GatesOfVienna: Chump Change

Ilion

"Baron Bodissey" (GatesOfVienna): Chump Change[^]

... The entire system depends on confidence in the dollar — as long as foreign countries continue to believe that real value lies behind the dollar, and that the American economy is strong enough to withstand this level of debt, they will continue to loan money to us, and pump liquidity into the system. But confidence in the dollar won’t last. It can’t, because all those dollars in circulation, held in reserves in central banks all over the world, are not backed up by enough collateral. The last estimate I read — which was over a month ago, and real estate prices have presumably dropped even further since then — placed the number of dollars in circulation and held in reserves all over the world as thirteen times the amount of tangible assets in the U.S. financial institutions that back them up. That is, if all the holders of dollars across the globe decided to exchange them at the same time, the currency would have to be inflated at least 1,300% to redeem them. With the addition of the recent stimulus package, American debt now exceeds the entire collective wealth of every man, woman, and child in the United States. And this debt is almost entirely collateralized by confidence in the dollar. There’s nothing else backing up our currency. ------ The national debt is even more alarming if our unfunded liabilities are taken into consideration. ... Your future Social Security, like all things federal, depends solely on the “full faith and credit of the United States Government”, a commodity whose value is dropping precipitously. ... And “someday” is drawing rapidly closer. Much of the unfunded liability will begin to come into play in the next few years as my generation, the Boomers, begins to retire and claim all its benefits. That’s why political leaders of both parties are so keen to get Pedro and Ahmed into the country — they’re looking for somebody, anybody, who will go to work and pay the FICA and income tax necessary to support the Beautiful People as they shuffle off into assisted living. But it’s not going to work. Even if all the immigrants were skilled and ready to work, even if mass immigration were not doomed to destroy the culture and civil society that holds this entire Potemkin village together, even if the multicultural dream could be f

73Zeppelin

So, what are the implications for an economy built solely on fiat money and fractional reserve banking? In particular, what does that imply for fiscal debt and the balance of payments? What about the shadow banking system - is it relevant?

Ilion

73Zeppelin wrote:

So, what are the implications for an economy built solely on fiat money and fractional reserve banking? In particular, what does that imply for fiscal debt and the balance of payments? What about the shadow banking system - is it relevant?

Is any of it real? One of the major points being made is that the entire system rests upon nothing but the continued confidence that the system is sound. That is, the entire system is but floating in the aether; this cannot be sustained forever.

Lost User

73Zeppelin wrote:

what are the implications for an economy built solely on fiat money

Depends whethedr oil is sold in your currency or not.

73Zeppelin wrote:

fractional reserve banking

Its a bad idea in anyones book.

73Zeppelin wrote:

In particular, what does that imply for fiscal debt and the balance of payments?

Depends if your currency is used for foreign reserves.

Morality is indistinguishable from social proscription

Dalek Dave

fat_boy wrote:

Depends if your currency is used for foreign reserves.

The big five ($,£,SFr,€ and ¥) are all Reserve Currencies, and yet fluctuate wildly. US, UK and Yen are National Currencies backed by Capital Assets, (Gold, Oil, Industry etc), the SFr is backed by Hard Currency, and the Euro is backed by willpower and nothing else. The Euro is really in trouble as it is a nonstable currency. (Mind you, try the $NZ for that!)

------------------------------------ "Your manuscript is both good and original. But the part that is good is not original, and the part that is original is not good." Dr Samuel Johnson

73Zeppelin

Sure it's real, people deal in it everyday. The question is not "is any of it real", the question is "is it of real value". And if it isn't, what to do about it?

73Zeppelin

I know all that - I'm trying to coerce a decent response out of him! Ate here[^] last night. Little pricey, but the food and wine was damned good. Strictly Bourguignon cuisine. I had dorade with amandes.

Dalek Dave

I would have had... Le Pressé de Foie Gras de Canard, Confit de Dattes Followed by Le Râble de Lapin Rôti, Jus aux Olives et au Thym, Duo de Petits Légumes Then a Nice Pudding! (Spotted Dick and Custard perhaps) BTW, testing my French... The Cave of William's Door sounds like a Euphemism.

------------------------------------ "Your manuscript is both good and original. But the part that is good is not original, and the part that is original is not good." Dr Samuel Johnson

Oakman

73Zeppelin wrote:

And if it isn't, what to do about it?

Revalue the currency, go back on the gold standard, and repudiate the national debt. Or wait until the country is obviously becoming bankrupt (you identified this point for me - it's when the credit rating is downgraded) and its currency is as much of a joke as Zimbabwe's and its national debt worth the paper it's written on - less, actually, since the paper can be used to wipe your arse. The former option is not necessarily any more palatable than the latter and no politician in the world has the balls to even suggest it, but it is the only course of action I can see that would have a chance of staving off the long night.

Jon Smith & Wesson: The original point and click interface Algoraphobia: An exaggerated fear of the outside world rooted in the belief that one might spontaneously combust due to global warming.

BoneSoft

Dalek Dave wrote:

The Cave of William's Door sounds like a Euphemism.

As did "spotted dick and custard" did to me. :laugh:

Visit BoneSoft.com for code generation tools (XML & XSD -> C#, VB, etc...) and some free developer tools as well.

Dalek Dave

BoneSoft? :-D Euphemisms all round today!

------------------------------------ "Your manuscript is both good and original. But the part that is good is not original, and the part that is original is not good." Dr Samuel Johnson

BoneSoft

Touche :-O

Visit BoneSoft.com for code generation tools (XML & XSD -> C#, VB, etc...) and some free developer tools as well.

