Devaluation Thread Continued

[Joe]

Here however you seem to have a very common misunderstanding of the relationship between debt and issuing of fiat currency. Since most currencies are not backed by a reserve (gold or otherwise), when a central bank prints money (or QE or whatever), it is not taking out a debt that needs to be paid at a later time. It owns the printing presses and the monopoly on legal tender, so its constraints on printing are not a limited amount that can be printed without going into debt. Rather the constraint is devaluation of the currency (ie inflation). So for example, the European Central Bank can print forever, but its Euros will only remain valuable as long as people want to keep trading them for goods and services.

When most governments (other than banana republics) print money for deficit spending, they issue bonds (sovereign bonds, gilts, treasury bonds, etc.) to back up that debt. Otherwise inflation would ensue, even Keynes would be on-board with this. Your Econ 101 appears a little rusty...

Bonds are a form of debt. The US issues bonds that are purchased by China, Japan, etc. If the USA at some point decides not to honor the interest payments, i.e. default, most - if not all economists - anticipate a global economic maelstrom like none of us have ever seen.

You seem to be suggesting that deficit spending is perfectly fine because the government can print money freely. Taken to it's logical conclusion then the government can all give us a guaranteed income of a million dollars a year.

 

[Davidglen77]

I lived in Argentina for 7 years full time, save for a trip back to the US each year for a few weeks, and other trips to bordering countries. What I really valued in Argentina were the personal relationships I had, I miss some of my friends terribly, the intimacy of some friendships. I also met the love of my life who I was with for 5 years, and unfortunately our relationship ended, when that happened Argentina became a bit to much for me to bear alone. I also liked the fact that I had very affordable health insurance (which thankfully I hardly ever had to use) but it was nice to know that it was there if I ever needed it. Thanks to Obamacare I was able to get full coverage for only $280 per month. Now that I live back in the US and have been here for a few months I must say that I continue to miss the closeness of my Argentine friendships. What I don't miss is the economic mess that Argentina is. I live a very middle class life, but people here have access to things that many Argentines unfortunately will never be able to access due to the inept politics that Argentina swears by. All of my colleagues own or lease relatively new cars, either rent (no garantía necessary) or own a nice or modestly nice home or apartment, have abundant food, gym memberships and plenty of clothes and seem relatively happy. None of the people I have asked go to a psychologist or psychiatrist regularly. 95% of my friends in Argentina went to some kind of therapy. Today in my office we did our secret santa and lunch. While everybody exchanged gifts, afterwards everybody sheepishly shook each others hands, and I felt a pang of sadness that I couldn't hug or kiss anyone and say Feliz Navidad. I felt distant and disconnected and asked a good friend who I work with if I could give her a Christmas kiss and hug. She let me and said she understood how I felt. That is what Argentina has left me with, 'cariño'. But unfortunately I don't know if that outweighs the blackouts, protests, strikes, money issues and low salaries of Argentina. Maybe I am shallow or materialistic, I never thought of myself that way, but today made me think, for a few minutes I wished I was back in Argentina surrounded by my friends with our holiday brindis.

 

[nikad]

I lived in Argentina for 7 years full time, save for a trip back to the US each year for a few weeks, and other trips to bordering countries. What I really valued in Argentina were the personal relationships I had, I miss some of my friends terribly, the intimacy of some friendships. I also met the love of my life who I was with for 5 years, and unfortunately our relationship ended, when that happened Argentina became a bit to much for me to bear alone. I also liked the fact that I had very affordable health insurance (which thankfully I hardly ever had to use) but it was nice to know that it was there if I ever needed it. Thanks to Obamacare I was able to get full coverage for only $280 per month. Now that I live back in the US and have been here for a few months I must say that I continue to miss the closeness of my Argentine friendships. What I don't miss is the economic mess that Argentina is. I live a very middle class life, but people here have access to things that many Argentines unfortunately will never be able to access due to the inept politics that Argentina swears by. All of my colleagues own or lease relatively new cars, either rent (no garantía necessary) or own a nice or modestly nice home or apartment, have abundant food, gym memberships and plenty of clothes and seem relatively happy. None of the people I have asked go to a psychologist or psychiatrist regularly. 95% of my friends in Argentina went to some kind of therapy. Today in my office we did our secret santa and lunch. While everybody exchanged gifts, afterwards everybody sheepishly shook each others hands, and I felt a pang of sadness that I couldn't hug or kiss anyone and say Feliz Navidad. I felt distant and disconnected and asked a good friend who I work with if I could give her a Christmas kiss and hug. She let me and said she understood how I felt. That is what Argentina has left me with, 'cariño'. But unfortunately I don't know if that outweighs the blackouts, protests, strikes, money issues and low salaries of Argentina. Maybe I am shallow or materialistic, I never thought of myself that way, but today made me think, for a few minutes I wished I was back in Argentina surrounded by my friends with our holiday brindis.

