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The truth is that there is nothing really to replace the dollar as a reserve currency in the world as of yet. Japan has a worse public debt load than the US does so the Yen is out. No one really wants to store 'physical' gold as it does fluctuates too wildly. The Euro perhaps, in time, but it is still seen more as a a 'regional' currency.....
hmmm...according to Wikipedia, the Euro has climbed from 17.9% (1999) to 26.5% (2008) as the global reserve currency.
With the US economy in ruins, I would expect this trend to continue.;)
Yes, the US Dollar will decline, albeit slowly over time. But I do think the US does have options so don't count them out yet. 1)A lower dollar will be a boon for US exports and GDP will rise. 2) They still hold the 'interest rate' card as a redoubt. Increases will crush the price of gold and cause the currency to rise, if they set it even at just 2 basis points higher than what it is at the moment. 3) If all else fails, and the the dollar sinks, this will allow the debt to be paid off cheaply in worhtless dollars. 4) Of course, if the common 'sheeple' complain, give them more porn, video games, and celebrity game/reality TV shows. 5)Worst case scenario - start more wars! why not they have always been good at that in the past.
The truth is that there is nothing really to replace the dollar as a reserve currency in the world as of yet. Japan has a worse public debt load than the US does so the Yen is out. No one really wants to store 'physical' gold as it does fluctuates too wildly. The Euro perhaps, in time, but it is still seen more as a a 'regional' currency. The Chinese won't sell their US debt because they need the US as much as the US needs them. The drug dealer doesn't want to kill the addict, after all. Chimerica...
No one knows, and we have to see what transpires. I admit, though, that it doesn't look good. Let's hope that the US economy doesn't collapse as it will take 50% of our economy down with it. We obviously need to establish new markets now with other countries an plan for this posssible eventuality...
with the US economy I think the gains on exports will be well offset by the higher cost of imports, the US for example has a net trading deficit with China
it also depends how the debt contracts are written, no foreign lender is foolish enough take the risk themselves of the dollar devaluating
Funny. The Libertarian types in the US (e.g. Ron Paul, Peter Schiff) were pointing this out for at least the last five years. No one listened. People spending and people borrowing for consumption does *not* lead to economic growth. The only things that do that are investing and saving (i.e. letting others invest your money).
People believed that real estate would never go down. How is that even possible? Sure, the land itself might go up, but a house is like pretty much any other physical good - it is going to decay with usage and eventually becomes worthless. That is, unless you keep pumping money into it. But in that case the increase in value of the home doesn't seem to compensate for the inputs.
In sum:
Americans thought they were richer than they were because the market wrongly evaluated the price of real estate.
They bought more house than they could really afford on the theory that since real estate cannot go down, they would make more and more money safely.
The borrowed from what equity they had in order to consume (not to save or invest).
Consumption doesn't lead to economic growth.
The government stimulated the economy (and my guess will do it again and again) to "jump start" the economy. This will work for a short while (see: Cash for Clunkers) but when the artificial props are finished, the result is merely an economic blip that actually makes people poorer (see: Cash for Clunkers).
All this stimulus is only going to devalue the US dollar. It's why I dumped my holdings roughly six months ago.
Two morals of the story:
1) If you are going to buy a house, consider getting the best (i.e potentially desirable) land but the cheapest serviceable physical house.
2) Government stimulus causes more problems than it solves. Sure, the government stimulated *spending*. But overspending is what caused the problem in the first place! What they should be doing (if they want to meddle in the economy) is raising interest rates to stimulate *saving*.
you have to have consumer spending, otherwise you are just investing in companies that have no local market for their goods and may or may not have a foreign market, companies need markets so investing in Ford does no good if Ford has no auto sales, its a circle of monetary flow and has to be a complete circle to work just like any electrical circuit - spend, save/invest, borrow everything in proportion
My two cents, and you better take them now, as their value will decrease soon enough :
Increasing debt is nothing to be afraid about, since that's the role of every government. Nothing can't work without debt, however crazy the numbers get, they always get crazier and crazier anyway. Galbraith got that right, most probably because of the elegance of his writing style.
The Chinese will make sure the dollar won't drop, at least in the long run, since that basically ruins them, both on import level and on debt investment. So recession there will be, or whatever name that is, unless we invent another way to break a wall of lemming consumers. More job losses, and more rationalization, and more gloom in the news, since some big pockets seek to kill Obamania.
