Hold Gold, Sell Stocks, Switch Currencies?

[Thailandnotes]

I wonder if anyone here is expecting the loss of reserve status for the USD in the next ten years or their lifetime, and what they think might trigger it.* I know several people (including one former World Bank consultant) who are planning to move money out of Thailand and Singapore, all feeling confident that the USD is set to strengthen no matter what (or that many Asian currencies are set to weaken).

Anyone have a link to a long read?

The price of gold, peak oil, reserve currency, rising US deficits, all seem have faded from the discussions here.

Is it this?*

https://www.theguardian.com/commenti...ts-nationalist

[jk]

Re: Hold Gold, Sell Stocks, Switch Currencies?

you can follow luke gromen on twitter, just open a browser to https://twitter.com/LukeGromen

also search at macrovoices for erik's interview of gromen. that's what first got me interested in his work. if you find it interesting you can buy his "interviews with mr. x" book- u.s.$10 in kindle format. the recent interview with russell napier is also germane.

i'd say the dollar will no longer be THE reserve currency, but will remain A reserve currency for a substantial period of time. as for what will trigger it, it is ALREADY happening. it's a process, not an event. an increasing part of global trade is being conducted in other currencies. and the ongoing weaponization of the dollar, enforcing sanctions via the swift settlement system, trying to extradite that hawei exec from canada, seizing venezuela's bank assets and saying they now belong to OUR guy, is only hurrying the process.

and imo the dollar will strengthen short term as the global economy continues to slow and europe has growing political turmoil. longer term i think the debt and the off-balance sheet entitlement promises coming due over the next 10-20 years will force the fed to follow in the boj's footsteps and monetize federal spending.

so, summing up, ka-poom.

[Thailandnotes]

Re: Hold Gold, Sell Stocks, Switch Currencies?

It's clear the fed will have no good choices when payments to baby boomers balloon. There are 20 million Americans over 65. By 2030, there will be 80 million. Raise taxes, cut benefits, or "print" money (re"monetize federal spending.") 10-20 years is the time frame when deficits will finally "matter." But surely, long before then, markets will react strongly.


The process seems to be creeping towards the event. Thanks for the Gromen tip. He makes it clear China is sure oil will rise relative to the USD. Very similar to gold/dollar discussions of a few years ago. (Is gold going up or, wait a minute, is the dollar going down?)

After years of rising stocks, I am trying not to get complacent about what is coming next.

[touchring]

Re: Hold Gold, Sell Stocks, Switch Currencies?

I wonder if anyone here is expecting the loss of reserve status for the USD in the next ten years or their lifetime, and what they think might trigger it.* I know several people (including one former World Bank consultant) who are planning to move money out of Thailand and Singapore, all feeling confident that the USD is set to strengthen no matter what (or that many Asian currencies are set to weaken).

Not sure about Thailand, why would Thailand be affected? Cost of living is low, if the baht falls further, then even cheaper.

As for Singapore, one of the highest cost of living in the world, a political system that is still stuck in the LKY era, the most rapidly aging population in the world and the country with the most pension money invested in China, is clearly unsustainable.

[dcarrigg]

Re: Hold Gold, Sell Stocks, Switch Currencies?

It's clear the fed will have no good choices when payments to baby boomers balloon. There are 20 million Americans over 65. By 2030, there will be 80 million. Raise taxes, cut benefits, or "print" money (re"monetize federal spending.") 10-20 years is the time frame when deficits will finally "matter." But surely, long before then, markets will react strongly.


The process seems to be creeping towards the event. Thanks for the Gromen tip. He makes it clear China is sure oil will rise relative to the USD. Very similar to gold/dollar discussions of a few years ago. (Is gold going up or, wait a minute, is the dollar going down?)

After years of rising stocks, I am trying not to get complacent about what is coming next.

If I had to look into my crystal ball:

1. The benefit cuts aren't happening. At least not in that timeframe. Even when proposals to do so come from people who desperately want to cut benefits, they always start the cuts on people born in the 80s or something and exempt boomers. They know where their bread is buttered.

2. Tax changes probably are happening. The 1986 tax code is long in the tooth. It doesn't have a lot of love on either side of the isle. It will have to die sometime. I could see it dying in the next decade.

3. Might be good strategy if timed right anyways? And maybe they can just get away with it with minimal repercussions? If wages are continually suppressed and commodities stay cheap, I don't know what'd stop them from running the presses at full tilt, but I'm pretty sure it wouldn't be inflation.

[jk]

Re: Hold Gold, Sell Stocks, Switch Currencies?

