

Why the dollar is going to collapse - stuffthatmatter
http://angloaustria.blogspot.com/2009/07/why-dollar-is-going-to-collapse.html

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anigbrowl
You seem obsessed with this topic, but I question the quality of your sources
and analysis. Of course if there were an exponential rise in money supply or
similar absent a different fiscal, monetary and regulatory climate then this
would be deeply alarming. But I feel you're making a meta-version of the same
mistake many economists did, of over-extrapolating from a short trend. Massive
policy changes inevitably result in discontinuities of quantitative data, so
it's a mistake to apply the trend which obtained up to the discontinuity to
the new discontinuity.

To take an oft-used metaphor, suppose the economy is a car or truck and money
supply is one part of the steering system. If you notice you're heading for a
crash, well you're going to spin the wheel hard or slam on the brakes -
there's your discontinuity. The path of the car, on the other hand (which is
GDP), will change more slowly. And once you've observed that the new course
takes you out of immediate danger, you can then moderate the control system
which you had drastically changed. In other words, slamming on the brakes (or
accelerating out of danger, or swerving - adjust your metaphor to taste) does
not _in itself_ damage the car, but aims to substantially alter its vector.

In the bigger picture, addressing the question of whether the US economy will
be in the toilet or at least near to it for years to come, of course it will.
Just as the unpleasant effects of a hangover can often go on longer than the
drinking party which induced it, so it will take time to unwind and recover
from the serious structural imbalances of recent years. Obviously, I have a
more sanguine view of this process than you do, as I believe it will still be
possible for opportunity and growth to take place in the US. If you find my
view dangerously laid-back, I guess the appropriate thing for you would be to
invest heavily in defense contractors and raw materials.

~~~
stuffthatmatter
there's one incorrect logic in your statement:

You assume US can just slam on the brakes and the brakes would stop the car
completely. When in fact, with the massive amount of baby boomers
retiring/draining SS and medicare, the disappearance of our manufacturing
sectors, the increasing commodity (food, oil) prices, and the need to pay back
100T+ debt owed to foreign countries and to ourselves, I suggest that it is
impossible.

~~~
nostrademons
"massive amount of baby boomers retiring/draining SS and medicare"

This is deflationary, at least in asset markets. Retiring baby boomers =
pulling their money out of the stock market = falling stock prices.

"the disappearance of our manufacturing sectors"

Deflationary in consumer markets, inflation in asset markets, at least to the
extent that it results in job losses and concentration of wealth among a
professional/capitalist class. Wealthy people tend to spend a lower fraction
of their income.

"the increasing commodity (food, oil) prices,"

This is an effect, not a cause. Saying that higher prices cause inflation
(while somewhat true...see wage/price spiral) is circular reasoning.

"the need to pay back 100T+ debt owed to foreign countries and to ourselves"

Deflationary. Debt increases the money supply; paying back that debt reduces
it. This is a large part of why the Fed's actions haven't triggered inflation:
they're compensating for _destruction_ of money as homeowners default in
droves.

~~~
stuffthatmatter
I was talking more about the economy with my list.

As far as deflation is concerned, there's deflation in things we want (houses,
cars, luxury items), and inflation in things we need (food, oil, gas,
utilities).

Until hyperinflation hits, of course.

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northwind
As an interesting (as in "odd") exercise, go to the root node of the blog
(<http://angloaustria.blogspot.com/>) and notice the phrase "Curse of Maturin
Towers".

After asking yourself "WTF does that mean?", do a Google search for the
aforementioned phrase
([http://www.google.com/#hl=en&q=Curse+of+Maturin+Towers](http://www.google.com/#hl=en&q=Curse+of+Maturin+Towers));
hmm, no useful results (that is, we could not find a definition).

Now do a Google search for "Maturin Towers" as an exact phrase
([http://www.google.com/#hl=en&q=Maturin+Towers](http://www.google.com/#hl=en&q=Maturin+Towers))
and notice we have 300+ hits for a rather odd exact phrase; all of which point
to, or are directly related to, the AngloAustria blog
(<http://angloaustria.blogspot.com/>).

Could this be an well crafted SEO blog designed to tell people what they want
to hear?

~~~
anigbrowl
Well, the blog is authored by one 'Jack Maturin'. And referring to one's
residence as '(Lastname) Towers' is a popular comic trope among Brits. 'Curse
of Maturin Towers' has all the romance and implied danger of a Sherlock Holmes
story, but stems from his rueful discovery that a confident prediction has
turned out completely wrong shortly after he made it.

An American would mention Murphy's Law, without meaning to imply there was
ever a legislator named Murphy who went around causing things to fail.

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rwolf
This "flying up impossibly at the last minute" is a feature of graphs of
national debt (<http://images.google.com/images?q=national+debt>), but it's
also a feature of graphs of US furniture sales.

I'm not saying the US dollar is fine. I'm just tired of people using this kind
of graph to try to make a point.

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biohacker42
I am sure we'll see increased inflation, will it go as high as it did in the
70s-80s maybe. But this article is claiming the sky is falling. Oooh look
scary charts, never mind what velocity of money is or how it works, or that
the Fed can increase AND decrease the money supply, just look at those scary
charts!

~~~
stuffthatmatter
You believe the same Fed that gave bankers billions of dollars and is actively
working against congress to be audited, is going to 'decrease the money
supply', ignore our huge debt and save us all?

You are drinking alot of government kool-aid. Keep watching CNBC.

