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is Russia getting set to drop the dollar and euro?

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Spungo

Diamond Member
Jul 22, 2012
3,217
2
81
What a poorly written post. Japan's deficit is increasing because they've shut down all their nuclear power stations and rely on imported oil and gas. This is common sense. Abenomics is actually working. The only thing that's causing a reversal of fortune is the doubling of the national tax and these imported energy bills.
Nonsense. According to liberal sources, nuclear power is more expensive than coal and oil. They've said this for years. I refuse to believe liberals would lie to my face like that.
 

momeNt

Diamond Member
Jan 26, 2011
9,297
350
126
Good. More dollars and euros for us.

The USA had approximately 2/3 of the world's gold after WW2. Only when we started dumping gold did we hit true prosperity in this country. Russia from learn from history and dump gold and adopt prosperity.
 

fskimospy

Elite Member
Mar 10, 2006
72,638
23,760
136
Nonsense. According to liberal sources, nuclear power is more expensive than coal and oil. They've said this for years. I refuse to believe liberals would lie to my face like that.
They were counting construction costs I'd bet. These plants are already built and fueled.

Seriously, use your head.
 

BudAshes

Lifer
Jul 20, 2003
12,981
1,946
126
The pure stupidity of all of this is amazing. Russia could be a wealthy prosperous country but instead they continue to stick to their old ways which continue to fail them. It's a real lesson in why all politicians need a short leash. Putin is starting to remind me of mister Dick Cheney.
 

Spungo

Diamond Member
Jul 22, 2012
3,217
2
81
The pure stupidity of all of this is amazing. Russia could be a wealthy prosperous country but instead they continue to stick to their old ways which continue to fail them. It's a real lesson in why all politicians need a short leash. Putin is starting to remind me of mister Dick Cheney.
?



Since Russia's monetary collapse and hyperinflation, they've grown at an astonishing rate.
Russia's debt loads are also far lower than US debt loads.



Having very low debt, high growth, and an overwhelming abundance of natural resources is why the Obama administration's pressure for S&P to downgrade Russian bonds is one of the factors contributing to the death of our monetary system. Bond rating agencies are a critically important part of the bond market. People will buy or not buy bonds based on what these agencies say. What happens when they lose all credibility by doing things like putting AAA ratings on mortgages to drug addicts or putting Russia's credit rating lower than America's credit rating even though every object measure says Russian bonds are a safer investment.
It's also worth mentioning the Obama administration took S&P out to the woodshed after US bonds were downgraded. Obama and his team probably have good intentions, but this is the kind of stuff that leads to a bond crisis.


They were counting construction costs I'd bet. These plants are already built and fueled.

Seriously, use your head.
Don't worry about the costs. Our top Keynesian economists say that digging holes then filling them up (or rebuilding things after they've been destroyed) would help the economy. That's not a strawman; they literally believe this. Economists always say WW2 (and the record high debt level caused by it) was good for the economy, so giant tsunamis are probably great for the economy. So many broken windows to replace!
 

fskimospy

Elite Member
Mar 10, 2006
72,638
23,760
136
Having very low debt, high growth, and an overwhelming abundance of natural resources is why the Obama administration's pressure for S&P to downgrade Russian bonds is one of the factors contributing to the death of our monetary system. Bond rating agencies are a critically important part of the bond market.
Pressure to downgrade Russian bonds not found.

People will buy or not buy bonds based on what these agencies say. What happens when they lose all credibility by doing things like putting AAA ratings on mortgages to drug addicts or putting Russia's credit rating lower than America's credit rating even though every object measure says Russian bonds are a safer investment.
They most certainly do not say that. What are you smoking?

Some of the many reasons why Russian bonds are viewed as a worse investment than US bonds:

1. Russian inflation is extremely high, which means that bond prices have to be higher to account for that.

2. Russia does not have a credible and independent central banking system.

3. Russia is not viewed as having a particularly stable or credible government.

4. Russia does not have a well diversified economy.

5. Russian economic growth appears to have collapsed and they are experiencing mass capital flight.

6. Russia has recently become an international pariah and is facing financial instability from increasing sanctions and the inability for Russian firms to acquire foreign loans, which could require further action from Russian banks, making inflation worse.

