Interestingly people in this discussion still do not understand that the only and only difference between GREECE and USA is the ability to PRINT money without causing inflation. You take away the ability to print money while not causing inflation, USA will be a banana republic overnight. But instead of discussing the very heart of the matter, you are discussing microecnomics. Who cares wages or other minor details when you can not print money? The only reason USA is not bankrupt is because we can print paper and stamp it and the whole world uses it without questioning it. Technology, education or super military power means nothing when you can not pay for it. You will see when TSHTF. Yeah, now keep writing about minor details bunch of fools.
fiat currency is our monetary system. We do not have an asset backed currency. That's what separates us from Greece. Perhaps you meant to post over on the gold bug thread. We can print as much money as we need. The only constraint is inflation. Your explanation of how and when the shit will hit the fan was a little brief, but thanks for trying to contribute.
You misunderstood USA can print as much money as it wants and not cause inflation at all. Why? Because %80 of the money is overseas. USA is 315MM people and printing money but 7BN people are using it as if it is their own money. This is why it is called reserve currency. Don't forget that 7BN people and 193 countries can easily absorb any money that is printed. If USD were not to be used anywherelse other than USA then every penny to be printed would cause inflation. In other words, USA is enjoying a HIGH STANDARDS OF LIVING not because of its good schools or superior technology or being No1 in certain industries but because it can and is printing money WITHOUT CAUSING INFLATION. And the whole world is paying for this expense by selling goods in exchange of some printed paper that says $100 on it. This is how USA is abusing the whole world financialy. The day that the world stops using USD in global trade, that is the day USA will turn in to a 3rd world country. Until then enjoy life like I am doing. But just know that this is an illusion not a wealth earned by hard working. Just an illusion.
Sadam Hussein threatened to start only accepting Euros for oil. That was back when Iraq had oil and electricity. What did you say happens when a country refuses to accept USD? Something about third world.
I did not say "if one country refuses to accept USD" I said "if the whole world refuses to accept USD, USA will turn into 3rd world country".
+1 see this FT.com ARTICLE .. "Printing the worldâs reserve currency has given the US a free lunch of sorts. Around $500bn worth of dollar bills circulate outside the US. Strong demand for US assets has resulted in lower long-term rates. America also earns a higher return on its overseas investments than it pays to foreign holders of US assets. The trouble is that America has abused this âexorbitant privilegeâ â a phrase first coined in the early 1960s by Gaullist finance minister and future French president Valery Giscard dâEstaing." What to do with a recalcitrant dollar By Edward Chancellor Published: May 8 2011 10:52 | Last updated: May 8 2011 10:52 The global financial system continues to operate in a dysfunctional manner. New economic imbalances and credit booms are popping up around the world. At the heart of the problem lies a global reserve currency that derives from a country with negative real interest rates, negative savings rates and a dubious commitment to price stability. Is there no alternative to the dollar standard? The dollarâs history as the global reserve currency is chronicled in Barry Eichengreenâs excellent new book Exorbitant Privilege: the Rise and Fall of the Dollar and the Future of the International Monetary System. Although currencies were nominally pegged to gold under the Bretton Woods agreement of 1944, in reality they were fixed against the dollar. Only foreign central banks were able to turn dollar bills into bullion. In the decades that followed global foreign exchange reserves greatly expanded. It wasnât long before international claims on dollars far exceeded the stock of gold in Fort Knox. Many expected that the collapse of Bretton Woods in 1971 and the ensuing inflation would spell the end to the dollarâs role as a global reserve currency. As it turned out, the share of dollar assets in foreign exchange reserves actually increased during the 1970s. As currency instability rose, central banks decided they needed more reserves. Their appetite was further enhanced by the 1997 Asian crisis. Since 2000, the stock of international reserve assets (excluding gold) has increased tenfold. Today, the percentage of reserves held in dollars remains greater than under Bretton Woods. More than 50 countries peg their currencies to the dollar. Printing the worldâs reserve currency has given the US a free lunch of sorts. Around $500bn worth of dollar bills circulate outside the US. Strong demand for US assets has resulted in lower long-term rates. America also earns a higher return on its overseas investments than it pays to foreign holders of US assets. The trouble is that America has abused this âexorbitant privilegeâ â a phrase first coined in the early 1960s by Gaullist finance minister and future French president Valery Giscard dâEstaing. Strong demand for global reserves during