The Fed is getting destroyed...massive bond losses

The fact that so many points are correct to some degree tells me that the issues are a great deal more complex than some economists would have us believe, and any simple solutions will either fail or have unintended consequences.

Take the point about a weaker dollar meaning more dollars will be required to buy goods and services. True to some extent, market manipulation aside a weaker dollar has typically meant higher oil prices. But then take the case of Thailand as an exporting country; when dollar inflows into the stock and bond markets pushed the baht to 28.5 to the dollar, or thereabouts, exporters were screaming about shrinking demand. Bottom line those on the margins who could afford certain goods previously could no longer afford them at higher dollar prices, so demand shrank. When talk of the taper started and capital flowed out, the baht sank back to 31+ and it's all smiles again over here. Dollar denominated demand is intact now.

I've been reading a few pieces about the middle class being squeezed and that is very real in the developed world. In China and India we see the rise of a new middle class, not so in the developed world. If you are on a middle class fixed income in the developed world, you are being squeezed on all sides.

As a trader you are not on a fixed income so in the current environment I see that as a good thing. I'm looking to grind it out regularly, while keeping an eye out for the big opportunities that come along from time to time.

It's the only way to go when the purchasing power of your money, whatever currency you may deal with, is shrinking all the time. Banks don't even pay enough interest to cover inflation, so forget saving your way to retirement. Won't happen.
 
jem, I'm not exactly sure what I am saying. But I can tell you that the seemingly heretical idea here is that in a world of rapid communication and easy trade, going to fiat currencies everywhere is actually, in important ways, better than a gold standard-- regardless, a currency standard based on a commodity is impossible to manage nowadays. The U.S. didn't choose to go off the gold standard, it was forced to.

But absolutely critical to the ultimate success, or failure, of fiat currencies is transparency of central bank operations!

I'm reading Raghuram G. Rajan's book right now. Perhaps after I finish it I'll be able to more clearly express my thinking on this subject.

(Rajan was chief economist at the IMF, so he has a well developed world view. You may have noticed me commenting from time to time in ET forums that the proper role of government is to protect free enterprise from the capitalists. Recently I discovered Rajan had written a book entitled "Saving Capitalism from Capitalists." That's what attracted me to his work in the first place. I have long held the view that U.S. capitalism would eventually destroy itself unless government played its proper role as referee. The book I'm reading now is "Fault Lines". )
 
Quote from piezoe:

jem, I'm not exactly sure what I am saying. But I can tell you that the seemingly heretical idea here is that in a world of rapid communication and easy trade, going to fiat currencies everywhere is actually, in important ways, better than a gold standard-- regardless, a currency standard based on a commodity is impossible to manage nowadays. The U.S. didn't choose to go off the gold standard, it was forced to.

But absolutely critical to the ultimate success, or failure, of fiat currencies is transparency of central bank operations!

I'm reading Raghuram G. Rajan's book right now. Perhaps after I finish it I'll be able to more clearly express my thinking on this subject.

(Rajan was chief economist at the IMF, so he has a well developed world view. You may have noticed me commenting from time to time in ET forums that the proper role of government is to protect free enterprise from the capitalists. Recently I discovered Rajan had written a book entitled "Saving Capitalism from Capitalists." That's what attracted me to his work in the first place. I have long held the view that U.S. capitalism would eventually destroy itself unless government played its proper role as referee. The book I'm reading now is "Fault Lines". )
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http://www.bloomberg.com/news/2013-...t-rbi-head-as-rupee-plunges-btvi-reports.html

http://www.ft.com/intl/cms/s/0/e89b2324-fe88-11e2-b9b0-00144feabdc0.html


Interesting that Fed Chairman wannabe Summers called him a Luddite.
 
When bonds lose money (yields go up) the FED can buy then cheaper and withdraw them from the market. The only bankrupt will be the idiots that bought them for 1% yield.
 
Quote from piezoe:

jem, I'm not exactly sure what I am saying. But I can tell you that the seemingly heretical idea here is that in a world of rapid communication and easy trade, going to fiat currencies everywhere is actually, in important ways, better than a gold standard-- regardless, a currency standard based on a commodity is impossible to manage nowadays. The U.S. didn't choose to go off the gold standard, it was forced to.

But absolutely critical to the ultimate success, or failure, of fiat currencies is transparency of central bank operations!

I'm reading Raghuram G. Rajan's book right now. Perhaps after I finish it I'll be able to more clearly express my thinking on this subject.

(Rajan was chief economist at the IMF, so he has a well developed world view. You may have noticed me commenting from time to time in ET forums that the proper role of government is to protect free enterprise from the capitalists. Recently I discovered Rajan had written a book entitled "Saving Capitalism from Capitalists." That's what attracted me to his work in the first place. I have long held the view that U.S. capitalism would eventually destroy itself unless government played its proper role as referee. The book I'm reading now is "Fault Lines". )
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Nobody is talking about going back to the Gold standard. At best, people like Ron Paul want competing currencies (currently illegal in the US). That would force central banks to compete for value, not for price. What most of us are talking about here is creating value in our economy vs dollars. Dollars are meaningless without value.

You mentioned earlier about imports and exports and why it shouldn't matter if all the countries devalue together. The point you are missing is, we could be running trillion dollar trade surpluses, if the money isn't worth anything, then what's the point. You want your currency to have a real value, not just some nominal value.

As far as saving capitalism from capitalists, we need to save capitalism from the government. We need to get the government OUT of capitalism. This does not mean more laws and regulations, but less bailouts, less subsidies, less corporate welfare, less gov't sponsored entities like Solyndra and let interest rates float freely so capital can find it's true value, not the value the government would like it to be. There is a reason why people are leaving Wall Street for Washington, that's where the money is.
 
Quote from Sergio77:

When bonds lose money (yields go up) the FED can buy then cheaper and withdraw them from the market. The only bankrupt will be the idiots that bought them for 1% yield.
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This is absurd. We issues billions of new bonds every single week. When the Fed buys old existing bonds from the market they are setting the rates for new issues. The Fed is not buying these bonds for the same reason they were buying MBS's, the Fed is trying to set rates on different parts of the curve. And the Fed is actively selling other treasuries.
 
Quote from Maverick74:

Nobody is talking about going back to the Gold standard. At best, people like Ron Paul want competing currencies (currently illegal in the US). That would force central banks to compete for value, not for price. What most of us are talking about here is creating value in our economy vs dollars. Dollars are meaningless without value.

You mentioned earlier about imports and exports and why it shouldn't matter if all the countries devalue together. The point you are missing is, we could be running trillion dollar trade surpluses, if the money isn't worth anything, then what's the point. You want your currency to have a real value, not just some nominal value.
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Keynes wanted people to chase "the green cheese."
http://www.zerohedge.com/news/2013-08-11/dishonesty-and-candor-monetary-policy
 
Quote from piezoe:

Interesting comments Maverick. I don't agree with some of it. But that's what adds interest.
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Kudo's to you for asking and (respectfully) taking opposing sides. Ideas don't have a market to adjudicate the truth against a measure like making money. It harms no one to hear the strongest arguments on either side, but should we all agree on one side - lookout below. Just like the market!

The only ones pushing Gold are the sellers of picks, shovels and a dream. I thought M's post was excellent. Search out what Greenspan said about having a store of value (http://constitution.org/mon/greenspan_gold.htm)
 
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