Quote from: twiifm on January 06, 2015, 03:30:27 PM

Poor logic buddy. Debt isn't an asset. Or perhaps you are claiming that we're close to the point where that debt will start deflating rapidly Grin

Debt is an asset to people that hold it. If you have bonds in your 401k you are holding the debt of companies and governments but it is an asset to you. Removing all US debt would be devastating and will not happen.

Quote from: Elwar on January 06, 2015, 03:34:40 PM

You assume that the taxpayer can pay the interest on the debt every year. But the interest on the debt has risen to one of the top 6 budget expenses and as it rises we will reach the point where there are not enough taxes to cover the interest plus any sort of other expenses. Debt cannot continue to climb with no detrimental results.

And when the Fed needs to print money to buy US treasury bonds to keep down that interest rate and allow the US to continue to be solvent, they are shifting the burden by devaluing the dollar.

In short burts they can bounce back. Over the long term it leads to inflation.

Sure we have the military which is one of the top 3 budget items, and they can attack countries like Iraq who started talking about going off of the dollar for oil sales. But that just adds to the spending and adds to the problem. And higher taxes do not necessarily result in higher income as people work to shelter their money from those taxes, just look at the failure of the 75% tax in France.

Depending on violence and force to prop up your economy is not the best way forward even if in the short term it seems like it is working. That system always requires more force and more violence before it comes to an end.

Interest expense as a % of total government outlays has actually been coming down and is currently very low! Since interest rates are so low our interest expense is low - there is not this problem of things spiraling out of control. Plus, like I said, the US Treasury can issue shorter maturity debt or debt with low coupons indefinitely so we can actually control the interest expense further if we wanted to - I repeat we can issue currency if we needed to pay interest and would never go bankrupt like this! The Fed printing (creating reserves, which is not putting money into the economy directly, it nets to $0) has not devalued the USD - it is in fact in multi-year highs. Dollar's value is based on inflation, among other things, and that is very LOW right now. So please don't make these assumptions, just follow the facts.

Quote from: B.A.S. on January 06, 2015, 05:00:57 PM

I agree, the US doesn't need oil to be priced in USD to print money. I never said that. What I was alluding to was because oil happens to be dominated in USD, the US (aka the Fed-a private entity) can print money that is never disseminated into the economy (i.e. lended to banks as you've said above). What this allows the US to do is simultaneously buy oil with money that is non-inflationary on the US economy, purchase a commodity and sell it back to its economy at deflationary prices for a profit. Essentially, on the books it looks like the US economy is booming with all the capital coming in (cheap gas prices mean more spending, traveling; generally linked to improved economic conditions), but in reality, the money never existed and is being injected into the economy from an outside way to mitigate economic inflation on the home front due to the printing of USD. The commodity oil is like fake money. It is a vehicle to control economic factors based upon what the commodity is denominated in primarily (currently USD). The US is the best house on a bad block right now.

Secondly, printing of money alone does not cause inflation (again I did not say this). When the real value of the economic output is mismatched with the amount of dollars circulating, this is how printing excess money (QE) becomes a problem. Without having the output to back up the QE, the US experiences inflation. If the US doesn't have the goods to support the high exchange value of the USD in the world economy, you get inflation. The only reason we have QE in the first place is because an economy that wants to grow fast and beyond its means (the US since forever) has to do it somehow

Step 1: you tell everyone your country has a ton of money by printing it
Step 2: Get them to buy your stuff/invest in you with 'real money'
Step 3: Economic boom town - profit
Step 4: Continue the process until every one is entirely dependent on your country for its economic value based on their currency that they won't let you fail

The US isn't ramping up manufacturing in response to some event. What I was talking about was bringing our manufacturing back to US soil and beginning to increase our world stake in the export market. Right now, all we export is dollars. You will see a return to American made products and a reinvestment in corporations housed in the the US. What this will do it allow us to export more products, decrease our reliance on QE and strengthen our hold on the world market. If we let go of being the reserve currency (we will eventually), we have to be a frontrunner in something otherwise the US stands to lose a hold on the world.

