Social Security to go bust by 2030 (1 Viewer)

[JohnfrmCleveland]

I don't think confidence has anything to do with it. Confidence in the dollar is just the knowledge that you can go to the store and buy a loaf of bread for a buck or two. It costs the same whether you have confidence in the dollar or not, or whether the grocer has confidence in the dollar or not. Real conditions, like shortages or droughts, are what affect prices.I'm not of the mindset that we can just print money at will, with no limit. But if we didn't deficit spend, aggregate demand would spiral downward, if only due to our trade deficit. The limit, as I alluded to above, is our economy's ability to meet the demand, which it is having absolutely no problem doing at this level of spending. Our economy is meeting all demand with plenty of labor left sitting on the bench.

I disagree that only real conditions affect prices. If confidence falls enough within and more importantly outside the country, the value falls, and it buys less. Not sure if you are just saying as our current situation as a reserve currency but that is part of the point. People in Argentina are willing to pay 20% more for dollars because they hold value and are limited by how much they can legally hold. Since demand is so high, our currency is inflated and we can directly trade dollars for soybeans and thus get a discount and only incur one transaction cost.Now your earlier point is interesting in that these countries wanting to save dollars requires us to print more and actually hurts their reserves.

Supply and demand can be a misleading thing - everybody jumps right into this without giving a second thought to the possibility (probability) that the supply isn't fixed. Demand goes up, so prices must be going up with them, right? Well, not so fast - maybe the supply is increasing, too.

This is why a box of Cheerios doesn't go up or down in price constantly - there is no shortage of oats. People are willing to pay a certain price, and General Mills is willing to accept a certain profit for their troubles. It's not really a supply/demand thing, because the supply is elastic. The price of Cheerios will go up when the price of oats goes up, or the price of oil goes up, but it won't go up if demand goes up by 10%, as long as General Mills can meet that new demand. Because if they raised their price just to increase their profit margin, then those generic Toasty-O's would look like an even better value in comparison, and more shoppers would make the switch.

I said before that leverage and shortages are what cause prices to go up. Is there a shortage of dollars in the FOREX market? There is certainly no shortage of dollars in America, because the Fed supplies all the dollars that the economy demands. I don't think that changes when we are talking about international transactions, either. If you need dollars, you can earn them or you can borrow them, and I have never heard of a shortage of dollars being an impediment to any transaction.


Domestically, you just need sufficient dollars to make the economy work smoothly - enough so that banks can make their transactions without having to scrape around for dollars. The Fed has always supplied reserves as needed - banks were never "reserve-constrained," and could always make loans and complete transfers between banks, because the Fed would always lend them enough to do so. This is a very different situation from a regime where you have a fixed number of dollars available. I think the same is true internationally - there is no shortage of dollars out there, so the supply/demand thing is not what is setting the value.

 

[JohnfrmCleveland]

As I explained above, U.S. dollars have to run through the U.S. economy before the rest of the world can get to them, so it is not just a matter of Planet Earth's insatiable demand for dollars that allows us to spend like we do.

We agree on this point. As I've said before, the country that produces the world's reserve currency benefits greatly economically from that status.

The world chose the dollar in 1944 to be the world's reserve currency because our economy at the time had such a high export/import ratio in a age of gold backed currency standard that we had obtained two thirds of the worlds gold. When the gold window closed, we were still running a trade surplus, but not nearly where it was 27 years earlier. Having become the world's reserve currency we were in the process of shifting from being a high export/import economy to the high import/export economy the world's reserve currency nation needs to be. Because we weren't there yet, our gold reserves were taking the hit of the currency export the world's reserve currency nation needs to pump into the world, causing the gold crisis Nixon had to end. As soon as the gold window closed, our trade deficit necessary to be the world's reserve currency began to expand to where it needed to be. This world's reserve currency benefit is how a country can go from being high export/import to high import/export AND improve economically. Without the world's reserve currency benefit, this would be nearly impossible. We are essentially the world's leading exporter of a good that costs us nothing to produce... MONEY!

The dollar may have been called the world's reserve currency, but in reality the world's reserve currency was gold. All currency values were ultimately tied to gold, and gold was how countries settled up trade imbalances. And it wasn't any trade imbalance that led to the crisis, it was the increasing difference between the statutorily-defined value of a gold-backed dollar and the actual market value of gold. France, I believe, was cashing in American dollars for gold and selling that gold for an immediate profit.

I don't agree that supplying the world's reserve currency helps you economically. It gets you some cheap foreign goods, but that comes at a cost to your own economy. When we "export" dollars, we are basically sending dollars that would have gone to American labor to cheaper foreign labor.

In the meantime, please explain what this "weight" is that the world presently bears, and that we would bear if the dollar lost reserve status. Demand? Is that a "weight" to be borne?

