Inflation, devaluation and Ayn Rand

[Hanfgeist]

Why will the dollar devalue so much? The dollar devaluing also wouldn't necessarily be a bad thing. That would mean it's comparatively cheaper to buy US goods. We could sell lead-painted toys to China! Then, unemployment would fall as jobs opened! We'd start making more money, which we could use to buy food from Mexico or Canada! Muahahaha!.

Are you kidding me? your government (like ours) are creating money from thin air to buy their own treasury bonds and the banks are falling over at a rate of 5 or 6 a week, with the FDIC (Federal Deposit Insurance Corporation) which guarantees the depositors get their money (up to deposits of $250,000) in the event of a failure, running out of bailout cash. The rest of the US banks are reported to have 6% bad loans on their books, and they say that a bank will fail with bad loans around the 5% mark. Countries around the world are offloading their dollars for tangible assets as fast as they can and the US (like the UK) have very little manufacturing left to produce their way out of the massive debts that they have incurred. The economist Denninger, says that the banks there are also being systematically looted (through large bonuses to the executives) because the banksters know that it is game over for the financial system.



I'd like to point out that all farmers are not being hit by this, probably because I believe only one section of the aqueduct has been limited in its water intake. When California, Arizona, Oregon, Idaho, Montana, the Dakotas, Minnesota, Wisconsin, Iowa, Illinois, Kansas, Nebraska, and Texas are experiencing this, and it dramatically affects net food production, I'll agree that farmers should be bailed out. Seeing as it's only a select area of California, though, I'm going to say otherwise.

It'll also take a LOT of cutting back on domestic food production to have everyone starve.

There is some scuttlebut going round that food production is being deliberately cut back. I don't know how true those rumours are but the situation with the banks and the US and UK debt levels looks bad enough on its own.....

[dragonsscout]

Are you kidding me? your government (like ours) are creating money from thin air to buy their own treasury bonds

Yes. That's one of the ways the government influences the money supply, it's not unheard of and not extraordinarily uncommon. The resulting inflation would be good for the economy, as it increases the money supply, which dropped when the banks failed. Where do you think money comes from anyways? Governments just create it now. There's no gold standard, no required ratios, nothing.

the banks are falling over at a rate of 5 or 6 a week

Care to reference that? As of August 2nd, 69 banks (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.) have failed in the US.

with the FDIC (Federal Deposit Insurance Corporation) which guarantees the depositors get their money (up to deposits of $250,000) in the event of a failure, running out of bailout cash

The FDIC is backs 8,246 banks and is in turn banked by the federal government. To help offset its costs it sells of the assets of failed institutions. It's not exactly running out of cash. It doesn't bailout banks either. It bails out depositors.

The rest of the US banks are reported to have 6% bad loans on their books, and they say that a bank will fail with bad loans around the 5% mark.

150 banks have risky loans over 5%. That's out of 8,246 banks, mind you.

Countries around the world are offloading their dollars for tangible assets as fast as they can

Really? Care to reference that? Although it's been a while, last time I checked, the dollar was increasing in comparative value. It very well could have changed, but I think if it were in a nose dive there would be a lot of headlines.

and the US (like the UK) have very little manufacturing left to produce their way out of the massive debts that they have incurred.

You're joking right?

The breakdown of the US economy (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.) is: agriculture 1.2%, industry 19.6%, services 79.2%.
For good measure, let's compare this with some other economic heavyweights.
UK (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.): agriculture 0.9%, industry 22.8%, services 76.2%
China (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.): agriculture 10.6%, industry 49.2%, services 40.2%
Japan (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.): agriculture 1.4%, industry 26.4%, services 72.1%
Switzerland (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.): agriculture 1.5%, industry 34%, services 64.5%
India (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.): agriculture 17.2%, industry 29.1%, services 53.7%
EU (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.): agriculture 2%, industry 26.8%, services 71.1%
Russia (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.): agriculture 4.1%, industry 41.1%, services 54.8%

It's lower in the US and UK, but not ridiculously so. Also, don't forget that services can be exported too.
...because the banksters know that it is game over for the financial system.

