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> What is so Bad about the Defict?!?!, And why is everyone afraid of it?
brinn
post Nov 5 2010, 02:41 AM
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It seems that the U.S. and much of Europe has become obsessed with deficits, debt reduction and austerity. The question for debate is simple:

What do you see as the negative economic effects of persistent deficits?
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brinn
post Nov 8 2010, 10:07 PM
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QUOTE(Skeeterses)
But you do know where the Fed was trying to go with the money, right? I'm assuming that you've been keeping up with the news about housing and the trouble with the carmakers. If people's mortgage payments are worth more than the market values of their homes, shopping and other "consumer activities" can go out the window very fast.
Exactly why it was ill conceived and didn't work. A much more efective way of actually increasing aggregate demand is by lowering taxes. Eliminate FICA for as long as it takes to restore private sector balance sheets and you would see an organic stabilization in housing as people pay down debts and free up more income for mortgage payments (which in turn helps the banks) and for other purchases. QE does nothing as it adds no new net financial assets to the private sector and only changes maturities.

QUOTE(Skeeterses)
Also, the Deficit is not simply a numbers issue that can be solved by simply rearranging the accounting records. There are various programs like the "War on Terror", the healthcare entitlements, social security, transportation infrastructure, and even farm subsidies. Since you're new to the board, we need to hear your views on the other issues to see which Government programs would help the economy and which ones would simply enrich the lobbyists.
In point of fact I've been on the board longer than you. Check my "Join Date". I've just never been a prolific poster.

Regardless, my stance on any of those issues is completely irrelevant as the nature of monetary operations is apolitical. Funding of any of those is not a question of currency but rather a question of the real resources that it takes and the opportunity cost that is lost when those real resources are used for that purpose rather than another. Just as the issue of social security is not whether we will have the money to support seniors in the future but rather will our economy be productive enough to provide the resources for our seniors. Currency is just the method of keeping score. Once one understands how monetary operations function the political decisions of what deserves to be funded can be addressed.


QUOTE(Carpe Dinkum)
Thanks Brinn. That helps me understand what's going on with QE and why it's not helping restore jobs. The banks are scared to lend and the borrowers are scared to borrow. Can't say that I blame them.
You're welcome. Glad at least one person is finding this interesting and not immediately erecting an ideological wall. I'll post more later.

QUOTE("CarpeD")
So the Fed just keeps doing the same thing and it seems it's not helping that much. Is there anything else the Fed can do or are they just a one trick pony?
I'll get back to this.

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Maybe Maybe Not
post Nov 8 2010, 11:44 PM
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QUOTE(brinn @ Nov 8 2010, 05:07 PM) *
QUOTE(Carpe Dinkum)
Thanks Brinn. That helps me understand what's going on with QE and why it's not helping restore jobs. The banks are scared to lend and the borrowers are scared to borrow. Can't say that I blame them.
You're welcome. Glad at least one person is finding this interesting and not immediately erecting an ideological wall. I'll post more later.
I hope I'm not seen as "erecting an ideological wall."

I think the idea that "trust is a must" is merely a different way to express what Carpe Dinkum has expressed here.


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CarpeDinkum
post Nov 9 2010, 03:19 AM
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Naw MMN, I think you're just trying to understand it all, like me. If we get a good basic understanding of things, then we can make better decisions about who we elect. If we don't, then it's little different than having a company and hiring people don't know how to do the job and won't learn.

What do you think about the Fairtax thing? Seems OK to me (to the degree that we need to be taxed in the first place). I was reading that compliance costs for federal taxes (for individuals and corporations) amount to 20 cents for every tax dollar the government gets. That seems like a huge waste right there. Of course, a lot of compliance jobs would go out the door if we did that, but even if we used 1 penny for every tax dollar to get those folks trained for a different line of business, that would be 25 billion as opposed to 500 billion. Big interim hit to the GDP though...

Does anybody else have any figures on those compliance costs? Does that sound reasonably accurate?

