Here are some brief thoughts on the monetary system’s role in repeated economic crisis in the last 40 years.
Tag: fiat currency
Reports indicate strong Bitcoin interest in China. BTC, the China-based Bitcoin exchange accounts (trading a third of all Bitcoin transactions, while China may account to close to half of the daily turnover, according to some internet reports) at an estimated 200k Bitcoins a day.
Abenomics has been very successful in goosing the Japanese economy thus far. However, the question remains whether this success will be short-lived or durable. I believe it is likely to be short-lived because of the policy constraints that all countries face irrespective of whether they have fiat currency.
Actually this post isn’t about fiat currency despite the title. It’s really more about what is occurring outside the eurozone and most of the links I have concern the US, UK and Japan. Nevertheless, the three countries do pose a good trio in terms of understanding the effects of macroeconomic policy on economic performance in fiat currency regimes.
I was on the Daily Ticker with Lauren Lyster talking about Japan yesterday. My view is that there is no material negative change in Japan’s sovereign debt outlook nor will there be in the medium term because of Abenomics. The video is at the bottom of this post. Before you watch it let me say a little bit about why I take this view on Japan and speak more generally about government debt and deficits. Mike Konczal wrote a post that is getting a lot of buzz on high deficits and Reinhart and Rogoff that will be a good jumping off point for discussion.
Spiegel, a widely-read German magazine, has published a trilogy of articles on inflation in German that it has also translated into English. The theme is “How Monetary Policy Threatens Savings” and I see this as a must-read for those interested in a German framing of the present debt crisis. This post is my extended commentary on the view expressed by Spiegel, including my own thoughts on the correct framing of the crisis and present policy solutions.
I was on RT’s Capital Account on Friday night talking to Lauren Lyster about QE and the conversation moved more into the realm of fiat currency and government’s coercive taxing power. This is particularly relevant given arguments within Republican circles about returning the US to the gold standard. Last July I wrote a post about fiat money called “Government tax […]
Bill Gross is out with his monthly commentary. Because his points are central to the discussion of policy and markets right now, I am going to write this weekly newsletter commentary outside the paywall. The major question is about how to invest in a world that levers much more slowly in total, and can delever sharply in selective sectors and countries. Gross has some answers and I have some comments on the macro backdrop.
In an interview with Louis James, the inimitable Doug Casey throws cold water on those celebrating the economic recovery.
The chart below from the blog Pragmatic Capitalism shows the U.S. Federal government deficit for each quarter since 1952. As you can see, almost the entire period is marked by deficits.
In conclusion, while there are links between the “twin deficits”, they are not the links usually imagined. US trade and budget deficits are linked, but they do not put the US in an unsustainable position vis a vis the Chinese. If the Chinese and other net exporters (such as Japan) decide they prefer fewer dollar assets, this will be linked to a desire to sell fewer products to America. This is a particularly likely scenario for the Chinese, who are rapidly developing their economy and creating a nation of consumers. But the transition will not be abrupt.
I would bet on near-systemic collapse before the Fed starts either asset purchases or Congress resorts to fiscal activism. But eventually, the Fed is going to purchase more than just treasuries. They will purchase a lot of financial assets and probably some real assets as well.