But yeah, other than that they are a totally solid investment.

It's also worth mentioning the Obama administration took S&P out to the woodshed after US bonds were downgraded. Obama and his team probably have good intentions, but this is the kind of stuff that leads to a bond crisis.
You guys have been saying that for about half a decade now. When can we expect this bond crisis?

Don't worry about the costs. Our top Keynesian economists say that digging holes then filling them up (or rebuilding things after they've been destroyed) would help the economy. That's not a strawman; they literally believe this.
This is in fact a straw man. They say that in a deeply depressed economy with mass labor resources sitting idle, that if your alternative was doing nothing, that doing such a thing would be better. Among the list of things that would be better in the eyes of Keynesians would be literally anything else.

Economists always say WW2 (and the record high debt level caused by it) was good for the economy, so giant tsunamis are probably great for the economy. So many broken windows to replace!
See above.
 

Spungo

Diamond Member
Jul 22, 2012
3,217
2
81
The USA had approximately 2/3 of the world's gold after WW2. Only when we started dumping gold did we hit true prosperity in this country. Russia from learn from history and dump gold and adopt prosperity.
This graph tells you everything you need to know about credit expansion:



I love this graph because you can pinpoint several things and who got richer as a result.

1920 to 1930: The rich get richer.
Notice how 1920-1930 was a time of the rich getting richer at a remarkably fast pace. Why? That was a decade of incredible monetary expansion. Very similar to the recent housing bubble, banks would lend money to anyone, and people would use that money for investments. Instead of real estate, it was stocks. Who benefits when stocks go up? Mostly rich people because rich people hold a much larger percentage of their wealth in stocks.

1933: The rich get richer.... again.
Even after the 1929 crash and bear market, the amount of money created in the previous decade greatly exceeded the amount of gold in reserve, which is bad because there was still a fixed exchange rate at that time, and that could lead to more bank runs. 1933 was when FDR issued his famous executive order 6102: owning gold became a criminal offense. Banning ownership of shiny rocks sounds like the dumbest law ever, but keep in mind these are the same idiots who banned alcohol 13 years earlier. Coming as a surprise to absolutely nobody, banning ownership of gold then devaluing the currency from $25 to $35 per ounce immediately caused wealth inequality to shoot up again. A rich guy in the white house represents the interests of rich men? Shocking.

1940 to 1970: Rise of the middle class.
This was a fairly stable period in terms of monetary policy. The economy was doing great during this period for various reasons unrelated to monetary policy. US dollars were still backed by gold.

1971 to today: The rich get richer.
The gold standard was abandoned in 1971. Since that time, wealth inequality has exploded. It's exactly the same as the 1920s. The problem with inflationary monetary policy is that it tends to make rich people richer and poor people poorer. This can be best explained using a simple example with some simple numbers. Start with a poor or average person. Let's say this average person makes 50k per year and their living expenses are 45k per year. The other 5k is invested in the stock market. What happens if there's 10% inflation one year? Living expenses go up by 4.5k, but investment value increases by 0.5k. Subtract one from the other and we find that this average person suffers a net loss of 4k due to this inflation.
How would a rich person do? Let's say this person makes 1000k (1 million) per year. They live a very comfortable life at a cost of 200k per year. The other 800k is investments. Now we have 10% inflation one or two years or whatever. The cost of living goes up to 220k, so that's a loss of 20k. Their investments go from 800k to 880k, so that's a gain of 80k. Subtract one from the other and we find that the rich person has a net gain of 60k from this inflation.
It really doesn't matter what the inflation number is. It could be 1%, it could be 20%. This calculation still works the same way. Inflation makes rich people richer. Do this over 40 years, compounding annually, and we get something that looks a hell of a lot like modern day America.
People at the top are absurdly rich, and people at the bottom need to protest for $15/h wages because inflation has made it impossible to live on the $8 or $9 they are getting paid. Math equations generally need to balance out, so where did that wealth go if the value of an $8 wage was slowly declining? It went to the top. It went into the stock market. It went into the real estate market. Your wage losing 2% or 3% of its value means the company is that much more profitable. This is why many people haven't had raises in the past 5 years but corporate profits are at record highs. Of course they're at record highs when the cost of labor is suppressed by inflation. 3% inflation is a 3% pay cut, so what does that add up to over 5 years? 0.97^5 = 0.85, about a 15% pay cut.

