Discussion in 'The Senate Floor' started by Jabbadabbado, Nov 8, 2012.
Which is precisely why I take most "economists predictions" with an entire carton of salt.
To go along with all that, it's economic contraction and too-sharp reductions in the amount of debt that is the true cause for concern.
To take a mountaineering metaphor, just because the snow has reached a depth higher than the "red line" and the avalanche does not occur the second after the red line is exceeded does not mean a warning of an impending avalanche is wrong. It just means you have come to the point where an avalanche is now possible given the history of avalanches throughout the history of that mountainside judging from the snow depth. You can't predict the precise moment an avalanche will occur, only try and tell people that the safe zone has been passed and you're being an idiot to go skiing on the mountainside where the snow has reached a danger point -- or indeed an even greater idiot to heap even more snow on that same mountainside. Some people simply put the danger point as a shallower depth of snow than others.
The crucial point, the unknowable, is the part of your post that comes after "As long as there are ..." It is not a foregone conclusion that countries and numerous entities will suck up the US's debt levels forever. Eventually some will conclude that the US either won't pay back its debts or will hyperinflate its currency to pay the debts back in worthless coinage. In the case of Greece, that point was reached when its debt-to-GDP ratio hit 140%. America's is around the 106-108% mark or so, and projecting it out at current spending rates the US should reach the same level as Greece in about five years or less.
Will the same thing happen at 140%? Can't say it would. Plenty of industrialised countries like Germany are running debt-to-GDP levels above 100%. It doesn't change the fact that the US pretty much can't get its debt levels down right now and probably won't in the foreseeable future. Like I said: you're above the red line. The US has had incidents of hyperinflation before, and it currently has World War 2 levels of debt with no world war to fight. When the avalanche comes is in the lap of the gods, or PIMCO perhaps, but absent a massive change in how the US funds its activities, it's coming.
Some interesting Stats
Russia suffered it's pain now it's numbers are better, Saudi does well too, all that oil.
Hmmm, maybe all that gold America has is the only thing saving it, if you zero that out, it would be toast in a flash.
Beyond your expressed preference for Ron Paul and the gold standard, this is probably the most deeply economic illiterate part of your string of posts. The judgments made about Greece were never a simple measurement of its debt-to-GDP ratio. It was a gestalt analysis of the country's economic strength and potential from a structural standpoint. The United States is deeply dissimilar in these terms, which is why your magic number analysis has not and will never work.
Actually, Germany is at slightly above 80% and looks to fall below 80% this year. The only industrialised countries with significantly higher percentages than 100% that I can think of are Italy with about 127% and Japan with somewhere close to 250%.
One should definately try to keep the debt as low as possible. The concept of 'we will lower it when things go well' has never worked, humans don't act like that.
Well apparently the U.S. government doesn't like surpluses either since weve only had a handful of years where we've ran surpluses in the last half-century. And many of those years we didn't have true cuts were years of tremendous growth.
We've outpaced the debt "problem" not by cutting but by growing our GDP at a faster rate than our debt.
And there is still no evidence that at any of these future levels we will have a collapse just as past "levels of collapse" have been reached and then bypassed.
How is it that China has the smallest debt ratio as the most populous country in the world ?
They build for cheap, for their own ?
Baffling, their military costs money, but then again it is real cost, compare that to the hyper corporate cost America is paying out to the bloated military industrial complex.
I guess one thing you can say for a country that has Communism and socialism and less capitalistic, is the cost to operate the military will be cheaper overall.
Or you segregate that part of the economy and build your own stuff, for your own armed forces and then export it to other countries and get the money back into the government treasury, not the companies who made it for their profits.
It's very easy to operate a military cheaply when you are willing to a) sacrifice safety and effectiveness of the equipment your people operate, b) not have competitive pay and benefits for people who build, operate, and maintain equipment, and c) conscript anyone and everyone you want when people complain about pay and benefits.
But hey. At least China's saving butt-loads of money to spend on all those great social programs to lift the majority of its population out of global poverty conditions.
Good points all around, but I wouldn't be so quick to dismiss to dismiss Saintheart's post, Jabba.
The US only gets away with borrowing 40 cents of every dollar it spends not only because people are still willing to lend us money, but because we are the world's reserve currency. If that were to change, American standards of living would collapse overnight.
That might sound alarmist, but there have been concerted efforts by both Russia and Chinese to do exactly that. Both countries have been net buyers of gold in record amounts since the 2008 crisis, and China even openly called for a basket of currencies or even commodities to replace the dollar just after the meltdown. The IMF didn't go along with it (although they did start looking into Special Drawing Rights), but in the meantime, China has been quietly setting up dollar-exclusion trade zones with literally more than a dozen countries including the BRIC nations, Latin America, its neighbors in Southeast Asia, and Africa. Also, some countries have started limiting the amount of dollar reserves they are willing to hold, Mexico being one famous example.
So the idea of default or inflating away US debt is not really all that impossible, IMHO. If the world's second-largest economy is planning for a post-dollar world, I think it would be wise for America to do so, as well. One thing that could potentially provide a base of economic wealth are America's natural-gas reserves, which represent an asset that has 'real' value and can't be printed into oblivion. In closing, I would like to point out just how quickly interest rates on 10-year US Treasuries spiked at even the slightest whiff of an end to quantitive easing; this tells me just how fragile America's monetary system is at the moment. When the bond bubble pops, and it will, I would not be at all surprised to see China try and step in with a gold-backed yuan as an alternative to the dollar.