This post has been edited by CarpeDinkum: Nov 9 2010, 03:39 AM
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pj4xtrader
post Nov 9 2010, 03:30 AM
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brinn thanks for having the courage to fight the deficit terroist tha dominate the mainstream media. Perhaps your efforts can help shift the debate of monetary operations and fiscal policy to the realm of public purpose, instead of the focus on the accounting entries.
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CarpeDinkum
post Nov 9 2010, 05:17 AM
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Yeah, the media has been contributing heavily to the dumbing-down of America. Of course, we have to take some responsibility for running out and tossing McSenators and McPresidents down our throats. Easy to get and politically tasty, but you'd better set some money aside for the triple bypass surgery.
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Maybe Maybe Not
post Nov 9 2010, 11:56 AM
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QUOTE(pj4xtrader @ Nov 8 2010, 10:30 PM) *
brinn thanks for having the courage to fight the deficit terroist tha dominate the mainstream media. Perhaps your efforts can help shift the debate of monetary operations and fiscal policy to the realm of public purpose, instead of the focus on the accounting entries.
Yes. Clearly we have the ability and the right to spend more than we take in year after year after year with no consequences. All we have to do is say that our $13 trillion national debt (a debt to which we add with each year's deficit) doesn't really exist since we owe that debt to ourselves. Magic!
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brinn
post Nov 9 2010, 12:30 PM
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QUOTE(Maybe Maybe Not @ Nov 9 2010, 06:56 AM) *
QUOTE(pj4xtrader @ Nov 8 2010, 10:30 PM) *
brinn thanks for having the courage to fight the deficit terroist tha dominate the mainstream media. Perhaps your efforts can help shift the debate of monetary operations and fiscal policy to the realm of public purpose, instead of the focus on the accounting entries.
Yes. Clearly we have the ability and the right to spend more than we take in year after year after year with no consequences. All we have to do is say that our $13 trillion national debt (a debt to which we add with each year's deficit) doesn't really exist since we owe that debt to ourselves. Magic!

MMN,

We have the right to consume all that we can produce plus all that the foreign sector is willing to sell us (note that I say "willing" as foreign desire for US dollars in exchange for their goods and services is completely voluntary). Have you ever heard of the sectoral balances approach to economics? At it's heart, it states that in order for one sector of the economy (private, foreign, or government) to be in surplus another sector MUST be in deficit. In the US both the foreign sector (via our large trade deficit) and the private sector (via private savings) are in surplus. This means that mathematically, the government sector must run a deficit. Simple double entry accounting clearly shows one that not all sectors can be in surplus. So if the private sector wants to save and be in surplus and the US desires to be a net importer and not an exporter, the only sector that can absorb these surpluses is the government. If you prefer that government runs a surplus you can advocate for that but be clear that what you are advocating is for one or both of the private and foreign sectors to be in deficit. With a simple understanding of the real terms of trade and a notion that the US consumer should be saving more, you can think this through for a moment and tell me if driving the private or foreign sectors into deficit to offset the desired government surplus is truly the best course of action.
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Mrs. Pigpen
post Nov 9 2010, 02:48 PM
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QUOTE(brinn @ Nov 9 2010, 08:30 AM) *
QUOTE(Maybe Maybe Not @ Nov 9 2010, 06:56 AM) *
QUOTE(pj4xtrader @ Nov 8 2010, 10:30 PM) *
brinn thanks for having the courage to fight the deficit terroist tha dominate the mainstream media. Perhaps your efforts can help shift the debate of monetary operations and fiscal policy to the realm of public purpose, instead of the focus on the accounting entries.
Yes. Clearly we have the ability and the right to spend more than we take in year after year after year with no consequences. All we have to do is say that our $13 trillion national debt (a debt to which we add with each year's deficit) doesn't really exist since we owe that debt to ourselves. Magic!

MMN,

We have the right to consume all that we can produce plus all that the foreign sector is willing to sell us (note that I say "willing" as foreign desire for US dollars in exchange for their goods and services is completely voluntary).