If I had to look into my crystal ball:

1. The benefit cuts aren't happening. At least not in that timeframe. Even when proposals to do so come from people who desperately want to cut benefits, they always start the cuts on people born in the 80s or something and exempt boomers. They know where their bread is buttered.

2. Tax changes probably are happening. The 1986 tax code is long in the tooth. It doesn't have a lot of love on either side of the isle. It will have to die sometime. I could see it dying in the next decade.

3. Might be good strategy if timed right anyways? And maybe they can just get away with it with minimal repercussions? If wages are continually suppressed and commodities stay cheap, I don't know what'd stop them from running the presses at full tilt, but I'm pretty sure it wouldn't be inflation.

it would be inflation for imported goods and globally traded goods, including imported oil. a higher price for imported oil, however, makes shale oil economically reasonable, so it would support that industry. however, prices would also go up on food, for example.

[dcarrigg]

Re: Hold Gold, Sell Stocks, Switch Currencies?

it would be inflation for imported goods and globally traded goods, including imported oil. a higher price for imported oil, however, makes shale oil economically reasonable, so it would support that industry. however, prices would also go up on food, for example.

Food prices are so noisy, I wonder how big the shift would be. Low dairy prices are killing our local guys. We're back down to milk prices not seen since maybe 13 or 14 years ago when they last got cheap. Soy's back down there too for different reasons. Corn's at about a 12 year low last I checked, wheat's close too, I think. Wasn't corn going for more than twice it is now just 5 years ago? Pork's still pretty damned cheap compared to the 90s. I can still remember when it was the expensive meat choice. Not so much now. Lamb on the other hand is way more expensive. Potatoes are nearing as pricy as they've been too. There's so much noise in this stuff, maybe it'd have some huge effect. I'm just not convinced it would. It's part of why I don't generally like to play commodities anyways--they're volatile and if you're not in the business it's hard to see the swings coming.

In any event, I get the general feeling that there's a lot of room for downward pressure on rents if wages stay flat and other staple prices increase anyways. At least around here, there's plenty of long-paid-off housing units from 50 to 150 years ago that rented for half what it does today 15 years ago. That's pretty much the entire story of NYC as well, outside of the relatively small percentage of newer units. We've gotten used to rental prices increasing faster than inflation. Say about 3.5% to 2.5% over the last generation, both held down by low figures from 09-12. But there have been other times in history where core inflation beat out rents. I mean, if there's a clear spot where there's an existing 'macroeconomic cushion,' so to speak, that seems like an obvious one to me. Plus it's a good chunk of CPI, so if you're Uncle Sam and you can engineer it such that you get downward pressure in rents to compensate for upward pressure elsewhere, you don't have to worry about increasing colas eating into your deleveraging process.

[dcarrigg]

Re: Hold Gold, Sell Stocks, Switch Currencies?

Thinking of this some more, I'm of the same mind about structural change coming. As usual, I expect it to come out of crisis. And I suspect it won't be anything so high minded as a UBI or a labor revolution or anything else that increases the real cash income of the majority in any meaningful way. But I could totally imagine the next crisis making people throw up their hands and search for a more permanent solution rather than stopping temporary stimulus measures; people simply deciding that the system's broken, not having another temporary hiccup.

The outputs of accelerating inequality and decreasing labor share of economic output seem to me to have to be three things. 1) A higher floor on assets across classes, but also, paradoxically, 2) a much smaller and more concentrated group of key decision-makers, any one of whom can hit the panic button to greater effect than last time, and 3) powerful headwinds against labor pushing inflation. I only expect these effects to be stronger in the US and similar places now than they were a decade ago.

At least lately, rents tend fill all available disposable income in a given locality like gas or light a room. But they are only adjusted annually or so. So it leaves the majority precarious to shocks, be they benefit cuts, commodity price run-ups, layoffs, etc. The panic button can easily cause at least two of those three, and with only one stone. Capital could flee into commodities in a panic driving them up and flee equities driving layoffs up. Rents and mortgages can't immediately adjust downward to compensate. The bubble pops. Game goes tilt. It almost doesn't matter what the trigger is. At least not to the bottom 80% or so. I more or less operate on the principle that things I can't understand or that can't be explained to me to my satisfaction are likely to be a scam, until proven otherwise. Those alarm bells have only been getting louder these past few years. But I think that's probably kind of a normal that happens when you're hitting market tops all over the place. Just like getting your hackles up in rough seas. Best time to sell snake oil for top dollar is when everything's going great.