The liberals often blame the inequality on the tax code, and that's certainly part of it, but try to remember that you only pay income tax when you are paid by an employer, and you only pay capital gains tax when you sell things or get paid dividends. What happens if you're a guy like Warren Buffet who never sells anything? Then you never pay taxes. In that example above, where the rich guy gains 80k from inflation, none of those gains would be taxed unless he sold the stock. You could raise the tax rate to 90% and it would still have no effect on the rich. If you want to kick rich people in the balls, put America back on a gold standard with slight deflation.
 

fskimospy

Elite Member
Mar 10, 2006
72,638
23,760
136
Lol @ inflation making the rich richer.

If you go look at who is always agitating for tighter monetary policy it is always the ultra rich. Now either they have become all altruistic all of a sudden or they realized that they gain a lot from higher interest rates and that inflation advantages debtors (people without money) over creditors (people with money).

This is what conservative economics is reduced to? Desperately trying to make up a story with no empirical evidence? Sad.
 

Spungo

Diamond Member
Jul 22, 2012
3,217
2
81
1. Russian inflation is extremely high, which means that bond prices have to be higher to account for that.
You have this backwards. Higher interest rate means the bond price is lower.
Anyway, the credit rating and the interest rate are completely separate. You can have an A+ bond that pays 10%, and you can have a B- bond that pays 5%. The interest rate on US government bonds was much higher in 1990 than it is right now. Does that mean our credit rating was terrible in 1990? Of course not. Our financial position was much stronger in 1990 than it is right now. Also, inflation doesn't factor into this because bonds are not restricted to one currency. Russia issues bonds in US dollars, as do most other countries. Russia also issues bonds in euros. The interest rates will be different for each currency. Poor/corrupt countries tend to issue most of their bonds in US dollars because nobody trusts the local currency. I certainly wouldn't lend money to the Russian government unless it were denominated in dollars or euros.


2. Russia does not have a credible and independent central banking system.
It doesn't matter. What matters is their government's ability to pay back the loan.


3. Russia is not viewed as having a particularly stable or credible government.
Russia has a fairly good track record of stable governments. They're almost always dictatorships, but they're stable. I think Italy and Greece are much closer to a revolution than Russia is.


4. Russia does not have a well diversified economy.
The entire state of Texas is based on oil, but Texas seems relatively stable.


5. Russian economic growth appears to have collapsed and they are experiencing mass capital flight.
True, but that doesn't change the fact that Russia's main industry is natural resources. As long as the world needs oil and coal, Russia will have customers. Canada's economy is very similar in that regard. The time to start worrying about Russia's ability to pay back debt would be when their debt to GDP starts going up at a rapid pace.


You guys have been saying that for about half a decade now. When can we expect this bond crisis?
It'll happen when a rival currency overtakes the US dollar. We're starting to see this with American companies. McDonalds is already raising capital by issuing "dim sum bonds" - bonds issued in yuan instead of dollars. It also doesn't inspire confidence when our own central bank holds several trillion dollars of bonds. Why would our central bank feel the need to buy our own bonds? It's because there are not enough buyers at the current interest rate. You're saying there's no bond crisis because interest rates are not rising, which is true, but you're ignoring the fact that interest are manipulated by the fed. What happens if the fed stops printing money to buy bonds? The interest rates go up and we have a bond crisis. What happens if they keep printing trillions of dollars to suppress the interest rate? Then we have a currency crisis. They've painted themselves into a corner on this one.