I've been reading this thread with interest, and still honestly have no idea about the logic here. Do I understand correctly that your argument is, as long as foreign companies are willing to sell to us, it doesn't matter how much we owe because they have to hold those dollars after the exchange? Could you site a country that no one is willing to sell goods to because their currency isn't honored? I haven't heard of the "sectoral balance approach" to economics, but I have heard of exchange rates....the US dollar is converted to foreign currency instantly with the push of a button..so goods can be bought, then converted (at whatever exchange rate) just as when I lived in Italy I could go to an Italian money machine and get out cash, INSTANTLY, in euros, even though my bank account was in US dollars. As the value of the US dollar changes with respect to other currencies, the exchange rates start to change and that is reflected in the price of goods, but it's not like those billions in US dollars have to be stored under a gient made-in-China mattress overseas, after the sale of goods, awaiting some blackmarket exchange.

This post has been edited by Mrs. Pigpen: Nov 9 2010, 03:01 PM
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pj4xtrader
post Nov 9 2010, 04:02 PM
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What is real economic wealth?

Let us examine life on the American frontier. A family on a farm had no choice but to be self-sufficient. The only way this family could save for their future, would be to amass and maintain a buffer stock of resources, e.g.(grain, seed, salted meats, apple cider and tanned hides). If by some unfortunate circumstance (drought, locust or wind storm) next years crop were damaged or destroyed, the family would have reserves to a degree and would not starve. The families buffer stock would be a measure of their wealth.

Today, due to advances in logistics, communications and the financial sectors, families, feeling less dislocated have come to replaced buffer stocks of usable resources with financial assets, confident that the market will offer those resources in exchange for their financial assets. These financial assets are a measure of a families wealth. What is lost is that these financial buffer stock, in the event of catastrophic crop failure do not offer the same level of security. Surely, no one would argue that it does not matter how many dollars are in your wallet if the market has no food to bare.

Today, the media and our public officials tell us we have a housing crisis yet no homes were destroyed and construction crews go without work. They say we need to better educate our children yet they propose to layoff teachers. Millions go hungry yet the supermarket dumpsters are overflowing with unsold spoiling food.

I ask again, what is real economic wealth?



QUOTE(Mrs. Pigpen @ Nov 9 2010, 09:48 AM) *
QUOTE(Brinn @ Nov 9 2010, 08:30 AM) *
QUOTE(Maybe Maybe Not @ Nov 9 2010, 06:56 AM) *
QUOTE(extruder @ Nov 8 2010, 10:30 PM) *
Brinn thanks for having the courage to fight the deficit terrorist Thai dominate the mainstream media. Perhaps your efforts can help shift the debate of monetary operations and fiscal policy to the realm of public purpose, instead of the focus on the accounting entries.
Yes. Clearly we have the ability and the right to spend more than we take in year after year after year with no consequences. All we have to do is say that our $13 trillion national debt (a debt to which we add with each year's deficit) doesn't really exist since we owe that debt to ourselves. Magic!

MMN,

We have the right to consume all that we can produce plus all that the foreign sector is willing to sell us (note that I say "willing" as foreign desire for US dollars in exchange for their goods and services is completely voluntary).


I've been reading this thread with interest, and still honestly have no idea about the logic here. Do I understand correctly that your argument is, as long as foreign companies are willing to sell to us, it doesn't matter how much we owe because they have to hold those dollars after the exchange? Could you site a country that no one is willing to sell goods to because their currency isn't honored? I haven't heard of the "sectoral balance approach" to economics, but I have heard of exchange rates....the US dollar is converted to foreign currency instantly with the push of a button..so goods can be bought, then converted (at whatever exchange rate) just as when I lived in Italy I could go to an Italian money machine and get out cash, INSTANTLY, in euros, even though my bank account was in US dollars. As the value of the US dollar changes with respect to other currencies, the exchange rates start to change and that is reflected in the price of goods, but it's not like those billions in US dollars have to be stored under a gient made-in-China mattress overseas, after the sale of goods, awaiting some blackmarket exchange.



Mrs. Pigpen

I have been a currency trader for many years, and I assure you that no financial transaction is complete with the push of a button. When you use a credit or bank card at a department store and they hand you a receipt and your merchandise, on the surface it would appear that the transaction was instantaneous. But the payment clearing process is a bit more complex and in most cases takes a few days be complete.

