How do you know it's "non-fiat"? They printed quite a lot of paper currency, and they *claim* it's backed up by silver. Have you ever seen the silver? Have you tried to cash any in?
Of course, that's beside the point that you can't print or mint currency. If you mint gold coins, who is certifying that it's the purity that you specify? Or the weight?
There are many problems with such "currency." It's always been the case, and it's why governments don't allow it. Distrust in currency can wreck an economy.
What business is it of the government if it is or isn't? I might decide to take that risk, compared to the demonstrated risk of dealing with their paper backed by nothing of value. Or maybe I'd pick some other alternative currency-- Bruce Springfield dollars or something.
There are plenty of third parties who perform audits and certify and even insure things if market conditions (eg. their customers) demand it. One does not need to involve the government, let alone give the government a perpetual monopoly and hence the sole right to foist a shoddy product which quickly becomes worthless on the public (the current unfortunate state of the US dollar). That's part of why the Eastern bloc fell apart- their state-run monopolies debased valuable raw materials into mountains of worthless crap.
That's the excuse for every government intervention.. to "protect" their subjects who are assumed to be unable to make complicated decisions on their own.
Unka' George [George McDuffee] ============ Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gains.
Thomas Jefferson (1743-1826), U.S. president. Letter, 17 March 1814.
It's not the same thing. The distrust I'm talking about is the kind that results when no one will accept the currency. That happens with a debased specie-based currency, or a fiat currency that isn't controlled by an independent central bank. Or, one in which the central bank goes to hell, as has happened in several South American countries in decades past.
Nothing like that is likely to happen to the US dollar. The dollar will continue to decline in value until it hits some new equilibrium. But people, particularly the paranoid gold bugs, have been predicting the collapse of the dollar since the 1930s. They ran wild in 1972, when we went off the gold standard. Those who backed up their paranoia by buying gold generally lost their shirts.
That's unlikely. What's more likely is a recession next year. _The Economist_ is predicting one, and they claim that the US is the most vulnerable in that regard. I don't doubt that. What I do doubt is that we'll "lose everything we have." Unless you're leveraged out and vulnerable yourself, I wouldn't bet on it.
Several thousand years of experience with money makes it the government's business.
Sorry, you don't get to do that. Because when your personal finances collapse (and they will, if you base them on self-annointed "currencies" -- they always do), you'll drag the rest of us down with you. That isn't going to be allowed to happen.
Like...hmm...Enron?
The dollar is not worthless. I can buy about the same amount of goods with an hour of work, denominated in current dollars, as I could 30 years ago.
If you're planning to do economics as a sideline, hang on to your day job, Spehro. The US is not the Eastern bloc.
Quit reading that nonsense and take out a subscription to _The Economist_ and the _Wall Street Journal_.
Even if the dollar dropped to zero, you wouldn't lose everything unless all you had was dollars. Most people have a bit of cash or cash equivalent, but the bulk of their wealth is in real estate, stocks, property and so on. A dropping dollar value rewards the highly leveraged at the expense of the cautious who keep money in term deposits and such like... and, of course, it rewards governments with taxes on the fake increase in dollar value of everything.
And how does that work, Spehro? If you're leveraged on, say, a 30% margin, and the dollar drops 20%, and the value of your dollar-denominated investments drops with them, you've lost 66% of your worth. People who aren't leveraged lose 20%.
Maybe, depending on the rate of inflation. If the economy is collapsing as you suggest, that won't happen because wages won't increase and taxes won't increase. The government actually will get less because of the devalued dollar.
And all that wonderful hawk-eyed government SEC oversight that went on there.
That just means *your* work is not worthless, right? The dollar has lost maybe 60% of its value or more in that period of time. More in terms of a barrel of oil. Much more. That's why they give you a lot more dollars for each hour than they did 30 years ago (and doubtless, in addition, your work is more valuable with more experience). $100 US bought 5 barrels of oil not many years ago, now it barely buys one. The dollar has lost 80% of its value in terms of oil in a few short years.
Oh, of course not, but there are interesting parallels that may not be as visible from within. Countries such as Czechoslovakia and Bulgaria looked pretty stable and relatively affluent just a few short years before the breakdown. It took very little time for the Soviets to go from supposedly an all-powerful competitor to nothing and back again to at least a mid power, and the same with Japan.
I don't actually expect any great crisis, I think everyone will do their d*mndest to keep it from happening, but it's certainly not unthinkable, and knowledgable people have been discussing the possibility of a severe dollar crisis for some time (eg. in Foreign Affairs journal). So far it's been a relatively orderly (and probably needed) decline rather than the feared free-fall. It might have further to go at this time.
I do read the former and I'll avoid the latter, thank you, in favor of the London Financial Times. They are quite reliable sources of financial and political information. Anything else you'd like to add to my reading list? ;-) I have several linear feet of trade publications backed up. 8-( Sucks to have so much stuff on the go.
Dollar denominated investments that have real value will quickly get bid up, so you will see a fake stock market boom (since the indexes are measured in dollars) regardless of how well the real economy is doing.