In any case, yes, more war, by US, and why not China. So more death, and more taxes. Every futurologist should bet on death and taxes.
Last edited by Benoit St-Pierre; Saturday, 7th November, 2009, 12:02 AM.
you have to have consumer spending, otherwise you are just investing in companies that have no local market for their goods and may or may not have a foreign market, companies need markets so investing in Ford does no good if Ford has no auto sales, its a circle of monetary flow and has to be a complete circle to work just like any electrical circuit - spend, save/invest, borrow everything in proportion
Do you consider everything in proportion at the moment?
Governments in North America are keeping interest rates artificially low. That's horrible for savers as it encourages people to blow whatever money they have at the moment. No way they are going to raise interest rates for now as these low interest rates are the drug that is creating the "high" that consumers in North America are experiencing. Like all highs this one is going to end. I expect the government to try more and more goofy ideas to keep stimulating spending - spending money that is borrowed for consumption, not earned from investment and production.
I agree with the sentiment that the Chinese are like the major drug suppliers and the North American consumer is the drug addict. But the US and Canadian governments are the middlemen. They create the conditions that make becoming an addict so easy. It is shameful and ultimately harmful to our economy.
Last edited by Tom O'Donnell; Saturday, 7th November, 2009, 12:22 AM.
"Tom is a well known racist, and like most of them he won't admit it, possibly even to himself." - Ed Seedhouse, October 4, 2020.
Increasing debt is nothing to be afraid about, since that's the role of every government. Nothing can't work without debt, however crazy the numbers get, they always get crazier and crazier anyway.
Before the 1930's it was NOT the role of the American government to create debt. This is a modern notion, although there may be examples of it in more ancient history and I wouldn't be surprised if such examples show the eventual collapse of the debtor nation(s). The notion of creating debt during bad economic times is based on paying down that debt during the good times, and that is where America has been punch drunk. America had surpluses during the Clinton presidency, the last golden age, and squandered them (on what I can't be sure) because it wasn't sexy to pay down debt.
So the numbers now get exponentially crazier and crazier, but we've reached a point where there isn't going to be any more good economic times to try and bring those numbers down. I hope you have a good argument as to why we shouldn't be afraid of this! :)
The Chinese will make sure the dollar won't drop, at least in the long run, since that basically ruins them, both on import level and on debt investment.
Can you elaborate on this? Exactly what can the Chinese do to prevent a dollar collapse? They're already branching away from US Treasuries as quickly as they can without causing a panic. They are anticipating the trouble they're in and are trying to gingerly tiptoe out of it.
Only the rushing is heard...
Onward flies the bird.
Do you consider everything in proportion at the moment?
Governments in North America are keeping interest rates artificially low. That's horrible for savers as it encourages people to blow whatever money they have at the moment. No way they are going to raise interest rates for now as these low interest rates are the drug that is creating the "high" that consumers in North America are experiencing. Like all highs this one is going to end. I expect the government to try more and more goofy ideas to keep stimulating spending - spending money that is borrowed for consumption, not earned from investment and production.
I agree with the sentiment that the Chinese are like the major drug suppliers and the North American consumer is the drug addict. But the US and Canadian governments are the middlemen. They create the conditions that make becoming an addict so easy. It is shameful and ultimately harmful to our economy.
and how are governments managing to keep interest rates low? normally governments do not have that much control over an economy, they can't just turn it on and off like a light switch, if they could have Canada and the USA would have easily controlled inflation and interest rates during the 70's & 80's, you give government too much credit Tom, they are not as powerful as all that - their policies have to react to economic conditions or they suffer the consequences - wage and price controls for example did not eliminate inflation in the Trudeau era
granted savings could be somewhat higher but when the market is going down that's hard to encourage people to put their money in the risk machine, all savings and investment have to be long term to be effective
I'm reading a book on Canadian tax policy history right now published in 2002, Canada has increased taxes and lowered spending in past decades and run surpluses to pay off past debt - mainly the 90's but still collects a higher percentage of the national income as tax than many of our trading partners, when a large part of your income goes to providing government services and paying down past debt it does not encourage saving of disposable income because disposable income is that much less
Last edited by Zeljko Kitich; Saturday, 7th November, 2009, 08:16 AM.
and how are governments managing to keep interest rates low? normally governments do not have that much control over an economy, they can't just turn it on and off like a light switch, if they could have Canada and the USA would have easily controlled inflation and interest rates during the 70's & 80's, you give government too much credit Tom, they are not as powerful as all that - their policies have to react to economic conditions or they suffer the consequences - wage and price controls for example did not eliminate inflation in the Trudeau era
Trudeau undertook to knock the wind out of inflation. He was going to wrestle inflation to the ground. After inflation abated he was asked about unemployment which was high. The reply was that last year he defeated inflation. This year he would fight unemployment.