Every bid to buy a currency must be matched with an ask to sell at a specific exchange rate. Effectively a person or entity in the possession of a currency can only exchange it with a person or entity in the possession of the currency desired at a specific exchange rate. Banks in the interbank system facilitate the transaction by matching bids to asks plus their spread.

Retail Forex traders often believe these transactions to instant because all customer bids were matched with a broker ask and vice versa, all trades only existed within the broker and were never a part of the Forex market.

Your Bank withdraw seemed instant and for the most part is completed relatively quickly because the bank held both dollar and euro reserves and sold you their euro asset for your dollar asset at a specific exchange rate plus the spread that they charge for the service.

What often seems very simple and quick on the surface is often more complex and consumes more time.

This post has been edited by pj4xtrader: Nov 9 2010, 04:01 PM
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Mrs. Pigpen
post Nov 9 2010, 04:29 PM
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QUOTE(pj4xtrader @ Nov 9 2010, 12:02 PM) *
QUOTE(Mrs. Pigpen @ Nov 9 2010, 09:48 AM) *
QUOTE(Brinn @ Nov 9 2010, 08:30 AM) *
QUOTE(Maybe Maybe Not @ Nov 9 2010, 06:56 AM) *
QUOTE(extruder @ Nov 8 2010, 10:30 PM) *
Brinn thanks for having the courage to fight the deficit terrorist Thai dominate the mainstream media. Perhaps your efforts can help shift the debate of monetary operations and fiscal policy to the realm of public purpose, instead of the focus on the accounting entries.
Yes. Clearly we have the ability and the right to spend more than we take in year after year after year with no consequences. All we have to do is say that our $13 trillion national debt (a debt to which we add with each year's deficit) doesn't really exist since we owe that debt to ourselves. Magic!

MMN,

We have the right to consume all that we can produce plus all that the foreign sector is willing to sell us (note that I say "willing" as foreign desire for US dollars in exchange for their goods and services is completely voluntary).


I've been reading this thread with interest, and still honestly have no idea about the logic here. Do I understand correctly that your argument is, as long as foreign companies are willing to sell to us, it doesn't matter how much we owe because they have to hold those dollars after the exchange? Could you site a country that no one is willing to sell goods to because their currency isn't honored? I haven't heard of the "sectoral balance approach" to economics, but I have heard of exchange rates....the US dollar is converted to foreign currency instantly with the push of a button..so goods can be bought, then converted (at whatever exchange rate) just as when I lived in Italy I could go to an Italian money machine and get out cash, INSTANTLY, in euros, even though my bank account was in US dollars. As the value of the US dollar changes with respect to other currencies, the exchange rates start to change and that is reflected in the price of goods, but it's not like those billions in US dollars have to be stored under a gient made-in-China mattress overseas, after the sale of goods, awaiting some blackmarket exchange.



Mrs. Pigpen

I have been a currency trader for many years, and I assure you that no financial transaction is complete with the push of a button. When you use a credit or bank card at a department store and they hand you a receipt and your merchandise, on the surface it would appear that the transaction was instantaneous. But the payment clearing process is a bit more complex and in most cases takes a few days be complete.

Every bid to buy a currency must be matched with an ask to sell at a specific exchange rate. Effectively a person or entity in the possession of a currency can only exchange it with a person or entity in the possession of the currency desired at a specific exchange rate. Banks in the interbank system facilitate the transaction by matching bids to asks plus their spread.

Retail Forex traders often believe these transactions to instant because all customer bids were matched with a broker ask and vice versa, all trades only existed within the broker and were never a part of the Forex market.

Your Bank withdraw seemed instant and for the most part is completed relatively quickly because the bank held both dollar and euro reserves and sold you their euro asset for your dollar asset at a specific exchange rate plus the spread that they charge for the service.

What often seems very simple and quick on the surface is often more complex and consumes more time.


Fair enough. I still don't see why a country could not convert currency with relative ease, if not at the drop of a button. I suppose it's similar to the stock market? If you own a million shares you can't attempt to sell it all at once or the stock will go into a death spiral and whatever is left will be worth much less...so you have to do it slowly?

