Official US Debt Clock/Dollar Collapse Thread

[JS80]

No, although I'm assuming that investment income will (since wealth can be invested in other, more stable countries if necessary.) My core assumption though is that wealthy people largely run this (and every other successful) country, that wealthy people have money on account in dollars which would be largely wiped out if the dollar is hyper-inflated, and that wealthy people will avoid that which will make them poor people no matter how much better that might seem to thsoe already poor people. Wages never keep up with hyperinflation. Nor do government checks. But the wealthy don't depend on wages, they depend on capital gains (and sometimes wages disguised as capital gains.)

You said "Hyperinflation most benefits those with relatively large debt and most harms those with great wealth accumulation in currency or on account."

My reply was addressing the fact that most people with "large debt" are homeowners with a fixed rate mortgage. In most of these cases net debt is high and cash holdings are low. So while in theory hyperinflation will benefit them, in real life scenario their wages don't keep up with the inflation and they are ultimately worse off.

Wealthy people cannot control government spending and the actions of the federal reserve. Their way of avoiding them going to the poorhouse is staying out of cash, which is what most wealthy people do anyway. They won't be the ones affected. It's the middle and upper middle class that will get hosed.

 

[Dissipate]

Why do you use a socialist flag Dissipate? Are you not a uber capitalist? Quite ironic.

The black flag may be associated with socialists, but its true meaning is 'free from coercion', which to me contradicts socialism. I prefer capitalism, but I am a pluralist, meaning I am fine with any type of economic arrangement that is voluntarily chosen (i.e. I have no problem with primitive voluntary gift economies).

 

[Dissipate]

http://market-ticker.denninger.net/uploads/Z1-2009-12/total-debt-2009-12.png

That's an awesome graph. I'm going to put that in my OP. It really shows the shocking rate of growth in debt that the U.S. has gone through in just the past 10 years.

 

[dullard]

The premise that the current path is unsustainable is correct. SS / medicare / medicaid / defense spending will eat us alive if we don't do something. The gloom and doom part though, is just one of many possible outcomes.

Politicians COULD theoretically run us into the ground (many other countries have gone down that path throughout history). But, politicians could also make some fairly minor changes to fix the country (raise taxes a bit, raise retirement a bit, lower spending a bit, etc). None of these changes will be easy politically, but they are not complex or impossible problems either.

As for the debt clock, several areas stick out to me. $244,820 assets per person and $177,354 debt per person. Assets are 38% greater than debt. Theoretically we could sell some of our assets, pay off our debts entirely, and still have assets left. That isn't doom yet. Same with Federal Debt to GDP ratio, it is only 87%. With one dedicated year, we could pay off all federal debt and still have money left over. That isn't gloom, yet. If debt gets to be tripple assets or the Debt to GDP ratio goes above 300%, then we are in major trouble. Until then, things aren't that bad.

For example, it isn't a bad idea for a family making $60k/year to have $180k in mortgage/auto/school debt. That is a 3x debt to income ratio. It is quite feasible to live like that. Same goes with a country.

We need to fix our underfunded long-term liabilities. That is a long-term must. But, short-term, we aren't doing that bad.

$1 still buys as many Euros now as it did when Obama was inaugurated. The Jan 2010 Federal deficit of $42.6B was one-third less than the Jan 2009 Federal deficit of $63.5B. The CPI only went up 2.63% in the last year (less than the historical 3.24% average). The unemployment rate has dropped since Oct 2009. GDP is growing at a 5.9% rate. These short-term data points are good or at least better than they had been. I certainly don't see the debt exploding or the dollar collapsing in the near future.

Our biggest problem is the growing percent of people who are not of retirement age. The percent of work-capable Americans (aged 15-65) peaked in 2007. We are forecasted to never reach that point again. We will someday collapse under the weight of retired people that we must support. And the typical "fix" is to have more babies which will collapse us from having too many unworking kids to support (not to mention the other ecology-related issues with having that many more people). The only true fix is to change the working ages to keep up.

 

[Zebo]

Those simple changes are not enough. Not only have we lended and pretended but we have set up our middle and lower class workforce to compete against every third world nation and those loans can not be repaid under such a circumstance. Everything's value is dependent on servicing those loans. Municipal Bonds, Corporate Bonds, Mortgage Securities, Securitized Credit Card portfolios, Securitized Auto Loans, Stock Market Values, and trillions and trillions worth of derivatives based on that debt and servicing thereof. As we default their value goes to shit and retirement accounts with them.