I am sorry to hear you feel like this, however we never have everything we want, there is always something missing I guess it is not completely bad as it keeps us going and looking for better horizons. Argentina will be there for you anytime you want to come for a visit or vacation ( if the KKs do not finally destroy it, which is unlikely and they will be gone for good very soon - cross fingers - )

 

[sesamosinsal]

When most governments (other than banana republics) print money for deficit spending, they issue bonds (sovereign bonds, gilts, treasury bonds, etc.) to back up that debt. Otherwise inflation would ensue, even Keynes would be on-board with this. Your Econ 101 appears a little rusty...

Bonds are a form of debt. The US issues bonds that are purchased by China, Japan, etc. If the USA at some point decides not to honor the interest payments, i.e. default, most - if not all economists - anticipate a global economic maelstrom like none of us have ever seen.

You seem to be suggesting that deficit spending is perfectly fine because the government can print money freely. Taken to it's logical conclusion then the government can all give us a guaranteed income of a million dollars a year.

Argentina pretty much does the same thing as the U.S. The mechanism is a bit different, though. Here they don't issue bonds for the central bank to buy (like the U.S.). The BCRA just prints money and sends it to the national government directly in the form of "adelantos transitorios" (temporary cash advances).

Your comment about China and Japan buying U.S. bonds is accurate, but they have not been the primary buyers since QE. The purpose of QE was to force investors looking to park their funds in secure US bonds to instead invest them into riskier assets, i.e. stocks. This is why the stock market has reached the levels it has. The Fed loves a good bubble.

The main holder of U.S. bonds since 2008 has been the Federal Reserve:

The U.S. will never default on its debt. Ever. They can just issue new bonds to pay the interest, and the Fed will be the buyer of last resort. That is precisely why U.S. bonds are considered to be safe-haven assets. However, when the dollar starts to lose value (e.g. through agreements that evade the dollar as the currency of trade, the internationalization of other major currencies such as the RMB, etc.) and the Fed doesn't raise interest rates (it won't), the whole thing is going to blow up in the Fed's face.

And for all of this talk about them raising interest rates next year -- ha ha ha -- I'll believe it when I see it.

 

[Matiasba]

At least you're not delusional about the problems that exist in your country of origin. I can't say as much for our board members whose country of origin is Argentina, some of whom have liked your post.

This message... are you talking of me? why dont you just say my name? whats your point? we all know we dont agree about this government, that I think that economic policies of the Ks are helping lots of people, that numbers say that poverty has decreased, etc,... whats your point? or maybe you wasnt talking of me?

 

[ghost]

but I'll take it any day over the austerity being doled out in Europe.

OK, bend over. It's all yours!

 

[Pensador]

This message... are you talking of me? why dont you just say my name? whats your point? we all know we dont agree about this government, that I think that economic policies of the Ks are helping lots of people, that numbers say that poverty has decreased, etc,... whats your point? or maybe you wasnt talking of me?

Words have no power to impress the mind without the exquisite horror of their reality.