Do you agree then with the premise that as long as foreigners are willing to sell us goods, we have nothing to fear regardless of how much we owe?

This post has been edited by Mrs. Pigpen: Nov 9 2010, 04:30 PM
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Hobbes
post Nov 9 2010, 04:33 PM
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QUOTE(pj4xtrader @ Nov 8 2010, 10:30 PM) *
brinn thanks for having the courage to fight the deficit terroist tha dominate the mainstream media. Perhaps your efforts can help shift the debate of monetary operations and fiscal policy to the realm of public purpose, instead of the focus on the accounting entries.


FWIW, public purpose has been what the debate has been about from the beginning (not this thread, but the entire discussion of the deficit). The whole issue is that creating more debt and unfunded liabilities than can be managed is absolutely against the public purpose. 'Sovereign currency" aside, what our (and most) governments are doing is no different than anyone running up huge debts on their credit cards--it's great fun while it lasts, but the ride eventually comes to a very painful end.

QUOTE(MrsPigPen)
Do you agree then with the premise that as long as foreigners are willing to sell us goods, we have nothing to fear regardless of how much we owe?


It depends on what you mean by 'fear'. Foreigners will always be willing to sell us goods. What will change is how much currency will be required to conduct the transaction (ie, inflation and exchange rates).

QUOTE(brinn)
Once one understands how monetary operations function the political decisions of what deserves to be funded can be addressed.


That's just it--there are no political decisions currently as to what deserves to be funded...pretty much anything goes, funded or not.

QUOTE(brinn)
Have you ever heard of the sectoral balances approach to economics? At it's heart, it states that in order for one sector of the economy (private, foreign, or government) to be in surplus another sector MUST be in deficit.


It can state that all it wants, but it is fundamentally false. All sectors of an economy can grow without any of them being in deficit. Economies grow due to productivity increases, and those can be across the board, and even across the globe. Consider that we benefit from buying goods from a foreign country (else we wouldn't buy them), the foreign country benefits from selling those goods to us, and governments in both countries then benefit from increased tax revenue.

Further consider that we have also had, at various times, global recessions in which all sectors were in deficit, further invalidating the sectoral balances approach. Sadly, I'm sure those in power will gladly latch on this as a means of justifying governmental deficits. Garbage in, garbage out--what we're left with is naturally just garbage....and a whole lot of debt to show for it.

QUOTE(brinn)
QUOTE(Hobbes)

Let me ask a very simple question: If deficits are so good, then why, with our constant stream of deficits, don't we have an increasing governmental revenue stream which makes deficits unnecessary?

Let me answer this question with a question of my own and if you feel it doesn't clarify enough I'll try to expand further. What would happen if the government, in an attempt to pay off the national debt, instituted a 100% tax on all privately owned assets?


Revolt...and proof that my explanation of the ridiculousness of using GDP as the denominator when creating debt/deficit ratios is valid. What your question doesn't do is address mine at all.

This post has been edited by Hobbes: Nov 9 2010, 04:52 PM
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CarpeDinkum
post Nov 9 2010, 05:07 PM
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QUOTE(Maybe Maybe Not @ Nov 9 2010, 03:56 AM) *
QUOTE(pj4xtrader @ Nov 8 2010, 10:30 PM) *
brinn thanks for having the courage to fight the deficit terroist tha dominate the mainstream media. Perhaps your efforts can help shift the debate of monetary operations and fiscal policy to the realm of public purpose, instead of the focus on the accounting entries.
Yes. Clearly we have the ability and the right to spend more than we take in year after year after year with no consequences. All we have to do is say that our $13 trillion national debt (a debt to which we add with each year's deficit) doesn't really exist since we owe that debt to ourselves. Magic!


MMN, I don't think we can have the Govt pump money into the private economy forever without consequence. It's just that the consequence for the US is NOT bankruptcy. It's inflation. Let's not trust the "talking heads" that are just out there to get votes or viewer market share.