Protectionism, can stem the tide of fleeing jobs and wealth. A total trade war we can not lose against any nation or combination on Earth. It's silly to compete with slave nations and caste systems unless we want to become like them.

 

[werepossum]

You said "Hyperinflation most benefits those with relatively large debt and most harms those with great wealth accumulation in currency or on account."

My reply was addressing the fact that most people with "large debt" are homeowners with a fixed rate mortgage. In most of these cases net debt is high and cash holdings are low. So while in theory hyperinflation will benefit them, in real life scenario their wages don't keep up with the inflation and they are ultimately worse off.

Wealthy people cannot control government spending and the actions of the federal reserve. Their way of avoiding them going to the poorhouse is staying out of cash, which is what most wealthy people do anyway. They won't be the ones affected. It's the middle and upper middle class that will get hosed.

Maybe true, on your first point. Certainly most people with mortgages would feel quite squeezed under hyperinflation even if their mortgages became smaller parts of their overall budgets. However I think you underestimate the influence of the wealthy on government. The Federal Reserve is composed of bankers of the first water - a wealthy group by definition. Congress itself has a higher percentage of millionaires than any private business. And the wealthy run most organizations powerful or wealthy enough to influence lawmakers. By itself this is on balance a good thing; I'd much rather government be run by those who have proven successful than otherwise (although arguably the House could be replaced with Representatives selected by lottery.) But this very nature tends to prevent hyperinflation. To see hyperinflation as a viable option, either a majority of lawmakers would have to see themselves and their constituents going broke otherwise, or they and at least their most important supporters would have to be invested in something resistant to hyperinflation. Personally I don't think that is likely, but even if it happened, the Fed would still be a barrier.

 

[Darwin333]

Hyperinflation most benefits those with relatively large debt and most harms those with great wealth accumulation in currency or on account.

Um, whom would you say runs our government and the Federal Reserve?

Bankers thats who.

Thats why I am not so sure about the hyperinflation thing. If it happens you can rest assured they did everything possible (at least politically feasible) to try and stop it. The banksters have the most to lose from hyperinflation.

Why do you think they are trying so hard to keep housing prices artificially inflated? It doesn't help the avg. joe who is making an avg. paycheck and can't afford an avg. house without some fancy bullshit loan thats for sure.

 

[Dissipate]

Those simple changes are not enough. Not only have we lended and pretended but we have set up our middle and lower class workforce to compete against every third world nation and those loans can not be repaid under such a circumstance. Everything's value is dependent on servicing those loans. Municipal Bonds, Corporate Bonds, Mortgage Securities, Securitized Credit Card portfolios, Securitized Auto Loans, Stock Market Values, and trillions and trillions worth of derivatives based on that debt and servicing thereof. As we default their value goes to shit and retirement accounts with them.

Protectionism, can stem the tide of fleeing jobs and wealth. A total trade war we can not lose against any nation or combination on Earth. It's silly to compete with slave nations and caste systems unless we want to become like them.

What makes you think protectionism will stem the tide of fleeing jobs and wealth? And is protectionism really possible in a digital age?

I am a software engineer, but I don't think for a second there aren't better software engineers in India who will work for a lot less. But I don't see why this stops at software engineering. What about lawyers, financial analysts, insurance services, electrical engineers and biologists (just to name a few). I don't see why someone in India couldn't study U.S. law and replace some 'hot shot' lawyer charging $500 an hour, save for actual court appearances.

There are too many licensed white collar professions with fancy titles that don't produce much real value. In the end that is what the US is going to have to do, stop with the fake paper pushing crap that produces wealth on paper and actually produce something that others in 3rd world countries cannot.

 

[Craig234]

The black flag may be associated with socialists, but its true meaning is 'free from coercion', which to me contradicts socialism. I prefer capitalism, but I am a pluralist, meaning I am fine with any type of economic arrangement that is voluntarily chosen (i.e. I have no problem with primitive voluntary gift economies).

IMO, that's your lack of understanding of it.

