Gyroscopic Investing

Benko wrote:

melveyr wrote: I am simply arguing that the US government can spend more than it taxes indefinitely. The constraint is inflation.

How about when other countries lose all faith in the US and what we are doing?

We are lucky that Greece, etc are in line in front of us to make us look...less bad, but the point still stands.  I do understand the fiat money issue (at least someone).

Greece "looks bad" because they cannot print the currency that they owe debt in. We don't have that problem. Greece is just like a US State or local government for all practical purposes — they are a currency user and can run out of money. Whereas our Federal Government is a currency issuer that creates its currency by issuing more debt. The Federal government can never run out of money. Our money supply is "debt-based" which means that in order to create money, we must issue more debt. It's just how the currency is created.

If other countries lost faith in the United States, they might demand payment in something other than dollars. In that case, we would probably owe foreign-denominated debt (i.e. we'd owe debt in a currency that we cannot issue). That would be very bad because when that happens the rules of fiat money stop working. It's a very bad situation.

But countries don't just "lose all faith" just because our spending seems high and our deficit is 200% of GDP or 300% of GDP. Debt to GDP is pretty meaningless since Debt is a unit of currency and GDP is a unit based on the time it takes the Earth to revolve around the Sun.

Countries might lose faith because the currency lost too much purchasing power, or if our government lost control of power (such as in a war or regime change). And then other countries might require us to carry foreign-denominated debt (which would be bad). But, that's not what's happening right now. And our military might makes it difficult for countries to refuse our dollars (i.e. please kindly accept our dollars if you want us to keep maintaining regional stability in your part of the world).

To suggest that countries would refuse dollars just because the amount of spending seems high to you is not a realistic reason for countries to refuse dollars. Something else would need to happen (such as a large loss of purchasing power) in order for countries to refuse dollars.

Gumby...various nations are already making moves away from the US$ (petrodollar system) and western-controlled exchange methods.

see some headlines:

http://www.bloomberg.com/news/2012-05-2 ... -bank.html

http://oilprice.com/Latest-Energy-News/ ... n-Oil.html

http://www.financialsense.com/contribut ... etrodollar

murphy_p_t wrote: Gumby...various nations are already making moves away from the US$ (petrodollar system) and western-controlled exchange methods.

see some headlines:

http://www.bloomberg.com/news/2012-05-2 ... -bank.html

http://oilprice.com/Latest-Energy-News/ ... n-Oil.html

http://www.financialsense.com/contribut ... etrodollar

Yes, but that doesn't mean that a country will necessarily ever refuse US Dollars for goods. Not saying it can't happen, but those headlines are about the use of other currencies for countries that don't want to spend dollars. Also, it's mainly about Iran, which may be the next target of a US invasion.

Gumby wrote: Also, it's mainly about Iran, which may be the next target of a US invasion.

Slotine wrote:private savings = public deficit + current account surplus

So increased private savings just means increased public deficits.  Either that or we start creating an account surplus (more likely).

But let's say we fix the surplus.  Can private savings and public deficit grow?  Yes.  As long as they both grow at the same rate.  Public deficit would still be constrained by the need to keep overall debt growth less than income growth.

I don't understand what you mean by "Public deficit would still be constrained by the need to keep overall debt growth less than income growth". If the current account were "fixed" and was stable, then every deficit dollar spent would become income for the private sector. Isn't that what sectoral balances are all about? Every dollar the government spends becomes income for the private (and foreign) sector. The laws of sectoral balances require this.

The first fundamental item that must be understood is how financial balances relate to government indebtedness. In a closed economy (or an economy with a perpetually balanced current account), government deficits must equal private savings. If private savings desires increase, a government’s deficit must increase by precisely the same amount all things equal. There is no other way.
Source: http://moslereconomics.com/2011/04/19/

The example you posted from the Principles of Macroeconomics was based on the government being a currency user, since it literally uses a household as a comparison when it says, "Just as a bank evaluating a loan application would compare a person's debts to his income, we should judge the burden of the government debt relative to the size of the nation's income."

Well, no, a government is not like a household. Unlike the household, the government has a printing press.

