Gyroscopic Investing

I just saw this new interview with my favorite analyst, Jim Rickards. He talks about the fact that we're in a depression, that the 10 yr Treasuries rate could fall to 0.80% in the short term, the greatest bond rally in history! That gold could easily skyrocket in a eventual hyperinflationary environment. That QE is sowing the seeds for a stock market (and economic) crash. That we have basically become Japan. This interview is a strong endorsement for the PP.

http://futuremoneytrends.com/blog/?p=10062

Enjoy!

Reub wrote: That we have basically become Japan.

Highly productive with a high savings rate, no military empire, significant foreign reserves and a trade surplus for the first 2 decades or so of their economic malaise?

We should be so luckly to become like Japan has been. No such luck here.

Kshartle wrote:Highly productive with a high savings rate, no military empire, significant foreign reserves and a trade surplus for the first 2 decades or so of their economic malaise?

Interestingly, you can't be the world's reserve currency when all of your currency is saved domestically like that. The paradox of being the world's reserve currency is that you have to spend your currency all over the world.

Gumby wrote:

Kshartle wrote:Highly productive with a high savings rate, no military empire, significant foreign reserves and a trade surplus for the first 2 decades or so of their economic malaise?

Interestingly, you can't be the world's reserve currency when all of your currency is saved domestically like that. The paradox of being the world's reserve currency is that you have to spend your currency all over the world.

The reserve currency status is the problem. It's given the US government enough rope to hang itself. Trillions are floating around in foreign central banks. There is a level of currency debasement and degradation of the US economy that will encourage the foreign central banks to divest themselves of all this USD.

When the dollars come back prices will be bid up here, imports will become very expensive and the US will have to live on it's own production or even less as foreigners are able to bid it away.

Reserve currency status is no longer an asset. It's only delaying the eventual calamity.

TennPaGa wrote:

Gumby wrote:

Kshartle wrote:Highly productive with a high savings rate, no military empire, significant foreign reserves and a trade surplus for the first 2 decades or so of their economic malaise?

Interestingly, you can't be the world's reserve currency when all of your currency is saved domestically like that. The paradox of being the world's reserve currency is that you have to spend your currency all over the world.

Yup.

Similarly, worries about the Chinese RMB becoming the world's reserve currency are misplaced until China starts exporting RMB -- i.e. until they start running trade deficits.

The just need to stop importing dollars and vendor-financing a deadbeat customer (USA) who will never pay up. The RMB will rise and other contries will want to hold it as reserves further enhancing it and making Chinese products very expensive for us. Will the Chinese ever do it? Tiem will tell.

Kshartle wrote:

TennPaGa wrote:

Gumby wrote: Interestingly, you can't be the world's reserve currency when all of your currency is saved domestically like that. The paradox of being the world's reserve currency is that you have to spend your currency all over the world.

Yup.

Similarly, worries about the Chinese RMB becoming the world's reserve currency are misplaced until China starts exporting RMB -- i.e. until they start running trade deficits.

The just need to stop importing dollars and vendor-financing a deadbeat customer (USA) who will never pay up. The RMB will rise and other contries will want to hold it as reserves further enhancing it and making Chinese products very expensive for us. Will the Chinese ever do it? Tiem will tell.

When have we never paid up? We always pay up. They can hold their dollar assets as cash or Treasuries. They choose to hold Treasuries, rather than cash, and we always pay our bills. (I know you think we will stop paying our bills one day, but let's not go there since no one can predict the future and we just won't ever agree).

Furthermore, in order for the RMB to become the world's reserve currency, they would need to create an enormous amount of RMB liquidity (i.e. an enormous RMB money supply). That's the paradox. If you want the world to hold your currency you need to make a lot of it and spend it across the globe. This is known as the Triffin Dilemma.

http://en.wikipedia.org/wiki/Triffin_dilemma

Gumby wrote: Furthermore, in order for the RMB to become the world's reserve currency, they would need to create an enormous amount of RMB liquidity (i.e. an enormous RMB money supply). That's the paradox. If you want the world to hold your currency you need to make a lot of it and spend it across the globe.

You just went back in time and blew my mind a year ago.

Gumby wrote:

Kshartle wrote:

TennPaGa wrote: Yup.

