Author Topic: The Almighty Dollar Thread  (Read 3634 times)

Greenback Reproduction Specialist

  • Bristles
  • ***
  • Posts: 479
  • Location: Running barefoot thru Idaho mountains
The Almighty Dollar Thread
« on: June 27, 2019, 01:27:25 PM »
I'm not even sure where to start..... But lets start with a basic understanding of what a dollar really is and how it is affected by supply and demand. My hope is to start a discussion about logical ways to preserve and/or grow wealth in our current economic and political climate if we experience a rapid decline in the value of the dollar. Maybe my second post I will add my thoughts on preserving wealth, I will try to keep this post to describing the situation of concern.

What is the paper dollar in your pocket? When boiled down to simple terms it is a note, much like a bank note, on goods and/or services that society owes you for whatever you did to own that note. Its a medium of exchange, much more efficient than a barter system, or other previous systems of exchange. The dollar, along with all goods and services in an economy, is valued relative to the supply and demand of other goods and services, as well as its own supply and demand.

Laws of supply and demand in relation to the history of the dollar.
The dollar at one time was backed by something with limited supply specifically to prevent producing an over supply of the currency. This allowed it to maintain a steady value over long periods of time. Which was part of the reason people around the world became very comfortable holding dollars as a store of wealth, not to mention that it used to pay a decent dividend. For a long time this drove demand for the dollar. The dollar is no longer back or pegged to something with a limited supply. However, the dollar is still accepted as a safe store of wealth due to its relative stability. Other countries/central banks still appear to be willing to accept dollars as a reserve. But the previous financial crisis shook a lot of confidence. Confidence appears to be the only thing maintaining demand for the dollar. The thing about confidence is that it takes a long time to earn, and if abused can be easily lost. A loss of confidence would result in a drop in demand. If that happens, could we expect to see a drop in the supply of dollars to help counter balance the drop in demand? If the past is any indication, my guess is probably not. Especially when you consider the go to play book for the fed is "print more dollars to stimulate more".

So.... Are you concerned about a dollar crisis and its impact on your wealth? Why? Why Not?

If you are, How are you positioning yourself to mitigate that risk?

Anything to add to the understanding of the dollar and its value as an economical tool/global medium of exchange?

Please feel free to post relevant sources, or current event updates.


GuitarStv

  • Senior Mustachian
  • ********
  • Posts: 14614
  • Age: 38
  • Location: Toronto, Ontario, Canada
Re: The Almighty Dollar Thread
« Reply #1 on: June 27, 2019, 01:31:18 PM »
The concept of the dollar is a kind of share fiction between a large number of people.  It's a medium of faith based exchange.  At the moment, faith in the US dollar is still pretty high.  As long as this belief doesn't waver everything should be fine.

Greenback Reproduction Specialist

  • Bristles
  • ***
  • Posts: 479
  • Location: Running barefoot thru Idaho mountains
Re: The Almighty Dollar Thread
« Reply #2 on: June 27, 2019, 01:55:36 PM »
Hmm interesting, you are living in canada still? Do you own any dollar denominated assets?

Do you ever have similar discussions about a weakening CAN dollar in your country?


GuitarStv

  • Senior Mustachian
  • ********
  • Posts: 14614
  • Age: 38
  • Location: Toronto, Ontario, Canada
Re: The Almighty Dollar Thread
« Reply #3 on: June 27, 2019, 02:33:51 PM »
Hmm interesting, you are living in canada still? Do you own any dollar denominated assets?

Do you ever have similar discussions about a weakening CAN dollar in your country?

Yep.  Living in Canada.  I figured that you would be referring to US dollars as that's the dollar most commonly traded and discussed, but my comments certainly apply to all modern forms of currency.  (Well, not bitcoin . . . there's precious little faith in it at the moment, but a small following of faithful have been growing.)

thenextguy

  • Stubble
  • **
  • Posts: 205
Re: The Almighty Dollar Thread
« Reply #4 on: June 27, 2019, 05:01:59 PM »
So.... Are you concerned about a dollar crisis and its impact on your wealth?

No.

Quote
Why? Why Not?

I don't see any reason to be.

BicycleB

  • Handlebar Stache
  • *****
  • Posts: 1838
  • Location: Live Music Capital of the World
  • Older than the internet, but not wiser... yet
Re: The Almighty Dollar Thread
« Reply #5 on: June 27, 2019, 05:27:34 PM »
^I concur.

I used to think the Fed was probably a bunch of fools and inflation was going surge back and maybe everything would fall apart. I now think my own death is likely but a collapsing dollar less so.

The biggest pieces that shifted my thinking were:
-Learning more about economics
-Reading actual Fed minutes sometimes, and realizing that the Fed does a remarkably good job of considering and balancing numerous factors
-Learning that economists themselves are vigorously studying and debating the mysterious-even-to-them fact that inflation seems to be drifting down more than up in the dollar specifically, but major currencies generally (I think)
-Noticing that where many governance bodies struggle to handle populist movements, or operate in an opaque manner, the Fed has a visible schedule of public discussion that explicitly drives its decisions... a form of very public accountability

Sample source: https://www.stlouisfed.org/publications/regional-economist/first-quarter-2018/why-inflation-so-low

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 6235
  • Location: Fayetteville, NC
Re: The Almighty Dollar Thread
« Reply #6 on: June 27, 2019, 07:03:19 PM »
The vast majority of my expenses are in dollars.     Most of my income is initially valued in dollars.

I don't need to purchase much other than food, medicine and utilities and most of those are created with dollar-based expense and income concerns.

So, for the most part, it wouldn't affect me.   Some items would go up in price if the dollar went down relative to other currencies.  But as I only purchase most of them infrequently if at all, meh.   

My international stock holdings would become more valuable and would provide me more dollars to spend.   So would the international portion of the US-based multinationals. 

American goods would become relatively cheaper so manufacturing that uses US-based resources would get a boost.   So would farming.   Businesses that import mostly overseas products and parts would be hurt.

The numbers of tourists and students coming to America would normally go up but given overseas perceptions of our current administration's treatment of foreigners, maybe not so much as before.

The biggest problem I see is that if foreigners don't want to park their money in US Treasuries then the rates the US Govt has to pay for interest will go up dramatically.   That would cause major issues since our government's amount of debt is horrendously high.   

That's my take.

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1593
  • Location: West of the Mountains, East of the Sea
  • One does not simply work into Mordor
Re: The Almighty Dollar Thread
« Reply #7 on: June 27, 2019, 09:11:07 PM »
Pretty common question actually. Loss of confidence in the dollar is inflation or hyperinflation. So many ways about it.
Don't overdo bonds. A contract that says you will be paid in dollars will be worthless.*
Long term bonds are worst, while money markets/short term treasury bills and Ibonds/TIPS are better but still marginal
So don't pay off your mortgage if you are concerned.*
Own "real" assets (real estate, commodities, gold, companies with low price to book value)*
In fact SwordGuy brings up the point that "value" companies in general may do better in this case*
Own assets denominated in foreign currencies*
Bernstein argues that in the past gold mining company stock did especially well in these times, better than gold or other commodity stocks*

*I employ this method, but not necessarily for this explicit reason

Am I concerned? Not immediately. I look at places such as Japan and the Eurozone for prophecy. So far confidence in their currencies and systems is high and increasing, as evidenced by lowering yields. The US would really have to screw the pooch through civil war, a third world war, political dysfunction orders of magnitude worse than anything in the past century, or something else to independently cause a dollar crisis. That said, history shows that this does happen from time to time. Question though, would you have earthquake insurance if you lived in Missouri?