So what did he show us? You fight inflation with unemployment and when the threat of inflation has abated, you fight unemployment.
What are we seeing now? Low interest rates and low inflation along with high unemployment.
Now let's look at those wage and price controls. What they did was keep jobs in Canada. They are doing that now. You only have to look around to see it. The auto companies are asking for, and getting, concession from the unions to keep work in Canada. McGuinty is talking about Dalton Days. Unpaid vacation days which is a form of wage controls. Paper mills are taking production offline and laying off people because of costs. One company has made proposals to cut labour costs to $50. a tonne but the employees don't want to take the pay cut so the mill won't reopen now. It's been closed for more than 6 months. It's in B.C.
I like to listen to the guys on TV who talk about the economy. Look at natural gas and the low prices. The don't talk about an increase in indusry drawing down the glut of Natural Gas and increasing the price because they know, or ought to know, there's not enough industry remaining in this country to do that. We import so everything is cheap. It's cheap because we tend to import from nations which have low labour costs.
The people on TV talk about a cold winter drawing down the glut of natural gas. I'll tell you something they either don't know or are ignoring. When people have to replace a gas furnace, the one that normally is coming out of service is an older model from a time when people didn't worry about how much energy the furnace burned. They replace it with a high efficiency furnace or maybe a mid range which is being phased out right now. You can't buy the low efficiency ones anymore in this area. The result is they use less natural gas so why would I assume there will be any real big drawdown on storage which will substantially increase the price?
The notion of creating debt during bad times is simply that we can't do without it. The liberals won't pay back because they have social preoccupations ; le conservatives won't pay either because they have weapons to buy. Show me countries that pay their debt. No country pays its debt, to the dismay of FMI. What one can do if a country threatens to stop paying its debt?
Facing a world that has no real ground makes everyone afraid at first, but after a while the fear settles down, like watching a ticker go down, I suppose. I really think a government should pay its debts, if it's what gives the best ROI. But since it seems that there is always some other incredible things to do than paying debts, it invests into its economy. The US government might very well be the state that invest the most in its economy, but still brags about capitalism and all that mythical jazz.
All in all, I find that Americans tend to downplay their own power, for national media issues. But when one looks at the other side, it's not that bright either. For instance, there is a war for resources between the superpowers for the African resources. It will be tough for the Chinese or the Europeans to win it, as they just can't compete with US military. And let's not forget that what is bad for the US government is most of the times very good for US major players. That's an outrage, but unless Americans begin to listen to someone like Chomsky (and even then) this is just what it is.
Regarding the Chinese, well, it's just a macro-economic hunch. The Chinese still relies on the American market (as the Canadian does, for that matter) so both (and Canada) have some kind of negative feedback that the two should beware. My feeling is that you can only have a hunch about currency matters, because one can entertain contradictory beliefs regarding the strength of a currency. Is a strong US dollar good or bad for Canadians is not a question one could answer easily. It depends, as always, at least since the US dollar is not as good as gold.
I am saying all this with the utmost caricature, just to be sure I am taken tongue-in-cheek. These were only my two cents. Do you know what you will eat in two weeks ? Making prognostic is a very tough thing to do. It's better not to that any of this stuff seriously. For now on, I'll stick to death and taxes.
Last edited by Benoit St-Pierre; Saturday, 7th November, 2009, 09:39 PM.
The notion of creating debt during bad times is simply that we can't do without it. The liberals won't pay back because they have social preoccupations ; le conservatives won't pay either because they have weapons to buy. Show me countries that pay their debt. No country pays its debt, to the dismay of FMI. What one can do if a country threatens to stop paying its debt?
If this is correct, how can you explain the Conservatives who almost doubled the national debt in the 9 short years Mulroney was the Prime Minister? We know what Harper has done to the surplus the Liberals gave him and the debt he will leave.
Why did Harper bail out two U.S. auto firms? Was it because of the Conservative social preoccupations?
