Use access key #2 to skip to page content.

speedybure (< 20)

Death Of The Dollar: We'll miss you

Recs

25

April 27, 2009 – Comments (16) | RELATED TICKERS: UDN , GLD , SLV

From my econ blog- 

"You cannot legislate the poor into freedom by legislating the wealthy out of freedom.

What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that, my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it."( - Someone from the austrian school, I can't remember, Perhaps Ludwig Von Mises??)

 Oh so true, the current environment are  the bright and happy days relative to what lies in front of us. Though I have tried to think of all the various ways the dollar could survive after the inflation hits, I have come only to one conclusion: it can't!!. A friend brought up a great idea to solve the debt problem we have with our creditor nations, but the is insignificant and goes far beyond that issue. Yes we could appease our creditors by selling them government land (which could easily cover the 13+ trillion, but there there is no way to resolve the exponential increase in the money supply since last oct let alone that enormous increase dated back to 1998.

 The most troubling thing is the dramatic increase in deficit spending and the 50T+ of unfunded liabilities we will have in coming the not to distant future. Deficit spending up to date is about 2.9T for 2009 as opposed to 500 billion a year ago. This number is arrived at by adding CBO baseline, Tarp, Stimulus, healthcare, Amt and war (defense).

  Past Hyperinflations (Austria, Hungary, Poland, Germany) all had one thing in common: Deficit % of Expenditures hit 50%. These averaged 58% and the next year after crossing this threshold, Inflation averaged 2179%. Guess where we are today? I would have guessed somewhere between 15-20%. Unfortunately as of 2009 we hit 44%!!. Of course I don't expect inflation to hit 1000% next year, mostly due to the preceding countries included exogenous factors. Instead I think this will be identical to pre-revolutionary france, where prices went  up at an accelerarating rate for 5 years until hyperinflation. I'm not a soothsayer, so I'm not saying exacly 5 years but expected it to happen around that time period give or take 2 years or so. But hey, maybe the government will stop running the printing presses 24/7, bailing everyone and their grandmother out, stop deficit spending, let banks fail, Get rid of social security, healthcare,  abolish the fed and return to hard money. I know there are those who argue for healthcare like it is their god given right but let’s breakdown the real costs:

 Healthcare costs more than housing making up 16.5% of GDP while housing makes up 10.5%. This was measured in Q3 2006. 2007 saw healthcare rise to 18.8%.. The estimated projections see it rising to 22% by 2011 and 30% between 2018-2022. That’s enough of the healthcare talk, as it is often a touchy subject. Bailouts... that's something most everyone agrees is bad: It has reached 11 trillion if you exclude tarp funds paid back but is more than negated by the money wells fargo and others are asking for and will get without a question.

  What is most troubling to me is not just the capital injections of more than 800 billion of total reserves throughout the banking system via the federal reserve, but the amount of excess reserves in the system. Obviously some will be used to cover loan losses (which could be as much as 90% inflationary for those familiar with how banks operate) and the rest for new loans  which is the governments strategy to "stimulate" , whatever that means. This will likely be incredibly destructive because any new loans made will have a very high default rate as the economy continues to deepen and more jobs  lost.

 To show the magnitude of this situation, one needs to look only at the ratio of excess reserves to industrial production. This ratio has been at or under .2 since 1943 and peaking before that in 1938 at .8. This time around, this ratio is 35x times larger than the historical average, currently 7.22.

 This is a depressing enough post as it is but I wish to add one more thing. I compile the monetary aggregate (M3) the fed discontinued in 96 (for obvious reasons). As of the first week of April M3= 14.651 Trillion! Which excludes the majority of the planned 300 billion dollars worth of Treausry purchases and also assumes those CDS’ (1.3 trillion or so) are worth 100% instead of the realistic value of 1%-10%? Is this alot? well in 1990 M3= about 4.2 trillion, So yes I would say so.

16 Comments – Post Your Own

#1) On April 27, 2009 at 7:33 PM, LawfordCap (99.85) wrote:

 

are you against all government entities.... police, army and state emergency services?

How do you monetarize the future pay off of investment in parental care...

If you want to only use monetarized arguments is not the time a parent spends with her kids monetarized in the future income potential of the child? Yet at present there is no way to draw on this and obviously you would not want to I would expect.