My hope is to start a discussion about logical ways to preserve and/or grow wealth in our current economic and political climate if we experience a rapid decline in the value of the dollar. Maybe my second post I will add my thoughts on preserving wealth, I will try to keep this post to describing the situation of concern.
The current economic and political climate sees confidence in the dollar very near to its all time high, and rising. Are you wondering about some hypothetical future environment?

Classical_Liberal

  • Handlebar Stache
  • *****
  • Posts: 1151
  • Age: 43
Re: The Almighty Dollar Thread
« Reply #8 on: June 28, 2019, 03:40:01 AM »
I think the current confidence in the dollar is related to the fact it's the only major, stable currency in a the developed world in which the issuing government (yes, yes it's a Fed reserve note, I know) is actually paying positive interest rates.  Basically is the best of what's available. Second, the fact most oil producing nations sell their oil is dollars (ie petro dollar), so it's backed by the potential to purchase energy, which is a limited resource. 

I see no way the dollar loses it's reserve currency status in the near future.  However, when it eventually does, US economic policies will have to change drastically, and there are certainly other world powers with a vested interest in getting out of dollar backed reserves.  It's only a matter of time, but maybe not in my lifetime.

Edit: If you are considering the social construct idea of currency in general and worry that is an issue, think about it this way... ALL human interactions are only a social construct.  Real property does no good if the social construct of ownership rights change. Anything you own, you only own because of the social construct/legal system which gives you that right of ownership.
« Last Edit: June 28, 2019, 03:43:08 AM by Classical_Liberal »

Greenback Reproduction Specialist

  • Bristles
  • ***
  • Posts: 479
  • Location: Running barefoot thru Idaho mountains
Re: The Almighty Dollar Thread
« Reply #9 on: June 28, 2019, 09:41:46 AM »
^I concur.

I used to think the Fed was probably a bunch of fools and inflation was going surge back and maybe everything would fall apart. I now think my own death is likely but a collapsing dollar less so.

The biggest pieces that shifted my thinking were:
-Learning more about economics
-Reading actual Fed minutes sometimes, and realizing that the Fed does a remarkably good job of considering and balancing numerous factors
-Learning that economists themselves are vigorously studying and debating the mysterious-even-to-them fact that inflation seems to be drifting down more than up in the dollar specifically, but major currencies generally (I think)
-Noticing that where many governance bodies struggle to handle populist movements, or operate in an opaque manner, the Fed has a visible schedule of public discussion that explicitly drives its decisions... a form of very public accountability

Sample source: https://www.stlouisfed.org/publications/regional-economist/first-quarter-2018/why-inflation-so-low


Now thats interesting, for me, the more I've learned about economics and business, the more I question how sound our current system is. Im pretty certain we've been hood winked and I've yet to see a logical reason why we have not seen inflation. But, I have a theory about what happened. I'm not sure its worth worrying over at the moment, but I am concerned about confidence in the dollar from an outside perspective because of how much we have riding on that confidence. No one in their right mind would run a business or organization like this without risking collapse.

Do you have a theory or explanation on where all the QE went? And why it hasnt shown up in the real economy as inflation? Because that was a MASSIVE amount of money printed, or maybe we have seen it?

Greenback Reproduction Specialist

  • Bristles
  • ***
  • Posts: 479
  • Location: Running barefoot thru Idaho mountains
Re: The Almighty Dollar Thread
« Reply #10 on: June 28, 2019, 09:47:46 AM »
The vast majority of my expenses are in dollars.     Most of my income is initially valued in dollars.

I don't need to purchase much other than food, medicine and utilities and most of those are created with dollar-based expense and income concerns.

So, for the most part, it wouldn't affect me.   Some items would go up in price if the dollar went down relative to other currencies.  But as I only purchase most of them infrequently if at all, meh.   

My international stock holdings would become more valuable and would provide me more dollars to spend.   So would the international portion of the US-based multinationals. 

American goods would become relatively cheaper so manufacturing that uses US-based resources would get a boost.   So would farming.   Businesses that import mostly overseas products and parts would be hurt.

The numbers of tourists and students coming to America would normally go up but given overseas perceptions of our current administration's treatment of foreigners, maybe not so much as before.

The biggest problem I see is that if foreigners don't want to park their money in US Treasuries then the rates the US Govt has to pay for interest will go up dramatically.   That would cause major issues since our government's amount of debt is horrendously high.   

That's my take.


Good points, especially the point about bringing back manufacturing, production would get a boost and that would be a good thing. It seems like holding real estate that is capable of producing something would be a good store of wealth in any scenario.

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 6235
  • Location: Fayetteville, NC
Re: The Almighty Dollar Thread
« Reply #11 on: June 28, 2019, 09:56:29 AM »
The vast majority of my expenses are in dollars.     Most of my income is initially valued in dollars.

I don't need to purchase much other than food, medicine and utilities and most of those are created with dollar-based expense and income concerns.

So, for the most part, it wouldn't affect me.   Some items would go up in price if the dollar went down relative to other currencies.  But as I only purchase most of them infrequently if at all, meh.   

My international stock holdings would become more valuable and would provide me more dollars to spend.   So would the international portion of the US-based multinationals. 

American goods would become relatively cheaper so manufacturing that uses US-based resources would get a boost.   So would farming.   Businesses that import mostly overseas products and parts would be hurt.

The numbers of tourists and students coming to America would normally go up but given overseas perceptions of our current administration's treatment of foreigners, maybe not so much as before.

The biggest problem I see is that if foreigners don't want to park their money in US Treasuries then the rates the US Govt has to pay for interest will go up dramatically.   That would cause major issues since our government's amount of debt is horrendously high.   

That's my take.


Good points, especially the point about bringing back manufacturing, production would get a boost and that would be a good thing. It seems like holding real estate that is capable of producing something would be a good store of wealth in any scenario.
A chunk of our retirement income is in rental properties, another chunk is in rented out farmland, social security of course, and the rest in stocks and bonds.

Greenback Reproduction Specialist

  • Bristles
  • ***
  • Posts: 479
  • Location: Running barefoot thru Idaho mountains
Re: The Almighty Dollar Thread
« Reply #12 on: June 28, 2019, 10:39:57 AM »
Pretty common question actually. Loss of confidence in the dollar is inflation or hyperinflation. So many ways about it.
Don't overdo bonds. A contract that says you will be paid in dollars will be worthless.*
Long term bonds are worst, while money markets/short term treasury bills and Ibonds/TIPS are better but still marginal
So don't pay off your mortgage if you are concerned.*
Own "real" assets (real estate, commodities, gold, companies with low price to book value)*
In fact SwordGuy brings up the point that "value" companies in general may do better in this case*
Own assets denominated in foreign currencies*
Bernstein argues that in the past gold mining company stock did especially well in these times, better than gold or other commodity stocks*

*I employ this method, but not necessarily for this explicit reason

Am I concerned? Not immediately. I look at places such as Japan and the Eurozone for prophecy. So far confidence in their currencies and systems is high and increasing, as evidenced by lowering yields. The US would really have to screw the pooch through civil war, a third world war, political dysfunction orders of magnitude worse than anything in the past century, or something else to independently cause a dollar crisis. That said, history shows that this does happen from time to time. Question though, would you have earthquake insurance if you lived in Missouri?

