Dollar demise much exagerated
Submitted by BillyBoy on Wed, 12/03/2008 - 00:26
Blast this guy for not knowing what he is talking about!
Perhaps the most surprising development over the last three months has been the surging value of the currency at the heart of the crisis. It is almost as if investors have responded to a fire alarm by running towards the source of the fire.
From a recent low on July 15, the U.S. dollar’s trade-weighted value has risen 19 percent. The dollar has been broadly stable against China’s yuan (+1 percent) while posting massive gains against the Swiss franc (+20 percent), the euro (+26 percent), the British pound (+35 percent) and the Australian dollar (+52 percent). Only against Japan’s yen has the currency slipped marginally (-6 percent).
Since 1997, commentators and policymakers have openly worried about America’s gaping trade deficit, resulting dependence on foreign capital inflows, and the risk of a sharp correction in the value of both U.S. government bonds and the currency if investors started to balk at financing the resulting payments gap.
The economy’s expansion witnessed a large decline in the dollar’s value by almost 40 percent between Feb 2002 and March 2008. As the crisis intensified and the U.S. slipped towards recession, commentators and policymakers raised a renewed alarm about a possible currency collapse.
Instead, the dollar has witnessed its most broad-based and sustained appreciation since the late 1990s. In the last month, the currency has traded at its highest level against the euro for two years.
ADJUSTMENT BY RECESSION
For 10 years, the widening deficit in the current account of the U.S. balance of payments has been the main source of perceived dollar risk. The deficit ballooned from $125 billion in 1996 (1.6 percent of GDP) to $788 billion by 2006 (6.0 percent of GDP).
Persistent deficits in the trade balance could not be covered by a moderately positive net inflow of profits, interest and dividend earnings from abroad. So the United States resorted to massive sales of government and private debt (including U.S. Treasuries and securitized mortgages), corporate equities, whole companies, and other forms of real property to foreigners to fund the import surge.
The financing requirement absorbed more than half of all funds that investors worldwide made available for investing outside their home country. The net external debt of the United States quintupled in just a decade from $456 billion in 1996 (5.8 percent of GDP) to a staggering $2.442 trillion in 2007 (18 percent of GDP).
It is a moot point whether the deficit in the current account spurred the issuance of record quantities of often poor-quality debt (as critics of the Federal Reserve have charged); or whether a global savings glut coupled with strong overseas appetite for U.S. assets created a capital account surplus and forced the United States to run a large trade deficit (as Fed Chairman Ben Bernanke has claimed).
In reality, the balance of payments is an integrated whole and part of the wider international flow of funds. China’s willingness to lend (by accumulating reserve assets) found ready willingness to borrow in the United States (mostly to fund consumption and a massive build out of new homes). The end result is that China has ended up owning a lot of U.S. government paper, and the U.S. has ended up owing a lot of money.
Policymakers have warned for more than a decade that these “global imbalances” were unsustainable and would eventually need to be reversed. The hope was adjustment would come about mainly through a significant but orderly devaluation of the dollar and rise in U.S. exports, rather than a deep recession in the United States that would cut import demand.
In the end, policymakers have been spared the choice.
The unfolding credit crisis is producing a deep recession, cutting U.S. demand for imports, and forcing the long-overdue adjustment in the trade deficit. Because the recession is centered on the United States, U.S. import demand is falling more rapidly than the demand for the country’s exports in Europe, Asia and the rest of the world, producing the necessary current account adjustment.
It is a bitter irony that recession has removed one of the main sources of downward pressure on the U.S. currency.
http://blogs.reuters.com/great-debate/2008/12/02/dollar-demi...
"The dollar has been broadly
"The dollar has been broadly stable against China’s yuan (+1 percent) while posting massive gains against the Swiss franc (+20 percent), the euro (+26 percent), the British pound (+35 percent) and the Australian dollar (+52 percent). Only against Japan’s yen has the currency slipped marginally (-6 percent)."
Yeah, that may seem good, but hold the phone - the dollar is not gaining value, the other world currencies are just tanking alongside the dollar and the dollar appears better at exchange. This doesn't help the little man. I'd say the best thing that has happened for the economy is the recent fall in gas prices. I know it will be short lived though.
