[Beskargam]

apologies. the inflation  rate in the US isnt worth making a huge fuss over now. No idea about anywhere else or where you are. ill take your word for it tho.

[JCDNWarrior]

Well currently, if i'd compare the Dollar and Euro to things like silver, gold, platinum, etc; It looks like there's around a 40% loss of purchasing power to both currencies, in 6 months alone.  I'm not sure if precious metals can be considered bubbles, or what else could be causing their price to increase. It could give a decent idea of the amount of inflation we currently have, though, in the western world.

[Grizzly]

Well currently, if i'd compare the Dollar and Euro to things like silver, gold, platinum, etc; It looks like there's around a 40% loss of purchasing power to both currencies, in 6 months alone.  I'm not sure if precious metals can be considered bubbles, or what else could be causing their price to increase. It could give a decent idea of the amount of inflation we currently have, though, in the western world.

Precious metals are used in all sorts of electronic equipment and dental fillings and all that. Ever since China has decided to keep their precious metals for their own needs instead of selling them, the prices have greatly increased, since China was the major producer.

[Kosh]

As for QE there are going to be long term effects. Countries won't want to export to the US if the dollar is cheap; this is already part of what's happening with oil as Saudi Arabia is shying away from capacity expansion. But the rest is armageddon fantasy. QE is an entirely separate issue from federal debt, though.

Let me get this straight, you're saying if we devalue our currency that somehow nations that have wages and standards of living of only 1/6 or 1/10 will somehow not want to export stuff to the US? So much of what gets imported is actually done so under American companies, so really we're taxing our companies while simultaneously not getting anything in return. Saudi Arabia is also a poor example of your point because there's other reasons why they dont want to increase their capacity, such as the commodities bubble. Oil prices now are going up mostly because of speculation caused by mideast instability and the dollar devaluations. If they were to increase capacity it's a multi billion dollar investment that will take a few years to bear fruit by which time oil prices will have gone down again making it a waste.

I also question whether or not it doesn't anything to do with federal debt. Our debt has gotten so outrageously high that there is no way we can really pay it back without major pain. Often in that kind of situation nations will choose to devalue their currency rather than face the music, and for us this is especially tempting since our debt is priced in our own currency.

Here's a great example; Japan is our second largest creditor. If we gave them all the money we borrowed from them right now, they would use it to rebuild their country. Why not start up American industry again for that very purpose, and rebuild it for them? In doing so, we'd be helping ourselves actually get back on our feet and become a functioning country again. Rather than just producing endless plastic crap, we would be able to produce real goods for real needs.

Because Japan is a highly protectionist nation, using anyone elses industry to do anything is a nonstarter for them.

The Fed allows for control of the money supply which is a powerful tool for economic policy. Good use of the Fed is (maybe) one of the reasons that the economy has been so much tamer in the past decades. For example the late-80s (1987?) stock market crash never even really hit the economy because of Fed intervention iirc.

But if we let that crash run its course we might not have had the meltdown we had. Moral hazard has a lot more meaning when people have to pay for their mistakes.

[WeatherOp]

Oh man, the paranoia is astonishing. Oh teh noes, finance is scary complicated, therefore we must invest in apocalypse-proofing.

I mean, seriously? It's almost as if you think that society was so married to the financial institutions that without them, everything would stop instantly. While I certainly hope we'll never have to test it, I do like to think that western society does have more robust failure modes than that.

I've been trying to convince people in the US to start bartering and growing their own food. Pretty much no one has come along with that - everyone thinks that without money, society collapses. That's the "word on the street" as it were. Yes, I've actually gone out and talked to people instead of blindly theorizing.

That being said, like I've said before and am saying again; never underestimate the propensity of a system to perpetuate itself.

It's possible that hardcore "austerity measures" could go into effect should the worse happen, and the people being so fearful of anarchy and chaos that they go along with things they wouldn't normally accept. It matters more what the people believe will happen than what will actually happen - because the latter is the one they plan for.

Some people along with myself are.

Well, along with blacksmithing, livestock, beekeeping, ect.

On the issue of National Debt, sadly I believe it's too far gone. Might as well get ready, wait for it to hit the fan and rebuild.

[Mustang19]

As for QE there are going to be long term effects. Countries won't want to export to the US if the dollar is cheap; this is already part of what's happening with oil as Saudi Arabia is shying away from capacity expansion. But the rest is armageddon fantasy. QE is an entirely separate issue from federal debt, though.

Let me get this straight, you're saying if we devalue our currency that somehow nations that have wages and standards of living of only 1/6 or 1/10 will somehow not want to export stuff to the US? So much of what gets imported is actually done so under American companies, so really we're taxing our companies while simultaneously not getting anything in return.

