The Truth about Money Printing. Do you want to understand?

Discussion in 'Markets & Economies' started by President Trump, Jul 4, 2020.

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After reading the above what do you believe:

  1. Interest rates will go up.

    7 vote(s)
    22.6%
  2. The Fed can just keep buying treasuries to infinity

    17 vote(s)
    54.8%
  3. Modern Monetary Theory will fix the problem

    2 vote(s)
    6.5%
  4. The US will default.

    10 vote(s)
    32.3%
Multiple votes are allowed.
  1. President Trump

    President Trump Active Member Silver Stacker

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    Your Point 1. There are vast sums of protection sold on US Treasuries in the derivatives market. The US and European banks have sold the protection in the form of Sovereign Default Swaps. Simply telling holders of treasuries that they now have a term deposit or any other security or account in exchange for treasuries squarely falls within the definition of a Default under these derivatives. Banks have sold this protection to earn the carry, believing a Default can never happen. Institutions have bought the protection because it is a tail risk they they believe would devastate the value of their treasury holdings if it did happen. A conversion like this would require huge pay outs, placing private banks on the hook. So the concept of government debt can disappear, but not before a US Default and a banking crisis.

    Your Point 2. Lets imagine we get through this somehow (probably more money printing to make the banks whole). The US is the Reserve Currency because there is trust in the Dollar. It was the gold backing that originally allowed the US to become the Reserve currency. After that ended it was the promise to make available the currency of the biggest economy for commerce, to lend and to pay back. There was no better alternative because if you have a fiat currency without a gold backing the best one to have is one with the biggest GDP (because it can raise the most taxes ). This is what allowed the US to remain the reserve currency after the gold standard ended. If the US sets up a system that allows it to repay its debts because it can print rather than because of its wealth and production capacity(GDP) its status as a reserve currency will not remain for long. It's already a problem.

    Your Point 3.
    As you allude to interest rates are made up of two components the risk free cost of capital (which you say will be zero) and the credit risk of your counterparty. You don't believe that printing money will cause inflation so you must believe that politicians will be quite restrained so that there is never too much money chasing too few goods. In this case the risk free cost of capital is zero because things will cost the same in 10 years as they do today. I think we just disagree on how politicians will behave.

    Your point 4.
    I'm just saying that the payments from printed money will still blow up bubbles. We are already seeing it when the printing does have some limits on it.
     
    Last edited: Jul 6, 2020
  2. leo25

    leo25 Well-Known Member Silver Stacker

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    I would say it wouldn't be defined as a default. And I'm 100% sure governments can make that stick, considering all the other events in more recent times that have somehow managed to not be classified as a default.

    I disagree. My view is the main reason the USD became the reserve currency is due to them have unmatched military power at the end of WW2. This gave them the ability to do whatever they wanted. And FYI there was never a true gold standard backing the USD, only the idea of one and it only took about 25 years (less really) for everyone to realise it was BS.

    In theory America doesn't need to have a large productive capacity, it just need the rest of the world to be productive and for them to use the USD by force. That's why America prioritises military spend above anything else, because they know that's the only thing keep the USD in play.

    If it was just about what a country produces then China would have no issue getting everyone to hold the Yuan since in real terms they produce MUCH more than America. Unfortunately for them, their military is a joke.

    I never said money printing won't cause inflation, I just described some mechanics of MMT and how it deals with inflation. Rule breaking and corruption is a different topic. Anywho today we have crazy money creation, yet the risk free cost atm is around zero in almost every country and no one seems to blink.
     
    Last edited: Jul 6, 2020
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  3. mmm....shiney!

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

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    China would likely run into problems around the marginal utility of the goods it produces and exports to the rest of the world compared to the goods/services produced domestically in the US and other non-Chinese nations. They may produce much more goods than the US, but it is valued less by consumers than say access to an MRI or Tom Cruise movie.
     
  4. President Trump

    President Trump Active Member Silver Stacker

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    Its been a good discussion and I think the points of difference between us are now clear so we probably are not going to get much further.