My hope is to start a discussion about logical ways to preserve and/or grow wealth in our current economic and political climate if we experience a rapid decline in the value of the dollar. Maybe my second post I will add my thoughts on preserving wealth, I will try to keep this post to describing the situation of concern.
The current economic and political climate sees confidence in the dollar very near to its all time high, and rising. Are you wondering about some hypothetical future environment?

I agree with everything you and sword guy are saying, and I've come to a lot of the same conclusions.

To your question, I do wonder about a lot of possible hypotheticals, and I'm looking at a long timeline to insure the wealth I'm building is protected against loss.  Here are some of the factors though that concern me when I think about the loss of purchasing power or wealth in general.

(Not in any particular order of importance)
-China working diligently to take the role of reserve currency given the opportunity.
-The current direction of consistently increasing taxation on everything and anything.
-The absolute waste of the money taken as taxes from producing parts of the economy and given to non producing parts of the economy.
-Ally countries requesting their gold reserves be shipped back home.
-The inability of the economy in a recovery to support greater than 3% interest rates. (think about how telling that is)
-The fact that the average household has very little savings or real networth, and that the general mind set is pretty toxic when it comes to maintaining or growing a strong economy.
-The fed continues to print money at ever increasing rates.
-The gov continues to borrow at ever higher amounts, which then gets used for non productive, inefficient, sometime even counterproductive things.
-Congress cant pass a balanced budget, and instead spends their time arguing about irrelevant topics.

The system is absolutely dysfunctional, or maybe its just because its all out in the open that is has that appearance. Maybe we just dont hear enough about the critical factors that are real "wins" and steps in the right direction. But even if that is the case, if I have that opinion from the outside looking in, what does that say? that appearance cant be adding to confidence in the system. It just seems phony like a facade. Kind of like.... You know up is up, but we have been told for so long that up is down and people have been programmed into believing it. Everyone knows how a strong business or organization should run, and the economy as a whole does not represent the example of a well run organization, but we are told it does. If any organization had as much debt or unfunded liability as the US does, no one in their right mind would feel warm and fuzzy about investing in it. At least not for long, you might sucker a few unlucky saps, but eventually the rust and decay starts to show through.

All that aside I am optimistic, we as a nation are responsible for A LOT of innovation in the country. We do a great job at coming up with new products and services. I just worry that we are squandering an opportunity as a nation and I dont know how long we can continue to innovate and produce given the current trends. I would like to see a mindset shift in how we as a nation treat our wealth.

All of this relates to confidence supporting the dollar, which is the only thing backing the little piece of paper.

Greenback Reproduction Specialist

  • Bristles
  • ***
  • Posts: 479
  • Location: Running barefoot thru Idaho mountains
Re: The Almighty Dollar Thread
« Reply #13 on: June 28, 2019, 10:43:28 AM »
A chunk of our retirement income is in rental properties, another chunk is in rented out farmland, social security of course, and the rest in stocks and bonds.

I like the idea of building a rental portfolio, and have thought about farmland but it seems out of reach at the moment and beyond my knowledge to manage. Even thought about land to manage for timber or mineral production(like a gravel pit).

How is the farmland working out for you? I've always been interested in what the returns might look like and management challenges.
« Last Edit: June 28, 2019, 11:07:10 AM by Greenback Reproduction Specialist »

BicycleB

  • Handlebar Stache
  • *****
  • Posts: 1838
  • Location: Live Music Capital of the World
  • Older than the internet, but not wiser... yet
Re: The Almighty Dollar Thread
« Reply #14 on: June 28, 2019, 12:23:53 PM »

Do you have a theory or explanation on where all the QE went? And why it hasnt shown up in the real economy as inflation? Because that was a MASSIVE amount of money printed, or maybe we have seen it?

Some of it's been unwound (reversed) already. Most of the other actions that went with it have been unwound, though neutral interest rates are lower before. Initially, QE and the other measures kept the economy going instead of collapsing - a positive effect. So we saw "the money" primarily in the form of an economy that recovered. Year by year, as the economy strengthened, portions of the intervention were withdrawn.

In this, I don't just mean QE per se, but the whole set monetary and related interventions performed by the Fed and the US govt. By 2011, the unwinding path had been laid out, mostly by the Fed. It's kind of amazing how accurately the path has been followed. The correlation between bold plan made during stressful uncertainty and the actual step by step success is surprising to me, but calming. I'm honestly impressed.

As I understand it, the general sequence was to:
-Bail out banks with all means available, including TARP
-Slam interest rates down to zero nominal, negative real rates if inflation occurred
-Create QE
-Supplement this with auto bailout (a govt move)
-Stimulate economy via govt spending (govt move mentioned by Fed as "would be helpful")

Then the unwinding:
-Slowly pay back TARP
-Finish the stimulus, don't replace it
-Get paid back from the auto bailout
-Raise rates
-Unwind QE

Basically, they've done the whole thing except for some of the QE unwind. I'd feel better if they finished that, of course, but the overall intervention is something like 70 to 90 percent completed, depending on viewpoint. Interest rates are lower than before, but may be appropriate; in any case, they're positive in real terms as well as nominal ones.

There's an argument that since we're near the end of a boom and not done unwinding QE, we've ratcheted down by one safety level. Reasonable, but a dollar collapse seems like an unlikely outcome. In recessions since the 1980s, inflation goes down, not up. When there's no business to be had, and stocks are falling, dollars seem safer to people.

Here's some basic sources offering explanations that appear to draw on the same perspective:

"the economy was deflationary"
https://www.investopedia.com/articles/investing/022615/why-didnt-quantitative-easing-lead-hyperinflation.asp

article noting pros and cons of completely unwinding QE, aka "returning to pre-crisis lean balance sheets". Article does document that QE, in fits and starts, partially unwound between 2014 and 2018.
https://www.worldfinance.com/banking/the-qe-reversal

Does any of that help?

Here's another way to look at it. This is an underlying idea; maybe it's the missing piece? In a recession, usually people hold onto dollars; they circulate more slowly. "Money velocity" falls. QE and the other governmenal interventsions in the economy counteracted that. As money velocity recovered, the interventions were mostly withdrawn. Here are links on money velocity:

https://en.wikipedia.org/wiki/Velocity_of_money
https://www.investopedia.com/terms/v/velocity.asp


« Last Edit: June 28, 2019, 12:44:19 PM by BicycleB »

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 6235
  • Location: Fayetteville, NC
Re: The Almighty Dollar Thread
« Reply #15 on: June 28, 2019, 01:13:09 PM »
A chunk of our retirement income is in rental properties, another chunk is in rented out farmland, social security of course, and the rest in stocks and bonds.

I like the idea of building a rental portfolio, and have thought about farmland but it seems out of reach at the moment and beyond my knowledge to manage. Even thought about land to manage for timber or mineral production(like a gravel pit).

How is the farmland working out for you? I've always been interested in what the returns might look like and management challenges.

The farmland is working out ok for us.  I claim absolutely no smarts or special knowledge on this topic.   The original farm, which we own 1/3 of, was my grandparent's and came to me via my mom and dad's estate.   The other farm, which we own 1/2 of, was purchased by my parents and my mom's brother for their parents to farm.  They inherited it and passed it on to us.

