Fed Going Nuclear - Will the PP get radiation poisoning?

[ahhrunforthehills]

I hate to be doom & gloomish, but...

I know many of you (or at least some of you) have read Dalio's Principles for Navigating Big Debt Crises (for those that haven't, it is free on Bridgewater's website). Anyway, with every fed announcement I keep thinking about the final stage in the long-term debt cycle that he calls Monetary Policy 3 which includes helicopter money, increased debt financing, etc.

According to his theory, we hit a once every 80-100 year deflationary depression that will take a decade to come out of (i.e. "lost decade").

So here we are, the government is getting close to raining money, the Fed is buying Treasuries and mortgage-backed securities (MBS) to the tune of $125 billion PER DAY. It sounds like they are soaking up everything toxic in the investing world on their balance sheet. "Hey pension funds, wanna use some of those dangerous securitized subprime car loans that were about to go belly-up as collateral on a risk-free loan?!" "Anybody got some crappy securitized school loans they wanna hock in our pawn shop?!!?" $hit is crazy.

Anyways, things are obviously unprecedented.

Meanwhile, the US is going to print into infinity. It's citizens will likely feel much less hardship at the expense of the rest of the world (the benefits of diluting a strong US Dollar that the world needs to function).

However, I can't imagine how this plays out well for the long-term.

I think it is very reasonable to assume that China (and some other countries) will recover much quicker from the Coronavirus and be able to reap rewards in multiple ways. Meanwhile, the spike in animosity toward's the US's deficit spending would have to increase.

If Dalio's interpretation of history is correct, it certainly sounds like the US is headed towards a lost decade. One thing that DOESN'T seem to have ever happened throughout history is a country experiencing a lost decade (due to the end of a long-term debt cycle) while SIMULTANEOUSLY losing world reserve currency status over that decade.

IMHO, Americans are in no way prepared to live in a world where they are no longer special by birthright. A country that can no longer be financed by crazy deficit spending is vastly different then the world we know. Not to mention that higher taxes can be expected.

It makes me wonder if the PP could hold up to a situation where the US is steadily diluted out of being the world reserve currency while the long-term debt cycle comes to an end. If someone was in vested in a PP, it is easy to see gold being constantly rebalanced for increasingly devalued assets (making you less wealthy in real-terms overall).

And what will it mean for the PP when the difference between real inflation and "official" inflation increases? What is the average return of the PP? 8.5%? What's real inflation been (not counting accounting tricks like hedonics and geometric weighting), 7%+? Equities will keep going up, capital gains taxes will be paid, but you will be more poor overall.

Invest in a foreign market? Well, then you will get stuck paying an additional tax for the foreign currency appreciation. I hate to use the analogy, but it really does seem like reorganizing deck chairs on the titanic.

It seems like the only real option is to prepare another boat and find another continent to live on Even though I say that "tongue-in-cheek", I honestly am having a hard time seeing how else to dodge what seems like the inevitable bullet.

Thoughts?

[pmward]

A couple things. First, if you invest in a foreign asset, and their currency appreciates, your asset appreciates by the currency spread. There is no "hidden tax" here. It works in your favor. We have been getting a "hidden tax" the last few years for holding foreign assets, as our currency has appreciated vs the currency the assets are in. Second, as Dalio also says in that book, it is *impossible* for a developed country with all of its debt denominated in its local currency to go into a hyperinflation. So, if the Fed does overdo it (at this point we are in a deflation, so what they are doing is only trying to bring us back to homeostasis, not generate inflation) what happens? Using Dalio's model once again, inflation increases and growth may or may not follow suit. So let's look at each of those potential scenarios.

Inflation increases, growth increases: Stocks and gold do well. Cash remains inline with inflation. Bonds take a beating.

Inflation increases, growth decreases (or stagnates): Well this was the exact scenario in the 70's. The PP did well enough in the 70s. Gold would do very well. Cash remains in line with inflation. Stocks and bonds take a beating.

Either way, you're good. Nothing to worry about. This is just another day in the office for the PP.

Also, losing world reserve currency status, while slightly painful in the near term, would be a blessing long term. Most of the reason why we keep having these liquidity squeezes every couple years since 2008 stem from our global reserve/trade currency status.

[sophie]

Gold is the magic ingredient here. The answer is that Boglehead stock/bond portfolios, regardless of how they are sliced and diced, will get radiation poisoning. The PP or any variants that hold at least a 20% stake in gold will barely notice any problems. Lower gold stakes (e.g. the Desert Portfolio) will perform somewhere in between.