"Might does not make right"
Why put up a 10-day-old post? What is your point?
Have any of the fundamentals changed with the economy?
Is our debt any lower?
Is the dollar any stronger?
If you think that this is not the beginning of another great depression, then go back to sleep.
Who got the $8 Trillion dollars? I'll answer that one. Foreign governments like China, who holds $1.5 Trillion of our debt and who was threatening to to stop buying our treasury notes. We bought our own bonds back from these countries in exchange for dollars so that they could buy gold/hard assets.
Any perceived strength left in the dollar is all a smoke screen of manipulation, so that we do not buy precious metals, food, guns, etc. Does that make sense?
JZneff Said:"The consumer
JZneff Said:
"The consumer isn't broke, he's frightened. The average Joe has just as much money as he had 2 years ago,"
Haw, Haw, Don't know what Ivory Tower your living in.
"The consumer is notoriously fickle. Watch what happens when they get a smidgeon of good news. I would expect some obvious signs of recovery no later than mid summer 2009."
What exactly do you think will recover. We have no economy, ie. WTO, GAT, NAFTA, CAFTA, etc.
We are a consumer, debt based, service oriented economy, We don't produce anything anymore. (except War)
2 million unemployed this year alone. Mid 2009 recovery? NOT!
Get ready for the old CCC, WPA under OBAMANATION.
We have crossed the Rubicon!
"You are a den of vipers. I intend to rout you out and by the Eternal God I will rout you out. If the people only understood the rank injustice of our money and banking system, there would be a revolution before morning." --Andrew Jackson,
1828
“It does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people's minds”
-Sam Adams
I agree with the author of article
Sorry Gold Bugs ;)
I'll buy your gold when it hits $100
If you haven't noticed America is the best game in town [world]
Reference: You haven't heard anybody here say they are moving to China or India have you ? But given a chance they would all come here. Right ?
Enjoy our boom and busts and profit.
you will panic and buy for
you will panic and buy for closer to 3000.00 before you will ever buy it for 100.00!
http://www.telegraph.co.uk/finance/economics/3703565/Fear-tr...
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
People go where the $$ is
It's always been that way. Irish, Italian, Polish, etc... immigrants in the early 1900's came to America where the $$ and promise was. The wealth has now left the US. We used to have the majority of the wealthiest companies in the world, and our final pillars (automakers, US banks...) are bankrupt. People are leaving the US. Look it up.
what ever you say bone head!
what ever you say bone head! as if you have not noticed that the gold and silver markets are at backwardation! LMAO 100.00 GOLD?? that is to funny!
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
Point by point.
"I'll buy your gold when it hits $100"
No-one on this forum will sell you any gold for FRNs. Sorry.
"If you haven't noticed America is the best game in town [world]"
McCain supporter huh? This is a Ron Paul forum. You might want to familiarise yourself with his political and economic views, before you post remarks like that.
"You haven't heard anybody here say they are moving to China or India have you?"
In the US? I don't know. In England? Yes I have. Wealthy and educated people are leaving in record numbers.
"Enjoy our boom and busts and profit."
Once again, this is a Ron Paul forum. You really owe it to yourself to familiarise yourself with his assessment of the US economic situation.
“Education is dangerous - Every educated person is a future enemy”
“Of course people don’t want war. Why should a poor slob on a farm want to risk his life in a war when the best thing he can get out of it is to come back to his farm in one piece?”
-Hermann Goering.
"Armed robber him need gun. Authority man him need pen.
Authority man in charge of money. Him no need gun, him need pen. Pen got power gun no get. If gun steal eighty thousand naira. Pen go steal two billion naira." - Fela Kuti
Brit4RP I see narrow mindedness is not limited to Republocrats
Most of America doesn't have a clue who Ron Paul is or what Libertarian's are other than maybe Liberals, lol.
You could of not of been more wrong accusing me of being a McCainiac, I'm a realist and not a Don Quixote. Which means when the chips are down I'm not on cloud nine wishing for what could of been, but to embrace disappointment and move on.
