Will we see hyperinflation or default?

[Cast-Iron]

Since the Federal Reserve is a non-governmental private cartel of major US banks and their anonymous shareholders, this shouldn't fall under the umbrella of politics. It is more of a general question of economics and more specifically where America's economy may be headed.

I've just finished watching a you-tube video of Peter Schiff addressing the Mises Circle in Manhatten. IMHO, he makes some convincing arguments why the Fed's policy of Quantitative Easing will never work, and where he believes we're headed as a result. He describes two possible outcomes before any crisis resolution could even be initiated, inflation or default. The question I have for this forum is: do any of you see another alternative to these two possible outcomes and what is the rationale behind your position?

Link to video: http://www.youtube.com/watch?v=ptMrAgWqRfg

[Geek]

Why do you suggest that bank shareholders are anonymous? All publicly traded shares of major corporations, including banks, are registered.

[Cast-Iron]

Why do you suggest that bank shareholders are anonymous? All publicly traded shares of major corporations, including banks, are registered.

They may be registered, but the real identity of the physical owner is often concealed behind shadow companies and/or third party "administrators". If you argue that this is public knowledge could you provide me with a link or address where I could obtain the names of the individuals and their respective shares held for any publicly traded bank? If this isn't public knowledge, than they are by default anonymous.

But that isn't the point of my post. I know there are a lot of intelligent folks here that might have a different perspective on the subject of Quantitative Easing and I am genuinely interested in their informed opinions.

[bacpacker]

IMO, we are already well into a huge inflationary cycle. Energy and food inflation has already been removed from the calculations several years ago. These are 2 of the largest expenses in most families today that are not upper income. The current CPI will never be a true reading as long as that is in effect.

I could see that leading to default at some point.

[Stiffy]

. . . I know there are a lot of intelligent folks here . . . .

Okay, but what about the rest of us? Do you want our opinions, too???:1eye:

[Geek]

They may be registered, but the real identity of the physical owner is often concealed behind shadow companies and/or third party "administrators". If you argue that this is public knowledge could you provide me with a link or address where I could obtain the names of the individuals and their respective shares held for any publicly traded bank? If this isn't public knowledge, than they are by default anonymous.

But that isn't the point of my post. I know there are a lot of intelligent folks here that might have a different perspective on the subject of Quantitative Easing and I am genuinely interested in their informed opinions.

The problem isn't getting their names. The names are public. The problem is virtually everyone is a shareholder either directly or through a mutual fund or pension fund. What are you going to do with millions of names? The point of your reference to "anonymous shareholders" is to imply there is something sinister about the banking system.

[Cast-Iron]

With all due respect, Geek, you seem to be missing my point in the original post. Is there another alternative to inflation or default? Please make your case if you have another theory on how this crisis could be resolved to allow for genuine economic expansion.

If you use the accepted definitions for sinister as either a) fraudulent or b) accompanied by or leading to disaster, then I don't have a problem describing the Federal Reserve as inherently sinister. My indictment is of the Federal Reserve system, the fiat reserve notes they issue, and how their policy of quantitative easing is leading us to certain systemic collapse. This is not an indictment of the banking industry in general.

[jfeatherjohn]

Deflation...the economic black hole. That's a possibility, though I don't think a significant one.
Timing the economy is like trying to time the market; too much emotion involved in both, which makes scientific inquiry iffy, at best.
But I do believe that we are teetering, to what end I don't know. Perhaps if I engaged in more Posson and Fibinachi analysis, I might be of more use...or not.

[Echo2]

The Fed is pumping in enough money to hold hyperinflation at bay.....but once the dollar loses enough value due to that action.....your guess is as good as any.

Either way.....it wont be fun.

[Geek]

With all due respect, Geek, you seem to be missing my point in the original post. Is there another alternative to inflation or default? Please make your case if you have another theory on how this crisis could be resolved to allow for genuine economic expansion.

If you use the accepted definitions for sinister as either a) fraudulent or b) accompanied by or leading to disaster, then I don't have a problem describing the Federal Reserve as inherently sinister. My indictment is of the Federal Reserve system, the fiat reserve notes they issue, and how their policy of quantitative easing is leading us to certain systemic collapse. This is not an indictment of the banking industry in general.
The alternative would be to drastically reduce the redistributionist role of the Federal Government. By reducing expenditures dramatically you would simultaneously reduce government debt creaation, crowding out tendencies in the credit markets, the need formoney creation, and the other unpleasant side effects of running chronic extreme deficits.

Do I think this will happen any time soon? No. Do I think the banks are driving the bus? Absolutely not.

[Cast-Iron]

Interesting comments. Thanks for the response!

JFJ, I must admit that Posson and Fibinachi analysis is completely greek to me, so I have no clue how it is relevant here. Is there a P&F analysis for dummies link/site? With that said, I could see some deflationary pressures in the private sector as businesses compete for the diminishing discretionary dollar, but wouldn't a deflating dollar only make it more difficult for the government to meet its existing debt service? So why it might surface to some extent, I would interpret widespread deflation as a leading indicator of default.

E2, I don't follow how the Fed pumping in money serves to hold hyperinflation at bay. I would think just the opposite. Hyperinflation would be the result of too much expansion of the money supply which would then undermine or dilute the perceived value of the currency. This would likely cause the eventual "snowball" effect as more and more dollars are needed to sustain the same level of basic goods and services. It seems to me that we are well into the cause side of the equation, but haven't we experienced much of the effects side yet? I think this can be attributed to the US dollar's status as a world reserve currency. If the Euro weren't experiencing a similar crisis, we might have already lost this reserve currency status. China isn't buying our t-bills anymore, they're hoarding gold. Russia too is buying a lot of the shiney stuff.

I don't look forward to the "correction" that lies ahead, but without it we will not be able to experience genuine economic expansion allowing for a return to broad based prosperity.

my $0.02

[Wildthang]

I think we will see hyperinflation and extreme devaluation of the US dollar because of all of the bogus money we are printing. Sooner or later it will all catch up, and money will be worth very little so then it's hello barter system!

[Geek]

Your post is much more specific than the question in your title. You assume that the Fed is the cause of what has been occurring, rather than allowing that the Fed may be simply reacting to events. I do not agree with that assumption. I believe the Fed is reacting and that their reaction is misguided.

As to the question, sure there are alternatives. Default for the US is highly unlikely because the debt is denominated in doilars. A debt crisis would be more likely to involve the Fed monetizing even more debt making hyperinflation a larger possibility. However, inflation is hard to ignite in such a weak economy, so continuing sub-par performance, recessions, a shrinking labor force, and other types of unpleasantness would likely occur first.

All of these scenarios assume no external shocks, e.g. Nuclear war with Iran or North Korea, etc. Personally, I think the most likely short term scenarios are to just muddle along or slip back into recession.

[Cast-Iron]

Geek, I don't think we're all that far apart in our positions with the possible exception of the Federal Reserve. Is the Fed the singular reason for our economic crisis? No, I don't believe that any one thing is the reason, but I also don't think you can exclude the Fed from some significant culpability in the matter. Who really thought this thing through back in 1913 when Congress agreed to give a banking cartel control of the money supply? I'd love to get that gig today; create money out of thin air and loan it out for all the interest I can get. The more I create the more I make. Until the house of cards collapses. But who cares, by then I would have made billions (perhaps trillions) off the backs of the American worker with all the real wealth I'd siphoned out of the economy. I could live out my days in unimagined excess. All this without any skin in the game. I view the Fed as an unnecessary parasite relentlessly feeding upon our nation's wealth and the 98% devaluation of the dollar since the Fed's inception seems to bare that out. Has the purchasing power of a troy ounce of gold or silver lost a similar amount in the same timeframe?

[kyratshooter]

One of my professors had a Nobel Prize in Economics. He started every semester saying the same thing;

"The reason Economics is called the "dismil science" is because there is not a single model available that does not end in disaster due to the uncontrolable variables one can subject the model too."

You guys can speculate and type for thousands of pages and never sort out the varialbes and build the perfect system. People have been trying to do so for 5,000 years.

[hunter63]

I believe in greed.....will over come most any senerio....some one will figure to take advantage of what ever situation that presents it's self.

Find out what the greedy ones are doing....and do the same thing.

[Geek]

Geek, I don't think we're all that far apart in our positions with the possible exception of the Federal Reserve. Is the Fed the singular reason for our economic crisis? No, I don't believe that any one thing is the reason, but I also don't think you can exclude the Fed from some significant culpability in the matter. Who really thought this thing through back in 1913 when Congress agreed to give a banking cartel control of the money supply? I'd love to get that gig today; create money out of thin air and loan it out for all the interest I can get. The more I create the more I make. Until the house of cards collapses. But who cares, I would have made billions off the backs of the American worker with all the interest I'd siphoned out of the economy and I can live out my days in unimagined excess. All this without any skin in the game. I view the Fed as an unnecessary parasite relentlessly feeding upon our nation's wealth and the 98% devaluation of the dollar since the Fed's inception seems to bear that out. Has the purchasing power of a troy ounce of gold or silver lost a similar amount in the same timeframe?

Throughout the past few years the tendency has been to blame bankers, not the federal housing policies that precipitated the collapse. People wonder why bankers haven't been prosecuted when the answer may very well be that there is no law against making a bad loan or losing money.

Banking is one of very few industries where you simply cannot be employed if you have any sort of criminal record. The level of regulation is enormous. The idea that the banking industry controls the Fed, rather than the other way around is totally bogus.

About the only part of this on which we might agree is that Fed policies have caused inflation in the past and are likely to cause inflation in the future.

[crashdive123]

Throughout the past few years the tendency has been to blame bankers, not the federal housing policies that precipitated the collaapse. People wonder why bankers haven't been prosecuted when the answer may very well be that there is no law against making a bad loan or losing money.


I would take that statement further - saying that there were laws encouraging bad loans, or at least penalties if strident standards were used.

[Rick]

http://thxforthe.info/blog/wp-content/uploads/2010/01/DoubleFacePalm2.jpg

[Rick]

http://loewrestling.com/wp-content/uploads/2012/02/3stooges_face_palm.jpg

[Rick]

http://www.3fatchicks.com/diet-blogs/turbomammoth/files/2012/04/doh1.jpg

[Rick]

Check please.

[Cast-Iron]

That'll be $16,713,211,163,147.87. Will that be cash or check?

[Rick]

Can you put it on my tab?

[Geek]

I would take that statement further - saying that there were laws encouraging bad loans, or at least penalties if strident standards were used.

I would use the word "normal" rather than strident, but you got it! :-)

[Echo2]

Your tab....your children....your children's children....your children's children's children.....etc.

[jfeatherjohn]

Cast Iron, that was my point. The now re-popular fib analysis doesn't analyze the market, it analyzes people's behaviors in the market. That is not economics, that is social science.

KY, you were fortunate to have such a professor. What was pointed out to me wss that none og these economic theories had ever been tried, much less proven. People keep getting in the way of "science".


Rick, you are working on your check right now, I am sure. It is due April 15.

My palm reader took one look at my palm and ran away screaming...

[Cast-Iron]

Throughout the past few years the tendency has been to blame bankers, not the federal housing policies that precipitated the collapse. People wonder why bankers haven't been prosecuted when the answer may very well be that there is no law against making a bad loan or losing money.

Banking is one of very few industries where you simply cannot be employed if you have any sort of criminal record........


Geek, I think your missing the forest for the trees here. The banking collapse which resulted from the housing bubble may have been the straw which broke the camel's back, but the camel was pretty weak to begin with. This argument goes well beyond any individual economic sector or some effort to manipulate it.

Were there "bad loans" made during the housing bubble? Were all of these originated in good faith? I have no doubt that there was an abundance naive parties on both sides of process, but ignorance of the law is not a legal defense. Many of these loans were made with some form of government backing VA, FHA, or whatever. Under these programs, regulatory standards should have been followed to determine the applicant's eligibility. If these documents for these types of loans were fraudulently created, as has been widely reported, than a crime has been committed. If banks were robo-signing documents to expedite the process, than I allege additional criminal acts were perpetrated. I have to believe that in the haste to cash-in on the loan origination fees a lot of improprieties were overlooked. Management ultimately had the final say and should have intervened on behalf of the institutions. When they failed to act, they became complicit in these crimes. I'm neither a lawyer nor legal scholar, but this much seems pretty cut and dried. Where are the criminal prosecutions? Many of the major banks have already settled civil claims with the government so why no criminal prosecution?

Please understand, I don't have some kind of vendetta against bankers. I know a number of bankers in my community. Many of them work hard to balance the needs of their customers with the interests of their banks. I have enourmous respect for these individuals and the service they perform. While a few bankers, the bad apples, are scum sucking predators that profit from the hardships and ignorance of their victims. These folks, I hope, will get their due in the eternal hereafter if not sooner.

[endurance]

Schiff is interesting, but I certainly don't see him as THE expert. If is was, then why did his clients loose so much money in 2008-2009 when he failed to see just how much worse off the Europeans and Asians were when it came to debt issues? While I agree with a lot of his criticisms of the Federal Reserve, in many ways he has blinders on to many of the other things that could impact his investors besides hyperinflation or default. An example would be the current currency wars by nations around the world trying to devalue their currency in order to be more competitive in the export department, thus spur on their home economies. What about the possibility that one major nation or group of nations start demanding payment for energy in gold, silver or some other commodity rather than US dollars?

