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XMFSinchiruna (27.08)

Do You REALLY Know how much $1 Trillion is??

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March 10, 2009 – Comments (62)

People are still so new to numbers of the scale we've been hearing about lately, that I suspect the enormity of our crisis continues to elude them as a direct result. The only thing I can think to do is to continue trying to relate these numbers to known quantities that people can identify with.

I just found a brilliant visual aid that I think will help. You've all held some $100 bills at some point... and a very short stack can make us feel momentarily empowered. But when you consider that the value of our currency is related to the amount of it out there, you may feel less thrilled with your short-stack of Benjamins once you see with your eyes what a trillion dollars looks like in $100 bills.

Again, keep in mind, our government and its consortium of private banks called the Federal Reserve have combined forces to pledge up to $10.15 trillion in response to this crisis.

You've all held a $100 bundle of $1 bills, right? The bank wraps them tightly in those adhesive paper wraps. If those were $100 bills, you'd have $10,000 in that small stack:

100 of those makes $1 million:

62 Comments – Post Your Own

#1) On March 10, 2009 at 10:46 AM, XMFSinchiruna (27.08) wrote:

$100 million stacked as neatly would apparently fill an industrial pallet:

You'd need a good-sized truck to move ten of those pallets, or $1 billion:

The massive difference between $1 billion and $1 trillion will have never been clearer, though, when you get a visual image of what 1,000 of those truckloads of $100 bills might look like lined up in neat rows with pallets double-stacked. It looks as though you'd need a football stadium to lay out that much cash in $100 bills:

See the guy there at the bottom-left corner for a reference? Incredible!

When I tell you that the $10.15 trillion pledged in response to this crisis is a point of structural concern for the U.S. dollar, I'm not just whistling dixie, Fools. We have a very real problem on our hands regarding the future purchasing power of the $100 bills you might be lucky enough to have access to. Those running to Treasuries for safety are running in the wrong direction. The present dollar rally is purely an anamoly, and will correrct sooner rather than later now that most wholesale liquidations by entities that needed to move into capital preservation mode have already done so.

And by the way... want to see what $50 trillion looks like??

Here you go:

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#2) On March 10, 2009 at 10:58 AM, imobillc (< 20) wrote:

that was cool!

Mars 

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#3) On March 10, 2009 at 10:59 AM, kdakota630 (29.71) wrote:

Wow!!!

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#4) On March 10, 2009 at 11:09 AM, 100ozRound (29.38) wrote:

50 trillion Harares = ~$50 US

 

for now......

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#5) On March 10, 2009 at 11:21 AM, goldminingXpert (29.53) wrote:

And here comes the question. Will the US hyperinflate, or will we default. It will be one or the other. Based on past history, I vote default, but obviously you and I differ there.

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#6) On March 10, 2009 at 11:31 AM, madcowmonkey (< 20) wrote:

good post, fortunately the tax payer isn't getting charged for shipping........instead we just move money around with computers. I wonder which system would be more beneficial to the taxpayers though:)

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#7) On March 10, 2009 at 11:49 AM, XMFSinchiruna (27.08) wrote:

goldminingXpert

Since USD is reserve currency of the world, U.S. default = WWIII, which is why that is not a path they can seriously consider. Hyperinflation, then remains their only choice given the trail they have blazed.

madcowmonkey

I wonder which system would be more beneficial to the taxpayers though:)

They should have to use trucks, and the trucks should be lebelled: "here is another $1 billion of your money headed for an insolvent bank or other crooked financial institution. Thanks for letting us keep up our massive Ponzi scheme!". 

 

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#8) On March 10, 2009 at 11:56 AM, djemonk (< 20) wrote:

Another awesome post.

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#9) On March 10, 2009 at 11:58 AM, Option1307 (30.16) wrote:

I'm not sure whichis better, the original post, or your response...

"here is another $1 billion of your money headed for an insolvent bank or other crooked financial institution. Thanks for letting us keep up our massive Ponzi scheme!". 

Hahahaha. People might actually be mad if we saw these trucks coming down the roads daily.

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#10) On March 10, 2009 at 12:01 PM, XMFSinchiruna (27.08) wrote:

Another suggestion comes from John Allen Paulos, a professor of mathematics at Temple University and author of "A Mathematician Reads the Newspaper." He suggests thinking of the numbers in terms of time:

1 million seconds is about 11 1/2 days

1 billion seconds = 32 years

1 trillion seconds = 32,000 years.

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#11) On March 10, 2009 at 12:02 PM, Option1307 (30.16) wrote:

goldminingXpert

In response to Sinchy, do you see another way that the US can default without starting WWIII?

The debate between hyperinflation and default is something that I have been struggling with lately. Both arguments are based on decent logic; however, both of them have flaws. IMO, the main flaw of the US defaulting is exactly as Sinch put it, all out war. Do you see any way around this? Just curious on your thoughts.

Btw, when is the second part of your fabulous "gold series" coming out?

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#12) On March 10, 2009 at 12:06 PM, goldminingXpert (29.53) wrote:

Since USD is reserve currency of the world, U.S. default = WWIII, which is why that is not a path they can seriously consider.

I don't get the connection honestly. Why would there be an all-out war? As long as we have the world's biggest military (and we do by a country mile), nobody is going to attack us, right? Who would be attacking whom? This is a new concept to me--please fill me in.