Not that you or others and me should stop trying, but I think our Republic is very sheeple dead. You and I can beat our gums to hell freezes over and nothing ever will change short of a socialist revolution.
Where is everyone moving to ?
Pacific Rim ? That is funny. BTDT
I persoanlly know 4 differrent families that have moved...
to the Pacific Rim. Poor Pretty Richard is a dolt.
**“The man who does not read good books has no advantage over the man who cannot read them.” ~ Mark Twain **
"...there is no doubt that it (socialism) could not possibly have affected us so widely and so deeply as it has, had it not been heavily financed". - B. Carroll Reece
A very basic question:
You've seen the charts of dollar devaluation since 1914, right? Would it mean anything if it hit zero? or lower? I really don't know and have no opinion on the matter, it just seems to this economic layperson that when the valuation hits zero it's worthless. Or is it one of those walk half the distance of your last move deals where you can come infinitely close but never touch?
Zero is impossible
For a dollar to have zero value is not possible.
Even if it were dead as a medium for exchange, a dollar can still be burned in a fireplace to provide heat.
Even a penny will always be worth the copper and zinc used to make it.
but thats just it... the
but thats just it... the penny is made of something tangible.. the dollar bill is made out of paper, and all it has behind it is a corrupt, bankrupt Governments promise to pay!
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
Wow, you couldn't be more wrong
The dollar is not backed by faith in the government's promise to pay. They haven't promised anything in fact.
The dollar bill gets its value from faith that someone else wants that bill enough to give you something in trade for it.
I find it funny how many people claim that money is worthless, yet won't send me any of it.
maybe in this exact point in
maybe in this exact point in time! again static thinking... someone who cannot think in terms of time in the future..
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
full faith and credit of the
full faith and credit of the united states government?? hmmm
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
I didn't see the kindling column----LOL
The more I think about it, it seems like it can never truly reach zero but can approach it within millionths of a cent (quadrillionths actually)
Some musings
If we really did begin hyperinflation (I'm not among those who believe so) then a stack of 100 $1.00 bills would be worth more than a single $100 bill, just based on the BTU's of burning paper.
My advise to you...stuff you mattress with singles rather than $10's or $20's, because you'll be warmer with more paper to burn.
Seriously though, pennies are pretty close to $0.01 in true value, so saving pennies is as safe as saving gold or silver...just that you'll have to store a whole hell of a lot more.
Pennies may be the safest investment there is.
But you'll need to save...
Pennies that are 1981 and older for these are 95% copper.
Pennies from 1982 were a mixed bag. You'll need to weigh these. 3.11 grams are the copper and 2.50 grams are the zinc.
Some 1983 pennies were 95% copper and these are called "wrong stock pennies". These were very rare. Again weighing them to see which ones are 3.11 grams and which are 2.50 grams.
All this is really too much work indeed!
Yeah jzneff If The Pennies Are Pre-1982 Otherwise They Are...
basically worthless since 100 post 1982 pennies are only worth 0.03 cents...
http://www.coinflation.com/coins/basemetal_calculation.php?p...
Revolt For Freedom !!!
Revolt For Freedom !!!
.
.
Bad math
Even with zinc dropping somewhat recently, the 97.5% zinc pennies (post 1982) are still worth more than that.
The true current melt value of a post 1982 penny is $0.00296, or 0.3 cents.
You're off by a factor of 10.
There are two different
There are two different values that we need to consider, the one of foreign exchange value and the other, most important is the purchase value of the dollar.
http://www.1776solution.blogspot.com
I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue. Barry Goldwater
http://www.1776solution.blogspot.com
"People fight the gold standard because they want to substitute national autarky for free trade, war for peace, totalitarian government omnipotence for liberty." von Mises
The value of the dollar
Has anyone else heard this, but I read this somewhere a couple of weeks ago, and they were discussing the increase value of the dollar and this man was saying it was because other countries were buying the US dollar so they could buy up our assets at a deal, that the dollars were now just in a "parking space" until they need them to make their purchases. Not sure of the source but just something I read.