Personally, I think inflation will continue to be the tool of the fed which in turn will make us more vulnerable to other nations demanding something besides worthless US bonds in payment for their oil. We import roughly 60% of the oil we consume in this country and if OPEC suddenly demanded gold for oil, we'd be completely screwed overnight. What if Russia started demanding gold for payment for the natural gas that Europe has become so dependent on? How many German citizens would freeze to death that first winter?

[Cast-Iron]

Schiff is interesting, but I certainly don't see him as THE expert. If is was, then why did his clients loose so much money in 2008-2009 when he failed to see just how much worse off the Europeans and Asians were when it came to debt issues? While I agree with a lot of his criticisms of the Federal Reserve, in many ways he has blinders on to many of the other things that could impact his investors besides hyperinflation or default. An example would be the current currency wars by nations around the world trying to devalue their currency in order to be more competitive in the export department, thus spur on their home economies. What about the possibility that one major nation or group of nations start demanding payment for energy in gold, silver or some other commodity rather than US dollars?

Personally, I think inflation will continue to be the tool of the fed which in turn will make us more vulnerable to other nations demanding something besides worthless US bonds in payment for their oil. We import roughly 60% of the oil we consume in this country and if OPEC suddenly demanded gold for oil, we'd be completely screwed overnight. What if Russia started demanding gold for payment for the natural gas that Europe has become so dependent on? How many German citizens would freeze to death that first winter?

I don't know much about Schiff or his overall record, but no one on Wall Street is ever right all the time (if you are consistently right 55 or 60 percent of the time you're significantly better than most). I do think his analysis is spot on for our debt crisis. Currency wars? That's an inherent problem with fiat currencies. We need an asset backed monetary system. As far as payment in another form, aren't the Indians (Asian not North American) already using gold to purchase Iranian oil since the embargo?

We actually don't import 60% of our oil. According to the EIA, net imports account for roughly 45% of our usage in 2011. This percentage continues to drop as new US shale oil production replaces a like amount of imported oil. In 2011, 60% of the crude oil domestically refined was imported, however some of our refined products were eventually exported so that 60% is a misleading figure. With the suggested likelihood that Saudi Arabia and even Russia have in fact already reached peak production for conventional oil, the US may soon regain the status as the number one producer of gas & oil. A good thing considering the fact we can't seem to get enough of the stuff. This might even be the catalyst for a renaissance in American manufacturing and production.

I agree that inflation will likely be the tool used versus default, because no-one wants to face the fact we're broke. Keep kicking that can and treading water as long as we can.

[Geek]

Geek, I think your missing the forest for the trees here. The banking collapse which resulted from the housing bubble may have been the straw which broke the camel's back, but the camel was pretty weak to begin with. This argument goes well beyond any individual economic sector or some effort to manipulate it.

Were there "bad loans" made during the housing bubble? Were all of these originated in good faith? I have no doubt that there was an abundance naive parties on both sides of process, but ignorance of the law is not a legal defense. Many of these loans were made with some form of government backing VA, FHA, or whatever. Under these programs, regulatory standards should have been followed to determine the applicant's eligibility. If these documents for these types of loans were fraudulently created, as has been widely reported, than a crime has been committed. If banks were robo-signing documents to expedite the process, than I allege additional criminal acts were perpetrated. I have to believe that in the haste to cash-in on the loan origination fees a lot of improprieties were overlooked. Management ultimately had the final say and should have intervened on behalf of the institutions. When they failed to act, they became complicit in these crimes. I'm neither a lawyer nor legal scholar, but this much seems pretty cut and dried. Where are the criminal prosecutions? Many of the major banks have already settled civil claims with the government so why no criminal prosecution?

Please understand, I don't have some kind of vendetta against bankers. I know a number of bankers in my community. Many of them work hard to balance the needs of their customers with the interests of their banks. I have enourmous respect for these individuals and the service they perform. While a few bankers, the bad apples, are scum sucking predators that profit from the hardships and ignorance of their victims. These folks, I hope, will get their due in the eternal hereafter if not sooner.

Actually, the housing market is huge in the US and as we now know is quite capable of taking down the US economy.

As to your comments about fraudulent loans yada yada, federal regulations required banks to make an ever increasing number of loans to "lower income" borrowers, i.e. borrowers who would not have otherwise gotten those loans. The crisis was not caused by failing to follow regulations but because of following regulations!

Your comment about some of my best friends are bankers sounds a lot like a smilar saying that doesn't end with "bankers". Think about it. BTW: I have worked most of my career in and around financial services firms so I can tell you a bit about the environment today. Most are sick of getting blamed for lousy regulatory policy and have decided to minimize lending. Wonder why the economy is weak? Wonder why loans are hard to get? Check the mirror.

[Cast-Iron]

Actually, the housing market is huge in the US and as we now know is quite capable of taking down the US economy.

As to your comments about fraudulent loans yada yada, federal regulations required banks to make an ever increasing number of loans to "lower income" borrowers, i.e. borrowers who would not have otherwise gotten those loans. The crisis was not caused by failing to follow regulations but because of following regulations!

Your comment about some of my best friends are bankers sounds a lot like a smilar saying that doesn't end with "bankers". Think about it. BTW: I have worked most of my career in and around financial services firms so I can tell you a bit about the environment today. Most are sick of getting blamed for lousy regulatory policy and have decided to minimize lending. Wonder why the economy is weak? Wonder why loans are hard to get? Check the mirror.

Yada, yada? I yield to your oblivious expertise in the field.

[Geek]

Oblivious expertise? I've updated my profile for your benefit.

[endurance]

Well, you said "I've just finished watching a you-tube video of Peter Schiff addressing the Mises Circle in Manhatten. IMHO, he makes some intelligent arguments why the Fed's policy of Quantitative Easing will never work and where he thinks we're headed as a result. He describes two possible outcomes before any crisis resolution could even be initiated, inflation or default. The question I have for this forum is: do any of you see another alternative to these two possible outcomes and what is the rationale behind your position?"

My answer is yes, I see other alternatives. I don't see the hyperinflation of the Wiemar Republic as the solution the Federal Reserve is looking for or will pursue. I see boring, dull, and ordinary inflation of 2-6% being maintained to erode our current mountain of debt over decades, not months. I don't see the Fed creating their own end; they'll avoid it at all costs and since they control the global currency system, they have a lot of power.

I stand by my arguments that in the next decade or two the growing demand for oil in Asia and the finite supply from the world will cause far bigger problems, both in terms of economics and with conflicts around the world. Yes, US oil production is going through some expansion and demand is down, but the cost of this new oil is higher because of the technology and energy going into these new wells; this is not the same cheap, easy oil of the 1950s-1970. In 1941 the US produced 83% of the world's oil, we now struggle to produce 10% and consume roughly twice as much as we produce. That makes us vulnerable to a whole host of other disasters, economic and otherwise, that are far more likely to impact our futures than the actions of the Federal Reserve.

Schiff is a one trick pony. If you want to be afraid of the US debt and Federal Reserve, he's your guy. If you want to understand the broader world and other concerns that he's never going to talk about and are much more likely, you need to expose yourself to more sources of information. I've read Crashproof and it was no doubt brilliant at predicting the 2008 crash in the housing bubble, but he failed to look overseas at the problems in other markets and thus, lost his investors a lot of money when there were strategies that very well might have worked better. I'm not saying he absolutely wrong, heck, he's right on a lot of things and I agree with some of his ideas, however, I feel that there's a lot greater risks out there that deserve a greater proportion of my attention and time.

In the end, it's like learning everything you want to know about the outdoors from Bear Grylls. I have no doubt the guy knows a lot, but he only shares stuff that looks good on TV, not the really important stuff, like what doesn't work or why he uses X vs. Y to start a fire. If you really want to understand the economic landscape, you're better off reading Gonzoles's Deep Survival. At least he does a decent job explaining unstable systems and how the massive energy in systems can cascade out of control. Schiff never does an effective job of describing Chaos Theory (complexity theory) and why the most likely financial collapse will be the result of a Black Swan, something completely unforeseen, rather than something that is clearly obvious.

[Cast-Iron]

@Endurance - Good points and well articulated. I follow the KISS school of economics (keep it simple stupid) and perhaps not wanting to overcomplicate this "science" prevents me from delving too deep into the theories of scholars who have devoted their careers to the subject. Because the government is now the buyer of last resort, I fear we could soon see the dollar's fall from reserve currency status. Under that scenario, I think your estimates for inflation may be far too conservative. Even if you use the government's convoluted formula which omits food and energy prices since most of what we consume excluding those is imported from somewhere else where they use yens, yuans, pesos or whatever. The dollar has been propped up by fed policy for years, it only stands to reason that an eventual correction may be quite precipitous before it reaches real parity with these other currencies. I have a problem envisioning how they could drag this out without maintaining the reserve currency status. The Fed's policy of indefinite quantitative easing to the tune of some $3.6 billion a day only serves to futher errode the confidence of our trading partners in the US dollar. Unabated it will reach a tipping point, and then I'm afraid, we're screwed.

As for your comments on energy, you're spot on. I do think that shale oil has changed the economics of oil exploration worldwide. Deepwater is the "cutting edge" of unconventional oil, but it is too capital intensive to compete with onshore or shallow-water shale oi production.

I still hope we will see an eventual transition to a wind/solar energy platform in my lifetime. A model which utilizes excess peak generation for hydrogen distillation which would be available for fuel cells as back-up generation.

[jfeatherjohn]

When I think about the unending variables that are in play, I just shake my head. That Black Swan event could come from any variability. Several of the big banks are playing the same game now that they were playing when they crashed. We can't seem to get seperation of depository and investment banking. I use a regional bank that only serves Arizona, and they have made it clear that they haven't, and will not
play the dirivatives game. During the "banking crisis" they we remodeling branches, adding branches and making business loans.
Some of the too big to fails could learn alot from them, and Wells
Fargo, and USB. Perhaps they could even learn how to be less fragile.
I have looked at some of this very hard and I do not believe that I can predict the next chapter.
Its the old Chinese curse..."may you live in interesting times."

[endurance]

A recent estimate by the International Bank Of Settlements said that just Credit Default Swaps alone represented $32.4 trillion in potential liabilities. The grain of sand that could set that in motion could be a increase in private mortgage defaults by 1%, but there's a million other things that could set that collapse in motion. Once in motion, who's going to bail out Citigroup, JPM Chase, and Bank of America once the collapse starts? They're all so tightly interconnected in the CDS market that there would be no stopping the slide once it stopped. That's why the government had to step in with AIG. The alternative would have been the collapse of all major US banks and many others around the world.

http://www.thisamericanlife.org/radio-archives/episode/365/another-frightening-show-about-the-economy This is one of several podcasts that was done during the height of the crisis that woke me up to the scary fact that out system is much less robust than I think we'd all like to believe. That's what led me to my journey to try to understand Chaos Theory. Know thy enemy.

[Geek]

When I think about the unending variables that are in play, I just shake my head. That Black Swan event could come from any variability. Several of the big banks are playing the same game now that they were playing when they crashed. We can't seem to get seperation of depository and investment banking. I use a regional bank that only serves Arizona, and they have made it clear that they haven't, and will not
play the dirivatives game. During the "banking crisis" they we remodeling branches, adding branches and making business loans.
Some of the too big to fails could learn alot from them, and Wells
Fargo, and USB. Perhaps they could even learn how to be less fragile.
I have looked at some of this very hard and I do not believe that I can predict the next chapter.
Its the old Chinese curse..."may you live in interesting times."

Our Congress made a deliberate decision not to restore Glass-Steagal. It could be easily implemented but they chose the Rube-Goldberg "Volker Rule" instead. As for "playing the same old games" all of the major banks, which are the ones that we need to worry about, have substantially more capital and liquidity than before 2008. They are also far more risk adverse and uninclined to make loans as they did in the past. It is quite a different landscape now.

Banking is one of the most heavily regulated industries. They operate based on rules set in Washington. If you want different rules, write your Congressman.

[Cast-Iron]

I wouldn't dwell on the specific catalyst that sets the wheels in motion, because that event only starts a process of collapse which would likely unfold similarly irregardless of the specific reason. The Fed is now employing drastic measures to maintain the appearance of monetary control. Are they going to start paying people to borrow money? If so, sign me up! I'd be proud to do my patriotic duty. The only real ammo they have left is to "stimulate" the economy with huge piles of newly issued fiat dollars. If this doesn't result in meaningful economic expansion and soon (and I don't belive it will), then I wouldn't be surprised to see something dramatic introduced in Washington. Who knows what policies they might employ in an effort to restore globalwide confidence in the federal reserve note. It frightens me to think what could happen and under what necessary authorization it would have to be introduced.

[Rick]

You guys do know that this sort of conversation has been going on for about 237 years, right?

[Cast-Iron]

I thought it sounded familiar!

[Geek]

You guys do know that this sort of conversation has been going on for about 237 years, right?

Yep. I'm just tired of people who don't understand the money multiplier trying to blame banks for everything that goes wrong. I'd like the economy to grow rather than shrink by 80 percent.

[bacpacker]

You guys do know that this sort of conversation has been going on for about 237 years, right?