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#13) On March 10, 2009 at 12:18 PM, pete4357 (99.15) wrote:

GMX,

Based on past history, I vote default

Please could you enlighten me? Have there been previous instances when the US has defaulted on debt? I like listening to your views, and i respectfully disagree. I think high inflation is more likely.

Thanks!

Pete

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#14) On March 10, 2009 at 12:40 PM, XMFSinchiruna (27.08) wrote:

goldminingXpert

U.S. has exerted its will over the world for the last 50 years on the dual basis of military and economic supremacy. We can already wipe the latter off the assets side of the strategic chalkboard.

I will defer a debate about the degree of escalation and the roles of nuclear deterrents in such a scenario for another time since I don't have time just now... but you can rest assured that China and other major stakeholders would not take losing their piles of USD reserves lying down... and even the suggestion of such an action would raise a very formidable global alliance against us.

Wars, as we saw with the cold war (biting my tongue here GMX), are often fought in economic terms, and George Soros calling this an economic war in Davos was no accident. Buffett called this our new Pearl Harbor ... interesting terminology. There is a very real risk IMO of thie financial crisis escalating into a military stare-down... and we can only hope that wisdom prevails sufficiently to avoid violence. I, for one, feel quite unnerved about the prospect for armed conflict to result directly from this economic crisis.

China is busy investing in commodities while we continue to throw trillions down the drain chasing perpetually toxic derviative assets. The question becomes: will America accept China as the next superpower of the world on the basis of its likely relative economic strength over the coming decades, or will we cling instead to American dominance by any means necessary? There are far too many factors at play for anyone to offer specific predictions of how this will play out, but the scale of this economic collapse raises very important questions about the shifting balance of power in the world.

The risk of increased militarism resulting from the global economic turmoil is great enough without even considering a USD default. USD default would be seen as an act of aggression, and would indeed raise the stakes considerably in the ongoing game of Risk playing out upon a precious gameboard called planet Earth.

May cooler heads prevail!

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#15) On March 10, 2009 at 12:48 PM, GNUBEE (24.16) wrote:

Option, and this may or may not actually be an option..but,

A new reserve currency? That would allow the US to default without WWWIII.

Sinchy, I think its about 224 of these...

http://www.navsource.org/archives/02/027612.jpg (sorry still to stupid to imbed images). If you want a visual, have a photoshopper make a pic with 225 of the Ron Regans....

 

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#16) On March 10, 2009 at 12:59 PM, XMFSinchiruna (27.08) wrote:

 GNUBEE

A new reserve currency is a given, under any scenario. This USD as reserve currency of the world is effectively finished... it's just a matter of time for nations to work out the details. All the talk about the need for a new Bretton Woods... that's diplomat-speak for a new global currency regime that places a period at the end of the USD's reign.

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#17) On March 10, 2009 at 12:59 PM, GNUBEE (24.16) wrote:

Whoops, here's our newest carrier for real  One trillion is 224, 225 whats a few billion among friends?http://en.wikipedia.org/wiki/File:USSRONALDREAGANgoodshot.jpg

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#18) On March 10, 2009 at 1:04 PM, goldminingXpert (29.53) wrote:

but you can rest assured that China and other major stakeholders would not take losing their piles of USD reserves lying down

This is an interesting post. I was thinking about the implications of this for the last twenty minutes. Then a simple thought occured to me.

Wouldn't hyperinflation also be, to quote you, "an act of aggression?" I'm not talking 10% a year inflation, I'm talking 100%+ sort of inflation. That doesn't return any more value than China than a straight default. If there's going to be a war because China and the Sauds didn't get paid, it will happen down either the default or hyperinflation road, right?

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#19) On March 10, 2009 at 1:07 PM, GNUBEE (24.16) wrote:

Sinch,  the "new reserve" comment was an "out" for this comment

Since USD is reserve currency of the world, U.S. default = WWIII, which is why that is not a path they can seriously consider.

Which would allow for default, as a new reserve would have arrived

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#20) On March 10, 2009 at 1:37 PM, XMFSinchiruna (27.08) wrote:

goldminingXpert

Nope.

Hyperinflation is not an act, but a forseeable consequence of the strategy presently being employed in response to this crisis. Deficit spending, guarantees both implied and explicit, and acceleration of the printing press... these are actions... and could indeed be considered acts of fiscal aggression given the reserve status of the underlying currency.

However, nations can see hyperinflation before it even appears like a Paleo-Botanist staring in real time at the hypothesized primordial ooze. Nations have time to shift their reserve assets accordingly, and recent comments by the head of China's energy bureau show that such shifts are indeed under consideration presently. Consider this and this from back in September,and this in November. China is LOVING this dollar rally, since it gives them a fighting chance at an orderly diminution of USD reserves.

Default, on the other hand, is an act... one that would require a world-changing declaration by the President, and which would very much be considered an act of aggression. Default removes any opportunity to redeem holdings, even at a loss, and so is far less appealing a secanrio to foreign holders than the inflationary scenario.

Incidentally, hyperinflation itself can vary in form greatly in different situations. I don't see a Zimbabwe-style event where diners pay for meals in advance because of the devaluation occuring while you eat. No.. I would say our brand of hyperinflation could be far more gradual in the early stages... it might first appear as just a modest tick up from the present deflationary trend, take its time gaining traction, and really only accelerate to major proportions when foreign holders begin to redeem their holdings in significant quantities.

Right now, however, with the USD so strong, could present such an appealing point of opportunity to unload USD that a bold action by a China or Russia could certainly hasten the dollar's decline. Time will tell.