~~~
asdlfj2sd33
Do you know what hyper inflation does to banks?

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angusdavis
I am not saying inflation should not be a serious concern, however the article
fails to mention that the Fed changed the rules so they can now pay interest
on these reserves. That's a massive change in law and policy and is the Fed's
primary answer to articles like this one, so it's weird the author completely
misses that point.

Here's what FRB NY's Dudley said this week - from Reuters article:

"Dudley argued that the Fed's large and growing balance sheet is nothing that
prevents the Fed from controlling inflation once the economy corrects. 'It is
not the case that our expanded balance sheet will inevitably prove
inflationary,' he said.

Specifically, Dudley said the Fed's new ability to pay interest on excess
reserves is a critical tool it uses to keep banks from lending these reserves
and thereby creating new credit and boosting inflation. 'Thus, through the
IOER rate (interest on excess reserves), the Federal Reserve can effectively
retain control of monetary policy,' he said, noting that the Fed can increase
the IOER rate if banks begin to find it more profitable to lend these
reserves."

<http://www.forbes.com/feeds/afx/2009/07/29/afx6714000.html>

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derobert
The Fed now pays interest on reserves (new as of last fall). When the Fed
wants to pull that money out, it can (1) raise the interest rate on reserves,
thus encouraging banks to hold the reserves and (2) sell the assets it bought
to raise the monetary base.

Looking at, for example, the current yield on treasuries shows very little
inflation expectations.

~~~
bitdiddle
the gap between treasuries and TIPS is growing nicely, signally at least
inflationary expectations

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jacquesm
I looked through your submissions and the other pages on that blog for a bit,
interesting collection.

Stuff that matters indeed.

In the interest of full disclosure, do you still hold dollars or have you
completely converted to gold now ?

~~~
barrkel
Of course, in the case of a true doomsday situation, gold will also inflate -
people will be desperate, and increasing amounts of gold required to get
anywhere. Without a functioning economy, everything is scarce => expensive.

~~~
fatdog789
I have a gun. You have gold. Which do you think is more valuable?

Force trumps money, currency, and metal. In a true doomsday situation, the guy
with the gun will always have more in the bank than the guy with the gold.

~~~
barrkel
Using force to extort people usually ends badly, except for dictators at the
top of the chain. You will never find security in weapons.

~~~
fatdog789
This isn't about using force to extort, this is about using force during an
end-of-the-world situation.

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jwb119
i think the point here is that for the first time in quite a while the dollar
has a legitimate _chance_ at hitting a doomsday scenario. whether or not that
happens remains to be seen, but the odds are greater than they have been
historically.

keep in mind that during the depression we were on the gold standard, thus
there was none of the inflationary/deflationary risk of a fiat currency..

~~~
ubernostrum
"keep in mind that during the depression we were on the gold standard, thus
there was none of the inflationary/deflationary risk of a fiat currency"

Sure there was. Gold as _currency_ is just as susceptible to instability as
anything else, as a simple thought experiment can show.

Consider that the supply of gold, though growing, grows extremely slowly. The
supply of goods and services which are exchanged in economic transactions (and
for which currency acts as a proxy), however, goes through great spurts of
growth which the supply of gold cannot hope to match. Thus, a gold standard
during such a spurt can only lead to widespread deflation (as would any
currency which failed to keep pace with the quantity of goods and services it
must stand in for).

I really don't know why people harbor this mystical belief that a shiny piece
of metal is somehow immune to well-understood economic principles.

~~~
gnaritas
> I really don't know why people harbor this mystical belief that a shiny
> piece of metal is somehow immune to well-understood economic principles.

Because thinking is hard.

------
socratees
I just hear it everywhere. I'm sure the whole world has too much at stake if
US Dollar loses its value. The economy might stagflate for a while, but I
believe it will eventually recover. After all, USA is the largest economy in
the world.

~~~
jacquesm
The USA does not have the largest economy in the world by far:

[http://upload.wikimedia.org/wikipedia/commons/7/70/Nominal_G...](http://upload.wikimedia.org/wikipedia/commons/7/70/Nominal_GDP_IMF_2008_millions_of_USD.jpg)

~~~
socratees
But technically EU isn't a country right?

~~~
tjogin
Does it absolutely have to be a country to be relevant? The EU share the same
currency. I don't know for sure, but I can't quite think of a reason why
economies absolutely have to be countries.

~~~
graphene
Eurozone != EU

When you sum the GDPs of Euro using countries, you get 12.23 trillion dollars,
or slightly less than the USA's GDP
([http://www03.wolframalpha.com/input/?i=eurozone+gdp+vs+USA+g...](http://www03.wolframalpha.com/input/?i=eurozone+gdp+vs+USA+gdp)).

How the size of an economy correlates with its resillience remains an
entrirely different question IMHO.

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billswift
The OP made a point of mentioning the potential effects of fractional reserve
banking, but apparently "forgot" to mention that the Fed can raise reserve
requirements any time it wants to reduce the effects the OP is concerned
about.

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davidmathers
Flagged for linking to an ignorant econo-crank.