I didn't mean to say that they would stop all exports to the US, just that the US trade deficit would lessen. I'm not sure what the second sentence means.

Saudi Arabia is also a poor example of your point because there's other reasons why they dont want to increase their capacity, such as the commodities bubble. Oil prices now are going up mostly because of speculation caused by mideast instability and the dollar devaluations. If they were to increase capacity it's a multi billion dollar investment that will take a few years to bear fruit by which time oil prices will have gone down again making it a waste.

It's the Saudi's concern about lower future oil prices which made them reconsider expanding capacity even before the unrest. QE is part of the reason for the expectation of lower prices.

I also question whether or not it doesn't anything to do with federal debt. Our debt has gotten so outrageously high that there is no way we can really pay it back without major pain. Often in that kind of situation nations will choose to devalue their currency rather than face the music, and for us this is especially tempting since our debt is priced in our own currency.

Devaluation of the dollar from QE does lower the US debt; however, the Fed also bought hundreds of billions worth of treasuries, ultimately doing more to raise the debt than lower it.

[Kosh]

I didn't mean to say that they would stop all exports to the US, just that the US trade deficit would lessen. I'm not sure what the second sentence means.

It wont even lessen the overall trade deficit much, if at all unless there was a huge devaluation. Of course that would also plunge the economy into a total nosedive. What the second sentence means is that manufacturing outsourcing is done by American companies signing contracts with foreign factories to make the stuff and send it to America. This accounts for much of the non-energy trade deficit, so in the end it is kicking both American companies and consumers in the teeth, but without getting anything in return. At least with taxes you get a police force.

It's the Saudi's concern about lower future oil prices which made them reconsider expanding capacity even before the unrest. QE is part of the reason for the expectation of lower prices.

QE is partly what is causing the price of oil to go up, not down. Investors are looking for a safe harbor until the dollar stops sinking and oil is one of them. 

Devaluation of the dollar from QE does lower the US debt; however, the Fed also bought hundreds of billions worth of treasuries, ultimately doing more to raise the debt than lower it.

Since the fed isn't really a government agency are its debts even counted? Currency devaluation makes existing debts cheaper by making each dollar owed worth less than originally borrowed.

[Mustang19]

QE is partly what is causing the price of oil to go up, not down. Investors are looking for a safe harbor until the dollar stops sinking and oil is one of them. 

Speaking in nominal terms, devaluing the dollar will directly increase the USD price of oil but the real value of oil won't hold indefinitely. OPEC is fretting rather than welcoming the current price rise as it's mainly speculative. It's price expectations, not current prices, that are taken into count in planning production.

WASHINGTON (MNI) - The increasing likelihood that the Federal Reserve will ease monetary conditions further, in an attempt to boost a flagging U.S. economy, has OPEC fearing a resurgence in speculative investment in commodities, due to a weaker U.S. dollar, that will in turn lead to a rise in oil prices to uncomfortable levels.

Since the fed isn't really a government agency are its debts even counted? Currency devaluation makes existing debts cheaper by making each dollar owed worth less than originally borrowed.

The fed has it's own separate budget, and it has positive net assets anyway.

This accounts for much of the non-energy trade deficit, so in the end it is kicking both American companies and consumers in the teeth, but without getting anything in return. At least with taxes you get a police force.

In the short term things are fine for the United States; companies get cheap labor and consumers get cheap products. In the long run sale of domestic assets might be bad for the country in more ways than lost tax revenue.

[jr2]

Currency devaluation makes existing debts cheaper by making each dollar owed worth less than originally borrowed.

That makes a lot of sense... 'cause, you know, the dollars that make up your wages and the dollars that make up your bank account stay at the same value.  Oh.  Wait. 

[Scotty]

My econ teacher summed it up very nicely with an example from the Soviet Union (and immediately thereafter) about inflation.  It went something along the lines of:

"So, and apartment costs, what, 20,000 rubles in early 90s?  Well, banks give these loans for 20,000 rubles, expecting to be paid back.  Then, breakup of Union happens, and inflation goes through the roof.  Now, 20,000 rubles gets you a box of matches.  So, people hand the bank a box of matches and say 'we're even.'"

That's how inflation cheapens debt.

[esarai]

The funniest part of the debt is that it's been in there since very early on.  The US has borrowed for 2.5 centuries now.  Look where it's gotten us.  Borrowing's just how we roll.  I really don't get why people flip out over this so much.  Perhaps if they paid more attention to history they'd know this.

[JCDNWarrior]

Esarai, I believe they started massive borrowing after the Federal Reserve Act, and since the 1960's/70's removal of gold as the main backing of the Dollar, followed by the removal of Glass Steagal allowing the Federal Reserve to leverage the same dollar multiple times (like selling the same item to multiple customers, giving them a piece of paper and a promise you keep it safe for them) - If there was borrowing 2.5 centuries before (From whom?
Central off-shore banks only really came in with the Federal Reserve Act in 1913) it would be a more individual thing, lending from eachother, bartering. You can't really build a nation with debt - It's a house of cards.