 

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#21) On March 10, 2009 at 1:41 PM, Rehydrogenated (32.31) wrote:

Euro is about to fail. Yuan was already paid for by the economic prosperity it brought to china's exports. By "prosperity" I mean the fact it kept China from having massive unemployment which would have led to a regime change, which might happen soon anyway. What other currency can the world use as a reserve currency? The US isn't going to make a move to default, unless it were forced on them by a "Bretton Woods" type agreement that made the dollar drop like a rock. Maybe banks/countries will try to hold less reserve currency and more assets (makes sense huh?), but there is no other option that won't have the exact same consequences as a US$ reserve.

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#22) On March 10, 2009 at 1:54 PM, AnomaLee (28.72) wrote:

Because of our reserve currency status default is the likely outcome with an international treaty signed to include debt pardons and new trade clauses.

You both are forgetting that the reserve currency of the world essentially defautled twice last century (the collapse of the Sterling and falter during Bretton Woods and the U.S. Dollar redemption default ending Bretton Woods)

Both had international implications. The former did preclude world wars but the second was handled diplomatically and through trade wars (example the Shah of Iran and the beginning of our economic investment in China)

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#23) On March 10, 2009 at 2:13 PM, Eudemonic (62.72) wrote:

2.5Billion seconds..a rough estimate of our life on this planet. Live it now!!

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#24) On March 10, 2009 at 2:14 PM, XMFSinchiruna (27.08) wrote:

AnomaLee

Ending the international convertibility to gold and defaulting outright are entirely distinct scenarios. The former is completion of the global transition to fiat, while the latter implies outright losses of capital.

Keep in mind that there is no official reserve currency... the dollar is called THE reserve currency because it dominates the collective world holdings of foreign reserves... that can change either quickly or gradually... with order or in chaos... time will tell... but the days if USD as the leading reserve currency are necessarily numbered. Ultimately, reserves will flow out of USD and into hard assets, as well as into fiat currencies with a perceived lower long-term risk of default... given China's recent growth rates, the Yuan could gain some favor despite its own issues. If the world works out a new reserve currency regime, it might do so on the basis of a basket of currencies to spread out default risk.

 

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#25) On March 10, 2009 at 2:34 PM, Xciteddon (69.02) wrote:

I understand that if we were to pay back one trillion dollars right now it would cost every man, woman, and child living in the United states right now $3,300 each ! And this is without intrest! Now take in almost 11 Trillion... Where does that leave us? In the tank! And Obama has just gotten started!

Wonderful post BTW!

D

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#26) On March 10, 2009 at 2:50 PM, GNUBEE (24.16) wrote:

Sinch, Wouldn't China fight tooth and nail to prevent currency appreciation? How would they support the 1,330,044,605 population if chinese goods were not competitive? 

They lack the middle class foundation to support a rising Yuan. That to me looks like status quo remains.

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#27) On March 10, 2009 at 3:19 PM, XMFSinchiruna (27.08) wrote:

GNUBEE

You are witnessing a process whereby China is actively weaning itself from reliance upon exports. Of course exports will remain important, but China's New Deal will create domestic demand and build the foundations for a middle class by diverting productive capacity to internally-driven growth. 

The amount of deficit spending occuring around the world gives China carte blanche to spend vast sums propping up its productive capacity toward this purpose while also serving to prevent premature appreciation of the yuan.

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#28) On March 10, 2009 at 3:36 PM, GNUBEE (24.16) wrote:

Agreed, but it is a monumental task (create a middle class that dwarfs US population- in a communist country).

 Which is good because it means there is time to adjust.

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#29) On March 10, 2009 at 3:47 PM, Option1307 (30.16) wrote:

Wow, I leave for five minutes and we've got very lively debate. Good stuff team. I'll sift through the responses and respond later.

GMX/Sinchy I think you guys are having a very constructive argument/debate/etc about the pros/cons of both sides of this issue. Very informative and helpful in my eyes.

As I said previously, both scenarios appear to be a "sure thing" when you first glance at them. However, there are some fundamental questions that many fail (or at least that I've seen) to answer/discuss openly. Tehre is likely no right answer, but discussions like this are improtant for everyone to get a decent grasp of boh sides of this very complex argument.

1) How does the world hoenstly replace the USD?

2) Does USD default seriously mean all out (WWIII style) war?

3) The US still is a superpower, do we honestly believe countries will actually a. stop buying our treasuries and b. call in the loans?

4) Is there some super slick way the Fed/government/World Banks can "quickly" decrease the amount of credit being pumped into circulation in order to avoid massive inflation/hyperinflation?

5) If the US, and thus the rest of the world (sorry we are not decouppled yet guys) plunge into a depression (we may be headed there now), does the coming inflation ever get to us?

These are just some basic questions that are flaoting around in my mind currently, along with like 50 billion others (how many truck loads is that?) regarding this hot topic. I know many have been briefly touched upon here in Fooldom, but there is always room for more discssion.

Thanks GMX/Sinchy for arguing about everything!! It makes it a wonderful environment to learn, seriously. You point out each others' argument flaws. To all others who share there thoguhts, keep em' coming, good work...

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#30) On March 10, 2009 at 5:24 PM, XMFSinchiruna (27.08) wrote:

Option1307

As you point out, there are no correct answers in this case... just educated guesses and suppositions based upon hypothetical scenarios. So the following brief answers to your questions represent just this Fool's opinion:

1.  Easy... what's so special about the USD vis-a-vis the other major fiat currencies with an equal or smaller risk of default?