the past decade enabled the US to run massive trade deficits. Lower long-term rates helped fuel the credit bubble. Years of easy living have weakened the US economy and its post-crisis recovery has been slow. Paradoxically, the dollarâs recent weakness in an era of zero interest rates has stimulated demand for dollar-denominated assets. Dollar-pegging countries have been forced to buy dollars to prevent their currencies appreciating. Notwithstanding concerns about US sovereign indebtedness and Ben Bernankeâs shaky commitment to combat inflation, foreign central banks have been on a wild buying spree of US bonds. Global foreign exchange reserves have increased by $3,000bn or more than 40 per cent, since Lehmanâs collapse. This represents a huge demand for dollar-denominated securities. Unless the central bank issues bonds to sterilise its foreign exchange intervention, the accumulation of reserves serves to loosen domestic credit conditions. This is happening in Asia today. Asian foreign exchange reserves have soared by a record $500bn over the past six months, according to Brad Jones of Deutsche Bank*. Across much of Asia real interest rates are negative. The annual rate of private sector credit growth in India, Indonesia, Hong Kong, Thailand, and China is above 20 per cent. A number of housing bubbles are inflating. According to Deutsche Bank, real estate prices are elevated in a number of Asia-Pacific countries. In Latin America, foreign exchange reserves are also exploding and credit growth is strong. We may not have to wait long before the dollar standard wreaks yet more mischief on the global economy. Whatâs to be done? Some yearn for a return to the strict discipline of the gold standard. But there is not enough of the precious ****l and it would be absurd to restrict global growth to the rate of future gold extraction. There are no clear alternatives to the dollar.The euro is not a candidate since it is a âcurrency without a stateâ, in Mr Eichengreenâs words. China hopes to challenge US financial supremacy, but its capital account remains closed and the banking system is state-controlled. Perhaps the notion of a global reserve currency is outdated. In the electronic age, there is no good reason for trade between two countries to be invoiced in the currency of another. Nor is it clear that central banks need such massive foreign exchange reserves. A world of freely floating currencies wouldnât require a dollar standard or any other dominant reserve currency. Central banks would be free to conduct monetary policy according to domestic economic conditions. And the US would be rid, at last, of the accursed âexorbitant privilegeâ.
Great comment from FT, intelligent but not exactly right. Misterno, the smear against prior comments being 'microeconomic' details is just plain wrong. Wages, Wealth, Assets and the rest are obviously 'macroeconomic' details. If you pretend to superior attitude and vitriol we have a right to expect you to get that right. Oldschool, Greece has a fiat currency too...that is not what distinguishes them from the U.S. What distinguishes them is that the U.S. has an asset base that can grow with the right policy mix...Greece does not. No matter what Greeece does, they have not invested in real assets or innovations in more than 150 years...just look at all thier celebrated crumbling ruins...some of their most important assets...how are they going to grow and pay debt...what industry are we talking about...the boats may be registered there but they are not there...it is rated close to Zimbabwe in hostility to business! Greece has a cultural problem that is anti growth...they cannot, will not, recover enough to pay thier debts....not the case with the U.S....not the case with Ireland either. Problem with Italy is that half the country is really Greek. Misterno is wrong in his identification as printing money quantity theory of money inflation as centra issue. The real central issue is a failure to Grow. If you properly understand the curren crises in the West you would not call it a debt crises...you would see that it is a GROWTH CRISES. We have has all this debt for a long time...it is a problem only becuase our prospects for growth have collapsed...printing money is a reaction to that. Misterno the other thing you have wrong is that the Quantity Theory of money does not explain inflation in a fiat currency context. Its a 17th century notion that assumes collateral money in the first place. The theory doesn't work when money is actually credit...that is what fiat currency is...unsecured credit...money today has become the expectation of credit in the future....that is what is in the Social Security Trust Fund. Misterno you are right about who the reserve currency gives the U.S. a privilage and as the FT article develops, we have abused that privilige but you are wrong to say that is the only thing that our wealth is based on...look at our assets, even neglected as they have been, they are formidible and they do represent credible wealth and wealth potential that can drive continuing credit for quite some time. There is a limit to money printing...and that is external bond investment. If investment in sovereign debt comes from outside the sovereign then the sovereign can print money and cause inflation...When foreign outside investment does not come in purchase sovereign debt then the sovereign cannot long