It sure has. But the game changed drastically in the early 1900's when the FED ( large group of private banks ) was given the power to print money which is then loaned back to the US treasury at interest. Once that began, there is no way to ever get us out of debt short of the treasury taking that power back and backing the currency with gold, silver, platinum, or something with real value.

[cwi555]

The actual event has already taken place. If you represent the worlds economy as a sky scraper, the crack in the concrete to it's support piles went unnoticed. The proverbial black swan event occurred, yet the world slept soundly, secure in their understanding of the financial monster that they created. The crack itself would not be a problem if the occupancy level of the building had not been exceeding by loading 1.4 quadrillion (that's 1,400 trillion) in unsubstantiated derivatives on the proverbial top floor.
There is no one demon, nor evil group of men to set such an action in motion. It was simply a built in design flaw as one thing is built upon another, and another again ad infinitum. The design is now so convoluted that it cannot be modeled by even the best business mathematicians.

Now as the building sways, money is shifted back and forth in a futile attempt to balance it, but it has become so weak now, that those actions only accelerate the tensile failure of all that supports it. We see most of the major central banks entering their own versions of quantitative easing, adding more and more weight of worthless fiat currency to the top, talk of currency wars that equate to scrambling for position at the top of a pile of rubble when it comes crashing down.

That it will collapse is a forgone conclusion. If it were just a collapse of the worlds fiat money system, it would be a simple house of cards to collapse harmlessly on the card table. However, as we all know, the seven deadly sins infiltrate it with evil at all levels giving the crash when it comes, substances, the ability to damage all that is around it, and only so because we recognize it as something tangible, rather than the ghost reality that it is.

Greed begets the lust for things we cannot afford, yet we still fill our cups on loan with an avarice gluttonous for those things, due to an envy of that which their neighbor has. Pride perpetuates these actions, blinding us with the glimmer of false gold; the promise of a better life unearned and free because we think somehow we deserve it and have a right to it. Finally at it's end, the violence of wrath as the societies of the world look to one another seeking to blame anyone, and anything for the failure that was within them the whole time.

It is in that last action where the falsehood of fiat currency becomes tangible and real to us all. One nation set against the other, neighbor against neighbor. It is that last action that cracked the pillar, which has sealed the fate of what we call the world economy. As time moves forward, the swaying will get ever more violent, until it becomes undeniable that it is collapsing under it's own weight; at which time, the only recourse of those in power will be to let slip the dogs of war, as their pride blinds them to their share of the blame.

My opinion for what it's worth.

[Cast-Iron]

The actual event has already taken place. If you represent the worlds economy as a sky scraper, the crack in the concrete to it's support piles went unnoticed. The proverbial black swan event occurred, yet the world slept soundly, secure in their understanding of the financial monster that they created. The crack itself would not be a problem if the occupancy level of the building had not been exceeding by loading 1.4 quadrillion (that's 1,400 trillion) in unsubstantiated derivatives on the proverbial top floor.
There is no one demon, nor evil group of men to set such an action in motion. It was simply a built in design flaw as one thing is built upon another, and another again ad infinitum. The design is now so convoluted that it cannot be modeled by even the best business mathematicians.

Now as the building sways, money is shifted back and forth in a futile attempt to balance it, but it has become so weak now, that those actions only accelerate the tensile failure of all that supports it. We see most of the major central banks entering their own versions of quantitative easing, adding more and more weight of worthless fiat currency to the top, talk of currency wars that equate to scrambling for position at the top of a pile of rubble when it comes crashing down.

That it will collapse is a forgone conclusion. If it were just a collapse of the worlds fiat money system, it would be a simple house of cards to collapse harmlessly on the card table. However, as we all know, the seven deadly sins infiltrate it with evil at all levels giving the crash when it comes, substances, the ability to damage all that is around it, and only so because we recognize it as something tangible, rather than the ghost reality that it is.

Greed begets the lust for things we cannot afford, yet we still fill our cups on loan with an avarice gluttonous for those things, due to an envy of that which their neighbor has. Pride perpetuates these actions, blinding us with the glimmer of false gold; the promise of a better life unearned and free because we think somehow we deserve it and have a right to it. Finally at it's end, the violence of wrath as the societies of the world look to one another seeking to blame anyone, and anything for the failure that was within them the whole time.

It is in that last action where the falsehood of fiat currency becomes tangible and real to us all. One nation set against the other, neighbor against neighbor. It is that last action that cracked the pillar, which has sealed the fate of what we call the world economy. As time moves forward, the swaying will get ever more violent, until it becomes undeniable that it is collapsing under it's own weight; at which time, the only recourse of those in power will be to let slip the dogs of war, as their pride blinds them to their share of the blame.

My opinion for what it's worth.

I think you summed it up rather well. Not sure how it will play out globally, but your prognosis seems reasonable. That might explain why China and Russia are both buying gold at alarming levels despite the run-up in price since 2006 and why other nations are now seeking repatriation of their gold reserves held inside the US. This isn't some random investment policy they're pursuing, it's deliberate a hedge against inflation (or in this case perhaps hyperinflation).

[Cast-Iron]

Coming soon to a bank near you? International creditors preparing to levy the accounts of ordinary citizens in Cyprus as part of their bailout plan.
http://www.foxnews.com/world/2013/03/16/cyprus-cooperative-banks-close-amid-depositor-concern-over-bailout-deal-bank/

[cwi555]

Put the word 'tax' in front of it, and it becomes sanctioned theft.

[Rick]

Some day I'll have to read up on this money stuff. Until then I figure ignorance is bliss. I found a nickle in the couch last night. Things aren't bad at all.

[Cast-Iron]

Rick if you're lucky it's a war nickel and has a 35% silver content with a melt value of about $1.60 in fiat bucks.

[Rick]

Fiat Bucks? Is that a new Italian car?

[Cast-Iron]

No, and it's not some new kind of antlered Odocoileus either.

[cwi555]

Definition of 'Fiat Money'
Currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves. Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on faith.

[randyt]

fiat money???? or just serious inflation or both??????
http://i257.photobucket.com/albums/hh227/randytlee/2187.jpg

on a more serious note, did you hear that they found the violin that the was played while the titanic was sinking. Talk about nerve, playing a violin whilst the ship was sinking.

[Cast-Iron]

Perhaps a more tangible example of the dilutive effects of fiat currency would be this:

Suppose that back in 1970 upon graduating college, some wealthy relative wanted to gift you either a $1000 savings bond or $1000 in gold. In hopes that it would continue to grow in value until you reached retirement age, lets say you selected a US savings bond. If you had a bond which yielded a hefty 3.25%, after 42 years of compounded interest, your $1000 bond would be worth $3831.62 ( =1.0325^42*$1000). In 1970, the US dollar was still tied to gold at $35 per ounce. Had you purchased gold instead, you'd have received roughly 28.5 ounces of gold. With gold trading around $1600 per ounce today that investment would have grown into approximately $45,600. Nearly 12 times the value of the savings bond. Thus is the illusion of fiat currency. The appearance of getting ahead while in reality you are losing real purchasing power. It's why, despite our phenominal technological advances over that same period, the middle class is being squeezed into poverty. The top wage earners (and I use the term earners loosely here) continue to reap a greater percentage of new wealth creation as existing savings are being depreciated. In reality gold hasn't appreciated it's value has held near constant as the dollar has been systematically devalued.

It's time to end the illusion, end the Fed and place the creation of currency back to where and how it is constitutionally mandated.

[jfeatherjohn]

I remember when inflation was 15% and I was getting 17% in a money market account. I sure miss that 2%. Of course, this is apples and oranges because, then, the inflation measures included food and fuel.

[Cast-Iron]

JFJ - I believe it's a pretty good chance you'll see those kind of inflation numbers again. It's part of the inevitable healing process our economy must undergo as we work to balance the scales of consumption vs. production. We can't keep consuming and spending beyond our means. I only hope the solution provides for a greater distribution of the new wealth created. I did come across an uplifting story this morning which makes our energy security picture look much brighter. At least that's something we still have the industry to produce domestically:

http://www.nbcnews.com/business/power-shift-energy-boom-dawning-america-1C8830306

[Rick]

I would have taken the Twinkies in 1970. Now, they are a collectors item and they would still be good. I'd probably rule the world if I'd done that. Yeah, probably.

[crashdive123]

I would have taken the Twinkies in 1970. Now, they are a collectors item and they would still be good. I'd probably rule the world if I'd done that. Yeah, probably.

Muahahahahahah

http://i261.photobucket.com/albums/ii67/crashdive123/Forum%20Fun/Twinkies001_zps19a4ee05.jpg

[Cast-Iron]

Looks like there's a new emperor on the block! Your kingdom for a bucket (or 11) of twinkies. Please tell me that's not 55 gallons of twinkies.

[cwi555]

Looks like there's a new emperor on the block! Your kingdom for a bucket (or 11) of twinkies. Please tell me that's not 55 gallons of twinkies.

55 gallons of twinkies.... LOL

[crashdive123]

There are actually 15 buckets there.

[crashdive123]

.....but only the one has Twinkies in it.

[crashdive123]

They'll be served up at the next Jamboree.

[Rick]

Curses! Foiled again......

[Cast-Iron]

I don't know why I've been so preoccupied with this topic as of late, but I had a bit of an epiphany yesterday that I wanted to share it here for comment. This may take a bit so I ask for your patience in advance.

I could argue that all money whether asset backed or fiat lacks much intrinsic value under certain situations. A fire would be worth more to a person experiencing severe hypothermia, as would a boat or means of flotation to a drowning man. It is only after our basic survival needs have been met, does money begin to serve a useful purpose as an efficient means of barter. At this point, money begins to define wealth and it allows for the storage of that wealth. Money is the result of civilization and perhaps even defines civilizations. For all of recorded history, gold and silver have been used as a measure of wealth by many different cultures. Eventually these metals were coined and used in commerce. As time went on, these coins were replaced by depository notes which represented the deposit of some like value in gold or silver by the issuer of the note. The system works well if you can keep ahead of the counterfeiters. This is an asset backed currency which should remain relatively constant in value indefinitely. It encourages savings and allows for the accumulation of real wealth.

Now here's where I had my epiphany. A fiat dollar lacks such backing. It can only exist in an inflationary system. The purchasing power of that dollar is under constant devaluatory (not sure if it is a word, but it should be) pressure. Under a fiat dollar, if we save for a rainy day we are penalized for our thrift. A fiat dollar encourages spending and is based on debt creation. I am not an economist, but this system seems to undermine the American Dream; work hard, save, and leave the next generation a little better off than we are. Since the creation of the Federal Reserve and removing the dollar from the gold standard, we have been systematically stripped of our wealth and buried in mountains of debt in return. We are all now economic slaves with debts our grandchildren couldn't hope to pay off.

I don't know what the answers are; perhaps ending the Fed and a return to an asset backed currency. Perhaps default and an implosion of our economy. That's really beyond my qualifiactions and pay-grade. I just hope that by making more people aware of the underlying systemic flaws we will be able to get real change. A change that finally rewards those who live within their means while setting something aside for a rainy day.

[Geek]

I don't know why I've been so preoccupied with this topic as of late, but I had a bit of an epiphany yesterday that I wanted to share it here for comment. This may take a bit so I ask for your patience in advance.

I could argue that all money whether asset backed or fiat lacks much intrinsic value under certain situations. A fire would be worth more to a person experiencing severe hypothermia, as would a boat or means of flotation to a drowning man. It is only after our basic survival needs have been met, does money begin to serve a useful purpose as an efficient means of barter. At this point, money begins to define wealth and it allows for the storage of that wealth. Money is the result of civilization and perhaps even defines civilizations. For all of recorded history, gold and silver have been used as a measure of wealth by many different cultures. Eventually these metals were coined and used in commerce. As time went on, these coins were replaced by depository notes which represented the deposit of some like value in gold or silver by the issuer of the note. The system works well if you can keep ahead of the counterfeiters. This is an asset backed currency which should remain relatively constant in value indefinitely. It encourages savings and allows for the accumulation of real wealth.

Now here's where I had my epiphany. A fiat dollar lacks such backing. It can only exist in an inflationary system. The purchasing power of that dollar is under constant devaluatory (not sure if it is a word, but it should be) pressure. Under a fiat dollar, if we save for a rainy day we are penalized for our thrift. A fiat dollar encourages spending and is based on debt creation. I am not an economist, but this system seems to undermine the American Dream. To work hard, to save, and leave the next generation a little better off than we found it. Since the creation of the Federal Reserve and removing the dollar from the gold standard, we have been stripped of our wealth and buried in mountains of debt in return. We are all now economic slaves with debts our grandchildren couldn't hope to pay off.

I don't know what the answers are; perhaps ending the Fed and a return to an asset backed currency. That's really beyond my qualifiactions and schooling. I just hope that by making more people aware of the underlying systemic flaws we will be able to get real change that finally rewards those who live within their means while setting something aside for a rainy day.

Having a currency that experiences small amounts of inflation over long periods of time does not penalize savers IF they are able to get a real inflation adjusted return on their savings. Until this past decade, that has been true except for extremely brief periods. What is new is running negative real rates for years. This clearly screws savers. It is incorrect to equate current policy with what has been done before.

