Discussion in 'Political Discussion' started by maverick4, Nov 11, 2009.
Peak Watch: The Future of the Dollar
Great article! Thanks for posting this.
I touted gold years ago when I joined this board and others like it, and was laughed at for suggesting gold would soar past $1,000. It is rising rapidly, but the only reason gold hasn't skyrocketed to $1,500-plus is suppression by the Fed.
The manipulation of interest rates, and their artificially low figure for the last10+ years, has been a sizable chunk of the problem. Too much cheap money, for far too long.
If gold ever hits close to $1500, watch out. I've read that multiple analysts say that is about the tipping point where it signals the world is saying bye for good to the dollar.
"They" had to do something to water down the pensions and 401ks and other retirement vehicles for the baby boomers before they began to collect on them.
It's almost too perfectly planned, take a generation of "Anti-Establishment" youths, the largest ever in the country, and then turn them into the most lock and step work force ever, grow the economy into the largest ever, then pull their retirement out from under them right before they begin to collect on the establishments promises of a good life if you just dedicate your life to the machine...
Perfectly well played establishment... well played indeed.
Not sure how it can be called well played, when once people realize what happened there will be a revolution.
The bottom line is that out of control gubmit is to blame for the problems we see today. Whether it's a gubmit that has artificially manipulated rates that's helped to create the credit based, bubble economy, or one that can't manage money efficiently enough, that it disintigrates the value of the currency.
it goes a lot deeper than toying with interest rates and partisan blame gaming...
Those are all functions of the root cause. When will people acknowledge the geology, and the myth that is "infinite growth?"
People buy gold when inflation is impending as a means to hedge their investments. I don't know if the dollar is going to crack, but I can safely say inflation is on the way!
Look at that. We agree on something.
Just not the root cause.
We both agree on inflation. Of course we do. The root cause, we might agree on that as well because I never mentioned what I belived it was. Now people buying gold that's not the cause, we both know that. Often the answer is a very simple one. So for inflation the writing is on the wall, spend spend spend. But the drop in the dollar doesn't signify anything more signifigant to me than people finding a good or better short term place to put their money. Now when its' value drops and we see an extraordinary amount of volume associated with it. That's another story. Seems like the dollar down coinciding with gold up tells me people are looking for a safe haven. I am sure they will be looking to put it back into something dollar backed when the time is right.
Without devolving into generational politics... at least before the collapse last fall (and well before the health care "debate" of this summer through today,) I posted on the looming generational conflict implied by our "owesies". It's worth remembering of course that the baby boomers ARE the establishment. The people they rebelled against are starting to die off, just as they are hitting retirement. And depending on their children is going badly, primarily because they didn't have any. The pyramid scheme underlying such programs relies on at least comparable generational cadres, and the "baby bust"/gen x is half the size of the boom. Of course it is extremely helpful that we are able to collect contributions from the new influx of immigrants.
Inflation decrease the present value of future benefits, which is on the liability side of our national ledger. In other words, right now, we owe "less" when interest rates are high. This has two implications:
1) we like to talk about terrible future debt, and of course it is terrible. But it is less terrible when interest rates are higher. When we keep them between 0 and 1/4%, obviously, the present value of future benefits becomes very very high, because zero interest assumes zero growth of the money we presently have that we would like to use to pay those obligations.
2) Inflation has the opposite effect. High inflation, as you say, cures your ills as they relate to the drag on the ledger, for those obligations not indexed to inflation. Of course, high inflation also means that the drag is not at all affected for indexed obligations.
There's one other effect, which has nothing to do with generational cadres: a big chunk of debt is not owed to your grandboomer upon his retirement. It is owed to someone in Asia.
The rest of the world has warned the U.S. not to attempt to monetize its debt; I take it that means you can't devalue by other means, i.e., by allowing high inflation. It's the equivalent of defaulting on debt because you don't feel like paying it, in the creditor's eyes, to simply devalue your currency and pay your debt in monopoly money.
So it's a dangerous game. If you end up with Zimbabwean dollars, as we all know, all meaningful talk of an economy ceases. Most people don't think we're looking at that scale of inflation. If you end up with 5 years at between 5 and 10 percent, an awful lot of your ills get cured. It's not fun, we all know that. Nobody wants $10 gas, and nobody wants dinner out at TGI Friday's to cost $100 for a couple. Wages lag in such resets, and of course, the less you make the more immediate pain you feel.