It's no different than mining gold in a gold backed currency nation. The gold miners mine gold and exchange it for goods and services. If they don't produce enough gold, the economy suffers. AND if they produce too much gold, the economy suffers.

You seem to think this is not true of fiat currency. Which if that's the case, then we're stupid for not running our money printing machines 24/7/365, as well as building more and more printing machines to make as much as we possibly can every second of every day. We don't do that because producing too much money does produce a negative weight on the economy that uses the currency. Being the world's reserve currency, the entire world economy bears that weight. We essentially export our inflation to the entire world. If the US was the only country that used US dollars, then only the US economy would bear that weight. We would no longer be able to export our inflation.

You misunderstand. The reason you cannot crank out a crazy amount of fiat currency is because it would cause inflation. The reason it would cause inflation is because our economy (which all dollars have to run through once) could not meet that much demand as the dollars are created and spent into existence. It's not the total number of dollars that causes inflation, because many of those dollars aren't being spent on anything. Like now - there are about $18 trillion in existence, and only a fraction of that money is circulating around and buying stuff. The rest is sitting around in bonds, doing nothing.

 

[Slapdash]

I don't agree that supplying the world's reserve currency helps you economically. It gets you some cheap foreign goods, but that comes at a cost to your own economy. When we "export" dollars, we are basically sending dollars that would have gone to American labor to cheaper foreign labor.

Also worth pointing out that many other countries that have a sovereign currency behave similarly even though their currencies aren't world's reserve currency.

 

[Politician Spock]

The dollar may have been called the world's reserve currency, but in reality the world's reserve currency was gold. All currency values were ultimately tied to gold, and gold was how countries settled up trade imbalances. And it wasn't any trade imbalance that led to the crisis, it was the increasing difference between the statutorily-defined value of a gold-backed dollar and the actual market value of gold. France, I believe, was cashing in American dollars for gold and selling that gold for an immediate profit.

Correct. It is (or was) called "Triffin's Dilema". When the nation supplying the world with the world's reserve currency is issuing a gold back currency, it is essentially forced to export gold, or else lose its status as the world's reserve currency. The dollar had to be detached from gold or else we would have eventually exported all our gold (exported via ownership and not physically... a good chunk of the gold still physically here in the US is owned by other countries).

I don't agree that supplying the world's reserve currency helps you economically. It gets you some cheap foreign goods, but that comes at a cost to your own economy. When we "export" dollars, we are basically sending dollars that would have gone to American labor to cheaper foreign labor.

Depends on the rate of money production and the current velocity of money. With slow production and/or slow velocity, you're right. With high production and/or high velocity, those dollars would have resulted in inflation if they weren't exported.

You misunderstand. The reason you cannot crank out a crazy amount of fiat currency is because it would cause inflation. The reason it would cause inflation is because our economy (which all dollars have to run through once) could not meet that much demand as the dollars are created and spent into existence. It's not the total number of dollars that causes inflation, because many of those dollars aren't being spent on anything. Like now - there are about $18 trillion in existence, and only a fraction of that money is circulating around and buying stuff. The rest is sitting around in bonds, doing nothing.

Depends on how you define "running through our economy". When the government created 1000 new jobs that didn't exist before, and pays the employees to do a new job of spying on American citizens, and maintaining the servers of all the data they are collecting, those employees tend to shop at Walmart and buy goods from China. Those dollars didn't last long in our economy at all. They also buy cars from Korea and Germany, or Fords made in Canada and Mexico. Again those dollars don't last long in our economy. This is also true when the governement pays for military personel as well as their supplies to shoot at "evil" people in countries we're at war at. There's little economic benefit except for someone getting a paycheck, and a lot of their check just goes to pay for imported goods.

If on the other hand the government created 1000 new jobs and paid for the resources to fix our failing bridges, our aging electrical grid, or other infrastructure based projects, then economy would gain said benefits. As it is, our deficit spending just gives out paychecks for people to buy foreign goods. There's not a whole lot our economy gets back from our deficit spending. It could, but not the way we do it.

 

[timschochet]

Learning a lot from the discussion between JohnfrmCleveland and Politician Spock.

 

[JohnfrmCleveland]

I don't agree that supplying the world's reserve currency helps you economically. It gets you some cheap foreign goods, but that comes at a cost to your own economy. When we "export" dollars, we are basically sending dollars that would have gone to American labor to cheaper foreign labor.

Depends on the rate of money production and the current velocity of money. With slow production and/or slow velocity, you're right. With high production and/or high velocity, those dollars would have resulted in inflation if they weren't exported.

I'm not following your reasoning here - could you please explain the difference between the fast and slow situations, and how importing goods stops inflation?

