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The fed can do what they are doing because the dollar has safe haven status. When things get bad globally, capital flows into the dollar not out of it. If any o

by mantap 6y ago

The fed can do what they are doing because the dollar has safe haven status. When things get bad globally, capital flows into the dollar not out of it. If any other country (except perhaps Japan) tried to do what the fed does they would probably end up like Zimbabwe no matter how good their pilot. Currencies have got in the shit for a lot less.

RobertoG 6y ago
So, the fed can do it because is special. Japan can do it because is special, the Central European Bank can do it because it's special and the British can do it because they are special. Not only that, but they can do it all at the same time. At some point, a theory with more exceptions than the opposite should be considered useless. Specially when there is a clear alternative: inflation happens when the spending in the economy surpass the capacity of the economy. Than can happen because the government and the private sector spend too much (bubbles) or because the supply side collapse (hyperinflation in Zimbabwe).
- mantap 6y ago
  The currencies you list are all considered major reserve currencies, USD, JPY, GBP, EUR. They have value outside of trade. There's over 100 currencies. Most central banks control currencies that are rather pedestrian like Thai Baht or South African Rand.
  - neilwilson 6y ago
    And why is that an issue? The most that can happen is that there is no saving of the Baht or the Rand outside the taxation area of those currencies. Assuming they are fully floating. In which case the central bank will be doing nothing other than offsetting the domestic savings in the currency of issue. Because sector balances have to balance. The concept of "reserve" is utterly flawed. People hold balances of all sorts of currencies for very many reasons - largely working capital, but also for insurance and for prestige.
danbolt 6y ago
Just curious, what makes Japan the exception? I know the Yen is also a notable reserve currency so I’d imagine that could affect things.
- wazoox 6y ago
  Arguably as most Japan treasuries are owned by the Japanese themselves, and carry 0% interest, we can consider that the debt has already been repaid. That's apparently what Warren Buffet thinks.
imtringued 6y ago
No, the reality is quite boring. The additional central bank money is just pooling up somewhere, never reaching the hands of consumers. If you give consumers money directly you're going to see inflation instantaneously. Central banks are trying to hammer a screw into a wall. It just doesn't work. That's why all central banks in all countries fail equally.

by mantap 6y ago

RobertoG 6y ago

So, the fed can do it because is special. Japan can do it because is special, the Central European Bank can do it because it's special and the British can do it because they are special. Not only that, but they can do it all at the same time. At some point, a theory with more exceptions than the opposite should be considered useless. Specially when there is a clear alternative: inflation happens when the spending in the economy surpass the capacity of the economy. Than can happen because the government and the private sector spend too much (bubbles) or because the supply side collapse (hyperinflation in Zimbabwe).

mantap 6y ago
The currencies you list are all considered major reserve currencies, USD, JPY, GBP, EUR. They have value outside of trade. There's over 100 currencies. Most central banks control currencies that are rather pedestrian like Thai Baht or South African Rand.
- neilwilson 6y ago
  And why is that an issue? The most that can happen is that there is no saving of the Baht or the Rand outside the taxation area of those currencies. Assuming they are fully floating. In which case the central bank will be doing nothing other than offsetting the domestic savings in the currency of issue. Because sector balances have to balance. The concept of "reserve" is utterly flawed. People hold balances of all sorts of currencies for very many reasons - largely working capital, but also for insurance and for prestige.

danbolt 6y ago

Just curious, what makes Japan the exception? I know the Yen is also a notable reserve currency so I’d imagine that could affect things.

wazoox 6y ago
Arguably as most Japan treasuries are owned by the Japanese themselves, and carry 0% interest, we can consider that the debt has already been repaid. That's apparently what Warren Buffet thinks.

imtringued 6y ago

No, the reality is quite boring. The additional central bank money is just pooling up somewhere, never reaching the hands of consumers. If you give consumers money directly you're going to see inflation instantaneously. Central banks are trying to hammer a screw into a wall. It just doesn't work. That's why all central banks in all countries fail equally.