I've seen a few articles now predicting that we are in for a 1970s stagflation. That might be true. Or it might not. Either way, we will be fine! And as always, you have to ask this question: If you aren't in the PP, what will you invest in, and would that more conventional portfolio do better?

[I Shrugged]

I agree with Sophie.

The longer I go with the PP the harder it is for me to come up with better alternatives. I was using a half assed PP prior to 09, so this is the second big test for me personally. I’m willing to ride it like Slim Pickens riding the bomb in Doctor Strangelove. Yee Hawww!

I’m still open to the debate though.

[ahhrunforthehills]

A couple things. First, if you invest in a foreign asset, and their currency appreciates, your asset appreciates by the currency spread. There is no "hidden tax" here.

The underlying foreign asset may appreciate in price by the currency spread, but not in your actual value, no?

Let's say that the value of Garbage Pale Kids Cards are stable. The price would go up over time due to targeting inflation.

2025: Value of my Garbage Pale Kids collection = $2500 USD, $2600 CAD
2026: Value of my Garbage Pale Kids collection = $3000 USD, $2700 CAD
2027: Value of my Garbage Pale Kids collection = $3500 USD, $2800 CAD

You can see that the value of the USD and CAD has gotten diluted compared to the value of Garbage Pale Kids Cards. However, CAD was diluted less because their currency appreciated in value again the USD.

If I bought it in 2025 and sold it in 2027 in America, I would pay tax on the $1,000 gain. If I bought it in Canada and sold it in Canada I would only pay on a $200 gain. But because I am an american, I owe additional tax on the currency side of the transaction since the currency fluctuation between 1:1.04 and 1:1.25

In other words, in 2025, I would have converted my USD to CAD to purchase the cards paying $2600 CAD. Then sold them 2 years later for a $200 CAD gain. But I still need to convert those $2800 CAD back to USD. I would pay the tax on the appreciation of the CAD to the USD.

Meanwhile, if I was simply a Canadian, I would have just paid tax on the $200 gain.

Now replace those cards with an ounce of gold.

Am I missing something here?

[Maddy]

the Fed is buying Treasuries and mortgage-backed securities (MBS) to the tune of $125 billion PER DAY. It sounds like they are soaking up everything toxic in the investing world on their balance sheet. "Hey pension funds, wanna use some of those dangerous securitized subprime car loans that were about to go belly-up as collateral on a risk-free loan?!" "Anybody got some crappy securitized school loans they wanna hock in our pawn shop?!!?" $hit is crazy.

Just as a thought exercise (and keeping in mind that I'm a real newbie when it comes to things economic), what would happen if the Fed were loaded up with garbage and then shot dead?

[dualstow]

..
I’m willing to ride it like Slim Pickens riding the bomb in Doctor Strangelove. Yee Hawww!
..

I think things will turn out better for you and for the pp in general than they did for that guy.

[ahhrunforthehills]

the Fed is buying Treasuries and mortgage-backed securities (MBS) to the tune of $125 billion PER DAY. It sounds like they are soaking up everything toxic in the investing world on their balance sheet. "Hey pension funds, wanna use some of those dangerous securitized subprime car loans that were about to go belly-up as collateral on a risk-free loan?!" "Anybody got some crappy securitized school loans they wanna hock in our pawn shop?!!?" $hit is crazy.

Just as a thought exercise (and keeping in mind that I'm a real newbie when it comes to things economic), what would happen if the Fed--which I understand to be a private entity owned entirely by banks) were loaded up with garbage and then shot dead?

Ironically, it is my understanding that the Fed draws its operating income primarily from the interest it receives on government securities and Treasuries that it purchases through open-market operations (instead of from Congress so it can remain independent). I guess they will need a GoFundMe page soon?

But it is my understanding that the Fed needs to settle up at the end of the year with the treasury department. All gains/losses get transferred over to Treasury. I assume others here can confirm?

[Maddy]

But it is my understanding that the Fed needs to settle up at the end of the year with the treasury department. All gains/losses get transferred over to Treasury. I assume others here can confirm?

And if the Treasury Department, at the time of settling up, were to simply say "Not this time. . ." Then what?

[Hal]

..
I’m willing to ride it like Slim Pickens riding the bomb in Doctor Strangelove. Yee Hawww!
..

I think things will turn out better for you and for the pp in general than they did for that guy.

