Re: Was Greg the keynote speaker? Not Lemond!!

On Oct 11, 11:48 am, Donald Munro <fat-dumb...@xxxxxxxxxxx> wrote:
SLAVE of THE STATE wrote:

So how does spending money on a military action -- whether justified
or not -- depreciate a currency relative to another? And is there
something unique about that way of devaluing a currency (when it comes
to the currency itself, not moral concerns regarding the
warmongering)? What else (more rudimentary) might be involved? How
is the war being financed? Are other things financed in the same way?

Don't budget deficits (along with trade deficits) lead to a weaker
currency ?

At a simple level (which is about all I'm capable of), I don't think
so, all other things equal. I think it is more that some amount of
government debt goes into that black hole called the Fed. Page 23 has
them having swallowed ~$800 B of debt on that audit. If I remember my
money stuff, if they injected $800 B, then that gets multipled by the
money multiplier. Say the fractional reserve requirements are 10%.
Then the $800 B purchase (over a long time, of course) injected up to
$8 T into the world economy. (Banks obviously are not required to
lend out down to the reserve requirement level.) Basically, the Fed
purchasing government debt is "printing money." Holding all other
things equal, then a greater number of dollars than before will mean
it will take more dollars to buy any given thing, including "buying"
other currencies. That is an inflation of the currency, or just
inflation. It is a depreciation of the inflated currency relative to
other steady currencies.

Now I don't know how much, if any, government debt has been retired
while in the Fed's asset column. I also don't know how reserve
requirements have changed over time. I don't know the estimates for
the total stock of money or how it has changed over time. But I don't
think there is any doubt that there are more dollars running around
than there were before. (There is more stuff to spend money on, and
more people to spend it too, which would tend to hide the monetary
inflation.) When compared to other currencies then, the differential
of inflation change between them would seem to point to a changing
exchange rate between them.

Pouring money into a hole can result in a budget deficit.

If the hole is the Fed, then I can't see where it works like a deficit
anymore from a practical perspective. Fed profits on the debt are
simply paid back into the Treasury by law, so all there is left there
is operating expenses. (Neat little trick, eh?) I don't know that
the debt ever needs to come back out again. And even if there is a
retirement requirement for that debt, I can't see how it would
matter. (Say a bond/debt came due for a Fed holding, I think it can
just be circulated back into the Fed by issuing new debt to pay for
the old.) The deficit is unloaded to the "late" takers of the
dollars, domestic and foreign. It is effectively a tax since their
dollars will buy less. The further from the point of injection, the
worse.

Pouring money into some other hole is not a deficit of money, per se.
It is lost opportunity (productivity) in other areas. "Guns or
butter?" is the famous simple PPF phrase. It depends upon what action
it took to pour money into the hole. If "one" has the assets, then
the cost could just be paid without encurring debt.

The only hope at all is to "grow out of the debt." But that means
discontinuing the running up of debt right now. If you can stick the
debt where it is, but have an economy that gets bigger in purportion,
then the debt problem gets relatively lessened. It also means policy
that does not retard growth.

Naturally, even the Fed can't keep up with the debt-based spendthrift
ways of the republicans. Everyone calls Ron Paul crazy for saying it
has to stop.

Apparently China is sitting on a lot of dollars. If that is true,
then if they start spending those other dollars, and the takers of the
dollars don't hold them, then it works just like another injection of
cash. That would be seen as another round of inflation for the
dollar.

"Currently, China holds over $1 trillion in dollar denominated assets
(of which $330 billion are U.S. Treasury notes). In comparison, $1.4
trillion represents M1 or the 'tight money supply' of U.S. Dollars
which suggests that the value of the U.S. Dollar could change
dramatically should China ever choose to divest itself of a large
portion of those reserves."
http://en.wikipedia.org/wiki/United_States_public_debt

I hope I am not too far off in what I have told you. Caveat emptor.


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