Your infrastructure and power are in a shambles!
Your Internet is slow and dysfunctional!
Average wages are worthless!
Everything is subsidized because your average wages are worthless!
You have no military so you cannot even defend yourselves!
Moto choros enjoy celebrity status!
Half the country lines up for blocks in front of the bank on the first of the month for hand outs!
Inflation is sky rocketing!
Both your President and Vice President are dodging serious allegations of corruption!
Import restrictions are choking the life out of new and established businesses resulting in loses of both jobs and tax revenue!
Many of your talented educated youth are fleeing the country for better destinations and more opportunities. Effectively reducing the talented educated labor pool in your country!

And beyond all of that and much more no one in their right mind would believe any numbers relating to poverty statistics from the the same government that lies about everything else relating to economics.

All of the above is subject to change as is everything else. But that change is going to require that Argentinians look at the reality around them, accept it for what it really is and decide to do something about it. I don't see that happening any time soon. Because for to many Argentinians what I just outlined above is the norm and all they have ever known so they have no other standards or conditions to measure their reality against.

I hope it does change one day!

 

[French jurist]

The U.S. will never default on its debt. Ever.

Agree on everything except on "ever". It will happen at some point in the next 50 years (maybe sooner, within 15/20 years). Then the solution will be a caveman's one (my mace is bigger than yours).

US have defaulted (by proxy) quite a few times during the past 200 years (like 5 or 6)

 

[sesamosinsal]

Agree on everything except on "ever". It will happen at some point in the next 50 years (maybe sooner, within 15/20 years). Then the solution will be a caveman's one (my mace is bigger than yours).

US have defaulted (by proxy) quite a few times during the past 200 years (like 5 or 6)

There are lots of debates about whether or not the U.S. has ever defaulted. Some say yes, others say no.

Most of these "incidents" occurred when the US dollar was linked to gold or silver. That hasn't been the case since convertibility ended in 1971, and the closest the US came to default since then was 1979. It wasn't really a true default, however. They were delayed payments. A technical default, perhaps?

The monetary regime is much different in the U.S. nowadays. The currency is a fiat one, and so the game is still unlike any other played before. Maybe you're right that "never" is a bad word, but it's hard to imagine that the only country in the world with the ability to acquire all debt in its national currency would subsequently default on it, a la Argentina. The only reason it would happen is because of the bozos in Congress. There will never be a shortage of dollars. Even if foreign investors decide to stop investing in treasury bonds (and WHAT will happen with all that green paper? Nobody wants to think about that...), the Fed will always be there, and if it is not, you can expect the Fed Chairman at the time to be Redrado'd.

 

[nlaruccia]

Words have no power to impress the mind without the exquisite horror of their reality.

Your infrastructure and power are in a shambles!
Your Internet is slow and dysfunctional!
Average wages are worthless!
Everything is subsidized because your average wages are worthless!
You have no military so you cannot even defend yourselves!
Moto choros enjoy celebrity status!
Half the country lines up for blocks in front of the bank on the first of the month for hand outs!
Inflation is sky rocketing!
Both your President and Vice President are dodging serious allegations of corruption!
Import restrictions are choking the life out of new and established businesses resulting in loses of both jobs and tax revenue!
Many of your talented educated youth are fleeing the country for better destinations and more opportunities. Effectively reducing the talented educated labor pool in your country!

And beyond all of that and much more no one in their right mind would believe any numbers relating to poverty statistics from the the same government that lies about everything else relating to economics.

All of the above is subject to change as is everything else. But that change is going to require that Argentinians look at the reality around them, accept it for what it really is and decide to do something about it. I don't see that happening any time soon. Because for to many Argentinians what I just outlined above is the norm and all they have ever known so they have no other standards or conditions to measure their reality against.

I hope it does change one day!

I agree. Argentines have accepted the corruption and insecurity as the norm. It's very sad. People have no pride in their country anymore. Everyone calls it a "pais de mierda" and as long as they keep saying that they'll keep believing that, and things will never change. Christmas Eve morning I walk outside and a young woman with headphones on opens a package and just throws it on the sidewalk. I told her that there was a garbage can right next to her to throw it into. She totally ignored me since she didn't care. I told her she was a pig. She still didn't care. She had no reaction. Indifference is one of the biggest problems that Argentines have.