My uncle has been managing the farm business since about 1965.   He passed away earlier this month, but not before training his son and grandson how to do it.   We inherited it about 3 1/2 years ago and just left things as they were.   The rest of the farm is owned by my two aunts and, I expect, will be passed down to their children in some fashion.

Provides about $20,000 in income a year, though I expect with all the Trump "help" in Chinese trade relations this year it will be way down this year.   Farmland is hard to get a value on since it doesn't tend to come up for sale often, but my best guess is our share is worth around $500,000, which makes it comparable to a stock portfolio for a safe return.

We're not going to rock the family boat and force anyone to do anything.   $20,000 a year for about 15 minutes a year worth of work, providing a source of income that's not tightly correlated to our other investments, is too good to pass up.

If some of our cousins want to sell if they inherit, we'll likely purchase it if the price is reasonable (and their siblings don't want it).   

Sorry I can't give you better info.

If you are interested, I would suggest talking to your nearest county farm extension agent and see what knowledge they are willing to impart.

John Galt incarnate!

  • Pencil Stache
  • ****
  • Posts: 806
  • Location: On Cloud Nine
Re: The Almighty Dollar Thread
« Reply #16 on: June 28, 2019, 06:41:43 PM »




To your question, I do wonder about a lot of possible hypotheticals, and I'm looking at a long timeline to insure the wealth I'm building is protected against loss.  Here are some of the factors though that concern me when I think about the loss of purchasing power or wealth in general.

(Not in any particular order of importance)
-China working diligently to take the role of reserve currency given the opportunity.
-The current direction of consistently increasing taxation on everything and anything.
-The absolute waste of the money taken as taxes from producing parts of the economy and given to non producing parts of the economy.
-Ally countries requesting their gold reserves be shipped back home.
-The inability of the economy in a recovery to support greater than 3% interest rates. (think about how telling that is)
-The fact that the average household has very little savings or real networth, and that the general mind set is pretty toxic when it comes to maintaining or growing a strong economy.
-The fed continues to print money at ever increasing rates.
-The gov continues to borrow at ever higher amounts, which then gets used for non productive, inefficient, sometime even counterproductive things.
-Congress cant pass a balanced budget, and instead spends their time arguing about irrelevant topics.




When the Sixteenth Amendment was debated on the floor of the U.S. Senate dismissive laughter ensued when reluctant  senators  warned that the rate of  federal income tax could reach as high as 3%.

Political economy will become increasingly redistributionist which poses the most serious threat to Mu$tachian$' wealth and their  expectations of future income streams.


As long as increased taxation is not a contrived expediency,  or arbitrary exercise of Congress' or the several States' taxing power, the courts will defer to their judgment as to the requisite level of increased taxation necessary to promote  the general welfare, and meet the more parochial, particular needs for safety-net interventions among the several States.

Here, the courts' only concern is that exercise of the  taxing power is within constitutional bounds. The courts do not decide the wisdom or unwisdom of increased taxation; that decision  occurs at the ballot box on election day.


PDXTabs

  • Handlebar Stache
  • *****
  • Posts: 1325
  • Age: 36
  • Location: Portland, OR, USA
Re: The Almighty Dollar Thread
« Reply #17 on: June 29, 2019, 09:02:51 PM »
Its a medium of exchange, much more efficient than a barter system, or other previous systems of exchange.

I highly suggest the book Debt: The First 5,000 Years David Graeber . It's a tough read, but worth it.

So.... Are you concerned about a dollar crisis and its impact on your wealth? Why? Why Not?

If you are, How are you positioning yourself to mitigate that risk?

No, because I very carefully keep very little of my wealth in US dollars (or any other currency). I keep 95% of my net worth in a globally diverse equities portfolio, in large part because I don't trust the current administration to no to do something that would cause the world to lose faith in the US dollar.

PDXTabs

  • Handlebar Stache
  • *****
  • Posts: 1325
  • Age: 36
  • Location: Portland, OR, USA
Re: The Almighty Dollar Thread
« Reply #18 on: June 30, 2019, 09:22:32 AM »
Do you have a theory or explanation on where all the QE went? And why it hasnt shown up in the real economy as inflation? Because that was a MASSIVE amount of money printed, or maybe we have seen it?

I'm not a professional economist, but I think that we have seen it in asset prices (equities, bonds, and real estate). Furthermore, the way that the Fed executed QE basically gave the money to the banking and shadow banking sectors. Just because you give a bunch of money to the bank doesn't mean that inflation goes up, you need the money to actually be chasing a limited supply of goods in order to spark inflation. However, eventually they did spend/lend the money, and we seen asset inflation in things like real estate.

So, to my mind, we should have actually used the helicopter money approach. Real people on main street would have spent the money on consumer stapled and we would have seen (some, as much as we would like) real inflation. Instead we just made the wealth gap wider with all the political and economic headaches that comes with it.

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 5131
  • Age: 35
  • Location: Seattle, WA
    • My blog
Re: The Almighty Dollar Thread
« Reply #19 on: June 30, 2019, 09:28:45 AM »
There's risk in every asset class. Cash is no exception. That's why we diversify.

ChpBstrd

  • Handlebar Stache
  • *****
  • Posts: 1690
Re: The Almighty Dollar Thread
« Reply #20 on: July 01, 2019, 02:15:45 PM »

 But the previous financial crisis shook a lot of confidence. Confidence appears to be the only thing maintaining demand for the dollar. The thing about confidence is that it takes a long time to earn, and if abused can be easily lost. A loss of confidence would result in a drop in demand. If that happens, could we expect to see a drop in the supply of dollars to help counter balance the drop in demand? If the past is any indication, my guess is probably not. Especially when you consider the go to play book for the fed is "print more dollars to stimulate more".

So.... Are you concerned about a dollar crisis and its impact on your wealth? Why? Why Not?

Actually the great financial crisis led to an increase in demand for dollars and US government bonds. The trade weighted value of the USD is now much higher than it was 10 years ago:
https://fred.stlouisfed.org/series/DTWEXM
Today, global investors are willing to lend the US their dollars for a decade at something like 2%, implying a broad consensus that high or even historically normal inflation isn’t going to happen anytime soon.

All this while the number of dollars in circulation continues to skyrocket.
https://fred.stlouisfed.org/series/M2

These facts seem to contradict the traditional supply/demand theory of currency valuation, but it makes more sense when you consider:

(a) The USD is the currency used for the vast majority of international trade. For example, Europe pays for 80% of its energy supply in dollars instead of Euros, even though only 2% of its supply came from the US. https://www.ft.com/content/12beb4e6-86c7-11e9-97ea-05ac2431f453 This means the supply of dollars must constantly grow - not to fill the transactional demand of the US economy, but to fill the demand of most of the world economy. As more and more “third world” countries grow and increase their trade, the demand for dollars continues to expand. If inflation is 2%, the supply of dollars must increase by the same amount each year so that the same amount of goods can be traded.

(b) Inflation and deflation are factors of monetary velocity, not of the absolute supply of dollars. As the feds bought up assets (mostly the government’s own debt) in the years following the GFC, many of those newly created dollars became nothing more than figures on the government’s ledger, not actual currency in circulation being traded for things in the real world economy. That is to say, all this extra “supply” never made it to market. It sat. As far as monetary velocity is concerned, these dollars might as well never have existed. There is another way dollars get trapped in accounts, away from the real economy. Rapidly expanding wealth inequality means there are a lot more millionaires and billionaires in the world, and these people tend to park their cash in investment accounts or buy treasuries.