It's like someone saying that if you floor the gas pedal on your car and keep it there, it will change colors on you. Clearly, that's not the danger and you wouldn't be driving for long if you thought it was.
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Hobbes
post Nov 9 2010, 05:20 PM
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QUOTE(CarpeDinkum @ Nov 9 2010, 12:07 PM) *
QUOTE(Maybe Maybe Not @ Nov 9 2010, 03:56 AM) *
QUOTE(pj4xtrader @ Nov 8 2010, 10:30 PM) *
brinn thanks for having the courage to fight the deficit terroist tha dominate the mainstream media. Perhaps your efforts can help shift the debate of monetary operations and fiscal policy to the realm of public purpose, instead of the focus on the accounting entries.
Yes. Clearly we have the ability and the right to spend more than we take in year after year after year with no consequences. All we have to do is say that our $13 trillion national debt (a debt to which we add with each year's deficit) doesn't really exist since we owe that debt to ourselves. Magic!


MMN, I don't think we can have the Govt pump money into the private economy forever without consequence. It's just that the consequence for the US is NOT bankruptcy. It's inflation. Let's not trust the "talking heads" that are just out there to get votes or viewer market share.

It's like someone saying that if you floor the gas pedal on your car and keep it there, it will change colors on you. Clearly, that's not the danger and you wouldn't be driving for long if you thought it was.


Actually, if you do that, it WILL change colors eventually (red shift)...so by your own analogy, then perhaps the talking heads have a point, in that as you approach the limits, extreme things happen.

FWIW...no one really thinks the U.S. will go bankrupt. The consequences of that are worse than the consequences of printing money to solve the problem. What you're missing, I think, is that the two are really essentially the same thing. You don't need to print the money (causing inflation) to solve the problem unless you are essentially bankrupt, unable to pay your bills without resorting to simply printing the money.
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brinn
post Nov 9 2010, 05:50 PM
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A couple quick thoughts while I'm at lunch:

Glad to see you in this thread Mrs. P. I've always looked at you as one of the more openminded and less ideoligically driven posters on this site and I'm hoping you read some of the background info on monetary monetary theory and get a better handle on the operational realities of our system. I'll try to answer more of your questions later this evening and hope you remain interested.

QUOTE("pj4xtrader)
I have been a currency trader for many years, and I assure you that no financial transaction is complete with the push of a button. When you use a credit or bank card at a department store and they hand you a receipt and your merchandise, on the surface it would appear that the transaction was instantaneous. But the payment clearing process is a bit more complex and in most cases takes a few days be complete.

Every bid to buy a currency must be matched with an ask to sell at a specific exchange rate. Effectively a person or entity in the possession of a currency can only exchange it with a person or entity in the possession of the currency desired at a specific exchange rate. Banks in the interbank system facilitate the transaction by matching bids to asks plus their spread.

Retail Forex traders often believe these transactions to instant because all customer bids were matched with a broker ask and vice versa, all trades only existed within the broker and were never a part of the Forex market.

Your Bank withdraw seemed instant and for the most part is completed relatively quickly because the bank held both dollar and euro reserves and sold you their euro asset for your dollar asset at a specific exchange rate plus the spread that they charge for the service.

What often seems very simple and quick on the surface is often more complex and consumes more time.


Absolutely correct. An excellent explanation and much better than I could have offered. Thank you. Looks like I'm not the only "crackpot" out there! wink.gif

QUOTE(Hobbes)
'Sovereign currency" aside, what our (and most) governments are doing is no different than anyone running up huge debts on their credit cards--it's great fun while it lasts, but the ride eventually comes to a very painful end.
What do you mean "Sovereign currency aside"? The whole of the issue turns upon the nature of soveriegn currency and how it differs from commodity based currencies. We cannot discuss this issue and leave soveriegn currency aside. With no offense, your continued insistence that national governements, who are issuers of currency, are analagous to individuals is completely wrong. Individuals and nations are two completely different animals. I've tried to demonstrate that fact throughout this thread and hopefully, this evening I'll try to approach it once again from a different angle. If one person reading this decides to look further into this and does some independent research and gains a better understanding of monetary operations than it will have been well worth the effort.