If I buy a $500K house and the value of the dollar drops to half, my house will be bid up to $1M from $500K and my income will go up, probably to double if I and the economy are doing well, in short order. I get to pay back the loan with inflated dollars. If I own the house outright, I at least hang onto the real value. If I put my $500K in the bank at 5% interest, almost half the real value of my equity is wiped out even though I have a few more dollars.
This has already happened in most places even though the core rate of inflation is supposedly benign, so this is historic, not prediction.
Hey, I never said the economy would collapse. That's a separate issue. I sure wouldn't bet against the US economy in the long term. I would bet against governments taking necessary but politically difficult actions. I do expect the US economy to represent an ever-shrinking portion of the global economy (from 50% at the end of WWII, to 25% five years ago (?) to 20% now to maybe 10% in the future), but mostly because others are doing better rather than some enormous collapse. OTOH, things seldom go in straight lines and if I could predict these things accurately I'd have a lot more $$.
It's a good thing that Treasury is more vigilant than the SEC, particularly after Bush has done his best to strangle its investigative powers, eh?
So what? If your income is increasing as fast as dollar inflation (overall, it's about a wash for the middle class), what difference does it make?
If you're worried about your investments, you have to subtract inflation from your nominal interest rates. That's your real income from investments. Plan around that.
Them's the breaks. I wouldn't have bought any stock in any of them, anyway. Their economies are too unstable and have been since people started keeping track.
It all depends on what you call "severe." The US dollar has an underlying weakness that started when Reagan began piling up those enormous deficits and stoking up the national debt. It's been made radically more vulnerable by the second wave of tax cuts under Bush. And the weakness is that the whole system depends on continued foreign demand for dollar-denominated bonds and other investments. We've inherited some theories from the free-traders and tax-cutters that work OK on paper, but which haven't worked out very well in practice.
Fortunately the other strengths of the US economy have partly compensated for that. Or they've just delayed the day of reckoning, depending upon your perspective.
My take on it is that the strengths are enough to prevent a radical crisis, but not enough to prevent a reckoning on foreign debt (which will drive up interest rates) that will in turn lead to a recession. I wouldn't profess to guess when that will be but there is a growing opinion from authoritative sources that say a slowdown will begin in the first quarter of next year.
Then look at this week's (Nov. 17th - 23rd) cover article, "America's Vulnerable Economy." And then read the big roundup, "Briefing: America's Economy, Getting Worried Downtown" that begins on page 80. It will remind you of Truman's comment about wanting a one-armed economist, because they're always saying "on the one hand, but then on the other hand."
_The Economist_ has been chastened a bit by excessively predicting downturns in the past. It's clear that the economy today is breaking lots of old rules, and that there are some unknowns that make predictions even more dicey than usual. But they emphasize that both the weaknesses and the strengths of our economy are large, and that nobody knows what will happen. Note that our exports are 'way up and imports are down -- enough to mask the drag from decreased housing construction, for example. That's the direct result of a weaker dollar. It bodes fairly well for manufacturing if the rest of the economy doesn't drag it down.
Each to his own. The _Financial Times_ is a little too cocksure for my tastes.
I'd like to see, however, where the _Financial Times_ comes out in favor of homemade currency. That sounds more like the libretardians. The FT do run some freakish editorials but that's because they like to be provocative, like the WSJ in *its* editorials.
Dump the trade publications. d8-)
If you're reading those financial and economic sources, you know what to keep your eye on: housing, interest rates, trade, the credit crunch, and the effects of oil prices. What the Economist article doesn't address is the opaque tangle of hedge instruments, which are so complex now that the authoritative sources say that no one knows how the mobile will shake. It is completely unpredictable.
But the biggest deal is that consumer spending is 70% of our GDP. If people can get their hands on credit and if they *want* things to get better, they probably will. So the ultimate gauge will be consumer buying patterns.
Has that ever happened? Or is this Spehro's Economic Theory Number 7?
I think what happens is that the investments drop in value, too. Maybe if they're denominated in some stronger foreign currency, but that's why I said "dollar denominated." That phrase "real value" is a wild card. It generally means "not dollar-denominated." Like precious metals, or oil. They have value in all currencies. That doesn't make their value any more "real," but it makes them convertible.
I don't think so. I think your house just loses half its value. The thing that drives up house values is availability of credit at low rates. Inflation in house prices has *far* outstripped inflation in the overall value of a dollar in recent years.
True enough. The moral is, don't put your money into banks at 5% interest.
What's happened is that housing costs have gone up, but I don't think the mechanism is the one you describe. If supply and demand are held constant, credit is the determinant. If credit gets easier, housing demand exceeds supply, and prices go up for that reason.
I think it's fairly accurate to say that the value of a house is based on what a certain percentage of eligible buyers can afford, on a monthly basis. Most people try to buy a house at or near (or often over) the monthly payment a bank or mortgage company will qualify them for. As US credit markets have gotten more "sophisticated," as _The Economist_ puts it, or deeper, or looser, if you prefer, the value of a house that a particular income will qualify one for keeps going up. So, that's what the market will bear. That's what people will pay.
The current subpar credit crunch is causing a big rollback in that income/qualification ratio, at least at the bottom end of creditworthiness, and consequently throughout the housing market via a domino effect. Thus, expect prices to keep rolling back. It won't be because of general deflation.
It's nice to finish on a note of complete agreement. d8-)
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