    I would only say in respect of sovereign default that an "Event of Default" has a very clear definition that has been refined and tested over many defaults over decades. What you are describing is defined as a "Restructuring" which is one of the "Events of Defaults" that results in a Default under the CDS documentation. But there is no reason you should (or will I'm sure) believe that.
    Also neither parties to a Credit Default Swap is the sovereign. The two parties to the CDS, the protection seller and buyer, may not even be banks or institutions located within the jurisdiction of the sovereign. Nor do the two parties to the CDS get to determine whether a Default has occurred under the definitions in the contract. This is determined by a working group set up by ISDA the International Swap Dealers Association. So I don't believe the US government could make it stick with the international community that this is not a Default. But you disagree and you are entitled to.
     
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  5. leo25

    leo25 Well-Known Member Silver Stacker

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    I'm sure most of the parts in the MRI machine are made in China, not to mention all the computers used to create the massive pyramid scheme which is the US financial system. Also i hear Tom Cruise is shifting from Scientology to the CCP. :p
     
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  6. leo25

    leo25 Well-Known Member Silver Stacker

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    If they can convince/force the international community to use the USD as a reserve/settlement currency (With everyone knowing it means the US gets to consume more then it produces) then who knows what else they can pull off. Having the most powerful military force ever known to man gives you a lot of pull.

    Plus Europe is busy building machines that smash or fuse particles, Russia is busy creating ads on facebook, China is busy keeping their own people from revolting, India is busy beating Chinese with sticks, Australia is busy keeping the housing market booming, Japan is busy making adult diapers, Africa is busy keeping Bill Gates vaccines away from them... No one has time to worry about the interpretation of a default. :)
     
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  7. Lovey80

    Lovey80 Well-Known Member

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    I think the threat of the Russians at the height of the Cold War and the military might of the USA being needed by all the rich countries is the reason the dollar didn’t fall over in 1971. The French asked for some of their gold when they saw US debt building. They got one round and the US defaulted the second they asked for a second round of gold delivery.

    We are now in the longest sustained period of fiat in history without a collapse. At the same time central banks around the world are playing silly buggers with the printing whilst interest rates are at zero or below. The only reason I can see why this hasn’t imploded is because everyone is kind of doing the same thing at proportionate levels.
     
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  8. sgbuyer

    sgbuyer Well-Known Member Silver Stacker

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    Are you referring to these death by a thousand cuts sticks?

    [​IMG]
     
    Last edited: Jul 6, 2020
  9. President Trump

    President Trump Active Member Silver Stacker

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    Yes I agree. It can go on for a long long time if everyone does it at the same time. Then one currency can't be debased against another but they are all debased against everything else. The main differences of opinion on this forum are people believing a) this can go on for a long time but will eventually end the same way it always does, in a default or restructure of the system and b) those that believe it can go on forever and in fact is the new system.
    I hate money printing because I believe history repeats itself. But if that is the way the world wants to go, I will play along and make sure I don't hold cash and do hold assets that can't be created out of thin air.
     
  10. mmm....shiney!

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

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    Can’t repeat history if there’s never been an historical precedent.
     
  11. JohnnyBravo300

    JohnnyBravo300 Well-Known Member

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    Its amusing to watch the insanity and a good time to be on earth to witness history being made.
    I'm hoping for the biggest collapse scenario possible that can happen and between the fed and the sellouts it's happening now.
    Something big is on the way and I'm keeping my fingers crossed.
    Until we have loads and loads of suffering nothing will change.
     
  12. President Trump

    President Trump Active Member Silver Stacker

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    Printing is just debasement it has happened many times before.
     
  13. mmm....shiney!

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

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    It may well be currency debasement but all the previous points in history have been under a commodity currency. This time our currency is simply a transaction in a double-entry ledger with no connection at all to anything that is real. All that our reserve banks are doing is keeping a score of what money is being issued. They are the umpires in a game of monetary tennis and just like umpires in real tennis they can never have a shortage of points to award players. Umpires in tennis don't have to collect up all of the points awarded at the end of each match before they can award points for the next match - they have an unlimited supply of them. As do our reserve banks.

