Fed Out Of Money!

[LargoWinch]

Re: Fed Out Of Money!

I of course understand that concept but what if USA, inc. can no longer pay with USD because they are not accepted (ex. Iran rejecting USD for oil)...what then? we have to convert inflated USD to something else and lose even more purchasing power?

Then, who has the gold and the chickens wins.

Also at that time, you change the "green" bills for blue ones with the face of Oprah on it and start over.

[ASH]

Re: Fed Out Of Money!

I of course understand that concept but what if USA, inc. can no longer pay with USD because they are not accepted (ex. Iran rejecting USD for oil)...what then? we have to convert inflated USD to something else and lose even more purchasing power?

The first question is whether this proves a managed and orderly decline, versus a sudden collapse. It looks like the central banks are, so far, cooperating to ensure an orderly decline. If that happens, the purchasing power of the dollar overseas will steadily drop, and the interest rate we must pay to borrow additional dollars from overseas sources will rise as our credit rating worsens.

If, however, something sudden happens to trigger an all-out collapse of the dollar, then a couple of things will happen. As you suggest, the dollar would no longer be accepted for international transactions. However, if the dollar is worthless, we would not be in a position to exchange dollars for another currency to do those transactions. Instead, we would have to export something of value for that other currency. In short, we would more-or-less immediately have to match the value of our imports to that of our exports (denominated in other currencies), which would be an enormous economic dislocation. In my view, this would be such a disruptive event that elements of a command economy would be adopted on an emergency basis (rationing, price controls on domesticly-produced goods, and government control of strategic industries, etc.). If civil government survived the shock intact, it would use its control over the economy to ensure that proceeds from our exports were spent on the most vital imports, which means energy rather than consumer goods. After society adjusts to a new, much lower standard of living -- i.e. the standard one can enjoy without consuming more than one produces -- the government could release control over the economy.

Those are my thoughts about what an actual dollar collapse would entail.

[GRG55]

Re: Fed Out Of Money!

None of the concerns expressed in this thread make any common sense. All that is required to ensure the US $ will be accepted is to ensure it can be converted into something of value to the recipients. That means do NOT prevent Dubai from buying ports, and do NOT prevent China from buying Unocal...just two examples of many that come to mind.

If nobody else will sell their output [whether bananas from Belize, or oil from OPEC] in exchange for US$, then the US has to sell what it has that the rest of the world wants. Perhaps that's manufactured or agricultural output, but increasingly it's probably going to shift to the means of production. Let's see what happens when Saudi Arabia arrives with fistfulls of US$, and want to use them to go shopping for large tracts of Midwest farmland...;)

[grapejelly]

Re: Fed Out Of Money!

we are far, far from a dollar collapse. That ain't gonna happen for many years. It will be, as usual, some up, some down, with more down than up.

The dollar isn't gonna slide against other currencies all that much cuz the CBs ain't gonna allow that. They are also busy inflating their own currencies.

Eventually the short downtick in commodities will end and we'll be back in a bull market in terms of commodities and currencies...

But first we'll hear the "world is awash in oil" and then it's time for all you traders to go long again

[raja]

Re: Fed Out Of Money!

we are far, far from a dollar collapse. That ain't gonna happen for many years. It will be, as usual, some up, some down, with more down than up.

The dollar isn't gonna slide against other currencies all that much cuz the CBs ain't gonna allow that. They are also busy inflating their own currencies.

Eventually the short downtick in commodities will end and we'll be back in a bull market in terms of commodities and currencies...

But first we'll hear the "world is awash in oil" and then it's time for all you traders to go long again

Perhaps commodities will stagnate for some years due to demand destruction from the global recession/depression . . . .
For this reason, I hesitate to invest in commodities now, even though they are cheap. I just sold UNG because I fear that it will go even lower, or at best stagnate. I also worry that it could be dragged down with a market crash. PM seems the only thing destined to go up . . . and also Treasury rates.

Maybe I'm wrong . . . .

[LargoWinch]

Re: Fed Out Of Money!

Maybe I'm wrong . . . .

Maybe your right... (at least you know what you are doing: and that commands respect)

BTW: I think there is a 50% chance the Dow will go up tomorrow...

maybe I'm wrong

[c1ue]

Re: Fed Out Of Money!

None of the concerns expressed in this thread make any common sense. All that is required to ensure the US $ will be accepted is to ensure it can be converted into something of value to the recipients. That means do NOT prevent Dubai from buying ports, and do NOT prevent China from buying Unocal...just two examples of many that come to mind.

If nobody else will sell their output [whether bananas from Belize, or oil from OPEC] in exchange for US$, then the US has to sell what it has that the rest of the world wants. Perhaps that's manufactured or agricultural output, but increasingly it's probably going to shift to the means of production. Let's see what happens when Saudi Arabia arrives with fistfulls of US$, and want to use them to go shopping for large tracts of Midwest farmland...;)

GRG,

Of course you are right, but what is the point of having a somewhat stronger dollar when your best assets are all owned by someone else?

Isn't it better to accept the trashing of the US dollar and retain your capital goods?

Surely even Americans aren't stupid enough to sell our core assets for paper - especially our own paper?

I can understand how a populist leader could convince the masses to sell core national capital goods - most 3rd world and ex-Communist nations have done this.

But I cannot understand how the business leadership in the US would allow this to occur - unless in fact the tin foil hatties are right: the ultimate goal isn't nationalist, it is elitist/selfish and the rentiers are playing a completely different game.

[phirang]

Re: Fed Out Of Money!

GRG,

Of course you are right, but what is the point of having a somewhat stronger dollar when your best assets are all owned by someone else?

Isn't it better to accept the trashing of the US dollar and retain your capital goods?

Surely even Americans aren't stupid enough to sell our core assets for paper - especially our own paper?

I can understand how a populist leader could convince the masses to sell core national capital goods - most 3rd world and ex-Communist nations have done this.

But I cannot understand how the business leadership in the US would allow this to occur - unless in fact the tin foil hatties are right: the ultimate goal isn't nationalist, it is elitist/selfish and the rentiers are playing a completely different game.

The bold bit is 100% spot-on. The nation has been subverted by monied interests.

That's why you never see oligarchs put their children in the military: the military is controlled by the oligarchs, so why bother putting golden sons in the "officer" class?

Btw: blackstone will win huge fees for brokering deals to the Chinese. Just watch.

[ASH]

Re: Fed Out Of Money!

That's why you never see oligarchs put their children in the military: the military is controlled by the oligarchs, so why bother putting golden sons in the "officer" class?

Perhaps the oligarchs don't put their children in the military because oligarchs are interested in money, and the military is not a pathway to money.

For the record, my perception of how the country is run differs from yours.

[labasta]

Re: Fed Out Of Money!

Honzas,

Kudos for you on bringing this up before these recent bankruptcies in September.

Grapejelly, looks like you are wrong. The banks are insolvent now. Have been all year, but now must report it by the end of September. The fed is insolvent.

How long can they delay this?

700 billion dolars anyone?