[C300]

Originally Posted by smartcat

Here's another video (that Youtube recommended I watch!)

This one is not as "polished" as the Maloney video, but essentially says the same thing.


What I feel now is that Indian housewives are very very smart. They like to invest only in Gold (jewellery) and real estate - both of which are "physical assets", and mostly immune to global financial disasters!

Thanks for sharing the videos Smartcat!

The Chinese are importing unprecedented quantities of physical gold for the past couple of years and may overtake India as the largest gold consumer this year. Shanghai Gold Exchange is targeting to be the largest gold exchange in the world.
Obviously they are using their Dollar reserves to pay for the physicals. One wonders whether the Chinese have started to make a move against the Dollar hegemony.

[shankar.balan]

India's undeclared Gold Assets are probably the largest in the world. India has been the world's largest gold sink, from time immemorial pretty much.

Perhaps now with the kind of cash reserves the Chinese have, they will become the worlds largest consumers of this yellow metal!

[alpha1]

Can anyone explain to me why so many anti US sentiments are running on this board?
Essentially all individuals and thus the collection of individuals called nation are governed ONLY by greed and selfishness.

Does anyone here believes that if India was in same position and situation as US, it wouldn't be throwing its weight around?

Hah! Even the whole concept of patriotism is built upon the fundamentals of greed and selfishness!

[999]

At the risk of being OT, here is an article on the food security bill vs WTO. Another pathetic political sellout of the country.

http://www.thehindu.com/opinion/lead...?homepage=true

[Samurai]

Originally Posted by alpha1

Can anyone explain to me why so many anti US sentiments are running on this board?

That is not true. We are not anti-US at all. That doesn't mean we can't critique US policies. Take Bill Maher, whose youtube video I posted in the last page. He loves USA and he even paid 1 million dollar personally to Obama's re-election fund. His comments are lot more caustic than what we are saying.

[SmartCat]

Actually, countries like India can have a default crisis but a country like US can never default on its obligations (unless the default is INTENTIONAL).

Why can't US default on its debt? Because all its (external & internal) debt is in US Dollars and it can print as much money as it wants, especially since their inflation rate is 1%.

Rest of the world's external debt will be in a US Dollars which they cannot print as much as they want. They can try printing their local currency & exchange it for USD, but that results in currency depreciation (against USD) and hence hyperinflation (like in Zimbabwe or Argentina or Venezuela)

[SmartCat]

Originally Posted by Samurai

Even US can't go on printing money. It will flood the market with dollars. When supply of dollar exceeds the demand for dollar, the value of dollar will plummet. This will result in countries/banks with huge dollar reserves to panic and dump the dollar, which further brings the dollar value down. That will temporarily increase the demand US goods and services, but will badly hit the US ability to import since other countries will want payment in Euro instead of weakened dollar.

Overall, I agree with that line of thought. However, US & the Dollar have some unique traits -

- All major commodities are priced in dollars.

- 50% (or thereabout) of US Dollars resides outside the country. Assuming that percentage remains the same, the "new printed money" finds it way into other countries in the form of stock investments, FDI or real estate investments. Essentially, dollar demand remains quite high, especially outside of the US.

- Still remains a safe haven currency. There is no other alternative to the USD. Check the US Dollar Index (USD against major currencies)



Yeah, USD keeps depreciating at a slow pace over time, but in times of crisis (like in 2008 or before), money goes back into US treasuries - check out the spike in Dollar Index at times of financial crisis.

Till the second largest economy (China) makes their currency (Yuan/Remnimbi) fully convertible & freely tradable, United States Govt & the Dollar are quite well placed.

[Samurai]

The US federal reserve obviously understands monetary policy. They would never print money in a manner that will reduce the value of dollar in a dramatic fashion.

[supremeBaleno]

Originally Posted by noopster

You are being dismissive, but Samurai's puny home loan example actually is a perfect analogy.