All of which is to say, I doubt we're making it that far before we hit a somewhat substantial downturn. And I think the political reaction to it is likely to be more extreme than most people are banking on, even if it's a delayed reaction that takes a few years. And I suspect there will be a fundamental shift in revenue collection as part and parcel of it. But lots of other change that's hard to predict now. The fed will probably have few choices at that point too, and maybe half the room to maneuver on short term rates it normally does. I figure there's gonna be little appetite for benefit cuts at the time. Probably in the US little appetite for austerity either.

[jk]

Re: Hold Gold, Sell Stocks, Switch Currencies?

. And I suspect there will be a fundamental shift in revenue collection as part and parcel of it. But lots of other change that's hard to predict now. The fed will probably have few choices at that point too, and maybe half the room to maneuver on short term rates it normally does. I figure there's gonna be little appetite for benefit cuts at the time. Probably in the US little appetite for austerity either.

stock market capital gains and rmd's [mostly from cashing out stocks] are 200% of the growth of personal consumption. if the stock market stops going up, so do federal revenues.

so condition 1 is a steadily rising stock market.

condition 2 is no nominal benefit cuts.

consition 3 is no austerity, damn the deficits, full speed ahead. time to bone up on modern monetary theory.

so the "solution" is ever larger fiscal deficits. but foreign cb's ceased accumulating treasuries in 2013 or 2014, so private buyers must be found. but if it's private buyers the ever rising deficits will crowd out other investment options, such as the stock market, thus violating condition1. so we can't rely on private buyers either. enter the fed, following in the footsteps of the boj. [just read that the boj owns 40% of all extant jgb's]. the fed returns any coupons to the treasury, less operating costs, so essentially the treasury is printing money when it "sells" its paper to the fed. that money will be spent on first on entitlements, second on interest [though much will be recycled back to the treasury via the fed], third on military spending.

there is a BIG difference between this kind of qe [the fed buying bonds] and the qe we've experienced to date. qe up to this point was sterilized by the fed paying the banks a riskless return on excess reserves. this helped reliquify the banks. so the funds that flowed to the banks in payment for their holdings of treasuries, were parked in excess reserves, not leant to commercial of individual borrowers. this is why qe to date has not generated any inflation.

going forward, qe to buy treasuries will fund actual expenditures by the federal gov't, paid out as entitlements, interest to private treasury paper holders and payments to military contractors. this money wil bel flowing into the real economy. this money thus will not be sterilized, but will take the form of privately held money claims for real goods. without any corresponding increase in goods to buy, all the extant money will have diminished purchasing power. prices must rise.

[dcarrigg]

Re: Hold Gold, Sell Stocks, Switch Currencies?

If you follow this same logic, but add in the condition that benefits will not be allowed to increase and wages will not be allowed to rise, where does that leave you?

[jk]

Re: Hold Gold, Sell Stocks, Switch Currencies?

If you follow this same logic, but add in the condition that benefits will not be allowed to increase and wages will not be allowed to rise, where does that leave you?

i can't imagine that benefits can be frozen. even faking the cpi so that they don't have to raise social security, expenditures on medicare and medicaid are going to go up as the population ages. time to give the howard johnsons purple roofs and convert them to euthanasia centers? i forget the euphemism that kurt vonnegut coined in his story about it.

wages can be held down i think, but it will be harder with the money flowing through the real economy.

[dcarrigg]

Re: Hold Gold, Sell Stocks, Switch Currencies?

i can't imagine that benefits can be frozen. even faking the cpi so that they don't have to raise social security, expenditures on medicare and medicaid are going to go up as the population ages. time to give the howard johnsons purple roofs and convert them to euthanasia centers? i forget the euphemism that kurt vonnegut coined in his story about it.

wages can be held down i think, but it will be harder with the money flowing through the real economy.

Medicare's another story. It has its hooks in capital gains now. And it has no cap on the income to which the tax is applied like Social Security. Part A, believe it or not, is totally covered by payroll tax with room to spare, including payroll rates that go up for families over $250k in income. Part B is about half-funded by a combination of capital gains taxes for families earning over $175k, interest income, and premiums. The rest gets sucked out of general revenue. Part C is 100% funded by premiums. And Part D screwed the pooch from a budget perspective. It's like 10 or 15% funded by premiums and the rest gets sucked out of federal and state coffers. It always was a new benefit and never had a funding mechanism.

So Part A probably will be fine even cranking up the number of retirees. Part B's tougher, but hospital care has always been tougher. Part D has never been funded. But I wonder to what extent much of that constitutes a big shift of real money into the real economy. And an interesting thing to ponder is, if you get to a point a decade or so out, where, say, 25 to 30% of Americans are on Medicare, and another 20% are on Medicaid even in a good economy, so maybe that bumps to 25% or 30% in a recession, it's easy to see a near-term future where a majority of Americans are on government healthcare, but still 15% or so have no coverage whatsoever and it's only the remaining 25% to 30% of people playing the health insurance game. But that's neither here nor there. Point only was that there's a good chunk of hot borrowed government money pumping into the system right now.