Gumby wrote:

murphy_p_t wrote: Gumby...various nations are already making moves away from the US$ (petrodollar system) and western-controlled exchange methods.

see some headlines:

http://www.bloomberg.com/news/2012-05-2 ... -bank.html

http://oilprice.com/Latest-Energy-News/ ... n-Oil.html

http://www.financialsense.com/contribut ... etrodollar

Yes, but that doesn't mean that a country will necessarily ever refuse US Dollars for goods. Not saying it can't happen, but those headlines are about the use of other currencies for countries that don't want to spend dollars. Also, it's mainly about Iran, which may be the next target of a US invasion.

Other countries don't need to refuse dollars for the dollar demand to significantly weaken...they can just start accepting the currency of their trading partner and cut out the middle man (US$). Remember, its marginal demand which determines the value in the open market. In this scenario, marginal demand for US$ goes way down as other countries no longer need them to conduct international trade.

These bilateral deals are summarized in this article. I think these are much more significant for the US than the Iran situation. (W/ the Iran article, I was being redundant in showing that trade can occur w/out US$ in the middle, or even the SWIFT banking system)

http://theeconomiccollapseblog.com/arch ... etrodollar

murphy_p_t wrote:Other countries don't need to refuse dollars for the dollar demand to significantly weaken.

So long as countries continue accepting dollars, it shouldn't matter if they exchange Chinese Yuan or sea shells or trinkets with each other. If you're suggesting that countries may eventually stop accepting dollars one day, then I would agree that would be very bad. But, simply showing examples of countries choosing to not swap dollars with each other doesn't exactly prove that they will stop accepting dollars. All it proves is that the dollar may weaken against other currencies, but generally that's a good thing for our exporters and getting people employed in our country. And if other countries want to buy corn or Caterpillar diggers from America, they're going to need dollars, which means they probably won't mind accepting dollars for their own goods.

It's also worth pointing out that 120 different countries request assistance from our SOCOM and JSOC special forces an average of 70 times a day. (I dislike this as much as you do PointedStick!)

http://www.aljazeera.com/indepth/opinio ... 68821.html

But, the point is that countries are unlikely to stop accepting US dollars when they rely on us to maintain their own stability and security so much. It's a harsh reality. In some ways, the stability of the US dollar depends on instability throughout the rest of the world.

Gumby wrote:

murphy_p_t wrote:Other countries don't need to refuse dollars for the dollar demand to significantly weaken.

So long as countries continue accepting dollars, it shouldn't matter if they exchange Chinese Yuan or sea shells or trinkets with each other.

The narrative I'm pointing out is that the reason to hold a given amount of US$ goes down (perhaps significantly?) if this trade doesn't involve US$.

If you're suggesting that countries may eventually stop accepting dollars one day, then I would agree that would be very bad.

I agree...I just don't think its necessary for a serious drop in the buying power of the US$.

But, simply showing examples of countries choosing to not swap dollars with each other doesn't exactly prove that they will stop accepting dollars. All it proves is that the dollar may weaken against other currencies, but generally that's a good thing for our exporters and getting people employed in our country.

Perhaps good for Cat, Boeing...not too good if gas shoots to $12/gallon and you drive to work. The idea of trying to fix the economy by weakening the currency is a central point of the Obama/Romney plan...the problem is that other countries engage in tit-for-tat devaluation...and leading to trade wars...meanwhile, savers suffer as commodities explode in price (oil, food, energy, etc)...this is where the gold-holders look like geniuses.

murphy_p_t wrote:

Gumby wrote:

murphy_p_t wrote:Other countries don't need to refuse dollars for the dollar demand to significantly weaken.

So long as countries continue accepting dollars, it shouldn't matter if they exchange Chinese Yuan or sea shells or trinkets with each other.

The narrative I'm pointing out is that the reason to hold a given amount of US$ goes down (perhaps significantly?) if this trade doesn't involve US$.

Makes no difference so long as those countries are willing to accept dollars. The only way the foreign sector can get rid of dollars is to spend them in the US, which is a good thing for us.

Countries don't stop accepting dollars just because they can pay for things from other countries in Yen or Yuan. The demand for Dollars is still "strong" if they keep letting us buy things from them with Dollars. Keep in mind that companies all over the planet are choosing to accept dollars. They take those dollars and swap them with their governments for their own currencies. When they want to buy corn or soybeans or jets, they swap their currencies for Dollars and give them back to us. The fact that oil can be purchased with their domestic currencies doesn't destroy a company's desire for Dollars that can be swapped for domestic currency. There may be some weakening effect, yes, but other currencies don't exactly lose all purchasing power just because they aren't used for oil transactions.