This starts to get fun when you try to predict what kind of crisis is coming. The more optimistic people are betting on a deflationary collapse, which means the fed would allow the interest rates to rise and force the government to start slashing things like the military and medicare. This is the optimistic view because it doesn't destroy the currency. People who have money in the bank saved for retirement would still have money in the bank.
I'm on the inflationary side. History has shown that governments always try to print their way out of trouble. Even the ancient Romans tried this by replacing precious metal coins with base metal coins. As you can guess, it failed, just like every other currency debasing scheme in history. This is the pessemistic view because the value of currency is destroyed in the process. Cash in the bank is suddenly worthless. Pensioners are and people invested in bonds are completely wiped out when this happens.



I will add one exception to what I previously said about wars. Building tanks and bonbs is good for the economy if we are selling them to the people fighting the war.
This (digging holes to fill them) is in fact a straw man. They say that in a deeply depressed economy with mass labor resources sitting idle, that if your alternative was doing nothing, that doing such a thing would be better.
This is where I would say the Keynesians are wrong. What do humans naturally do when they don't have a job and can't find a job? They try to create jobs, sometimes called jerbs. Even I did this as a kid. I had a lemonade stand. I mowed lawns in summer, I picked up leaves in fall, and I shoveled snow in winter. If I wanted money, and being a jerb creator was the only option, that's what I did. What do you think would happen if the government stepped in and started some kind of war effort? Working for the government's war effort would probably pay better than raking leaves, so I would work for the government. I would be making bullets and painting trucks. It's true that I'm no longer considered slack in the economy, but at what cost? If left to my own devices to create my own job, I was actually adding value to my neighborhood when I shoveled snow or raked leaves. If I'm painting trucks just so they can be destroyed, I'm not adding any value to anything. Nobody looks at a destroyed truck and stops to admire the pain job on it. In the wonderful world of economics, this is called "crowding out". In addition to removing my desire to create my own job, the war effort negatively affects other parts of the economy by raising capital costs. Example: oil tends to get expensive during war, or it's rationed. What does that do to my business or someone else's business if our businesses rely on oil? Does it discourage people from going to the mall? Does it affect commerce? Does it force companies to have pay freezes to make up for the added capital costs? Would food places stop delivering to my door? Does that mean I buy fewer pizzas?

You're saying slack in the economy is worse than capital misallocation, and I disagree with that position. What happens when the war effort eventually ends? We're right back where we started. I'm no longer painting army trucks, so I'm unemployed again, as are thousands of other people. Of course, that war effort wasn't free, so now the people who have jobs see higher taxes, this lowers discretionary spending, and we see modern day America - retail apocalypse, Staples closing hundreds of stores, JC Penny bankrupt, etc. Again, this is called crowding out. Money that would normally go to retail spending is now going to the government.
Using the government to fix slack in the economy doesn't make the pie bigger. All it does is take capital from the productive parts of the economy and move it to the nonproductive parts of the economy (ie painting trucks that will be destroyed in less than a month). Or it could be Cash For Clunkers - destroying perfectly good used cars to encourage the purchase of a new car. They would literally destroy the engine of the clunker. That's a perfect example of Broken Window Keynesian economics. In case of bad economy, break a bunch of windows (or cars), hire people to fix them, then send to the bill to tax payers.
 

BudAshes

Lifer
Jul 20, 2003
12,981
1,946
126
?



Since Russia's monetary collapse and hyperinflation, they've grown at an astonishing rate.
Russia's debt loads are also far lower than US debt loads.



Having very low debt, high growth, and an overwhelming abundance of natural resources is why the Obama administration's pressure for S&P to downgrade Russian bonds is one of the factors contributing to the death of our monetary system. Bond rating agencies are a critically important part of the bond market. People will buy or not buy bonds based on what these agencies say. What happens when they lose all credibility by doing things like putting AAA ratings on mortgages to drug addicts or putting Russia's credit rating lower than America's credit rating even though every object measure says Russian bonds are a safer investment.
It's also worth mentioning the Obama administration took S&P out to the woodshed after US bonds were downgraded. Obama and his team probably have good intentions, but this is the kind of stuff that leads to a bond crisis.