But the real key is that the more debt you have the more you make out in such a scenario, and the more you own the more it is eroded. There are those who feel that capitalism would necessarily collapse under the weight of wealth concentration in the hands of the few, without inflation as the only counterweight to the gap between the rich and the poor. The pursuit of such a state of affairs led to the collapse state last year, although its immediate manifestation had to do with how the banks played with notional valuations of that wealth and attempts to insure gains on that wealth, more than the fact that the wealth had been concentrated (of course it had been, somewhat, and was on the way to being further concentrated [as it is again now, and as the cure to the problem also concentrated that wealth yet another way.])
There's no real way to avoid the conclusion that we need inflation. Debtors like inflation. Savers hate it. Which are we?
The grasshopper can't just skip one dance and suddenly be the ant. Beyond that we're all told constantly if we don't spend like lunatics again nobody will have a job -- and um they're right.
I hope I'm not cutting out too many steps here, it's work time soon though. Long story short, what we'll need to do in this country is reestablish the link between employment and indispensible labor. All the consumer-based consumption beyond what we really need is expendable, as we've shown in the recent past. Infrastructure work, work to build our energy future, work that actually benefits us all in ways that we know damn well we will need is another story. Innovation is necessary work. Innovating yet another flavor of cereal is not. Above all, to have an economy you have to make things, and a new derivative formula with no intrinsic value other than that of legitimized fraud is not "making" something.
I am not advocating a command economy. I am starting to see, though (I think) a shift in thinking among consumers toward buying what is needed, and that will have to do with what you can launch as a venture.
Beyond that we've "starved the beast" of public sector society-wide investment since the 1970s, and the infrastructure is clearly cracking. Transportation, energy, education, health care, all of it.
But again that's for another post and another time.
I was specifically referencing the purchasing power of the dollars that have been locked up for 40 years in 401k's and Pension plans. Their purchasing power has been eroded by leaps and bounds ( no hard data other to back this ).
That is what I was referencing as the great scam... They put their entire life towards a lie, which was to retire and enjoy the last 20 years of their life in comfort, the reality is, now they most baby boomers are approaching this age, most will not be able to retire.
Indeed there "may" be dollar collapse pending in our future. But if that's so, there are many other industrialized nations' currency that may collapse before ours does.
And it all has to do with the size of each nations' DEFICIT. Everywhere you look, countries are attempting to spend their way out of recession. Deficits are inversely related to the value of currency. Especially when the size of the deficit approaches the size of a country's GDP.
The yen is far worse off than our currency AND most European currencies are in just about as bad a shape as ours when measured by their deficit. So what does all this mean? It means it will be easier for the US dollar to survive if several other currencies are also being devalued.
This article was pretty enlightening as to how widespread the "Spend our way out" effort really is worldwide.
Budget Deficits Soar Out of Control in Eurozone, Germany, US, UK, Japan; Yen's Last Hurrah
"How much debt can an industrialized country carry before the nationâ€™s economy and its currency bow, then break?
The question looms large in the United States, as a surging budget deficit pushes government debt to nearly 98 percent of the gross domestic product. But it looms even larger in Japan.
Here, years of stimulus spending on expensive dams and roads have inflated the countryâ€™s gross public debt to twice the size of its $5 trillion economy â€” by far the highest debt-to-G.D.P. ratio in recent memory."
Mish's Global Economic Trend Analysis: Budget Deficits Soar Out of Control in Eurozone, Germany, US, UK, Japan; Yen's Last Hurrah
Well, yes, and there are hard data on things like what people lost who left money on the table (i.e., in equities) in 401(K)s and the like... and others who borrowed against a home they were double-counting as a portion of a nest egg. You can quantify that.
Inflation's been low since the 80s I believe, and stock market gains have been high. It all got pulled out at one time, and those who believed "trees only grow up" were stuck with the realization that whatever platitudes we say about markets bouncing back in 10 or 20 years are not that useful when you want to retire in 2.
