Hudson on the Question of Debt

[charliebrown]

Re: Hudson on the Question of Debt

yes i agree with this. What difference does it make if ford builds cars or the gvt builds cars??

One may argue that the gvt may be unresponsive to consumer wants, or cannot price the product correctly resulting in killing competition or difficulty matching
supply and demand, fear of change, dificulties with labor etc.

But the gvt can create wealth.

Given the beholdeness of the pols to special interests, and their lack of i.q. given recent decisions, i really think there role in wealth creation should be limited.


There are certain classes of projects that because of their risk, and perhaps years to payoff will not be funded by private sources. Think interstate highway,
TVA, hoover dam etc.

[BadJuju]

Re: Hudson on the Question of Debt

There are certain classes of projects that because of their risk, and perhaps years to payoff will not be funded by private sources. Think interstate highway,
TVA, hoover dam etc.

Excellent point. Look at private ISPs and how they are actively working to prevent people from creating 'wealth' these days.

[raja]

Re: Hudson on the Question of Debt

It is improbable that the US experiences hyperinflation. I would assign the probability at less than 1%. We have too many mechanisms to stop a high inflation turning into hyperinflation.

The biggest one being 14000 tons of gold.

Legal issues aside, suppose I start printing up rajabills in my basement.
I'd probably have a bit of difficulty purchasing anything with them.
But what if I said, "Hey, I've got a big pile of gold in my basement, and I can prove it"? Would that make rajabills more acceptable? No.
But what if I said, "You can come to my house and exchange each rajabill for one ounce of gold," that might generate some interest, especially if I could somehow guarantee the exchange.

So what if the US has 14000 tons of gold? (I thought it was about 8,000 tons . . . but let's not quibble ) That would only stop hyperinflation if the gold was exchangeable for dollars. But would that really work?

I read on the internet that a ton of gold contains 32150 troy ounces.
Using your 14000 ton figure of US gold, the US has 450,000,000 troy ounces. At $1700/ounce, that's $765 billion.
So what would the price of gold have be to cover the current US debt of $16.7 trillion?
$37,102 per ounce of gold.
That information would have to be made public, and how would that make people feel about the US dollar. They would run as fast as possible.
I'd call that hyperinflation . . . .

(In reality, the US wouldn't have to use 100% gold backing . . . but still you see the problem.)

[ProdigyofZen]

Re: Hudson on the Question of Debt

Legal issues aside, suppose I start printing up rajabills in my basement.
I'd probably have a bit of difficulty purchasing anything with them.
But what if I said, "Hey, I've got a big pile of gold in my basement, and I can prove it"? Would that make rajabills more acceptable? No.
But what if I said, "You can come to my house and exchange each rajabill for one ounce of gold," that might generate some interest, especially if I could somehow guarantee the exchange.

So what if the US has 14000 tons of gold? (I thought it was about 8,000 tons . . . but let's not quibble ) That would only stop hyperinflation if the gold was exchangeable for dollars. But would that really work?

I read on the internet that a ton of gold contains 32150 troy ounces.
Using your 14000 ton figure of US gold, the US has 450,000,000 troy ounces. At $1700/ounce, that's $765 billion.
So what would the price of gold have be to cover the current US debt of $16.7 trillion?
$37,102 per ounce of gold.
That information would have to be made public, and how would that make people feel about the US dollar. They would run as fast as possible.
I'd call that hyperinflation . . . .

(In reality, the US wouldn't have to use 100% gold backing . . . but still you see the problem.)

There is no problem, you havent thought this through. Yes there is 8,000 tons not 14000.

Raja, honestly you have always been way too political on these boards and I can tell you allow your political leanings to block rational analysis.

Here are the US gold holdings: http://www.fms.treas.gov/gold/current.html

There would have to be no US military, the US would have to be politically isolated (no one in the world wanting to own US dollar assets or US dollars) and the economy would have to be ruined with virtually no output therefore no FDI.


Imagine this happening to the US economy. The US economy even in its worst days where it shrunk by 25% is not going to be in a situation where its output is virtually zero relative to other countries. Any scenario where the US economy is doing that badly the rest of the world is going to be doing worse.

The US is not small, definitely not like Argentina that has a small GDP relative to world GDP and the US is not an insignificant player that is going to get thrown under the bus like Argentina did by the IMF.

The US has a very strategic position in the world in terms of the IMS, economics and its military.

As EJ says: the main criteria for a hyperinflation simply do not exist in the US.

But lets say all of the above are true. The US economy is ruined with no output, completely politically isolated in the world with no demand for dollars. In otherwords the worst possible scenario.

The purpose of 8000 tons of gold is to halt a runaway dollar crisis. This is the reason why Germany holds the second most gold in the world and the IMF is third.

The relationship between gold reserves and the significane of different players in the IMS is not coincidental.

[shiny!]

Re: Hudson on the Question of Debt

As EJ says: the main criteria for a hyperinflation simply do not exist in the US.

IIRC, Paul Volker said he raised interest rates like he did to end the last big inflation because he believed we were within a few months of going into hyperinflation. EJ and Volker seem to clearly disagree on this point. Have condititions allowing for a U.S. hyperinflation changed since 1980, making EJ correct now, or was Volker simply wrong?

[shiny!]

Re: Hudson on the Question of Debt

Public debt as a percentage of GDP is about 100%.


http://visual.ly/united-states-debt-...-gdp-1940-2012

Deficit as a percentage of spending is about 25%

http://www.usfederalbudget.us/

Thanks!

[flintlock]

Re: Hudson on the Question of Debt

Unfortunately, today, business and government are both beholden to each other to some degree.

[BadJuju]

Re: Hudson on the Question of Debt

Unfortunately, today, business and government are both beholden to each other to some degree.

That they are. It is getting to the point where it is hard to tell the difference between the two.

[don]

Re: Hudson on the Question of Debt

Unfortunately, today, business and government are both beholden to each other to some degree.

I know you ain't talkin' about small businesses, bro. You're talkin' about dominant corporations, si?