Similarly, worries about the Chinese RMB becoming the world's reserve currency are misplaced until China starts exporting RMB -- i.e. until they start running trade deficits.

The just need to stop importing dollars and vendor-financing a deadbeat customer (USA) who will never pay up. The RMB will rise and other contries will want to hold it as reserves further enhancing it and making Chinese products very expensive for us. Will the Chinese ever do it? Tiem will tell.

When have we never paid up? We always pay up. They can hold their dollar assets as cash or Treasuries. They choose to hold Treasuries, rather than cash, and we always pay our bills. (I know you think we will stop paying our bills one day, but let's not go there since no one can predict the future and we just won't ever agree).

Furthermore, in order for the RMB to become the world's reserve currency, they would need to create an enormous amount of RMB liquidity (i.e. an enormous RMB money supply). That's the paradox. If you want the world to hold your currency you need to make a lot of it and spend it across the globe. This is known as the Triffin Dilemma.

http://en.wikipedia.org/wiki/Triffin_dilemma

If I owe VISA 10k and I only maintain the interest payments because they keep uping my credit limit am I ever actually paying them back? What if I owe them 1.7 million and I spend 370k a year and only make 250k?

Being the reserve currency has nothing to do with your willingness to spend. It only has to do with the willingness of everyone else to accept it.

I doubt the RMB will replace the dollar as the reserve currency but they certainly don't need to print more of it to make that happen. Printing it hurts theri economy and debases the value. They need to let their currency rise so their own people can afford to buy the things they're making rather than send to the US in exchange for extra paper they can never use. If they actually sold their bonds and tried to spend their dollars they'd find out quickly just how much they've lost on the deal.

Kshartle wrote:If I owe VISA 10k and I only maintain the interest payments because they keep uping my credit limit am I ever actually paying them back?

Guess you've never owned a Treasury before. That's not how they work. The government pays you all the principal and all the interest every time. And then you are left with cash. You have to actively choose to buy another Treasury if you want to lend to them again.

Kshartle wrote: What if I owe them 1.7 million and I spend 370k a year and only make 250k?

Are you saying a government is the equivalent if a household? They aren't. Households don't have printing presses or taxing privileges.

Kshartle wrote:Being the reserve currency has nothing to do with your willingness to spend. It only has to do with the willingness of everyone else to accept it.

Again, see the Triffin Dillema.

Kshartle wrote:I doubt the RMB will replace the dollar as the reserve currency but they certainly don't need to print more of it to make that happen.

A world reserve currency requires lots of liquidity. No way around that. It's a big world.

Kshartle wrote:If they actually sold their bonds and tried to spend their dollars they'd find out quickly just how much they've lost on the deal.

Unfortunately for them, we have laws that make their purchasing power rather limited within the domestic/private sector.

Gumby wrote: Guess you've never owned a Treasury before. That's not how they work. The government pays you all the principal and all the interest every time. And then you are left with cash. You have to actively choose to buy another Treasury if you want to lend to them again.

The point is they can't pay them back unless they keeping borrowing. So a better analogy is they pay Visa back in full by getting a cash advance from Mastercard. It's a waste of time for us discuss this. We've already done it a million times.

Yes I've never owned a Treasury.

Gumby wrote:

Kshartle wrote:Being the reserve currency has nothing to do with your willingness to spend. It only has to do with the willingness of everyone else to accept it.

Again, see the Triffin Dillema.

Read it. Dumb. "Willingness to spend" - what?!  Gee I'd love all that stuff but I'm not willing to spend my paper even though you'll accept it.

He's imagining the US government is the one constraining the amount of goods other countries will exchange for dollars. It's nonsense. They have to be willing to sell and HOLD the dollars. Hold as in not try to buy anything with them. This has nothing to do with the US and any "willingness" to spend. 1 minute of looking at this "dillema" can see how nonsensical it is, even if it is on wikipedia.

Gumby wrote: Unfortunately for them, we have laws that make their purchasing power rather limited within the domestic/private sector.

It's unfortunate for us to because the US economy just keeps getting more distorted as our consumption is increasingly made up of imports. The laws exacerbate the production/consumption imbalance here. When the US has to rely on its own production or runs a surplus because the rest of world doesn't want to hold as many dollars it's going to really suck here. 

