7 ms·

Assuming US can print any value of USD out of thin existence as they have done multiple times in last 20yrs, it doesn’t matter for them whether they later buy i

Assuming US can print any value of USD out of thin existence as they have done multiple times in last 20yrs, it doesn’t matter for them whether they later buy in the oil to fill the reserve back at 40$ or 400$. Key issue here is that we are seeing hard assets especially commodities being repriced in USD after a steep cycle. The winner here, as always are gulf countries flushing with cash as they are the real owners of the hard commodity assets. And the losers are developing and emerging market economies with poor FX reserves (as we have seen with Sri Lanka, Argentina etc). Pakistan could save 2.26B rupees since last April by trading oil in rupees instead of dollar [1]. The real monopoly in this world is USD hegemony and it’s once again developing economies who will bail out the monopoly paying steep prices for import. [1] https://adamtooze.substack.com/p/chartbook-153-the-south-asian-polycrisis https://adamtooze.substack.com/p/chartbook-153-the-south-asi...

fsckboy 4y ago
> Assuming US can print any value of USD out of thin existence as they have done multiple times in last 20yrs The US doesn't do that. You're probably confusing the increase in the US debt with money supply. So long as the economy grows (as it has over the last 20 years) then the debt is not a problem
- llanowarelves 4y ago
  Everything goes up forever until it doesn't. Japan hasn't recovered from highs like 30 years ago. One reason foreign debt may not matter is because when you have the most powerful military in the world, some of the most fertile land (food), natural barriers (defenses), and cultural hegemony (arguably America's real export, and English is like a virus) who is going to make you repay it and how exactly?
  - fsckboy 4y ago
    > who is going to make you repay it and how exactly? people are used to thinking of personal debt which they need to repay. Corporate debt is not repaid, the %age is considered part of the "capital structure" of the company. It's a type of ownership, equity holders own the frothy top of the company, bondholders own the underlying assets at the bottom. As corporate bonds are repaid, new bonds are issued, renewing the debt. The fixed %age interest payments on the debt are a cheap way for the equity holders to increase their profits. Government debt is more in the category of corporate debt, repaying it is not part of the plan, the goal is to move future spending into the present for long term infrastructure projects, etc. And as long as the economy grows so the debt percentage stays manageable, it's not an issue.
    - llanowarelves 4y ago
      Thanks for the well-reasoned response. I hadn't considered that angle and have to think on it. But if growth stops..
    - vineyardmike 4y ago
      > And as long as the economy grows so the debt percentage stays manageable, it's not an issue What happens when it stops growing? Italy, Greece, Japan want to know. China and the US could use the info for later too.
    - christophilus 4y ago
      Companies who roll their debt are about to hit a world of pain. The US treasury interest rate dictates just about all other rates, and it has more than doubled since its lows. All of the folks decrying high corporate profits are about to get their wish, as interest and inflation will begin to eat into those profits. At least, that’s my guess as to how the next few quarters play out. Who knows what happens afterwards? As for governments being somehow immune from the physics of economics, I’m a skeptic. It takes longer for government-scale economics to play out. It’s like climate change in a way. My guess is it’ll play out, and we won’t like the consequences, but it’ll be too late to fix things by the time we’re really grappling with them. We’ll know who’s right in a few decades.
refurb 4y ago
Assuming US can print any value of USD out of thin existence Based on events this year it would appear the US can’t do that with some pretty severe domestic consequences?
mikeweiss 4y ago
Ummm, have you been reading the news this past year? Maybe any other time in the last 20 years the US could print money without worry, but the federal reserve is currently trying their best to reduce the money supply to fight run away inflation. America's option to print it's way out of economic crisis will not be available again until inflation is under control
- mercy_dude 4y ago
  That was exactly my point though. The way you “fight inflation” is you raise the rates and that means all currencies pegged to yours must raise their rates at the same pace no matter what their economic conditions are like or they get destroyed in FX market. Look at right now EUR, GBP or YEN. The way Fed fights inflation is nothing but rest of the world (mostly developing world) pegged to your dollar monopoly bailing you out. And that inevitably requires hard commodity asset repricing.
  - refurb 4y ago
    Europe is having massive inflation to (also did quantitative easing), so of course if the US tightens rates the EU would have to tighten as well to maintain exchange rate parity? It has nothing to do with US dollar dominance, this interrelationship also happens with non-dominant currencies as well.
    - mercy_dude 4y ago
      Agree Europe is a different story altogether- their currency free fall against Dollar is more to do with the mixed signal ECB is sending by still having to buy Italian and Greek bonds that find no other buyers AND at the same time trying to do a rate hike. And that is at the backdrop of a cold nuclear (potentially) winter. > It has nothing to do with US Dollar dominance Say that to Sri Lanka, Bangladesh, Pakistan, Iran, Argentina or literally any other developing currencies out there.
  - pishpash 4y ago
    It's very simple, the US did the most easing due to the "exorbitant privilege" and so has the strongest economy coming out of the pandemic and so it can afford to raise rates the most and so it exports its inflation to other countries via the FX market.
roenxi 4y ago
I want to offer an alternative to a couple of commentators bringing up inflation rates: We have identified a real-world, physical problem (look in the big tank, no oil). The proposed solution here is - and I think this is a fair paraphrase - "well we can print money and people will trade oil for that". This is an almost absurdly high-risk assumption. Financial solutions might just not work to fix physical problems. That sort of plan is pretty close to an endgame where the US will collapse because it no longer has the energy to sustain complex society. If there is a day where the US needs the strategic reserve - which we haven't seen yet - money will not solve the problem. That is, in fact, the reason why there even is a strategic reserve instead of a JIT strategy. The accountants might recognise it through inflation or some other metric, but attempting to execute this plan could literally involve hitherto unknown catastrophe in the US, like being invaded or mass starvation. One of those things that is supposed to happen only in other countries.
- seanp2k2 4y ago
  Good thing, then, that the politicians who engineered this collapse will all be dead and gone by the time their children have to live through it!
  - gg82 4y ago
    I think you are mistaken with how long before this is going to happen. Europe is already experiencing the effects and this winter will feel the full effects of this. The US is probably got a bit more time... but Russia, China, India, etc are working on bypassing the US Dollar for their trade, reducing the amount of trade that occurs in US Dollars. As for reserve currency status, the politicians have also made the US dollar more unfriendly when they froze the Russian Central banks reserves. This will result in other countries reconsidering where they store their wealth.
    - bobthepanda 4y ago
      If your solution to USD being restricted is to trade in CNY you‘re in for a rude awakening. CNY does not freely flow across the Chinese border, and the government will not hesitate to put strict capital controls to limit inflows and outflows. The government knows that this prevents it from being used as an international reserve currency, but they would rather keep stability in the Chinese economy.
anm89 4y ago
Arguing the MMT line in the middle of an inflationary bust. It's a bold strategy Cotton!

