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Not entirely. Greece and Italy cannot issue the currency in which their debt is denominated. The Germans (and French to a lesser extent) control the ECB. The

Not entirely. Greece and Italy cannot issue the currency in which their debt is denominated. The Germans (and French to a lesser extent) control the ECB. The U.S. can issue the currency its debt is denominated in. That puts us in a different situation than Greece. Not necessarily better, but not as imminently bad either.

techiferous 16y ago
Would this mean that the U.S. dollar, being fiat currency, would not be a good place to keep your wealth?
- bd_at_rivenhill 16y ago
  There are other fiat currencies issued by governments that are managing their finances better, but if you decide to purchase debt issued by those governments, be sure to understand the fact that you are making a bet on the relative value of currencies and that factors other debt load and fiscal policy will affect these values, especially in the short run.
- mechanical_fish 16y ago
  Let's let James Galbraith answer that: What is the nature of the danger? The only possible answer is that this larger deficit would cause a rise in the interest rate. Well, if the markets thought that was a serious risk, the rate on 20-year treasury bonds wouldn't be 4 percent and change now. If the markets thought that the interest rate would be forced up by funding difficulties 10 year from now, it would show up in the 20-year rate. That rate has actually been coming down in the wake of the European crisis. If there's a better place to keep wealth than US Treasury securities, nobody seems to know what it is.
  - anamax 16y ago
    > If there's a better place to keep wealth than US Treasury securities, nobody seems to know what it is. "Better" does not imply good.
    - bryanh 16y ago
      In the relative world of finance, I doubt you could argue anything is definitively "good".
- Perceval 16y ago
  The traditional safe havens for people worried about fiat currency have been gold and silver. This sets them apart from other commodities. All commodities, including gold and silver, are used to hedge against inflation. But gold and silver have a traditional or historical role as an alternative to paper money. http://www.minyanville.com/businessmarkets/articles/gold-crude-oil-spreads-west-texas/5/24/2010/id/28418 http://www.minyanville.com/businessmarkets/articles/gold-cru... Treasuries, denominated in U.S. dollars, are held as liquid assets. People usually hold these when they expect markets to decline. They are perceived as very low risk, safe investments. They don't carry a lot of return, but they are seen as reliable. If you think that the U.S. is going to issue a huge amount of dollars in order to pay off its debts ('monetizing the debt'), that would ordinarily lead to a great deal of inflation. The situation we are currently facing may prevent inflation from occurring. Because we are entering a credit crunch, the overall money supply has actually started to contract (using the broadest measure of money, 'M3'). A contraction in the money supply would lead to deflation. Thus a massive printing of U.S. dollars (at least in the short term) may serve to counteract deflation rather than causing inflation. http://www.telegraph.co.uk/finance/economics/7769126/US-money-supply-plunges-at-1930s-pace-as-Obama-eyes-fresh-stimulus.html http://www.telegraph.co.uk/finance/economics/7769126/US-mone... Because of the turmoil in Europe, odd things have been happening. Usually the dollar and gold move in opposite directions (strong dollar weak gold, weak dollar strong gold). But people have been fleeing the Euro, causing both the dollar and gold to strengthen at the same time. http://seekingalpha.com/article/204718-reading-into-the-simultaneous-rise-in-gold-and-the-u-s-dollar?source=feed http://seekingalpha.com/article/204718-reading-into-the-simu... The euro is facing a crisis, Japan's banks are also quietly scrambling for funds to prop up their banks, and there's a great deal of debt in the Chinese system that hasn't really been put to the test yet (but may be soon). There isn't really any currency that is unencumbered by large amounts of debt, including the dollar. Nevertheless, of the major world currencies (dollar, euro, pound, yen, yuan), the dollar probably still enjoys the greatest confidence. If you are going to invest in anything denominated in a major currency, the dollar is still probably the best at the moment. If you have no medium- to long-term faith in fiat currencies, then buying gold and silver are the traditional alternatives.
  - techiferous 16y ago

techiferous 16y ago

Would this mean that the U.S. dollar, being fiat currency, would not be a good place to keep your wealth?

bd_at_rivenhill 16y ago
There are other fiat currencies issued by governments that are managing their finances better, but if you decide to purchase debt issued by those governments, be sure to understand the fact that you are making a bet on the relative value of currencies and that factors other debt load and fiscal policy will affect these values, especially in the short run.
mechanical_fish 16y ago
Let's let James Galbraith answer that: What is the nature of the danger? The only possible answer is that this larger deficit would cause a rise in the interest rate. Well, if the markets thought that was a serious risk, the rate on 20-year treasury bonds wouldn't be 4 percent and change now. If the markets thought that the interest rate would be forced up by funding difficulties 10 year from now, it would show up in the 20-year rate. That rate has actually been coming down in the wake of the European crisis. If there's a better place to keep wealth than US Treasury securities, nobody seems to know what it is.
- anamax 16y ago
  > If there's a better place to keep wealth than US Treasury securities, nobody seems to know what it is. "Better" does not imply good.
  - bryanh 16y ago
    In the relative world of finance, I doubt you could argue anything is definitively "good".
Perceval 16y ago
The traditional safe havens for people worried about fiat currency have been gold and silver. This sets them apart from other commodities. All commodities, including gold and silver, are used to hedge against inflation. But gold and silver have a traditional or historical role as an alternative to paper money. http://www.minyanville.com/businessmarkets/articles/gold-crude-oil-spreads-west-texas/5/24/2010/id/28418 http://www.minyanville.com/businessmarkets/articles/gold-cru... Treasuries, denominated in U.S. dollars, are held as liquid assets. People usually hold these when they expect markets to decline. They are perceived as very low risk, safe investments. They don't carry a lot of return, but they are seen as reliable. If you think that the U.S. is going to issue a huge amount of dollars in order to pay off its debts ('monetizing the debt'), that would ordinarily lead to a great deal of inflation. The situation we are currently facing may prevent inflation from occurring. Because we are entering a credit crunch, the overall money supply has actually started to contract (using the broadest measure of money, 'M3'). A contraction in the money supply would lead to deflation. Thus a massive printing of U.S. dollars (at least in the short term) may serve to counteract deflation rather than causing inflation. http://www.telegraph.co.uk/finance/economics/7769126/US-money-supply-plunges-at-1930s-pace-as-Obama-eyes-fresh-stimulus.html http://www.telegraph.co.uk/finance/economics/7769126/US-mone... Because of the turmoil in Europe, odd things have been happening. Usually the dollar and gold move in opposite directions (strong dollar weak gold, weak dollar strong gold). But people have been fleeing the Euro, causing both the dollar and gold to strengthen at the same time. http://seekingalpha.com/article/204718-reading-into-the-simultaneous-rise-in-gold-and-the-u-s-dollar?source=feed http://seekingalpha.com/article/204718-reading-into-the-simu... The euro is facing a crisis, Japan's banks are also quietly scrambling for funds to prop up their banks, and there's a great deal of debt in the Chinese system that hasn't really been put to the test yet (but may be soon). There isn't really any currency that is unencumbered by large amounts of debt, including the dollar. Nevertheless, of the major world currencies (dollar, euro, pound, yen, yuan), the dollar probably still enjoys the greatest confidence. If you are going to invest in anything denominated in a major currency, the dollar is still probably the best at the moment. If you have no medium- to long-term faith in fiat currencies, then buying gold and silver are the traditional alternatives.
- techiferous 16y ago