[Cast-Iron]

I stand behind the example used in post #54 of this thread. Savings have been and continue to be erroded with issuance of new debt/currency. With the interest rate being manipulated by the Fed, free market rates of return might be a thing of the past. I wouldn't recommend T-bills to my worst enemy (well maybe them, but certainly no one else). Inflation amounts to theft pure and simple. Where did that value go? (hint: it didn't just evaporate, it was stolen by the issuance of more fiat currency THIS IS THE CRUX OF THE PROBLEM)

If I've already earned it, why do I have to keep it working just to maintain its purchasing power?

[Geek]

Unless you put it in consumer goods that you will consume yourself, any investment has risk, including cash. This was true before the creation of the Fed aand remains true today.

[Cast-Iron]

Unless you put it in consumer goods that you will consume yourself......

I guess that's why we have preppers? To protect their earnings they buy supplies they expect to need one day.

Any investment has risk if it's valuation is market driven. Precious metals experience some price fluctuations too (much of that likely due to speculators), but they have historically maintained a relatively constant value over hundreds if not thousands of years. Not when denominated in fiat dollars, but when valued in terms of consumer goods you could receive in exchange for them.

[Rick]

Your example is a bit backwards. Civilization created money not the other way around. Fiat money is nothing more than a convenient form of barter. No different than exchanging bread for milk. Fiat is just lighter in weight and more easily shipped than cows and grain. To think that gold and silver hold some magic power over fiat is misguided too. Precious metals had not seen significant historical appreciation until 2007 and our current recession. Add to that the fact that price can be manipulated on a whim as evidenced by Roosevelt's decision to change the value in 1934. Further, while silver coins were used as fiat money until 1964 there was no silver reserve to back them. Instead, the value relied on gold reserves that only served to artificially inflate the price of silver. And if you think precious metals can not be manipulated then look up the Hunt brothers and how they manipulated the silver market. Only their greed caused their downfall.

While gold is traded today on the open market the value is still set by the London Gold Fix twice each day. These are artificially attributed prices assigned to gold based on the current spot price but certainly not locked to it.

The value of the dollar is determined by the exchange rate, Treasury notes and foreign reserves. We generally use the exchange rate as a common indicator but all three are tied together. The value of the dollar isn't detracted from because we are not on a gold standard. It is because we have such high debt. If you reduce the national deficit to a manageable level or (god forbid) to a balanced budget then the dollar gains tremendous purchasing power. Credit drives an economy not debt. To put it a bit more simply, every transaction has a creditor and a debtor. You can see who has more power. Credit requires that you have a positive net worth. Debt does not. Lower the debt and strengthen the dollar. It's really pretty simple. Let's call is balancing the checkbook. It's that simple.

I have never understood why individuals think the dollar is such a terrible thing yet foreign countries purchase them in great quantity. Fiat money at it's simplest is nothing more than a federal debt instrument with zero maturity.

There is a strong case for Congress to control the money flow rather than the Federal Reserve but that's a pipe dream.

It matters not if you exchange flint for bread, milk for bread, gold for bread or fiat money for bread. As long as two people (or governments) agree to the value then the thing being traded for bread is equal to bread.

[Wildthang]

Your example is a bit backwards. Civilization created money not the other way around. Fiat money is nothing more than a convenient form of barter. No different than exchanging bread for milk. Fiat is just lighter in weight and more easily shipped than cows and grain. To think that gold and silver hold some magic power over fiat is misguided too. Precious metals had not seen significant historical appreciation until 2007 and our current recession. Add to that the fact that price can be manipulated on a whim as evidenced by Roosevelt's decision to change the value in 1934. Further, while silver coins were used as fiat money until 1964 there was no silver reserve to back them. Instead, the value relied on gold reserves that only served to artificially inflate the price of silver. And if you think precious metals can not be manipulated then look up the Hunt brothers and how they manipulated the silver market. Only their greed caused their downfall.

While gold is traded today on the open market the value is still set by the London Gold Fix twice each day. These are artificially attributed prices assigned to gold based on the current spot price but certainly not locked to it.

The value of the dollar is determined by the exchange rate, Treasury notes and foreign reserves. We generally use the exchange rate as a common indicator but all three are tied together. The value of the dollar isn't detracted from because we are not on a gold standard. It is because we have such high debt. If you reduce the national deficit to a manageable level or (god forbid) to a balanced budget then the dollar gains tremendous purchasing power. Credit drives an economy not debt. To put it a bit more simply, every transaction has a creditor and a debtor. You can see who has more power. Credit requires that you have a positive net worth. Debt does not. Lower the debt and strengthen the dollar. It's really pretty simple. Let's call is balancing the checkbook. It's that simple.

I have never understood why individuals think the dollar is such a terrible thing yet foreign countries purchase them in great quantity. Fiat money at it's simplest is nothing more than a federal debt instrument with zero maturity.

There is a strong case for Congress to control the money flow rather than the Federal Reserve but that's a pipe dream.

It matters not if you exchange flint for bread, milk for bread, gold for bread or fiat money for bread. As long as two people (or governments) agree to the value then the thing being traded for bread is equal to bread.


It will be a terrible thing when the dollar devalues and becomes worth 20% of it's current value. If the deficit keeps going up, and we lose our international credit rating, the dollar value will drop like a rock, and that's when the "S" will hit the fan and all of our preps will be worth their weight in gold! I think this is what will happen in the next few years!

[Cast-Iron]

Your example is a bit backwards. Civilization created money not the other way around. Fiat money is nothing more than a convenient form of barter. No different than exchanging bread for milk. Fiat is just lighter in weight and more easily shipped than cows and grain. To think that gold and silver hold some magic power over fiat is misguided too. Precious metals had not seen significant historical appreciation until 2007 and our current recession. Add to that the fact that price can be manipulated on a whim as evidenced by Roosevelt's decision to change the value in 1934. Further, while silver coins were used as fiat money until 1964 there was no silver reserve to back them. Instead, the value relied on gold reserves that only served to artificially inflate the price of silver. And if you think precious metals can not be manipulated then look up the Hunt brothers and how they manipulated the silver market. Only their greed caused their downfall.

While gold is traded today on the open market the value is still set by the London Gold Fix twice each day. These are artificially attributed prices assigned to gold based on the current spot price but certainly not locked to it.

The value of the dollar is determined by the exchange rate, Treasury notes and foreign reserves. We generally use the exchange rate as a common indicator but all three are tied together. The value of the dollar isn't detracted from because we are not on a gold standard. It is because we have such high debt. If you reduce the national deficit to a manageable level or (god forbid) to a balanced budget then the dollar gains tremendous purchasing power. Credit drives an economy not debt. To put it a bit more simply, every transaction has a creditor and a debtor. You can see who has more power. Credit requires that you have a positive net worth. Debt does not. Lower the debt and strengthen the dollar. It's really pretty simple. Let's call is balancing the checkbook. It's that simple.

I have never understood why individuals think the dollar is such a terrible thing yet foreign countries purchase them in great quantity. Fiat money at it's simplest is nothing more than a federal debt instrument with zero maturity.

There is a strong case for Congress to control the money flow rather than the Federal Reserve but that's a pipe dream.

It matters not if you exchange flint for bread, milk for bread, gold for bread or fiat money for bread. As long as two people (or governments) agree to the value then the thing being traded for bread is equal to bread.

Looks like we're having a breakdown in communication here. If you'll re-read my post, you'll notice I said "money is the result of civilization...". Meaning after our ancestors figured out agriculture and went on to establish communities, the need for an efficient means of barter arose and the creation of money resulted from that need. So I think we're on the same page there.

Where I believe you are missing the point is on the creation of fiat currency. When you or I go out and do a job, we exchange our talents/labor/products for dollars. We have given something in exchange for those dollars so they have a real value to us (perception is everything here). Chances are, the person who paid us for our labors received these same dollars for something tangible too. The "theft" by dilution occurs when these dollars are created out of thin air and introduced into the money supply. What consideration was exchanged for these new dollars? The answer is nothing, the value was taken out of the existing money supply, robbing a little bit of value from every dollar in circulation at that point in time. If our wages aren't continually adjusted with this expanded money supply than our earning power is diluted as well. This isn't rocket science here it just takes a bit of thought and the truth becomes apparent. What is the difference in the intrinsic value of a one dollar bill versus a bill of any other denomination? There is no difference. This lack of any tangible asset backing allows for the creation of more dollars by simply changing the printing plates on the money press. If you used anything tangible as a backing for the dollar, say lead for example, at least you couldn't print more money without adding more lead to the existing currency reserves. I don't care what commodity you use to back the dollar so long as it is tangible and it has a clearly defined exchange rate. This will eliminate the theft by dillution of the money supply that is the illusion of any fiat currency. You could always exchange your dollars for lead.

If the holders of US federal reserve notes lose faith in the dollar, expect to see a rapid rise in the valuation of all commodities.

[Cast-Iron]

I've thought of another example which might better illustrate my arguments against a fiat currency.

Imagine you're on a small island nation with a group of other islanders. You are a self sufficient community able to produce everything your island life requires. Your able to do this because the islanders have become specialized in different roles and occupations necessary to efficiently produce all the goods needed in your closed economy. One day you hold an island council and decide that keeping track under the barter system has become too tedious. There is unanimous consent to create a local currency and divide it evenly among the islanders. Furthermore prices were established so that the money supply was balanced with consumption so the cycle was perpetual. Let's say the island printer had a lust for fresh caught tuna. He could forego a few other pleasures to pay for his fish, but since he controls the press he just prints out a little money every month to cover the cost. One day a few of the islanders get together over some coconut liquer and boast about how much they'd saved up. When the totals are added up, it amounts to more than what was authorized by island council. How could this be? An audit is done and the island quickly experiences inflation so that balance can be restored. Who benefitted the most from this deception? The printer who created the money. Who was hurt by the inflation? Whoever held island bucks at the time they were devalued (aka the savers). Fiat dollars could still work under this scenario, but there is still some difficulty in regulating the money supply as the population grows and the production of goods and services expands to meet that growth. Also note that the money supply was equally distributed when it was first created. Not issued against an IOU through debt creation. It is only under some similar type of arrangement that I could endorse a fiat dollar which was carefully balanced with the economy. I still prefer an asset backed instrument because it is self-regulating, no new dollars introduced without new added reserves.

[Rick]

Which is exactly the same as precious metals. It's an arbitrary number assigned by individuals. You are backing a false piece of paper with a false piece of metal. As I said, I should read up a bit on this stuff.

[Cast-Iron]

Which is exactly the same as precious metals. It's an arbitrary number assigned by individuals. You are backing a false piece of paper with a false piece of metal. As I said, I should read up a bit on this stuff.

Rick, you've almost got it. Granted the asset backing any currency is arbitrary but finite. That's why I used lead as an example earlier. It doesn't matter what the asset backing our dollar is just as long as it has some accepted value. You cannot create something finite out of thin air so you must physically increase the reserves to expand the money supply. You CAN create whatever value you want to print on a piece of paper though. There are no checks and balances so to speak. With fiat currency you've always got more money just as long as you have the printing plates, ink, paper, and a press. While an asset backed dollar is not a perfect monetary system, it does seem to eliminate a considerable amount of the problems inherent in a fiat system.

I've only recently come to understand that there are banking industries and family empires built upon the deceptions of a fiat money supply. These powerful interests have no desire in seeing our monetary system replaced with anything that jeopardises the status quo. I'm convinced we will never be free from the shackles of debt until we're free from the shackles of fiat currency.

[birdman6660]

I think we will see hyperinflation and extreme devaluation of the US dollar because of all of the bogus money we are printing. Sooner or later it will all catch up, and money will be worth very little so then it's hello barter system!


Wild ... I do believe youre a prophet LOL .. thast is precisely what I think will happen I dont see any other way ....its the "bogus money" thats gonna be the killer .... the Sh** will hit the fan and you better have tradeables .... !!! sounds like a new thread .. what is on " YOUR LIST OF TRADEABLES "? YOUR BARTER STASH ???

[Rick]

What you folks are not accepting is the value of gold is also arbitrary. The price can be set to any number you choose, not by law, but by EO. You are all too hung up on the printing press. You can keep printing if you choose but you drive up inflation in proportion to the amount of currency printed so the Fed does not have the ability to print whatever they choose. They must weigh the need to create paper with the need to control inflation. We're currently setting at 1.98% and it hasn't been above 3% in over a year. I posted two years ago that hyper inflation or even high inflation wasn't a problem. The REAL problem is deflation and that's where we are at today. We've dropped .95% in the last year. If we had been at 8% that would have been a good thing but when you are sitting at less than 3% it drags the economy down. We're growing but we could grow at a high rate if inflation were higher. Of course consumable goods would cost more as well so the FED has to balance growth and cost. Not an enviable chore.

If you drive down the debt and it will have to be done at some point in the next 5-6 years you will increase the value of the dollar. No way around. I've also posted many times that we will see higher taxes and decreased services to tackle the debt. You had best be saving your fiat dollars now because the government will HAVE to take more of them in taxes.

