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Message
re: Q for those with Financial Analysis Training/Experience.
Posted on 1/4/11 at 6:10 pm to kfizzle85
Posted on 1/4/11 at 6:10 pm to kfizzle85
Quantitative Easing
This gives a pretty good explanation of what is happening/going to happen.
FWIW, nothing good can come from what is going on. You can count on that.
This gives a pretty good explanation of what is happening/going to happen.
FWIW, nothing good can come from what is going on. You can count on that.
0
Posted on 1/4/11 at 10:31 pm to Champagne
quote:
Is it possible for those with training/ experience in finance to discuss in some detail the consequences in five, ten, fifteen, twenty years?
It's actually pretty hard to with much accuracy. People have been predicting the demise of the dollar for a very long time based on the same arguments you hear today.
I suspect the question is whether the US as a country (not just as a government) continues to do well financially. The recent recession notwithstanding, the US is still the most productive economy in the world. Although it is probably true that the government is overborrowing, the government can raise more money fairly painlessly provided the private sector does well.
So although I don't expect interest rates to remain this low I also don't think it is so clear that the dollar is going to hell either.
One big argument in favor of the dollar (and US Treasury rates generally) is that the US economy is as thoroughly plugged into the global economy as anyone. It is hard to fathom a US collapse that doesn't bring down all nations. This doesn't mean it couldn't happen with particularly irresponsible spending (Greece comes to mind) but it does provide a rather large margin of safety.
Posted on 1/5/11 at 12:11 am to foshizzle
quote:Right.
I also don't think it is so clear that the dollar is going to hell either.
7%-8% inflation hardly qualifies in that realm though. Yet over roughly a decade it would cut the dollar's worth (and the relative debt) in half.
Of course as noted earlier, 7% inflation would also hose most poor, working class, and middle class Americans.
Posted on 1/5/11 at 1:06 am to foshizzle
I 1000% agree with you. I'm trying to avoid getting into the conversation too deeply and having an essay-post result.
This post was edited on 1/5/11 at 1:09 am
Posted on 1/5/11 at 6:30 am to NC_Tigah
quote:Not going to happen, IMO.
7% inflation
Posted on 1/5/11 at 6:52 am to LSURussian
quote:Hope not.
Not going to happen, IMO.
But the OP presumption was we keep deficit spending as is. Would put debt:GDP at 200% in 8-10yrs. How would we deal with that, economically?
Posted on 1/5/11 at 7:02 am to NC_Tigah
quote:The markets will force congress to lower spending on entitlement programs, most likely by making social security and medicare "need based."
How would we deal with that, economically?
Posted on 1/5/11 at 9:12 am to NC_Tigah
Japan's been doing it for a decade and they're still fighting deflation...
Posted on 1/5/11 at 10:19 am to kfizzle85
quote:Right. They're at 200%GDP, but it's mainly domestic. Isn't the nature of their debt different than the US?
Japan's been doing it for a decade and they're still fighting deflation...
Posted on 1/5/11 at 12:17 pm to kfizzle85
quote:
You're just going to get a bunch of answers framed in various theories/ideologies,
Sounds a lot like a typical economist. I think you've found your calling.
Posted on 1/5/11 at 12:33 pm to Broke
quote:
Sounds a lot like a typical economist. I think you've found your calling.
I dunno, I'm still waiting for him to say "on the other hand" or "ceteris paribus".
Posted on 1/5/11 at 12:36 pm to NC_Tigah
quote:
7% inflation would also hose most poor, working class, and middle class Americans.
Why? I don't think it's that simple.
The people who would take the biggest hit from inflation are those with a defined benefit pension or annuity. I have hypothesized elsewhere that this is why SHTF scenarios and gold ownership are popular amongst the geezer set.
Posted on 1/5/11 at 2:11 pm to NC_Tigah
USG/Fed/US citizens ownership % of US debt dwarfs every one else. There are certainly structural differences in Japan and US in terms of how they domestically finance their expenditures, but I think Japan's modern "consumption" habits are largely formed from their lost decade[s]. If we are ultimately bound to that same fate, I don't see why the same thing wouldn't happen here, to some degree or another.
Everybody Else
versus
US
Just type in a date for the second link.
First link = Debt held by intragov (in 2nd link), $4.6T.
Second link = Debt held by public, $9.3T.