Here's a solution: Why don't we pool retirement money among a VARIETY of ages of people, and dole it out as each reaches retirement? Oh that's right, that's what traditional defined-benefit pensions do. Or use to do, before Corporate America realized the 401(K) could rid them of pension baggage.... but the 401(K) or any individual scheme for that matter has the fatal flaw of being tied more or less to a date certain, vis., exactly when that individual gets old. Get old at the wrong time, badda bing badda boom, your buddy the shiftless idiot who retired two years before you and took the money off the table (i.e. rebalanced at the right time) is on the beach with a stupid drink with an umbrella, and you're in a cubicle trying to make sure you stay sharper than the young pups just yipping at your heels.
And ain't it a bite in the bag. The plan was for onnnnne more generation to say "I worked hard all my life, I deserve a good retirement"... and then for it all to go to hell when the boomers die off and generation x hits retirement (after carrying a higher-than-ever retirement burden for their parents). Now a lot of them are getting a little taste of what they've condemned their own children to.
But God forbid we "redistribute" any wealth, other than from children to parents. The notion that we could prepare for the generational tsunami is just so... well, expensive. Especially if that age cohort were actually still working when we decided to take on that sort of fiscal responsibility.
Just ranting I guess. We all know damn well Social Security and Medicare will be cut. We all know damn well we'll be paying higher taxes at the same time, for less. Has nothing to do with Party A or Party B. It has to do with simple math that everybody in both parties has ignored for a long time.
Raise the retirement age (already happening for many, but not on the government ledger) cut/means-test benefits (coming soon to a theater near you,) and/or raise taxes. No real winners among the options, campaign-wise.
This is another reason I am sickened when I see people saying they hate socialist government health insurance because it may deprive them of some of their socialist government health insurance (Medicare.) Yeah, you know me; I want to see both the young and the old treated with some dignity. That puts me somewhere between Pol Pot and Stalin on this board, because it means I can actually support the idea of taxation to take care of our fellow man... and at the same time, when we talk out of one side of our mouths about scarce resources, I really don't want to hear about the "tyranny" of higher marginal tax rates on people making a quarter million a year, yanno?
Anyway I don't know what you think about the last part of the post, but you're right on about the big lie -- temporarily. Markets will perk up and we'll forget all about it (pardon me for departing from the doom and gloom thread topic.) Then everybody will say that 08 was a temporary aberration, and idiots are already saying that the collapse of private equity was due to too much government involvement -- even as the government had just spent 3 decades declaring its own stupidity and the wisdom of the markets. The complaint of the champion of capitalists last November was that government regulators weren't regulating enough. These sorts of incoherent flip-flops have to tell you something.
I don't buy that we're done, by the way. I can so easily see a US engine of clean energy emerging, actually, if we get our sh1t together -- just one example.
But you know me, old polyanna middle-of-the-road nothing-to-see-here bourgeois liberal.
There is plenty of historical data to show that the temporary up swing we are in right now is expected right before another big drop. It seems the first recovery after a crash is never the true recovery, so I am not quite ready to jump in.
As far as the timing of this crash, I do feel it's coordinated, and planned perfectly timed to remove the huge amount of value tied up in retirement vehicles about be unleashed on the market.
Without a "Crash" we would have been looking at rampant inflation as 400 trillion ( made up number ) worth of retirement money comes into the market to purchase consumer goods...
I feel it's all a coordinate show put up by the elite of the eilte, it's their world, were just living in it.
This is an extremely interesting thought.
Is there any other info or a link so I can learn more?
Very nice post PFiVA. Yes, we've finally hit "The age of reality" 'ol boy. There are many facts we're facing that we've purposefully & collectively closed our eyes to...and the view aint a pretty one.
Many "why me?" questions race through my head. Yes, I'll admit that at my age, I don't wanna give any mo' (to the tax machine). When you get right down to it, the people we have put into office SHOULD have brought these issues up long, long ago. We SHOULD have put people in jail for dipping into OUR social security fund...but nope...we let them slide. And worse, we let them continue to pillage from it.
That act alone is what has destroyed what could have been one of the best gov't institutions this country has ever initiated. Simple math should have made all Americans aware that we needed to stop them...but I guess we were all too busy spending and making money. :confused2:
It's my own personal theory. I personally felt that hiding all the money in 40 year long retirement vehicles artificially reduces the money supply, which then allows the Fed to create more without the feeling of new money int he circulation, becuase so much money gets locked away in retirement, pensions, etc...
Now that there are 100 million people ready to retire and beging to withdraw that money, we would be faced with every 65 year old having access to hundreds of thousands, maybe millions of dollars, which would send prices through the roof. So what better way to erode the savings and ensure the populace continues to work for the system then to coordinate a crash to devalue the value of the savings of 1/3 of the population right as they want, or need it.