Hospital bills are very arbitrary already. I don't get the sense that much of that trickles down to hospital workers. I mean, the $400 they charge you per Tylenol or the $5,000 they charge you to stay in a crappy bed for a night, I don't think much of that's getting cycled back through to nurses' salaries. And I'm not sure that a larger share of hot government money leaves them in a better position to charge outrageous rates in the first place. It'd be hard to be more ridiculous than they already are in the current system. I mean, it's hard for me to imagine a much more inflationary environment in healthcare vs. the rest of the economy than we've already devised. There's already probably a trillion dollars annually of fat and slush there that does not correspond with the existence of any real good or service provided to anyone anyways; only extortion. I mean, if we're getting down to the real resources end of things, a bed and the marginal cost of a nurse's attention aren't exactly prohibitive expenses. I'm pretty sure healthcare in the US only costs so much now because they've got you by the shorthairs in a compromising position and they can take it; not because it really costs that much money to run the operation. I'm not sure to what extent printing more money and throwing onto the pyre would make the towering inferno we've already got any brighter. But if there's second macroeconomic cushion that has had decades of outpacing inflation beyond rents, it has gotta be healthcare, right? Plenty of room for downward pressure there.

My thinking's a bit different with this stuff. It just seems to me that there's two things going on. Americans aren't willing to tolerate hundreds of millions of sick and infirm who can't pay simply dying in the streets. They're not willing to tolerate tens of millions of kids being denied access to college or hundreds of millions going hungry and homeless either. But those at the top are also not willing to tolerate redistributive taxes to solve the problem directly. So you get a wildly inefficient system of tax credits, deductions, and fees for service that accomplish the transfer to some extent and generate a lot of fat along the way. Harvard has its $50k tuition, but kids with median income parents pay none of it. Hospitals have to take you in for emergency care, even if you have no coverage and no money. States cushion in-state tuition and feds give out pell grants provide subsidized student loans. Outrageous drug charges exist alongside sliding scale provision at community health centers. If you switched to a cost+ fee for service system paid up front by patients tomorrow, it'd be mad max. That's why no nation on earth does it. But most do it with the fee paid by the state, and do the redistribution on the state revenue side. By letting the private insurers and providers do the redistribution instead, you get a lot of graft and fat bubbling up. But either way, the redistribution is going to happen. The graft and fat are not necessary. They might function as something of a make work scheme. But if you have a shrinking labor force vis-a-vis a patient population, it might be time to convert some of those marketing and billing people into nurses or whatever anyhow. It can't and won't happen instantly. But there is a lot of fat there we can afford to trim and convert to more essential good production and service provision simply by grabbing the bull by its horns and restructuring laws and institutions. The cost of not doing so will likely become increasingly expensive. And so the pressure to convert from submerged and masked systems of redistribution to direct ones will only increase.

The breaking point will be political. I simply can't see moving through this process with the current tax code and current med and ed revenue system even if it were popular and a majority wanted to. I think 10 year projections based on current systems are probably bogus for that reason. And I think 20 year projections almost certainly are. Even if you follow the line of thinking that the US is going the way of Japan, Japan experienced some pretty heavy real estate deflation and never really saw much overall inflation. I don't think it's impossible that it might happen here. I just think it'd take some unlikely political tolerance of the status quo. Maybe think of it this way: When hospitals can only receive Medicare/Medicaid reimbursement rates for a much larger share of their activities, what do you think is going to happen to health insurance premiums and deductibles, etc? The costs are already being shifted now anyway. And barring major legal changes, that's going to accelerate, not slow down, even if you quadruple Medicare payroll taxes to fund it.

[jk]

Re: Hold Gold, Sell Stocks, Switch Currencies?

you're absolutely right that costs are shifted from the public programs to the private payers. and you're right, too, that the public programs are going to increase substantially as a proportion of total services. so that's going to put tremendous pressure on big employers, who still pay a substantial part of their employees health insurance. to the degree that the costs are shifted onto the employees in the form of bigger premium payments or gargantuan deductibles, those emplyees are going to be increasingly unhappy, and the "benefit" will continue to diminish in value. so i can foresee a lot of push from BUSINESSES to nationalize the healthcare system. that makes it a reasonably likely trajectory for the future evolution of the system.