Is the US gets into DEEP financial trouble (like Greece), will we print more dollars?

[sMiLeYz]

doh

 

[sMiLeYz]

Totalnoob's chart reflects a total collapse in the value of so-called securities held by banks and institutional investors.

Both money and securities are theoretical stores of value. Banks are allowed, under fractional reserve principles, to lend several times more money than they have, either in cash or securities. For all practical purposes, the credit they extend is the same as money in the economy.

During the Bush years, banks were allowed unreasonable leverage against securities held, and were also allowed to overvalue such instruments. When that value plummeted, they were over-leveraged in a completely unsupportable way, and were also stuck holding over-valued securities they'd intended to sell to investors, aka chumps, suckers, marks, which includes our pensions and other retirement plans.

Rather than allowing the whole rotten edifice to collapse, or nationalizing the affected banks, the Treasury and Fed stepped in, paid cash for crap, moved it off banks' books so they could continue to operate and to lend. The govt also engaged in large deficit spending as stimulus. They didn't really increase the money supply at all, they merely sustained it somewhat. Had they not done so, what we see as the money supply would have dried up entirely, a la 1931.

The reason that dollar value hasn't plummeted is that the world's other major economies and currencies have been treated the same way, and that we're basically holding the world economy hostage, extorting value from it with overvalued "money"...

Oh my god someone rational and knows an ounce about economics... such a breath of fresh air.

To clarify, the money supply wasn't increased much at all because the Federal Reserve passed a small law in congress that allowed banks to put their money in the Federal Reserve and gain interest. This allowed unused cash from banks to be put into increasing money supply without printing any money. Brilliant play by Bernanke.

Another thing to note is, Greece is basically under the Gold standard (Euro). They can't devalue their currency, which is really why they're in such deep shit.

 

[silverpig]

Oh my god someone rational and knows an ounce about economics... such a breath of fresh air.

To clarify, the money supply wasn't increased much at all because the Federal Reserve passed a small law in congress that allowed banks to put their money in the Federal Reserve and gain interest. This allowed unused cash from banks to be put into increasing money supply without printing any money. Brilliant play by Bernanke.

Except now the Fed has lost control of the money supply because banks are keeping way more money in reserves than they need to. At any time they can flood the market with cheap loans again.

 

[JMapleton]

And then this moron opens his mouth. You do realize that a few trillion in wealth disappeared in the last 3 years *just* from the housing market?

That's not even including the assets that have disappeared from CCs, bonds from bankrupt companies, and stocks from the same and/or declines in the market.

For every dollar the Fed pumped in, I'd guess there were 3 that disappeared.

I'm not the one missing the big picture. This wealth you're speaking of should have never existed in the first place. It wasn't real wealth. Owning a stock with a PE of 100 isn't wealth. Owning a $500k house in California in 2006 isn't owning $500k of real wealth. You're speaking of wealth that was non existent and counterfeit in the first place.

And seriously, you debate like a drunk at the bar, hurling personal insults and with a snide attitude. Grow up.

 

[heyheybooboo]

I'm not the one missing the big picture. This wealth you're speaking of should have never existed in the first place. It wasn't real wealth. Owning a stock with a PE of 100 isn't wealth. Owning a $500k house in California in 2006 isn't owning $500k of real wealth. You're speaking of wealth that was non existent and counterfeit in the first place.

And seriously, you debate like a drunk at the bar, hurling personal insults and with a snide attitude. Grow up.

Actually, you are.

What LK said was spot-on.

For every dollar the Fed pumped in, I'd guess there were 3 that disappeared.

And as others have mentioned, leverage, risk and laissez-faire oversight effectively allowed the inmates to run the asylum --- into the ground.

It frankly is your non sequiturs that miss the 'big picture' ...




--

 

[soccerballtux]

We've already had the inflation/devaluation. We just haven't felt it yet because the economy is crap. Once things pick up and the money starts circulating, look out..

No you don't need to worry about this guys, see this article--
http://www.bloomberg.com/apps/news?pid=20601087&sid=ap1qcx0RZev0&pos=2
The Fed capitalized the banks so they could meet their reserve requirements. Now that they have so many reserves on hand that they could lend out (but they're not lending them out currently because there are no credit-worthy borrowers and worthwhile investments), the Fed is going to be controlling how many of those are used to make loans by increasing the interest rate that banks get by having money on deposit at the Fed-- sure they could loan money out at 3% in the market, but why not just leave it at the Fed where it gets 2% growth with absolutely _zero_ RISK.
edit: I wrote "interest", meant to say RISK.

Assuming they control this rate effectively, there won't be any inflation.

I'm more worried about our insane deficits and crowding out taking place (look it up on wikipedia).

 

[soccerballtux]

I haven't finished reading my economics book yet so I'm not yet a world authority like you guys are. And all the crap I was stuffed full of and ate like a pig each relish, I shit.

However when my head swells up like a balloon I will surely be back with an opinion.

One little thing I do know is that Greece can't print Euros but the US can print dollars.

