Modern Monetary Theory

Discussion in 'Markets & Economies' started by mmm....shiney!, Sep 14, 2019.

  1. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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  2. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    This chart was posted by another member.

    Australia's M1 (not the motorway).

    Screen Shot 2019-11-19 at 3.57.54 pm.png

    That money has to have gone somewhere. I've emailed them and will get back when I get an explanation. If it's gone to the banks then it will be lent out, and I'm pretty sure that the RBA is making a connection between housing construction and unemployment:

    https://www.rba.gov.au/speeches/2019/sp-dg-2019-10-17.html
     
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  3. Lovey80

    Lovey80 Well-Known Member

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    Just the collapse of the petro-dollar would have very significant negative impacts on the stability of the USD. Ask Ghaddaffi.
     
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  4. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    The USA can replace it's reliance on Arab oil with shale and sand oils. The US will not face an oil crisis.
     
  5. Lovey80

    Lovey80 Well-Known Member

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    Irrelevant. The US needs the world to continue to trade oil and a bunch of other commodities in USD or the trillions out there in circulation will come flooding back to the states.
     
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  6. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    How?
     
  7. alor

    alor Well-Known Member Silver Stacker

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    not sure those illegal money would want to go back and get confiscated
    when the world start rejecting USD, then there is not much place left to circulate
     
  8. leo25

    leo25 Well-Known Member Silver Stacker

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    This is true. Though if the USD did lose global status there is nothing stopping America from defaulting on their bonds and foreign reserves. That will only take a click of a button.
     
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  9. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    If USD were to return to the US then it would be via purchases of US goods, property or companies. Wouldn't this have the same effect as QE ie an increase in money supply in the States? This would drive down the value of the the dollar, but raise GDP and possibly stimulate the economy (and like QE lead to bubbles) for a time. I doubt such an outcome would crash the value of the USD.
     
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  10. alor

    alor Well-Known Member Silver Stacker

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    there is no need to default, as green back can be printed to pay for the bonds, its just that the cash would have dual class, domestic/international USD...what they call USD/Euro dollar (dollar outside USA)
     
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  11. alor

    alor Well-Known Member Silver Stacker

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    just take the treasury bonds and park them with US institutions and borrow against them then take the money to buy gold just like what Russia did, they put the bonds with EU banks and ship the gold back
     
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  12. leo25

    leo25 Well-Known Member Silver Stacker

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    It will be like QE, but unlike QE that's been done in the past this money will go into the real economy. Not sure how well the general economy can absorb Trillions of dollars in a short time, my guess is it will cause all sorts of issues. Though I'm sure in time things will stabilise.
     
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  13. Silver260

    Silver260 Active Member Silver Stacker

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    Yea, I'm finding the whole US bond situation interesting. Especially the Nuclear option, China selling everything , people talk about. Doesn't add up to me, for the following reasons.

    - Everyone knows the US fed is going to lower rates, which makes the existing bonds worth more. Would be silly to sell now, or possibly for some time.

    - Selling them back to the US option?. The fed simply can absorb the expense, which just transfers the debt from foreign ownership to domestic. Which is already 60%?, no big deal.

    - Selling them to other countries / businesses?. No net effect to the US.

    - US default on payment?. Not an option, as it would destroy their credit rating.

    Have I missed something?
     
    Last edited: Nov 19, 2019
  14. leo25

    leo25 Well-Known Member Silver Stacker

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    I was just talking in the event America lose their world reserve status. If that doesn't happen, then there is no issue for America in my view.

    In reply to your points.
    1) you are correct falling rates makes existing bonds worth more. Though without the FED no one will buy them, just a silly shell game they are playing atm.

    2) Yes the FED can buy all the bonds back in a seconds, though that's not the issue. The issue is when they buy them back that means they are crediting other people/countries with now usable currency (moving credit from a "savings" account to a "checking" account). Too much to soon can cause massive inflation.

    4) If they lose reserve status then they will already have lost their credit rating, so defaulting to prevent massive inflation will not be a big deal.
     
    Last edited: Nov 19, 2019
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  15. Silver260

    Silver260 Active Member Silver Stacker

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    Cheers @leo25

    A lot to think about there..... Going to have to bring out the thinking music..... Lol.

    tenor (2).gif
     
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  16. alor

    alor Well-Known Member Silver Stacker

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  17. Lovey80

    Lovey80 Well-Known Member

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    why would it have to be via the return of US goods? Right now oil is traded in USD and a shed load of USD is held in foreign accounts to trade in a whole bunch of things. Selling oil stocks, turning that into USD and trading that USD for AUD or stocks in the ASX effectively sends that cash back to the states. The devaluation of the dollar in such a large scale sell off would be crushing. Right now the only reason the states has not seen Zimbabwe style inflation is the majority of global markets use it to trade on a single currency. Imagine all that cash no longer acceptable outside of US borders as a medium of exchange for anything.
     
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  18. Silver260

    Silver260 Active Member Silver Stacker

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    Ahhh, ok. Regarding the USD loosing reserve status, I was getting hooked up on the mechanism by which all the currency returned to the US.

    I was only thinking in terms of goods and services.

    The Forex, or foreign exchange market, is the mechanism by where all the damage would happen. Or the mechanism by which, all the dollars "flood" back into the US.
     
  19. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Goods are one example only. Another example is sovereign bonds, this is where most USD go courtesy of trading in oil for example.

    As long as there is demand for USD.

    If there is no demand for USD then USD won't get back into the USA.

    What I'm arguing is that your reasoning is circular ie the USD will devalue as demand for it drops and holders trade out of the USD positions, but in order to trade out of their USD positions there must be demand for the USD in the first place.

    In an environment where the value of domestic currencies are falling, as is happening in some countries, there will be continued foreign demand for the USD as its economy is stronger than most and presents a safe haven. What other alternatives are there?
     
    Last edited: Nov 20, 2019
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  20. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Mosler argues that it’s not important which currency is used for transactions, what is important is the currency they choose to save. So the choice is something like sovereign credit notes from the Federal Reserve, BoE or BoJ v credit notes from the ECB, or BoC or Argentina’s. :p
     
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