Actually it is indeed a pretty valid analogy. I looked up the debt/default crisis and one of the links that came up was an article by BBC (http://www.bbc.com/news/business-24453400), which gives a similar analogy - quoting from it :

<<What is a US debt default?
At its most basic level, a default is when a person or an entity cannot repay a debt on time. For instance, when a person can't make a payment on a mortgage or a car loan.
When a country does this, it's known as a sovereign default. This is when the country cannot repay its debt, which typically takes the form of bonds.>>

An even more closer analogy to the US debt/default would be those who revolve the outstanding balance on their credit-cards by making the bare-minimum 5% payment.
He/she is in debt (which will pile up higher if debt is again revolved and further expenses added), but by paying the bare-minimum 5%, they are not in default.

Also regarding Bill Maher, there is a big difference between making people laugh and being a laughing-stock. Just because someone is a comedian, does not mean he/she is not capable of holding an informed opinion. I don't follow him, but have watched his shows on TV during US visits and found them interesting. He does seem to have a good set of writers and does not really say stuff that is unsubstantiated. On the US' war-mongering nature in one of the videos posted by Samurai, he mentions about US being at war with a whole range of countries over most of its established history. I googled it (http://en.wikipedia.org/wiki/List_of..._United_States) and he was actually right. So it is not like you can dismiss what he says solely due to his hosting a comedy show.

[bblost]

Going thru the past few pages, my understanding is this.
Please note I have NO knowledge of economics Just what I read from internet.
Feel free to tear down my understanding because its quite amateur.

Debt Crisis:
A Govt is like a large consumer who employs a lot of people and also other contractors. Now the projects that are undertaken cost a lot of money. Money the govt does not really have. For instance building a road. It could cost a couple of thousand crores. So the govt tells the people...start building, I will pay as the time goes.
Since people trust the Govt they go ahead and start providing their service. So the Govt owes them money.
All is fine till one day the Govt realizes that they have sought more than they can pay.
They are not able to pay up. Slowly the Govt loses credibility. If they float a tender, no one touches it.
That is people are unwilling to extend credit to the Govt.
Such a situation is Debt Crisis.


Default Crisis:
In the earlier example the Govt has promised that they will pay money on a fixed date. The date has arrived but the Govt does not have the money. They are very sure they can get the money from elsewhere but they just don't have it now. The govt is hitting a default crisis.


A default crisis throws a spanner in the economy. There are people who need to get that money so they can repay people who provided them with services.

A govt always hitting default crisis could be because they are on the path of hitting a debt crisis.

[srishiva]

I thought it was just a technical point that had to be decided politically between the two parties in the Congress that led to this huge hoopla !

The other problems with debt was always there and will keep growing for different problems to crop up later (or not, its perception, you could think there is no problem for a looong time)

[phamilyman]

Originally Posted by smartcat

Overall, I agree with that line of thought. However, US & the Dollar have some unique traits -

- All major commodities are priced in dollars.

- 50% (or thereabout) of US Dollars resides outside the country. Assuming that percentage remains the same, the "new printed money" finds it way into other countries in the form of stock investments, FDI or real estate investments. Essentially, dollar demand remains quite high, especially outside of the US.

- Still remains a safe haven currency. There is no other alternative to the USD. Check the US Dollar Index (USD against major currencies)

Yeah, USD keeps depreciating at a slow pace over time, but in times of crisis (like in 2008 or before), money goes back into US treasuries - check out the spike in Dollar Index at times of financial crisis.

Till the second largest economy (China) makes their currency (Yuan/Remnimbi) fully convertible & freely tradable, United States Govt & the Dollar are quite well placed.

The fact remains that the world needs a reserve currency. That is currently the dollar. Ask anyone in the financial markets - most junta agree that the US is in bad shape. But the fact is, others are just as bad / worse - be it the eurozone or even Japan. Dollar retains its strength on a comparative basis - not because the policy of money printing is economically very sound.

The fact that most global trade is priced today in dollars means nothing on a long term. It is all about the day a certain tipping point is reached, then suddenly dollar is no longer as valuable - one key element of that will be the emergence of another reserve currency, which is the yuan (as you rightly pointed out). That's not something any one of us can predict.

However, the dollar as the global reserve currency can change in a few years - see this recent one: http://www.zerohedge.com/news/2014-0...yuan-or-rubles http://businessnewsghana.com/index.p...-troubled-cedi Russia is considering Yuan debt http://www.bloomberg.com/news/2014-0...ia-credit.html while 40 central banks have quietly invested in them too! http://www.scmp.com/business/banking...nearer-reserve. There are minor murmurs today - one can't predict when a tectonic shift occurs, when the trickle turns into a flood.