+1

https://www.youtube.com/watch?v=snTaSJk0n_Y

[jalanlong]

I have been contemplating this very thing. The Fed is now buying corp bond ETFs to keep that market afloat. I assume at some point they could elect to purchase stocks to place a floor under that market as well. That is when I start to get worried. It is like going to a casino and they tell you up front that the dice are weighted so as to never give you a bad outcome. And if things go bad they will just give you money to cover your losses. How long can that last?

But mostly I feel an uneasiness having my savings depending on a combination of public perception (either euphoria or panic) and market manipulation. As for what I could do instead, my only answer would be what my grandparents (and their parents) did which seemed to work out well for them. Keep my funds in the highest yield FDIC bank instruments I can find. Stay away from all debt. Use my cash to secure better terms on large purchases and buy in bulk for smaller purchases. Use cash back cards. In essence, try to maximize the use and return on my money wherever possible, putting the control bank in my hands instead of gambling my savings on events I cannot control.

Those are my late night thoughts. I haven't pulled the trigger yet on them.

[CT-Scott]

As for what I could do instead, ...

Probably worth a thread of its own (like my 401k loan thread), but some believe (and it makes sense to me) that the Federal Reserve has basically locked itself in to keeping rates really, really low for a long time (feel free to disagree). If so, and you own a home, perhaps it could be worth it to refinance to a new 30-year loan, or even an ARM to lower your mortgage. Or similarly, get more cash out via a home equity loan.

[ahhrunforthehills]

And if the Treasury Department, at the time of settling up, were to simply say "Not this time. . ." Then what?

I suspect that would just print more Federal Reserve Notes to cover their losses. Then without being tied to the Fed, they could print up all the money they wanted for themselves, friends, families, cocaine, fancy pocket-protectors... whatever they are into I guess?

[pmward]

A couple things. First, if you invest in a foreign asset, and their currency appreciates, your asset appreciates by the currency spread. There is no "hidden tax" here.

The underlying foreign asset may appreciate in price by the currency spread, but not in your actual value, no?

Let's say that the value of Garbage Pale Kids Cards are stable. The price would go up over time due to targeting inflation.

2025: Value of my Garbage Pale Kids collection = $2500 USD, $2600 CAD
2026: Value of my Garbage Pale Kids collection = $3000 USD, $2700 CAD
2027: Value of my Garbage Pale Kids collection = $3500 USD, $2800 CAD

You can see that the value of the USD and CAD has gotten diluted compared to the value of Garbage Pale Kids Cards. However, CAD was diluted less because their currency appreciated in value again the USD.

If I bought it in 2025 and sold it in 2027 in America, I would pay tax on the $1,000 gain. If I bought it in Canada and sold it in Canada I would only pay on a $200 gain. But because I am an american, I owe additional tax on the currency side of the transaction since the currency fluctuation between 1:1.04 and 1:1.25

In other words, in 2025, I would have converted my USD to CAD to purchase the cards paying $2600 CAD. Then sold them 2 years later for a $200 CAD gain. But I still need to convert those $2800 CAD back to USD. I would pay the tax on the appreciation of the CAD to the USD.

Meanwhile, if I was simply a Canadian, I would have just paid tax on the $200 gain.

Now replace those cards with an ounce of gold.

Am I missing something here?

The value of the tax is the same as well.

[Maddy]

I'm imagining a situation where the Treasury refuses to take any more of the Fed's garbage and begins issuing its own currency. Essentially shoots the Fed dead, leaving the individual banks holding the bag. FDIC would be used to make depositors whole, but the banks would be left hanging. Is this a credible scenario?

[pmward]

I'm imagining a situation where the Treasury refuses to take any more of the Fed's garbage and begins issuing its own currency. Essentially shoots the Fed dead, leaving the individual banks holding the bag. FDIC would be used to make depositors whole, but the banks would be left hanging. Is this a credible scenario?

Why on earth would the right hand shoot the left hand? It makes no sense.

[ahhrunforthehills]

A couple things. First, if you invest in a foreign asset, and their currency appreciates, your asset appreciates by the currency spread. There is no "hidden tax" here.

The underlying foreign asset may appreciate in price by the currency spread, but not in your actual value, no?

Let's say that the value of Garbage Pale Kids Cards are stable. The price would go up over time due to targeting inflation.

2025: Value of my Garbage Pale Kids collection = $2500 USD, $2600 CAD
2026: Value of my Garbage Pale Kids collection = $3000 USD, $2700 CAD
2027: Value of my Garbage Pale Kids collection = $3500 USD, $2800 CAD

You can see that the value of the USD and CAD has gotten diluted compared to the value of Garbage Pale Kids Cards. However, CAD was diluted less because their currency appreciated in value again the USD.

