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Why the dollar will not crash

By AD follow AD   2014 Feb 28, 3:29pm 6,662 views   25 comments   watch   nsfw   quote   share    


In response to http://usawatchdog.com/debt-default-will-kill-the-dollar-brandon-smith/

The dollar will not crash because of the below conditions

1. USA has energy and food independence
2. USA has strong national security
3. Interest rates will remain low while the deficits shrink
4. Inflation causes the debt to decrease relative to tax revenues
5. Increase in tax revenues due to increase in capital gains tax receipts
6. Foreigners still view US Treasuries as a safe haven
7. Eventual pay down of the debt in a few years because of the above conditions

1   AD   ignore (0)   2014 Feb 28, 3:44pm     ↓ dislike (0)   quote   flag        

And the Obama Administration will continue to push for energy independence such as not slow the use of fracking so that gas prices stay below $4 a gallon despite Federal Reserve inflationary policies.

2   Bubbabeefcake   ignore (4)   2014 Feb 28, 5:25pm     ↓ dislike (0)   quote   flag        

adarmiento says

Why the dollar will not crash

Because! Yellen knows her mission is to go hawk.

3   bob2356   ignore (4)   2014 Feb 28, 8:50pm     ↓ dislike (0)   quote   flag        

Really?

1. US imports 3 billion barrels of oil and 3 billion cf of gas a year.
2. Against what?
3. So?
4. Debt is increasing a lot faster than rate of inflation.
5. Not according to historic trends in capital gains tax changes.
6. Percentage of foreign buyers of UST has been falling for 4 years.
7. You are dreaming. The only reason for a technically balanced budget the last few years of Clinton was the internet boom and energy price bust. Invention of the Internet combined with $10 a barrel for oil is not going to happen again in your lifetime.

4   New Renter   ignore (11)   2014 Feb 28, 11:45pm     ↓ dislike (0)   quote   flag        

bob2356 says

Invention of the Internet combined with $10 a barrel for oil is not going to happen again in your lifetime.

Invention of the internet no, exploitation of the internet yes

$10/barrel of oil perhaps not, but fracking has brought the price of NG down to late 1990's prices.

5   spydah_hh   ignore (0)   2014 Mar 1, 12:16am     ↓ dislike (0)   quote   flag        

I can't tell if the OP is serious or not.

6   JH   ignore (0)   2014 Mar 1, 12:22am     ↓ dislike (0)   quote   flag        

adarmiento says

7. Eventual pay down of the debt in a few years because of the above conditions

Hhahahah, the debt is getting bigger every year. We cannot pay it down while we have massive deficits. I don't think math works that way. If so, can you please call Citi and explain how that applies to my credit card?

7   spydah_hh   ignore (0)   2014 Mar 1, 1:45am     ↓ dislike (0)   quote   flag        

jojo says

A global reserve currency has to run deficits every year by definition. The biggest threat is loss of world reserve status. Short of that happening the game will continue as it has for the past several decades...

Where do you get this crap from?

8   spydah_hh   ignore (0)   2014 Mar 1, 2:06am     ↓ dislike (0)   quote   flag        

jojo says

'the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves, and thus cause a trade deficit.'

If this was true then most of the U.S. debt would be held by foreigners and not by tax payers or even the FED.

Foreign dollars are measured with each other and ultimately the U.S. dollar. The only reason why foreign countries would want and need U.S. dollars is to purchase oil from the OPEC countries due to the petrodollar agreement.

The fact that the world's reserve currency needs to run deficits to supply the world dollars i snot true.

The reason why we have trade deficits is because of our monetary policy and high cost of labor due to labor regulations and etc. Basically we're unable to compete with foreign markets like china, india, or even mexico.

In fact our deficits were declining after the Brenton Woods agreement and the war due to the gold standard that forced the U.S. government to watch its spending. However, during the 60's with the arms race, space race, plus the great society act, our deficits began to explode and countries began to exchange their dollars for gold due to the fear of the excess of more dollars being printed than gold, which left Nixon no choice but to remove the dollar off the gold standard in order to preserve it.

9   indigenous   ignore (0)   2014 Mar 1, 2:11am     ↓ dislike (0)   quote   flag        

jojo says

the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves, and thus cause a trade deficit.'

That is a two way street because the US cannot put in controls to defend against mercantilism that China has exploited for 20 years or Japan before them.