You misunderstand. The reason you cannot crank out a crazy amount of fiat currency is because it would cause inflation. The reason it would cause inflation is because our economy (which all dollars have to run through once) could not meet that much demand as the dollars are created and spent into existence. It's not the total number of dollars that causes inflation, because many of those dollars aren't being spent on anything. Like now - there are about $18 trillion in existence, and only a fraction of that money is circulating around and buying stuff. The rest is sitting around in bonds, doing nothing.

Depends on how you define "running through our economy". When the government created 1000 new jobs that didn't exist before, and pays the employees to do a new job of spying on American citizens, and maintaining the servers of all the data they are collecting, those employees tend to shop at Walmart and buy goods from China. Those dollars didn't last long in our economy at all. They also buy cars from Korea and Germany, or Fords made in Canada and Mexico. Again those dollars don't last long in our economy. This is also true when the governement pays for military personel as well as their supplies to shoot at "evil" people in countries we're at war at. There's little economic benefit except for someone getting a paycheck, and a lot of their check just goes to pay for imported goods.

If on the other hand the government created 1000 new jobs and paid for the resources to fix our failing bridges, our aging electrical grid, or other infrastructure based projects, then economy would gain said benefits. As it is, our deficit spending just gives out paychecks for people to buy foreign goods. There's not a whole lot our economy gets back from our deficit spending. It could, but not the way we do it.

The only difference is that in the second case, you get a bridge out of the deal (which is nice - I prefer bridges to spying). But the big economic benefit is getting money into the hands of people that need it, and will spend it. They buy stuff, and the economy feels the benefit.

I think you, like most people, overestimate the amount of commerce that imports account for. Imports are very visible - most of the stuff at Walmart, most electronics, textiles, etc. But think about what we produce domestically - food, energy, housing, transportation, toiletries - that's the stuff that we spend most of our money on. I read some stats on this a while back (wish I would have kept the link), and when you factor in the transportation, the retail work, and all the other stuff that goes into selling a product, imports account for only about 17% of our commerce. Most other countries, that number is far higher.

I think the reason the deficit is expanding faster lately is because of the labor market. I'm sure you have seen the Saez-Piketty data about how the top 1% has captured almost all of our economy's productivity gains over the past 30 years or so - that's due to labor not getting their expected share of the gains. It has been lost to higher productivity, cheap foreign labor, and automation. More of the dollars that used to go to American labor now go to ownership and to overseas labor, and that means lower aggregate demand, because a lot of that money doesn't get spent. So the deficit grows, but the economy overall is doing quite well.

 

[jon_mx]

By far the best way for government to spend money to improve our economy is to spend it in a way which spurs businesses. Businesses are what sustains economic growth. A bridge is good for a quick injection of economic activity. Now a bridge which leads to the opening of an industrial park which makes feasible a new business opening up, that is awesome as it spurs economic activity for decades and results in long term growth. Not all infrastructure spending is all that beneficial. Throwing money at every shovel ready project was not the greatest plan, but it did give a quick boost.

 

[Politician Spock]

I'm not following your reasoning here - could you please explain the difference between the fast and slow situations, and how importing goods stops inflation?

When the velocity of money declines, central banks respond by increasing the money supply. This is because a drop in the velocity of money is deflationary, and increasing the money supply balances out this deflationary force because increasing the money supply is an inflationary force.

Likewise, when the velocity of money increases, central bankers respond by decreasing the money supply. Again, it offsets an inflationary force with a deflationary force. Balance is the goal.

There are other inflationary and deflationary forces, such as the demographics of the baby boom. When they were in their 20, 30's and 40's they were a great inflationary force, because people tend to borrow and spend a lot in their 20, 30's and 40's. Now that they are in their 50, 60's and soon to be approaching their 70's, they are a great deflationary force, because people as they age pay down their debts, save for retirement, and sell assets to live off of in their retirement. This is why QE1, QE2, and QE3 have not produced much inflation in the US. QE is highly inflationary, but the QEs are offsetting the highly deflationary demographics issue our country has. There are other reasons QEs haven't resulted in inflation, for example the banks were overleverged, so the QE dollars just went to their deposits to bring their leverage back to accepted levels. Again, there are others, and they all contribute one way or another as a inflationary or deflationary force.

So whether or not we experience inflation is a factor of many different influences, one of which is the exporting of the currency, which is the subject of your question. Think of exporting of our currency as being a pressure release valve. If the sum of forces inside the national economy produces inflation (pressure), the exporting of the money relases that pressure. So in this case if the money wasn't being exported, you're right that American labor would have gotten the dollars, but in the form of rising wages in an economy of risging prices (inflation). This could be good for some, but is usually bad for most.

On the other hand, if the forces inside the economy are deflationary, then anything that is going out of the pressure release value is also deflationary. It's not only not helping to fight the deflationary forces, it's contributing to the deflation. Again, your right that American labor would have gotten those exported dollars, and in this case we would desperately need them. This would be bad for everyone. Think 2008, only worse.