2. Yes... I do believe a USD default would lead to world war. Now mind you, world war is not the same as nuclear war... and hopefully those with the access codes well know the difference. The 20th century was marred by quite a bit of armed conflict, and I unfortunately see no signs that mankind haslearned much from the lessons of the past.

3. a.) Yes, of course they will. China has already begun that process.

   b.) Yes, of course, since holding onto USD assets would be tantamount to national financial suicide. Most trading partners are playing along for now, but when the chips are down each nation will cover its own back side. There will be exceptions... England will remain a close ally, of course, but they're already on the brink of financial chaos. We may aggressively pursue some sort of supra-national conglomeration encompassing Canada, Mexico etc. to present a united front in the struggle to save the USD. But all it takes is for one major holder like Russia or China to unload assets to start an unstoppable domino effect.

4.  No. This house of cards was messy to build, and it will be just as messy when a gust comes and knocks it down.

5. If? :)  We are in a global depression... if you're waiting for the economists to confirm it, then you're waiting for useless knowledge... since as we saw with the official recession call it comes after the fact has already dawned on the populous at large. That being said, you most certainly CAN have massive inflation coinciding with a depression... that's the definition of stagflation, and Fools would do well to become very well versed in the differences between deleveraging and deflation.... between depressions and deflation... many confuse the various d-words... but they are very distinct phenomena. The inflation we will see is a currency event, and is independent from price impacts of supply/demand factors, liquidation events, etc.

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#31) On March 10, 2009 at 5:50 PM, sandee1129 (< 20) wrote:

Your's is a pretty good visual, but it would be ever so much easier to get an idea of how much a trillion dollars is if you'd simply say, "A trillion dollars is $1 million every single day for 2700 years."  or however many years--I'm not exactly sure, but am fairly confident it's a million every day of 2700+/- years.

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#32) On March 10, 2009 at 5:55 PM, kdakota630 (29.71) wrote:

They're both good examples, but I like the visuality of Sinchy's blog.

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#33) On March 10, 2009 at 6:34 PM, AnomaLee (28.72) wrote:

TMFSinchiruna
Ending the international convertibility to gold and defaulting outright are entirely distinct scenarios. The former is completion of the global transition to fiat, while the latter implies outright losses of capital.

They are distinct but not as entirely different as you are alluding to. Horse crap and bull crap are distinct from each other but they're not entirely different. We're still dealing with a lot of crap.

People shared the same conclusion as you do today over thirty years ago during the collapse of the Bretton Woods system. Sure, there will be plenty of social unrest and conflicts but the only country I envision a possible direct conflict with the U.S. (because that's all I care about) is Russia due to our large role in the international intervention and manipulation of currencies and destruction of theirs and their economy. We've already re-ignited a financial cold war with Russia.

What you are ignoring is the re-emergence of the International Montetary Fund and how large their role will be as well as the BIS. I know you've mentioned before in the past that you don't really care about these institutions but they are important despite your feelings.

Because of this very likely scenario with the IMF and changes to the BIS the U.S. dollar will likely maintain its strength and standing for several more years before any process of restructuring similar to Bretton Woods takes place at all the while social unrest and conflicts brew around the world.

There are no currencies worthwhile today. China's reserves are only worth a small fraction of their nominal value, and the yuan is only making baby steps towards floating. Instead of focusing on China you should shift your focus towards Japand. They're more likely at risk of dumping U.S. assets.

The entire system is broken, but you're not looking at all the pieces.

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#34) On March 10, 2009 at 8:07 PM, XMFSinchiruna (27.08) wrote:

AnomaLee

I appreciate your perspective, but respectfully disagree.

The difference between a transition to purely fiat currency through the closing of the dollar's conertibility and complete revocation of the USD's value through default would be so great as to render comparisons of little value.One says to the world: "you must accept that the dollar possesses the strength we say it does", while the other says: "the dollar is worthless... sorry you were silly enough to accept them from us after we closed the gold window". Apples and oranges, my friend.

China is a larger strategic threat than Russia, IMO. Revenge is not as likely a motivation for conflict as opportunity, and thie would be China's first-best opportunity to tip the balance of power in their favor.

Japan is the least of our worries as it stands right now... they are playing ball with us like no one else. Now if Japan were to switch alliances and forge closer ties with China, that would make Japan a significant fiscal threat. I believe that alliances among nations holding significant dollar reserves will become inevitable, and view a China, Russia link with the possible inclusion of Japan as one potential outcome.

I must be missing something with respect to the IMF and the BIS, because I just don't see where their power over this situation would emerge from. The IMF is selling gold, last I checked they were highly leveraged (outstanding loans expanded several times over through leverage) to countries in no position to repay, etc. etc. 

The BIS... please explain to me how they can factor in... I'll admit to not having looked very closely at the BIS other than their disingenous restatements of estimated value of the global derivatives market.

Anyway, thanks for the discussion. I couldn't possibly have too many more pieces yet to examine, since I've been doing nothing but examining every piece of thie puzzle full-time for the last 3+ years. :) That doesn't mean I have all the answers, nor that I expect everyone to agree with my conclusions / interpretations... but I feel comfortable with the quality and comprehensive nature of my analysis of the global macroeconomic framework.

 

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#35) On March 10, 2009 at 8:42 PM, goldminingXpert (29.53) wrote:

Nope.