No it isn't. A 2.7% failure rate (at worst) for banks is hardly 'game over.' It's serious yes, but its not like the financial system is in its death throes.

[Hanfgeist]

Yes. That's one of the ways the government influences the money supply, it's not unheard of and not extraordinarily uncommon. The resulting inflation would be good for the economy, as it increases the money supply, which dropped when the banks failed. Where do you think money comes from anyways? Governments just create it now. There's no gold standard, no required ratios, nothing..

I think the problem is precisely that the money is not backed by anything and just being created to monetise the debts now. This has never worked in the past to bail out an economy. The dollar and the pound will be toilet paper soon.


Really? Care to reference that? Although it's been a while, last time I checked, the dollar was increasing in comparative value. It very well could have changed, but I think if it were in a nose dive there would be a lot of headlines...


Obviously they have to offload them discreetly or risk starting a run and losing their shirts but they are using their dollars to buy up assets cause they see where its headed.

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Care to reference that? As of August 2nd, 69 banks (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.) have failed in the US...

The figure is 77 this year and I have been watching the reports on bank failures from bloomberg news each friday, which is where I get my figures from.





The FDIC is backs 8,246 banks and is in turn banked by the federal government. To help offset its costs it sells of the assets of failed institutions. It's not exactly running out of cash. It doesn't bailout banks either. It bails out depositors....150 banks have risky loans over 5%. That's out of 8,246 banks, mind you.



Nope , it's all of them, see link and the FDIC is running low on cash:

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You're joking right?

The breakdown of the US economy (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.) is: agriculture 1.2%, industry 19.6%, services 79.2%.
For good measure, let's compare this with some other economic heavyweights.
[SPOILER]UK (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.): agriculture 0.9%, industry 22.8%, services 76.2%
China (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.): agriculture 10.6%, industry 49.2%, services 40.2%
Japan (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.): agriculture 1.4%, industry 26.4%, services 72.1%
Switzerland (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.): agriculture 1.5%, industry 34%, services 64.5%
India (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.): agriculture 17.2%, industry 29.1%, services 53.7%
EU (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.): agriculture 2%, industry 26.8%, services 71.1%
Russia (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.): agriculture 4.1%, industry 41.1%, services 54.8%

It's lower in the US and UK, but not ridiculously so. Also, don't forget that services can be exported too.

Who's going to buy the goods and services and what will they use to pay for them? the consumers are tapped out and the countries which have an economy based on flipping houses and real estate to make money to buy things from China are broke too


No it isn't. A 2.7% failure rate (at worst) for banks is hardly 'game over.' It's serious yes, but its not like the financial system is in its death throes.

Ho Ho Ho Ho Ho Ho .......Ironic Bond villain style laughter........

[dragonsscout]

I think the problem is precisely that the money is not backed by anything and just being created to monetise the debts now. This has never worked in the past to bail out an economy. The dollar and the pound will be toilet paper soon.

But one could say that the debt is being run for the purpose of funding it by printing more dollars, increasing the money supply.

Obviously they have to offload them discreetly or risk starting a run and losing their shirts but they are using their dollars to buy up assets cause they see where its headed.

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China wants the yuan to be a reserve currency. I'd say that's a status and dominance thing more than it is an attempt to try to sell off an unstable currency.

The dollar is hardly tanking.
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The figure is 77 this year and I have been watching the reports on bank failures from bloomberg news each friday, which is where I get my figures from.
So both figures come out to under 2.4 per week.

Nope , it's all of them, see link and the FDIC is running low on cash:

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Okay, I have two credible and conflicting sources.

However, I think his credibility is slightly hurt by his later statements. I seriously doubt that there's going to be the Malthusian apocalypse that he's predicting anytime soon. Life might get tougher, even in the long term, but not a full-scale "descent into random lawlessness."