The Federal Reserve's job is essentially to keep the pressure of the economy right at 2% (the target inflation rate). Part of their art to getting this right is the fact our economy has that pressure release valve (exporting currency) because the world chose it to be the world's reserve currency. The Fed didn't make that choice. The world did. It's not the Fed's job at all to regulate that valve. They have no mandate to concern themselve at all with the world economy. But if someone pluged that valve so that nothing could pass through it anymore, it would seriously change what the Fed does to regulate the pressure within our national economy. And worse yet, if the flow of that plug reversed, for example if the rest of the world started sending trillions of dollars back to us because they don't need reserves of them for international trade anymore, then who knows if the Fed could even do anything to regulate that pressure. The inflation pressure would probably be so great that it would explode. No one really knows, and no one really wants to try it and find out. The IMF knows the dollar needs to be replaced, and a long term working internationally currency system needs to eventually be implemented. But how to reverse the current system does not have a pragmatic solution.

If you've got a solution to it, speak up and give it to the IMF. They need it.

The only difference is that in the second case, you get a bridge out of the deal (which is nice - I prefer bridges to spying). But the big economic benefit is getting money into the hands of people that need it, and will spend it. They buy stuff, and the economy feels the benefit.

I think you, like most people, overestimate the amount of commerce that imports account for. Imports are very visible - most of the stuff at Walmart, most electronics, textiles, etc. But think about what we produce domestically - food, energy, housing, transportation, toiletries - that's the stuff that we spend most of our money on. I read some stats on this a while back (wish I would have kept the link), and when you factor in the transportation, the retail work, and all the other stuff that goes into selling a product, imports account for only about 17% of our commerce. Most other countries, that number is far higher.

I think the reason the deficit is expanding faster lately is because of the labor market. I'm sure you have seen the Saez-Piketty data about how the top 1% has captured almost all of our economy's productivity gains over the past 30 years or so - that's due to labor not getting their expected share of the gains. It has been lost to higher productivity, cheap foreign labor, and automation. More of the dollars that used to go to American labor now go to ownership and to overseas labor, and that means lower aggregate demand, because a lot of that money doesn't get spent. So the deficit grows, but the economy overall is doing quite well.

I think you are trying to make this a black and white argument. It can't be. There are way too many moving parts. When you ask me to explain something, I explain it, and then you respond regarding all the other moving parts. You're neither right or wrong, and my explanation on this subject is neither black nor white.

When I say the country that produces the world's reserve currency benefits from being the world's reserve currency, you can look at all the moving parts to make the argument that it's not the case. And you wouldn't be right, nor wrong in doing so. Likewise, when I say the country benefits, even that is a grey area. The US could benefit greatly from it, but it chooses not to. Essentially it is building bridges, but then blowing them up as soon as their built (the military spending), or it's building an elecetrical grid that only the Federal government can use (national security spying and data collection).

I will say that if the economy was doing as well as you say it is, worker participation wouldn't be nearly as low as it is. I know, the employment rate is low, and all that blah, blah, blah stuff. But when average household income hasn't risen in 6 years, and 40% of the population isn't working, then no were not producing nearly as much food, energy, housing, transportation, toiletries, and other domestic products as we could. We can just import a lot of it cheaper.

 

[Dinsy Ejotuz]

if the flow of that plug reversed, for example if the rest of the world started sending trillions of dollars back to us because they don't need reserves of them for international trade anymore, then who knows if the Fed could even do anything to regulate that pressure. The inflation pressure would probably be so great that it would explode. No one really knows, and no one really wants to try it and find out. The IMF knows the dollar needs to be replaced, and a long term working internationally currency system needs to eventually be implemented. But how to reverse the current system does not have a pragmatic solution.

 

[sporthenry]

By far the best way for government to spend money to improve our economy is to spend it in a way which spurs businesses. Businesses are what sustains economic growth. A bridge is good for a quick injection of economic activity. Now a bridge which leads to the opening of an industrial park which makes feasible a new business opening up, that is awesome as it spurs economic activity for decades and results in long term growth. Not all infrastructure spending is all that beneficial. Throwing money at every shovel ready project was not the greatest plan, but it did give a quick boost.

Well the problem is that many of the projects are going to be rehab or replacement. So they aren't necessarily providing immediate economic benefit but the economic benefit lost by water main breaks or things like 495 closing for months are huge. Sure, some projects weren't great ideas but for the most part, I'd prefer the potential for value added by infrastructure than things that provide little to no value to begin with.

 

[Todd Andrews]

If China and OPEC move to the Euro as world reserve currency we are in a whole lot of trouble.

 

[Slapdash]

Learning a lot from the discussion between JohnfrmCleveland and Politician Spock.

Don't lie.