The debt in the US doesn't matter, it never has. In the 40s/early 50s, we actually volunteered as a country more or less to be the world reserve post WWII (see Bretton Woods Conference) since we had lots of economic resources and much power.

The volatility of Bitcoin right now is purely because of lack of no clear authoritative governance (as posters below say: a military). Eventually, if Bitcoin becomes a real thing, governments with lots of power and money and military will assume their slot in this, set up shop and push their economies in new ways using this technology.

The US cannot just spend those reserves on things like oil.. they literally sit on the bank's balance sheet as an accounting journal entry. They cannot use it to buy oil or anything else. You see, the dollars never make it to the economy UNLESS they are borrowed by people. The only way you can say QE is inflationary is if you think banks DID NOT HAVE ENOUGH RESERVES TO LEND BEFORE and this "new" QE money allows them to lend and that causes inflation. BUT, critically, the banks NEVER had a problem with having reserves before! In fact, banks don't actually need reserves to lend - they lend FIRST then create the reserves as an offset on their books! This is so important. If you understand that you understand that QE is just an asset for asset swap which nets to 0 - swap reserves for US Treasurys - cash for cash - a checking account for a savings account!! So many people got this wrong since 2009, please understand how important it is.

Quote from: twiifm on January 06, 2015, 03:54:13 PM

Look up sectoral balances to understand relationship between public vs private deficits and surpluses

^this.

Quote from: harposox on January 07, 2015, 12:23:53 AM

Military might and nuclear arsenal aside, the petrodollar is the engine of America's global economic domination. It essentially creates an endless loop of demand for U.S. dollars and U.S. debt, which allows the United States to print money endlessly, export its inflation abroad, and smash foreign economies on a whim by tinkering with oil prices, interest rates, and the overall U.S. money supply. Foreign countries, with no other choice but to obtain U.S. dollars in order to purchase the world's most precious commodity (oil), are forced to play this hopelessly rigged game.

This is so wrong. Please read all my posts here and you will see all you questions addressed. We don't need oil to be priced in dollars for people to buy our debt.. they do that because we trade with them and they want to hold safe investments. The US does not need permission to "print" anything, our Fed has the Congressional right to do that all their own. We don't need permission.

Quote from: B.A.S. on January 07, 2015, 01:16:13 AM

Man oh man. You need to get your arguments squared away and correct guy.

1. China's economy is not fabricated. It is quite the opposite; it is predicted to become the largest economy in the world in the coming years. This is mirrored by India's sentiment on China's Silk Road Initiatives of 2014. India is worried because China has an increasingly large slice of the Indo-Pacific corridor. Couple this with DPRK ties, the Russian-China oil pipeline proposals and major infrastructure ties with large African nation governments and you will quickly see China is not some joke.

2. Europe isn't teetering on collapse. The European Union Commissions latest report out in autumn of last year indicated all EU countries were set for growth through fiscal years 2015-16. Historic government deficients are being refinanced and paid due to strengthened economic activity.

3. Great Britain was NOT fine after losing reserve status with the Sterling. Since the early 1900s, the Pound has been decreasing. Since the 1950s after the end of WWII, the pound has been devalued by HALF in comparison to the USD.

4. China will happily take BTC or a regulated, world approved digital currency for their goods and services. What they want to make sure of is that Chinese money is primarily spent in the Chinese economy and that when it comes to foreign affairs, they get their fair shake with the debt they are holding on behalf of others.

5. The US won't be able to tax its citizens the amount necessary to make the debt interest payments one day in the future. We can only tax so many unborn future citizens (this is a disgusting concept that is mostly true). The government cannot infinitely raise tax burdens on the public without them getting angry. See any history textbook for prime examples. It's a fine line to walk.

6. Having the best legal system has nothing to do with America being in the shitter. Having the best military has nothing to do with it either, but I'll let you rationally decide which one gets the money and which doesn't. Military spending/strength has always been an economic indicator.

7. Stop thinking so small and US-centric. Interest rates and currency strength are proxies for everything else.
For a guy that claims to be in the financial industry, reading your posts makes me think you're a teller who has sat in on a few loan officer meetings. I don't want to take away from this thread, I like your ideas and for facilitating a discussion, just don't parrot things. The world is much larger than the US and on the contrary, many countries are superior to the US in many ways.