Who's going to buy the goods and services and what will they use to pay for them? the consumers are tapped out and the countries which have an economy based on flipping houses and real estate to make money to buy things from China are broke too

Comparative debt between countries:
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There was trade between Ancient China and Ancient Rome. I'm sure there will be international trade after a financial crisis like this one. Comparative advantage always exists.

Ho Ho Ho Ho Ho Ho .......Ironic Bond villain style laughter........
Indeed.

[Hanfgeist]

But one could say that the debt is being run for the purpose of funding it by printing more dollars, increasing the money supply..

Yeah but I think what the economic commentators are so worried about, is that this money is being created solely to pay the interest on the huge debts that they already have, that's pay the interest on the debt, not the principal amount.Which is why Mr Geitner asked for the credit limit to be raised a few weeks ago because without that raise, America would not be able to meet her obligations (ie default on interest and other payments). It's akin to borrowing money on a second credit card to pay the interest on the huge debt you aquired splurging on the first one, you are basically insolvent if you're doing this....


The Sage of Omaha is saying that the dollar will be devalued by printing all this cash and he knows a thing or two about finance.see link:

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However, I think his credibility is slightly hurt by his later statements. I seriously doubt that there's going to be the Malthusian apocalypse that he's predicting anytime soon. Life might get tougher, even in the long term, but not a full-scale "descent into random lawlessness."

..

That would be true if it is only him who was saying this stuff, a lot of other economics commentators are saying the same things, Peter Schiff for one. I have no doubt that it will collapse soon, the debt levels are unsustainable, the UK budget deficit is now 12% of GDP, we had to go to the IMF for a bailout in the seventies when it was 6% of GDP. If you have not already done so, read 'Atlas Shrugged' which is a book about an economic meltdown and its causes, a lot of the scenarios described in there are playing out for real now. If you have not yet made any SHTF preparations, you should make a start asap.




There was trade between Ancient China and Ancient Rome. I'm sure there will be international trade after a financial crisis like this one. Comparative advantage always exists.


Indeed.

I think in the event of a collapse of the financial system that international trade and shipments of goods will stop for a while until they can come up with an alternative way to pay for things, maybe will involve gold or barter of commoditiies.


Back on topic, now that we have established that the dollar will devalue quite substantially, you can see that it is not a good idea to import food in a scenario like this, you will have to pay a lot more for it, so cutting back on domestic food production whether that be to protect a fish which may or may not be in danger or for any other reason, may be a very bad idea in the current economic climate.Imported food will also be more expensive due to problems like UG99 and climate change affecting yields in other countries.

[dragonsscout]

Yeah but I think what the economic commentators are so worried about, is that this money is being created solely to pay the interest on the huge debts that they already have, that's pay the interest on the debt, not the principal amount.Which is why Mr Geitner asked for the credit limit to be raised a few weeks ago because without that raise, America would not be able to meet her obligations (ie default on interest and other payments). It's akin to borrowing money on a second credit card to pay the interest on the huge debt you aquired splurging on the first one, you are basically insolvent if you're doing this....

So you raise taxes or cut spending. Neither is popular, but it's going to have to be done at some point. I'd just give it a year or two before really starting to pay it back. It is definitely a problem, but it's not critical just yet.

The Sage of Omaha is saying that the dollar will be devalued by printing all this cash and he knows a thing or two about finance.see link:

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Of course it will be, but not on the order of hyperinflation. The question is, is it worth it?

That would be true if it is only him who was saying this stuff, a lot of other economics commentators are saying the same things, Peter Schiff for one. I have no doubt that it will collapse soon, the debt levels are unsustainable, the UK budget deficit is now 12% of GDP, we had to go to the IMF for a bailout in the seventies when it was 6% of GDP. If you have not already done so, read 'Atlas Shrugged' which is a book about an economic meltdown and its causes, a lot of the scenarios described in there are playing out for real now. If you have not yet made any SHTF preparations, you should make a start asap.

I'll take my chances. I have no intention of hoarding gold/food or buying an AR-15 just yet.