China will not be the reserve currency of the world. The liabilities out weigh the benefits.

http://www.foreignpolicy.com/articles/2011/09/07/an_exorbitant_burden

10   spydah_hh   ignore (0)   2014 Mar 1, 2:16am     ↓ dislike (0)   quote   flag        

jojo says

@spydah

Im not going to argue well established econmic structures with you. you can choose to believe it or take the 'fox news' route.

Lol, funny the established economic structures have been wrong time and time again. They were wrong with the great depression, wrong with the great recession NONE of them even knew what was coming.

So go head believing in the established economic structures or economist who always say the economy is sound just days, weeks, or months before it collapses.

11   spydah_hh   ignore (0)   2014 Mar 1, 2:30am     ↓ dislike (0)   quote   flag        

jojo says

Its just common sense. Lets you are in a room with multiple games of monopoly going on and each country is one game. If you want everyone to trade through one bank (the us) then the us board/bank will have to write A LOT of IOUs.

Why would everyone need to trade with the U.S.? China's biggest importer isn't even the U.S.

Like I said the reason why the U.S. has big deficits is mainly because our manufacturer and labor have become too expensive that it's just cheaper to hire the Chinese/indian market in china/india.

If we removed taxes, the regulation cost towards labor, reduced goernmetn spending and size, and stopped the cheap easy money policy, we wouldn't have huge trade deficits if any at all. Because businesses would stay here and remain competitive with the rest of the world.

12   spydah_hh   ignore (0)   2014 Mar 1, 2:32am     ↓ dislike (0)   quote   flag        

jojo says

@spydah

`which left Regan no choice but to remove the dollar off the gold standard in order to preserve it`

Nixon did this, not Regan

OOps that was a typo it was nixon not regan, not sure why i was thinking regan lol.

13   spydah_hh   ignore (0)   2014 Mar 1, 3:29am     ↓ dislike (0)   quote   flag        

jojo says

@spydah

Have a look at this too

http://en.wikipedia.org/wiki/Petrodollar_warfare

As a side note, the saudi people pretty much hate the monarchy over there and have tried to overthrow it several times. the us has intervened on more than one occasion to preserve the monarchy. the US has a long history of being big assholes and hypocrites all over the world. we dont see too much over here though because we are very nationalistic and really believe a lot of our own propaganda. I love this country but we have to be objective about things and make decision with all the relevant info. i dont think many people really understand these things at all.

I don't disagree with your assessment on U.S. foreign policy.

14   AD   ignore (0)   2014 Mar 1, 3:49am     ↓ dislike (0)   quote   flag        

JH says

Hhahahah, the debt is getting bigger every year. We cannot pay it down while we have massive deficits. I don't think math works that way. If so, can you please call Citi and explain how that applies to my credit card?

Deficit as a percentage of GDP is now around 2.5%, down from the peak of 13.1% in 2009.

Reference:
http://en.wikipedia.org/wiki/National_debt_of_the_United_States#Recent_additions_to_the_public_debt_of_the_United_States

15   JH   ignore (0)   2014 Mar 1, 3:59am     ↓ dislike (0)   quote   flag        

Citi would not buy your argument, so please don't call them...I'll handle my own expenses from now on.

adarmiento says

Deficit as a percentage of GDP is now around 2.5%, down from the peak of 13.1% in 2009.

You are reading "Value of yrly debt increase $Billions" in the table.

In 2009, total debt was $11,898,000,000,000, which was 82.5% of GDP.
In 2013, total debt was $16,738,000,000,000, which was 102.9% of GDP.

Our rate of increasing debt is diminishing since we stopped running trillion dollar deficits. But hundreds of billions in deficits still adds to the total debt, even as a % of GDP. Based on my calculations, we added, oh, $5 trillion debt in 4 years.

China fucked up America's debt to income ratio calculation (and didn't run a credit check) when they loaned us the $5 trillion.

16   AD   ignore (0)   2014 Mar 1, 4:15am     ↓ dislike (0)   quote   flag        

JH says

China fucked up America's debt to income ratio calculation (and didn't run a credit check) when they loaned us the $5 trillion.

China owns about $1.27 trillion of the total $16 trillion debt.
http://en.wikipedia.org/wiki/National_debt_of_the_United_States#Foreign_holders_of_US_Treasury_securities

I agree about the debt growing, but its rate of growth is slowing relative to the economy's growth. Interest rates need to stay below 3% for the 10 year Treasury in order to keep interest payments low. It was 7% back in 1992.