If one person owns every resource and corporation and building and home in a community, and everyone receives the pay he pays, and does the work he offers, and rents their home and buys their food from him, under the 'private' system where that could happen - their choice being do as he says or starve because of his property rights - is that freedom? Is Sweden - a state with some socialism - not free insofar as their socialism? Are the people repressed, harmed? Or is democratic socialism better for them than private tyranny from inequality and systemic poverty?

The resources controlled by democracy is more tyrannical than by private authoritarianism?

Maybe it seems that way to the owner - the king is sure he's good for the people - but that's not much protection for others.

 

[Anarchist420]

I really would rather have higher taxes and hyper-deflation than lower taxes and hyperinflation. The Fed works in its own best interests, not in the best interests of the people. The fact that the dollar devalues each year is ridiculous; there is no legitimate reason why we shouldn't have non-governmental money. It's not a natural/core function of a government to control its citizens' money supply.

 

[Craig234]

I really would rather have higher taxes and hyper-deflation than lower taxes and hyperinflation. The Fed works in its own best interests, not in the best interests of the people. The fact that the dollar devalues each year is ridiculous; there is no legitimate reason why we shouldn't have non-governmental money. It's not a natural/core function of a government to control its citizens' money supply.

I see a lot of benefits to it. You already have barter as an alternative. The last thing we need IMO is competing currencies none as strong as one central currency. That isn't to say it can't be improved.

 

[werepossum]

I really would rather have higher taxes and hyper-deflation than lower taxes and hyperinflation. The Fed works in its own best interests, not in the best interests of the people. The fact that the dollar devalues each year is ridiculous; there is no legitimate reason why we shouldn't have non-governmental money. It's not a natural/core function of a government to control its citizens' money supply.

I'm a fairly anti-big government guy but I can't think of any private entity whose money I would trust. I can't help but think of the coal mines, where you got paid in scrip and the company got back everything one way or another because it had no competitors in the market place. I also can't think of any major civilization without government money. Arguably letters of credit, but those were still reckoned in terms of government-issued specie and are functionally equivalent to our modern banking system. In fact they evolved into our banking system.

 

[Anarchist420]

I see a lot of benefits to it. You already have barter as an alternative. The last thing we need IMO is competing currencies none as strong as one central currency. That isn't to say it can't be improved.

A non-governmental gold/silver standard would be good. People would just use platinum, gold, and silver as those are the three most precious metals.

If you give a government control over a currency, even with a gold standard, it can still be inflated. That's how the panic of 1907 happened.

I'm a fairly anti-big government guy but I can't think of any private entity whose money I would trust. I can't help but think of the coal mines, where you got paid in scrip and the company got back everything one way or another because it had no competitors in the market place. I also can't think of any major civilization without government money. Arguably letters of credit, but those were still reckoned in terms of government-issued specie and are functionally equivalent to our modern banking system. In fact they evolved into our banking system.

The problem with government currencies is that they can be inflated without unanimous consent of the governed.

 

[werepossum]

A non-governmental gold/silver standard would be good. People would just use platinum, gold, and silver as those are the three most precious metals.

If you give a government control over a currency, even with a gold standard, it can still be inflated. That's how the panic of 1907 happened.


The problem with government currencies is that they can be inflated without unanimous consent of the governed.

True, and I generally support hard currency requirements in principle, although such a system would be hard to implement in a society such as ours. One can argue though that the Fed does a better job of maintaining a stable dollar than would a hard gold standard, given that those commodities also fluctuate. Any private (corporate?) currency would be subject to those fluctuations as well as the existing lobbying pressures.

Also, gold and silver currency was often inflated in medieval and ancient times. One of the oldest tricks in the book was to recall currency and re-mint with higher base content, allowing the government to issue more coin with the same amount of precious metal.

 

[woolfe9999]

I see a lot of benefits to it. You already have barter as an alternative. The last thing we need IMO is competing currencies none as strong as one central currency. That isn't to say it can't be improved.

IIRC we had differing state currencies under the Articles of Confederation and it was a disaster.

- wolf

 

[werepossum]

IIRC we had differing state currencies under the Articles of Confederation and it was a disaster.

- wolf

True. Non-government currencies would be at least as bad.