fsckboy 4y ago

> Assuming US can print any value of USD out of thin existence as they have done multiple times in last 20yrs The US doesn't do that. You're probably confusing the increase in the US debt with money supply. So long as the economy grows (as it has over the last 20 years) then the debt is not a problem

llanowarelves 4y ago
Everything goes up forever until it doesn't. Japan hasn't recovered from highs like 30 years ago. One reason foreign debt may not matter is because when you have the most powerful military in the world, some of the most fertile land (food), natural barriers (defenses), and cultural hegemony (arguably America's real export, and English is like a virus) who is going to make you repay it and how exactly?
- fsckboy 4y ago
  > who is going to make you repay it and how exactly? people are used to thinking of personal debt which they need to repay. Corporate debt is not repaid, the %age is considered part of the "capital structure" of the company. It's a type of ownership, equity holders own the frothy top of the company, bondholders own the underlying assets at the bottom. As corporate bonds are repaid, new bonds are issued, renewing the debt. The fixed %age interest payments on the debt are a cheap way for the equity holders to increase their profits. Government debt is more in the category of corporate debt, repaying it is not part of the plan, the goal is to move future spending into the present for long term infrastructure projects, etc. And as long as the economy grows so the debt percentage stays manageable, it's not an issue.
  - llanowarelves 4y ago
    Thanks for the well-reasoned response. I hadn't considered that angle and have to think on it. But if growth stops..
  - vineyardmike 4y ago
    > And as long as the economy grows so the debt percentage stays manageable, it's not an issue What happens when it stops growing? Italy, Greece, Japan want to know. China and the US could use the info for later too.
  - christophilus 4y ago
    Companies who roll their debt are about to hit a world of pain. The US treasury interest rate dictates just about all other rates, and it has more than doubled since its lows. All of the folks decrying high corporate profits are about to get their wish, as interest and inflation will begin to eat into those profits. At least, that’s my guess as to how the next few quarters play out. Who knows what happens afterwards? As for governments being somehow immune from the physics of economics, I’m a skeptic. It takes longer for government-scale economics to play out. It’s like climate change in a way. My guess is it’ll play out, and we won’t like the consequences, but it’ll be too late to fix things by the time we’re really grappling with them. We’ll know who’s right in a few decades.

