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Tag Archives: fiat currency

What Can’t Be Paid, Won’t Be Paid


National Debt Creditors About to Lose their Assets [courtesy Google Image]

National Debt Creditors About to Lose their Assets
[courtesy Google Image]

I’ve argued for five years that the U.S. National Debt is too great to ever be repaid in full, or even by half.  My personal guesstimate is that at least 80%–and probably 90%–of the National Debt will inevitably be repudiated.  That repudiation will take the form of hyperinflation, express repudiation (“Sorry, boys–but we’re too broke to pay that debt.”), or perhaps even WWIII (a good war could wipe out virtually all memory and enforce-ability of the National Debt.).

Here’s a graphic that illustrates my argument.  If you take a few minutes to view the graphic, you’ll see the size of the U.S. National Debt is:

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1. Larger than the 500 largest public companies in America;

2. Larger than all assets managed by the world’s top seven money managers;

3.  25X larger than all global oil exports in 2015;

4. 155x larger than all gold mined globally in a year; and, my personal favorite:

5. Larger than all of the world’s physical currency, gold, silver, and bitcoin combined.
In other words, there’s not enough actual money and currency in the world to repay the U.S. National Debt.
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Promises, Promises


What Can't Be Paid, Won't be Paid [courtesy Google Images]

What Can’t Be Paid,
Won’t be Paid
[courtesy Google Images]

Last month (July), AFP published an article entitled “Japan PM unveils $266 bn stimulus plan to boost economy”. According to that article,

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Japan’s government and central bank have come under increasing pressure to do more for the economy.

“Therefore, [in July] Japan’s government announced a stimulus package worth more than 28 trillion yen ($266 billion) in its latest attempt to fire up the lukewarm economy . . . .”

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By itself, $266 billion in government stimulus doesn’t strike me as significant. Back around 2008-2009, the U.S. government injected $800 billion into the U.S. economy under QE1. Later, under QE3, the government injected $80 billion per month (almost $1 trillion per year) into the economy. These injections may have postponed a U.S. economic depression, but they didn’t generate much of an economic recovery.

Given that Japan is the world’s third largest economy, I don’t expect $266 billion (just one-third of the $800 billion injected during the U.S. QE1) to have much more effect on Japan’s economy than QE1 had on the U.S. economy.

This implies that Prime Minister Abe’s proposed “stimulus package” is more of a gesture to “do something” rather than a real economic remedy for the stagnating Japanese economy.

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“Political” Limits on the Fed’s Ability to Print More Fiat Currency?


Printing "Monopoly Money" to Stimulate the Economy [courtesy Google Images]

Printing “Monopoly Money” to Stimulate the Economy
[courtesy Google Images]

Most people believe that the Federal Reserve has an unlimited capacity to print more fiat dollars and disperse them into the US and global economies.  Most people believe that the Fed will soon start another round of Quantitative Easing (“QE”; fiat currency printing) to support our sagging economy.

I have my doubts.  

Over the past several months, I’ve written more than once that I suspect that there’s a limit to the amount of fiat currency that the Fed can print.  More, I suspect the Fed is already encountering that limit and has lost its capacity and/or will to mass-produce more fiat dollars for another round of QE.

I can’t prove it and wouldn’t necessarily bet on it, but I’m unconvinced that we’re going to see another round of QE in the next few years.  

Some of the people who read this blog have posted comments that disagreed with my speculation about “limits” on the Fed’s ability to print more fiat currency.  I started to reply briefly to one of their comments but my reply grew in size until I realized that I was writing an “article” rather than a “comment” and might as well post it for all as an article on this blog:

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Posted by on May 28, 2016 in Federal Reserve, Fiat Currency, Fraud

 

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Gold-Backed Ruble or Yuan?


Jim Rickards disputes predictions that China and/or Russia may establish a gold-backed currency in the near future.  I’m not suggesting that Rickards is definitely right, but he makes logical and persuasive arguments that may be correct.

For example, other analysts have concluded that China imported over 10,000 tons of gold during the past decade.  Based on that 10,000 ton estimate, some analysts believe China has enough gold to back their yuan currency with gold.  They’re expecting the imminent appearance of a gold-backed yuan.

