What is this guy talking about

I'm sorry but that statement doesn't really make sense to me cloud. How could we not go into a period of hyper inflation by printing off money to pay our debt? Also who the H is still buying U.S. treasury bonds anyway?

 

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Jason, say you are a rich business man in Taiwan. Business expansion is somewhat limited on the small island. Where are you parking excess money? Taiwan pays zero percent interest in banks there. China? Still a third world nation financial wise and banks are in massive trouble there. Europe? They have had issues, ask Greek bond holders. Brazil was bid up and now holders there are taking losses.

Countries like Australia and Canada are propped up by mining and agriculture, and if those market swoon could be in trouble, but are small markets to invest in relatively. Where is the safe place to park some money looking around the globe? Where would your perfect place be versus US Treasuries?

 

We'll have to wait and see how it goes. Most of the holders of the debt are not consumers. So if they are forced into another asset class or another country, there is no reason to automatically believe that price levels will shoot up because they won't spend the money. Maybe there will be inflation. Maybe deflation. Nobody knows because it hasn't happened yet and the outcome depends on policy decisions that haven't been made yet. The mistake the hyperinflation crowd makes is that they take one base case and assume there is no alternative to that particular scenario.

 

Except that mathematically, such systems doom themselves. The USD was already defaulted on once when Nixon was forced to close the window lest the USA be drained of all its real assets. Now 40 years later, the real economy is being destroyed because of the same reasons.

The reasons are very real as is the inclination to ignore them.

If one simply chooses to ignore the math, which I won't get into again, then history is the other example. There is no example of a fiat system lasting more than 50-70 years. Most are less. The USA is currently at 41 years.

 

First, what math are you even talking about. You say "mathematically" they doom themselves, how?

Second, as far as historical fiat systems, where do you get that number? The Byzantine empire had a two tiered system, one gold mainly for external payments and one bronze for internal transactions. The bronze coins circulated at well above bullion value of the coins for nearly 1000 years. Isn't that a fiat system, 1000 years of bronze coinage circulating at a value well above intrinsic metal value? How much of a premium above melt value is considered fiat, since most coinage systems in history have been higher than melt value of the coins. For most of CHinese history cash coins were much higher worth than the bronze inside them. Isnt that a fiat system?

 

I don't think anyone can logically blame everything on fiat currency. Certainly globalism, regulation, demographics, technological advances, entitlement programs, immigration, war, energy shortages, increases in the number of college graduates, cold war, end of the cold war, and a host of other events over the past 4 decades have had more of an effect on the nation than the convertibility of the dollar into gold. With or without gold convertibility, the country would probably have ended up about where we are now. I know you will fight to the death before admitting it, but that's your problem.

 

It was stated in cloud's post and has been discussed here before. It takes a little thinking to figure it out however. Any system that is increased at a constant linear rate, in our case inflation, experiences exponential growth.

Exponential systems are also positive feedback systems and by definition they are unstable and either tear themselves apart or are destroyed by their effects. Think of a gasoline engine where the accelerator can only move forward. By its nature, Central Banking is created specifically to eliminate monetary deflation (negative feedback) hence the system can never self regulate.

 

There is nothing wrong with just fiat currency. It's the implementation of fiat currency by central banking system, where a small number of un-elected men make all decisions on it's availability, that is inherently wrong.

Once men find out they can create money out of thin air, they will willingly do so and without regards to its effects.

 

You're making progress.

I agree with the second part that a central bank is unnecessary. But the Fed has shown itself to be responsive to the needs of the economy, and provides a large talent pool to provide risk management oversight of the banking system, and in dealing with other central banks. Without the Fed, or an equivalent division within the Treasury Dept., it would be open season for foreign central banks to prey on the US financial system. I don't like the Fed, but I also recognize that they may be a necessary evil in a world of almost constant economic warfare. They are mercenaries, but they are our mercenaries and should be treated accordingly and watched carefully.

 

Increases at a linear rate are linear mathematically. Exponentiation is only a function of baselining it on year zero. Your "mathematics" fails.

Pragmatially, every 100 year lop off two or three zeros off your currency and you are done. Easy peesy. Inflation gets out of hand, maybe you have to lop off a couple of extra zeros. We have already experienced this, with a dollar having the purchasing power of a cent 100 years ago. Basically the dollar is the new penny, just like we should expect $100 bill to be the new dollar in the future. Don't like it? Like I said lop off two zeros and make an old $100 the "new $1". Countries around the world have done this for a long, long time.

Btw, thanks for the "It takes a little thinking to figure it out however". Always one to try to insult the intelligence of anyone disagreeing with you, aren't we?

Your comparison with a engine is ill conceived and irrelevant.

 

I completely disagree. When the President of the USA has to come on television to make the unprecedented step of asking the American people bail out the central banking system or risk disaster, then the Federal Reserve has completely failed at its mission. Risk of failure has been removed from the system, what you can do when you can print money at will, and hence, the system is doomed to failure.

In terms of making "progress" even a simpleton should realize that any tool is harmless. It's what's done with it that matters.

 

You realized that, did you?

Good for you. Here is a ribbon for participating.

 

Son, where you have yet to go, I've already been there and done that.