Whether they exceed or not is anybody's guess.
It would not serve China's (or Russia's) interests for us to collapse in the way you describe, Jay.
It would serve China's interests to replace the dollar as the world reserve currency. They have been actively working to that end for several years now. No one knows for sure what the impact of such a shift would be. It would certainly be very negative for the US but "collapse" of our economy could prove to be hyperbole. Who knows?
I suspect that China is banking on the US economy being robust enough to weather that storm sufficiently to maintain its current consumer relationship with China which is why they are laying the groundwork as they have been. Economic collapse is a function of market fears. China seems to be going about the business of (successfully in some cases) convincing other markets that they have nothing to be afraid of should the US dollar be replaced as the world reserve currency.
V-03 is unquestionably right that it will only be with development of our own natural resources, like natural gas, that we'll be able to weather that storm.
Who is Jay? Wasn't he played by Tommy lee Jones? Or Jay and Silent Bob?
Certainly. But I think KW's point is more along the lines of something you come to later.
Displacing the dollar as the reserve currency would have some advantages for China. But precisely because of the economic relationship you describe, it would certainly not be their goal--nor would they even find it acceptable--to make "the American standard of living collapse overnight." Since that would in significant part involve exports grinding to a halt.
There's no real basis for simultaneously being as apocalyptic as a lot of these posters are and trying to have a grounded discussion about global economic pressures. The Paulite position has no ground to stand on.
I don't think that V-03 was suggesting that it would be China's goal to collapse the American economy. He was pointing out one very feasible consequence of replacing the US dollar as the world reserve currency. What he said (correctly) was that we are currently able to maintain our incredible borrowing rates, at least in part, because we are the reserve currency. If that were to change, it is entirely possible that our economy could collapse (he said that it would, but the truth is we don't really know for sure). Without the economic advantage inherent in being the reserve currency, who knows how toxic our debt could become? We already operate at a high trade deficit. What would happen to our economy if all imports suddenly got 2-10% more expensive (depending on who you ask) as a consequence of not being the reserve currency?
You and I (and KW) agree that this China would not want to see our economy collapse under its own weight but we certainly can't conclude that because of this fact alone, it won't happen. That's conflating motive with effect. China is working diligently to replace the US as the reserve currency. I don't believe their motives are the collapse of the US economy, but that doesn't mean it can't happen as a consequence anyway. I believe that's what V-03 was getting at and I believe that dismissing those concerns with a hand wave of "China wouldn't want that" is myopic.
That's my real name, ShaneP. KW and I are old friends, and often refer to each other on a personal level around here.
And Josh, I agree, but stranger things have happened. It would really hurt China to do that, as the value of their Treasury holdings would tank, but I wouldn't put it past them. Both countries would love to see the dollar's reign end.
I hope I'm wrong, and I probably am, but I don't think it should be dismissed as 'impossible', that's all.
The bond market will eventually collapse, however, and that's when things are going to get ugly, at least for awhile.
It is of course absurd to argue that there are never unintended consequences. But it's also a strange species of analysis to propose that countries do not attend to their own interests. The Chinese are at least as aware of these dangers as are we, and that has to date informed the nature of their push for changes in the infrastructure of the global economy. It will likely continue to do so. Given that all the major players have a stake in the continued viability of the American economy, any transition is likely to include safeguards to ensure this outcome.
Also, that whole line of analysis ignores the actual reasoning behind the international currency flow during the economic crisis of the last few years. It wasn't just that the dollar was the international reserve currency. It was that relative to other options like the yen, Euro, and the pound sterling, the dollar actually represented the strongest/safest investment. Even as weak as the US economy it was doing relatively better, and had relatively more resilience than the alternatives.
i usually just forcefully pour the carton of salt down the economists gullet
It would be if I made such an analysis. But I didn't. Nor did anyone, to the best of my knowledge.
My point is that the dollar may not always be the "best" alternative. Being the "least bad" is nothing to crow about. It may help us the short term, but I'd rather have a strong economy on the fundamentals than because of rampant money-printing by the fed. That's what Souderwan was trying to clarify; China's a pit of malinvestment, but it might not always be. As for the US being the only safe haven, we put that at risk every time we go to the brink on the debt ceiling.
A default would our safety-net status in an instant, if only on psychological reasons alone.
It's all leading to this.......
No it isn't.
Didn't Ron Paul say in 2009 that hyperinflation would be upon us in 2 years? That the price of gold and silver would be astronomically high?
Where are we today, hmm?
Closer than you might think.
The interest rate on 10-year Treasuries shot up on just a hint of a pullback in quantitative easing; when the Fed actually stops the printing the equity and bond markets will tank. If they don't stop printing, eventually, interest rates will rise regardless, and the world's central banks might very well lose control of the monetary system.
There doesn't have to be 'blood in the streets' for it to get really bad. A 30% reduction in the value of the dollar-already down 50% since 2000 and 90% since 1900-would be enough. Having to borrow to pay the interest on your debt is bad, always; eventually, people may stop accepting dollars. It's unlikely, but it is possible.
2009?! He's been warning against hyperinflation caused by the Fed since God only knows when.
His son is just as ridiculous regarding inflation theories. But that's because he actually derives his monetary beliefs from a fiction novelist.
The Economist tore apart his belief that debt leads to hyperinflation in May and Matt O'Brien from the Atlantic proved how utterly insane his belief in tying the value of the dollar to a commodity standard because ... Ayn Rand says so.