Don't worry about the costs. Our top Keynesian economists say that digging holes then filling them up (or rebuilding things after they've been destroyed) would help the economy. That's not a strawman; they literally believe this. Economists always say WW2 (and the record high debt level caused by it) was good for the economy, so giant tsunamis are probably great for the economy. So many broken windows to replace!
You are obviously a crazy person since you spend this much time posting all of this. I don't know what your agenda is but I don't really care either.
 

momeNt

Diamond Member
Jan 26, 2011
9,297
350
126
Lol @ inflation making the rich richer.

If you go look at who is always agitating for tighter monetary policy it is always the ultra rich. Now either they have become all altruistic all of a sudden or they realized that they gain a lot from higher interest rates and that inflation advantages debtors (people without money) over creditors (people with money).

This is what conservative economics is reduced to? Desperately trying to make up a story with no empirical evidence? Sad.
Altruism is an essential part of a representative democracy pretty much any way you look at it.
 

fskimospy

Elite Member
Mar 10, 2006
72,638
23,760
136
You have this backwards. Higher interest rate means the bond price is lower.
Anyway, the credit rating and the interest rate are completely separate. You can have an A+ bond that pays 10%, and you can have a B- bond that pays 5%. The interest rate on US government bonds was much higher in 1990 than it is right now. Does that mean our credit rating was terrible in 1990? Of course not. Our financial position was much stronger in 1990 than it is right now. Also, inflation doesn't factor into this because bonds are not restricted to one currency.
You're right about bonds, I meant higher inflation leads to higher rates. As for inflation not mattering, that's absurd. Inflation is a huge part of bond prices. As for the credit rating and bond rate being separate, of course that's not the case. While bond rates represent more than just credit risk, that risk is priced into them as well.

US bonds are currently low because of a dearth of better investment opportunities combined with low inflation and the fact that the US issues debt in its own currency.

Russia issues bonds in US dollars, as do most other countries. Russia also issues bonds in euros. The interest rates will be different for each currency. Poor/corrupt countries tend to issue most of their bonds in US dollars because nobody trusts the local currency. I certainly wouldn't lend money to the Russian government unless it were denominated in dollars or euros.
Russia constantly auctions bonds in rubles. Not sure where you got the idea that they didn't.

It doesn't matter. What matters is their government's ability to pay back the loan.
Of course it matters. See above.

Russia has a fairly good track record of stable governments. They're almost always dictatorships, but they're stable. I think Italy and Greece are much closer to a revolution than Russia is.
Their country currently rests on an autocratic kleptocracy. That is an inherently unstable governance model.

The entire state of Texas is based on oil, but Texas seems relatively stable.
Texas is part of a larger fiscal union.

True, but that doesn't change the fact that Russia's main industry is natural resources. As long as the world needs oil and coal, Russia will have customers. Canada's economy is very similar in that regard. The time to start worrying about Russia's ability to pay back debt would be when their debt to GDP starts going up at a rapid pace.
Russia has always had natural resources. Russia has suffered repeated economic calamities.

It'll happen when a rival currency overtakes the US dollar. We're starting to see this with American companies. McDonalds is already raising capital by issuing "dim sum bonds" - bonds issued in yuan instead of dollars. It also doesn't inspire confidence when our own central bank holds several trillion dollars of bonds. Why would our central bank feel the need to buy our own bonds? It's because there are not enough buyers at the current interest rate. You're saying there's no bond crisis because interest rates are not rising, which is true, but you're ignoring the fact that interest are manipulated by the fed. What happens if the fed stops printing money to buy bonds? The interest rates go up and we have a bond crisis. What happens if they keep printing trillions of dollars to suppress the interest rate? Then we have a currency crisis. They've painted themselves into a corner on this one.
We are in fact seeing the end of QE now, and no bond crisis. We have seen periods in the past during this crisis where bond buying stopped and what you're saying didn't happen.