I know there are a lot of “blame the fed for all the world’s problems ” people on the internet, but to the rest of the world, Ben Bernacke, Janet Yellen, and Jerome Powell have pulled off a godlike feat. Inflation is low, the US has reached full employment, the longest economic expansion in history has been engineered, and trillions of dollars of the US national debt now consists of the US Treasury paying interest to the US Federal Reserve. The Federal Reserve has accomplished its goals as well as any independent observer could have imagined. They seem to know what they’re doing, so the confidence of overseas investors continues to grow. At least that’s what the data say.

waltworks

  • Magnum Stache
  • ******
  • Posts: 3438
Re: The Almighty Dollar Thread
« Reply #21 on: July 01, 2019, 04:06:31 PM »
Given that there are other mediums of exchange available, and I don't plan to hoard tens of thousands of dollars in cash in my mattress, why would I be "concerned"?

Hyperinflation, though unlikely, would suck. Many types of diverse portfolio would be just fine.

I'm much more worried about climate change. Hell, I'm more worried about Yellowstone erupting or a Chicxulub  type asteroid impact. And I'm not doing anything at all about those.

-W

PDXTabs

  • Handlebar Stache
  • *****
  • Posts: 1325
  • Age: 36
  • Location: Portland, OR, USA
Re: The Almighty Dollar Thread
« Reply #22 on: July 01, 2019, 04:12:40 PM »
Hyperinflation, though unlikely, would suck. Many types of diverse portfolio would be just fine.

That depends on your portfolio. Load up on as much fixed interest rate real estate debt as you can muster if you think that hyperinflation is coming.

I doubt that it is.

Greenback Reproduction Specialist

  • Bristles
  • ***
  • Posts: 479
  • Location: Running barefoot thru Idaho mountains
Re: The Almighty Dollar Thread
« Reply #23 on: July 01, 2019, 04:33:35 PM »

When the Sixteenth Amendment was debated on the floor of the U.S. Senate dismissive laughter ensued when reluctant  senators  warned that the rate of  federal income tax could reach as high as 3%.

Political economy will become increasingly redistributionist which poses the most serious threat to Mu$tachian$' wealth and their  expectations of future income streams.


As long as increased taxation is not a contrived expediency,  or arbitrary exercise of Congress' or the several States' taxing power, the courts will defer to their judgment as to the requisite level of increased taxation necessary to promote  the general welfare, and meet the more parochial, particular needs for safety-net interventions among the several States.

Here, the courts' only concern is that exercise of the  taxing power is within constitutional bounds. The courts do not decide the wisdom or unwisdom of increased taxation; that decision  occurs at the ballot box on election day.


THIS is a huge concern, especially with talk of trying to create a wealth tax.


SwordGuy

  • Walrus Stache
  • *******
  • Posts: 6235
  • Location: Fayetteville, NC
Re: The Almighty Dollar Thread
« Reply #24 on: July 01, 2019, 04:50:27 PM »

When the Sixteenth Amendment was debated on the floor of the U.S. Senate dismissive laughter ensued when reluctant  senators  warned that the rate of  federal income tax could reach as high as 3%.

Political economy will become increasingly redistributionist which poses the most serious threat to Mu$tachian$' wealth and their  expectations of future income streams.


As long as increased taxation is not a contrived expediency,  or arbitrary exercise of Congress' or the several States' taxing power, the courts will defer to their judgment as to the requisite level of increased taxation necessary to promote  the general welfare, and meet the more parochial, particular needs for safety-net interventions among the several States.

Here, the courts' only concern is that exercise of the  taxing power is within constitutional bounds. The courts do not decide the wisdom or unwisdom of increased taxation; that decision  occurs at the ballot box on election day.


THIS is a huge concern, especially with talk of trying to create a wealth tax.

Well, the way to head that off is to work to cut the expenses of regular people (subsidized college/trade school, day care and health care).  Solve their big problems and they'll go back to being fat, dumb and happy.    Our government needs to get out of corporate welfare, tax income at a more reasonable (ie higher) level at high incomes, and stop with so many overseas wars and excessive military spending.

Our problem is that the ultra-rich have been playing culture wars and they think they are winning.   Just like the French aristocracy thought they were winning in 1788.   They found out in 1789 that the outlook for screwing over the poor and the middle class was no longer so rosy.



Telecaster

  • Handlebar Stache
  • *****
  • Posts: 2005
  • Location: Seattle, WA
Re: The Almighty Dollar Thread
« Reply #25 on: July 01, 2019, 05:09:34 PM »


Political economy will become increasingly redistributionist which poses the most serious threat to Mu$tachian$' wealth and their  expectations of future income streams.



THIS is a huge concern, especially with talk of trying to create a wealth tax.
[/quote]

This of zero concern.  At least to me.   Well, sort of a concern I guess.  Right up there with an asteroid strike or the Yellowstone Caldera exploding.   A wealth tax would require a constitutional amendment which is extremely difficult to do.   And the notion of ever increasing taxes is pretty much a myth.   Taxes as a percent of GPD has trended up and down  in a narrow band for decades.  So I don't see the trend as necessarily always increasing.   For example, in 2017 Congress passed an enormous tax cut.  That clearly doesn't fit the supposed trend of ever increasing. 

Fortunately for us, the tax code is designed to benefit people with lots of money.   People like those here who save a lot of money but don't necessarily earn a lot can piggy back onto that, even though the tax code wasn't really designed to benefit us.   I don't really see the rich political donors who control Congress changing that model anytime soon. 

waltworks

  • Magnum Stache
  • ******
  • Posts: 3438
Re: The Almighty Dollar Thread
« Reply #26 on: July 01, 2019, 06:30:54 PM »
THIS is a huge concern, especially with talk of trying to create a wealth tax.

Wait, are you worried about hyperinflation? Or about the government confiscating your wealth? Because those are VERY different things.

I am guessing maybe you are just worried about everything. My advice: take a 1 year break from the internet.

-W

BicycleB

  • Handlebar Stache
  • *****
  • Posts: 1838
  • Location: Live Music Capital of the World
  • Older than the internet, but not wiser... yet
Re: The Almighty Dollar Thread
« Reply #27 on: July 01, 2019, 10:54:31 PM »

When the Sixteenth Amendment was debated on the floor of the U.S. Senate dismissive laughter ensued when reluctant  senators  warned that the rate of  federal income tax could reach as high as 3%.

Political economy will become increasingly redistributionist which poses the most serious threat to Mu$tachian$' wealth and their  expectations of future income streams.


As long as increased taxation is not a contrived expediency,  or arbitrary exercise of Congress' or the several States' taxing power, the courts will defer to their judgment as to the requisite level of increased taxation necessary to promote  the general welfare, and meet the more parochial, particular needs for safety-net interventions among the several States.

Here, the courts' only concern is that exercise of the  taxing power is within constitutional bounds. The courts do not decide the wisdom or unwisdom of increased taxation; that decision  occurs at the ballot box on election day.


THIS is a huge concern, especially with talk of trying to create a wealth tax.

