Dollar losing it's reserve status: An ET Roundtable

Covertibility · Jun 26, 2012

Nash's ideal money sounds super groovy man, but pegs won't work.
If ya want to stop the politicians from spending, put forth a bill for a balanced budget but leave the price of the currency for the market to decide.

trefoil · Jun 26, 2012

Quote from Random.Capital:

That's backwards.

Access to the most base of commodities is what drives the ability to spread your currency in the first place. It starts and ends with energy.

The rest is a convenient, generally useful, but derived fiction.
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Right. I have a library full of Paul Einzig, for one, who was in his day considered the foremost commentator on currency matters. I don't recall a single mention in any of his books, including his well-regarded History of Foreign Exchange*, of energy.
Not one. Can't imagine why.

*[size=-2]I also did a search for the word "energy" on that review of it I linked to. No mention.[/size]

trefoil · Jun 26, 2012

Quote from antitrust:

Japan has the same and is not a reserves currency. The reason "all the bonds are bought " is because the FED, the Treasury and primary dealers coordinate auctions so they don't fail. Making sure their are enough reserves in the banking system.

Also with a non convertible floating currency. Bonds aren't used to finance government spending it is done by crediting bank accounts. Bonds are used to give an interest earning alternative to reserves and to drain reserves to maintain the target rate.

spending increases reserves and taxes, bonds sales take them away.

The Treasury pays the governmentâs bills out of its account at the Fed. Those payments inject new reserves of base money into the banking system. Since the increase in reserves would interfere with the Fedâs ability to implement monetary policy, the Treasury compensates as follows:

(1) As the Treasury spends, it replenishes its Fed account with equal transfers from its commercial bank accounts where it deposits its receipts from taxes and bond sales. This removes the reserves of base money created by its spending. Aggregate reserves of the banking system therefore remain unchanged on average, thereby allowing the Fed to make small adjustments in reserves as needed to maintain control of the Fed funds rate.

(2) The Treasury replenishes its commercial bank accounts with the receipts from taxes, and from the sale of bonds when there is a shortfall in tax revenues. If tax revenues exceed its spending, it removes the surplus by net redeeming its securities. In this way it minimizes disturbances to the aggregate bank deposits of the private sector.

this is not exclusive to a "reserve currency" Japan has double the debt and near 0 rates
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I said it wasn't exclusive to a reserve currency in my post.

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Dollar losing it's reserve status: An ET Roundtable

Covertibility

trefoil

trefoil