This is why you should use quantitative analysis instead of anecdotal evidence to support your ideas. They will prevent you from developing these wrongheaded ideas.

This starts to get fun when you try to predict what kind of crisis is coming. The more optimistic people are betting on a deflationary collapse, which means the fed would allow the interest rates to rise and force the government to start slashing things like the military and medicare. This is the optimistic view because it doesn't destroy the currency. People who have money in the bank saved for retirement would still have money in the bank.
I'm on the inflationary side. History has shown that governments always try to print their way out of trouble. Even the ancient Romans tried this by replacing precious metal coins with base metal coins. As you can guess, it failed, just like every other currency debasing scheme in history. This is the pessemistic view because the value of currency is destroyed in the process. Cash in the bank is suddenly worthless. Pensioners are and people invested in bonds are completely wiped out when this happens.
How many years of predicting hyperinflationary collapse without it happening must go by before you admit to being wrong?

I will add one exception to what I previously said about wars. Building tanks and bonbs is good for the economy if we are selling them to the people fighting the war.

This is where I would say the Keynesians are wrong. What do humans naturally do when they don't have a job and can't find a job? They try to create jobs, sometimes called jerbs. Even I did this as a kid. I had a lemonade stand. I mowed lawns in summer, I picked up leaves in fall, and I shoveled snow in winter. If I wanted money, and being a jerb creator was the only option, that's what I did. What do you think would happen if the government stepped in and started some kind of war effort? Working for the government's war effort would probably pay better than raking leaves, so I would work for the government. I would be making bullets and painting trucks. It's true that I'm no longer considered slack in the economy, but at what cost? If left to my own devices to create my own job, I was actually adding value to my neighborhood when I shoveled snow or raked leaves. If I'm painting trucks just so they can be destroyed, I'm not adding any value to anything. Nobody looks at a destroyed truck and stops to admire the pain job on it. In the wonderful world of economics, this is called "crowding out". In addition to removing my desire to create my own job, the war effort negatively affects other parts of the economy by raising capital costs. Example: oil tends to get expensive during war, or it's rationed. What does that do to my business or someone else's business if our businesses rely on oil? Does it discourage people from going to the mall? Does it affect commerce? Does it force companies to have pay freezes to make up for the added capital costs? Would food places stop delivering to my door? Does that mean I buy fewer pizzas?

You're saying slack in the economy is worse than capital misallocation, and I disagree with that position. What happens when the war effort eventually ends? We're right back where we started. I'm no longer painting army trucks, so I'm unemployed again, as are thousands of other people. Of course, that war effort wasn't free, so now the people who have jobs see higher taxes, this lowers discretionary spending, and we see modern day America - retail apocalypse, Staples closing hundreds of stores, JC Penny bankrupt, etc. Again, this is called crowding out. Money that would normally go to retail spending is now going to the government.
Using the government to fix slack in the economy doesn't make the pie bigger. All it does is take capital from the productive parts of the economy and move it to the nonproductive parts of the economy (ie painting trucks that will be destroyed in less than a month). Or it could be Cash For Clunkers - destroying perfectly good used cars to encourage the purchase of a new car. They would literally destroy the engine of the clunker. That's a perfect example of Broken Window Keynesian economics. In case of bad economy, break a bunch of windows (or cars), hire people to fix them, then send to the bill to tax payers.
This is again another area where math would do wonders. Crowding out effects have been examined extensively in a liquidity trap. The idea that all spending is crowing out private investment is facially illogical given the evidence we have seen.
 
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fskimospy

Elite Member
Mar 10, 2006
72,638
23,760
136
Altruism is an essential part of a representative democracy pretty much any way you look at it.
Yeah I'm going to go with the fact that people who are net creditors like low inflation for the obvious reason that they benefit from it.
 

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