Could not some form of income redistribution if it relates to developing the resources latent in the future generation result in handsome payoffs when the assets bear fruit…its like investing in fundamental research, science maths and arts. We cannot predict which child will be the next big thing so we should invest in the way Markowitz did with his retirement fund… Evenly in all.

I am against running up big government deficits I am with you on that for sure

 

Report this comment
#2) On April 28, 2009 at 2:19 AM, Chromantix (97.68) wrote:

+1 for the first line alone

Report this comment
#3) On April 28, 2009 at 2:22 AM, speedybure (< 20) wrote:

There exists no government entity which could not be run more efficiently by the free market. Just look at the postal service, they can't even manage that. Concerning healthcare, don't you find it odd that it was very affordable for doctors to make house calls a few decades ago, but now because of the government intervention, healthcare costs are going through the roof. Income redistribution penalizes those who are more productive, thus less incentive for those to innovate. It also could lead to a brain drain in the US.

Anyway My point is that this will end in the collapse of the dollar, you can't print your way to prosperity. 

Report this comment
#4) On April 28, 2009 at 10:57 AM, whereaminow (22.06) wrote:

Great post speedy!

Even Keynes was fully aware of the limitations of his own theories.

A few years after the General Theory. In his essay How to Pay for the War (London: Macmillan, 1940) he warned the trade unions of the "futility" of demanding an increase in money rates of wages to compensate for every increase in the cost of living. To prevent inflation, he insisted,

"Some means must be found for withdrawing purchasing power from the market; or prices must rise until the available goods are selling at figures which absorb the increased quantity of expenditure — in other words the method of inflation."

And in a discussion of financing war expenditure:

"[A] demand on the part of the trade unions for an increase in money rates of wages to compensate for every increase in his cost of living is futile, and greatly to the disadvantage of the working class. Like the dog in the fable, they lose the substance in grasping at the shadow. It is true that the better organised might benefit at the expense of other consumers. But except as an effort at group selfishness, as a means of hustling someone else out of the queue, it is a mug's game …"

From the Hayek-Keynes Debate 1931-1971

David in Qatar

Report this comment
#5) On April 28, 2009 at 11:08 AM, speedybure (< 20) wrote:

ARE YOU AWARE OF THE MISES INSTITUTE? i LEARNED FAR MORE FROM THEM THAN IN COLLEGE. i WAN'T AN ECON MAJOR BUT BECAUSE OF THEM, I KNOW MORE THAN THOSE WHO DID MAJOR IN ECON. I WILL POST AN ARTICLE FOR YOU LATER, ITS JUST MAKES KEYNES LOOK A FOOL. KEYNES WROTE ONE GOOD PIECE OF LITERATURE IN HIS LIFE "THE CONSEQUENCES OF THE PEACE". iT'S FUNNY BECAUSE IT IS VERY CLEARLY WRITTEN AS OPPOSED TO ALL HIS OTHER WORKS WHERE HE MAKES CIRCULAR ARGUMENTS, CONTRADICTS HIMSELF AND IS JUST PLAIN WRONG. GLAD TO SEE SOME PEOPLE HERE HAVE THEIR HEAD ON STRAIGHT. i DON'T REALLY SEE HOW YOU CAN BE AN INVESTOR AN BE SUCCESSFUL IN THE LONG TERM WITHOUT KNOWING HOW THE MARKET OPERATES. THIS SITUATION HAS GOTTEN SO BAD TO THE POINT I WILL KNOW FINISH MY MASTERS AN PHD IN AUSTRALIA THEN SINGAPORE.

-ALL THE BEST

 

Report this comment
#6) On April 28, 2009 at 11:14 AM, outoffocus (22.85) wrote:

It also could lead to a brain drain in the US.

Could lead? Its already happening. How else can you explain the rampant lack of common sense in this country?

Report this comment
#7) On April 28, 2009 at 11:15 AM, whereaminow (22.06) wrote:

Of course my friend. Take a peek at the link above :)  When you get a chance, also look over my posts as I refernece Mises among others extensively.

David in Qatar

Report this comment
#8) On April 28, 2009 at 11:15 AM, EHoyle80 (< 20) wrote:

China is moving out of its 1.9 trillion “dollar dependency” and heavily into base and rare metals. The Stock Research Portal says, “That ought to be positive for base metals,” but “I don’t see that leading the U.S. to recovery in the near term given the U.S. losses in manufacturing jobs and continued monthly trade deficits.”