Kshartle wrote:

Gumby wrote:

Kshartle wrote:Being the reserve currency has nothing to do with your willingness to spend. It only has to do with the willingness of everyone else to accept it.

Again, see the Triffin Dillema.

Read it. Dumb. "Willingness to spend" - what?!  Gee I'd love all that stuff but I'm not willing to spend my paper even though you'll accept it.

He's imagining the US government is the one constraining the amount of goods other countries will exchange for dollars. It's nonsense. They have to be willing to sell and HOLD the dollars. Hold as in not try to buy anything with them. This has nothing to do with the US and any "willingness" to spend. 1 minute of looking at this "dillema" can see how nonsensical it is, even if it is on wikipedia.

Not sure what to tell you. It's a paradox that has been widely observed. A scholar does not dismiss an observed paradox just because it doesn't neatly fit into their world view (though, I suppose a fanatic does).

Unfortunately for you, Triffin didn't just pull this out of his ass. It's based on historical observations. World reserve currencies exist because people choose to sell their goods for foreign currencies and people are willing to part with their currency to import those goods. It's a two-way street. No one is forcing anyone to accept foreign currencies. Foreigners choose to do it to sell their goods. The foreign currencies do international suppliers no good in their home countries, so they trade those currencies to their home governments (on a macro level) who then print off new currency for those foreigners to use at home. Again, those foreigners have no need for international currencies. They are choosing to accept them and someone who has the international currency has to be willing to spend/trade/loan it in order for them to obtain it (that should be obvious).

Foreign countries don't own dollar reserves to go on a shopping spree in America. The reserves are are typically just held as assets to back up their own domestic currencies. These foreign countries don't want to sell or trade the bulk of their dollar reserves because even the hint of doing so would instantly decrease the value of their reserves.

I'm not suggesting that any of this is a good thing or that it can go on indefinitely (what can?). It's just how it works. My only point is that a strong currency, such as the Yen, won't be the world's reserve currency if the Japanese are saving all their Yen domestically and are unwilling to spend their Yen into foreign pockets.

Kshartle wrote:

Gumby wrote: Unfortunately for them, we have laws that make their purchasing power rather limited within the domestic/private sector.

It's unfortunate for us to because the US economy just keeps getting more distorted as our consumption is increasingly made up of imports. The laws exacerbate the production/consumption imbalance here. When the US has to rely on its own production or runs a surplus because the rest of world doesn't want to hold as many dollars it's going to really suck here.

If the US is forced to rely on its own production, that would be a good thing. Unemployment is high. We could use more domestic employment.

Gumby wrote:

Kshartle wrote:

Gumby wrote: Again, see the Triffin Dillema.

Read it. Dumb. "Willingness to spend" - what?!  Gee I'd love all that stuff but I'm not willing to spend my paper even though you'll accept it.

He's imagining the US government is the one constraining the amount of goods other countries will exchange for dollars. It's nonsense. They have to be willing to sell and HOLD the dollars. Hold as in not try to buy anything with them. This has nothing to do with the US and any "willingness" to spend. 1 minute of looking at this "dillema" can see how nonsensical it is, even if it is on wikipedia.

Not sure what to tell you. It's a paradox that has been widely observed. A scholar does not dismiss an observed paradox just because it doesn't neatly fit into their world view (though, I suppose a fanatic does).

Unfortunately for you, Triffin didn't just pull this out of his ass. It's based on historical observations. World reserve currencies exist because people choose to sell their goods for foreign currencies and people are willing to part with their currency to import those goods. It's a two-way street. No one is forcing anyone to accept foreign currencies. Foreigners choose to do it to sell their goods. The foreign currencies do international suppliers no good in their home countries, so they trade those currencies to their home governments (on a macro level) who then print off new currency for those foreigners to use at home. Again, those foreigners have no need for international currencies. They are choosing to accept them and someone who has the international currency has to be willing to spend/trade/loan it in order for them to obtain it (that should be obvious).

Foreign countries don't own dollar reserves to go on a shopping spree in America. The reserves are are typically just held as assets to back up their own domestic currencies.