I once played a couple of off hand correspondence games with a guy who went on to become a provincial leader of the Libertarian party. He played quite a strong game at the time. We played by email. I don't want to say who it is.
You also didn't mention the part where the Chretien Liberals paid off quite a bit of debt, and were attacked by the COnservatives for being too "conservative" with their budget estimates, thus leading to larger than expected debt repayment instead of tax cuts.
My tavern model was more targetting the US political map, but we could speculate that in Canada, as everywhere, there are real political incentives to do something else with the money than pay the debt. Let's not forget that it is a tavern model. If we talk too vehemently, the beer will wash it.
Sometimes, the hard times are beyond who's side of the fence is in power. Sometimes, the sheer incompetence operates its magic too. It's tough to understand why it seems that only Albertans think about paying their debt... Staying in power sure is a strong ROI for the party in power : simple positive feedback there. If only the best way to do was to promise death and taxes.
The magic trick seems to be able to pay one's debt without flattening the economy. It's the same thing with a chess position, actually. When is the time to reap the rewards of one's piece play ? Sometimes, just keeping throwing pieces away is best. Sometimes, gaining material is enough. But sometimes, greeedily going after pawns anihilates all initiative, which renders the task of winning quite tough.
Never thought I would talk about chess in this forum. My sincere apologies. I will try not to get caught again.
You also didn't mention the part where the Chretien Liberals paid off quite a bit of debt, and were attacked by the COnservatives for being too "conservative" with their budget estimates, thus leading to larger than expected debt repayment instead of tax cuts.
I remember that as well.
When was a bond issue ever paid off instead of rolled into a new one by the federal government? Individuals are paid by floating new issues.
My tavern model was more targetting the US political map, but we could speculate that in Canada, as everywhere, there are real political incentives to do something else with the money than pay the debt. Let's not forget that it is a tavern model. If we talk too vehemently, the beer will wash it.
Sometimes, the hard times are beyond who's side of the fence is in power. Sometimes, the sheer incompetence operates its magic too. It's tough to understand why it seems that only Albertans think about paying their debt... Staying in power sure is a strong ROI for the party in power : simple positive feedback there. If only the best way to do was to promise death and taxes.
The magic trick seems to be able to pay one's debt without flattening the economy. It's the same thing with a chess position, actually. When is the time to reap the rewards of one's piece play ? Sometimes, just keeping throwing pieces away is best. Sometimes, gaining material is enough. But sometimes, greeedily going after pawns anihilates all initiative, which renders the task of winning quite tough.
Never thought I would talk about chess in this forum. My sincere apologies. I will try not to get caught again.
I thought you were writing Canada. The U.S. population is about 10X ours so I would expect the numbers to be much larger.
Alberta is a bit different then Ontario and Quebec. They are mainly a resource economy and paid off the debt when the price of the resources were high. I think they might be running a deficit again. They have a new political party there. I seem to recall the name is the Wildrose Party. They are more right wing than the present provincial Conservatives, or so they say. What happened was the present conservative government in Alberta raised the royalty rate for oil and gas companies. Luck being what it is, mostly bad, the price of oil and natural gas dropped badly. The oil and gas explorers didn't like the the rules being changed in the middle of the game and went to other more favourable jurisdictions to drill, like the U.S. Remember Palin and her "Drill Baby, Drill"? Now they are giving breaks to try to start exploration but there is a glut of natural gas and not very much oil drilling either. Cushing, where the U.S. stores oil is pretty much full from what I've read.
You should look up the royalty rates in Alberta and B.C. for oil and gas. They are high. On top of that there is the federal royalty and taxes. Why invest there when there is little left for the shareholders of the companies when oil prices rise?
Anyhow the Wildrose party would likely lower the royalty rates for exploration companies.
But this is where it gets interesting. Two conservative parties in Alberta, the power base of Harpers Conservatives. We can assume whoever wins the federal nomination for the conservatives will be of the party which has the most support in the riding. The Progressive Conservative party or the Wildrose party. Fair enough. Where the problem comes in is that nobody can stop a representative of the other faction from running as an Independent Conservative. This would give a vote split in the federal conservative power base which could allow another party to win a few ridings.
It will be interesting to see how this plays out.
Another interesting situation is Newfoundland and Labrador in the electricity situation. That province is in a different position than most others. They voted to enter confederation in 1949 and would have a legitimate argument to vote to leave. They have come into a lot of oil since 1949.
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