For those of you that think the economy will fail that won't happen. I've said the same thing ad infinitum since this whole thing started in 2007. It won't happen. While everyone enjoyed piling on me telling me I was crazy I stood my ground because I do understand macro economics (as well as anyone can I guess) and finance. It's not going to happen. This is just another business cycle that was prolonged by the fact that we had such a long upswing prior to 2007. You have to create recessions in order to rebalance the economy and Bush didn't do it. Whether he didn't understand the need or just chose not to, the fact is he allowed the economy to charge ahead unfettered and that's what created the problem.

Both my sons were in the housing industry in 2005-2006. I told them both to get out and get other jobs not dependent upon housing. It's the one thing they did take my advance on and neither have been without work. The housing collapse was as evident as a kid standing at a cookie jar. It simply could not have come as a surprise to the government. They had to see it 3-4 years prior. They had to. I'm suspicious but can't prove that it was the government's method of creating the recession. You don't let lending get out of control as badly as it did without an end game in mind. Bureaucrats are not stupid people despite how we feel about them. Nefarious but not stupid.

If you don't like those fiat dollars just send them all to me and I'll take care of them for you. And remember this post, we'll come back to it in 2015 and see how close I was. Cheers!:drink:

[birdman6660]

I certainly hope you're right !

[Cast-Iron]

I was thinking I almost had you convinced Rick. Let me attempt to describe it another way:

If you lost faith in an asset backed dollar, you should be able at any point to redeem that dollar for the equivalent asset unit backing that dollar (gold, silver, lead, crayons, ground beef, prime beef, 22LR ammo...whatever the arbitrary asset that is baking the value of the depository note). These dollars remain a constant store of wealth against that particular asset.

If you lose faith in a fiat dollar however, and this phenomena becomes widespread panic, what can you exchange that dollar for? If people realize that fiat dollars are without any real backing, we could see broad economic collapse because there is no such fixed exchange available. It's value is constant against absolutely nothing, squat, nada, zilch. Making it a terrible storage mechanism of wealth (talk about an arbitrary instrument). A conspiratorial house of cards, ponzi scheme, musical chairs, hot potato, russian roulette. None of these ends well.

I believe our founding fathers understood this. That is why they included the constitutional restrictions on the power to coin money.

P.S. If you include the rise in food prices over the past two years I think you'll find inflation is much higher than the 1.98% you're using. As for the economy not failing, I hope you end up being right but collapse remains a real possibility in our situation. Especially when you run out of fingers to plug all the holes in the dike.

[kyratshooter]

It's mighty difficult to get commodities to go thorout the little swipe slot at the grocery or down at the mall.

It is also difficult to get enough cheesecake into a shipping box to pay the mortguage or enough deerhides in the wallet to fill the tank up with gas.

We also have this thing right on the notes that declares it legal tinder for all debts, public and private, which means it must be taken when offered. It does not matter if you have faith in it or not, that is what you use to transfer wealth, or its imaginary equilevant. You don't want my money after I fill the gas tank, I get in my car and drive away. You will not take my money for payment of a deby, we are going to court!

You are presenting the exact same argument that has been in use for this circular logic game since the first time I read it in 1975, and it was an old argument then, left over from the German experience and the unstability of some of the south American countries that had no economic backing to their currency when it was issued, much less when inflation stuck.

In that near 40 years I have seen inflation, but not uncontrolable inflation, and the alternative to inflation is either stagnation or deflation. I have seen both of those and do not want either.

The fact is that the people of this nation want money, disconnected from the bulk of the produced good. If we can not print or coin our own we will use someone elses. That is why we started our own money system after accepting the coinage of England, France and Spain for our first 50 years, and suffering at least two depressions that make the present one look tame.

While the theory of barter and a system based on PM might look good to people with more stuff than coin or credit it is just as shakey as one based on "faith in government" due to the exestance of that very government.

Just ask anyone that was forced to sell their gold to Roosevelt for $25 by executive order, then a nonth latter saw him set the price of his newly acqured assets at $35/oz.

All done by executive order and not act of congress.

The most important aspect of this whole concept is that there is not a thing one can do about it except blow smoke and worry. But i have discovered a solution for everyine caught in this cycle..

Admit that you are powerless over this compulsion
Accept that there is a power greater than ourselves that is in charge

There are 10 more if you want them,,,,

[Rick]

You keep implying that whatever you use to back your fiat dollars with has some constant value. Therein lies the myth. It does not. Neither gold, silver, cows nor twinkies have value unless two people agree on it (or governments) and those prices can be arbitrarily set by whoever is in charge. How good were your fiat dollars backed by gold when Roosevelt arbitrarily set the price of gold at $20.67 an ounce then a year later raised it to $35 an ounce? That move alone increased the gold on the Federal Reserve's balance sheet by 69%. Your argument is based on an erroneous albeit common misconception that gold has intrinsic value. The President could pen an EO tomorrow declaring everyone has to turn in their gold for $1000 an ounce and then up the price in 6 month to $3000. Wouldn't we look good then? No different that 1933-'34.

In any case, I see no point in going further with this. You are welcome to believe whatever you want. I have no dog in the fight one way or the other. I've been going through this with many different people since 2007. Each one proclaimed the end of the world was at hand (anyone remember Bragg?) but it's not. Not then, not now.

[cwi555]

Regarding 'end of the world', it's more aptly put as 'the end of the world as you know it TEOTWAYKI
If it were truly the end of the world, a 200 mile wide meteor would be striking the earth splitting it in half or some other such disaster that kills 'everyone'. There is no point in preparing for something no one will survive.

With that in mind, it becomes relative to the person/people left alive post event, whatever that event may have been. To someone who's been on the ground when a countries economy tanked overnight, the reality of what is recognized as having value during such times is made painfully clear.
To say that Roosevelt magically raised the value of gold from 20 to 35 'dollars' is in itself a woefully taken out of context. It was called the great depression. The actual value of an ounce of gold was considerably higher than the federally set arbitrary limit.

The same mindset has applied to multiple countries in financial trouble, and or collapse. At the end of the day, as has been said, any given thing is only worth what two or more people recognize it as being worth. That includes dollars, peso's, euro's, silver, gold, salt, copper, or even wooden sticks (England's King Henry the first; tally sticks). Historically, gold was the first 'fiat' money and has stuck around as such when other forms of 'fiat' went by the wayside. It was, and still is, recognized by countries around the world as backing for 'paper fiat' currency. There may not be a 'gold standard' but you definitely see every single central bank around the world stashing it. There are no exceptions to that. You have to ask why?
Prior to the advent of 'money', gold was still rare and still highly sought after. In the early going, it was a sign of being rich and affluent though the concept of 'money' was yet to be validated as a 'fiat currency'.
More to the point, there has never been a time in history when gold lost it's perception of value. Other items have come and gone, but only gold retained a modicum of value through all of it. This is especially true of paper currency. For instance, when the economy dumped again in Venezuela circa 94/95 the bolivar went up to an 'official' rate of 125:1 Bvd to USD. However, on the street, it wasn't unusual to get 550 to 600 per US dollar exchange. Gold on the other hand didn't require a black market to trade for the 550:1 rate.

Now when SHTF, your not going to be able to eat it, at least not up front. I tell everyone gold and other precious metals and gems are not for the immediate aftermath. It is for the time when the society has begun the effort to pick itself off of it's collective rear.
That gets back to the basic premise of "what has value". A roll of toilet paper is going to have more value than an ounce of gold if your stuck in the woods in the immediate after math of SHTF. By the same token, gold will have more value when you start getting out of the woods.

[Cast-Iron]

All good points I've tried to raise here CW, but I am beginning to feel like my efforts would be better spent elsewhere. We all have an eventual dog in this fight whether we care to realize it now or not.

FWIW: Just because someone's opposed these views since 2007 doesn't make their position somehow superior, perhaps it's just been consistently wrong. I do admire consistency in a person though, right or wrong you'll always know where they stand on an issue.

[Cast-Iron]

I came across this blog on fiat currency this morning. It was written by Detlev Schlicter, author of Paper Money Collapse. In it, he does a good job of illustrating the problems I have tried to address here on this forum. It is a bit of a long read, but it sheds new perspective on the old problems of fiat currency and fractional reserve banking. I hope some of you will read it with an open mind and even start to understand there are measures you can take in your own lives to insulate some of your personal wealth from the ravages of hyperinflation and/or a systemic monetary collapse.

Here's the link: http://detlevschlichter.com/2012/03/what-gives-money-value-and-is-fractional-reserve-banking-fraud/

[Rick]

CW - In context or out of context Roosevelt did it with an Executive Order plain and simple. My point is the value of gold is arbitrary, which you appear to agree with.


I am beginning to feel like my efforts would be better spent elsewhere.

Cast-Iron - if you decide to stay or go that's your decision to make. If someone disagreeing with you is enough to drive you off the forum then you must be pretty thin skinned.

As to having a superior position...I don't. You are the one stating that not me. Couldn't I say the same thing about you since you consistently hold to beliefs that I think are wrong? How can you accuse me of being consistently wrong when my position has been that no monetary collapse is eminent? I've stated it since 2007 and it hasn't happened despite everyone's claim to the contrary. The proof, as they say, is in the pudding.

This is always the track of these threads. Someone proclaims the horror of fiat money and how bad it is. I take the opposite side and they take offense. It boggles my mind frankly that an intelligent discussion can't be had because someone gets upset. So...you may have whatever last word you would like on this thread because I will no longer participate in it. We will just have to agree to disagree on the subject.

[Cast-Iron]

CW - In context or out of context Roosevelt did it with an Executive Order plain and simple. My point is the value of gold is arbitrary, which you appear to agree with.

[/COLOR]

Cast-Iron - if you decide to stay or go that's your decision to make. If someone disagreeing with you is enough to drive you off the forum then you must be pretty thin skinned.

As to having a superior position...I don't. You are the one stating that not me. Couldn't I say the same thing about you since you consistently hold to beliefs that I think are wrong? How can you accuse me of being consistently wrong when my position has been that no monetary collapse is eminent? I've stated it since 2007 and it hasn't happened despite everyone's claim to the contrary. The proof, as they say, is in the pudding.

This is always the track of these threads. Someone proclaims the horror of fiat money and how bad it is. I take the opposite side and they take offense. It boggles my mind frankly that an intelligent discussion can't be had because someone gets upset. So...you may have whatever last word you would like on this thread because I will no longer participate in it. We will just have to agree to disagree on the subject.

Rick, I believe you misunderstood my comments. Honestly, I value your opinions, just as I value the opinions of many others here on this forum. My comment about spending my efforts elsewhere meant that both sides in this issue seem to be pretty well entrenched and the debate here seems to be making almost no headway. Therefore, I might be more productive on another subject. I am neither upset nor offended. If you think our system will never experience corrections due to the issues I've raised here, than that's your right and priviledge. I just don't understand how your consistent position on the issue since 2007 has any bearing on the underlying facts? I happen to think our current trajectory is quite troubling and have attempted to present my case thru an open discourse. Doing this in hopes of creating a greater awareness in those who may have never given it much thought. I am admittedly frustrated that I have been ineffective in making any new "converts" but don't confuse that frustration with either anger or offense. If you discount or ignore the inherent risks of our fiat currency, I beiieve you do so at your own peril. Again that's your right and priviledge. Your individual economic well-being is of little consequence to me. However, our collective national economic well-being should be of concern to us all.

[Wildthang]

I think that the US will eventually go into a finacial crisis at some point in the future, and I hope it is a long time from now. I will never claim to know when this will happen, or exactly why. But when it does, I really don't think the price of gold will even matter. What will matter will be food, securtiy, water, fuel, and comfort goods. They will all be hard to get and some of them impossible to aquire.
That being said, who in their right mind would trade necessary goods for something that nobody can afford to buy. Money will be worthless and gold may be worthless as well. If and when the financial collapse happens, everyday needs for survival will be the only things that people will pursue and gold isn't one of them. When banks and gold brokers close their doors, where will that leave gold and money, probably way down on the priority list of necessary survival items.
What gold and money will do is help those who have it hoard up on basic goods that eveybody wants and needs, just like the ammo shortage we are seeing now. Those who see it coming will immediately buy up everything they can grab and the shelves will go dry and stay dry. That will be the point where money and gold become useless because there will not be anything to buy with it!
The baqrtering system will go into affect and only people with gardens, livestock, preps, guns, ammo, and tangible services will thrive, the rest will either barely survive or perish entirely. I think our government is in the process right now of making sure our financial system fails and it is just a matter of time till it happens.
So I will keep some gold, and a some money just in case it may be worth something if and when the crisis is over, but self sustainment and preps are my main priority. I wil take food and comfort over gold everytime!

[cwi555]

CW - In context or out of context Roosevelt did it with an Executive Order plain and simple. My point is the value of gold is arbitrary, which you appear to agree with.


While you quote EO 6102, you fail to quote the circumstances around it. Regarding your point, you have none. Every single item, be it a bag of peanuts, a tootsie roll, a car, a box of girl scout cookies, or an ounce of gold has an 'arbitrary value'. It is tantamount to making a statement that all water has H2O in it.

If I walk out into the street and survey 1,000 people asking them "which has more value, an ounce of gold or a bag of peanuts?", the ounce of gold is going to win hands down.

In my career, I've been in 58 countries, a few random places without liege to anyone, and 49 states. No where, and I mean no where, was the 'value' of gold not recognized. Especially so in countries recovering from an economic collapse. I cannot say the same for the USD, or any other currency. Like clock work in places where S.Has.H.T.F., the order of events went 'immediate needs to survive', transition to normalcy or semblance thereof, back to the grind. For the first group it's food, security etc. It is when the second and third stage of recovery hits is where gold and it's ilk come into their own.