Via Stock Research Portal

Report this comment
#9) On April 28, 2009 at 12:16 PM, speedybure (< 20) wrote:

 YES, i HAVE BEEN WATCHING THAT CLOSELY, THEY SURPASSED 1,000 TONS OF GOLD RESERVES. THE LASTEST I HEARD WAS THAT CHINA PLANNED TO INCREASE THEIR GOLD RESERVES TO 10%. I HAVE ESTIMATED THAT WOULD COME OUT SOMEWHERE IN THE NEIGHBORHOOD OF 9-12 THOUSAND TONS. i DON'T THINK THEY WILL STOCKPILE BASE METALS BECAUSE THEIR IS NO REAL MONETARY BENEFIT IN THEM. GOLD AND SILVER HAVE BEEN INTERNATIONAL CURRENCY FOR MORE THAN 5000 YEARS. i DO AGREE BASE METALS WILL RISE RATHER SHARPLY AS THEIR ECONOMY AND THE REST OF BRIC COUNTRIES ECONOMY CONTINUES TO INDUSTRIALIZE AND GROW AROUND 10% PER ANNUM. 

THE US CRISIS IS LIKE JAPAN'S LOST DECADE, BUT FAR WORSE. WE HAVE A LOW SAVINGS RATE, WE HAVE WILL HAVE 50TRILLION OF UNFUNDED LIABILITIES IN 2012-2013, WE HAVE LOST SUBSTANCIAL REDUCED PRODUCTIVE CAPACITY AS WE HAVE TRANSFORMED INTO A SERVICE BASED ECONOMY. LIKE I SAID IN THE POST THIS ISN'T EVEN THE REAL PROBLEM, IT IS THE FACT THAT ARE CURRENCY CAN VERY EASILY COLLAPSE IF WE CONTINUE DOWN THIS ROAD. i SEE THIS ENDING IN ONE OF TWO WAYS: 1) HYPERINFLATION, 2) 5-10 FOLD INCREASE IN PRICES OVER THE NEXT 4-6 YEARS, AND RECOVERY TAKING AT LEAST A DECADE. EXCLUDING FURTHER DEFICIT SPENDING (WHICH OBAMA HAS ALREADY ANNOUNCED, 50+ TRILLION OF UNFUNDED LIABILITIES, LOWER TAX REVENUE DUE TO THE UNEMPLOYMENT RATE,THE RECKLESS INCREASE IN EXCESS RESERVES AND THE ALREADY MORE THAN DOUBLING OF THE CURRNECY, MAKE ONE OF THESE TWO OPTIONS INEVITABLE. 

TRADE DEFICITS ARE NOT AS DESTRUCTIVE AS YOU THINK AND NEITHER IS ACCUMULATING FOREIGN DEBT. THE PROBLEM WAS THAT WE DIDN'T INVEST THIS TO INCREASE OUR PRODUCTIVE CAPACITY, BUT RATHER SQUANDERED EVERY PENNY OF IT. THE TRADE DEFICIT HAS ACTUALLY BEEN NARROWING, WHICH IS JUST A FUNCTION OF THIS CRISIS ACCELERATING. iNDUSTRIAL OUPUT DECREASED MORE THAN OUR TRADE DEFICIT DID, WHICH JUST GOES TO SHOW THIS IS GETTING INCREASINGLY WORSE .

IN, SHORT WE CAN'T RECOVER UNTIL WE LET THE FREE MARKET WORK, WHICH AT PRESENT TIME IS THE OPPOSITE OF WHAT GOVERNMENT IS DOING. 

Report this comment
#10) On April 28, 2009 at 12:50 PM, jmt587 (99.88) wrote:

Two rebuttals to comment # 3 above, though I do concede your general blog point, regarding inflation being inevitable, and it being impossible to print your way to prosperity, but I don't think it necessarily follows that this will lead to the collapse and death of the dollar.  Anyway, my rebuttals:

Regarding free market replacements for government entities, I refer you to this onion article:

Libertarian

Regarding health care being unaffordable because of government intervention, do you have anything more to say on that?  I was under the impression that healthcare was becoming so expensive because we were getting really good at healing people of all sorts of things we couldn't before, though at a pretty high price.  Funny thing is, the guy dying of ABC disease isn't really concerned about the price of the cure, he wants it no matter how much it costs.  I don't think that has a thing to do with government intervention.

