They Say pencil-neck geeks are a dime a dozen. I am looking for the guy supplying the dimes.
Don't worry. This Pencilneck says everything is fine
For instance, if the USD deposits draw 5% annual interest and the USD loses 3% of purchasing power every year, the owner of the dollar still earned a 2% positive return.
There is another interesting feature of interest-bearing bonds: as interest rates decline, the bond rises in value.This sets up the delicious irony of the Chinese whining about their $1 trillion in U.S. Treasury bonds earning such low yields, while in fact their holdings have greatly increased in value as interest rates have declined.
Yeah, why would china be whining? Oh right, bond yields aren't just negative for the bonds they are selling now - and China can see what the money printing will do to inflation and make their returns negative as well. Yes a 3% bond is worth more than a 1% bond, but both suck at 5% inflation.
The yen is currently viewed as a "safe haven" due to the great stability and wealth of Japan. But two decades of massive deficit spending and debt accumulation are finally putting pressure on Japan, Inc., and those willing to bet the yen will retain its current purchasing power for five more years are taking on an extraordinary amount of risk that has yet to be priced into the yen. Once again, the question boils down to how much of the yen's purchasing power is in the hands of its issuers. For 20 years, Japan's domestic purchases of its own debt kept the global market at bay. As domestic savings rates dry up and the ageing Baby Boomers start cashing in their bonds and drawing pensions, the system may finally be exposed to global market "pricing" of risk. That exposure could destabilize the yen's position as "safe haven." Whatever your calculus, it is self-evident that of all the issuers of major currencies, the U.S. retains the most control over the elements the market uses to "price" the risk that the dollar's value as a means of exchange and store of value is unsettled.
Any nation that promises to pay interest on bonds denominated in its currency must be able to enforce its claim on the national income via taxation. If the national income is too unreliable or unstable to support the claim, the international community loses faith in the currency and it depreciates to zero even if the currency isn't printed with abandon.
Its taking a John Roberts level of self delusion to keep both points in your head. How do you think the Yen has a big revaluation coming because they have reached the end of their internal savings, but that it won't happen to the dollar, because Americans have less savings than the Japanese? (you know unless those 401Ks and IRAs are forced into "safer bonds") Likewise, he compares the dollar to the Euro
Does anyone seriously believe the European Central Bank (ECB) retains sufficient global control over the euro's valuation to mandate its value five years hence? The currency's viability is in question even now, never mind in five years. Clearly, much of the market's pricing of the euro's value is outside the control of the euro's issuers; whether they admit it or not is irrelevant.
The Euro is different from the dollar how? No one has "control" over the currency. The people who use and spend the money do. Its like saying XYZ corp "controls" 80% of the market - you know - till they don't because ZYX corp now makes a better competing product. Its okay, its debt we owe to ourselves!
Who cares if all of the SS benefits and govt pensions get paid? (http://politicalcalculations.blogspot.com/2011/12/winter-2011-edition-who-owns-us.html
) What about about State, local and private debt owed abroad?
. The article is correct its not just the number of dollars present in the system, or monetary policy that determine value, but the expectation that dollars will hold their value after investment. Bond yields are currently negative - because of the printing! The FED is already having to proxy purchase the bonds to even keep the yields where they are. Do you really expect to have more/same purchasing power in 3 years? 5 ? No? Well neither do foreigners
Looks like they stopped accumulating debt too, doesn't it. Why?
Oh right, there is no possible way to pay it.
This is the old "the dollar sucks the least " pitch. The US income IS Unstable. This is the 5th year of $1 Trillion deficits, and that trend shows no sign of stopping. The unfunded liabilities are already unsustainable and unpayable. The elephant is not only in the room, its standing on this guy's foot.
I have made the case technically for over a year that the U.S. dollar has reversed its long downtrend and is now in a structural advance. If we examine the multiple dynamics of FX, foreign trade and the market's pricing of currencies, we can discern a strong fundamental case for this advance as well. There is no magic in free-floating currencies, there is only the market discovering the price of numerous inputs, only some of which are easily quantifiable.
The Dollar is going to win the race to the bottom! Hurray!