I'm not an economist so someone please correct me / expand on this;
I'm guessing this is kind of a "It's not a problem until it's a crisis" situation? So far other central banks haven't begun selling treasuries, they've just stopped buying them. But once one starts selling it could become self reinforcing?
What could replace it? There doesn't seem to be any new hegemonic power on the same level. Could we enter a world where all central banks hold a mix of currencies and nobody benefits from being the reserve?
Its only really a crisis for people who are dependent on the US for protection. The whole compact is that you use the dollar, and the US will look after you (ie House of Saud, Europe, taiwan, south korea, etc) But that isn't really certain anymore.
You need to make tributes to the suntan king, and he is most capricious and likley to tariff the fuck out of you. So alternative destination for your goods is a necessity
Also the markets are not convinced that the fed is in good hands. The whole point of the fed is that they are far enough away from the meddling in Washington so that you can rely on the dollar. The fed is being steadily erroded, with the new chair being selected soon. The problem is that present administration is hell bent on loyalty over competence.
Printing dollars to get out of domestic budgetary problems was never a thing (excluding QE, but thats different, nominally) was never an option in the US. but that doesn't seem so far fetched now.
The printing of dollars by the Fed comes with a secondary effect - the dollars are not evenly distributed amongst the population. They are printed via market action, and the ones who are closest to the market action are free to capture as large of a share as markets allow.
Over time, it's natural that actors will optimize the above system to capture as many dollars from the printer as they can.
This is more of a go out with a whimper rather than a bang type thing. Being the world reserve currency (as well as the largest consumer market in the world) previously enabled the US to do things like relatively easily export inflation in spite of relatively reckless monetary policy. Now that inflation is sticking around far more persistently, even long term bonds have gone from 1-2% to 4%+, and so on. Stagflation is a conceivable longer term outcome.
The replacement will probably be a multinational currency with strictly controlled quantity tied to some sort of physical asset(s). Basically Bretton Woods 2.0, except with the learned experience of not just granting a single country immense power and having them pinky swear not to default on their obligations and then abuse that granted power. China's probably betting that that asset will be gold.
Gold-backed currencies, and even Bitcoin, are really good if you want your economy to be only this big, and never grow bigger. Eventually, a crisis will happen, and you'll say "actually, its now 1.3 yuan to the gram, because we need to build tanks", or "actually, did we say we had 8,000 tons of gold in reserve? we meant 9,000. Yeah we just counted, no you can't look at it, we have 9,000, here take the yuan and go build vaccines", or "its now illegal for citizens to own gold, turn it in at your nearest party headquarters" (even the US participated in that one!)
If the government not sticking to a backed currency is one of the biggest concerns, then that's quite high praise of the concept in and of itself! In any case the amount of currency does not determine the size of an economy. Rather the size of the economy determines the value of the currency. As economies grow in a system with relatively finite amounts of currency, the currency simply becomes worth more - people become overall wealthier and things become overall cheaper.
This is how you get things like the elderly generation thinking people are just lazy - when they were young, you could fully fund university and have enough for a down-payment on your first home through a part time job. The dollar just went much further. They don't really understand that's not the way things are anymore, especially as most are largely detached from the broader economy.
Also the 'crisis point' you mention is similarly an issue with fiat currencies. Look we're going to print a billion dollars just this once... then 10 billion... then 100 billion.. then they're printing money by the trillions and insisting that the inflation will just be 'transitory', because it always has been, until the one time it isn't. It's akin to somebody arguing that you can always put a bit more air in the balloon - after all it hasn't popped before, so why would it now?
> the size of the economy determines the value of the currency.
Economies do not grow if their currency is deflationary. If currency gains value over time, actors in the economy are disincentivized from transferring their money to other actors. Less spending means less economic activity; fewer businesses; less investment in high-risk technology research; loans get more expensive; we get stagnation and wealth inequality as individuals with money continue to accumulate it without any incentive to spend it with those who do not have as much.
"But we're in an inflationary environment right now, and there's still extreme wealth inequality" -> That's because our glorious leaders (sarcasm) found a non-currency thing they could subject to deflationary forces: Assets, like stocks and real estate. This was the effect of post-2008 monetary policy; all that extra money had to go somewhere in such a way where it would not cause significant inflation of the monetary supply, so it flooded into assets, which caused a deflationary effect there. Sure, Jeff Bezos has a few tens/hundreds of millions of actual-dollars; but his true wealth is his tens of billions in Amazon stock, which has jumped from ~$4 to ~$250 in the past 20 years.