You also have two contradicting sources now. Warren Buffet says the economy is getting better, while Denninger is predicting a massive failure of all of the banks and implicitly supporting a violent overthrow of the democratically elected government.

On Ayn Rand (rant - way off topic - please don't read):
Damnit! I told you not to! Turn back!This is you final warning! Turn back! The Fi is becoming Fe! I'm trying to contain it!I deleted it. :p Sorry for the disappointment. Suffice to say, I dislike a lot Ayn Rand's work.

Back on topic, now that we have established that the dollar will devalue quite substantially, you can see that it is not a good idea to import food in a scenario like this, you will have to pay a lot more for it, so cutting back on domestic food production whether that be to protect a fish which may or may not be in danger or for any other reason, may be a very bad idea in the current economic climate.Imported food will also be more expensive due to problems like UG99 and climate change affecting yields in other countries.

So, we pay a lot more for foreign food, or we pay a lot more (via tariffs, taxes, and inefficient subsidies) for domestic food, or we pay roughly the same for domestic and foreign food while paying slightly less taxes. :thumbsup: Many US farmers are competitive, it's just that many are not competitive as well. We won't be importing most of our food any time soon whether or not we continue supporting non-competitive farmers. If we do at some point, it means the market is optimizing our resource allocation.

The fish population is in danger. The question is if people care or not and if it's justified.

[Hanfgeist]

So you raise taxes or cut spending. Neither is popular, but it's going to have to be done at some point. I'd just give it a year or two before really starting to pay it back. It is definitely a problem, but it's not critical just yet..

The devaluation may happen before they can do either, the pound may well tank soon for the very reason we are talking about, the government buying their own treasury bonds and I'm not talking about a few, they have a 200 billion hole to fill in their budget for next year.See video:


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Of course it will be, but not on the order of hyperinflation. The question is, is it worth it?
..

We are at the wait and see stage at the moment on the inflation vs hyperinflation question





I'll take my chances. I have no intention of hoarding gold/food or buying an AR-15 just yet.
..



I lived through the recession in the eighties and it was pretty bad with mass unemployment, riots and such, this one looks like it could be a lot worse. What have you got to lose by putting some food aside, you can always eat it before the use by date if everything pans out ok with the banks and the economy if not you will be able to eat, so you are covered if you cant get your cash out at the ATM when the bank takes a holiday.....



You also have two contradicting sources now. Warren Buffet says the economy is getting better, while Denninger is predicting a massive failure of all of the banks and implicitly supporting a violent overthrow of the democratically elected government.

..

Denninger does'nt like Buffet, I don't support violence or revolution but he's saying that the economic data/model is forecasting that things will get a lot worse for people and these things may occur. I tend to believe Denninger and Peter Schiff on matters economic.




On Ayn Rand (rant - way off topic - please don't read):
Damnit! I told you not to! Turn back!This is you final warning! Turn back! The Fi is becoming Fe! I'm trying to contain it!I deleted it. :p Sorry for the disappointment. Suffice to say, I dislike a lot Ayn Rand's work.

..

Like her or loathe her, the stuff in her books is happening now, cronyism, looters and moochers bleeding the productive sector of the economy dry and bringing about total economic collapse







So, we pay a lot more for foreign food, or we pay a lot more (via tariffs, taxes, and inefficient subsidies) for domestic food, or we pay roughly the same for domestic and foreign food while paying slightly less taxes. :thumbsup: Many US farmers are competitive, it's just that many are not competitive as well. We won't be importing most of our food any time soon whether or not we continue supporting non-competitive farmers. If we do at some point, it means the market is optimizing our resource allocation.

The fish population is in danger. The question is if people care or not and if it's justified.

The point is, if your domestic food production falls off for whatever reason, imported food will become very expensive after a dollar devaluation and many people who are already struggling to stay afloat because of the state of the economy will not be able to buy any, that's when you will get the scenarios that Denninger is talking about with violence and riots etc breaking out.





Hanfgeist added to this post, 8 minutes and 12 seconds later...