You and I can't do much today. We can't bet either way (except buying gold) because Markets can remain irrational longer than you can remain solvent (hat tip, JM Keynes)

Originally Posted by Samurai

The US federal reserve obviously understands monetary policy. They would never print money in a manner that will reduce the value of dollar in a dramatic fashion.

+N

[amitoj]

Originally Posted by phamilyman

most junta agree that the US is in bad shape.

Actually, the US economy has been recovering consistently for some time now. It is a slow recovery that is why it is going unnoticed. But unemployment numbers month after month have shown an improvement. Being a lagging indicator of the state of economy, falling numbers means the economy is improving. Earnings reports of many major players have beaten forecasts. And the market is not getting too spooked easily. Yes there are momentary shifts due to global events but things settle down to routine business very quickly.

EDIT: And just as i finish typing this, Ford releases it's second quarter earnings. And guess what! They also beat analysts' expectations!
http://www.detroitnews.com/article/2...rnings-up-6-3-

[phamilyman]

Originally Posted by amitoj

Actually, the US economy has been recovering consistently for some time now. It is a slow recovery that is why it is going unnoticed. But unemployment numbers month after month have shown an improvement. Being a lagging indicator of the state of economy, falling numbers means the economy is improving. Earnings reports of many major players have beaten forecasts. And the market is not getting too spooked easily. Yes there are momentary shifts due to global events but things settle down to routine business very quickly.

Let's pack in the latest numbers:
http://www.forbes.com/sites/samantha...-quarter-2014/
0.1% when the government is printing money doesn't sound smashing either.

Let's consider investment as a % of GDP - that should tell us whether the businesses want to invest as much as they did earlier?
http://www.quandl.com/IMF/NID_NGDP_1...Percent-of-GDP
(curtail chart to 31/12/2013).

Its recovered but not close to 2007 levels yet.

then some interesting stats to munch on, while I have dinner:
https://www.creditwritedowns.com/201...-us-banks.html
pasting completely from there:

Amidst record profits ($18 Bn by JPMorgan), banks are NOT lending! Their loan to deposit ratio in 2013 was 57%, down from 88% in 2004!
Legend: Red = loans and leases + bank reserves, Blue = deposits (all commercial banks)

As the CNN story suggests, there are a few possible explanations for this trend. Here are four of them.
1. Demand for credit remains weak due to economic uncertainty, large amounts of cash on corporate balance sheets, jittery labor markets, poor wage growth expectations, general unease with taking on debt, etc.
2. Regulatory uncertainty and tighter (and to some extent unknown) capital requirements are preventing banks from extending more credit.
3. Exceptionally low rates make some forms of lending unprofitable.
4. Banks are running unusually large excess reserve positions with the Fed that are “crowding out” lending. These reserves are effectively “loans” to the Fed paying 25bp, funded with bank deposits that pay near zero, creating riskless profits with zero regulatory capital requirement.
There are arguments to be made for all four. The last one however is particularly intriguing because the $2.4 trillion gap between deposits and loans is a familiar number. The excess reserves in the banking system is now … also around $2.4 trillion.
The chart below adds bank reserves held with the Fed to loans and leases – and the gap “disappears” (here we use total reserves vs. just the excess reserves, but the difference is not material to this trend.)

Red = loans and leases + bank reserves, Blue = deposits (all commercial banks)

Coincidence? Perhaps. But if there is any validity to the explanation #4 above, it would suggest that QE, which is directly responsible for the $2.4 trillion in excess reserves, was not helpful (and possibly harmful) to credit growth in the US.

Here's another one showing how ginormous and unprecedented this money printing has been - a THIRTY year chart showing how this idle money (reserve balance with federal reserve) has been over the last so many years.


Basically some of that profit is because they are not lending to businesses but putting it with the Fed, which prints more money in a never ending cycle. This level of staggering deposit growth with the Fed is ruinous for the real economy because banks are basically raising cheap finance and investing it for risk free returns. So much for banks powering the economy and all that spiel.

This is a quick perspective - barely researched but its a quick example of my cynicism. More later