Hyperinflation is not an act, but a forseeable consequence of the strategy presently being employed in response to this crisis. Deficit spending, guarantees both implied and explicit, and acceleration of the printing press... these are actions... and could indeed be considered acts of fiscal aggression given the reserve status of the underlying currency.

Maybe we are using different definitions of hyperinflation. I'm referring to textbook 50%+ (at minimum) a year inflation. This sort of inflation cannot be brought on by accident. The only way one gets here is if the government starts willfully abusing the power of seniorage to pay its debt. While the inflation situation in the US in the 1970's was very bad, I wouldn't call it hyperinflation--and I assume you wouldn't either. Assuming the 70's--a perfect storm for inflation--aren't hyperinflation, I don't see how one gets there without a specific decision of a governmental power to say, Benny, get the ink jets hot and ready. That decision would be as much an act of war as defaulting in my view. I highly doubt we would 100% default--we'd probably say we're good for, say, 30 cents per dollar on our debt (I pulled that number from the ether.) Hyperinflation (Germany-1923 style) would return 30 cents at most (and probably a whole lot less) to dollar holders. And while it is true that, as you say, China can now act to diversify their FX holdings--they've got to be selling to somebody and it isn't Americans--that's clear from the massive personal and governmental deficits. Nobody in America is saving, so those dollars aren't being recycled back to the US. Where are they ending up? They're going from some foreigner to another foreigner--end result? Somebody with lots of money (and probably lots of guns) gets screwed. And they get screwed regardless of whether we default or devalue.

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#36) On March 10, 2009 at 8:50 PM, goldminingXpert (29.53) wrote:

1) How does the world hoenstly replace the USD?

 I don't think the answer is yet apparent. There is no world currency that can replace the dollar (Euro and Yen are fundamentally flawed, sound money countries such as Canada and Switzerland are either too small or too commodity dependent to become the world standard bearer.) On the other hand, there is probably not enough gold (certainly not enough silver) with which to mint a currency for everyone.

2) Does USD default seriously mean all out (WWIII style) war?

I don't think anyone has the guts to attack the world's biggest superpower directly with military weapons. We've had nuclear weapons for 70 years and still no nuclear nation has ever attacked another. (don't rule out alternative warfare such as cyberattacks.)

3) The US still is a superpower, do we honestly believe countries will actually a. stop buying our treasuries and b. call in the loans?

At some point this is very forseeable. However, it won't happen until the rest of the world's dead float to sea first. Expect (among others) Japan, Great Britain, Spain, Italy, France, Mexico, most of South America, and a good chunk of Eastern Europe to go belly-up before we do (in large part due to their low birth rates--the generational welfare problems hurt them far worse than us and their Debt/GDP ratios still exceed ours.)

4) Is there some super slick way the Fed/government/World Banks can "quickly" decrease the amount of credit being pumped into circulation in order to avoid massive inflation/hyperinflation?

We're seeing it now. An economic depression creates a reverse compounding effect that sucks all credit into an economic black hole creating the deflation we now face. God help us once the depression ends and inflation worldwide begins. Luckily with Obama's suicidal economic policies, the depression will continue for awhile, so we need not fear credit expansion... yet.

5) If the US, and thus the rest of the world (sorry we are not decouppled yet guys) plunge into a depression (we may be headed there now), does the coming inflation ever get to us?

Yes, once we get out of the other side of the depression. Think years, not months on that. GD 1 lasted roughly a decade, so by the same thinking, somewhere between 2015 and 2020, inflation will become a raging threat again. (Take in to account peak oil, peak natural gas, and some peak base metals as well--there will be inflation.)

These are just some basic questions that are flaoting around in my mind currently, along with like 50 billion others (how many truck loads is that?) regarding this hot topic. I know many have been briefly touched upon here in Fooldom, but there is always room for more discssion.

Feel free to keep asking questions--you'll get lots of answers. Hopefully people smarter than I will weigh in, but I'm glad to pitch in my own two cents. (insert inflationary joke here.)

Thanks GMX/Sinchy for arguing about everything!! It makes it a wonderful environment to learn, seriously. You point out each others' argument flaws. To all others who share there thoguhts, keep em' coming, good work...

Always happy to help.

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#37) On March 10, 2009 at 8:52 PM, XMFSinchiruna (27.08) wrote:

goldminingXpert

Granted... I won't predict a specific rate of inflation. I predict stagflation with a significant rate of inflation.I don't really suspect we'll ever see a $100 trillion bill as in Zimbabwe, but I suspect that declining purchasing power will deepen this depression monumentally and lead ultimately to a fire-sale of USD holdings by foreign holders... resulting in massive self-issuance of debt to fund uncontrolled stimulus and intervention efforts.

I see a long and sustained period of weakness for the USD, since it will take generations to restore health to the currency. Over time, 70's-style inflation figures can have the same effect as a momentary hyperinflationary event... the result remains... severely diminished purchasing power resulting in higher real prices for required goods and expanding conditions of poverty exacerbated by government efforts to counterract those trends.