I could really care less what someones opinion is, to each their own, but do not make mine out to be a flight of fantasy 'because you differ with it'. My opinion is based upon direct personal experience. As such no one will be changing it.

[Rick]

Nowhere did I say your opinion was a flight of fantasy. In fact, I said we appear to agree. I spelled my point out pretty succinctly. If you missed it, I'm sorry.

[Cast-Iron]

Well since I raised the question here, there's been some difference of opinion on the matter of fiat currency. I figure we're now witnessing how a bankrupt government struggles to resolve it's debt crisis. The problems in Cypress will likely be "resolved" with the issuance of more debt, but the wolves at the door (aka creditors) seem to want blood this time and the confiscation of private wealth is being tossed around to secure this credit. If this comes to fruition, it could (not will, but could) set in motion a chain of events in a host of other troubled European nations. Anyone with bank deposits might fear a similar response from their own government and elect to exchange their savings for something else like precious metals. I don't expect to see such a policy pursued here in the US, because they can achieve the same effect of confiscation by expanding the money supply. Cypress as a nation member of the Euro, doesn't have that internal capability. If you see a run-up in the price of precious metals than its likely that the smart money is moving out of currencies and into these metals as an precautionary hedge.

If you take a look at a two-year chart of the ETFs for gold (GLD) and silver (SLV) [ http://finance.yahoo.com/q/bc?t=2y&s=SLV&l=on&z=l&q=l&c=gld&ql=1 ], you'll see silver has underperformed gold by over 30% during this period. I believe that discrepancy gives silver much greater potential for an upside response if and when these metals rebound.

I am not an investment advisor, and these are just my personal observations. Do your own homework or consult with your own investment advisors if you feel the need to create such a position against inflation.

[LowKey]

With regards to the happenings in Cyprus, this isn't the first time a government has seized private funds held in banks. In fact the Russians are used to it, from the devalueing of their currency to outright confiscation, losing up to 40% of a bank account to them seems to be just another bump in the road. Here's an easy to read little piece on what a government can do to currency http://www.gwu.edu/~slavic/golosa/ruble.htm
Will be interesting to see what happens when the banks do open (I hear threats of the Russians suing the EU.)

On the precious metals front, the price is already too high. You needed to be on that boat about 8 or 10 years ago to make it worth your while. There really is something to that buy low sell high statement. I see no point in sinking $1600 an ounce into something that may never be that high again. Someone was joking on the radio the other day that they were having their gold made into jewelry for the simple reason that if a legislator decides to confiscate gold, they will go after bullion or coins first, rather than contemplate trying to take their own wife's jewelry away from her. That made me smile.

[birdman6660]

I think that the US will eventually go into a finacial crisis at some point in the future, and I hope it is a long time from now. I will never claim to know when this will happen, or exactly why. But when it does, I really don't think the price of gold will even matter. What will matter will be food, securtiy, water, fuel, and comfort goods. They will all be hard to get and some of them impossible to aquire.
That being said, who in their right mind would trade necessary goods for something that nobody can afford to buy. Money will be worthless and gold may be worthless as well. If and when the financial collapse happens, everyday needs for survival will be the only things that people will pursue and gold isn't one of them. When banks and gold brokers close their doors, where will that leave gold and money, probably way down on the priority list of necessary survival items.
What gold and money will do is help those who have it hoard up on basic goods that eveybody wants and needs, just like the ammo shortage we are seeing now. Those who see it coming will immediately buy up everything they can grab and the shelves will go dry and stay dry. That will be the point where money and gold become useless because there will not be anything to buy with it!
The baqrtering system will go into affect and only people with gardens, livestock, preps, guns, ammo, and tangible services will thrive, the rest will either barely survive or perish entirely. I think our government is in the process right now of making sure our financial system fails and it is just a matter of time till it happens.
So I will keep some gold, and a some money just in case it may be worth something if and when the crisis is over, but self sustainment and preps are my main priority. I wil take food and comfort over gold everytime!

I wholeheatedly agree ... thats has got to be the single most intelligent statement ive seen on any forum ..But I would not say IF and WHEN .. simply WHEN because I believe its ineviteable No one country with few exceptions can pay off its debt in full on a moments notice ...better I have a can of soup than a pot "O" gold when gold is worth nada !!! WELL SAID WILD ! ! ! !

[Cast-Iron]

A revaluation of the currency, as in your link, is basically the same thing only it is more broadly applied to all of the economic classes. It may not be the first deposits confiscation for the folks in Europe, but I am certain this is a blow out of left field and a first for many Cypriots. There are a number of European countries which continue to face debt their own crises. If the people of Spain, Italy or Greece suddenly fear a similar response from their government, than a move into another currency or commodity seems a likely reaction to try and protect their savings. Simultaneously, the dollar is facing increasing pressure from the BRIC nations for the extent of QE they continue to issue. This time the dollar may not have the safe haven staus it has traditionally held and that leads me to conclude that both the Euro and the US dollar could fall relative to commodities including precious metals.

As for the prices of either gold or silver, how do you define too high? Gold, when adjusted for inflation using the ultra conservative CPI, is roughly 67% of the highs set around 1980 at the close today. Similar story for silver, which ended its trading at about 20% of its inflation adjusted high from the same era. Plenty of room for appreciation in either metal without even reaching new highs. Its just that silver has a lot more room to run so to speak.

I happen to think the events in Cypress may provide the necessary catalyst to produce such a move. If you happen to disagree that's what makes a market work.

[Cast-Iron]

A good read on this topic from the Sunday Review Opinion Pages of the NY Times.

http://www.nytimes.com/2013/03/31/opinion/sunday/sundown-in-america.html?pagewanted=all

[Cast-Iron]

Another informative blog I came across, written by a Dr. Neil Snyder, Professor Emeritus at the University of Virginia: http://www.americanthinker.com/blog/2013/04/china_and_the_dollars_global_reserve_currency_stat us.html

I have invested some time over the past few days trying to gain a greater understanding of monetary policy. Specifically, what is the significance of the United States maintaining (or losing) it's status as the World's Reserve Currency? The economic advantage we hold as such is enormous. In fact it has allowed our appetite for consumption to far outpace our ability to produce. As one of our largest creditors, China has now aparently had enough of our monetary abuses. They are now pursuing a policy of bypassing the US dollar with the creation of bi-lateral trade agreements with their significant trading partners. I cannot underscore how much this is going to adversely impact our standard of living. Since WWII, when our dollar emerged as the world reserve currency, international trade has been settled in US dollars. If the Germans wanted to buy Columbian coffee, they must first exchange their german marks or euros into US dollars to purchase the coffee beans from the Columbians. This created an artificial demand for our dollar and gave it a distinct advantage over any other national currency. With solitary control of the printing presses for the world reserve currency, we could and did "print" our way into more consumption than we had actually earned through our productive labors. Doing so meant we were stealing wealth from other nations who had no choice but to hold our dollars in reserve.

The reserve currency gig is about up. Nations seem to have had enough with our lack of fiduciary responsibility. We are starting to see a move into trade alternatives to our dollar. As this phenomena gains momentum, the Fed will certainly lose it's ability to artificially reign in interest rates. As the interest rates begin to soar, our capacity to service our national debt will become impossible. At that point, there is no longer an easy exit strategy. Personal savings could be wiped out. We could see historic collapses in the securities and real estate markets. Government entitlement programs may be severely cut back, restructured, or even eliminated for the lack of enough funding. Chaos and Martial Law may ensue. Under Martial Law, confiscation of private property may arise in an effort to appease the masses. I realize that this seems unimagineable to anyone who may read these thoughts. I believe their skepticism can be attributed to a condition known as Normalcy Bias, a failure to acknowledge the potential for disaster when it is plainly evident. Their logic based principally on the criteria it has never been experienced before so it never will. Friends, I am all but certain we will soon experience a major paradigm shift. It could happen within days, weeks, months, or even years from now. When it happens it will likely occur too fast to protect any of your at risk assets. That is how it has historically happened with little or no warning. One day you just wake up and some new tax levy or policy is in place which government will spin as an "Austerity Measure". Look at recent events in Cypress if you need an example. Don't be caught with too many of your assets denominated in the fiat federal reserve note. The veil of illusion has begun to crumble for this monopoly currency. Our fiat dollar has nearly run its course. Maybe not today, maybe not tomorrow, but soon enough that it should be time to start making your preparations for surviving and perhaps even prospering in the aftermath.

[Rick]

Bumpkis.......Could, should, would. I only posted for those that might tend to believe this end of the world stuff. I have no desire to engage in a conversation about it. Believe what you want.

[Cast-Iron]

Bumpkis.......Could, should, would. I only posted for those that might tend to believe this end of the world stuff. I have no desire to engage in a conversation about it. Believe what you want.

I figured as much from you on this particular subject, Rick. Even so, I have attempted to create my case here using what I believe to be a logical conclusion drawn upon the facts as I have come to understand them. Not the end of the world, but perhaps the end of the federal reserve note. I can't tell you when it will happen, but the sands in this particular hourglass are getting pretty sparse. Is this inevitable? Yes, I believe it is. However, I understand a lot of people share your Normalcy Bias and believe it could never happen here. That is, until it does. How bad will it be and how long will it last? I haven't a clue, but I think it is reasonable to expect it to be a prolonged event worse than the one they basically kicked down the road in 2008 with a printing press in hyperdrive. The printing press will not work again for this particular scenario. So it should compell our leadership to finally get our fiscal house in order. Perhaps this event unfolds as I have hypothesised here, perhaps not. Time will prove one of us wrong.

While my conclusions may be a matter of personal opinion, the facts are independently verifiable. Which specific facts are you having a problem with? China's new bi-lateral trade agreements? Historic US trade imbalances and systemic budget deficits? Multi-National pressure for the establishment of a basket of currencies and/or commodities to compete directly against the US dollar as a reserve currency? The Federal Reserve's artificial manipulation of interest rates? Perhaps you think that the esteemed Dr. Neil Snyder's similar conclusion on this subject lacks any real merit too? The preponderance of evidence seems to support my conclusions. If you disagree make your case. Your response, "bumpkis", is so all encompassing that I haven't a clue as to how I should counter it. Double-bumpkis?.

[Cast-Iron]

I figure most people on this forum already have this well in hand, but for those who don't let me offer some suggestions for surviving the collapse of the dollar. If we experience a collapse of our monetary system, money will obviously be under significant inflationary pressures. The time to get the most value out of it is before such a collapse happens. In fact the dollar may have little or no worth in a worst-case scenario. You will need to be able to sustain adequate shelter; potable water; food; proper sanitation; and medications to treat injuries, illnesses, and chronic conditions for an extended period of time. If society breaks down, security may become an issue too. You may have to secure your supplies from those who could use any means to take it from you. After some length of time has passed, some semblence of normalcy will start to return. The threat to you, your family, and your supplies has now gone from code red to code green or yellow. Commerce will evolve using a simple barter system at first, then moving to a commodity based currency. Likely on some physical commodity such as gold or silver. You can still use your federal reserve notes but only as kindling or wallpaper. I suggest you keep enough fiat currency on hand to meet a few months worth of your average pre-collapse living expenses. Invest in the preps needed to sustain yourself or your group for an extended period of time. Only after these preparations have been made should you consider investing in a non-perishable commodity (or basket of commodities). Personally I like the long history behind precious metals as a store of wealth, but there may be other investments better suited to your particular needs.
What I've described here is what I feel would be a worst-case event when the dollar collapses. Hopefully most of this never pans out to the degree I've proposed. But the preparations for this type of event would serve you well in many other types of scenarios as well. The biggest difference here is that while you may persevere; the dollar, in all likelihood, won't.

[Wildthang]

Well I figure something radical is going to happen in the near future, but how it will play out is anybody's guess. Cast Iron you have many good points that are very convincing but I hope you are wrong.
The sad part is out government is disfunctional and cannot fix any of our problems, so something has to give sooner or later! I for one am not going to beleive it will never happen because it can. All of the great powers of the world have fallen, and we are no different.

[Cast-Iron]

WT - I hope that I'm wrong on my prediction too. I mean not even in the same area code kind of wrong. But after all the time and effort I've spent looking at this, I have come to believe this is the most likely outcome. Not necessarily the end of our nation as we know it, but certainly a new chapter in it's history. I also believe the sooner this happens the better off we will be for it. Because we're still diggin' the hole we're trapped in. At least when our noble leaders are forced to balance consumption with production, we can start to truly move forward again, responsibly paying as we go, giving the same opportunity we had to those generations that follow us.

[Cast-Iron]

The recent pullbacks in the precious metal markets has scared some folks into reducing or even exiting their positions in an effort to preserve capital. I don't have first-hand data to support this, but I have heard multiple reports that the demand for physical bullion is still outstripping the supply of physical bullion. In a free market, such a condition would normally result in corresponding price appreciation until the demand reached parity with supply. So why have we seen the recent pullbacks? To me the most likely culprit is market manipulation.