Your Dollar
Your dollar may buy more euros or pounds when you travel abroad than it did a few months ago, but it's a different story when you're filling your grocery cart at the supermarket.
The dollar inflation continues. It just happens that there is a short-term demand for the dollar because so many people are facing financial crises and have to get dollars at any cost to pay off debts denominated in dollars. Right now this is increasing the value of the dollar relative to other currencies. People are having to take losses in stocks, gold, silver, or what have you just to stave off creditors with dollar payments.
This will end soon enough, and gold will soar.
Jim Rogers...
said this in an interview recently.
I think it was Ron Paul who
I think it was Ron Paul who said that in a recent video interview
Anybody notice?
Has anyone noticed that the government and the Fed are creating new money at the fastest rate in history? They are even inventing NEW ways to pour not only credit but cash into the marketplace. And they are just getting started. Of course they started by bailing out the bankers, since they own the government. The bank bailouts will continue as the second wave or mortgage defaults combined with credit card defaults sweeps over the country. But that is just the start. State governments will get $200 billion or more in freshly created bailout bucks next year and local governments will likely present a comparable demand. The year following will be even worse as private sector unemployment continues to increase, causing government revenue to drop at the same time demands for government services continue to escalate.
The inflation machine is just getting going. By the middle of next year it will be in high gear. Two years from now, if not sooner, the dollar will be in a free-fall from which it will never recover. Enjoy your buying power while it lasts.
True, but did you also notice
That money is being destroyed faster than any time in history also. Writedowns in 2008 are going to probably be a total of 1 trillion dollars, and this is likely to be even higher in 2009 as assets start to unfreeze and banks clean up their balance sheets.
It's not real money, nor is most of the money that is being created, but it's as tangible in the economy as real money.
It's a push vs. pull, and recently the writedowns have won the battle because they're more immediately felt. I believe the fed will eventually win the battle and we'll get inflation back...but it's not going to result in hyperinflation any time soon, certainly not in the next 2 years.
JZ, when you talking write
JZ,
when you talking write downs , you are referring to the derivatives on the balance sheets that are not worth anything correct, so they write them off/
those derivatives had fake values put to them anyway! so how can you say the money has been destroyed? derviatives are not money to begin with!
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
A lot of things
A bank's balance sheet is a measure of the amount of money that a bank pretends to have. Whatever is sitting on that balance sheet is immaterial, they could have tons of cat corpses on the balance sheet, what matters is that they're saying their dead cats are worth X amount of dollars.
The bank's balance sheet represents real and tangible money in our economy.
Why is it that you would never argue with me that if I told you a bank created 20 trillion dollars out of thin air...it would cause inflation...yet if I told you the bank destroyed 20 trillion dollars in the same manner that they created the money...it does not cause deflation?
The write downs are as deflationary today as they were inflationary when the money was created.
Whatever assets they used to back that artificial money is irrelevant. They made assumptions based on value, and those assumptions affect the real supply of currency in our economy.
the problem is the
the problem is the derivatives were a pile of junk that were sold and resold.. it is a ponzy scheme.. they were never worth anything to begin with. they are not wealth or money.. now that the banks are realizing that other banks have these toxic worthless peices of paper that are not worth anything, they are not willing to lend to the other bank.. we have a collateral problem, not a credit problem! the derivative or peice of paper,
is not a dollar bill.. they are not money! banks put false values on those instruments.. now they are finding out they are worth what 5 cents on the dollar! Sinclair eplained it rather well.. If you think that what is so called being destroyed, and then being replaced by the fed printing money is a wash is totally wrong!
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
It's immaterial
What the bank was using to justify it's value is immaterial. When their balance sheet value decreases, the amount of money decreases. I told you, it matters not if it was a derivative or a dead cat, it's simply something used to justify imaginary money.
The VAST majority of money in this country exists not as cash, not as securities, and not as anything more tangible than a number on a bank's balance sheet.
This is fractional reserve.
and as Sinclair pointed out
and as Sinclair pointed out those who think it is a wash between write downs and fed printing is a fool! remember JZ static thinking!
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
Hmm
Didn't Sinclair also point out that a tremendous amount of support exists for crude oil at the $120 level, and that we would never fall below $120 as long as we live.