If I bought it in 2025 and sold it in 2027 in America, I would pay tax on the $1,000 gain. If I bought it in Canada and sold it in Canada I would only pay on a $200 gain. But because I am an american, I owe additional tax on the currency side of the transaction since the currency fluctuation between 1:1.04 and 1:1.25

In other words, in 2025, I would have converted my USD to CAD to purchase the cards paying $2600 CAD. Then sold them 2 years later for a $200 CAD gain. But I still need to convert those $2800 CAD back to USD. I would pay the tax on the appreciation of the CAD to the USD.

Meanwhile, if I was simply a Canadian, I would have just paid tax on the $200 gain.

Now replace those cards with an ounce of gold.

Am I missing something here?

The value of the tax is the same as well.

How so?

For simplicity imagine a 100% tax rate paid. An American $2500 USD card became worth only $3500 USD card (again, the value of the card is stable... the price change is due to inflation). Imagine if they ripped a piece of your card off to cover the taxes. An American would have 29% of their card ripped off to taxes. The Canadian only lost 7% of his card. The American cannot transact in a foreign currency without being exposed to additional taxes.

At the end of the day the Canadian operating in Canadian Dollars has 93% of his card. The American using USD has 61% of his card.

If the American used Canadian Dollars, he would pay tax on the currency gain and the Canadian inflation increase. He would still end up with a lot less than the Canadian that had 93% of his card left.

[shekels]

And if the Treasury Department, at the time of settling up, were to simply say "Not this time. . ." Then what?

I suspect that would just print more Federal Reserve Notes to cover their losses. Then without being tied to the Fed, they could print up all the money they wanted for themselves, friends, families, cocaine, fancy pocket-protectors... whatever they are into I guess?

First off Hal I like the dog in your Avatar
Next,The Fed has been adding to it's Balance sheet for a LONG time.
https://fred.stlouisfed.org/series/WALCL
Then they can just Monetize the Debt, when they Can not or Will not run off the excesses from the Fed's Balance Sheet.
https://www.peakprosperity.com/the-fede ... g-us-debt/
Some people may think this is a Good, Some people may think not so good.
With the Dollar being the Reserve Currency the Fed will Print Money out of the air to provide the Liquidity the Dollar starved world needs.
So Yes, They are Printing to Purchase everything possible.
So why not purchase Short and Long Dated Treasury and control the whole Yield Curve aka YCC just like Japan.
Well guess what.

So how did the FED get into this MESS?

[pmward]

A couple things. First, if you invest in a foreign asset, and their currency appreciates, your asset appreciates by the currency spread. There is no "hidden tax" here.

The underlying foreign asset may appreciate in price by the currency spread, but not in your actual value, no?

Let's say that the value of Garbage Pale Kids Cards are stable. The price would go up over time due to targeting inflation.

2025: Value of my Garbage Pale Kids collection = $2500 USD, $2600 CAD
2026: Value of my Garbage Pale Kids collection = $3000 USD, $2700 CAD
2027: Value of my Garbage Pale Kids collection = $3500 USD, $2800 CAD

You can see that the value of the USD and CAD has gotten diluted compared to the value of Garbage Pale Kids Cards. However, CAD was diluted less because their currency appreciated in value again the USD.

If I bought it in 2025 and sold it in 2027 in America, I would pay tax on the $1,000 gain. If I bought it in Canada and sold it in Canada I would only pay on a $200 gain. But because I am an american, I owe additional tax on the currency side of the transaction since the currency fluctuation between 1:1.04 and 1:1.25

In other words, in 2025, I would have converted my USD to CAD to purchase the cards paying $2600 CAD. Then sold them 2 years later for a $200 CAD gain. But I still need to convert those $2800 CAD back to USD. I would pay the tax on the appreciation of the CAD to the USD.

Meanwhile, if I was simply a Canadian, I would have just paid tax on the $200 gain.

Now replace those cards with an ounce of gold.

Am I missing something here?

The value of the tax is the same as well.

How so?

For simplicity imagine a 100% tax rate paid. An American $2500 USD card became worth only $3500 USD card (again, the value of the card is stable... the price change is due to inflation). Imagine if they ripped a piece of your card off to cover the taxes. An American would have 29% of their card ripped off to taxes. The Canadian only lost 7% of his card. The American cannot transact in a foreign currency without being exposed to additional taxes.