print currencey as it will quickly be abandoned in a hyperinflation. Inflaton requires expanding credit formation...expanding credit formation requires private or foreign purchase of credit....without such purchases...without such credit expansion...the creation of new currency causes hyperinflation...which is deflationary. Misterno, you are right that we have been able to 'export' our monetary mistkes. We cause the Asian currency collapse last decade becuase we did not 'print' enough money. Our fed did not understand or acknowledge that they sould understand, the effect our domestic monetary policy on foreign nations tied to the dollar by policy or by reserve currency status in dominant trade relationships. So yes, we are now exporting inflation through our reserve currency...but what you need to understand is that the inflation happens only where private credit expands...and that is not the domestic situation but it is the emerging market situation...so throught the carry trade and reserve currency the inflation goes there...with the capital. However, the monetay policy of domestic inflation fails miserably, increasing the cost of necessities and decreasing the value of wages...making people poorer in a way that will not long be an illusion. The whole western world is turning third world, not just the U.S....the U.S. does not need to. All we have to do is change fiscal policy and our existing asset base and growing population will allow us to continue to grow and pay debt...Most of Europe is demographically dying, along with Japan and they have set up systems that are not likely to be reversed as easily as in the U.S. If we invest in our assets and freeze our spending we grow out of our debt in real terms is a decade.
Every year thousands of hardworking Americans take their hard earned money that they got from prommisory income flows and dividends from investment in infrastructure over the years and fly to Greece and blow it all looking at a bunch of ruins. If they want to see a ruined city why don't they just hop in their Chevrolet and drive to Detroit?
Apart from all macro and microeconomic factors, if you give me the right to print as much Euro as I can, can I save Greece without causing inflation? Yes If you give FED (was it Treasury?) the right to print USD as much as it wants, can it save USA without causing inflation? Yes, that is what they are doing now. They have been doing this for long time. I agree that Greeks are engaged in tax evasion, bribery, not investing in future in manufacturing in technology blah blah blah At the end, USA is not that far from Greece. The only difference is USA can print, Greece can not print. Simple. On top of that, read the sentence from Ft.com article. "Paradoxically, the dollarâs recent weakness in an era of zero interest rates has stimulated demand for dollar-denominated assets." That means everytime there is a crisis somewhere in the world, money will flow back to USA. Why? Because USA is safe heaven and investors/ hedgefunds/mutual funds/ elite/ illuminati/ all the rich people in the world think it is. Why they think USA a safe heaven? Because it is impossible for USA to default on its debt based on the money (USD) ONLY IT can print. Why is it impossible for USA to default on its debt? Because it can print as much USD as it wants without causing any inflation at all. Because 7BN people are using it. But who gave USA the right to print as many USD as it wants if the whole world is using it? Nobody, it is their own money, they do whatever they want with it. They are not forcing you to use it but back when there was no global economy long time ago or no interconnected trades between countries, USA was the number one in exports and imports so USD became the standard for international trade. So, can we stop using USD in global trading? No, you can not. If you do or propose so, your country will be invaded for not cooperating with Nato forces or dictatorship or violating human rights or manufacturing weapons of mass destruction. So, what are we gonna do now? You can not do anything. USA will keep printing USD which the whole 7BN people will keep using for who knows how long until the system collapses on itself. It will DEFINITELY collapse because eventually there will be so much USD printed and so much US Bonds issued, the market will grasp the idea that this is all illusion and they are financially abused. As of now the debt of USA equals to more than the GDP of 80 countries. This trend will continue and it will equal to 150 countries in the world. There is so much USA can abuse. It will stop. In the old days, USA would import immigrants and 1 out of 100 immigrant would found Amazon.com or facebook.com or whatever and the revenue, tax, profit and the all gains from all aggregate patents, discoveries would pay off the other 99 losers' expenses. Not anymore. Because the other 99 losers are doing the same job as an average Chinese worker which 20 years ago was a peasant but now working in a Apple contractor's factory and enable China to sell Apple products to USA thus displacing one of the 99 losers. It is downhill from here, the old USA will never come back. Unless of course USD is abolished and Amero is introduced or USA invades Iran or north korea. People in DC are much smarter than you and me. They will figure out something at the expense of 7BN people. But the system has to change.