 

[JohnfrmCleveland]

By far the best way for government to spend money to improve our economy is to spend it in a way which spurs businesses. Businesses are what sustains economic growth. A bridge is good for a quick injection of economic activity. Now a bridge which leads to the opening of an industrial park which makes feasible a new business opening up, that is awesome as it spurs economic activity for decades and results in long term growth. Not all infrastructure spending is all that beneficial. Throwing money at every shovel ready project was not the greatest plan, but it did give a quick boost.

This thinking (more growth is the answer) assumes that demand, or at least, our ability to consume, is unlimited. I think this is wrong. I just don't see the private sector being the answer here. I've been in the job market for almost 30 years now, and I have seen far more jobs disappear than new jobs appear. The trend couldn't be more obvious.

 

[Doctor Detroit]

If China and OPEC move to the Euro as world reserve currency we are in a whole lot of trouble.

Why would China, who holds $1.3 trillion in US treasuries, want the Euro as the reserve currency? The Chinese have hedged some with European debt holdings but there is one huge factor that plays into their thinking: they know the U.S. will never default, they aren't sure about the EU.

 

[Politician Spock]

If China and OPEC move to the Euro as world reserve currency we are in a whole lot of trouble.

Why would China, who holds $1.3 trillion in US treasuries, want the Euro as the reserve currency? The Chinese have hedged some with European debt holdings but there is one huge factor that plays into their thinking: they know the U.S. will never default, they aren't sure about the EU.

China doesn't want the Euro as the world's reserve currency. China wants a bancor type of international currency.

They wanted the IMF to establish the SDR as a bancor. But their request went no where. China came to realize that they have no voice in the IMF, because it's dominated by "western" bankers. So China has spent the last few years establishing the new BRICS banks to compete with the IMF. It was officially launched last week.

It will be interesting to see where it goes from here.

 

[JohnfrmCleveland]

Sorry for the delay. Busy week.

I'm not following your reasoning here - could you please explain the difference between the fast and slow situations, and how importing goods stops inflation?

When the velocity of money declines, central banks respond by increasing the money supply. This is because a drop in the velocity of money is deflationary, and increasing the money supply balances out this deflationary force because increasing the money supply is an inflationary force.

Likewise, when the velocity of money increases, central bankers respond by decreasing the money supply. Again, it offsets an inflationary force with a deflationary force. Balance is the goal.

But central banks don't do this. Certainly, the U.S. doesn't do this. This is just chalkboard economics. It might work, but only because you can account for all the variables on a chalkboard. Plus, a lot depends on how you define "money supply," as I said before.

In practice, our money supply increases with deficit spending (HPM), loan activity (bank credit), and everyday demand for cash (ATMs and vault cash). The Fed has little or no control over any of these.

In my opinion, velocity is just a mathematical by-product of other factors, and it's pretty useless. You can decrease V simply by increasing the money supply, but that doesn't mean you are going to get a change in economic activity.

There are other inflationary and deflationary forces, such as the demographics of the baby boom. When they were in their 20, 30's and 40's they were a great inflationary force, because people tend to borrow and spend a lot in their 20, 30's and 40's. Now that they are in their 50, 60's and soon to be approaching their 70's, they are a great deflationary force, because people as they age pay down their debts, save for retirement, and sell assets to live off of in their retirement. This is why QE1, QE2, and QE3 have not produced much inflation in the US. QE is highly inflationary, but the QEs are offsetting the highly deflationary demographics issue our country has. There are other reasons QEs haven't resulted in inflation, for example the banks were overleverged, so the QE dollars just went to their deposits to bring their leverage back to accepted levels. Again, there are others, and they all contribute one way or another as a inflationary or deflationary force.

QE didn't have any effect because those dollars don't enter the broader economy to get spent. QE just changed the makeup of bank reserves. Further proof that the mere availability of money does not mean much - banks had plenty of reserves, but it didn't result in more lending. (They were never reserve-constrained anyway. The logic behind QE is terrible,)

The rest of your post assumes that economic activity, in and of itself, is inflationary, which I don't agree with.

So whether or not we experience inflation is a factor of many different influences, one of which is the exporting of the currency, which is the subject of your question. Think of exporting of our currency as being a pressure release valve. If the sum of forces inside the national economy produces inflation (pressure), the exporting of the money relases that pressure. So in this case if the money wasn't being exported, you're right that American labor would have gotten the dollars, but in the form of rising wages in an economy of risging prices (inflation). This could be good for some, but is usually bad for most.

This is why I asked you to explain what you meant. It's easy to get caught up in analogies, but you need to be able to relate these things to real world conditions. "Releasing pressure" doesn't explain anything. Put it in real terms, and think about why (or if) it still makes sense.

Also - is inflation even a problem if wages are keeping pace?