This post has been edited by brinn: Nov 9 2010, 09:54 PM
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pj4xtrader
post Nov 9 2010, 05:49 PM
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Mrs. Pigpen

Yes, for the most part I agree. What escapes most is that when we buy from foreigners the transaction is complete without any new foreign debt. Example, Chinese company sell Wal Mart $100 mil. worth of tee shirts. Wal mart commercial bank account is debit $100 mil, the commercial banks account at the Fed is debit $100 mil, the Chinese central bank's account at Fed is credited $100 mil, Chinese company's commercial bank's account at the Chinese central bank is credited $100 mil, Chinese company's commercial bank account is credited $100 mil. Payment process complete, no debt.

What is commonly referred to as debt only exist when the Chinese company decides to by treasury securities in order to earn interest on their newly earn $100 mil. If they decide to repatriate they have to transact as any currency trader transacts. For the most part whoever offers Yuan for those dollars will likely spend those dollars in dollar denominated markets or buy treasury securities.
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pj4xtrader
post Nov 9 2010, 05:56 PM
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What is real economic wealth?

Let us examine life on the American frontier. A family on a farm had no choice but to be self-sufficient. The only way this family could save for their future, would be to amass and maintain a buffer stock of resources, e.g.(grain, seed, salted meats, apple cider and tanned hides). If by some unfortunate circumstance (drought, locust or wind storm) next years crop were damaged or destroyed, the family would have reserves to a degree and would not starve. The families buffer stock would be a measure of their wealth.

Today, due to advances in logistics, communications and the financial sectors, families, feeling less dislocated have come to replaced buffer stocks of usable resources with financial assets, confident that the market will offer those resources in exchange for their financial assets. These financial assets are a measure of a families wealth. What is lost is that these financial buffer stock, in the event of catastrophic crop failure do not offer the same level of security. Surely, no one would argue that it does not matter how many dollars are in your wallet if the market has no food to bare.

Today, the media and our public officials tell us we have a housing crisis yet no homes were destroyed and construction crews go without work. They say we need to better educate our children yet they propose to layoff teachers. Millions go hungry yet the supermarket dumpsters are overflowing with unsold spoiling food.

I ask again, what is real economic wealth?
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akaCG
post Nov 9 2010, 07:02 PM
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I thought I'd introduce some stats into the discussion, along with some commentary:

China holdings of U.S. Treasuries: down from $936.5 Billion in Aug'09 to $868.4 Billion in Aug'10. That's a 7.8% DECREASE.

Is that due to China's selling FEWER goods to the U.S., and therefore earning fewer dollars, perhaps? Nope. On the contrary:

In the first 8 months of 2010, the Chinese racked up a trade surplus of $173.4 Billion, compared to their $143.8 Billion trade surplus during the same period the previous year. That's a 20.6% ... INCREASE.

But surely they just decided to invest all those extra dollars that they're stuck with in U.S. stuff (factories, real estate, software companies, etc.), as opposed to Treasuries, right? Wrong. To wit:
QUOTE
...
Aug. 26 (Bloomberg) -- China’s direct investment in the U.S. plunged in the first half ...

China’s non-bond investments in the U.S. slumped 47 percent to $1.6 billion, ...
...

Meanwhile, ...
QUOTE
...
In contrast to the cutbacks made in the U.S., China’s acquisitions in other nations in the Americas and Europe more than doubled, rising to $20.1 billion from $8.4 billion a year earlier, ...
...

Link: http://www.businessweek.com/news/2010-08-2...ation-says.html

It seems that U.S. Treasuries and U.S. stuff aren't the only things that the Chinese aren't buying. They aren't buying the "functional finance" concept either.

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CarpeDinkum
post Nov 9 2010, 07:51 PM
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AKA -


Haven't we been TRYING to get them to do that for a couple of administrations now?

In any case, I'm sure there's a point where they don't need to accumulate savings in $US at the same rate every month and it makes more sense to balance it out with savings in other currencies.
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Hobbes
post Nov 9 2010, 08:21 PM
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QUOTE(akaCG @ Nov 9 2010, 02:02 PM) *
I thought I'd introduce some stats into the discussion, along with some commentary:

China holdings of U.S. Treasuries: down from $936.5 Billion in Aug'09 to $868.4 Billion in Aug'10. That's a 7.8% DECREASE.

