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. mmm....shiney!

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

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    ^ it did, the country was mismanaged. Manage well and you can't be forced to default. That's why tinpot nations are at risk whereas Oz and the US aren't.
     
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  2. Silver260

    Silver260 Well-Known Member Silver Stacker

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    ^ Well as long as we don't resort to borrowing in USD and trying to print our way out of it ( aka Argentina or Allan Bond - an amusing story that one )

    But as long as the rest of the world "believes" we are dependable, it should all be good....They'll accept our AUD.
     
    Last edited: Jul 19, 2020
  3. President Trump

    President Trump Active Member Silver Stacker

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    I’m going to say we are an agreement about Default because I think it is a very very unlikely outcome and you think it is impossible. I think interest rates will rise but I can’t see that happening in the short term with all the Unemployment and with demand and supply constrained. There has been inflation in the financial sector but even this I don’t see continuing because I don’t see corporate earnings growing. So when will interest rates rise? Even if they should be rising central banks can and will hold them down for a long time. The poll indicates most people agree. What will the consequence of this be? Any opinions?
     
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  4. leo25

    leo25 Well-Known Member Silver Stacker

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    Central banks biggest fear is run away price inflation. So as long as things like COVID can suppress the velocity of money in the private sector then they can keep rates down without any bad effect. My guess is they want to shift credit expansion to government so the private sector can rebalance their accounts. Not sure how long that will take though.

    Then there is my tin foil hat theory, but I’ll keep that to myself :)
     
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  5. Lovey80

    Lovey80 Well-Known Member

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    you and shiny are doing my head in in this thread. Russia defaulted because they were broke. They were at the time the worlds second biggest superpower. If you keep printing, the value of your currency will drop. It won’t have to do so for long before no other nation/institution will buy bonds denominated in your own currency. Just like with Russia when they had to take IMF/World Bank loans in USD. 84% inflation. That’s what happens when no one want to touch your currency and it all comes flying home. Your forex reserves will plummet and you won’t be able to trade.
     
  6. Lovey80

    Lovey80 Well-Known Member

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    You’re forgetting that the reason we aren’t at risk is because the government doesn’t behave like there’s no restriction in government spending and their debt is manageable.

    The only reason the US isn’t a risk is because of the reserve currency status. When they defaulted in 1971 the whole world should have said “fuck that” and dumped their dollars. But they were in the middle of the Cold War and were Shit scared of Russia at the time. They use their military might to maintain the USD as reserve and the petro-dollar in tact. Take away any one of those three and the US would default in a very short time. Sure, it won’t default on its current USD denominated debts but they’ll default sure as shit.
     
  7. mmm....shiney!

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

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    That's not correct. We are not at risk of defaulting because it's highly unlikely The Australian government would choose to default and we're not Zambia.

    Reserve currency status plays no part in the likelihood of a default or not. The US is no more likely to default than Australia, and we don't have any reserve status.

    As long as Australia, the US etc sell sovereign debt in their own currency, as long as institutions can buy a bond and make a profit from it just by holding that no-risk bond, as long as the US and Australia etc continue to meet the criteria for economic and financial stability as posted in #84 there will always be a demand for the currencies of those nations because the institutions and governments of the world want those bonds.
     
  8. mmm....shiney!

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

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    I'm not sure when they'll start to rise. I'd just have some hedges in place, like gold and Bitcoin.

    As far as the CB goes monetary policy is largely ineffective, it'll be the fiscal policies that will determine how effective a government is at controlling inflation and unemployment is supposed to be the key metric in determining the types of fiscal policies to be enacted. At this stage with the unemployment rate hovering at around 7.5%, and the underemployment rate at 11.5%, MMTers would argue that there is plenty of scope for spending so inflation is a way off yet.
     
  9. leo25

    leo25 Well-Known Member Silver Stacker

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    There are two factors, domestic debt and foreign reserves. Now domestic debt could be paid, but they chose not to which came as a shock to the world.

    Regarding your second point "value of your currency will drop" This is what stuffed them, not that their currency dropping but rather that the Russian central bank would not let the currency drop. Their central bank tried to maintain a peg and in doing so depleted their foreign reserves in order to buy up their local currency to artificially increase the value. If Russia did not do this then their currency value would have dropped (which happen at the end anyway) that then enticed foreign capital and encouraged exports thus increasing their foreign reserves. Russia did well after this.
     