At the end of the day the Canadian operating in Canadian Dollars has 93% of his card. The American using USD has 61% of his card.

If the American used Canadian Dollars, he would pay tax on the currency gain and the Canadian inflation increase. He would still end up with a lot less than the Canadian that had 93% of his card left.

You're looking at the wrong thing. Your same argument could be made about someone in the U.S. holding TIPS. Why would someone hold TIPS and pay this "hidden tax"? Because it's better than not. Would you rather take the currency appreciation and pay tax on it, or take the currency loss straight up? Why even bother with investing in assets that appreciate if you don't want to pay tax on the price increase? In an inflationary period in the U.S. (1970s, and in smaller doses the early 2000s) foreign always out performed U.S. stocks for a U.S. investor. Most of the difference between the two was the currency spread. If you don't want to pay capitol gains tax, don't invest. Keep your cash under your mattress. You'll see real quick which tax is bigger, inflation or capitol gains.

[ahhrunforthehills]

A couple things. First, if you invest in a foreign asset, and their currency appreciates, your asset appreciates by the currency spread. There is no "hidden tax" here.

The underlying foreign asset may appreciate in price by the currency spread, but not in your actual value, no?

Let's say that the value of Garbage Pale Kids Cards are stable. The price would go up over time due to targeting inflation.

2025: Value of my Garbage Pale Kids collection = $2500 USD, $2600 CAD
2026: Value of my Garbage Pale Kids collection = $3000 USD, $2700 CAD
2027: Value of my Garbage Pale Kids collection = $3500 USD, $2800 CAD

You can see that the value of the USD and CAD has gotten diluted compared to the value of Garbage Pale Kids Cards. However, CAD was diluted less because their currency appreciated in value again the USD.

If I bought it in 2025 and sold it in 2027 in America, I would pay tax on the $1,000 gain. If I bought it in Canada and sold it in Canada I would only pay on a $200 gain. But because I am an american, I owe additional tax on the currency side of the transaction since the currency fluctuation between 1:1.04 and 1:1.25

In other words, in 2025, I would have converted my USD to CAD to purchase the cards paying $2600 CAD. Then sold them 2 years later for a $200 CAD gain. But I still need to convert those $2800 CAD back to USD. I would pay the tax on the appreciation of the CAD to the USD.

Meanwhile, if I was simply a Canadian, I would have just paid tax on the $200 gain.

Now replace those cards with an ounce of gold.

Am I missing something here?

The value of the tax is the same as well.

How so?

For simplicity imagine a 100% tax rate paid. An American $2500 USD card became worth only $3500 USD card (again, the value of the card is stable... the price change is due to inflation). Imagine if they ripped a piece of your card off to cover the taxes. An American would have 29% of their card ripped off to taxes. The Canadian only lost 7% of his card. The American cannot transact in a foreign currency without being exposed to additional taxes.

At the end of the day the Canadian operating in Canadian Dollars has 93% of his card. The American using USD has 61% of his card.

If the American used Canadian Dollars, he would pay tax on the currency gain and the Canadian inflation increase. He would still end up with a lot less than the Canadian that had 93% of his card left.

You're looking at the wrong thing. Your same argument could be made about someone in the U.S. holding TIPS. Why would someone hold TIPS and pay this "hidden tax"? Because it's better than not. Would you rather take the currency appreciation and pay tax on it, or take the currency loss straight up? Why even bother with investing in assets that appreciate if you don't want to pay tax on the price increase? In an inflationary period in the U.S. (1970s, and in smaller doses the early 2000s) foreign always out performed U.S. stocks for a U.S. investor. Most of the difference between the two was the currency spread. If you don't want to pay capitol gains tax, don't invest. Keep your cash under your mattress. You'll see real quick which tax is bigger, inflation or capitol gains.

I think you may have missed my original point. I am not arguing that being invested in an appreciating asset is better than not. Of course it is.

The original point was that moving to another country (i.e. renouncing your Uncle Sam) seemed to be the only way someone could avoid the bullet. Whatever toxic assets are on the feds sheet may likely be the liability now of every taxpayer.

As long as you are a citizen, you (and your children) are going to take a hit.

Unless....

WE INVADE CANADA!

[pmward]

I think you may have missed my original point. I am not arguing that being invested in an appreciating asset is better than not. Of course it is.

The original point was that moving to another country (i.e. renouncing your Uncle Sam) seemed to be the only way someone could avoid the bullet. Whatever toxic assets are on the feds sheet may likely be the liability now of every taxpayer.

