Why the Dollar is being destroyed

[benjamen]

Long, but very good, article on why and how the dollar is being devalued/destroyed:
http://danielamerman.com/articles/2012/FiveC.html

"The United States government has five interrelated motivations for destroying the value of the dollar:

1. Creating money out of thin air on a massive basis is all that stands between the current state of hidden depression, and overt depression with unemployment levels in excess of those seen in the US Great Depression of the 1930s.

2. It is the most effective way to meet not just current crushing debt levels, but to deal with the rapidly approaching massive generational crisis of paying for Boomer retirement promises.

3. It creates a lucratively profitable $500 billion a year hidden tax for the benefit of the US government which is not understood by voters or debated in elections.

4. It is the weapon of choice being used to wage currency war and reboot US economic growth; and

5. It is an essential component of political survival and enhanced power for incumbent politicians."

 

[bushi]

Pretty much, agree on all the points above. Thus, myself I will plan & play accordingly, because there's NO WAY IN HELL, that the governments will get off that track on their own - that's as politically impossible to change, as it is mathematically impossible to sustain. They will need to be FORCED by the people & markets - and speaking of which - by whom, exactly??? By sheeple, or crooked financial powers???

So I presume that the whole circus will be sustained for as long, as there eventually will be riots and despair on the streets, and then some longer - until it just breaks. We wont miss that happening, so I am not worried about "timing" my actions very finely.

 

[benjamen]

Pretty much, agree on all the points above. Thus, myself I will plan & play accordingly, because there's NO WAY IN HELL, that the governments will get off that track on their own - that's as politically impossible to change, as it is mathematically impossible to sustain. They will need to be FORCED by the people & markets - and speaking of which - by whom, exactly???

So I presume that the whole circus will be sustained for as long as there ARE riots and despair on the streets, and then some longer - until it breaks. We wont miss that happening, so I am not worried about "timing" my actions very finely.

I have been operating under the assumption that nothing will be done in time to stop this train wreck of a currency. I hold as little of my wealth in USD and have seriously given thought to working internationaly while this thing unravels to avoid the turmoil that will be caused with this happens.

 

[benjamen]

Excellent Inflation or Austerity article:
http://www.321gold.com/editorials/evans/evans081612.html

He notes that the long term normal debt(public and private) divided by GDP is 150%. When ever this starts to deviate (roaring 20s, 1980's, 2008, ect), we have to go through a period of inflation of austerity to revert back to normal. During the great depression we used austerity, under Volcker we used inflation, and the author suspects we(Bernanke) shall use inflation again this time.

 

[DCFusor]

My recollection of history is that Volcker came in at a time of high inflation, and raised rates to put a stop to it - more like austerity, from him.

 

[pmbug]

My recollection of history is that Volcker came in at a time of high inflation, and raised rates to put a stop to it - more like austerity, from him.

Correct. Volcker assumed control and raised interest rates through the roof to arrest the in/stagflation of the time.

 

[bushi]

The problem with rising interest rates in the future, is that today they can hardly rise interest rates, without shooting themselves right in the head - with current levels of debt across the whole economy, much higher than back in the 80-ties, even rising interest rates slightly, would double- triple- or multiply (depending on the target interest rates) the cost of servicing National Debt (and all others debts, for that matter, corporate and private as well) - but government(s) are "just" able to service them today, in the near-zero interest rates environment. So it is not really an option, because so what, that interest rates would rise, if most of the debts would become instantly unpayable, for that reason?

It really is a death trap of debt, that we are now in (globally), and it is a simple consequence of monetary system, that is creating nearly ALL of it's money as a debt (or some kind of liability). So there's NO WAY of even servicing the debt, other than creating some more other liabilities - and by design so. Let alone paying it up!. Ponzi scheme in cleanest form, and tinkering around the corners with interest rates will not help here - rebuilding it from ground up would be required (and BTW, this rebuild will NOT happen for a looong time, too much vested interest in keeping it the way it is, and too little sheeple understand about it. That's hundreds of billions of dollars EVERY YEAR on interest payments on US National Debt ALONE)

Therefore the single & ONLY thing TPTB can possibly do, without breaking the whole thing apart, is to suppress the interest rates as much as they can, for as long as they can (re: Japan scenario). Remember, we need new money entering the economy, to grow the economy. That is pretty obvious, you cannot grow the economy without having more money in it. Now, the ONLY way for new money to enter the economy, is when somebody is WILLING to take on some more debt!

