re: ZIRP [Re: Seuss]
    #9457201 - 12/18/08 04:52 PM (15 years, 3 months ago)

Quote:

You don't have to be an ass about this.  I would like to believe that we can have a mature discussion on the issue.




How is asking you to clarify your position being an ass? I did so politely. :confused:

Quote:

I doubt the people that went through the great depression would agree that the system survived.  It took a world war and the death of millions upon millions of people to get the world back on track.  That is a pretty severe sacrifice to right a financial wrong.




The economy was already recovering by the time WWII began. The surge in wartime spending certainly helped speed the process along however. And winning didn't hurt either.

Hopefully this time policy makers will stop meddling and allow the bad debt to be purged from the system rather than creating ever more debt and fueling an inflationary spiral in the process. Nearly 20% interest rates were required to wring inflation out of the economy during the early 80s recession- I can't imagine the levels required this time when the tidal wave of created money hits the economy.

And since there is a lag time between macro-economic policy changes and their effects inflation could morph into uncontrollable hyperinflation resulting from the vast quantities of money being created.

We can deal with some deflation. As counter intuitive as it may seem, inflation is the real danger for the United States at this point in its history.


--------------------
“The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”  -- Rudiger Dornbusch

Edited by zorbman (12/18/08 04:58 PM)

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OfflineScavengerType
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Re: ZIRP [Re: zorbman]
    #9457886 - 12/18/08 06:42 PM (15 years, 3 months ago)

I think you guys are forgetting what zorbman is pointing at but not saying; that if the USD inflates too much, 10% a year may be "too much," then the serious possibility of a run on the USD is possible. Now since deflation increases the value of the money the international market should or at least could be persuaded to drop USD on the international market to alleviate deflation. This is a new method compared to the examples we are looking at here in other depressions since currencies weren't backed by reserves of other currencies in those times.

The reality is that any situation that results in a spiral either way may kill the USD.

oh and great post phi.

I may add a lower USD compared to the Euro may result in the export of a lot of green jobs to the US.


--------------------
"Have you ever seen what happens when a grenade goes off in a school? Do you really know what you’re doing when you order shock and awe? Are you prepared to kneel beside a dying soldier and tell him why he went to Iraq, or why he went to any war?"
"The things that are done in the name of the shareholder are, to me, as terrifying as the things that are done—dare I say it—in the name of God. Montesquieu said, "There have never been so many civil wars as in the Kingdom of God." And I begin to feel that’s true. The shareholder is the excuse for everything."
- Author and former M6/M5 agent John le Carré on Democracy Now.
Conquer's Club

Edited by ScavengerType (12/18/08 06:44 PM)

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Offlinephi1618
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Re: ZIRP [Re: ScavengerType]
    #9458092 - 12/18/08 07:10 PM (15 years, 3 months ago)

Quote:

a run on the USD is possible.



i agree, this is something to fear. The dollar and the US economy benefits from the "reserve currency" - lose that, and we will be more vulnerable.


Thank you for your compliment.

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Invisiblezorbman
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Re: ZIRP [Re: ScavengerType]
    #9458380 - 12/18/08 07:57 PM (15 years, 3 months ago)

Quote:

I think you guys are forgetting what zorbman is pointing at but not saying; that if the USD inflates too much, 10% a year may be "too much," then the serious possibility of a run on the USD is possible.




Yes, that is what I was referring to when I hinted at it earlier by saying hyperinflation poses more danger to the US than deflation "due to its unique role in the world" or US dollar status as global reserve currency. I was going to elaborate on that later but you beat me to the punch. If dollar dumping begins in earnest (and the trillions of dollars we will be printing virtually guarantees that) the US dollar would lose that role along with all the incredible and unique benefits it affords us. The most important benefit is the ability of the US government to export much of its inflation abroad, and as it inflates and devalues its currency, to impose what amounts to an “inflation tax” on other economies.