    Last edited: Jul 19, 2020
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  10. leo25

    leo25 Well-Known Member Silver Stacker

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    Much like how currencies try to maintain a peg to another currency, fail then have a rapid devaluation. I have a feeling this is happening in regards to fiat currencies to gold. We might see that peg/range fail one day followed by a raid devaluation (gold exploding higher) Gold $5000 USD seems conservative to me. If that happens thinking about my gold mining stocks makes me drool. (assuming the mines don't get nationalised :confused:)
     
  11. leo25

    leo25 Well-Known Member Silver Stacker

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    Just want to address something a few people have being saying, that USSR defaulted while it was a superpower. The USSR (the superpower) ended in 1991, while Russia defaulted in 1998. To my understanding all foreign debts from the USSR eventually got paid back.
     
  12. President Trump

    President Trump Active Member Silver Stacker

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    Lets turn to dealing with; is there an example of a superpower defaulting, which is an even tougher test than; can /has any country that prints its own currency defaulted.

    I believe most people would say that if this can happen at all it is a process. There is a period between a) when a superpower starts taking the action that would lead to its default and b) when it actually defaults. Between these two points in time the superpower will always stop being a superpower. USSR was the superpower. Russia defaulted. Seven years is a very short time in the rise and fall of nations. I get what you are saying, but saying USSR/Russia defaulted @Lovey80 while a superpower is a fair point. You could give it. If the USD defaulted in 7 years time we would say the USD defaulted as a superpower wouldn't we?
     
  13. leo25

    leo25 Well-Known Member Silver Stacker

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    If in 7 years time USA broke apart and lost most of its global power, then no i would not say they defaulted as a superpower.

    The USSR is not the same as Russia, just like the Roman Empire is not the same as Italy. Lets not start distorting things.
     
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  14. President Trump

    President Trump Active Member Silver Stacker

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    You had a superpower then 7 years later in its place you had not just a default but a monumental mess. Once we admit that can happen it is irrelevant whether someone wants to say technically a superpower can't default. But the distortion is the words "a country can't default as a superpower" without also saying a bit more to explain what is meant: ie that a relatively short process has to unfold first.
    I would love to move off the topic of default.
     
  15. leo25

    leo25 Well-Known Member Silver Stacker

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    Also worth noting Russian had another major financial crisis in 2014. This time they chose to devalue (not default) and problem solved. As the Ruble devalued, foreign reserves increased.


    russia.jpg
     
    Last edited: Jul 20, 2020
  16. President Trump

    President Trump Active Member Silver Stacker

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    Russia retired all of its Foreign Debt in 2004. I doubt that they have ever built it up again since. Devaluing is smart if other countries will let you because it stimulates the amount of goods and services being created in the domestic economy. Of course devaluing is a very very painful process if you are reliant on imports obviously they all go up. Imported inflation. Australia seems to handle it quite well though. 112 to the USD down to a low of 55 to USD in quite a short period of time. Now at 70. I have to say I'm pretty proud of how Australia handles itself. USD not so much.
     
  17. Lovey80

    Lovey80 Well-Known Member

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    we are not at risk of defaulting because we aren’t printing money out the razoo to pay for fiscal stimulus. If that start to go on to any length or volume then things turn. The dollar drops. Our forex gets depleted and if we keep going then no one will want our bonds or dollar.



    Dude. Wake up. He US hasn’t balanced a budget for more than a single year since the Vietnam war or even earlier. They are at 25T in debt and growing rapidly. They are not even looking like balancing a budget in this century. The debt to GDP ratio is above that of when creditors started ratcheting up the interest rates on Greece and other nations which begins the downward spiral. That’s not happening to the US for one reason. The reserve status artificially keeps demand for USD high because everyone has to hold it to trade. If that status goes away trillions will come flooding home.

    That’s the point Trump is correctly making. If you’re irresponsible long enough you won’t have a choice in issuing debt in your own currency. Some may argue that the US is well past that point. Other nations wether you call them tinpot or not had things forced on them with similar fundamentals of what the US has right now. Why isn’t that happening?

    1. We want the US to come save our arses when China kicks off
    2. Upsetting the apple cart will likely see the US come to war with you (hello Gaddafi).
    3. There is a mutual benefit in seeing the status quo from all major central banks maintained. They’re all racing to the bottom together right now so major swings between currencies and debt obligations are relative.
     
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  18. leo25

    leo25 Well-Known Member Silver Stacker

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    Philip Lowe is just getting warmed up. The effect was the AUD went up in value. :confused:
    https://www.afr.com/markets/debt-markets/fed-endorses-rba-s-bond-buying-20200617-p553cp
     
    Last edited: Jul 20, 2020
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  19. mmm....shiney!

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

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    @Lovey80, groan. There have been plenty of other posts rebutting each of the points you made in this thread and many other threads. I won't go into them again because I'm simply repeating myself to people who can't accept that balancing budgets in these modern times is generally a non-issue for most modern Western nations who still have monetary sovereignty and credibility across the global financial sector (which obviously doesn't include you).
     
  20. mmm....shiney!

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

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