@Greenback Reproduction Specialist, I think you used the wrong tag...the quote above was from @John Galt incarnate!

Incidentally, I just noticed the intriguing fact that you are a participant in a thread about, possibly, too much Greenback Reproduction. Very on brand, my friend.

ctuser1

  • Bristles
  • ***
  • Posts: 434
Re: The Almighty Dollar Thread
« Reply #28 on: July 03, 2019, 12:42:26 PM »
Random points:
1. The dollar was never backed by anything of real value. At one time, it used to be backed by gold, which has little real value. Gold is only valuable because other people think is will be valuable, and not something intrinsic - like a farmland.

2. The QE money did not go into the Main Street economy directly. Most of the QE was a faith exercise - fed said accounts named such and such now has x number of extra zeroes. In theory, these zeroes in some computer memory bank could take the form of actual paper money, but that faith/theory was never tested.

3. During The crisis, people lost faith on the banks. Faith was not lost on the US government. So the government jumped in and lent its credibility to the banks. What really flowed was faith and trust, more than some imaginary computer bits that people think of as dollars.

4. I don’t know why inflation did NOT increase but have some pet theories. It is most likely tied to income inequality. One extra dollar in a billionnaire’s bank account gets invested, creating asset inflation. One extra dollar in an average guys hand gets spent immediately. The later can cause real inflation, the earlier can not. Bottom 90% has not participated much in any kind of economic uptrend for a long time, which probably explains the lack of inflation.

5. Low interest environment causes another lasting harm different from inflation. It increases the number of zombie businesses. A lot of businesses that can’t survive at 5% cost of capital do survive at 0%. These businesses have no business surviving and occupying precious real estate and other scarce resources as they loser economic competitiveness AND prevent the healthy natural selection among businesses. This is a double whammy! Economy gets weaker and less competitive, AND weaker businesses will now all go belly up at the first sign of next trouble, probably execerbating any downturn.

6. Anybody worried about dollar is really worried about people’s faith in the us government!! You may potentially take some steps now to help shore up this faith, or ask Somalia/Afganistan etc for investment advise that worked for them after their government went kaput!!

ctuser1

  • Bristles
  • ***
  • Posts: 434
Re: The Almighty Dollar Thread
« Reply #29 on: July 03, 2019, 12:56:46 PM »
Responding directly to the OPs questions


What is a dollar??
A dollar is the faith participants in the world economy place on the us government’s ability to manage its economy and pay back its debt.


What can you do to manage inflation or fix risk in dollar??

For garden variety inflation that US saw during the 70s, index funds is your best option.

For hyperinflation and economic collapse - well, I don’t think you can ‘financially’ manage anything there. That’s prepper territory and people who can survive off the grid will thrive, while the rest would not!
« Last Edit: July 03, 2019, 01:01:19 PM by ctuser1 »

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1892
Re: The Almighty Dollar Thread
« Reply #30 on: July 04, 2019, 01:49:43 AM »
(b) Inflation and deflation are factors of monetary velocity, not of the absolute supply of dollars. As the feds bought up assets (mostly the government’s own debt) in the years following the GFC, many of those newly created dollars became nothing more than figures on the government’s ledger, not actual currency in circulation being traded for things in the real world economy. That is to say, all this extra “supply” never made it to market. It sat. As far as monetary velocity is concerned, these dollars might as well never have existed. There is another way dollars get trapped in accounts, away from the real economy. Rapidly expanding wealth inequality means there are a lot more millionaires and billionaires in the world, and these people tend to park their cash in investment accounts or buy treasuries.
Really good post - that's the best explanation I've seen for why the massive balance sheet expansion didn't have the predicted devastating impact on the economy.  Is there a book or two that informed your viewpoint?  I'd be interested in a recommendation.

ChpBstrd

  • Handlebar Stache
  • *****
  • Posts: 1690
Re: The Almighty Dollar Thread
« Reply #31 on: July 04, 2019, 11:32:09 AM »
(b) Inflation and deflation are factors of monetary velocity, not of the absolute supply of dollars. As the feds bought up assets (mostly the government’s own debt) in the years following the GFC, many of those newly created dollars became nothing more than figures on the government’s ledger, not actual currency in circulation being traded for things in the real world economy. That is to say, all this extra “supply” never made it to market. It sat. As far as monetary velocity is concerned, these dollars might as well never have existed. There is another way dollars get trapped in accounts, away from the real economy. Rapidly expanding wealth inequality means there are a lot more millionaires and billionaires in the world, and these people tend to park their cash in investment accounts or buy treasuries.
Really good post - that's the best explanation I've seen for why the massive balance sheet expansion didn't have the predicted devastating impact on the economy.  Is there a book or two that informed your viewpoint?  I'd be interested in a recommendation.
Mostly my macroeconomics textbook from grad school 11 years ago (what a wonderful time it was to be studying macroeconomics! If only I had the confidence to place bold bets on my textbook learning back then!). In general, the internet offers 99% misinformation on this subject, and journalists only offer some context-free glimpse of a data point they do not fully understand. There are exceptions though, such as Ben Bernanke’s blog at the Brookings Institution or the Financial Times / Wall Street Journal. I think inflation drives *everything* so it is an interesting topic IMO.

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1892
Re: The Almighty Dollar Thread
« Reply #32 on: July 04, 2019, 11:56:29 PM »
(b) Inflation and deflation are factors of monetary velocity, not of the absolute supply of dollars. As the feds bought up assets (mostly the government’s own debt) in the years following the GFC, many of those newly created dollars became nothing more than figures on the government’s ledger, not actual currency in circulation being traded for things in the real world economy. That is to say, all this extra “supply” never made it to market. It sat. As far as monetary velocity is concerned, these dollars might as well never have existed. There is another way dollars get trapped in accounts, away from the real economy. Rapidly expanding wealth inequality means there are a lot more millionaires and billionaires in the world, and these people tend to park their cash in investment accounts or buy treasuries.
Really good post - that's the best explanation I've seen for why the massive balance sheet expansion didn't have the predicted devastating impact on the economy.  Is there a book or two that informed your viewpoint?  I'd be interested in a recommendation.
Mostly my macroeconomics textbook from grad school 11 years ago (what a wonderful time it was to be studying macroeconomics! If only I had the confidence to place bold bets on my textbook learning back then!). In general, the internet offers 99% misinformation on this subject, and journalists only offer some context-free glimpse of a data point they do not fully understand. There are exceptions though, such as Ben Bernanke’s blog at the Brookings Institution or the Financial Times / Wall Street Journal. I think inflation drives *everything* so it is an interesting topic IMO.
Hm, the prices for Macroeconomics textbooks on Amazon aren't very Mustachian, or I'd consider buying one.  Thanks, though.

For those worried about a wealth tax, it's $0 for those with under $50,000,000 in assets.  There's lots of news stories about it, but since it was proposed by Elizabeth Warren, I tracked it down to her website.  The claim is that the richest 75,000 households will be impacted.
https://elizabethwarren.com/ultra-millionaire-tax/

Greenback Reproduction Specialist

  • Bristles
  • ***
  • Posts: 479
  • Location: Running barefoot thru Idaho mountains
Re: The Almighty Dollar Thread
« Reply #33 on: July 08, 2019, 04:37:15 PM »
Wait, are you worried about hyperinflation? Or about the government confiscating your wealth? Because those are VERY different things.