A second small factor I happened to hear was that the dollar is strengthening against the Euro, I guess because all the stupid people in the world don't know we are about to collapse.

Dollar is simply "less bad" than Euro. We're not to the point where we can't make our payments, but we are getting there (some would argue we're, on paper, already there-- that it just hasn't been realized yet-- see my thread on the cost of Social Security; also all our Medicare liabilities).

There's also concern about the general feasibility of the Euro long term-- there are huge trade issues with having a central currency but non-central politics-- as we're seeing with Greece, huge deficits in one country and no interest [rightfully so] from the more fiscally sound, exporting Euro countries (Germany) to pick up the broken economies and their reckless spending and unionized political scene (Greece). PIGS countries apparently also have very big fiscal issues, we're just no hearing about them yet.

 

[soccerballtux]

No you don't need to worry about this guys, see this article--
http://www.bloomberg.com/apps/news?pid=20601087&sid=ap1qcx0RZev0&pos=2
The Fed capitalized the banks so they could meet their reserve requirements. Now that they have so many reserves on hand that they could lend out (but they're not lending them out currently because there are no credit-worthy borrowers and worthwhile investments), the Fed is going to be controlling how many of those are used to make loans by increasing the interest rate that banks get by having money on deposit at the Fed-- sure they could loan money out at 3% in the market, but why not just leave it at the Fed where it gets 2% growth with absolutely _zero_ interest.

Assuming they control this rate effectively, there won't be any inflation.

I'm more worried about our insane deficits and crowding out taking place (look it up on wikipedia).

here's some good data showing that none of those reserves had made their way into loans yet--

http://globaleconomicanalysis.blogspot.com/2010/03/im-sure-glad-recession-ended.html

LK's post above (#20) also good regarding ways Fed can pull liquidity.
LK-- I wonder if they just divided the amount of extinguished capital by the money multiplier before the bust, with a velocity variable thrown in there, and QE'd that amount.

 

[soccerballtux]

I'm not the one missing the big picture. This wealth you're speaking of should have never existed in the first place. It wasn't real wealth. Owning a stock with a PE of 100 isn't wealth. Owning a $500k house in California in 2006 isn't owning $500k of real wealth. You're speaking of wealth that was non existent and counterfeit in the first place.

And seriously, you debate like a drunk at the bar, hurling personal insults and with a snide attitude. Grow up.

I agree, it wasn't real, lots has been extinguished and there is more to come as unemployment funding runs out (but people are still unemployed), state spending is forced to contract, etc.

 

[Munky]

The banks are tied in a derivatives web on the order of trillions of dollars, and you think some $700B is gonna make any difference? The banks are still not lending, and my suspicion it's not because there are no worthy investments, but because of the combination of huge leverage and toxic assets, the banks need the help just to stay afloat.

 

[QuantumPion]

Actually, you are.

What LK said was spot-on.



And as others have mentioned, leverage, risk and laissez-faire oversight effectively allowed the inmates to run the asylum --- into the ground.

It frankly is your non sequiturs that miss the 'big picture' ...




--

Ah yes, that pure laissex-faire capitalism of the government-sponsored corporations FNMA and FHLMC.

 

[soccerballtux]

The banks are tied in a derivatives web on the order of trillions of dollars, and you think some $700B is gonna make any difference? The banks are still not lending, and my suspicion it's not because there are no worthy investments, but because of the combination of huge leverage and toxic assets, the banks need the help just to stay afloat.

except the banks aren't really tied into that, because you just sell the derivative to investors....
also there is way more than just the $700B liquidity injected directly through stock purchases, there is the $1-2T from the Fed's MBS purchase program, and the $300B 10-year Treasury bond purchase program...

 

[Munky]

except the banks aren't really tied into that, because you just sell the derivative to investors....
also there is way more than just the $700B liquidity injected directly through stock purchases, there is the $1-2T from the Fed's MBS purchase program, and the $300B 10-year Treasury bond purchase program...

That's assuming there are investors willing to buy the derivatives... if a bank has a fat wad of CDO's worth just about nothing in the market (mark-to-model gone bad), good luck untangling yourself from that web.

 

[StageLeft]

It sure could. It lessens debt problem because the US currently owes nothing but little pieces of paper that until now have been pegged to things of ACTUAL worth, like people, land, machines. Since the US' debt is not denominated in, say, hours of productive citizens, or portions of its land, in theory the US could mint a new trillion dollar bill and pay its debt off in an afternoon. Its debtors are not all foreign, though, and its credit would obviously be shot, not to mention trade upset, etc. And then anybody with any money-based wealth in the US (like millions of people) would have it evaporate, too.

It's not really funny, because America will be worth next to nothing, like Greece.

Soon.

-John

No, not soon. If a billion dollars was the cost to buy a burger the US still has:

1) 300M well educated people
2) Assets including roads, power plants, office buildings, air craft carriers, Jessica Biel

 

[soccerballtux]

That's assuming there are investors willing to buy the derivatives... if a bank has a fat wad of CDO's worth just about nothing in the market (mark-to-model gone bad), good luck untangling yourself from that web.

they reduce the cost until they bite

 

[Munky]

they reduce the cost until they bite

That might work if this was just an isolated incident and the bank had sufficient equity to cover the losses... and if they didn't use the paper value of one derivative to cover the liabilities elsewhere... but from what I've seen the truth is far from it.