As long as you are a citizen, you (and your children) are going to take a hit.

Unless....

WE INVADE CANADA!

Haha. Well, the Fed is not acting in isolation. The whole world is doing the same thing. The last 12 years we have been stuck in a deflationary spiral. All the liquidity they've supplied was not even enough to average 2% inflation. Eventually the inflation will come back. But when that happens, will there be anywhere to hide? Or will it be a global inflationary spiral? Obviously, there will be some countries better than others. Either way, the PP will do just fine. Matter of fact, the PP should do better in inflation than in deflation, especially if it is inflation with growth (i.e. not stagflation) as then you would have 2 assets returning above inflation, and 1 keeping pace.

[stpeter]

It makes me wonder if the PP could hold up to a situation where the US is steadily diluted out of being the world reserve currency while the long-term debt cycle comes to an end.

What's your prediction on which currency will replace the U.S. dollar?

Euro? The euro area economy is even weaker than that in the U.S.

Yuan? The Chinese government hasn't even been able to guarantee convertibility between the external yuan and the internal renminbi, and as I understand it very little international commerce is denominated in yuan.

Any other candidates?

I don't disagree with some of your concerns, but an awful lot would need to happen for the dollar to lose its reserve currency status.

[ahhrunforthehills]

Haha. Well, the Fed is not acting in isolation. The whole world is doing the same thing. The last 12 years we have been stuck in a deflationary spiral. All the liquidity they've supplied was not even enough to average 2% inflation. Eventually the inflation will come back. But when that happens, will there be anywhere to hide? Or will it be a global inflationary spiral? Obviously, there will be some countries better than others. Either way, the PP will do just fine. Matter of fact, the PP should do better in inflation than in deflation, especially if it is inflation with growth (i.e. not stagflation) as then you would have 2 assets returning above inflation, and 1 keeping pace.

You seem to accept the official inflation numbers at face value, I simply do not. Hedonics and geometric weighting grossly alter the real figures and are the equivalent of outright fraud. I think the PP just barely gets above REAL INFLATION. This is my concern. I doubt in the future it will keep up. But if you believe in the 2% inflation rate, I can see why you do not think it would be a problem. You still see meat on the bone, I fear the bone has already been sucked clean.

What's your prediction on which currency will replace the U.S. dollar?

I don't think I am really qualified to answer that. But I doubt the world would be dumb enough to just nominate a single country again after the US abused it so badly.

I would assume the world would get together and decide on something that looks like the IMF's SDR valuation.

An example:

Currency / Weight

Chinese yuan 10.92%
Euro 30.93%
Japanese yen 8.33%
UK Pound 8.09%
US Dollar 41.73%

[D1984]

Haha. Well, the Fed is not acting in isolation. The whole world is doing the same thing. The last 12 years we have been stuck in a deflationary spiral. All the liquidity they've supplied was not even enough to average 2% inflation. Eventually the inflation will come back. But when that happens, will there be anywhere to hide? Or will it be a global inflationary spiral? Obviously, there will be some countries better than others. Either way, the PP will do just fine. Matter of fact, the PP should do better in inflation than in deflation, especially if it is inflation with growth (i.e. not stagflation) as then you would have 2 assets returning above inflation, and 1 keeping pace.

You seem to accept the official inflation numbers at face value, I simply do not. Hedonics and geometric weighting grossly alter the real figures and are the equivalent of outright fraud. I think the PP just barely gets above REAL INFLATION. This is my concern. I doubt in the future it will keep up. But if you believe in the 2% inflation rate, I can see why you do not think it would be a problem. You still see meat on the bone, I fear the bone has already been sucked clean.

Which inflation numbers do you suggest we use? What is your preferred measure of inflation if you think the CPI is off by circa 5% per year and has been for a while?

[CT-Scott]

ahhrunforthehills,

I don't disagree with your concerns. But one point that might bring you some "comfort" (which sounds odd to say it, as I'm an anti-imperialist) is that the USA is basically the world police. The USA is the only country with military within arms-reach, basically, of every other country in the world.

Yes, that could change. But, for now, that's true. I suspect that's another factor that helps keep the US Dollar as the world's currency.

Also, and I'm anti-violence (though I do own a gun - I can discuss more on that some time), the US citizenry has a lot of guns. This would likely minimize the possibility of some other country forcefully taking control of things here.

Final thoughts...correct me if I'm wrong, but hasn't Ron Paul suggested in the past that perhaps the US could/should consider defaulting on its debt, "take its medicine", and "move on"? What would the result of that be?