I think it hit $47 yesterday.
Yet still you take his analysis as gospel?
Since you bring up the oil
Since you bring up the oil prediction who had that oil prediction exactly right? More precise then your prediction! That was Lindsey Williams! in late June he predicted Oil would go from 150.00 to 50.00! the reason why because one of the big oil people he knows said it was and that were doing it to bankrupt the Arabs! look at this article!
http://www.jpost.com/servlet/Satellite?cid=1227702413546&pag...
he told us last June that Iran had pissed them off... now what 6 months later you see this article! Also I can produce more articles from Saudi Arabia .The markets are manipulated.. big oil manipulates that market. JPMORGAN manipulates the silver market through the futures contracts.. read this article!
http://news.silverseek.com/TedButler/1228248628.php
these huge companies that control the world set themselves up to succeed at the demise of people like you and me.. I know you never thought the price of oil would come down this low! the reason why is because you felt the economy was in better shape. I have always maintained that we are heading into a depression. We are not reliving 1979-80. even the idiots on cnbc are comparing this to 1929-33.. which is funny since it is there job to stop fear! Now I saw your remark about Volcker being with obama as an advisory to his economic team.. Sinclair knows Volcker well.. and knows him personally! Sinclair said Volckers Job is do the exact opposite of what he did when he was head of the fed in 1980! Do not expect rates to rise like they did in 80' .. as far as Sinclair goes yes I sure as hell trust him a hell of a lot more then you! He has lived what 40 years longer then you, and has run his own companies, and has had personal face to face dealings with people like Volcker.. so you are saying Sinclair is wrong? everyone who tries to "predict'' where things are going in economics are not going to get everything exactly right. There is to much government intervention in markets today.. the presidents plunge protection team etc. but the manipulators can only manipulate so long.. all manipulations end and end badly for the manipulators! My whole point since last spring when you and I got into these arguments was this.. The US is headed into a depression worse then what the US saw in the 30's! 7 months later with all the financial BS going on, my prediction of a collapsing economy is unfolding before our eyes! remeber your post.. don't give up on the US economy! all those things you would say that things are not as bad as some on here say! so much doom and gloom! if you can look back now over the past 3 months and say things are not bad then you are full of it! I have said this many time and you have always shot me down , I said we are in unchartered territory. Your reply is naaa its like 1979-80.... on that you are wrong..
none of the things we see happening today were done in 79'/80' the government did not intervene no where in any shape or form like they have at the present time! Bernanke and Paulson are incompetent. Or are they?
They know exactly what is going on.. they know the ship is sinking and before abandoning ship like a bunch of rats they are looting the ships treasures so the elite, who they work for, are going to escape richer, and you poorer!
Don't you find it funny that big bankers just ask for a bailout and get it to the tune of trillions, but when the auto industry comes hat in hand they have to jump through hoops just to get a paltry 50 billion? There is an elite who run the world.. they tell our President and CONgress what to do!
Lindsey Williams is proof of that. Next what Lindsey Williams says is going to happen, is that the Arabs will stop financing our debt and sell treasuries! this will collapse the dollar! he said last night you have 6 months to 1 year to get ready for it! If I were you I would be buying silver and gold hand over fist.. that nice rural property you dsaid you would sell for 300k? I would hang onto it! I would stock it and get it as self sufficient as possible! If you listen to anyone you would think that you JZNEFF would listen to Lindsey Williams since his prediction was the same as yours, at the same time as yours, except he was even more accurate.
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
Lindsey and me may have made similar predictions
But they were based in totally different reasons.
He said oil was coming down due to intervention.
I said it was due to natural economics. I said it was due to deflatoin (check) due to irrationally high oil due to inflation fear (check) due to China's end to meteroic growth (check) and due to the 8-10 year lag in oil discovery.
Lindsey also said that McCain was going to be elected, did he not? (uncheck).
Lindsey may tell a good story, and he may not be lying about some of the stuff he's apparently heard...but his economic analysis is flawed because it assumes that a large amount of our debt is held by OPEC, when in reality it's a very small part.