They hold dollars to never spend them but to back up their currencies? What? They LOWER the value of their currencies by holding them.

Taking paper from someone in exchange for goods for the purpose of just holding paper and never buying anything with it is CHARITY. It's giving away your products for free.

Having other coutries hold dollars has nothing whatsover to do with the US being willing to spend. The US doesn't spend. Individuals do. There is no collective decision to spend. The foreign central banks are the only ones making this decision when they print their own currency and buy up the dollars imported into their country and hold them or loan them back by buying bonds.

You have to be some kind of Triffin Dillema fanatic to refuse to understand this.

Gumby wrote:

Kshartle wrote:

Gumby wrote: Unfortunately for them, we have laws that make their purchasing power rather limited within the domestic/private sector.

It's unfortunate for us to because the US economy just keeps getting more distorted as our consumption is increasingly made up of imports. The laws exacerbate the production/consumption imbalance here. When the US has to rely on its own production or runs a surplus because the rest of world doesn't want to hold as many dollars it's going to really suck here.

If the US is forced to rely on its own production, that would be a good thing. Unemployment is high. We could use more domestic employment.

Yeah except we don't produce anything close to what we currently consume. So it's gonna suck until millions of people with no skills get employed in factories that don't even exist.

Kshartle wrote:They hold dollars to never spend them but to back up their currencies? What? They LOWER the value of their currencies by holding them.

And yet, foreign companies still crave dollars.

Kshartle wrote:Taking paper from someone in exchange for goods for the purpose of just holding paper and never buying anything with it is CHARITY. It's giving away your products for free.

And yet, foreign companies still crave dollars.

Kshartle wrote:Having other coutries hold dollars has nothing whatsover to do with the US being willing to spend. The US doesn't spend. Individuals do. There is no collective decision to spend.

You must be misunderstanding me — as well as the concept of a "trade deficit". Here's how it works...

Foxconn generally exists because the management wants dollars. Dollars do the mangers no good (i.e. they can't pay their employees or purchase equipment with dollars) but they know that they can easily trade those dollars for RMB — thanks to the Chinese government's policy to keep the RMB from appreciating too much. If the Chinese government did not continue this policy, the dollars would not be as desirable. (Usually it makes sense for China to continue this policy to keep companies like Foxconn in business). The Chinese government simply holds on to the dollars as foreign reserve assets to offset the printing they embarked on to provide the new RMBs to Foxconn. The dollars don't really do anything (i.e. they generally can't be spent and aren't intended for a shopping spree), they mostly just legitimize the additional RMB printing. Additionally, Foxconn would not be able to obtain those dollars from Apple and iPad buyers if we were unwilling to spend our dollars on Foxconn products (again, that should be obvious).

That's all there is to it.

Foxconn exists because there they are fulfilling a demand for their products — and the demand for their product happens to come from overseas. Foxconn's desire to obtain dollars could not be fulfilled unless we were willing to buy their products (that should be obvious). Exporters exist because they believe they can fulfill demand from overseas and want that foreign currency. It's a two way street. The same would be true for a wine exporter or an olive oil exporter, or whatever.

Kshartle wrote: You have to be some kind of Triffin Dillema fanatic to refuse to understand this.

Scientists and scholars deal with observations. (It's obvious you don't.) The Triffin Dilemma is just an observation. It's a paradox. Your desire to dismiss the widely seen observation is the fanaticism.

Gumby wrote: The dollars don't really do anything (i.e. they generally can't be spent and aren't intended for a shopping spree), they mostly just legitimize the additional RMB printing. Additionally, Foxconn would not be able to obtain those dollars from Apple and iPad buyers if we were unwilling to spend our dollars on Foxconn products (again, that should be obvious).

Yeah that's what I said. The Chinese government is screwing it's people. It's subsidising the exporters of Chinese goods at the expense of the Chinese people. The exporters get dollars and exchange for RMB that are printed up to keep the currency low. Keeping the currency low and exporting real stuff for useless paper is what keeps the Chinese from enjoying the benefits of their labor.

Americans get stuff and the Chinese get higher prices. Why do you think the Chinese government does this? To help the Chinese? When will they stop do you think?