Report this comment
#11) On April 28, 2009 at 1:09 PM, speedybure (< 20) wrote:

Yes we do have the best medicine, but it would be far more afordable if left to the free market. 

1) Our judicial system is royal messed up. All the malpractive suits cause every doctor to have mal-practice your insurance. The insurance companies are aware of that this routinely happens for extraordinary amounts of money thus causing very high premiums. Then the doctor obviously has to up his fees to turn a profit. We are the only nation that will sue for anything and everything. The government controls the judicial system does it not? I believe in privatization of everything, like i said i nanother reply they can't even run a postal service.

2) When I say healthcare I also mean social security, the government has aquandered all that money and it has become a pay as you go system. I'm not sure on the exact date but sometime in 2011-2012, the government will have to get money (which they will likely print) to fund these payments. Social Security is ridiculous as the obvious assumption is "government is more responsible than its citizens" therefore they take money from your paycheck for you own benefit when you need it in the future. I think that is government intervention. 

There are a whole bunch of reasons but these are two just off the top of my head.  

Report this comment
#12) On April 28, 2009 at 5:01 PM, jmt587 (99.88) wrote:

The government controls the judicial system, but do not the people control the government?  Thus, we the people control the judicial system.

Vote your interests and your principles, and encourage others to do the same, and try to hold politicians accountable for their pledges, promises, and responsibilities.  And get your word out there, as you're doing.  I don't agree with much of what you say, but that's OK.

I'm not sure we have the best medicine in this country, and that isn't what I was trying to get across in my reply.  We're decent, though, in my opinion, we spend far too much of that money on insurance companies and their ilk, and could save a lot by going to a universal healthcare, single payer system.  That solution would also go a long way towards making many of our failing industries (automotive especially) competitive again.

I also wish some of the stimulus money would be put into some sidewalks between where I live and where I work.  There are some, but they don't go the whole way, and I'd feel a lot more disposed to bike to work instead of drive the 3 miles if there were sidewalks the whole way.  That would kill so many birds with one stone.  Provide some jobs to people doing the paving, buy some American cement (I don't know this for sure, but I'm skeptical that it can be economical to import something as cheap as cement), and reduce our use of fossil fuels, lowering their price and reducing our carbon output.

To respond specifically to your two points in comment # 11:

1) I agree that we need some tort reform to protect doctors acting responsibly and in good faith.

2) With regard to social security, it seems to me that if you got rid of it, we'd have a lot of starving seniors that the government would have to take care of anyway, and then you'd be complaining that the government was deciding what to give them as far as food, shelter, etc. instead of just giving them some money and letting them decide in their private wisdom how to spend it in the free market.  Maybe I'm wrong though.  I think it should be means tested, and we shouldn't be giving it to people that don't need it.  But then again, I don't plan to need it, and will feel a little hoodwinked when it's time for me to retire and I paid in all those years and didn't get anything.  It should just be funded out of the general fund, and go only to those that need it.  When you take a specific social security wage tax, then people feel entitled to the money, whether they need it or not, and it kind of defeats the purpose of the program being a social safety net for those too old or infirm to earn a living.

Report this comment
#13) On April 28, 2009 at 5:41 PM, speedybure (< 20) wrote:

 The solution is to save because saving leads to capital formation, investing and eventually create new jobs. I don't understand why you would want the government to fix your sidewalks? it would be done as inefficiently as humanly possible. These things need to be done by the free market, it would be done more efficiently and a much cheaper price.

This is what i;m getting at, the dollar is in serious jeapardy of collasping over the next decade due to goverment waste. like i said before , becuase of the baby boomers reaching retirement age coupled with all this medicare/medicaid, we will soon have 50 trillion of unfunded liabilities (the majority due to government programs that were bound to fail from the start). You obviously don't understand the massive destruction inflation has on peoples wealth.  You are making a contradictory argument; you want the government to provide universal healthcare, stimulus to fix your sidewalk,etc, but that money is coming form the printing press and will erode those recieving and will recieve social security(therefore reducing the purchasing power and quality of living). The point of this post is the massive wave of inflation and possibly hypeinflation that will destory everyones wealth to an enormous degree

I see that your a "green person" and believe that fossil fuels are bad. How many studies have you read to believe its that bad? I'm Just curious. I assume you want us to get rid of the ocean as well? because the Co2 we admit does not even come close to 10% of how much Carbon the ocean emits every year. 