What's really going to come of this oil crashing? Massive American investment in selected areas of the mid east. Dubai is going to belong to Donald Trump (among others). The Iranian bourse is going to close (told you so). The same is going to be true around the world, American companies are going to start buying up depressed foreign assets.
Treasury debt has never been in greater demand, and I'm supposed to believe people who have been telling me that the world is going to stop lending us money?
Come talk to me when they're offering more than 3% on a ten year bond and i'll listen to these arguments.
CHECK -Lindsey Williams
CHECK -Lindsey Williams prediciton was SPOT on the dollar!... Yours was not!
kind of splitting hairs are you not! How can American companies buy anything around the world when they are having to go to CONgress to get bailed out? With thier stock values falling daily, where will they get the money, or better yet financing to buy anything? SEE GE. with the dollar strengthening, how are we going to export more? Donald Trump will be lucky to survive this Depression.
Lindsey Williams also said Just because they want McCain does not mean they will get him!
You say oil has come down do to deflation.. where is deflation in medical, food, or any other good or sevice you need to purchase to live.. HINT.. it is not happening! Everything I buy is still way up compared to even last year.. many things still up 20 or 30% higher then last year.. SEE tires I just bought.. same brand and Tire as last year.. 20.00 per tire more! My public service Company just applied for a 7% increase for gas and electric.. my irrigation water for my ranch was 2200.00 last year.. it is now 2700.00 this year! DEFLATION?? NOPE! Deflation is not the cause of the oil price coming down! It is a world in Recession heading into Depression! less demand... yes I KNOW I know! recession means deflation.. WRONG. I suggest you read Republicae's posts! Also your artifical demand for treasuries is at its end! ALSO read butlers article above.. I would love to get your opinion on that!
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
Monetary inflation/deflation is not an instant thing
Everyone doesn't feel deflation at the same time, just like inflation.
It starts with raw materials. Oil gets cheaper, which eventually makes gasoline cheaper. Grain is cheaper too, so cereal makers can now buy cheaper grain, and have to pay less to ship it. You don't see the price decrease right away, because Kellogg's likes to make profit. Eventually, the competition lowers their prices and hence your corn flakes get cheaper again.
Shipping companies are still tacking on their fuel surcharges, because they can still get away with it because their competition is doing it too. It won't last.
You're seeing the effect of dollar deflation at the pump, in stock prices, in commodities, and in real estate values. Your dollar buys a lot more of those things compared to this time last year. Those are the first things affected, and if the deflation lasts long enough, you get cheap corn flakes.
There are lagging indicators, and leading indicators. The price you pay for corn flakes is a lagging indicator.
We are having a currency bubble
When do investors have such a large cash position? They don't. This is also new territory and is artificial. It will pop like the rest.
Yeah the fed is destroying money alright...
their "burning" it!
No
Banks are destroying money, not the Fed.
hmmm ok banks are destroying
hmmm ok banks are destroying money, then they run to the fed to pay back what they destroyed?? that makes lots of sense!
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
Exactly
As little sense as it makes to you, it's exactly what is happening. Banks are being forced to devalue their balance sheets, which destroys money from the system and they're begging the Treasury dept to just let them put those numbers back up there to prevent deflation.
As little sense as that makes to anyone, that's what's happening in a nutshell.
JZ, wanted to get your take
on the fact that the Fed can now pay interest on the reserves or deposits that banks hold at the Fed. This is yet another new policy at the Fed, and it seems to discourage banks from loaning. I mean why should banks loan money out if they're being paid by the Fed itself. I think this policy is reflected in the monetary base as well. Remember money supply = currency in circulation + deposits, while the base = currency in circulation plus reserves. Could it be that banks are hoarding because it is profitable? Is the Fed purposely paying interest on reserves to keep inflation down, and halt the multiple deposit creator? Everybody has seen the recent chart of the monetary base, and the increase is huge. There's been a huge increase in reserves and even in the Keynesian model it just simply does not make sense for these banks to not be loaning these fresh reserves, unless of course they were being paid interest on these fresh reserves. Maybe I'm not understanding this correctly, but I find it interesting, and it has not been talked about much, either here, there, the media or anywhere.