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#38) On March 10, 2009 at 8:59 PM, goldminingXpert (29.53) wrote:

Granted... I won't predict a specific rate of inflation. I predict stagflation with a significant rate of inflation.I don't really suspect we'll ever see a $100 trillion bill as in Zimbabwe, but I suspect that declining purchasing power will deepen this depression monumentally and lead ultimately to a fire-sale of USD holdings by foreign holders

Okay, I can see that. I'm not sure I'm quite as confident as you that this outcome is going to occur, but certainly this option is on the table. I wouldn't be surprised if we run 8 to 12% inflation rates for many years at a time after the depression ends. And if we do, you're correct, foreigners will bail on our assets as quickly as possible. I have much more respect for your position than the position held by some gold bugs that the dollar will be WORTHLESS. I think the dollar will be worth far less both in real terms and on a comparison versus sound currencies such as the Franc and Loonie in thirty years. However, I think the dollar will continue to gain value until the rest of the weak nations such as Italy, France, and Japan are forced into default/economic collapse. We are materially stronger than these other nations, and so we will last longer before our own rot becomes apparent. If you think it's bad here--just look at Europe's banking system. I posted a link to an article indicating that Europe needs a 20 trillion Euro bailout for their banks--of course--there aren't 20 trillion Euros out there--Europe is toast. By comparison, FOR NOW, we are a RELATIVE safe haven. 

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#39) On March 10, 2009 at 9:03 PM, XMFSinchiruna (27.08) wrote:

goldminingXpert

We've had nuclear weapons for 70 years and still no nuclear nation has ever attacked another.

In point of fact, we've been attacking targets inside Pakistan, a nuclear nation, using both missile-toting unmanned drones and covert special forces incursions.

Proxy wars, like the one we fought with Russia in Afghanistan provides another example, since both sides knew precisely who was behind Osama and his Mujahadeen. Let's not forget that Bin Laden was on the U.S. payroll before he became public enemy #1.

Also for the record, I could not disagree more vehemently with your response to question 3 above! You can't discuss debt to GDP in the U.S. without discussing the entitlement programs. And birth rates? They are far higher in Mexico and S. America than they are here.

Inflation will return abruptly in 2009 or 2010, and it will hit people like a ton of bricks!

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#40) On March 10, 2009 at 9:13 PM, goldminingXpert (29.53) wrote:

In point of fact, we've been attacking targets inside Pakistan, a nuclear nation, using both missile-toting unmanned drones and covert special forces incursions.

Proxy wars, like the one we fought with Russia in Afghanistan provides another example, since both sides knew precisely who was behind Osama and his Mujahadeen. Let's not forget that Bin Laden was on the U.S. payroll before he became public enemy #1.

All this is true. It is a shame how our system has ended up creating proxy wars. However, a proxy war is far different from WW 3. The worst of the cold wars (Vietnam/Afghanistan) never ended up involving more than a few nations and neither side used unrestrained force. As we've repeatedly heard, America could have won in Vietnam if we paid no respect for human casualties. As evident from the atricious human rights of both sides in World War II (our widespread fire bombings for instance) we stopped at nothing to win and that same attitude doesn't occur in a proxy war. While we aid smaller nations and practice cloak and dagger actions, we aren't going around openly assaulting other nuclear nations. Our incursions without Pakistan are tolerated by their government--it isn't like we're going in entirely against their will. They claim to be our ally in the War on Terror after all (ha ha.)

Also for the record, I could not disagree more vehemently with your response to question 3 above! You can't discuss debt to GDP in the U.S. without discussing the entitlement programs. And birth rates? They are far higher in Mexico and S. America than they are here.

This is true of Mexico and South America, but they are doomed because they practice banana republic style budgeting. If you think the dollar is in bad shape, check out the peso! That said, the birth rates in most of the nations named are at crisis levels (<1.5 births per woman in France, Italy, Japan, etc.) whereas US bith rate is >2. Thus they will have substantially fewer workers to pay into their systems than us (and their systems are more generous as well.) Japan is the prime example: more debt/GDP than us, more old folks already, a birth rate that is horrendously low, and massive budget deficits on a yearly basis. They're toast. We are in far better shape than they are. The Yen is truly headed to the dogs. I'd be willing to make a sizable bet that the dollar will maintain respect as a world currency far longer than the Yen. Now the Yuan on the other hand... but I digress.

Inflation will return abruptly in 2009 or 2010, and it will hit people like a ton of bricks!

I'm always open to new ideas, but I really don't see this one. The price of all sorts of goods are declining rapidly and availability of credit is shrinking to all levels of consumers. Sure the government is injecting lots of money, but its all going to banks and the banks aren't lending it. The stimulus money is all getting sucked into a black hole. The price trends in the stock market, housing market, auto market, luxury goods markets, oil market, and so on should be clear proof that the dollars coming out from the government aren't actually going into the economy. By the time the government unloads a truck full of money at AIG, they've already burned another cool $100 billion.

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#41) On March 10, 2009 at 9:34 PM, XMFSinchiruna (27.08) wrote:

The stimulus is getting sucked into a hole, but not a black hole. :) It remains a coiled spring, and although we may find some normalization of lending practices -- or possibly even a government requirement issued to TARP-recipient banks to resume lending -- the Fed and Treasury will be powerless to reclaim the balance sheet once money gets moving again. The sums we're talking about will take generations to repay (the loan portions), the backstops will still be needed or else investors dipping their toes into financials would get spooked again, and we're looking at years with interest rates at a zero-target rate. Toss in budget deficits of epic proportions and a default-status on entitlement funding, and you have the recipe for some real sustained inflationary pressures coming down the near-term pike.

The USDX is what to watch, of course.

GMX... thanks for the discussion. :) I like it so much better when we get along. :)

For that matter, thanks to all for a lively one!