An argument I heard today on talk radio held this position. The New York Fed is having to repatriate significant amounts of gold bullion to some of it's largest depositors. In an effort to buy back the bullion needed at a deep discount, while keeping inflation and interest rates in check, there has been a coordinated effort to drive the small investor to the sidelines. It has been painful to watch and resist the urge to push the sell button. But the underlying reasons for holding commodities hasn't changed for me. In my opinion to sell now would be a huge mistake as the monetary base continues to be diluted through Quantitative Easing.

If this argument about the New York Fed holds water, all the more reason to buy and hold physical bullion. And due to this alleged manipulation, you can do it at a nice discount compared to last week's market. My guess is you'll have a hard time laying your hands on the physical stuff, but no problems at all buying the paper IOUs. I'd stick to the purchasing only the real stuff and I'd insist on taking possession upon payment.

Obviously these are only my personal opinions and should not be construed as investment advice. Your mileage may vary. Consult your physician. Quantities are limited. Offer void where prohibited.

[Rick]

Oh, brother. Is EVERYTHING a conspiracy to you? Do you really think the FED has all this super power that they can control every single item? You really believe they are that smart? Me thinks you give them too much credit. It's called a market correction. Happens all the time.

Here...read something besides Conspiracy Times: ....bazinga.

http://www.businessweek.com/articles/2013-04-15/the-price-of-gold-is-crashing-dot-heres-why

[cwi555]

Oh, brother. Is EVERYTHING a conspiracy to you? Do you really think the FED has all this super power that they can control every single item? You really believe they are that smart? Me thinks you give them too much credit. It's called a market correction. Happens all the time.

Here...read something besides Conspiracy Times: ....bazinga.

http://www.businessweek.com/articles/2013-04-15/the-price-of-gold-is-crashing-dot-heres-why

I failed to see where the conspiracy theory was in that post.

Here is something for you to read. I am fully aware of what a market correction is. There is far more behind this than a standard market correction.

http://www.nytimes.com/2013/01/17/business/global/german-central-bank-to-repatriate-gold-reserves.html?_r=0

April 10 2013; Bad news on the EU front and for the worlds economy.
http://www.guardian.co.uk/business/2013/apr/10/eurozone-crisis-slovenia-bailout-industrial-production
Economic reports came out for several EU countries. None were good. Especially Spain, Slovenia, and Italy.
http://www.guardian.co.uk/business/2013/apr/10/eurozone-crisis-slovenia-bailout-industrial-production#block-51654a4c95cb5a3326d67602
On the same day, It was announced that a gold sell off was almost assured for Cyprus.
Then this;
http://www.telegraph.co.uk/finance/financialcrisis/9990325/Cyprus-gold-sale-profits-must-be-used-to-pay-back-ECB-orders-eurozone.html

Mario Draghi, the president of the ECB, has told Cypriot government that money from the gold sale cannot be used to reduce public debt but must be used to help pay back €9.1bn in emergency liquidity assistance (ELA) given to the central bank of Cyprus.

"The decision is going to be taken by the central bank. What is important, however, is that what is being transferred to the government budget out of the profits made out of the sales of gold should cover first and foremost any potential loss that the central bank might have from its ELA," he said.

Increasing the humiliation for Cyprus, Mr Draghi has written to Nicos Anastasiades, the Cypriot President, ordering him to stop angry MPs from criticising or investigating the central bank and threatening him with sanctions in the EU courts.

The quantity of gold to be sold by Cyprus is not enough to cause the crash by itself.
However, as Paul ****** put it, "now the rest of the story".

This report from the EU came out last Sept.
http://ec.europa.eu/economy_finance/publications/european_economy/2012/pdf/ee-2012-9_en.pdf

Page 33 where it speaks of NIIP or Net International Investment Position.
In a note at the bottom it says this:
The NIIP captures the stock of foreign assets held by residents of a country net of domestic assets held by non-residents. It includes debt instruments such as bonds or loans as well as equity, foreign direct investment and financial derivatives, as well as monetary gold.


It was at that time that the proverbial writing was on the wall in my opinion. In particular that part about monetary gold (read physical gold) being lumped in with derivatives. It had been previously reported that many of these struggling EU countries continued to hold large reserves of physical gold despite being at the bailout trough. Now with this report, the EU ties those reserves to the bonds, loans, equity, and every other financial 'instrument'.

As all of you know, Cyprus took the first hit.
Then a month ago Jeroen Dijsselbloem, President of the Eurogroup made the statement that Cyprus could be used as a model.

Now for putting the pyre to match. This report came out last Wed.
http://ec.europa.eu/economy_finance/publications/occasional_paper/2013/pdf/com%282013%29_199_final_en.pdf
Summarizing that report, the EU is screwed. The member nations are severely unbalanced economically. On this date the news of Cyprus gold sale hit the street. Then the rumors started;
http://www.reuters.com/article/2013/04/11/us-cyprus-bailout-gold-idUSBRE93917M20130411
"(Reuters) - Heavily indebted euro zone nations such as Italy and Portugal could come under pressure to put their bullion reserves to work as a result of plans for Cyprus to sell gold to meet its financing needs.

A European Commission assessment of what Cyprus needs to do as part of its European Union/International Monetary Fund bailout showed Cyprus is expected to sell in excess gold reserves to raise around 400 million euros ($523 million).

Other struggling euro area countries may be pushed to take note. Between them, for example, Portugal, Ireland, Italy, Greece and Spain, hold more than 3,230 metric tons (3561 tons) of gold between them, worth nearly 125 billion euros at today's prices."

Now remember what the previous reports stated:
"The NIIP captures the stock of foreign assets held by residents of a country net of domestic assets held by non-residents. It includes debt instruments such as bonds or loans as well as equity, foreign direct investment and financial derivatives, as well as monetary gold."

SUMMARY:
The EU central banks, and others have been setting the stage for this. The test model is Cyprus. They intend to force weaker nations to sell out their gold. At the same time, the stronger nations of the world want to buy it as cheap as they can. They all fear the notional derivative bomb, and have been going through efforts to get all of their respective gold back into their nations that they had stored elsewhere. Now they intend to (and are succeeding) drive the price down so that they can buy as much as they can with 'fiat' dollars. That also further weakens the smaller states as they have to sell more of it at the cheaper price to make the 'EU set Quota'.

The wild card left to this, is do the member nations play along? Either way, gold is in progress of taking the predicted dump. The only thing that will stop this meltdown is for the nations being squeezed to tell the EU and the rest of the world to pack sand. That will itself cause a meltdown, but not as bad as the alternative.

In closing, this is clear evidence that the EU task masters have been working behind the scenes towards this end. They know it's a hail Mary pass to save the EU/Euro, but at the same time, they are staging for the Euro break up by protecting their own nations as best they can at the expense of the weaker members.

[Cast-Iron]

Oh, brother. Is EVERYTHING a conspiracy to you? Do you really think the FED has all this super power that they can control every single item? You really believe they are that smart? Me thinks you give them too much credit. It's called a market correction. Happens all the time.

Here...read something besides Conspiracy Times: ....bazinga.

http://www.businessweek.com/articles/2013-04-15/the-price-of-gold-is-crashing-dot-heres-why

Rick, once again I have tried to lay out an argument based on the best information I have. While I think you're spot on with most of your opinions here, I believe you still fail to see the forest for the trees on this particular subject. For years, I plodded along in relative ignorance of the Fed, Central Banking, and the financial markets. I heard the same kind of rhetoric I'm spewing today and thought to myself "what nutjobs". It took considerable research and hours of introspective thought to make sense of the jumbled puzzle laid out before me. But eventually I had my "Aha moment". That instant when the pieces started to fit and all that nutjob rhetoric I had completely discounted finally made perfect sense. Well maybe not all of it, but a surprisingly large amount of it anyways.

Based on the many posts of yours that I've read here, I feel as though you and I share many core values. Yet here, you seem all too willing to attack the messenger when you disagree with the message. There is a reason why precious metals are retreating, but I assure you the proverbial "market correction" isn't it. That may be what the talking heads are selling, but it fails to mesh with the reported world demand for the physical commodity. Additionally, when I said this was a coordinated effort, I meant inclusive of the Fed not exclusively of the Fed. There are billions if not trillions of dollars at stake here. It is only natural to assume that the biggest and the baddest of economic predators are now circling the smell of easy money. I'm just trying to wake up those who care to think for themselves so they might not be part of the main course when this feast of greed begins.

This was a difficult concept for me to grasp at first. Because it required that I leave my comfort zone and it undermined things that I had long held to be part of the natural order. Based on my impressions of your intellect, I have no doubt that this is within your ability to grasp too. I just think you, like most folks, are reluctant to make the effort required to pursue this issue until you've had your own epiphany, that "Aha moment" when the veil of illusion has been lifted and a new reality emerges. A perspective which allows the pieces of the puzzle to mesh in a more natural and orderly way. I think this particular journey of discovery is unique to each and every one of us. It is our life experiences, and how we process and store information that makes us who we are. It also means I can't possibly prove this to you, you must process the information in your own individual way for it to be of any real value to you.

[Wildthang]

Well I do beleive that when it comes to precious metals and money, when anything happens there will be lot's of rich people trying to capitalize from it, it is what they do!

[Rick]

To me the most likely culprit is market manipulation.

Nope. Nothing conspiratorial about that.

What you fail to understand is that Cyprus is a power play by Germany. Nothing more or less. They are giving the other members of the EU, most notably Spain and Greece, notice that they are not going to pay for those countries stupid financial blunders and they are using Cyprus as an example. Unfortunate for the Cypriots but it is what it is. If you notice Germany agreed only to speed an amount that would allow Cyprus to bail themselves out over time. That's why they offered up only 10B Euros. Does everyone feel the pinch? Of course. But that doesn't mean it's the end of the world.

You cannot grasp an understanding of macro economics by introspection and home schooling although I commend your effort to educate yourself. To gain a true understanding it takes years of formal education and experience to even begin to understand how the puzzle fits together.


"Oh! Time to manipulate the sheeple in another investment direction."

Seriously? Nothing conspiratorial? By the way, gold has already started rebounding as have oil, commodities and stocks. You need to rethink what you think you know about market corrections.

You can post all the gloom and doom stuff you want and even post links to it. If that's all you read then soon or later you'll actually start believing it.

To everyone else: I have no dog in this fight. The only reason I bother to post in threads like this is to give you the other side of the coin and a bit of information based on my own knowledge and experience. If the only thing that stands in these threads is "We're doomed" it won't be long before everyone believes that. Someone has to stand up and say poppy cock. That someone would be me.

[BENESSE]

+1 Rick. Keep posting.

[Cast-Iron]

@Rick. You really have no clue about my abilities to educate myself (or anyone else's abilities for that matter). So stop kidding yourself. I have been a student of nature for more than 50 years now. I have no illusions of knowing it all. But what I do know about animals and their behaviors didn't all come from the written word either. Having spent significant amounts of time as an observer, I tend to pick up quickly when something in nature is out of place. I believe this skill translates well into observing the ebbs and flows of economics too.

If I drop a pebble into a pool of water, the surface level of the water in that pool should rise due to the displaced volume of water. If the level were to remain constant or even fall, I would conclude something unnatural had occured, a manipulation if you will. So when I say the demand for physical bullion is extremely high worldwide (record level sales for silver Eagles in the US, Q1-2013), yet the price continues to experience weakness, there is something unnatural going on. A violation of the law of supply and demand. I may have made the wrong diagnosis, but it doesn't change the fact that some type of manipulation has occurred. Clearly the Fed is suppressing interest rates and the money supply is being diluted through expansion. These factors should stimulate increased demand for safety in commodities like precious metals. I'm not that well informed about derivatives, but I believe they are the tool now being employed to manipulate the marketplace. Creation of an asset that never actually exists to artificially inflate the supply side of the equation.

I have already made my case regarding fiat currencies, so without doing too much backtracking, let me say I believe the reason for this artificial price suppression in precious metals is tied to the inherent fraud in paper money worldwide. The consumer's faith required for these currencies to keep working continues to errode. You keep deriding my position with the dramatic "end of the world" or "we're doomed" comments. While the world will oneday end, I am not suggesting this event has that potential. Only that a lot of hardworking people could see their meager life savings wiped out. I have said this before but I think it bears repeating: "Your individual economic well-being is of little consequence to me. However, our collective national economic well-being should be of concern to us all." Ignore, berate, deride, belittle, and ridicule if it helps you to feel warm and fuzzy inside, I could care less. If your assets are someday wiped out by this agenda then all I can say is "sorry for your loss, but I tried to warn you." Meanwhile, I will continue to do my best to help folks who care to listen. Help them to position themselves financially for the hardships which may well lay ahead when this all comes to fruition.

Have a great day!

[Rick]

If someone came on here trying to explain how to rebuild an engine without any background or knowledge of said job there would folks on here that would be quick to call him/her out because there are folks on here that do know about rebuilding engines and they would see the fallacy of the post probably from the first sentence. However, very few have an education or background in finance or economics so they are not in a position to make that same determination. I happen to have both. There are some, like yourself, that think they have it all figured out. Usually within the first sentence of the post, like the car engine, I can spot them. It's not good or bad. I don't care one way or the other it's just that they've listened to talking heads and parrot what those folks have said. The reason they read them is because those folks are saying what you all believe in your heart. But the evidence does not and has not supported an economic collapse. I'll go a step further. It won't happen in our life time. We will see more recessions. That's a given and a good thing for a healthy economy. There is even an outside change we could see a depression in the next 25 or so years. But neither will bring an end to the world economy any more than the last five depressions we've had.