Hmm
I'm not sure exactly what you mean...but
Any interest paid by fed holdings would be 0 risk, and therefore very very low yield. With risk comes reward, and similar to T-bills, very very small interest.
Lending money to homeowners carries higher risk, thus, more interest can be charged. Banks are getting 6% or more for a home loan, and you aren't going to find that interest rate on a no risk bet.
Even higher risk is giving a Visa to someone with bad credit...which is why banks can get 23% or more interest.
The unwillingness to lend lots of money out is a short term thing. It's hard to convince banks to resume loaning money while their balance sheets are still too extended. The money is starting to move, but this takes time to make it downstream to the consumer.
Banks are lending money to eachother at relatively low rates, which will eventually mean that they'll start lending money a little more freely.
right makes sense that they would
loan money a little more freely, because obviously reserves are being replenished, as shown in the monetary base....College Sr. 26, currently taking Economics of Money and Banking, the book is written by Mishkin (i think he is the one that stepped down earlier this year) either way he makes it very clear in the book that it is an abnormal policy for the Fed to pay interest on the reserves that banks hold as deposits at the Fed....if a bank wants to make money they take their deposits, put the 10% away and loan the rest to next guy, and so on , and so on, multiple deposit creation, the only real way for the bank to make any money, other than buying t-bills, however, this is all assuming that there is no other way for the bank to make money, meaning in that normal situations, the Fed does not pay interest on the deposits being held at the Fed, ....Even if the rate that the Fed pays is low it is still easier than having to loan money to risky consumers, or mess around with t-bills which are waiting to pop, theoretically the large increase in the monetary base, should lead to a huge increase in the money supply, assuming that these funds get loaned out, which they should, but they are not, unless perhaps the Fed was getting ready to raise the reserve ratio for all banks, the increase in the monetary base makes no sense whatsoever, unless the Fed is paying interest on this increase in reserves, Bernanke himself lobbied Congress for this authority which was granted and approved, yet the story has flown under the financial radar screen. My question is that why would Fed bankers be writing in high level text books that they do not pay interest on reserves, then turn around and do it anyway, and suddenly there is this huge monetary base, that is basically sitting in no man's land....very sketchy from my point of view, not quite sure what they're up to with this, but interestingly the two moves correlate, also interestingly, the Fed had to actually get congressional approval to make this policy switch,
here's an interesting link
short and sweet too
http://money.cnn.com/2008/11/05/news/economy/Fed_excess_rese...
This Puts It All In Context
This article is not just the usual gold bug pimping… you will be glad you read it:
http://seekingalpha.com/article/109210-the-manipulation-of-g...
http://www.dailypaul.com/node/75244
Backasswardness Of Fiat
http://www.dailypaul.com/node/75982
Inflation is inevitable
Loss of asset value does not, by itself, reduce the money supply. What is reducing the money supply now is the shrinkage in lending. Loss in asset value indirectly shrinks some kinds of lending. But it is the market resistance to borrowing that is preventing the Fed's measures from expanding the money supply. This will be short-lived.
The government is already creating money that is not dependent on credit. There will be MUCH more in the near future. It will do this in the form of cash assistance to businesses and state and local governments, cash to make its own payroll, and cash to pay for a slew of new job programs. This massive cash infusion will bypass the market's resistance to borrowing and ultimately reverse the resistance to borrowing as asset prices start to rise again due to the inflation. Once that happens, the new cash in hand from stimulus checks, bailouts, and government job programs will combine with a surge in credit money leveraged to frightening lengths by the latent credit the Fed has been creating. Then foreign holders of dollars and dollar debt will see the writing on the wall and flee dollars. The combined effect will be an inflationary firestorm. Two years out at the most. Probably more like a year. The dollar will not survive Obama's first term.
The creation of money is like crack for politicians. They can't help themselves. And the more the public screams, the less resistance politicians will have to the siren song of inflation. They have already shown every indication that they have abandoned any will to resist. They will try to spend their way out of this crisis. But they have no money. And that means inflation is inevitable.