In my humble opinion, this is the simple most crucial error Keynesians are making - they assume, that since in their textbooks money=debt, and debt=money, than people will be always WILLING to take on more & more debt (money). And here's where models clash with mentality, psychology and sociology, I suppose . In which case, math will always loose, despite being "correct", theoretically.

TL;DR version: suppressing interest rates and printing more money is the only acceptable way for governments at large, and it will not change quick, if ever, until the whole thing grinds to a stop.

 

[DCFusor]

Yes, Ben has painted himself (and us) squarely into a corner, a Keynesian endpoint.
He can't raise rates, or we're all dead. The only way he can suppress them is by continuing (overtly or otherwise) to buy our debt because at low rates, most people won't go for a certain loss.

Perhaps in a saner system, there would be a solution - if the government owns all its own debt, it can just shove it in a file cabinet and declare it void - kind of the opposite of what they've done raping the SS fund.

But the fed, if I understand right, isn't the government - they're about as federal as fedex, and presumably won't want to make such a grand gesture - they don't want to lose money on this game. On the other hand, if you own the presses and the authority to use them...hmmm. How exactly would they lose money? It wasn't real when they created it anyway.

The only way out of this other than the race to the bottom for fiat, is for a whole lot of weird paper to be declared null - to heck with this "net zero" exposure - if that's how it really is in derivative-land - why not make it just zero? Declare a mulligan. I sense some very large skeletons in closets on that one (and there's much more money involved there than just the US debt - by a fat integer factor).

That's what scares me about the derivative market, actually.
It seems to me that if I bet, say, ancona, a billion dollars on something (and assuming neither of us have anything like that) - the system records that as a new billion bucks of whatever - GDP, net market value and so on - disregarding that neither of us could pay it at expiration. That's precisely the same effect as if he and I had a printing press - it's money creation in the system.

Thus, it was the boom that was fake, via entities other than the fed "printing money" via these instruments, and the crash is what's real. Try explaining that to the neighbours sometime. Spurious money creation by other than the fed, and it all went poof....aaaaaand, it's gone. Not even all the fed's fault. But it is Congress' - because they allow that to be legal (if not moral).

 

[ancona]

`Interesting take on the derivative pile there DC. So, to go a bit further, if all these contracts net out to zero, why even have tehm in the first place? Isn't that then sort of a false security, if in fact no one will ever be paid on any of theese contracts?

 

[bushi]

that's quite correct DCF, from what I've read the derivatives market is two orders of magnitude bigger than the "real" global GDP. That is a nonsense in a pure form.

On the "net" side of derivatives - Rickards argues, that it actually is a false premise, because of a) gross exposures of all key players are much bigger than any of their possible backing assets (by a huge margin), and b) interconnectedness of the whole system; so taking a) and b) together, if any valve gets blown, anywhere in the system, it starts the chain reaction, and it crashes every one derivative player after another, till the sory end.

So Rickards reckons, that the derivatives in the current form, do not reduce risks ("netting" risks), but rather they induce bigger risks ("grossing" risk) - by increasing system's size, complexity and interconnectedness. Thus he argues that gross exposure is the only appropriate figure in risk assessing. I tend to agree with him - you see, if that fecking casino is two orders of magnitude bigger than anything "tangible" in the whole global economy (be it including such "intangible" things, like software, copyrights, patent rights and what nots), than WHAT THE FECK IT IS???

Secondly, to quote Max Kaiser: "Banksters on Wall Street and the City of London had a short-circuit in their brains, that made them think that 'profit' and 'zero risk' can both co-exist in the same spot of the financial continuum simultaneously" :rotflmbo: Being a clown that he is, he is right to the point more often than not, and that one is a perfect example: it simply is not the case, that you can reap profits without being exposed to risks. So all that derivatives bomb is smoke and mirrors, in it's current form.