Also, we are one of the largest consumers of oil. If oil skyrocketed, demand would fall and the price would come back down to a point that's affordable for the given supply and demand.

A few agreements between hostile countries isn't exactly something to worry about in my opinion. If our allies stop using dollars, maybe I'll start to worry. But I don't see that happening when most countries depend on our military so much.

I became a Christian during the "Jesus Movement" in the early 70's. Advice given was to live your life as though Jesus would return tomorrow.

Leaving aside what it means about "Jesus returning", I'll just advise y'all to ignore that advice. My best advice would be to make plans like everything will be mostly as it is today. Something very dramatic might very well happen but there is really no way you can know that for sure so don't count on it. Save and plan for the future but don't get crazy about it. Enjoy life along the way.

The only country making grumblings about giving up the US petrodollar is Iran.  My personal conspiracy theory is that any country that seriously attempts to sell oil for anything other than US petrodollar will feel the full wrath of the US armed forces.  This seems to have been born out on a few occasions - Iraq and Libya come to mind.

When you have one country that not only controls the reserve currency that the main energy source on the planet is transacted in, but also has the military might to defend the energy supply anywhere in the known world, chances are it's not going to give that up without a fight.  And, considering how we spend more on military might than all the other countries on this planet combined, I'd be pretty stupid to bet against them.

I see a lot of people in this thread have bought the GOP talking points about how our national debt is crippling us, at 100% debt to GDP ratio.  Please, turn off Fox news and come back to reality.  Do you say your uncle's debt is crippling him because he has a 300% debt to GDP ratio, owing $300K on a mortgage, making a solid $100K salary?  No, because it would be stupid.  It's even more stupid when your uncle has a printing press and a vault full of gold and a military larger than the rest of the world to defend it.

Apocalyptic thinking is a normal part of the human condition.  We're all susceptible to it, it's not new, and it's nothing to be embarrassed about -- just watched for and tempered.

Like MT said, personal, local apocalypses happen to people all the time.  Keep your finances in good order.  Have a little more food and water in your pantry than you might need.  Learn some skills.  Stay in shape.  Get to know your neighbors.  Do things that pay off in the here and now and will also give you some breathing room if things in the wider world take a temporary, unexpected turn.

I love this item from "Isaac Asimov's Book of Facts":

According to Isaac Asimov's Book of Facts (1979), an Assyrian clay tablet dating to approximately 2800 BC was unearthed bearing the words "Our earth is degenerate in these latter days. There are signs that the world is speedily coming to an end. Bribery and corruption are common."

Storm wrote: I see a lot of people in this thread have bought the GOP talking points about how our national debt is crippling us, at 100% debt to GDP ratio.  Please, turn off Fox news and come back to reality.  Do you say your uncle's debt is crippling him because he has a 300% debt to GDP ratio, owing $300K on a mortgage, making a solid $100K salary?

Your numbers aren't scaled correctly.  We do not (yet) collect 100% of GDP in tax revenue, so what you described for my uncle is actually a "debt to revenue" ratio.  We collect about 20% of our GDP in tax revenue, give or take, so a 300% debt to GDP ratio would be more like my uncle owes $300k on his mortgage, makes $20k a year, and borrows 40 cents of every dollar that he spends annually.

Quite perilous.  Fortunately, we do not have a 300% debt to GDP ratio.  Let's not find out what that's like, shall we?  I'd hate for the title of this thread to have to change. 

Once I realized that the media is in the business of keeping people riled up and not actually informing them about anything (in part because members of the media don't really care that much about real news in the first place) my head space became a much quieter place.

Here is an experiment: Every time you hear "President Obama" in the news, imagine they are saying "Lindsay Lohan."  When they say "Speak Boehner", imagine they are saying "Jessica Simpson."  When they say "Vice President Biden", you don't need to change anything.

It's ALL ENTERTAINMENT.  If you like watching stupid politicians project their delusions then I would say by all means keep up with these news stories the way you might follow a plot line on General Hospital.  If it bums you out, though, change the channel.