 

[Disclaimer- not trying to be rude]

My overall opinion is that the multiplier effect is a dangerous beast. Essentially profits generate investing in further growth, which leads to further investing, and more profits, and more growth.... The beast has to be fed with consumption... bottom line. When you meet maximum capacity of consumption and are not producing profits then what? Where does the extra money get generated from unless it is printed? Essentially you have the same money continually changing hands. What about the reverse multiplier effect? Kind of a cop out in my opinion. One giant bubble. I could have misinterpreted your comments but that is the way I took it. And if it has to do with some banking system, I simply do not understand it.

This expectation of consumerism must be met... It seems evident that the fed tackles this issue with expansionary monetary policy. Granted we are at low levels of inflation, but my generation has no clue about what happened in the 1970's.

Also why would China/India all of the sudden invest so heavy in Gold? This is just speculation, but they are not as confident in US backed securities and expect future inflation via the USD.



I know that this sounds kind of (doomsdayish, but this is how I feel about the issue). As far as what exactly is going on in the banking system I simply cannot wrap my head around it.

Feel free to shred these opinions apart.

 

...and continual growth, which as you noted, is not sustainable in the long run. You cannot grow forever. Not in production, profits, consumption, spending, debt or population.

Which gets me wondering sometimes. If the next big economic collapse happens because of a declining working population, what value will precious metals have? If demand for the products that use PM's decline, and all the PM stashes of us old timers tipping over hit the market at the same time, then what?

 

What I think you are failing to consider regarding "consumption" is that it does not have to mean more and more goods, but higher quality. When someone buys organic green beans they are "consuming" more than if they bought regular ones. Does the planet suffer because of this choice? No. Are natural resources more affected? No. But, its higher consumption.

Now, unlimited growth like Balubart mentions cannot be sustained forever, but increased consumption, if allowing for quality improvements like I describe, can.

 

Well I've thought about this. Personally I am just a layman and do not have the answers. So many more people on this forum and others are in the know where I am not.. but I will speculate.

The way I've pictured it we are on the weather channel watching a hurricane approaching. The time is unknown, it may be 2 hours, it may be 2 days, but it is comming. When it happens it is horrific, things get damaged, and infrostructure shuts down.

But... surprisingly as soon as it is over people react. They get outside... they meet their neighbors... everyone participates in the cleanup. Resources are pulled, action is taken, and things happen. Sooner than later things are up and running again.

In pure speculation I would say that the hurricane is comming, but it will not be the end all be all.. I believe the reaction to rebuild will surprise the heck out of us. We will do things that we never thought imaginable. Afterall we are a self sustaining country.

I've mentioned this before, but there was a pivital moment for me on deployment. We were bumping through the dusty desert in Afghanistan and I saw a woman and daughter collecting tumble weeds. They apparently used the tumble weeds to turn into baskets. The little girl was smiling. They had nothing. We are rich in resources.

 

In the event of an economic collapse.. here is my speculation. With the onset of massive inflation worldly nations will turn towards PM's as an alternative investment. If or when the collapse happens, than the price/value of PM's will vanish temporarily because it is a non essential. But with the resurgance of a new economic platform I doubt that people will be willing to ever accept fiat currency as it was previously. This would make a good case for longterm PM values... as compared to any fiat currency. I see PM's especially silver as a wise long term investment, but that is just me.

Here is recent speculation from a day trader on the future of Gold/Silver

If you consider that gold reached a high of $850 per ounce in the 80's and then dropped to $300 per ounce where it languished for many years then had you bought at $850 per ounce 30 years ago, your annual return at today's prices would've been ( $1,662 / $850 )^( 1 / 30 ) - 1 = 2.26% per annum and had you bought at $300 per ounce, it would be 5.87% per annum. So gold has just closely tracked the rate of inflation over the past thirty years, it's current price is no indication that it is abnormally high. Silver is an interesting commodity, in just a few years, most of it's primary market has disappeared, digital photography has replaced the need for film, likewise CCD's have also replaced the use of silver film to detect radiation, you won't find an X-ray plate in a hospital any more or a film dosimeter in a nuclear power station. Silver may gain a resurgence in industrial use when electric vehicles become more common place as it's very useful in chemical reactions such as in a battery. Silver mining is also non-existent at the current time, it's production is a byproduct of mining for other metals like copper, aluminum and iron. This makes it very difficult to determine the valuation of silver.

 

Maybe I am just an optimist, but I don't see a storm. I see some turbulence, sure, but think we will basically deflate our currency some, (steal from the savers), make SS need based, (steal from the savers), and keep interest rates low to make national debt interest cheap, (steal from the savers). Add some consumer confidence, a little growth, and debt is managable again.

Maybe I just lived through the 70's when the media portrayed nothing but vicious depressing stories how we were doomed. We got some hope, got through it, and moved on.

Yes, ignoring obvious warning signs is silly. However, focusing on purely negatives like the PM hype crowd likes to is also silly. I have mostly stopped reading anything at coinflation since there is so much doom and gloom every day reported there. Those who seek out and only read about doom and gloom only see doom and gloom, and to me its a depressing way to live.

Save some money, have some fun, enjoy your family. Sorry to say, that is about the only thing most of us can ever hope to do. Why spend 20 years preparing for an apocalypse? If you are right, life sucks. If you are wrong, life sucks. Either way you spend 20 years in a bad mood preparing for the worst and not living your life.

Sorry, maybe its just a sore point for me. Growing up I knew a girl who later killed herself saying she could not live with the fear of atomic warfare. She ruined her life because of fear of the future. I do not wish you to do the same only worrying about "the hurricane".

 

Ooops. Ok I've snapped back into reality. I'm not a doomsdayer, but I am very bullish silver.