[jr2]

Exactly.  We may have borrowed for 2.5 centuries, but we paid our debts.  Maybe we just got new ones as we did, but if you pay off some credit cards while using other ones to buy more things, that's fine as long as you have income that allows you to do so without getting in trouble.   You don't max out some credit cards and then just apply for more when you need money for food.  That's stupid.

[Mikes]

Exactly.  We may have borrowed for 2.5 centuries, but we paid our debts.  Maybe we just got new ones as we did, but if you pay off some credit cards while using other ones to buy more things, that's fine as long as you have income that allows you to do so without getting in trouble.   You don't max out some credit cards and then just apply for more when you need money for food.  That's stupid.

But the latter is pretty much the aequivalent of what the government itself has been doing for the last decades... excessively... along with the rest of the nation.

[Unknown Target]

Exactly.  We may have borrowed for 2.5 centuries, but we paid our debts.  Maybe we just got new ones as we did, but if you pay off some credit cards while using other ones to buy more things, that's fine as long as you have income that allows you to do so without getting in trouble.   You don't max out some credit cards and then just apply for more when you need money for food.  That's stupid.

But the latter is pretty much the aequivalent of what the government itself has been doing for the last decades... excessively... along with the rest of the nation.

I don't know if I agree when you say  "along with the rest of the nation". Most people I know are living rather modestly - most people I know are soaked in debt and are just getting by.

I don't know if the nation is "living excessively". I'd say it's quite the opposite even.

[Mikes]

Exactly.  We may have borrowed for 2.5 centuries, but we paid our debts.  Maybe we just got new ones as we did, but if you pay off some credit cards while using other ones to buy more things, that's fine as long as you have income that allows you to do so without getting in trouble.   You don't max out some credit cards and then just apply for more when you need money for food.  That's stupid.

But the latter is pretty much the aequivalent of what the government itself has been doing for the last decades... excessively... along with the rest of the nation.

I don't know if I agree when you say  "along with the rest of the nation". Most people I know are living rather modestly - most people I know are soaked in debt and are just getting by.

I don't know if the nation is "living excessively". I'd say it's quite the opposite even.

Going into debt excessively is what i meant. The reasons (i.e. how somebody spends it and what their standard of living is, etc.)  are really irrelevant to the macro - economic problem and its consequences.

[Unknown Target]

Exactly.  We may have borrowed for 2.5 centuries, but we paid our debts.  Maybe we just got new ones as we did, but if you pay off some credit cards while using other ones to buy more things, that's fine as long as you have income that allows you to do so without getting in trouble.   You don't max out some credit cards and then just apply for more when you need money for food.  That's stupid.

But the latter is pretty much the aequivalent of what the government itself has been doing for the last decades... excessively... along with the rest of the nation.

I don't know if I agree when you say  "along with the rest of the nation". Most people I know are living rather modestly - most people I know are soaked in debt and are just getting by.

I don't know if the nation is "living excessively". I'd say it's quite the opposite even.

Going into debt excessively is what i meant. The reasons (i.e. how somebody spends it and what their standard of living is, etc.)  are really irrelevant to the macro - economic problem and its consequences.

I would think that it's all related. Besides, if society requires excessive debt for some reason or another (home loan, school loans, etc), it's definitely related.

Besides, if you're not looking at the people who are supposedly working within the system for a mutual benefit, then why work with that system?

[Scotty]

If you have massive debt you are clearly living above your means.  The possible exceptions are people who take mortgages for houses and/or loans and then actually pay them off instead of racking up more.

[bobbtmann]

What about people who need to borrow just to make ends meet? Even if they're frugal with their spending? If you have to borrow so that you stay above the poverty line, then it's the system and not the people who are wrong.

[Mikes]

What about people who need to borrow just to make ends meet? Even if they're frugal with their spending? If you have to borrow so that you stay above the poverty line, then it's the system and not the people who are wrong.

Frankly, in the longterm the "why" is totally irrelevant ...  what do you expect to happen, when you spend  more than your monthly income each month?

This is especially true for countries where people have to borrow to stay above what is considered "poverty".
With the US economy evolving as it does I have no doubt that more and more people will feel they "have to" borrow to maintain their standard of living.


Being in debt before a new crisis/crash like this is really risky business however. Sure... some people speculate on inflation or even a new currency eventually...  but usually disregard the fact that they may as well lose their home and all their belongings much earlier. Also keep in mind how many people lose their jobs in this current economic climate, although losing your job is certainly not a requirement for a ****ty future if you keep spending more than you make each month.