So everyone else in the world combined owns about 33% of our debt. ETA: Which I think is a huge red herring to begin with as all of our debt is USD.
And yeah, what foshizzle said about inflation. We had 3-4 years of higher inflation in the late 70s, and that didn't kill us. 7% inflation is really not that bad.
How did you figure a 7% inflation rate would cut the dollar in half? Are we going to be operating in an fx environment where everything is fixed? China/Japan/Germany/Brazil/India are going to be able to power through a 1) US collapse AND a 2) simultaneous and massive exchange rate adjustment, while, again, simultaneously, their largest exporter is imploding? I just don't see how this scenario could unfold, I find it literally economically impossible.
Everybody Else
versus
US
Just type in a date for the second link.
First link = Debt held by intragov (in 2nd link), $4.6T.
Second link = Debt held by public, $9.3T.
So everyone else in the world combined owns about 33% of our debt. ETA: Which I think is a huge red herring to begin with as all of our debt is USD.
And yeah, what foshizzle said about inflation. We had 3-4 years of higher inflation in the late 70s, and that didn't kill us. 7% inflation is really not that bad.
How did you figure a 7% inflation rate would cut the dollar in half? Are we going to be operating in an fx environment where everything is fixed? China/Japan/Germany/Brazil/India are going to be able to power through a 1) US collapse AND a 2) simultaneous and massive exchange rate adjustment, while, again, simultaneously, their largest exporter is imploding? I just don't see how this scenario could unfold, I find it literally economically impossible.
This post was edited on 1/5/11 at 2:13 pm
Posted on 1/5/11 at 2:18 pm to kfizzle85
quote:
7% inflation is really not that bad.
True, but I was actually referring more to the contention that it would hurt all those groups. I don't think that is necessarily the case. Someone who invests in real estate before the increase may do just fine, in fact. You're paying 5% interest on a property with a dollar price that is increasing at 7%. Nice work if you can get it.
Posted on 1/5/11 at 2:32 pm to foshizzle
Yes, I completely agree. If we get 7% inflation all other assets are (by definition) rising with it. You're not going to be getting 0.2% on your CDs in that event, much less the rest of the assets that might make up your portfolio.
Posted on 1/5/11 at 4:02 pm to kfizzle85
quote:I'm not sure how we went from a probability of inflation as debt increases, to presumptions of US economic implosion.
a 1) US collapse AND a 2) simultaneous and massive exchange rate adjustment, while, again, simultaneously, their largest exporter is imploding? I just don't see how this scenario could unfold, I find it literally economically impossible.
quote:No, but we'd be operating in an fx environment where the dollar value of existing debt is fixed.
Are we going to be operating in an fx environment where everything is fixed?
With a dollar devalued by 10%, 20%, or 50% presuming other economic equations as you laid them out, GDP as measured in dollars would rise substantially vs old debt (of which we currently have >$14TRILLION outstanding)
This post was edited on 1/5/11 at 4:09 pm
Posted on 1/5/11 at 4:06 pm to kfizzle85
quote:Agree 100%.
Yes, I completely agree. If we get 7% inflation all other assets are (by definition) rising with it. You're not going to be getting 0.2% on your CDs in that event, much less the rest of the assets that might make up your portfolio.
Ramification being, it's an environment that would treat the investing class disproportionately well vs those unable to save/invest.
Posted on 1/5/11 at 5:02 pm to NC_Tigah
I didn't mean to group you into the doomsday camp, it was a generic response, albeit towards your post. My B.
I'm not sure what your point is here. My point is simply that saying "inflation rising to 7% will devalue the dollar by 50% in 10 years" seems kind of baseless, so I was asking you how you arrived at that conclusion.
quote:
No, but we'd be operating in an fx environment where the dollar value of existing debt is fixed.
I'm not sure what your point is here. My point is simply that saying "inflation rising to 7% will devalue the dollar by 50% in 10 years" seems kind of baseless, so I was asking you how you arrived at that conclusion.
Posted on 1/5/11 at 5:04 pm to NC_Tigah
quote:
Ramification being, it's an environment that would treat the investing class disproportionately well vs those unable to save/invest.
So basically all of history minus "the Great Moderation" of 1990-current?
Posted on 1/5/11 at 5:32 pm to NC_Tigah
quote:
it's an environment that would treat the investing class disproportionately well vs those unable to save/invest.
The latter group has always been screwed anyway.
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