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While you are right, the special thing in our credit based financial system in the 21st century is that this is happening on a global scale and all major curren

• JumpCrisscross 4y ago
  > this is happening on a global scale and all major currencies do it (USD, CNY, EUR, JPY) This is nonsense. Mathematically. OP argues Japanese companies print “a foreign currency profit for head office that requires converting foreign currency into” a falling local currency. That can’t simultaneously be true of the U.S. dollar and Japanese yen. If one currency is falling the other is rising.
  • nostrademons 4y ago
    It works if you zoom out a level. If all fiat currencies are printing massively and holding nominal rates near zero (and real rates negative), then the value of all currencies relative to goods and services will fall. Owning anything which produces goods and services, at any price, becomes a good bet. You can run this mathematically with a discounted cash flow analysis. Plug in a negative discount rate to any positive series of cash flows. The sum becomes infinite, i.e. under conditions of negative real interest rates, the fair market value for any cash-flowing asset is infinite. This is pretty close to the conditions that exist in most developed economies today, and this is why you see these outlandish valuations for assets. You're seeing the beginnings of a worldwide currency crisis. Most of us who grew up in the developed world over the last 80 years are used to our money being worth something; when this no longer holds, counterintuitive behavior results.
    • JumpCrisscross 4y ago
      > then the value of all currencies relative to goods and services will fall. Owning anything which produces goods and services, at any price, becomes a good bet You’re describing inflation. OP describes accounting trickery around currency conversion. In the short run, yes, inflation boosts revenue. This is well known and why equities are a decent inflation hedge. Decent because in the medium term, as in months, inflation raises producer costs. (Supply-side inflationary pressure, what we saw in the early recovery, raises producers’ prices before consumers’.) > a negative discount rate Inflation doesn’t cause negative discount rates. Also, negative discount rates don’t produce infinite valuations. DCF is a chained present-value calculation. $100 in 5 years discounted at -4% is worth $123 today [1]. (This is how inflation compounds.) That bet, however, requires not only negative rates today, but assurance of that being the case for the next five years. If you’re getting infinities, you’re using a simplified model which assumes r > 0. > seeing the beginnings of a worldwide currency crisis This doesn’t make sense. Fundamentally. Currency crises are a relative phenomenon. You can posit some other crisis, like a worldwide collapse of governments, the sort gold bugs and now crypto peddlers have pitched for centuries. But there is no more evidence of that now than there was in the 19th century. [1] 100 / (1 -4%) ^ 5