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#42) On March 10, 2009 at 9:43 PM, goldminingXpert (29.53) wrote:

Sorry again about what happened a couple weeks ago. That's what I get for hanging around the Yahoo GLD message board and reading one too many "CITIGROUP WILL COLLAPSE TOMORROW, WE'RE GOING TO BE RICH B*TCHE$$$" posts. I always have to keep in mind there are sophisticated investors who buy gold for good reasons such as yourself and then the ambulance chasers who merely wish to profit off of the end of the world.

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#43) On March 10, 2009 at 9:46 PM, XMFSinchiruna (27.08) wrote:

:)

Consider the hatchet buried. We're all feeling pressure from the state of affairs as well, which doesn't help any.

Congratulations on reaching the (100.00) mark for the 1 trillionth time. :)

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#44) On March 10, 2009 at 11:10 PM, GNUBEE (24.16) wrote:

Huh? I leave for a few hours and come home to find you two holding hands and sharing a bowl of spagetti? Who could have asked for anything more. It's not even my birthday.

My very own Felix (Sinchi) and Oscar (GMX)

Gadzooks! I agree great discussion, thanks all

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#45) On March 11, 2009 at 12:44 AM, Option1307 (30.16) wrote:

Thanks for the discussions guys. Obviously there is nothing else for me to add at the moment, you pretty much dived right in head first.

I honestly think these types of discussions are truely important for all investors right now, not to mention people in general. We are experiencing uncharted times, and seeing history in the making. It is important to understand potential directions and how to navigate through each course...

Thanks for the great discussion all...

 

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#46) On March 11, 2009 at 1:23 AM, TMFTomGardner (83.81) wrote:

I have thoroughly enjoyed this exchange. Thanks to each of you. I wonder what you think of the following two price projections offered to me by an investor that I greatly trust. They are that, over the next two years, the low for DJIA will hit around 5200 and the high for the price of gold will hit $2000/oz. Obviously, we are facing far greater challenges out beyond these two years, but here are two questions for the group. 1) Do you think those projections are plausible? And 2) What do you think the world looks like under that scenario by close of calendar 2011. If these comments don't interest you, please continue the conversation. Fool on, Tom

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#47) On March 11, 2009 at 2:07 AM, AnomaLee (28.72) wrote:

The reason I mention the IMF is because there has been a growing number of articles in prominent papers and reports stating that the IMF needs to play an bigger role in solving our current financial crisis.

A survival plan for global capitalism  - FT

The reason the IMF has dwindled in importance over the past decade is because of of the boom in CDS's which dramatically cut the need for insurance or emergency loans from the IMF. This has already reversed during this bust cycle(reference Iceland, Argentina, Russia, etc). And to your point that the IMF is selling gold: What does that matter in a fiat currency system?

I mention the BIS because the BIS is more to blame for this mess than the Federal Reserve because this is a global issue. They are the institution that should've ensured that these major international financial institutions were maintaining enough collateral. Where do you think you've been getting your data on dervivatives from?

They will have much to do in designing the reforms that truly matter. Your comments always make it seem like these institutions are not important. I think a close analogy to that would be like ignoring the actions of the Federal Reserve.

Also, proxy wars and conflicts and economic conflicts are usually solved by the point of a pen and not by the point of a gun. I've always agreed that dollar devaluation is virtually inevitable at this point, but I don't think outright default is the likely outcome. I emphasized the importance of the IMF because unlike the Watchmen the world will screaming "Save Us" and the IMF will say "Yes, here's some money and many stipulations"

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#48) On March 11, 2009 at 10:07 AM, XMFSinchiruna (27.08) wrote:

TMFTomG

I don't have a specific price projection for the Dow. We could hit 4,000 as per Louise Yamada (who nailed the sub-7,000 Dow when we were well above 10,000) or we could get a big bump in the nominal value of the Dow if inflation rears its head sooner rather than later.

$2,000 gold is a given. I have made the call in recent articles, but also throughout CAPS going back to 2006.

I'm glad you enjoyed the post.

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#49) On March 11, 2009 at 10:29 AM, XMFSinchiruna (27.08) wrote:

AnomaLee

The fact that people are looking to IMF for guidance or assigning blame to BIS provides little evidence to me that they will be relevant players in working through a solution here. You mention reforms, but reforms will only serve to prevent a repeat of the current crisis (if we can manage not to repeal them this time as we did with Glass-Steagal). Reforms will do nothing to solve this one.

You allude to IMF handouts, but where would the money come from. Again, last I checked, the IMF's only significant asset was its gold holdings, which the organization has been selling of late. IMF will be under significant pressure to address individual economies as it has in the past... providing loans to, for example, the Eastern European countries that are now teetering on the edge of default. They will continue to pursue these aims through highly leveraged loans, thereby taking on a similarly stressed balance sheet as the Fed. The IMF simply does not have the answers you are looking for.

The BIS has a very limited role to play, serving as counterparty to the central banks of the world in reserve transactions. As I mentioned, I was aware of the research arm of the group, and expressed my views about some restatements of the derivatives research recently. Sure, it can provide a forum for central bankers to meet and discuss options, but the group has not the resources nor the authority to be a major player in prodiving a solution to this crisis.Just because theyshare some blame for not seeing this coming, that again provides no evidenceof any role they are likely to play in a solution.

Sorry, but I continue to view the IMF and BIS as barely relevant in terms of crafting some holistic solution to the looming dollar crisis. Since I believe the USD devaluation can not be avoided, the future will be more about managing the consequences than about finding solutions. Now, if the G20 decides that each of their constituent currencies are too far gone and that a new currency regime will be devised, then the IMF could have an important administrative role to play. 