Import? The US is the worlds breadbasket its exports more food than anyone else. It has large amounts of land taken out of production and more marginal land that could be brought into production if needed. Thus this food is not needed, grow crops on crop land and not desert.

You have not answered why someone should take a public resource, the water, destroying the environment, for his private profit. I know I could make a fat profit by chopping down the trees in the national parks for lumber too. That does not mean you have to allow me to do it, it is your loss.

It's a difficult choice to make, if the pumps are harming the fish and you switch them off, sixty thousand people lose their jobs and there is less food production and lots of welfare payments to those newly unemployed, if you keep them running the water runs out and the fish are lost. If they want to farm there that much then why dont they build a desalination plant and get the water from the sea? run it on wave energy......(intjs have to think of everything)


I don't think that national parks should be destroyed for profit either.

[dragonsscout]

We are at the wait and see stage at the moment on the inflation vs hyperinflation question

Just about every question. :)

What have you got to lose by putting some food aside, you can always eat it before the use by date if everything pans out ok with the banks and the economy if not you will be able to eat, so you are covered if you cant get your cash out at the ATM when the bank takes a holiday.....

I always have some food set aside. As a matter of fact, it came in handy earlier this summer when I was studying abroad. We were in an isolated area and some of the other people in the group had eaten all of the food, leaving very little for me. It's good advice in general. But having enough to get you through over a month is overkill, in my opinion.

Like her or loathe her, the stuff in her books is happening now, cronyism, looters and moochers bleeding the productive sector of the economy dry and bringing about total economic collapse

Since the dawn of time. Even in her glorified 19th Century, this existed.

The point is, if your domestic food production falls off for whatever reason, imported food will become very expensive after a dollar devaluation and many people who are already struggling to stay afloat because of the state of the economy will not be able to buy any, that's when you will get the scenarios that Denninger is talking about with violence and riots etc breaking out.

Sounds like the Great Depression, except that wasn't a total economic collapse. It was definitely serious, but not 'rework every facet of the system serious.'

[meanlittlechimp]

There is some scuttlebut going round that food production is being deliberately cut back. I don't know how true those rumours are but the situation with the banks and the US and UK debt levels looks bad enough on its own.....

This is mainly because of two things: ethanol based fuel and stupid protectionist subsidies and quotas for the agricultural sector.

Some agricultural products (like corn) are now increasingly being used for fuel (especially in Brazil), which causes shortages in things like corn syrup on world commodity markets, among other staple food sources, like soybeans. This fact combined with import quotas is driving up food costs to consumers everywhere on the globe.

For instance, federal law dictates that 80% of sugar purchased, has to be domestically produced. The rising impacts on candy costs, forced the CEOs of all the major packaged candy producers in the US to plead with Congress, to lift this protectionist/socialist inspired legislation. The problem is that even smart pro-trade republicans (they do exist) - only win office in rural areas so they support protectionist anti-capitalist agendas because much of their voter base are rural southern, and mid-western farmers that directly benefit from agricultural subsidies, tarrifs and quotas.

Misguided, formerly republican, now libertarian (and supposedly free-trade, economic based voters) still support anti-free trade candidates, on some abstract notion that the right's candidates are based on capitalist and democratic ideals.

The World Bank and the IMF have wrecked many developing economies by forcing them to increase their debt load and open up markets; while the US doesn't even attempt to practice what it preaches to others - namely free trade and budget deficits.


The dollar is hardly tanking.

Doesn't mean it won't. IMO, the dollar is still significantly over-valued. Depending on how severe the correction is (when it inevitably occurs); the outcome could be painful to catastrophic. .

[phej]

dragonsscout, since this thread has been split off, i'm curious about your rant about ayn rand

[thod]

History repeats itself, but people forget.