The reserve thing has nothing to do with Americans being willing to buy Chinese goods or other foreign goods. That's stupid. It only has to do with Foriegn central banks and governments debasing their currencies to vendor-finance the American consumer. Why are they holding paper they never intend to spend?

What's the paradox here again? Looks like something is causing foreign central banks to "crave" dollars they can't use at the expense of their populations. What do you think that might be? Is it to keep the peasants busy making stuff for Americans?

Kshartle wrote:

Gumby wrote: The dollars don't really do anything (i.e. they generally can't be spent and aren't intended for a shopping spree), they mostly just legitimize the additional RMB printing. Additionally, Foxconn would not be able to obtain those dollars from Apple and iPad buyers if we were unwilling to spend our dollars on Foxconn products (again, that should be obvious).

Yeah that's what I said. The Chinese government is screwing it's people. It's subsidising the exporters of Chinese goods at the expense of the Chinese people. The exporters get dollars and exchange for RMB that are printed up to keep the currency low. Keeping the currency low and exporting real stuff for useless paper is what keeps the Chinese from enjoying the benefits of their labor.

Are you sure about that?

Pointedstick wrote:

Kshartle wrote:

Gumby wrote: The dollars don't really do anything (i.e. they generally can't be spent and aren't intended for a shopping spree), they mostly just legitimize the additional RMB printing. Additionally, Foxconn would not be able to obtain those dollars from Apple and iPad buyers if we were unwilling to spend our dollars on Foxconn products (again, that should be obvious).

Yeah that's what I said. The Chinese government is screwing it's people. It's subsidising the exporters of Chinese goods at the expense of the Chinese people. The exporters get dollars and exchange for RMB that are printed up to keep the currency low. Keeping the currency low and exporting real stuff for useless paper is what keeps the Chinese from enjoying the benefits of their labor.

Are you sure about that?

Yes. Unless you can think of a way that giving away products for free is beneficial. You know that's what is happening when a Chinese company exchanges dollars for RMB to the government/Central bank and they just hold the dollars. Obviously they don't hold all and the US exports to China but when the dollars are held and not spent it's just giving away stuff for free.

I suppose it gives the Chinese government political capital since they can really damage the US if they start dumping.

So what do you think of those graphs, then?

What makes it frustrating to discuss things with you is that you approach everything from theory and discount anything that doesn't support your theory.

You say that the Chinese are not enjoying the benefits of their labor (an assertion made without any evidence to back it up), I present some graphs showing several measures of prosperity rising in China--which in my mind shows them enjoying the benefits of their labor (pieces of evidence which I believe disprove your assertion), but you ignore it and just double down on what your theory tells you should be true (ignoring the evidence rather than addressing it, repeating the original assertion).

It's super frustrating. It feels like I'm talking to a wall. Can't you just admit that you might be wrong or that you don't know everything? Your insistence in every thread you participate in that your position is correct and your repeated ignoring of any evidence presented that might contradict your position is getting really, really old.

Pointedstick wrote: So what do you think of those graphs, then?

What makes it frustrating to discuss things with you is that your approach everything from theory and discount anything that doesn't support your theory.

You say that the Chinese are not enjoying the benefits of their labor (an assertion made without any evidence to back it up), I present some graphs showing several measures of prosperity rising in China--which in my mind shows them enjoying the benefits of their labor (pieces of evidence which I believe disprove your assertion), but you ignore it and just double down on what your theory tells you should be true (ignoring the evidence rather than addressing it, repeating the original assertion).

It's super frustrating. It feels like I'm talking to a wall. Can't you just admit that you might be wrong or that you don't know everything? Your insistence in every thread you participate in that your position is correct and your repeated ignoring of any evidence presented that might contradict your position is getting really, really old.

Its super frustrating when you pretend to disagree by just asking questions rather than address what it is you (I suppose) disagree with.

If I lay out that the Chinese are essentially giving away products for free when they take dollars and never spend them, and I make the case that it hurts their standard of living to give them away that is a position. I think it's fairly obvious that working for no benefit is not what makes humans lives better. That is slavery. That is what the Chinese government does to its population when it prints RMB to buy up and hold dollars. It denies the benefit of the sale to the population in general. It makes their cost of living go up to benefit exporters at everyone else's expense. This is not a difficult concept. It's not rocket surgery. I even put forward that perhaps it is for political concessions.

