I think this is the beginnings of an economy based on perpetual growth and fossil fuel energy running headlong into geological energy constraints. Basically I see an undulatory downward path for the rest of my life. From here out, I think any rallies in our economic condition are going to be met with spiking commodity prices that knock us right back down.
Posted: Fri Apr 08, 2005 11:53 am Post subject: Government honoring its debts
QUESTION #1:
As fiscal matters worsen, should we still remain confident in the "guarantees" we've received with respect to our mortgages (e.g., Fannie Mae), bank deposits (e.g., FDIC), and government debt (e.g., Treasuries)?
QUESTION #2:
If there was a crisis in any of the three above, it might then be difficult for the Government to find buyers for new bond issues. So the Government, I guess, would just "print money", thereby potentially hyperinflating our currency. So, in the event of a mortgage, bank or bond crisis, as above, should we fully expect the government to honor its (and the nation's banks') debts, so as to now pay us off in hyperinflated currency?
Does this dynamic sound about right, or would you expect things to play out differently?
Joined: Sep 25, 2004 Posts: 4690 Location: Boston, MA
Posted: Fri Apr 08, 2005 12:31 pm Post subject:
Quote:
QUESTION #2:
If there was a crisis in any of the three above, it might then be difficult for the Government to find buyers for new bond issues. So the Government, I guess, would just "print money", thereby potentially hyperinflating our currency. So, in the event of a mortgage, bank or bond crisis, as above, should we fully expect the government to honor its (and the nation's banks') debts, so as to now pay us off in hyperinflated currency?
The Weimar Republic hyperinflated its currency in order to pay off its war reparations from WW1. We might see something like this in the future. The USA has no way of paying back all of our debt in today's dollars. But we could pay back 10 cents on the dollar. Therefore, we must basically inflate the currency by 1000% in order to have a chance of paying back the debt.
In would not surprise to see a massive increase in inflation in the coming years. Gold may very well reach $10,000 an ounce+ by 2009. (I am making a complete guess here). But in today's dollars, gold will have only reached $1000. The government will have created trillons of new dollars in order to try to prop up the economy and the banks.
But to answer your first question...
Quote:
QUESTION #1:
As fiscal matters worsen, should we still remain confident in the "guarantees" we've received with respect to our mortgages (e.g., Fannie Mae), bank deposits (e.g., FDIC), and government debt (e.g., Treasuries)?
NOOOO!!! All of these "guarantees" will fail if the dollar tanks and peak oil drains the world economy. Even if you get your money back, it won't be worth as much because the only way to give you anything back was to print more money (thus decreasing the value of each dollar). _________________ "www.peakoil.com is the Myspace of the Apocalypse."
Joined: Oct 12, 2004 Posts: 608 Location: The Pit of Despair
Posted: Fri Apr 08, 2005 1:06 pm Post subject: Re: Government honoring its debts
Zentric wrote:
QUESTION #1:
As fiscal matters worsen, should we still remain confident in the "guarantees" we've received with respect to our mortgages (e.g., Fannie Mae), bank deposits (e.g., FDIC), and government debt (e.g., Treasuries)?
Question: What guarantee have you received with respect to your mortgage? Or are you talking about mortgage-backed securities? In the end, they are guaranteed by the property, so that should be safe enough for the foreseeable future.
As far as bank deposits and government debt are concerned...if the banks and government default on debt, there have to be much larger problems than you being able to cash in that savings bond or get the return on your CD. Banks will fail only when sufficient lendees fail to pay back loans, so you're already talking about a huge unemployment problem and the deflationary pressure caused by it. Actions by the Fed to increase the money supply will be meant to combat the deflationary pressure, not to hyperinflate the currency as others have suggested. Inflation may be in the forecast, but it may be kept in check by a combination of the Federal Reserve and a weak labor market in the US. There is no reason that the US national debt would ever have to be repaid immediately.
QUESTION #2:
The Weimar Republic hyperinflated its currency in order to pay off its war reparations from WW1. We might see something like this in the future.
I don't think this was the reason. It doesn't make sense. The reparations had to be paid in gold or some other hard currency, like coal and iron. The depletion of gold in the Weimar's vaults would result in the Reich Mark beomming worthless and the need to print higher valued Reich Marks to offset the worhless ness.
The same would be true of the US. As the dollar loses value, it will take more dollars to buy what just a few did in former times. Only when confidence in a currency or a nation's economy returns does its value improve.
The hyperinflation that plagued many of the nations of South America in the 1980s was offset by millions of people hording US dollars in their private stash. When the local currencies crashed, people were able to use these dollars to live off of. I highly doubt enough Americans today have a hidden stash of foreign currency to live off of when the dollar economy begins to hyperinflate. Even if some do, unfamiliarity with foreign currency may cause it to be not recognized nor accepted in trade. What happens in this situation can only be a guess.
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