It seems to me like you just want a free handout, who do you expect to run and pay for universal healthcare? the government? I think is a previous reply mentioning the fact they are incapable of even running the postal service efficiently.  

Report this comment
#14) On April 28, 2009 at 6:29 PM, jmt587 (99.88) wrote:

I don't think the free market will put sidewalks anywhere.  Why would it?  Sidewalks are a good example of a good government responsibility to add to the quality of everyone's life over a long period, generations really.  Whereas it isn't worth it to me to pay by myself to have sidewalks put in between my house and where I work.  But if someone (the government) did it, the benefit to all would more than outweigh our tax dollars spent on it (this is the debatable point, but if you'd agree that the benefit outweighs the cost, than I think I've said what I want to).  How and why could the free market ever put in sidewalks?

I don't think my points are contradictory.  Social security is tied to inflation, so it shouldn't erode their purchasing power any more than the difference between real inflation and the numbers the government uses (which I realize are not the best).

I've read enough to believe that CO2 is a big problem.  You're right that the ocean emits much more CO2 than humans, but you conveniently don't mention that it absorbs as much as it emits, and now that humans are emitting more, it absorbs even a little bit more than it emits, helping us out a little, but probably not enough.  Educate yourself, check out this site.

Relevant quote:

"...parts of the oceans release about 330 Gt of CO2 per year, depending on temperature and rates of photosynthesis by phytoplankton, but other parts usually soak up just as much - and are now soaking up slightly more."

As for the postal service being inefficient, what do you base that on?  They seem reasonably efficient to me.  For 42 cents, I can mail a letter from Detroit to Spokane.  That's outragrously inefficient?  Really?  I kind of thought it was a bargain.  And you say that with such derision, "they are incapbable of even running the postal service efficiently."  As though running the postal service should be an absolute breeze.  I imagine it isn't such a simple thing, picking up the mail, sorting it, figuring out how to efficiently get it all to the 500 Million different places it could want to go in this country, or the Tens of Billions it might want to go outside of this country, and then getting it there.  I'll tell you what though, next time I'm mailing a letter, I'll give you forty cents, and you can get it where it needs to go efficiently, and keep all of your cost savings from efficiency as profit.  I'll keep my 2 cents and keep dispensing it in places like this.

Report this comment
#15) On April 28, 2009 at 9:30 PM, speedybure (< 20) wrote:

You really need to educate yourself on free market economics, capital theory. You call the postal service efficient because it costs you 42 cents, but i'm sorry to tell you it costs you more than that. There have been recent proposals to close the post office on saturdays in an attempt to reduce their losses. They have never been a profitable entity and you have been paying for it either through taxation or inflation.  I presume your a socialist or communist ( your mention of income redistribution, makes being a communist a possibility). In any case this is going nowhere

-Peace 

Report this comment
#16) On April 29, 2009 at 10:10 AM, jmt587 (99.88) wrote:

Oh my gosh, you're right, we are paying out the nose to cover the USPS's losses!  All of $9.35 per person in 2008 (taking their $2.806 Billion dollar loss divided by our 300,000,000 people).  Totally unacceptable price for such an inefficient service, that also happens to be cheaper than Australia, Mexico, Canada, Great Britian, France, Germany, and Japan for mailing a first class letter.  And this is 2008 we're talking about, with the highest fuel prices on record, not to mention declining volumes due to email and the economic slump.  Check out just pages 2 and 3 of their 2008 Annual Report.  You'll also notice that in 2006 they were a profitable entity, in fact.  They had net income of $900,000,000.  So, really, you ought to look stuff up before you go repeating what you heard from Glenn Beck or Rush.  Really.

 

Your presumption is incorrect, I'm neither a socialist or a communist (though it is amusing to think of a socialist or communist being really into a CAPitalist stock-picking game like CAPS, and being pretty good at it, I picture them trying to hide it from their socialist and communist buddies, like if someone comes over unexpected they'd quickly switch over to a porn site and pretend they'd been looking at that all along).  If you can believe it, one of my favorite authors is Ayn Rand.  And I don't know this for sure (obviously, because I don't know you), but I'd bet I'm much better educated on market economics and capital theory than you are.  But well educated and reasonable people can disagree.

Peace to you as well.

Report this comment

Featured Broker Partners


Advertisement