refurb 4y ago

Assuming US can print any value of USD out of thin existence Based on events this year it would appear the US can’t do that with some pretty severe domestic consequences?

mikeweiss 4y ago

Ummm, have you been reading the news this past year? Maybe any other time in the last 20 years the US could print money without worry, but the federal reserve is currently trying their best to reduce the money supply to fight run away inflation. America's option to print it's way out of economic crisis will not be available again until inflation is under control

mercy_dude 4y ago
That was exactly my point though. The way you “fight inflation” is you raise the rates and that means all currencies pegged to yours must raise their rates at the same pace no matter what their economic conditions are like or they get destroyed in FX market. Look at right now EUR, GBP or YEN. The way Fed fights inflation is nothing but rest of the world (mostly developing world) pegged to your dollar monopoly bailing you out. And that inevitably requires hard commodity asset repricing.
- refurb 4y ago
  Europe is having massive inflation to (also did quantitative easing), so of course if the US tightens rates the EU would have to tighten as well to maintain exchange rate parity? It has nothing to do with US dollar dominance, this interrelationship also happens with non-dominant currencies as well.
  - mercy_dude 4y ago
    Agree Europe is a different story altogether- their currency free fall against Dollar is more to do with the mixed signal ECB is sending by still having to buy Italian and Greek bonds that find no other buyers AND at the same time trying to do a rate hike. And that is at the backdrop of a cold nuclear (potentially) winter. > It has nothing to do with US Dollar dominance Say that to Sri Lanka, Bangladesh, Pakistan, Iran, Argentina or literally any other developing currencies out there.
- pishpash 4y ago
  It's very simple, the US did the most easing due to the "exorbitant privilege" and so has the strongest economy coming out of the pandemic and so it can afford to raise rates the most and so it exports its inflation to other countries via the FX market.

roenxi 4y ago

I want to offer an alternative to a couple of commentators bringing up inflation rates: We have identified a real-world, physical problem (look in the big tank, no oil). The proposed solution here is - and I think this is a fair paraphrase - "well we can print money and people will trade oil for that". This is an almost absurdly high-risk assumption. Financial solutions might just not work to fix physical problems. That sort of plan is pretty close to an endgame where the US will collapse because it no longer has the energy to sustain complex society. If there is a day where the US needs the strategic reserve - which we haven't seen yet - money will not solve the problem. That is, in fact, the reason why there even is a strategic reserve instead of a JIT strategy. The accountants might recognise it through inflation or some other metric, but attempting to execute this plan could literally involve hitherto unknown catastrophe in the US, like being invaded or mass starvation. One of those things that is supposed to happen only in other countries.

seanp2k2 4y ago
Good thing, then, that the politicians who engineered this collapse will all be dead and gone by the time their children have to live through it!
- gg82 4y ago
  I think you are mistaken with how long before this is going to happen. Europe is already experiencing the effects and this winter will feel the full effects of this. The US is probably got a bit more time... but Russia, China, India, etc are working on bypassing the US Dollar for their trade, reducing the amount of trade that occurs in US Dollars. As for reserve currency status, the politicians have also made the US dollar more unfriendly when they froze the Russian Central banks reserves. This will result in other countries reconsidering where they store their wealth.
  - bobthepanda 4y ago
    If your solution to USD being restricted is to trade in CNY you‘re in for a rude awakening. CNY does not freely flow across the Chinese border, and the government will not hesitate to put strict capital controls to limit inflows and outflows. The government knows that this prevents it from being used as an international reserve currency, but they would rather keep stability in the Chinese economy.

anm89 4y ago

Arguing the MMT line in the middle of an inflationary bust. It's a bold strategy Cotton!