1 - no professional investor or businessman trusts data that comes out of China. They make up numbers and hide problems. Of course they are a huge economy that will continue to grow, the issue is that people do not trust their government to put all their cash in CNY. Their legal system is nowhere near the USA, which is why China is nowhere near ready to be reserve status.
2 - Europe - lol - dude they've been saying that every year for the last half decade! Those are just projections! Greece is ready to leave and the structural problems that Europe has cannot be fixed without full fiscal and monetary integration of their banking system - something the Germans are wildly opposed to.
3 - Britain's currency being devalued is good for their economy.. they can sell more of their goods. It is only bad for people who want to take vacations, because they have to spend more. That is anything but a collapse.
4 - Dude, China was one of the first to ban BTC transactions..
5 - You are speculating, wildly. Interest expense is down as a % of total government outlays because rates have fallen. And again, the way our country works we can use the Treasury and primary dealers to buy US debt - we don't need outside forces to do this. You are saying that people will pay fewer taxes in the future - why? The US economy collapses? I think not. Because interest expense will be high? No - we can control this by issuing shorter debt maturities, and besides rates have been PLUNGING for the last 30 years, so that part of your argument is also false.
6 - Dude having best legal system is what makes people want to do business with us and supports reserve currency status, which you seem to think is so important. That is why I mentioned it.
7 - I'm not sure what this is referencing.
And BAS please understand that when I read your comments it is very clear you do not know what you are talking about so don't tell me I am a bank teller. If you are delusional enough to not see that what I am saying is based on FACTS and what you are saying is based on speculation, things you read online and general surfacy BS then please, move on. Quoting things like European estimates is just obviously clear that you are naive about many topics. Every economist every Wall Street analyst 99% of the time predicts things to get better and follow a trend. If you look at what actually happens and how often they are right, you will see that stuff like that is not worth a lick. We all know the world is more global than the US, I'm trying to address everything that I can and I am not implying that the world is not connected globally.

Quote from: Erdogan on January 07, 2015, 01:47:02 AM

1 What effect has the recent years of central bank commanded low interest rate had on the physical capital structure in the US and in the world?

2 Do you think that the current oil glut has something to do with the low interest rate?

1 - it has largely benefited the world because businesses can borrow for less and money has flowed into emerging markets to move their economies forward. Honestly, it is so difficult to say if that was because of QE or because of things that would have happened without QE anyway. Even the Fed does not know and cannot quantify QE impact. Could just be low inflation doing all this like causing low rates. Overall, it is good for growth to have low rates. Of course, there are potential issues that come up.. most notably money flows into riskier assets. Like oil and gas drilling that only works at $100 oil.. and now we will see defaults in that space.
2 - Yes, there are many shale, deepwater and oil sands companies that were able to borrow at very low rates and that increased supply of oil, which started this decline. By the way - low gas prices are great for consumers worldwide and this should be seen as a VICTORY for the people of the world. Just bad for companies and certain governments. More generally, oil prices and interest rates move in the same direction a lot of the time because if you have low inflation caused by low oil prices you get lower bond yields, because you don't need to be worried about higher prices coming up in teh future which makes the value of the interest you are receiving less lucrative. Low inflation = low yields = low oil prices.

Quote from: Foxpup on January 07, 2015, 03:27:37 AM

I mean come on. China, a fabricated economy? I'm an Australian, and I know that China is by far Australia's largest trading partner (both imports and exports). Unless Australia's economy is fabricated too, you've got some explaining to do.

I meant that a lot of the data that comes out of their government is fabricated. Of course it is a real country with real output.. just look at where all your clothes and electronics come from. I was talking about whether or not they would be qualified to be a reserve currency, please do not take my quotes out of context.
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PS I like talking to you guys and this has been surprisingly civil (mostly) so far. Of course I have views that can be challenged but I am trying to keep opinion out of it and reference how things work so you can all make your own decisions. That is why I stress the Treasury, Fed and FX concepts so much, cheers.