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Dear Ann Landers - How many ways can a default on the currency happen?
jmski52
Posts: 22,380 ✭✭✭✭✭
I used to think that I knew how currency valuation worked. If the government issues too much, it drops in value. If the government spends more than it takes in, eventually the debt load becomes unsustainable depending on the prevailing interest rates and the government's ability to tax.
So far, so good.
So, we always talk about the two ways a default on the currency can occur - 1) an outright devaluation of the currency and/or issuance of a new currency, or 2) inflation. These are really the only two ways that things can go in a finite world with accounting standards that must be verified from time to time with real world audits.
But we aren't in Kansas anymore. The accounting standards were trashed when the FASB (Financial Accounting Standards Board) relented under pressure from (someone, banks or Congress?) and changed their view of undocumented financial derivatives from "worthless" to "worth whatever the holder says". All of the other unfunded liabilities that the government has already committed to paying will still need to be "funded" regardless of the economy. And at some point along the way, the money borrowed & spent for war funding has to be paid back as well.
Heck if I know how that's going to happen. We all know that the money is going to come from somewhere. I think that the government is scrambling to figure out ways for it not to show up as a 1) default or as 2) inflation.
I still don't understand the banking bailouts either. Money is created and given outright to inept and corrupt failing bankers. They take the money and then lecture the taxpayers about their spending habits, while cutting off lines of credit. Then, they sit on the money and their balance sheets suddenly look much better. Then they get their bonuses. This helps the economy in some way? Nope.
What am I missing? Is this just a case of mass-hallucination, that nobody wants to believe that their retirements are being siphoned away - so it isn't happening? Is it a case of relativism - that the other countries around the world are still so far behind the US that the US currency simply can't fall too far because everything else sucks so much worse? That's the vibe I get from some of the things I read, but I really don't see how that works either.
Signed.................................Confused in Limbo
So far, so good.
So, we always talk about the two ways a default on the currency can occur - 1) an outright devaluation of the currency and/or issuance of a new currency, or 2) inflation. These are really the only two ways that things can go in a finite world with accounting standards that must be verified from time to time with real world audits.
But we aren't in Kansas anymore. The accounting standards were trashed when the FASB (Financial Accounting Standards Board) relented under pressure from (someone, banks or Congress?) and changed their view of undocumented financial derivatives from "worthless" to "worth whatever the holder says". All of the other unfunded liabilities that the government has already committed to paying will still need to be "funded" regardless of the economy. And at some point along the way, the money borrowed & spent for war funding has to be paid back as well.
Heck if I know how that's going to happen. We all know that the money is going to come from somewhere. I think that the government is scrambling to figure out ways for it not to show up as a 1) default or as 2) inflation.
I still don't understand the banking bailouts either. Money is created and given outright to inept and corrupt failing bankers. They take the money and then lecture the taxpayers about their spending habits, while cutting off lines of credit. Then, they sit on the money and their balance sheets suddenly look much better. Then they get their bonuses. This helps the economy in some way? Nope.
What am I missing? Is this just a case of mass-hallucination, that nobody wants to believe that their retirements are being siphoned away - so it isn't happening? Is it a case of relativism - that the other countries around the world are still so far behind the US that the US currency simply can't fall too far because everything else sucks so much worse? That's the vibe I get from some of the things I read, but I really don't see how that works either.
Signed.................................Confused in Limbo
Q: Are You Printing Money? Bernanke: Not Literally
I knew it would happen.
I knew it would happen.
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/edit to add: again, the folks on this forum seem to focus on SHTF as some kind of abstract financial video game without real human costs. Again, 25% of the population dead or crippled, the name of the country erased from world maps, is SHTF in historical context. It may be due to war, but can also happen because of terrible famine or disease. Those in that country will likely not find joy if they chose to remain in that country, no matter how much gold they have, no matter how much food they have stockpiled, no matter how many guns and ammo they have. All of that in place preparation will only last a few weeks when the winds of change blow. The best thing to do is usually to get out of Dodge and start over somewhere else.
The only thing a currency does these days is act as a medium to facilitate transactions. It no longer has any bearing on the overall financial health of a nation/economy now that
debt and otc derivatives have become the new "faux" unit of wealth measurement.
rodarunner
<< <i>You missed the big one: the government falls usually because of war or revolution. Historically, that is by far the #1 way a currency goes to zero and it does so in a very short period of time. Every decade a few countries fold. Every century, the vast majority of governments will fall or change in some way that they do not honor existing government debt.
/edit to add: again, the folks on this forum seem to focus on SHTF as some kind of abstract financial video game without real human costs. Again, 25% of the population dead or crippled, the name of the country erased from world maps, is SHTF in historical context. It may be due to war, but can also happen because of terrible famine or disease. Those in that country will likely not find joy if they chose to remain in that country, no matter how much gold they have, no matter how much food they have stockpiled, no matter how many guns and ammo they have. All of that in place preparation will only last a few weeks when the winds of change blow. The best thing to do is usually to get out of Dodge and start over somewhere else. >>
RT, Biblically speaking (granted, not accepted by all humans) the US is not mentioned in any manner in its last book. I think that would qualify as per your SHTF scenario.
It took centuries for the Roman Empire to crumble - essentially, one brick at a time. They defaulted and pieces of the empire collapsed over time, and the process kept repeating via coinage debasement. Rome disintegrated from within - not via conquest by an attack by outside force, and in my opinion - it was due to the very same factors that we find our country having to deal with today.
The focus of my OP involved how many other ways a default can happen. War, famine, disease - good answers, RT - things we as Americans don't normally consider, which in my opinion - is fairly concerning. The paradigm that "bad things don't happen over here" has been outdated for at least 5 decades, and most people still act as if they are somehow still immune. There are neighborhoods all over this country that might as well be Beruit in 1982.
The personal aspects have been creeping up on the OP much like a rising tide comes ashore. You help when you are able. And I agree with you that all the guns, ammo and gold won't save anyone - all it does is give you options from amongst the narrowing number of not-so-great choices.
I'm mainly interested in how to identify the default so that I'm better able to play it, cope with it, gain from it (instead of getting creamed by it) - because if TSHTF, you don't want to start out with one foot already on the banana peel and the other stuck in the mud.
I knew it would happen.
What's wrong with no debt, emergency savings, hard assets, extra food, generator, guns and ammo, home garden etc., etc.? It seems too obvious but apparently not to the sheeple and the gov't.
If I really thought that there'd be either a hyperinflation or outright default of the US dollar (.. and, obviously, I don't), wouldn't I want LOTS of debt, and NO dollar-denominated savings??
Liberty: Parent of Science & Industry
<< <i>What's wrong with no debt, emergency savings
If I really thought that there'd be either a hyperinflation or outright default of the US dollar (.. and, obviously, I don't), wouldn't I want LOTS of debt, and NO dollar-denominated savings?? >>
Lots of "sustainable" debt perhaps. But as soon as you start missing payments, the party is over. The U.S. has gone from sustainable debts to those which cannot ever be serviced without inflation. Im sorry you still feel all is well.
You'll also want paper products, insecticide, maybe a little whiskey, a cistern, a 50# dog, and a couple of good mousers. Maybe it's just been too easy for people to get stuff with a cc at the corner store and folks have gotten out of practice. The learning curve is gonna be a bear.
The Chinese say we are already defaulting because we have diluted the value of the buk so much already. As long as people keep buying our debt, I'm sure they will keep hanging the kite up there. It's kind of like a cc with an ever increasing credit line...but at some point you'll stick the card in the swiper and the light on the check-out registerwill be red.
Get CASH