    This is why there is no historical precedence for what is going on. This is why history will not repeat itself. Sovereign nations cannot default - unless they choose too.

    Now what may force a reserve bank to voluntarily default? I can only think a revolution. A situation where enough individuals in society realise that the power of the State is directly linked to its capacity for issuing a monopoly currency, that this monopoly currency ensures that the State can grow eternally and that the citizens being managed by this political behemoth commit to a path of economic reform consisting of sound money and private currencies.

    Now what's the likelihood of that in our lifetime? Probably close to nil.
     
    Last edited: Jul 11, 2020
  14. JohnnyBravo300

    JohnnyBravo300 Well-Known Member

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    It's happened many times and is happening today all around the world. I want some of what your smoking.
     
  15. JohnnyBravo300

    JohnnyBravo300 Well-Known Member

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    Throughout history, paper money and banknotes had traditionally acted as promises to pay the bearer a specified amount of a precious metal, typically silver or gold. The continental currency issued during the American Revolution, the assignats issued during the French Revolution, the “greenbacks” of the American Civil War period, and the paper marks issued in Germany in the early 1920s are historical examples of fiat money. These episodes marked deviations from the gold standard or bimetallic systems that prevailed from the early 19th through the mid-20th century. Under the post-World War II Bretton Woods system, the U.S. dollar served as an international reserve currency, backed by gold at a fixed value of $35 an ounce.

    By the late 20th century, it had become impossible for the United States to maintain gold at a fixed rate, and in August 1971, U.S. Pres. Richard M. Nixon announced that he would “suspend temporarily the convertibility of the dollar into gold or other reserve assets.” In fact, the move spelled the end of the Bretton Woods system and the last vestiges of the gold standard. Within two years, most major currencies “floated,” rising and falling in value against one another based on market demand. According to the quantity theory of inflation, excessive issuance of fiat money can lead to its depreciation in value
     
  16. JohnnyBravo300

    JohnnyBravo300 Well-Known Member

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    Most sane people would consider frantically printing money to keep the markets afloat as a type of default, maybe not admitted to just yet.
    Theyve already defaulted but the world is clueless.
     
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  17. JohnnyBravo300

    JohnnyBravo300 Well-Known Member

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    According to a study of 775 fiat currencies by DollarDaze.org, there is no historical precedence for a fiat currency that has succeeded in holding its value. Twenty percent failed through hyperinflation, 21% were destroyed by war, 12% destroyed by independence, 24% were monetarily reformed, and 23% are still in circulation approaching one of the other outcomes.

    The average life expectancy for a fiat currency is 27 years, with the shortest life span being one month. Founded in 1694, the British pound Sterling is the oldest fiat currency in existence. At a ripe old age of 317 years it must be considered a highly successful fiat currency. However, success is relative. The British pound was defined as 12 ounces of silver, so it’s worth less than 1/200 or 0.5% of its original value. In other words, the most successful long standing currency in existence has lost 99.5% of its value.”
     
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  18. mmm....shiney!

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

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    So tell me which country is currently defaulting.

    Goldbugs are stuck in the past with their outdated views of how our modern monetary system operates.
     
  19. leo25

    leo25 Well-Known Member Silver Stacker

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    I think this point has the most divided opinions. Some people think that a circulating currency should hold its value over time and others think its of no importance to hold value over long stretches of time. Everyone agrees a currency should be stable short term.

    I personally feel its of no importance to hold value over long stretches of time and should only act as a lubricant for the economic system to function. If you want something to hold long term value then you can buy gold, rare items, stocks in a productive company etc...
     
    Last edited: Jul 12, 2020
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  20. precious roar

    precious roar Active Member

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    You're in Colorado, you have plenty of choice of smoking (and eating) matter.
     
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