 

[werepossum]

Too bad the monetary tin-foil hat crowd (with their Fed chart) ignore the simple fact (which strikes directly at the heart of their alarmism) that the Fed has already begun rolling back the monetary base.

And will continue to do so as the economy improves.

I guess they prefer illiquid, insolvent financial institutions ....

--

Quite true. The Federal Reserve consists primarily of private bankers; their biggest fear is unrestrained inflation which would make their loans pay off in less real wealth than was loaned. They will reduce the supply and raise the rates as needed to keep inflation as low as is practical, at the expense of not reducing unemployment. The only way we would ever intentionally inflate ourselves out of debt would be if the economy so totally crashed that both parties agree that the government must seize control of the money supply and pay off, once and for all, our debt. The chances of that happening are vanishingly small, especially since it's a one trick pony; no further debt could be financed, and all foreign purchases would have to be pre-paid in another currency or in real goods.

 

[Perknose]

Lol @ the Greek financial crisis. They're all a bunch of drachma queens! 🙄

 

[werepossum]

Lol @ the Greek financial crisis. They're all a bunch of drachma queens! 🙄

OH! That was so bad it made my head explode. Thank you, my sinuses are much more clear now.

 

[JS80]

Quite true. The Federal Reserve consists primarily of private bankers; their biggest fear is unrestrained inflation which would make their loans pay off in less real wealth than was loaned. They will reduce the supply and raise the rates as needed to keep inflation as low as is practical, at the expense of not reducing unemployment. The only way we would ever intentionally inflate ourselves out of debt would be if the economy so totally crashed that both parties agree that the government must seize control of the money supply and pay off, once and for all, our debt. The chances of that happening are vanishingly small, especially since it's a one trick pony; no further debt could be financed, and all foreign purchases would have to be pre-paid in another currency or in real goods.

You say it like is if it's a bad thing. Whether you do or not, it's inevitable.

 

[Special K]

And then this moron opens his mouth. You do realize that a few trillion in wealth disappeared in the last 3 years *just* from the housing market?

That's not even including the assets that have disappeared from CCs, bonds from bankrupt companies, and stocks from the same and/or declines in the market.

For every dollar the Fed pumped in, I'd guess there were 3 that disappeared.

I'm trying to better understand your post and have some questions:

If ~3 dollars disappeared for every 1 that the Fed injected, then why is this not reflected in the graph posted by totalnoob? There is a huge spike in 2008-2009. Shouldn't there actually be a net decline if what you say is true?

I assume the graph totalnoob posted is measuring one of the monetary supplies (M0, M1, etc.) When you say 3 dollars disappeared, are you speaking only in terms of valuations as opposed to actual cash? If so, is it fair to make that comparison? A large group of people could all think their asset is worth $X, but if they all tried to sell at once, wouldn't the price plummet? Let's say 10 people in a neighborhood all thought their houses were worth $1 million each at the peak of the housing bubble. Now let's say they could only actually sell them for $500k. Was money destroyed in this instance? The fact that people are no longer willing to pay $1 million for those houses doesn't actually change the amount of money in circulation.

I don't work in finance, but I'd really like to understand what's going on here.

 

[JohnOfSheffield]

It's not really funny, because America will be worth next to nothing, like Greece.

Soon.

-John

You'd think that people would get it when no outsiders wants to invest inside the US anymore but the arrogance is so overwhelming that it just passes them by.

Besides, USA property of China.

 

[sMiLeYz]

Nice to see someone with actual facts in this thread.

The US Dollar is done for over the next 5 to 10 years. Anyone who says differently is ignoring absolute facts. You cannot print this much money and nothing happens.

Currency is not wealth, it's a piece of paper. We're brainwashed into believing "money" has real value.

Except, every trading partner of the U.S in the world has a vested interest in ensuring U.S. dollar stays up. Countries we import from do not have sufficient domestic consumption as the U.S. so it is in their interest to pursue policies that counter balance weakness in USD, to ensure their export economy doesn't collapse.

China is actively pursuing a policy of Mercantilism basically artificially devaluing their own currency through a series of capital controls.

 

[glenn1]

You'd think that people would get it when no outsiders wants to invest inside the US anymore but the arrogance is so overwhelming that it just passes them by.

Besides, USA property of China.

Considering the UK external debt is 4 times that of the United States, 365% of GDP in fact, you might want to reconsider who's arrogant (not to mention oblivious).

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

 

[JohnOfSheffield]

Considering the UK external debt is 4 times that of the United States, 365% of GDP in fact, you might want to reconsider who's arrogant (not to mention oblivious).

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

I assume that is why investments in Britain are rising but in the US they are falling?

Just shut the fuck up before you make a bigger fool out of yourself.

I won't even mention your idiotic claim regarding debt per GDP again to spare you from further ridicule.