I am guessing maybe you are just worried about everything. My advice: take a 1 year break from the internet.

-W

Yes and Yes, but not really worried..... Just open to discussions about ways to deal with the issues should they arise.

Should you worry about your house burning down? probably not, but its still a good idea to buy home owners insurance and install smoke detectors.

Greenback Reproduction Specialist

  • Bristles
  • ***
  • Posts: 479
  • Location: Running barefoot thru Idaho mountains
Re: The Almighty Dollar Thread
« Reply #34 on: July 08, 2019, 04:43:44 PM »
(b) Inflation and deflation are factors of monetary velocity, not of the absolute supply of dollars. As the feds bought up assets (mostly the government’s own debt) in the years following the GFC, many of those newly created dollars became nothing more than figures on the government’s ledger, not actual currency in circulation being traded for things in the real world economy. That is to say, all this extra “supply” never made it to market. It sat. As far as monetary velocity is concerned, these dollars might as well never have existed. There is another way dollars get trapped in accounts, away from the real economy. Rapidly expanding wealth inequality means there are a lot more millionaires and billionaires in the world, and these people tend to park their cash in investment accounts or buy treasuries.
Really good post - that's the best explanation I've seen for why the massive balance sheet expansion didn't have the predicted devastating impact on the economy.  Is there a book or two that informed your viewpoint?  I'd be interested in a recommendation.
Mostly my macroeconomics textbook from grad school 11 years ago (what a wonderful time it was to be studying macroeconomics! If only I had the confidence to place bold bets on my textbook learning back then!). In general, the internet offers 99% misinformation on this subject, and journalists only offer some context-free glimpse of a data point they do not fully understand. There are exceptions though, such as Ben Bernanke’s blog at the Brookings Institution or the Financial Times / Wall Street Journal. I think inflation drives *everything* so it is an interesting topic IMO.

Wouldnt velocity just be a measure of supply and demand of the dollar? High velocity would mean people value an object or service over the dollar in hand?

Greenback Reproduction Specialist

  • Bristles
  • ***
  • Posts: 479
  • Location: Running barefoot thru Idaho mountains
Re: The Almighty Dollar Thread
« Reply #35 on: July 08, 2019, 04:49:26 PM »
For those worried about a wealth tax, it's $0 for those with under $50,000,000 in assets.  There's lots of news stories about it, but since it was proposed by Elizabeth Warren, I tracked it down to her website.  The claim is that the richest 75,000 households will be impacted.
https://elizabethwarren.com/ultra-millionaire-tax/

But long term..... 50 mil might be an average household, not a direct concern in our lifetime I guess. But I do wonder what the affect on productive sectors of the economy might be, like moving or just keeping assets offshore. For example a semiconductor business, even a small one might meet that requirement, then what? Do we start to become less competitive to businesses based in other countries? Do they pickup and relocate offshore to avoid it?.... This gets a bit off topic...

Telecaster

  • Handlebar Stache
  • *****
  • Posts: 2005
  • Location: Seattle, WA
Re: The Almighty Dollar Thread
« Reply #36 on: July 08, 2019, 05:07:33 PM »
Wouldnt velocity just be a measure of supply and demand of the dollar? High velocity would mean people value an object or service over the dollar in hand?

I suppose. But ChpBstrd's point was the government was the entity not spending.  Also worth mentioning that although the Treasury and Fed created huge amounts of money by QE, that amount of money is dwarfed by the amount the private banks create.   During the financial crisis, the money supply actually shrank.


http://www.centerforfinancialstability.org/amfm/Charts6_amfm1B.gif

Classical_Liberal

  • Handlebar Stache
  • *****
  • Posts: 1151
  • Age: 43
Re: The Almighty Dollar Thread
« Reply #37 on: July 08, 2019, 06:20:21 PM »
Wouldnt velocity just be a measure of supply and demand of the dollar? High velocity would mean people value an object or service over the dollar in hand?

I suppose. But ChpBstrd's point was the government was the entity not spending.  Also worth mentioning that although the Treasury and Fed created huge amounts of money by QE, that amount of money is dwarfed by the amount the private banks create.   During the financial crisis, the money supply actually shrank.


http://www.centerforfinancialstability.org/amfm/Charts6_amfm1B.gif

Not really.  Velocity is the amount of $'s changing hands.  So, no matter how much money is created, either directly or indirectly (by lower rates so banks lend more and create money); if no one uses it as a medium of exchange (ie buys products or services), there is no inflation of those products or services because demand doesn't change. IOW, Adding money to the economy theoretically causes people to spend it (ie increases velocity as well), because people have more of it to spend.  However there is the problem of liquidity traps.

With QE since 2008+, velocity has remained low.  I have my own theories as to why.

Financial.Velociraptor

  • Handlebar Stache
  • *****
  • Posts: 1485
  • Age: 47
  • Location: Houston TX
  • Devour your prey raptors!
    • Financial Velociraptor
Re: The Almighty Dollar Thread
« Reply #38 on: July 08, 2019, 06:24:05 PM »
With QE since 2008+, velocity has remained low.  I have my own theories as to why.

@Classical_Liberal, I did my undergrad in Econ. Would love to hear your theories on this.  My take is the new money went to financial assets instead of into the hands of consumers and thus is sort of "sticky".

Classical_Liberal

  • Handlebar Stache
  • *****
  • Posts: 1151
  • Age: 43
Re: The Almighty Dollar Thread
« Reply #39 on: July 08, 2019, 06:39:29 PM »
With QE since 2008+, velocity has remained low.  I have my own theories as to why.

@Classical_Liberal, I did my undergrad in Econ. Would love to hear your theories on this.  My take is the new money went to financial assets instead of into the hands of consumers and thus is sort of "sticky".
Yep. We've had asset inflation.

Think of it this way. If 1 person gets 100 million or 10,000 people get $10,000, do you think the economic behavior of those $'s would be different? 

I think yes. 

In the former most will be utilized to create more wealth through capital investments.  Although that person may use some to upgrade their house a bit or buy a bigger boat.  In the latter case, I believe most would be used to purchase consumer goods and services.  QE caused a situation in which almost all of the new money ended in the hands of the already wealthy. So we have had asset inflation instead of standard CPI-type inflation.  This would explain the low velocity and inflationary trends of late.

Taking this one step further to a quasi prediction  If, at some point, this money is redistributed more towards the later situation, then I believe we will see more standard inflation as velocity picks up.  So if the country ends up moving towards higher rates of redistribution, my inflation hedging will increase.

FYI, I am self taught in marco econ, its a hobby, not a profession.  So this is just one laypersons opinion.

PDXTabs

  • Handlebar Stache
  • *****
  • Posts: 1325
  • Age: 36
  • Location: Portland, OR, USA
Re: The Almighty Dollar Thread
« Reply #40 on: July 08, 2019, 09:09:53 PM »
I completely agree with Classical_Liberal.

As a thought experiment, what do you think that MMM would spend $100M on? Equities, maybe?

Paul der Krake

  • Magnum Stache
  • ******
  • Posts: 4627
  • Age: 11
  • Location: UTC-10:00
Re: The Almighty Dollar Thread
« Reply #41 on: July 08, 2019, 09:45:35 PM »
Ask yourself this: let's say the government does something incredibly stupid that fundamentally shakes the world's confidence in the dollar. Something that really, really moves the needle, wherein anyone paying attention decides that the United States isn't the best place in the world to do business or store assets.