On the other hand, if the forces inside the economy are deflationary, then anything that is going out of the pressure release value is also deflationary. It's not only not helping to fight the deflationary forces, it's contributing to the deflation. Again, your right that American labor would have gotten those exported dollars, and in this case we would desperately need them. This would be bad for everyone. Think 2008, only worse.

The Federal Reserve's job is essentially to keep the pressure of the economy right at 2% (the target inflation rate). Part of their art to getting this right is the fact our economy has that pressure release valve (exporting currency) because the world chose it to be the world's reserve currency. The Fed didn't make that choice. The world did. It's not the Fed's job at all to regulate that valve. They have no mandate to concern themselve at all with the world economy. But if someone pluged that valve so that nothing could pass through it anymore, it would seriously change what the Fed does to regulate the pressure within our national economy. And worse yet, if the flow of that plug reversed, for example if the rest of the world started sending trillions of dollars back to us because they don't need reserves of them for international trade anymore, then who knows if the Fed could even do anything to regulate that pressure. The inflation pressure would probably be so great that it would explode. No one really knows, and no one really wants to try it and find out. The IMF knows the dollar needs to be replaced, and a long term working internationally currency system needs to eventually be implemented. But how to reverse the current system does not have a pragmatic solution.

If you've got a solution to it, speak up and give it to the IMF. They need it.

The Fed's stated goals are to control inflation and to minimize unemployment. That doesn't mean that they have the means to do either one. About the only thing the Fed can really do is to set the overnight rate, and that doesn't give them as much control as people used to think.

If the world suddenly changed direction and started spending those dollars on American goods, well, a lot depends on how fast it all happened. I'm pretty sure that most businesses would welcome the increased business, for one. American labor would welcome the increased demand for their services as well. There is nothing that the Fed could really do about that, other than to offer higher rates of return on bonds. The govt., on the other hand, could run a fiscal surplus to drain away some of those incoming dollars.

The IMF might want to replace the dollar with some international currency, but they are crazy. Any international currency would come with the same problems that the gold standard came with - currency piling up in certain hands. Allowing various currencies to float relative to one another works just fine.

I think you are trying to make this a black and white argument. It can't be. There are way too many moving parts. When you ask me to explain something, I explain it, and then you respond regarding all the other moving parts. You're neither right or wrong, and my explanation on this subject is neither black nor white.

When I say the country that produces the world's reserve currency benefits from being the world's reserve currency, you can look at all the moving parts to make the argument that it's not the case. And you wouldn't be right, nor wrong in doing so. Likewise, when I say the country benefits, even that is a grey area. The US could benefit greatly from it, but it chooses not to. Essentially it is building bridges, but then blowing them up as soon as their built (the military spending), or it's building an elecetrical grid that only the Federal government can use (national security spying and data collection).

I'm not saying that there aren't benefits from this - we do get a lot of stuff in exchange for a lot of paper. But I see a lot of fear about what would happen if the dollar lost it's place as the dominant reserve currency. It's one of the worries du jour among the conservative/libertarian types, when their older arguments about the deficit/debt and inflation lost some steam. These are the things I like to reason through on threads like this.

I will say that if the economy was doing as well as you say it is, worker participation wouldn't be nearly as low as it is. I know, the employment rate is low, and all that blah, blah, blah stuff. But when average household income hasn't risen in 6 years, and 40% of the population isn't working, then no were not producing nearly as much food, energy, housing, transportation, toiletries, and other domestic products as we could. We can just import a lot of it cheaper.

Worker participation rates aren't really indicative of whether or not an economy is doing well or not. What do you think worker participation rates will look like in 50 years, when (I expect) automation will be doing most of the work for us? To me, when an economy is producing enough to support it's whole population, then it is doing well - then, the problem isn't with production, it's with the distribution of that production. Our per capita income is around $50K, which is very high. We can definitely support our citizens.

So, to bring it all back home to the point of the thread, Social Security is completely sustainable, as long as we continue to produce enough, collectively, to support our population. It's just a matter of redistribution, and that's a political question, not an economic one.

 

[trogg78]

Anyone willing to bet their ss check on this?

 

[dparker713]

Solutions:

1) Move to the Chile model.

or

2) First, start moving the retirement age. If you're 40 or older today, no change. In your 30s, add a year to the Social Security age. 20s, add another year. Younger than that, add one more year. Etc. People born today should have to wait until they're in their 70s before they see SS. Then, defer payments until needed. Someone retires with $5mil in the bank and can generate $60K in yearly income, their SS payment goes into a locked account until their savings and income drop to a lower level. Gov't collects the interest.

You can't keep raising the retirement age. It's fine for some office worker but the people that do manual labor will be broken down physically before 70. Also, who the #### wants to work when they are that old?