I'm not saying default is a certainty...  I can not say how this is going to play out... but I can eliminate a few of what I consider to be highly unlikely scenarios... and a neat and clean solution from one of these international organizations is simply not in the cards. :)

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#50) On March 11, 2009 at 12:59 PM, replanet (< 20) wrote:

Can somebody explain to me what exactly is meant with default? thx

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#51) On March 11, 2009 at 1:30 PM, XMFSinchiruna (27.08) wrote:

replanet

Just like a homeowner deciding not to make further mortgage payments, default would mean the U.S. would no longer honor its debt.. Treasury Bonds would no longer be redeemable. Certainly not an attractive option, and hopefully one which will be avoided. Default, however, most often occurs not by choice, but by virtue of a sheer inability to repay outstanding loans.

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#52) On March 11, 2009 at 1:39 PM, binve (< 20) wrote:

Yep, and with the economy failing and all of the expenditures (cost of government, entitlement programs, defense, etc.) the governement has, the servicing of that debt (intrest paid on Treasuries) can be acheived in two ways:

1. Pay for it with GDP. e.g. cut back on government expenditures so that the debt can be serviced with taxes.

2. Inflate the money supply so that the debt can be serviced with newly created dollars. e.g devalue the dollar by creating more of them so the debt burden is easier to cope with.

We can see that scenario 1 is not happening. In fact it is going in the wrong direction. And 2 is happening. The Fed has already embarked on Quantitative Easing polices. Massive Inflation is already assured. The debate now is how much. My guess... a lot :)

TMFSinchiruna, Thanks for the great discussion!

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#53) On March 11, 2009 at 2:44 PM, jstegma (29.40) wrote:

TMFSinchiruna Excellent post and discussion.  This topic needs to be discussed a lot more. 

Paying back the debt through taxes is becoming more and more of an absurd idea all the time. 

The discussion about WWIII is overblown.  In order for someone to enter a war they have to believe they will gain something from it.  Our military would absolutely dominate in any conventional war and everyone is pretty well aware of that.

A default won't be pretty though as it will cause a massive depression.  The rest of the world's economies will collapse like dominoes.  The US economy would probably be in better shape than most, so the balance of power probably wouldn't change all that much.  Balance of power is definitely an underrated concept in economics these days.

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#54) On March 12, 2009 at 11:56 AM, ahobbs (38.93) wrote:

I’m not getting something.  You guys are talking like there are 2 options; (1) pay off the debt by printing money which will cause inflation, or (2) defaulting on the payment.  Both of these scenarios assume that the debt will eventually be paid off in full.  Why can’t the government just issue new debt to pay off the old debt?

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#55) On March 12, 2009 at 11:58 AM, kdakota630 (29.71) wrote:

Why can’t the government just issue new debt to pay off the old debt?

How does that possibly solve anything?  If you borrow $500 from your Visa to pay your $500 Mastercard, you still owe $500.

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#56) On March 12, 2009 at 12:02 PM, jstegma (29.40) wrote:

Because eventually, once people figure out that the debt can't be paid off, they won't loan the money any more.  First, they'll see there is some risk of not paying it and demand a higher interest rate.  That will mess up the budget as most of it will go to interest, and cause the need for more borrowing, and it creates a viscious spiral of higher rates and more debt.  The government can't just say "we're gonna borrow another quadrillion" without causing massive inflation.  So at some point they just have to print some money without borrowing or simply refuse to pay back the borrowers.

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#57) On March 12, 2009 at 4:39 PM, ahobbs (38.93) wrote:

But the US, in theory, can hold debt forever.  As long as they have the ability to print money, then they are always good for all loans.   In order for the Treasury to default, it would first have to lose the ability to print money.

Does anyone out there reasonably believe that the US Treasury will be completely debt-free at some point in the future?  I assume that the US will eventually collapse, at which point the debt would be worthless, but that’s different than paying off all loans and being completely debt free.

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#58) On March 15, 2009 at 12:56 AM, FleaBagger (28.07) wrote:

Hi Sinchy! I love your post, as always, but I wanted to mention that in the disclosure after your Joy Global-based commodities article on Fool.com, it said you owned none of the stocks mentioned, but in the comments section on your CAPS blog, you said you were long FCX and others.

Is the Fool's vaunted disclosure policy not up to date on your holdings?

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#59) On March 16, 2009 at 1:54 PM, XMFSinchiruna (27.08) wrote:

FleaBagger

Thanks so much for catching that... that was my oversight, as we enter those disclosures manually. For the record, I am long the following tickers from that article:

FCX,RIO,BTU

I'll bring the matter to the attention of the editing staff... thanks!

 

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#60) On March 17, 2009 at 1:09 PM, FleaBagger (28.07) wrote:

Chris -

Thanks again for that cool graphic. I was wondering what your opinion of TBT is. I think that those 10,000 pallets will crush long-term bondholders, but is TBT a good way of profiting from that?

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#61) On March 18, 2009 at 9:12 AM, XMFSinchiruna (27.08) wrote:

FleaBagger

I haven't looked closely at TBT, but I suspect that it uses derivatives as its vehicle to track treasuries inversely? I am recommending that Fools steer clear of all forms of derivatives until the great deleveraging is complete... years to go.

Gold will do fine as the Treasuries trade unfolds.

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#62) On August 04, 2009 at 1:49 AM, astewboy2 (< 20) wrote:

Now that our government has officially passed the $1 trillion budget deficit for this fiscal year...................I think that this amazing graphic is still a favority of mine. 

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