Rickards agrees that China has probably imported more than 10,000 tons of gold.  However, he also alleges that as only 30% of that gold went into government treasuries while the remaining 70% went into private hands.  He concludes that China’s government may have only about 4,000 tons of gold–which is not enough to support a gold-backed yuan. He therefore denies that a gold-based yuan will be issued in the near future.

It may be that the Chinese government received only 30% of the 10,000 tons of gold imported into China–but I’m not convinced.  If 70% of those 10,000 tons were held by private individuals, why haven’t any of those private individuals tried to sell their gold to foreign buyers?  If 10,000 tons were imported, I’d expect the Chinese government to acquire the lion’s share–say, 90%–enough to issue a gold-backed yuan.   Nevertheless, Rickards makes an interesting and persuasive argument to the contrary.

video   00:07:06

 

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USDX Adversarial Relationships


USDX [courtesy Google Images]

USDX
[courtesy Google Images]

The U.S. Dollar Index (USDX) is a number that measures a “teeter-totter” relationship between the U.S. fiat dollar (on one end of the “teeter-totter”) and six foreign, fiat currencies (sitting on the other end of the “teeter-totter”). That relationship measures the relative inflation/deflation between the U.S. dollar and the other six currencies.

The six foreign currencies and their relative “weights” in the USDX are:

Euro (EUR), 57.6% weight

Japanese yen (JPY) 13.6% weight

English pound sterling (GBP), 11.9% weight

Canadian dollar (CAD), 9.1% weight

Swedish krona (SEK), 4.2% weight

Swiss franc (CHF) 3.6% weight

First, note that the most heavily-weighted foreign currency is the euro which makes up almost 58% of the total “weight” of the six foreign currencies in the USDX. Changes in the perceived purchasing power of the euro can have a significant effect on the USDX. Changes in the purchasing power of the Swiss franc (just 3.6% of the total weight of the six foreign currencies) will have only a negligible effect on the USDX.

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They Pretend to Pay Us; We Pretend to Work


Central Planning = Communism "From each according to his bank balance; to each according to his political connections." [courtesy Google Images]

Central Planning = Communism
“From each according to his bank balance; to each according to his political connections.”
[courtesy Google Images]

During the Soviet Union’s final 15 or 20 years, there was a “joke” that was both cynical and popular among Communist workers:  “They pretend to pay us; we pretend to work.”

I believe the attitude expressed in that “joke” was a fundamental cause for the “evil empire’s” demise.  The government wasn’t really paying the people for their work.  The people weren’t really working for their “pay”. 

Everyone was lying.  The Communist government lied about paying people.  The people lied about working.

The resultant breakdown in the relationship between the government-employer and the worker-employees destroyed what was once the second most powerful nation the earth had ever seen.

There’s a lesson in the USSR’s demise about the need to really “pay” people for their work and stop all the lying.  

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Placebo Economics


Placebos: Which do your prefer? The Red pills or the green paper? [courtesy Google Images]

PLACEBOS: Which do your prefer? The red pills or the green paper?
[courtesy Google Images]

Prologue:

For most of American history, we had an “asset-based” monetary system.  The basic “asset” that supported our monetary system was physical gold or silver.

In an asset-based monetary system and/or asset-based economy, the principle form of wealth are the “assets” (payments—usually, in physical gold). 

Insofar as that contention is true, it might also follow that:

In today’s debt-based monetary system and/or debt-based economy, the principle form of wealth is “debt” (not payments—but only paper promises to pay).

Why would anyone want more debt?

Because, in a fractional reserve banking system, debt instruments can be used as collateral to justify larger loans.  If government borrows $100 million, the resulting U.S. Bonds (debt-instruments; promises to pay) can be deposited by banks as collateral to justify more loans.

Under fractional reserve banking, banks could lend nine times the face value of the U.S. Bonds/collateral in their vaults.  The $100 million in government bonds (mere promises to pay) can be used as collateral to lend another $900 million to consumers to purchase homes, cars and flat-screen TVs.  All those additional purchases should “stimulate” the economy.

In a debt-based monetary system, debt is desirable for two reasons:

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