THOUGHTS ON THE CAUSES OF THE PRESENT DISCONTENTS - William Leggett, Democratick Editorials: Essays in Jacksonian Political Economy [1834]

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What has been, what ever must be, the consequence of such a sudden and prodigious inflation of the currency? Business stimulated to the most unhealthy activity; a vast amount of over production in the mechanick arts; a vast amount of speculation in property of every kind and name, at fictitious values; and finally, a vast and terrifick crash, when the treacherous and unsubstantial basis crumbles beneath the stupendous fabrick of credit, and the structure falls to the ground, burying in its ruins thousands who exulted in the fancied security of their elevation. Men, now-a-days, go to bed deeming themselves rich, and wake in the morning to find themselves stripped of even the little they really had. They count, deluded creatures! on the continued liberality of the banks, whose persuasive entreaties seduced them into the slippery paths of speculation. But they have now to learn that the banks cannot help them if they would, and would not if they could. They were free enough to lend their aid when assistance was not needed; but now, when it is indispensable to carry out the projects which would not have been undertaken but for the temptations they held forth, no further resources can be supplied. The banks must take care of themselves. “Charity begins at home.” The course of trade is turning against the country. We have purchased more commodities abroad than our products will pay for, and the balance will soon be called for in specie. The banks, which lately vied with one another in effusing their notes, are now as eager competitors in withdrawing them from circulation, and preparing for the anticipated shock. They have no time to listen to the prayers of the deluded men whom their deceitful lures seduced so far upon the treacherous sea of credit. They cast them adrift without remorse and leave them to encounter, unaided and unprepared, the fury of the gathering tempest. Or should, perchance, some tender hearted moneychanger relent, and consent to tow a few victims into harbour, is it unreasonable that he should charge wrecker’s fees for the service—half the cargo and twenty per cent commissions on the remainder? The cashiers of some of our banks can tell you that these are but the usual rates. ...

t is curious, as well as melancholy, to look round, and note the evidences which everywhere meet the eye of that fever of speculation which, for two years past, has been the moral epidemick of the land. The fields, in many places, lie untilled, because the agricultural population has been drawn off to construct railroads and canals, or lay out sites for cities, and prepare the ground for superb edifices capable of accommodating millions yet unborn! Hence we find there are short crops of the main staples of home consumption. Hence we see flour at fifteen dollars a barrel, and hay at forty dollars a ton; and hence foreign agriculturists, the wheat growers of England, and of the very northernmost parts of Europe, are sending their grain to this country—the cultivators on the stormy coast of the Black Sea and the icy shores of the Dnieper send hither their produce, and undersell our farmers on the pleasant banks of the Hudson and the Potomack, at their very doors. During the long wars of Napoleon in Europe, we exported our breadstuffs, and supplied the opposing armies with food. Now we have a standing army at home to support, not of soldiers, but of canal diggers, city builders, and stock gamblers; while the plough stands idle in the unturned furrow, and crows fatten undisturbed in the deserted cornfields. The speculator flaunts by in his carriage, and casts a scrutinizing eye over the neglected farm, not to ascertain the capacities of its soil, but its eligibility as the site for some new scheme of a city, and the probable price it would yield, not by the acre, but by the foot. The children at the wayside scarcely look up at the shining equipage as it dashes along, for shining equipages have become too common to attract the attention even of rusticks. A coach with footboard and hammercloth is no longer a novelty, when half a nation turn builders of carriages for the other half to ride in. But there is an old saying which foretells the destiny of a beggar on horseback, and we fear that there are many in this community now on the eve of experiencing its truth.

[dragonsscout]

Doesn't mean it won't. IMO, the dollar is still significantly over-valued. Depending on how severe the correction is (when it inevitably occurs); the outcome could be painful to catastrophic. .

I think it'll be pretty painful, but not catastrophic. If it happens by the time the economy has recovered to a certain extent, it might be more containable too. That's just a guess, though. I don't have much reasoning to back that up.

[Hanfgeist]

Here are some videos that explain why the dollar (and indeed the pound for very similar reasons) is likely to devalue substantially:


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[Hanfgeist]

You might want to take a look at this article, seems that the Federal Reserve people may have been buying a smidge more government bonds than they've been letting on.


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