If we were a closed economy we would already be seeing much higher inflation but since the dollar is the main currency used in global transactions it has been in demand and "soaked up" what would otherwise result in domestic inflation. You are already seeing the dollar erode and gold and silver move up in response to these bailouts and this trend will only accelerate.

If this massive and unprecedented spending spree ends up crashing the dollar then the US would have to earn enough foreign currencies to pay for its 725 overseas military bases plus import its oil supplies both of which would be impossible considering America’s $800 billion trade deficit.

When the dollar ceases to be the reserve currency, foreigners will stop financing the US trade and budget deficits, and America's status as a Superpower will end overnight.


--------------------
“The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”  -- Rudiger Dornbusch

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Re: ZIRP [Re: zorbman]
    #9460758 - 12/19/08 07:39 AM (15 years, 3 months ago)

Quote:

zorbman said:
Yes, that is what I was referring to when I hinted at it earlier by saying hyperinflation poses more danger to the US than deflation "due to its unique role in the world" or US dollar status as global reserve currency. I was going to elaborate on that later but you beat me to the punch. If dollar dumping begins in earnest (and the trillions of dollars we will be printing virtually guarantees that) the US dollar would lose that role along with all the incredible and unique benefits it affords us. The most important benefit is the ability of the US government to export much of its inflation abroad, and as it inflates and devalues its currency, to impose what amounts to an “inflation tax” on other economies.




Dollar dumping, eh? Do you have an impression as to who specifically would be dumping their U.S. dollars? Is there something much more preferable to even a more inflated dollar that would be picked up in exchange for their dollars? Assuming the dollar sees a lot more inflation in the manners you have alluded to in this thread, at which point will enough trust in the dollar by those who would be dumping dollars be eroded to provoke what you speak of? Isn't it possible that there won't be one huge, dire moment in which everything will collapse in this regard, but simply a more gradual movement away from the hegemony of the U.S. dollar?
:strokebeard:

I'm asking because I don't know enough of the subjects myself, but finding out answers from your perspective on these questions will definitely help expand the matter for me. I just don't see the benefit the rest of the world would gain from nearly simultaneously collapsing the United States economy by no longer trusting in it, considering how the global economy seems to be built upon its present role....


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OfflineScavengerType
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Re: ZIRP [Re: fireworks_god]
    #9460998 - 12/19/08 08:33 AM (15 years, 3 months ago)

Quote:

fireworks_god said:
Dollar dumping, eh? Do you have an impression as to who specifically would be dumping their U.S. dollars?... Isn't it possible that there won't be one huge, dire moment in which everything will collapse in this regard, but simply a more gradual movement away from the hegemony of the U.S. dollar?
:strokebeard:




China has threatened to drop USD reserves but I think it's a political threat because they want the US to give them the Israel treatment. Likely due to what the us did at the UN over Darfur, that is not blocking action. However, that is just my opinion it's possible they are serious.

On the other hand I agree the transition from the USD as a major back is possible, probable and still in the air. This is the reason I suggested countering inflation by letting some USDs out of foreign vaults instead of making more here. Might as well be prepared. This is why I advocated a controlled release of USD, one that could be channeled into the US and fix the temporary deflation.

Here's what I meant to mention earlier but forgot to. You see when banks created and extended credit this gradually inflated the money supply. This is why deflation is a threat but if it's managed in the moment and credit markets re-open inflation will be the threat.


--------------------
"Have you ever seen what happens when a grenade goes off in a school? Do you really know what you’re doing when you order shock and awe? Are you prepared to kneel beside a dying soldier and tell him why he went to Iraq, or why he went to any war?"
"The things that are done in the name of the shareholder are, to me, as terrifying as the things that are done—dare I say it—in the name of God. Montesquieu said, "There have never been so many civil wars as in the Kingdom of God." And I begin to feel that’s true. The shareholder is the excuse for everything."
- Author and former M6/M5 agent John le Carré on Democracy Now.
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Edited by ScavengerType (12/19/08 08:42 AM)

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