17   anotheraccount   ignore (1)   2014 Mar 1, 4:16am     ↓ dislike (0)   quote   flag        

JH says

China fucked up America's debt to income ratio calculation (and didn't run a credit check) when they loaned us the $5 trillion.

China did not loan us 5T. They hold 1.268 T in treasury debt: http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

19   JH   ignore (0)   2014 Mar 1, 4:37am     ↓ dislike (0)   quote   flag        

The China comment was a joke.

adarmiento says

Interest rates need to stay below 3% for the 10 year Treasury in order to keep interest payments low.

This is what I actually find most interesting about our debt at this point in time. Yes, the rate of growth is slowing, which is good news, but the actual dollar value is increasing. To be able to effectively service it over the next several decades, we will need low low interest rates permanent. This, combined with any inflationary pressure that creeps in, seems to me a ticking time bomb. Not to mention the pressure on existing bank loans if rates spike.

20   AD   ignore (0)   2014 Mar 1, 4:48am     ↓ dislike (0)   quote   flag        

JH says

This, combined with any inflationary pressure that creeps in, seems to me a ticking time bomb. Not to mention the pressure on existing bank loans if rates spike.

Good points. Interest rates will remain low. If natural gas and oil production slows in the USA, then expect gasoline to raise above $4 a gallon. Gas is artificially high primarily because of monetary policies.

21   Robert Sproul   ignore (0)   2014 Mar 1, 5:06am     ↓ dislike (0)   quote   flag        

jojo says

Yes, that may be true but china can undermine the dollar reserve status by facilitating its own direct trade agreements. This cuts out the need to trade through dollars and erodes the status and structure of the dollar reserve system.

Middle East, Asia, South America, lots of talk about "lets ditch the Yankee Dollar", via direct trade.
The argument that there is no alternative for the world is not tremendously inspiring.
I think these "dollar-less" oil deals put Gaddafi on the hot seat and keep Iran in dutch with the Neo's.

23   indigenous   ignore (0)   2014 Mar 1, 6:48am     ↓ dislike (0)   quote   flag        

jojo says

Yes, that may be true but china can undermine the dollar reserve status by facilitating its own direct trade agreements. This cuts out the need to trade through dollars and erodes the status and structure of the dollar reserve system.

It does not matter. Being the reserve currency is a liability not an asset.

If they went to SDRs that would be to our benefit as we would no longer be vulnerable to mercantilism.

That will not happen in the foreseeable future because of political hubris.

It is just about balancing the trade deficit. People say this does not matter and most of the time they are right.

But not when the Chinese have benefited for so long by keeping the value of their currency so low for so long. And keeping their interest rates too low and continue to do so, as does Germany, benefits them at the expense of their trading partners.

China can no longer do this as the bubble is bursting from malinvestment. Germany doing this is the reason for much of the trouble with the PIGS.

Germany being a producer/surplus nation forces the PIGS into being a consumer/deficit country.

If the interest rates are raised then the PIGS can then begin to save more and spend less and Germany will consume more. Same with China.

But neither country wants to re-balance.

Mish talks about the best solution here:

http://globaleconomicanalysis.blogspot.com/2014/02/stiglitz-leaving-euro-painful-but.html

24   indigenous   ignore (0)   2014 Mar 1, 7:51am     ↓ dislike (0)   quote   flag        

jojo says

The us has benefitted from artificially low rates and consuming far more than we produce.

That is not a benefit anymore than the PIGS doing the same thing and not being able to repay their debt. We have the advantage that we control our own currency. This is why both us and the PIGS are having extreme unemployment.

We would not have been able to make this malinvestment if not for the trade inbalance.

Neither situation is a benefit.

China is going to suffer through the equivalent of our early 30s because of this. Hopefully they will not be so stupid as our politicians were so it won't be so painful.

25   indigenous   ignore (0)   2014 Mar 1, 8:03am     ↓ dislike (0)   quote   flag        

jojo says

This trade will unwind and it will be painful for China and the US

The PIGS are going to have to either leave the Euro or continue to suffer extremely high unemployment which they won't. The better solution is for Germany to leave the Euro. Either way the Euro is going to change.

I think the pain for the US is going to lessen and the rebalancing will continue.

I was watching Shark Tank last night. A doctor looking for venture capital said that she brought the manufacturing of her product back from China as the price was exactly the same. Anecdotal but none the less an indicator of things to come.


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