Sadly, anyone with access to a computer can post their own website and or blog proclaiming whatever they wish to proclaim with regard to finance and some will believe them because that happens to be what they believe. It's pretty easy for me to spot those folks. It has nothing to do with you. There have been legions before you. All have told me the safe thing you just told me. All have said I can't see the forest for the trees and all have been just as incorrect in their conclusions.

I haven't ignored, berated, derided, belittled or ridiculed you. At least that was not my intent. My intent was only to tell you that your message is wrong. Just as I've told others since 2007 that their message was wrong. My track record, and you are welcome to look at past threads if you want, has been smack on the mark with the exception of under estimating how long this recession would last and under estimating how high the price of gold would go.

As long as you and others like you come on here self proclaiming to know what the answers are I will take you to task because economics is something I do know about and have not only experience in but also have been successful in it. Others should not have the bejeesus scared out of them by folks that think they know what they are talking about but really don't. That's not a slam directed at you. It's just that you don't know what you don't know.

If you really believe that fiat money is a bad thing. I mean truly believe in your heart of hearts that it's as terrible as you say, then send all your fiat money to me. I'll dispose of it for you. I've made that offer to countless financial experts on here and not one single person has taken me up on the offer yet. I'm heart broken I tell ya. Absolutely heart broken.

No offense to you. Just your message.

[Cast-Iron]

So you're an expert in finance and economics? Terrific! I welcome your thoughts on many of the issues I have raised on this thread. You continue to counter my position with your same worn-out cliches: either I'm the latest in a long line of misguided amateurs or you've been right since 2007. Surely you of all people can understand how that logic fails to make any impression on me.

Please offer a little more substance in your response to the issues I've raised. Show me what you've got! For starters, how about tackling: China's multi-pronged to approach to reducing the US dollar's position or status as a world reserve currency. Why this will or will not have a huge impact on the average American's standard of living? Seriously, I would appreciate the benefit of your expertise. Please keep your response as simple as possible. Evidently most of us here are amateurs and do lack the proper sophistication. Make the argument that wins me over and I'll send you some of my fiat dollars.

By the way I don't think I ever said I had it all figured out. I have tried to quote or link to sources when possible. Using sources or folks I believe hold a lot more credibility than I.

I now yield to the gentleman from Indiana.

[Rick]

I'm not tackling anything. I've said my piece and that's how it stands. I have nothing to prove to you or anyone else. And trust me when I say this. I am not trying to make an impression on you or anyone else. I could not care less what your opinion of me is or of my posts. If you buy it so be it. If you don't so be it. My response will be as simple as possible. I'm done with ya.

[Cast-Iron]

I am having some difficulty understanding your reluctance to defend the position you have consistently taken on this thread. I can only reasonably conclude that you lack the capacity to do so. You have repeatedly taken my arguments to some absurd extremes in your effort to invalidate them while failing to offer a constructive argument of your own. You sir, could have a highly rewarding career in politics with this particular skillset. I will be happy to consider any constructive case you care to make. Until then, lacking any real evidence, I can only assume you have grossly overstated your knowledge or expertise in this matter. Have a great day!

[Rick]

I think it's time we be gentlemen and agree to disagree. Now you want to make it some personal attack. I have no desire to hold discourse with you on this subject. I've said that all along. Nor am I willing to lay out my vitae or my experience to satisfy your curiosity about my knowledge on the subject. As I said, I really don't care what you think. You are welcome to assume anything you choose. If you choose to believe I have grossly overstated my knowledge or expertise...so be it. Consider it your reality.

[Cast-Iron]

Australia is now in negotiations to bypass the US dollar in their direct trade with China. Another chink in the armor of America's global reserve currency status. If the Congress doesn't get our fiscal house in order and soon, we can expect to see this storyline repeated often as nations seek to eliminate the commercial risk of holding too many US dollars.

http://www.ibtimes.com/sorry-mates-strictly-business-australia-wants-cut-out-us-dollar-trade-china-1161287

[Rick]

You don't even understand what a currency swap is. They have gone on since the 1970s, maybe even earlier. This is nothing new in the finance world. Just one more example of not understanding the subject and jumping to the most extreme conclusion. It's even done between corporations. It's done to minimize exchange rate fluctuations. In this particular instance it is but one option outlined in a white paper. This will help you understand what a white paper is:

http://en.wikipedia.org/wiki/White_paper

[Cast-Iron]

You don't even understand what a currency swap is. They have gone on since the 1970s, maybe even earlier. This is nothing new in the finance world. Just one more example of not understanding the subject and jumping to the most extreme conclusion. It's even done between corporations. It's done to minimize exchange rate fluctuations. In this particular instance it is but one option outlined in a white paper. This will help you understand what a white paper is:

http://en.wikipedia.org/wiki/White_paper

"Eliminating the dollar in trade will be the focus of Australian Prime Minister Julia Gillard’s trip to Beijing next week. "

I'll just let this direct quote from the article speak for itself. Talk about jumping to conclusions.

[Rick]

You just let it. Again, you don't understand. The Chinese yuan is not considered a reserve currency. Australia conducts about 1/3 of its business with China yet it has to pay China in U.S. Dollars, Euros, Japanese Yen or Swiss Francs. Why on earth would they want to continue doing that AND be strapped with the conversion rates? It only makes sense that they would do a currency swap so they can deal directly with China. I hate to break the news to you but the U.S. Dollar is not the only reserve currency in the market place. It only comprises about 60% of total reserves. That's about average over the last 25 years. Euros are about 24% of nations' reserves with the rest being made up of Pound Sterling, Yen and to a lesser extent Swiss Francs.

Where were you when the Chinese did currency swaps with France, Brazil, Argentina and nearly a dozen other countries? This stuff is standard finance.

[Rick]

Let me try to explain this in simpler terms. Let's assume you had a shop selling widgets. You had small, medium and large widgets and your largest widget cost $10,000. A guy walks in your shop and wants to buy 5 of your big widgets. No problem. That will be $50,000. All he has are Albanian Lecs. No way. You aren't taking Lecs. Come back with American dollars. The guy then has to go to an exchange bank, trade his Lecs for Dollars so he can come back and pay you.

Now, let's change that a bit. Let's assume you buy widget components from Albania. Your business depends on a supply of widget components so you are constantly in the exchange bank exchanging dollars for lecs. One day your supplier says, "Let's do this, why don't you give me $2 million dollars and I'll give you an equivalent amount of Lecs in accordance with the exchange rate. That way you can just pay me in Lecs. You only have one exchange rate to pay and we'll do it when the two currencies are closest to a 1 to 1 exchange. You just saved $20,000 in exchange rates or some amount depending on what the rates are at the time. But from that point on you pay your supplier in lecs minus any additional exchange rates.

You can do the very same thing with international loans. You can also do the same thing with Reserve Banks between countries. It's just a more convenient and less costly way of doing business. It doesn't impact the U.S. much short of us loosing the exchange rate funds to transfer Australian dollars to Yuan or vice versa. But then there is no guarantee that the exchange would be in US dollars to begin with. It could have been in Euros. Countries that do significant business together do it all the time. This is an issue where some days you get the bear and some days the bear gets you depending on what the exchange rates are. You can reduce your exchange rate exposure but entering into a currency exchange and time it so the two currencies are as close to a 1 to 1 swap as possible or practical, whichever.

I've given you an over simplified example but that's basically how it works. This isn't a slap to the U.S. dollar. It's just everyday business. Does that make sense?

[Cast-Iron]

How funny, you seem to be making my point. I read an article just today (wish I had saved the link) that addressed the Chinese renminbi replacing the US dollar as the principal global reserve currency as China's economy overtakes the number one position from the US. I believe this specific article just describes a small part of that ongoing process. Kind of like the Chinese proverb: A journey of a thousand miles begins with a single step. As the dollar's reserve status diminishes globally, so does the need to hold dollars in reserve. Me thinks that spells trouble for both interest rates and keeping inflation in check.

PS.. Thanks for the world reserve breakdown in post 117. I was aware that the US portion was only around 60%, didn't know how they stacked up beyond that.

[Rick]

OMG. Your are hopeless. You are so entrenched in econimic collapse you are unwilling to open your mind and try to understand. The US is not diminishing. It is the same average 60% reserve currency it has been for 25 years.

The Chinese yuan will not replace the U.S. dollar or any other currency because it is a closed economy, which is a whole other ball of wax. China can not be accepted as a reserve currency. That does not stop them from performing currency exchanges however.

[Rick]

If anyone has a legitimate question on this you can post it or PM me. I'll be happy to try and explain. China regulates their currency exchange rate. They say what it is. All other currencies operate on the open bond market so their exchange rates fluctuate as demand for their currency grows or diminishes. Just like stocks. Countries buy dollars or euro or whatever and that causes the price to fluctuate. That's not the case with China. No Reserve Bank in their right mind would ever establish yuans as a reserve because the Chinese could jack up the exchange rate next day, next week or whenever they feel like it. China recognizes the problem and some place down the road we will most likely see the yuan go on the open bond market and trade like all other currencies. If and when that happens then the yuan will, no doubt, become a reserve currency just like the others I mentioned. But it won't happen any time soon and that gets into Chinese politics and how they are supporting their middle class. Right now, their economy is not growing at the rate they want it to. The Chinese are predicting 2025 before they will allow their currency on the bond market. Maybe sooner, maybe later. Time will tell.

[Cast-Iron]

The US dollar is backed by the faith and credit of the US government. These dollars are very similar to shares in US corporations. When the company goes bankrupt the creditors get stung, but the shareholders get crushed. The US has amassed historic levels of debt in the past several years. There isn't any indication of meaningful reform from inside of the beltway. The likelihood of not being able to even afford the interest on our national debt grows greater with each passing day. The sentiment among many nations around the world (some of them long time allies) is that our debt and deficit spending is out of control. They don't want to be shareholders stuck with a bunch of US dollars and without a chair the next time the music stops. There have been several meetings/summits in the past few months where many of our major trading partners got together and we weren't invited. The signs all point to the demise of our reserve currency status. From the present 60% to something much, much lower. To avoid bankruptcy something major HAS to happen to bring our budget into balance. With the disfunction we continue to witness on Capitol Hill, I am not convinced that that is even possible.

You can't drive too far or too fast by using the rearview mirror, I don't care what our historical average share of the reserve currency has been. It is only useful purpose is as a reference. It has no bearing on where we are now or we we are headed. I am more concerned about how present policy will effect where we'll be in the years to come.

[cwi555]

"You cannot grasp an understanding of macro economics by introspection and home schooling although I commend your effort to educate yourself. To gain a true understanding it takes years of formal education and experience to even begin to understand how the puzzle fits together."

That is as elitist as it gets. With that attitude, it really doesn't matter what point is made, it will always be wrong in your eyes if they are not 'formally educated and experienced' to your liking.

As a word of advice, some folks take offense at people talking down their nose to them. You have no clue what my formal education is, nor my capabilities.

Since there is a self appointed guru of all things financial here, I will not bother adding anything else to any post on the subject.

[Rick]

I am not talking down my nose at anyone. It's just a matter of fact. You can not hope to understand the intricacies of macro economics without some level of formal education and some experience to back it up. Folks spend their entire professional careers in economics and still have difficulties grasping it.

I do not know what your formal education is nor do I care. I have not had the first conversation with you on economics and it's a bit insensate of you to throw out accusations such as "self appointed guru" at me. I certainly haven't said that. Nor have I implied it. That's your interpretation and I can't control that.

You are the same one back on post 88 that accused me of things I did not say and got your knickers in a twist when I actually agreed with you. You've made two posts in this thread accusing me of something that isn't true. When you post something that actually makes some sense maybe we can discuss it.

[Cast-Iron]

......I do not know what your formal education is nor do I care.......

You don't think these comments like this come off as a tad bit elitist? So regardless of one's background and experience, if they have a difference of opinion, they must be wrong. This must be a tremendous burden for you to bear.

That being said, I do appreciate your continued discourse on a thread you've said you were done with (twice now I believe). I also appreciate that you have included more substance on your position in your more recent posts. I believe I have consistently maintained here that these are my best guesstimates based on the information I have. Like you said earlier, and I completely agree, we don't know what we don't know. No-one here has a crystal ball and the ability to accurately project our economic course. Neither You nor I. We can however, collect and assimilate the pertinent facts and data to illustrate the subtle changes which could have an economic impact on us all. That was my reason for initiating this post. I continue to develop my understanding of economics, but I still feel it is largely an artform rather than a science with few applicable "laws". When I see something that might add to this thread I like to post it here. Believe me when I say that I withhold a significant amount of links to sources which I feel are either too biased or lack enough credibility. But it is through candid discussion that we can learn and grow together. If you feel something is irrelevant that's your right and priviledge. Obviously I feel differently or I wouldn't have posted it. So here we are, status quo, agreeing to disagree......

Have a nice day there in central Indiana!

[crashdive123]

I've closed the thread. We are now just going in circles and running over ground that has already been plowed. People can read the posts and draw their own conclusions.