What are the alternatives?

- The Eurozone is dealing with their own shit, riding a dangerous wave of populism, long-term economic prospects be damned, and is a really just a loose collection of states that don't even share a common language, let alone meaningful legal integration
- China is a country with currency controls, sham courts, and whose own wealthy citizens (whether corrupt or not) trust so little they all park their money overseas
- Japan is a dying empire with no immigration to replace them
- Switzerland's economy is just too damn small

What then?



Radagast

  • Handlebar Stache
  • *****
  • Posts: 1593
  • Location: West of the Mountains, East of the Sea
  • One does not simply work into Mordor
Re: The Almighty Dollar Thread
« Reply #42 on: July 08, 2019, 09:45:50 PM »
I completely agree with Classical_Liberal.

As a thought experiment, what do you think that MMM would spend $100M on? Equities, maybe?
I happen to agree with both of you :). Though I would prefer $5T in infrastructure spending instead of helicopter cash. As long as we are doling out the money, may as well freshen up the ugly streets and leaking public pipes.

PDXTabs

  • Handlebar Stache
  • *****
  • Posts: 1325
  • Age: 36
  • Location: Portland, OR, USA
Re: The Almighty Dollar Thread
« Reply #43 on: July 08, 2019, 10:10:09 PM »
What are the alternatives?

- The Eurozone is dealing with their own shit, riding a dangerous wave of populism, long-term economic prospects be damned, and is a really just a loose collection of states that don't even share a common language, let alone meaningful legal integration

But the Eurozone is fighting deflation not inflation (that a loss of confidence would bring). They might be the least sick puppy if the US shits the bed.

I happen to agree with both of you :). Though I would prefer $5T in infrastructure spending instead of helicopter cash. As long as we are doling out the money, may as well freshen up the ugly streets and leaking public pipes.

I might agree with you there, especially if you spend a bunch of it on stuff that literally every citizen can use (like trains, sewers, etc).
« Last Edit: July 08, 2019, 10:11:43 PM by PDXTabs »

Paul der Krake

  • Magnum Stache
  • ******
  • Posts: 4627
  • Age: 11
  • Location: UTC-10:00
Re: The Almighty Dollar Thread
« Reply #44 on: July 08, 2019, 10:36:18 PM »
What are the alternatives?

- The Eurozone is dealing with their own shit, riding a dangerous wave of populism, long-term economic prospects be damned, and is a really just a loose collection of states that don't even share a common language, let alone meaningful legal integration
"Confidence" is a funny word. You want inflation to be just right, matching the pace of steady, real economic growth. You can lose confidence by having too much of it, and you can lose it by having too little, because ultimately no country functions in a closed loop.

If the goal is to maintain hegemony over alternatives, it's best to worry about what makes the country attractive for the long term.


Classical_Liberal

  • Handlebar Stache
  • *****
  • Posts: 1151
  • Age: 43
Re: The Almighty Dollar Thread
« Reply #45 on: July 08, 2019, 11:49:26 PM »
@Paul der Krake

My guess is, eventually, there will be a "basket" of currencies that function as reserves for most nations.  More of a slow, lingering loss of power for the USD. This will take away options on the US side, but stabilize things for other, smaller economies who will no longer be tossed around solely at the whims of US monetary policy.

From there, who knows how things evolve.  That'll be completely dependent on the politico-economic situation decades from now.  I can't even guess at that, but I totally hope there will be Kingons in there somewhere.

Classical_Liberal

  • Handlebar Stache
  • *****
  • Posts: 1151
  • Age: 43
Re: The Almighty Dollar Thread
« Reply #46 on: July 08, 2019, 11:54:43 PM »
I completely agree with Classical_Liberal.

As a thought experiment, what do you think that MMM would spend $100M on? Equities, maybe?
I happen to agree with both of you :). Though I would prefer $5T in infrastructure spending instead of helicopter cash. As long as we are doling out the money, may as well freshen up the ugly streets and leaking public pipes.

As long as we are not just rebuilding the 20th century, but renewing for the 21st, I'd be all for that as well.  Not only would it spur great economic times during the building phase, but it would lay the ground work for an infrastructure to power the US economy for another 50 years.  Unfortunately, the US political situation will not allow for such foresight.

Greenback Reproduction Specialist

  • Bristles
  • ***
  • Posts: 479
  • Location: Running barefoot thru Idaho mountains
Re: The Almighty Dollar Thread
« Reply #47 on: July 09, 2019, 08:41:36 AM »
Not really.  Velocity is the amount of $'s changing hands.  So, no matter how much money is created, either directly or indirectly (by lower rates so banks lend more and create money); if no one uses it as a medium of exchange (ie buys products or services), there is no inflation of those products or services because demand doesn't change. IOW, Adding money to the economy theoretically causes people to spend it (ie increases velocity as well), because people have more of it to spend.  However there is the problem of liquidity traps.

With QE since 2008+, velocity has remained low.  I have my own theories as to why.

Thanks for the clarification, and interesting read about liquidity traps.

Greenback Reproduction Specialist

  • Bristles
  • ***
  • Posts: 479
  • Location: Running barefoot thru Idaho mountains
Re: The Almighty Dollar Thread
« Reply #48 on: July 09, 2019, 09:07:29 AM »
"Confidence" is a funny word. You want inflation to be just right, matching the pace of steady, real economic growth. You can lose confidence by having too much of it, and you can lose it by having too little, because ultimately no country functions in a closed loop.

If the goal is to maintain hegemony over alternatives, it's best to worry about what makes the country attractive for the long term.

Well said, how would you rate our current trend as being an attractive country?

I would agree that at the moment it "looks" good, but I also feel like we have some cancerous actors that are undermining that attractiveness.

I had just wrote out a pretty lengthy paragraph, but then I just remembered something and erased it all. A while back, I was struck by something pretty minor, almost an off hand comment in the book "The Snowball: Warren Buffet and the Business of Life". In the book he mentions how Warren's father was a conservative back in the post depression days. In a few paragraphs he mentions how his father was concerned about nearly identical fiscal issues that we are facing today. You could literally read the topics of concern and think they were describing present day issues..... And somehow almost 100 yrs later we are still arguing the same points... Funny how so many things change and so many things stay the same huh?

Somehow american innovation and businesses always find a way to keep providing goods and services while realizing a profit for their owners/investors.

Paul der Krake

  • Magnum Stache
  • ******
  • Posts: 4627
  • Age: 11
  • Location: UTC-10:00
Re: The Almighty Dollar Thread
« Reply #49 on: July 09, 2019, 10:36:21 AM »
This will take away options on the US side, but stabilize things for other, smaller economies who will no longer be tossed around solely at the whims of US monetary policy.
It's not very realistic to expect the US to take into account the desires of say, Japan, when making monetary policy decisions. Or maybe you mean countries that use, or whose currency is pegged to, the US dollar? There are a lot of those, and we generally don't give a toss about what happens to them either.

How would you rate our current trend as being an attractive country?
My view is that the US has taken a strong reputational risk in the last couple of years, but it's still a long way down. I'm afraid of standards slowly eroding up until it's too late, like a frog in boiling water. We won't be able to fully assess the hit until much later.

When migration flows reverse and we see Stanford and Harvard grads moving to China by the thousands, then we'll know it's too late.