Lost User

Dalek Dave wrote:

and yet fluctuate wildly.

Although by not as much as they perhaps should.

Dalek Dave wrote:

US, UK and Yen are National Currencies backed by Capital Assets, (Gold, Oil, Industry etc), the SFr is backed by Hard Currency, and the Euro is backed by willpower and nothing else.

OK, lets take the US. Running out of oil, having to open up Alaska. Gold? Well, there is some, but since money came off the gold standard in the 1930s ths isnt a valid statement. Industry? DOnt make me laygh. The US off chored almost all of it and what is left is on its kneews. No for the UK. OIl, yes there is quite a bit left, thank god, its the only thing keeping it alive. Mind you, its thrown away what it has had from Oil. Look how much better NOrway has used the oill revenue over the decades. As for industry in the UK, well, there are quite a few asian companies there using it as a launch pad into Europe, LG, Nissan etc. But given the way sterling has dropped in value by 30% against the Euro this obviously doesnt mean much to anyone. Yen. Well, Japan had exactly the same recesion as we are now in for much of the 90s. It didnt lookl so healthy then did it? And as for natural resources the one thing Japan gas almost nothing of is natural resources. All they have is industry, and thats been failing slowly for over 10 years. As for the Swiss Franc, are you seriously suggesting it is backed by gold? If not can you explain what you mean by hard currency? As for its stabillty then I dont suppose you have noticed its devaluaiton against the Euro. As for the Euro, which is used by almost half a billion people in one of the oldest, most resourcefull, industrial, resource rich and established regions of the world. Yes, thats really in trouble. Heres some advide, get your anti-europe head out of your pro-the monarchy arse and take a look at reality.

Morality is indistinguishable from social proscription

Lost User

Dorade is a great fish eh? Really onbe of the tastiest MO. A little unusual to see it wirth almonds though. Were they in an almond suace? If so its a very Catalan sounding dish, odd to find it half way up France! Mind you, any seafood half way up France is a long way from home. I dont really get Burgundian food. Eggs in beef gravy for example, or 6 snails, ok with hods of garlic and parsley they are OK, but mussles done the same way are superb, and as for parsley ham, well, its pretty simple stuff. Mind you it sounds a lot better than the crap I had in a hotel near Barcelona in the week. Cuttle fish and chips, asparagus and ham. And they didnt even have any creme-catalan! I mean whats the point NOT having your bational desert on the menu! At least the tapas in the bar down the road was good.

Morality is indistinguishable from social proscription

73Zeppelin

The dorade was fantastic. The almonds were slightly roasted and not part of a sauce. It wasn't part of their regular menu, but I agree that it is not typical Bourguignon cuisine. I agree, that I find Burgundian food hard to comprehend. It's odd stuff, not what you would interpret as traditional French cuisine. I think it's really adapted peasant dishes made into something a little more high-class. The wine was local - a premier cru - I liked it. It was red, but it went with the fish anyways (and wasn't my choice in wine).

73Zeppelin

The problem with the gold standard is that there simply isn't enough physical gold to back all those dollars. Additionally, the cost of extracting and producing a unit of gold is increasing significantly. Then there is also the problem that a currency has to be manipulated to maintain exchange rates, etc.. What you really need is money that isn't just empty emmission - it has to be backed by something that is, itself, capable of growing. This is why I have become interested in the work of a small group of economists who propose to back money by production so that when a central bank emits money it is backed by a form of output; it comes from somewhere and from something concrete. Unfortunately, their writings are mostly in French. And yes, watch those credit ratings...in fact, talk of credit ratings alone is enough to stir things up about the security of a country.

Lost User

Oakman wrote:

go back on the gold standard,

There isnt enough to go around. Unfortunately, we are stuck with what we have. Perhaps a global currency and global government are the answer.

Morality is indistinguishable from social proscription

Oakman

73Zeppelin wrote:

The problem with the gold standard is that there simply isn't enough physical gold to back all those dollars.

Maybe that's less of a problem with the gold standard than it is with all those dollars? Remember I proposed to get rid of a lot of them by repudiating the national debt.

73Zeppelin wrote:

What you really need is money that isn't just empty emmission - it has to be backed by something that is, itself, capable of growing.

David Gerold at one point proposed a currency based on calories. Which, when you get away from dieting, is a measure of the potential for producing energy. In truth, I have no axe to grind about gold, except that it is rare enough to be valuable, and portable enough to be used as currency. We could go back on the seashell economy if that worked. But having dollars worth Swiss francs while Swiss francs are valued in dollars is, in my humble opinion, a scam - one that is becoming apparent. As someone on CNBC said, a receding tide reveals all the garbage.

Jon Smith & Wesson: The original point and click interface Algoraphobia: An exaggerated fear of the outside world rooted in the belief that one might spontaneously combust due to global warming.

Oakman

fat_boy wrote:

There isnt enough to go around.

The assumption in your statement is that is we have to back all our worthless currencies with gold. Repudiate the national debts; burn all the toxic assets.

Jon Smith & Wesson: The original point and click interface Algoraphobia: An exaggerated fear of the outside world rooted in the belief that one might spontaneously combust due to global warming.

Lost User

I suppose you could revalue/devalue currencies but that has its problems. Currency Devaluation and Revaluation[^] But to "Repudiate the national debt" itself is not necessarily an answer Ludwig von Mises Institute article[^] Burning those toxic assets - frankly some (the home owners etc) are going to glee with pleasure and many (the investors and consequently the taxpayers) will feel the pain of being cheated. Squaring that circle is a political nightmare.