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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    One word = Japan.

    There, and as far as I'm concerned the debate is over.
     
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  2. President Trump

    President Trump Active Member Silver Stacker

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    I have no doubt that you have said it many times before but when you have said it in this thread I have not understood... and I am genuinely trying to. Your statement that balancing budgets in these times is generally a non-issue for most modern nations who have monetary Sovereignty and credibility is completely reasonable. But you’re saying a lot more than this I think. You are saying that the level of money printing that is going on in the USA (I don’t include Australia) is not a problem. This level of printing and lending to the government means deficits will be orders of magnitude more than any deficit that has been seen before. It’s not simply an unbalanced budget which I agree is no problem. I’m actually surprised that you call it a deficit because I understood you did not regard the government debt as debt. Also you don’t believe the USA trading partners will be concerned. None of us are going to change the world but I’d love to understand your view. You have said you are an Austrian Economist, my favourite type.
     
  3. President Trump

    President Trump Active Member Silver Stacker

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    ^^^ that would make it a short discussion. (-:

    the Japanese are savers.
    they are not running the same trade imbalance that the US is.

    I reckon these two factors are protecting them but Japan is certainly a factor in your favour.
     
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  4. leo25

    leo25 Well-Known Member Silver Stacker

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    Thanks to the Japanese government high level of spending, there is a lot of savings to be had by the Japanese people/ private sector. :)

    Whereas Australian government has relative low spending, therefore the people/private sector has low savings.
     
    Last edited: Jul 20, 2020
  5. mmm....shiney!

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

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    Why would they be?
     
  6. mmm....shiney!

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

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    There is nothing wrong with a trade imbalance, it just means the people of the US are more prosperous than whoever they trade with.
     
  7. Lovey80

    Lovey80 Well-Known Member

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  8. Lovey80

    Lovey80 Well-Known Member

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    it just means their currency remains in high demand. A continuous Trade deficit can’t go on for ever without reserve status and not have serious negative impacts.
     
  9. President Trump

    President Trump Active Member Silver Stacker

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    Because they receive dollars and they might feel that the dollar is being debased by printing.
     
  10. mmm....shiney!

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

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    Wouldn't stop them trading with the US, it's the most insatiable market on the planet. All that would happen is that the exchange rate would fall.
     
  11. Lovey80

    Lovey80 Well-Known Member

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    Now we are getting there. And when things don’t change and it continues unabated what happens next?
     
  12. mmm....shiney!

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

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    Like what things?
     
  13. Lovey80

    Lovey80 Well-Known Member

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    Exchange rates drop further, trade deficits increase, Gov’t deficits increase. Forex reserves drop. International and local private investors become risk shy on your bonds requiring even more central bank printing. The value of the dollar drops further making USD denominated assets less valuable.
    At some point large holders of USD assets (China and Japan are two), including bonds will not want a bar of them. They dump them on the market to try to realise some value before they are worthless. Everyone follows suit. US Bonds are worth nothing and so is the USD. All the USD, both physical and electronically comes flying home all at once.

    edit to add. Somewhere in there the derivatives market implodes.

    baddabing baddaboom It costs $1000USD for a loaf of bread.
     
  14. mmm....shiney!

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

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    That's a possible scenario. Unlikely for all the reasons mentioned previously but possible I guess if exploring every conceivable outcome is your thing then sure. It would of course require a complete loss of faith in the reason why sovereign bonds from the US, Australia, Japan etc are so very easy to sell now as outlined in post #84.

    Nope. It would only cost $1000 a loaf if the resources required to make a loaf of bread can't meet market demand. Prices after all are generally determined by supply/demand. The US is not Zimbabwe or Argentina. It's resource rich, stable and affluent. Nothing like post-war ravaged Germany, nothing like the socialist-dicatatorship of Robert Mugabe and nothing like corrupt and inept Venezuela.

    I won't say it won't happen, but the probability of it happening is probably in the region of the probability of the US defaulting which is about 0.3% when I last looked.

    So to summarise, if you were considering the likelihood of a US default as a risk criteria in how you should manage your investments, you'd have it down near the "highly unlikely" mark, alongside the Second Coming of Jesus or getting killed by an asteroid impact. :)
     
  15. sammysilver

    sammysilver Well-Known Member Silver Stacker

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    I think that statement is wrong. Between home ownership and superannuation, Australians have a high level of savings, albeit that it is not easily drawn upon.
     
  16. leo25

    leo25 Well-Known Member Silver Stacker

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    I don't consider it savings (one major reason you mentioned), so I'm happy to stand by my statement.

    I would rather say Australia has a high level of gambling and investment which is based on increasing private debt (lack of savings).
     
    Last edited: Jul 21, 2020
  17. President Trump

    President Trump Active Member Silver Stacker

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    @leo25 what do you include in the savings bucket in Japan? Just bank savings accounts?
     
  18. leo25

    leo25 Well-Known Member Silver Stacker

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    No, it can be anything that can be access relatively quickly and without conditions.

    The reason i don't count housing (for most people) is that;
    1) it can take a long time to sell and access money from it.
    2) Most people take on a lot of debt to buy the house, so even when you sell it (in a rush) most, if not all of the money will just go back to paying off the debt. Then you will still be stuck needing to either buy or rent another place and still in need of money. (again, for most people)
     
    Last edited: Jul 21, 2020
  19. Lovey80

    Lovey80 Well-Known Member

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    The problem Japan has is it’s ridiculously high levels of debt that has kept them sustained over the past 30 years. They managed to sell most of those bonds to their own people. The majority is owned by its citizens which has kept the rates low. But they have a very big demographic problem with the majority of their bond holders starting to enter retirement and need the cash from those bonds. They’ll have to go to the market to renew the debt. They could monetise through their central bank or they could reduce their US assets to bring down their own debt.
     
  20. mmm....shiney!

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

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    BOJ has stated it will buy an unlimited number of government bonds, I think they used to have a cap on the amount of bonds they purchased annually.
     

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