 

[JS80]

Maybe true, on your first point. Certainly most people with mortgages would feel quite squeezed under hyperinflation even if their mortgages became smaller parts of their overall budgets. However I think you underestimate the influence of the wealthy on government. The Federal Reserve is composed of bankers of the first water - a wealthy group by definition. Congress itself has a higher percentage of millionaires than any private business. And the wealthy run most organizations powerful or wealthy enough to influence lawmakers. By itself this is on balance a good thing; I'd much rather government be run by those who have proven successful than otherwise (although arguably the House could be replaced with Representatives selected by lottery.) But this very nature tends to prevent hyperinflation. To see hyperinflation as a viable option, either a majority of lawmakers would have to see themselves and their constituents going broke otherwise, or they and at least their most important supporters would have to be invested in something resistant to hyperinflation. Personally I don't think that is likely, but even if it happened, the Fed would still be a barrier.

To reiterate what I said before, most of the assets of the "wealthy" are in non-currency assets.

 

[LegendKiller]

http://market-ticker.denninger.net/uploads/Z1-2009-12/total-debt-2009-12.png

Crap data, there is multiple counting in there.

 

[Anarchist420]

True, and I generally support hard currency requirements in principle, although such a system would be hard to implement in a society such as ours. One can argue though that the Fed does a better job of maintaining a stable dollar than would a hard gold standard, given that those commodities also fluctuate. Any private (corporate?) currency would be subject to those fluctuations as well as the existing lobbying pressures.

Also, gold and silver currency was often inflated in medieval and ancient times. One of the oldest tricks in the book was to recall currency and re-mint with higher base content, allowing the government to issue more coin with the same amount of precious metal.

I'm talking about weights of precious metal, where weight of the precious metal would be the absolute value rather than a currency value. For example, the price of item X would be 8 oz. of gold, or 128 oz. of silver or whatever. Another example: if someone's income was 16 pound of gold, and there was a flat income tax of 10%, then they'd pay 1.6 pounds of gold in taxes. It would be impossible for the government to devalue.

 

[LegendKiller]

I'm talking about weights of precious metal, where weight of the precious metal would be the absolute value rather than a currency value. For example, the price of item X would be 8 oz. of gold, or 128 oz. of silver or whatever. Another example: if someone's income was 16 pound of gold, and there was a flat income tax of 10%, then they'd pay 1.6 pounds of gold in taxes. It would be impossible for the government to devalue.

What happens when you run out of gold? Does silver then become a store? What happens you run out of that?

What happens when you run out of every precious metal as a store of value?

How do you ensure transaction consistency across all assets all of the time?

How do you prevent the transaction medium from becoming a disaggregated market, creating arbitrage opportunities for the wealthy and informed?

 

[Anarchist420]

I don't exactly get what you're trying to ask.

 

[jman19]

I don't exactly get what you're trying to ask.

Not sure you're equipped for this discussion in that case.

 

[LegendKiller]

I don't exactly get what you're trying to ask.

Sorry, but you probably should stop opining on currency discussions on the internet.

 

[Dissipate]

What happens when you run out of gold? Does silver then become a store? What happens you run out of that?

Define 'run out of'. The majority of gold that has ever been mined is still in existence in tangible form.

What happens when you run out of every precious metal as a store of value?

See above. Precious metals tend to not be used up but rather re-melted down and reused again over and over.

How do you ensure transaction consistency across all assets all of the time?

A likely scenario would be competing gold warehouses that issued receipts that could be encrypted and digitally transmitted through the Internet. From that, third party exchangers would emerge, and thus an entire currency ecosystem.

How do you prevent the transaction medium from becoming a disaggregated market, creating arbitrage opportunities for the wealthy and informed?

You don't. Arbitrage is an important mechanism to maintain a regular market. As it became more disaggregated it would create opportunities for people to push it back towards aggregation again. If gold (or anything else) became the common medium of exchange the opportunities for arbitrage would be tiny and fleeting.

 

[werepossum]

To reiterate what I said before, most of the assets of the "wealthy" are in non-currency assets.

Probably true, but non-currency assets do not necessarily equal immunity to hyperinflation. At the least the wealthy would face loss of their liquidity; at worst the whole house of cards would come down. Most of what the wealthy use as wealth holders, like the rest of us, has value only because we all agree it does. Look at the Great Depression; millionaires became paupers overnight. In many (perhaps most?) cases the wealth eventually came back, but if you can't meet your obligations of the moment then bankruptcy follows. I remain unconvinced that any of the movers and shakers in our government and its major influences would willingly adopt hyperinflation to eliminate our debt.