Is that due to China's selling FEWER goods to the U.S., and therefore earning fewer dollars, perhaps? Nope. On the contrary:

It seems that U.S. Treasuries and U.S. stuff aren't the only things that the Chinese aren't buying. They aren't buying the "functional finance" concept either.


No. It is due to a conscious effort by the Chinese to move away from investments in U.S. Treasuries due to their concern over inflationary issues, thus devaluing their investment. The Chinese aren't stupid...they see the writing on the wall as well. They have been shifting that money into natural resources, which have a natural hedge against inflation, and which are doubly valued in that it secures those resources for their consumption.

Which raises yet another problem with our deficit--what happens if we have an 'x' trillion budget deficit, and there is no one willing, or able, to purchase the debt to finance it? This has also happened recently..we have already had t-bill issues that didn't sell out their full allotment.

QUOTE
What do you mean "Sovereign currency aside"? The whole of the issue turns upon the nature of soveriegn currency and how it differs from commodity based currencies. We cannot discuss this issue and leave soveriegn currency aside. With no offense, your continued insistence that national governements, who are issuers of currency, are analagous to individuals is completely wrong. Individuals and nations are two completely different animals. I've tried to demonstrate that fact throughout this thread and hopefully, this evening I'll try to approach it once again from a different angle.


No, that is NOT the whole of the issue. It is PART of the issue, but simply saying 'sovereign currency!' does not make all the issues brought up magically disappear. Therefore, if one has to choose, it is better to not talk about it all than it is to talk about it as if it is the panacea which makes all things good and well. That's simply false.

This post has been edited by Hobbes: Nov 9 2010, 08:28 PM
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Ted
post Nov 9 2010, 08:29 PM
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QUOTE(Hobbes @ Nov 9 2010, 03:21 PM) *
QUOTE(akaCG @ Nov 9 2010, 02:02 PM) *
I thought I'd introduce some stats into the discussion, along with some commentary:

China holdings of U.S. Treasuries: down from $936.5 Billion in Aug'09 to $868.4 Billion in Aug'10. That's a 7.8% DECREASE.

Is that due to China's selling FEWER goods to the U.S., and therefore earning fewer dollars, perhaps? Nope. On the contrary:

It seems that U.S. Treasuries and U.S. stuff aren't the only things that the Chinese aren't buying. They aren't buying the "functional finance" concept either.


No. It is due to a conscious effort by the Chinese to move away from investments in U.S. Treasuries due to their concern over inflationary issues, thus devaluing their investment. The Chinese aren't stupid...they see the writing on the wall as well. They have been shifting that money into natural resources, which have a natural hedge against inflation, and which are doubly valued in that it secures those resources for their consumption.

Which raises yet another problem with our deficit--what happens if we have an 'x' trillion budget deficit, and there is no one willing, or able, to purchase the debt to finance it? This has also happened recently..we have already had t-bill issues that didn't sell out their full allotment.

QUOTE
What do you mean "Sovereign currency aside"? The whole of the issue turns upon the nature of soveriegn currency and how it differs from commodity based currencies. We cannot discuss this issue and leave soveriegn currency aside. With no offense, your continued insistence that national governements, who are issuers of currency, are analagous to individuals is completely wrong. Individuals and nations are two completely different animals. I've tried to demonstrate that fact throughout this thread and hopefully, this evening I'll try to approach it once again from a different angle.


No, that is NOT the whole of the issue. It is PART of the issue, but simply saying 'sovereign currency!' does not make all the issues brought up magically disappear. Therefore, if one has to choose, it is better to not talk about it all than it is to talk about it as if it is the panacea which makes all things good and well. That's simply false.


Good question. And the unpleasant answer is that the price goes up (return rate) making the debt more expensive to maintain

But with uncertainty in the world there will always be buyers for US Treasury Bonds
http://www.lewrockwell.com/englund/englund58.1.html
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