From a 2011 report:

SS was created in 1935. Since that time, life expectancy has increased by 26%. The SS retirement age has increased by 3%.

Unfortunately, a delay in start age is perhaps the simplest way to fix the system.

The simplest way by far is to change the regressive taxing of SS to a flat tax.

 

[Politician Spock]

But central banks don't do this. Certainly, the U.S. doesn't do this.

They most certainly do do this. It's their whole purpose to exist to do this.

If you disagree with me on this, then you will disagree with me on everything.

 

[JohnfrmCleveland]

But central banks don't do this. Certainly, the U.S. doesn't do this.

They most certainly do do this. It's their whole purpose to exist to do this.

If you disagree with me on this, then you will disagree with me on everything.

Then how do they do it? What is the mechanism? Bond sales? They really don't change much of anything. Before QE, it was thought that bond sales acted to "soak up" "excess" dollars/reserves, but since QE didn't have the intended effect, the idea that you could control the economy by this method went out the window.

By saying that central banks' whole purpose is to adjust the money supply up or down (depending on economic conditions at the time), you are taking monetarism as a given. But even Friedman admitted that he was wrong about monetarism. Why his followers didn't follow him on that is a mystery, but even after decades of failed policies, monetarism is still strangely persuasive in American politics. It just makes too much sense on its face for people to completely abandon.

I'm not trying to disagree with you. I'm just scrutinizing your claims, and trying to work through some points where we don't agree.

 

[Politician Spock]

But central banks don't do this. Certainly, the U.S. doesn't do this.

They most certainly do do this. It's their whole purpose to exist to do this.

If you disagree with me on this, then you will disagree with me on everything.

Then how do they do it? What is the mechanism? Bond sales? They really don't change much of anything. Before QE, it was thought that bond sales acted to "soak up" "excess" dollars/reserves, but since QE didn't have the intended effect, the idea that you could control the economy by this method went out the window.

By saying that central banks' whole purpose is to adjust the money supply up or down (depending on economic conditions at the time), you are taking monetarism as a given. But even Friedman admitted that he was wrong about monetarism. Why his followers didn't follow him on that is a mystery, but even after decades of failed policies, monetarism is still strangely persuasive in American politics. It just makes too much sense on its face for people to completely abandon.

I'm not trying to disagree with you. I'm just scrutinizing your claims, and trying to work through some points where we don't agree.

Bond selling does take base money out of the market. QE is NOT bond selling. It's bond BUYING. And in QE3 it is also MBS buying.

Base money only makes up 5 to 10% of the money supply. The other 90 to 95% comes from fractional reserve lending by banks. The Fed can accelerate or decelerate that process by decreasing or increasing interest rates.

 

[JohnfrmCleveland]

But central banks don't do this. Certainly, the U.S. doesn't do this.

They most certainly do do this. It's their whole purpose to exist to do this.

If you disagree with me on this, then you will disagree with me on everything.

Then how do they do it? What is the mechanism? Bond sales? They really don't change much of anything. Before QE, it was thought that bond sales acted to "soak up" "excess" dollars/reserves, but since QE didn't have the intended effect, the idea that you could control the economy by this method went out the window.

By saying that central banks' whole purpose is to adjust the money supply up or down (depending on economic conditions at the time), you are taking monetarism as a given. But even Friedman admitted that he was wrong about monetarism. Why his followers didn't follow him on that is a mystery, but even after decades of failed policies, monetarism is still strangely persuasive in American politics. It just makes too much sense on its face for people to completely abandon.

I'm not trying to disagree with you. I'm just scrutinizing your claims, and trying to work through some points where we don't agree.

Bond selling does take base money out of the market. QE is NOT bond selling. It's bond BUYING. And in QE3 it is also MBS buying.

Base money only makes up 5 to 10% of the money supply. The other 90 to 95% comes from fractional reserve lending by banks. The Fed can accelerate or decelerate that process by decreasing or increasing interest rates.

You're right, QE is pushing dollars into banks, but the point was that attempting to control the economy by adjusting the number of dollars in play doesn't work - in either direction. QE was an attempt to stimulate lending activity, and it failed miserably. But it relates to my point about bond sales because before implementing QE, the Fed set the ceiling for overnight lending with bond sales, and it was thought that bond sales also acted to sop up "excess" dollars, possibly fighting inflation in this way. QE, by pushing excess dollars into banks (and, possibly, into the economy) with no resulting inflation, demonstrated that this thinking was faulty.