It's painful to watch people get so worked up about a group of delusional narcissists who believe that they actually know what they are doing.  When I am in the mood for this sort of thing, I like to go to a purer expression of such hubris, and that's why I am a Dallas Cowboys fan.  After you watch Jerry Jones for a few years, it makes Barack Obama look like Cicero.

"When they say "Vice President Biden", you don't need to change anything."

I really wish more people saw it that way, MT. My wife taught me how a few years ago and it's made such an amazing difference in my mental health. But my poor father practically blows a gasket every time he reads the news, which to him unfortunately consists of sites like DailyKos. Sites that are too far to the left or the right have a goal not of entertaining you or keeping you afraid, but of making you actively angry and vengeful, which I think is far, far worse.

Reading too much CrooksAndLiars or PrisonPlanet can make you wind up thinking some extremely ugly things about your fellow man.

Pointedstick wrote: I really wish more people saw it that way, MT. My wife taught me how a few years ago and it's made such an amazing difference in my mental health. But my poor father practically blows a gasket every time he reads the news, which to him unfortunately consists of sites like DailyKos. Sites that are too far to the left or the right have a goal not of entertaining you or keeping you afraid, but of making you actively angry and vengeful, which I think is far, far worse.

Reading too much CrooksAndLiars or PrisonPlanet can make you wind up thinking some extremely ugly things about your fellow man.

I know what you mean, PS.  After 9/11 I was glued to CNN for about a month straight.  During the 2000s when Bush was president I used to read DailyKos and get disgusted on a regular basis.  I realized after a couple years that it's just not healthy to spend too much time reading the news every day, especially from sites on both the left and the right that are just trying to get you riled up and angry.  It's not healthy to be angry all the time, or have rage pent up inside of you.  Now I usually try to pour myself into my work and sometimes will go on news fasts for a few days.  I'm still a news junkie, however, I just choose to try to get my news from more middle of center organizations like Reuters, BBC, etc.

Pointedstick wrote: I really wish more people saw it that way, MT. My wife taught me how a few years ago and it's made such an amazing difference in my mental health.

It's very difficult to convince someone to view the world this way.  I think most people need to come around to it on their own.

What did your wife do that changed your outlook?

AdamA wrote:

Pointedstick wrote: I really wish more people saw it that way, MT. My wife taught me how a few years ago and it's made such an amazing difference in my mental health.

It's very difficult to convince someone to view the world this way.  I think most people need to come around to it on their own.

What did your wife do that changed your outlook?

Through constant gentle reminding, she helped me see the contradiction between the empathy I believed I had for others and the anger I felt at Republicans ("I have no empathy for those without empathy for others!"). In the end, the existing, long-repressed cognitive dissonance had to snap. And I actually did gain the empathy I thought I already had by learning that other people's reasons for holding positions different from mine were as quintessentially human and personal as mine were. Believing an entire class of people to be evil isn't fun and it's actually a lot of work to maintain. I found letting go of the hatred to be a liberating experience.

Then once I got into guns, I entered a slice of that world myself and discovered that everyone there was just as angry at liberals for pretty much the same psychological reasons why liberals are angry at conservatives. Having been frightened of guns myself once, I found that I understood why urban liberals might push for gun control laws, while many conservatives who grew up in a rural culture of hunting and shooting didn't understand and thought extremely poorly of the fearful liberals, who themselves stereotyped the conservatives they didn't understand as regressive, poorly-educated yokels.

You just need to walk a mile in a man's shoes. And heck, even in the worst case scenario, you're a mile away and you have his shoes!

Is anyone else surprised that there is so little coverage of the end of the world that is supposed to happen about a month from now?

I figured that it would be Y2K all over again as we got closer to the end of December and the Mayan calendar thing.

Maybe the media has been covering it, but I haven't seen much about it at all lately.

MediumTex wrote: Is anyone else surprised that there is so little coverage of the end of the world that is supposed to happen about a month from now?

I figured that it would be Y2K all over again as we got closer to the end of December and the Mayan calendar thing.

Maybe the media has been covering it, but I haven't seen much about it at all lately.

I think Y2K got more media hype because it was technological.  Technology is sort of our cultural mythology, so a computer glitch ending the world seemed plausible in this context. 

I think that the average person today doesn't have much respect for old, fallen civilizations, so the Mayan calendar just doesn't bother them. 

Maybe if there was an iPhone app that was predicting the end of the world, it would get some media coverage.