The American Economy is a myth. It's all a show, set on a world stage, for the entertainment of a select few. The rest of us are just actors playing our part.
You're the first one I've ever heard this from, and it certainly is a very astute and possible reality. I first started suspecting the Fed was hiding how much it was inflating/printing, when it stopped publishing its M3 data publicly around 2004.
McGraw, I'm way closer to PReign on this one. It looks much simpler, really. You're pumping a lot of money into equities on the part of the retirement savers via 401(k) defined contribution plans. If I'm a shareholder I like that. A ready source of investment dollars. But bear in mind that even if the presence of the 401(k) accounts were due to a desire to deflate consumer spending in favor of investment -- which is in fact what this scheme of things does -- it hardly dented the profligate consumer spending for which Americans are legendary.
So my understanding of your theory here is that the whole goal of low interest and 401 (k) investment was always linked to keeping consumer spending low. The problem with the theory is that over the course of time these things pertained, American consumer spending has been very high.
The second part of the theory, if I get this, is everybody would bank their money for a retirement that's overvalued by, say, 50% at present. In other words, measuring from the DOW's peak at 14,X00, we can look at today's roughly 10,000 DOW and say "aha! They just took it!"
But this is only true if you had all your money in equities and moved all your money into bonds or cash right when the valuations collapsed.
I don't think it was anybody's goal to "artificially deflate" American consumer spending, and if it was, they're not very good at it.
I do think that plowing money into the equity side of the retirement landscape makes less and less sense the closer you are to retirement, and the less "work" your money must do to remain valuable for the remainder of your life (however long that may be.)
I do think the corporate machinery of America is very happy that individual investors believe they should be swimming in investment capital.
But at heart I think PR's right. Our problem is essentially that we've been bleating mantras about the wisdom and benignity of markets, about the inherent undesireability of regulation, and about the tyrrany of paying our taxes for far too long.
A lot of the time on here (for example,) we talk about Europeans and describe "European style socialism" because the Europeans pay enough taxes to afford the services and lifestyle an advanced nation can truly afford. In the U.S. we don't. We just hide our heads in the sand for generations on any given issue. Then when it all comes home to roost and our jetski is now broken and our dot-com job as "minister of fun" has vanished, and our savings take a nose-dive, and our "plan" we announced to our family to retire at 40 is gone... and in fact, the dream of retirement at 65 seems unlikely... THAT'S when we SORT of catch on.
But our thoughts aren't society-wide. We're cantonized. "Oh no they'll kill the old!" "Oh no, my tax money will go to brown and black people!" "Oh no what if pregnant sluts have abortions with my taxes!!!!"
We'll focus on anything but the issue. And meanwhile, it's usually not even the tax money of anybody on this board we're talking about. It's the actual rich of society we're usually talking about being taxed.
See me, personally, I believe the "upper middles" should be taxed as well to broaden that taxation base on key society-wide initiatives. But again, people here think I'm Pol Pot because I don't burst out laughing like a pimply pre-teen hearing "boobies" when I hear "tax increase," nor do I go running into a corner to hide surrounded by assault weapons. Rather I note that we have the lowest tax rates in the industrial world, the biggest disparity in wealth, and some of the sorriest social services, and I say "Good. This is what we need to do."
But the national mythos is still muddled firmly in fairy-tale territory.
You'll still never win an election saying we need to pay the amount of taxes that achieves national goals; but still, in terms of the generational cadre we're talking about, we have an issue in terms of medicare and social security. To wit, the generational tsunami that is the baby boomers, combined with the level of support we promise for them in their old age, all imply that we should shore up those systems now and should have shored them up in the last couple decades. This did not happen and will not happen. What will happen is that they will march like a blue-haired army for the preservation of "every penny" of what they were promised.
They will phrase this as "every penny they paid in," which in fact will be an enormous distortion, since "what they paid in" will be gone in short order. Those still working -- generations X and Y, and then Z, will pay higher payroll taxes to Soc. Security, and likely will not see even close to the same benefits as their elders.
We all know this. We are seeing the front end of this Boomer siphoning in the attitudes of medicare-drawing older people, as regards health care. I got mine, go get yours.
So yeah, interesting times.
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