On central banks not reacting by adjusting the money supply:

"Central banks now operate with an explicit interest rate target, although many of them allow the overnight rate to deviate within a band—and intervene when the market rate deviates from the target by more than the central bank is willing to tolerate. In other words, modern central banks operate with a price rule(target interest rate), not a quantity rule (reserves or monetary aggregates)." source

Banks do not operate the way we learned in school (fractional reserve). Since the Fed has always supplied any necessary reserves that banks demanded, banks have not been reserve-constrained. In fact, when banks make loans, they do so without even thinking about their reserve positions - there is a float period (3 days? I'm not sure...) that banks have after making a loan to adjust their reserves to comply with regulations. Make a loan on Tuesday, adjust your reserves (if necessary) by Friday. And when QE flooded banks with excess reserves, new money (loans) was not automatically created. The Fed, as we have seen, has little control over the amount of loans (and therefore the amount of bank-created credit) that is created. They can adjust the interest rate, as I said, but they are pretty close to zero already, and they still can't generate much loan activity.

The myth of the money multiplier by Steve Keen

 

[humpback]

Solutions:

1) Move to the Chile model.

or

2) First, start moving the retirement age. If you're 40 or older today, no change. In your 30s, add a year to the Social Security age. 20s, add another year. Younger than that, add one more year. Etc. People born today should have to wait until they're in their 70s before they see SS. Then, defer payments until needed. Someone retires with $5mil in the bank and can generate $60K in yearly income, their SS payment goes into a locked account until their savings and income drop to a lower level. Gov't collects the interest.

You can't keep raising the retirement age. It's fine for some office worker but the people that do manual labor will be broken down physically before 70. Also, who the #### wants to work when they are that old?

From a 2011 report:

SS was created in 1935. Since that time, life expectancy has increased by 26%. The SS retirement age has increased by 3%.

Unfortunately, a delay in start age is perhaps the simplest way to fix the system.

The simplest way by far is to change the regressive taxing of SS to a flat tax.

 

[Politician Spock]

But central banks don't do this. Certainly, the U.S. doesn't do this.

They most certainly do do this. It's their whole purpose to exist to do this.

If you disagree with me on this, then you will disagree with me on everything.

Then how do they do it? What is the mechanism? Bond sales? They really don't change much of anything. Before QE, it was thought that bond sales acted to "soak up" "excess" dollars/reserves, but since QE didn't have the intended effect, the idea that you could control the economy by this method went out the window.

By saying that central banks' whole purpose is to adjust the money supply up or down (depending on economic conditions at the time), you are taking monetarism as a given. But even Friedman admitted that he was wrong about monetarism. Why his followers didn't follow him on that is a mystery, but even after decades of failed policies, monetarism is still strangely persuasive in American politics. It just makes too much sense on its face for people to completely abandon.

I'm not trying to disagree with you. I'm just scrutinizing your claims, and trying to work through some points where we don't agree.

Bond selling does take base money out of the market. QE is NOT bond selling. It's bond BUYING. And in QE3 it is also MBS buying.

Base money only makes up 5 to 10% of the money supply. The other 90 to 95% comes from fractional reserve lending by banks. The Fed can accelerate or decelerate that process by decreasing or increasing interest rates.

You're right, QE is pushing dollars into banks, but the point was that attempting to control the economy by adjusting the number of dollars in play doesn't work - in either direction. QE was an attempt to stimulate lending activity, and it failed miserably. But it relates to my point about bond sales because before implementing QE, the Fed set the ceiling for overnight lending with bond sales, and it was thought that bond sales also acted to sop up "excess" dollars, possibly fighting inflation in this way. QE, by pushing excess dollars into banks (and, possibly, into the economy) with no resulting inflation, demonstrated that this thinking was faulty.On central banks not reacting by adjusting the money supply:"Central banks now operate with an explicit interest rate target, although many of them allow the overnight rate to deviate within a band—and intervene when the market rate deviates from the target by more than the central bank is willing to tolerate. In other words, modern central banks operate with a price rule(target interest rate), not a quantity rule (reserves or monetary aggregates)." source

Banks do not operate the way we learned in school (fractional reserve). Since the Fed has always supplied any necessary reserves that banks demanded, banks have not been reserve-constrained. In fact, when banks make loans, they do so without even thinking about their reserve positions - there is a float period (3 days? I'm not sure...) that banks have after making a loan to adjust their reserves to comply with regulations. Make a loan on Tuesday, adjust your reserves (if necessary) by Friday. And when QE flooded banks with excess reserves, new money (loans) was not automatically created. The Fed, as we have seen, has little control over the amount of loans (and therefore the amount of bank-created credit) that is created. They can adjust the interest rate, as I said, but they are pretty close to zero already, and they still can't generate much loan activity.The myth of the money multiplier by Steve Keen

Whether or not it works is a different discussion than what it was designed to do.

If you want to argue that it doesn't work, then you and I are are not far off from agreeing. I've been telling the guys here for years now that the fed is trying the very last in it's bag of tricks, but we've still got 10 to 20 years to go before we will have an economy that doesn't need fed tricks. Maybe they can make the last of their tricks keep it floating that long. I doubt it though. We will see.