interesting article in this weekend's Wall Street Journal
secondrepublic
Posts: 2,619 ✭✭✭
The WSJ gets to what seems the heart of the matter:
"No gold standard checked the emission of new dollar bills during the quarter-century on which the central bankers so pride themselves. And partly because there was no external check on monetary expansion, debt grew much faster than the income with which to service it. Since 1983, debt has expanded by 8.9% a year, GDP by 5.9%. The disparity in growth rates may not look like much, but it generated a powerful result over time. Over the 25 years, total debt -- private and public, financial and non-financial -- has risen by $45.1 trillion, GDP by only $10.9 trillion. You can almost infer the size of the gulf by the lopsided prosperity of the purveyors of debt. In 1983, banks, brokerage houses and other financial businesses contributed 15.8% to domestic corporate profits. It's double that today."
and this argument, which would not be out of place on this forum:
"The modern financial economy requires a certain minimum leap of faith. The paper dollar is an example. There is nothing behind it except the government's good intentions, yet we hoard it as if it were gold. However, we collectively outdid ourselves in credulousness in the runup to the financial crisis. People believed the Fed's good press, as, evidently, the Fed did itself. Then there was the ever-flattering dollar. Warts and all, the American scrip is the world's top monetary brand. It is this country's leading export -- and the agent of not a little of today's financial dislocations. It is the dollar -- the world's reserve currency -- that has allowed this country to consume much more than it produces and to put the deficit on a mammoth annual running tab, about $700 billion in even this year of a much improved trade picture.
"Over the past few months, the dollar has found favor as a safe haven. But it was a drug on the market for years before. Asian central banks would buy up greenbacks by the boxcarful. Few profit-seeking entities seemed to want them. The central banks did not obtain their dollars for free, of course. They bought them from local exporters, paying with the local currencies that the bankers themselves printed. Since the close of 2002, developing-country central banks have absorbed more than $2 trillion in this fashion. This is debt that, under a gold-based monetary system, the United States could probably not have incurred. Living so grandly beyond our means, we would have raised the suspicions of our creditors, who would not unreasonably have begun to exchange their paper dollars for the gold that stood behind them. The loss of gold would have cut short our high living."
Link to article
"No gold standard checked the emission of new dollar bills during the quarter-century on which the central bankers so pride themselves. And partly because there was no external check on monetary expansion, debt grew much faster than the income with which to service it. Since 1983, debt has expanded by 8.9% a year, GDP by 5.9%. The disparity in growth rates may not look like much, but it generated a powerful result over time. Over the 25 years, total debt -- private and public, financial and non-financial -- has risen by $45.1 trillion, GDP by only $10.9 trillion. You can almost infer the size of the gulf by the lopsided prosperity of the purveyors of debt. In 1983, banks, brokerage houses and other financial businesses contributed 15.8% to domestic corporate profits. It's double that today."
and this argument, which would not be out of place on this forum:
"The modern financial economy requires a certain minimum leap of faith. The paper dollar is an example. There is nothing behind it except the government's good intentions, yet we hoard it as if it were gold. However, we collectively outdid ourselves in credulousness in the runup to the financial crisis. People believed the Fed's good press, as, evidently, the Fed did itself. Then there was the ever-flattering dollar. Warts and all, the American scrip is the world's top monetary brand. It is this country's leading export -- and the agent of not a little of today's financial dislocations. It is the dollar -- the world's reserve currency -- that has allowed this country to consume much more than it produces and to put the deficit on a mammoth annual running tab, about $700 billion in even this year of a much improved trade picture.
"Over the past few months, the dollar has found favor as a safe haven. But it was a drug on the market for years before. Asian central banks would buy up greenbacks by the boxcarful. Few profit-seeking entities seemed to want them. The central banks did not obtain their dollars for free, of course. They bought them from local exporters, paying with the local currencies that the bankers themselves printed. Since the close of 2002, developing-country central banks have absorbed more than $2 trillion in this fashion. This is debt that, under a gold-based monetary system, the United States could probably not have incurred. Living so grandly beyond our means, we would have raised the suspicions of our creditors, who would not unreasonably have begun to exchange their paper dollars for the gold that stood behind them. The loss of gold would have cut short our high living."
Link to article
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
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roadrunner
i wonder what will be the top story a year or so from now?
"no stoppping the drop of the USD"
"unwanted"
"inflation out of control"
"chicken little was right"
"Cubs win the World Series"
"PM paper trades suspended"
"panic everywhere"
"vendors gift cards being offered at 15% discount"
or it may be more of the same,
gold trading at $350, silver at $4, Plat at $225....Rhodium??? (sorry OPA) no longer traded.
I noticed it was authored by James Grant of the Interest Rate ObserverInterest Rate Observer. As I remember, Grant has been right on about the credit problem and its impact.