Showing graphs that their standard of living has gone up is not a position. It's not an argument. It's not refutation of what I said, nor is it agreement, nor is it anything other than just annoying. I suppose it's a question of how the Chinese could raise their standard of living despite giving away stuff for free. Well that's a whole other discussion. That's fine. They are very productive. They are saving. They produce far more than they consume and while some of that goes to Americans as free gifts much of it goes to increase future productivity.

What am I wrong about? If your boss writes you a check for your labor but you never cash it what would you call it? Looks like charity to me. Is your standard of living better if you just keep piling up checks or better if you cash them?

Sometimes there isn't a graph to prove something. Sometimes you have to understand a concept. Sometimes the graph is not an argument against something either, but instead is related to a bunch of other things. Sometimes very few people understand what they're even trying to say when they post graphs. They just throw them up there like a fisherman casting a line hoping to catch something.

By the way did you ever see where Harry Browne proved that going to the movies causes inflation? His graph is proof. I surely wouldn't want to dispute because I would be hard-pressed to find enough graphs to get the job done.

Pointedstick wrote: So what do you think of those graphs, then?

I think the future belongs to Asia. They will continue to climb and close the standard of living gap with the West.

They would close it a lot faster if they stopped importing dollars and exporting real valuable goods.

Kshartle,

We ask you questions because we have more questions about your opinions that true retorts to them.  We also hope that actually asking yourself these questions will derail you from this logic-only approach to predicting the future.

For instance, I don't have grand predictions about the future of the US or Asian economies, but if "Statism" is so bad for us, I think there are plenty of powder kegs that will blow before the U.S. does.  So I guess when I ask you questions, it's because you seem to have very specific thoughts and feelings on the moral and functional state of economics than I do.  It may not seem like it, but I really don't know what the hell's going to happen over the next 60 years.

And in the spirit of asking questions...

Also, how is Asia going to own the future, what with their statist empires, universal healthcare systems, centrally-planned education schemes, etc?  Especially if they're doing things like importing confetti while exporting real goods?

Sorry, man... there's nothing I can "assert" that is as useful as asking questions to invite you to further flesh out your position.  I try to use a slightly more sarcastic Socratic method of debate... but I really do try to refrain from loading my questions with straw men and loaded assumptions... maybe just a pinch of snark .

moda0306 wrote: Kshartle,

We ask you questions because we have more questions about your opinions that true retorts to them.  We also hope that actually asking yourself these questions will derail you from this logic-only approach to predicting the future.

And in the spirit of asking questions...

Also, how is Asia going to own the future, what with their statist empires, universal healthcare systems, centrally-planned education schemes, etc?  Especially if they're doing things like importing confetti while exporting real goods?

Sorry, man... there's nothing I can "assert" that is as useful as asking questions to invite you to further flesh out your position.  I try to use a slightly more sarcastic Socratic method of debate... but I really do try to refrain from loading my questions with straw men and loaded assumptions... maybe just a pinch of snark .

Well let's take a look, The Chinese are not bogged down with the same type of democracy that requires unrealistic promises to voters to get and retain power. They have sort of a bribeocracy that better faccilitates economic growth than stiffling regulations and satisfying every state and federal agency and thousands of regualtions. It's not capitalism and certainly hurts them but not nearly as bad judging by the explosive growth rates. It more closely resembles the US of the 19th century although not nearly as free.

To my knowledge few of the Asian countries have minimum wages, so called "worker rights", huge social safety hammocks from the government. Income tax rates and capital gains rates are lower as well further encouraging production.

Can you go down and file for disability, food stamps, a phone and all kinds of other "free" goodies in China, HK, Singapore, Thailand etc?

They are producing more than they are consuming. They are saving. Their GDPs are growing and at a faster rate than the West. Surprise surprise they are even growing without adding on debt? My goodness how is it possible? I thought growth was tied to deficits? Maybe it's the other way around.

When they stop giving away stuff for free to Americans their lives will really improve but it looks like an Asian century ahead regardless.

That being said they might blow it all on welfare and democracy, mix in some imperialism.