I don't need to be convinced that printing too much currency is a bad thing and can cause too much inflation; its a matter of degree, not direction. Some might say that we printed way too much money during COVID; but others might argue that the situation would be much, much worse if we hadn't (remember: unemployment hit almost 15% during COVID; the highest number in recorded US history). Currency inflation and asset deflation are good things; but we're experiencing too much of both right now.
The USD was metal based, in one way or another, from 1792-1971, with convertibility briefly suspended following the Great Depression. The economy grew by many orders of magnitude over that time, vastly more (relatively) than it has since 1971, which is when Bretton Woods ended and the USD finally became completely free floating.
Now, just 50 years beyond that point, think about how fragile everything already seems. It's only being held together by massive fed involvement, quantitative easing, and ever more archaic economic concepts like zero or even negative interest rates. And this all during (1) extremely stable years (relative to the World Wars and much more that we previously overcame) and (2) unprecedented growth enabled by the computing revolution. Without these factors, do you really think this experiment would've seen 50?
From 1800 to 1950 there was inflation of less than 50%. [1] From 1971 to 2007 (to go just before your cutoff date) there was inflation of 528%. That in-between era of 1950 to 1971 is when the money printer started. We were still bound by Bretton Woods and so when France made a 'gold call', on all the worthless dollars they had accumulated, we simply defaulted and withdrew. A fun quote from Nixon's treasury secretary at the time, "The dollar is our currency, but it's your problem."
"actually, did we say we had 8,000 tons of gold in reserve? we meant 9,000. Yeah we just counted, no you can't look at it, we have 9,000, here take the yuan and go build vaccines"
I know you mean it as in governments won't return to a system that doesn't let them inflate the money supply, but that doesn't mean it's a bad thing...
Yes, inflationary policy is a tax. But its better than the alternative, where the commodity cant keep up with the economy, and that money goes to the holders of the commodity instead with nobody in control
Can you rephrase that? Because I think you have it exactly backwards here unless I'm misunderstanding you.
In inflationary systems money becomes worth less, but 'things' tend to hold their value. This is precisely why the very wealthy are accumulating massive amounts of 'things' - it creates profit out of nothing thanks to inflation. So you're most incentivized to buy up as much as you possibly can, and then rent access to it. This is precisely how you get the WEF saying things like, 'You will own nothing, and be happy.'
By contrast in a deflationary system the value of things tends to decrease over time, all other things being equal. That is to say that obviously things like land can still increase in value over time if demand, in an area, significantly outpaces supply, but relative to inflationary systems - the 'natural' direction for prices is down. And so in this system there's much less motivation to hoard things. Of course in exchange there's a far greater motivation to hoard money, but at least that's fairly equitable. Right now lower classes simply can't avoid paying the inflation tax, whereas the wealthy not only avoid paying it, but directly profit off of it.
The amount of currency does not have to correlate with the size of an economy. When the economy grows while the amount of currency stays the same then your money simply becomes worth more. For the overwhelming majority of history this was taken to be a good thing. The argument for inflation is that if money become worth more over time then it would discourage investment and encourage money hoarding.
That's probably not untrue, but that critique doesn't simply make the alternative better. Money becoming worth less, inflation, creates an arguably worse scenario where now wealthy individuals are motivated to hoard things instead of currency. For instance Bill Gates is currently the largest private landowner of farmland in the US. This issue is where you get the WEF also publishing their 'You will own nothing, and be happy.' goal. I find this more unpleasant, and even dystopic, than Scrooge nosediving into his stash of ever more valuable dollars.
Another major issue here is that lower classes are the most unable to deal with inflation. They can squirrel away some money, but in an inflationary system that's the last thing you want to do. For instance stuff like bank CDs are basically just exploiting economically illiterate individuals. Nobody wants money in an inflationary system, but lower classes need immediate access to their money for the next time e.g. their car breaks down, and they are extremely risk averse. The net result of this is a system that not only perpetuates but directly drives ever greater extremes of wealth inequality.
If you want to see how much a deflationary currency fails as a currency, just look at bitcoin. The wild value swings are caused by more people hoarding it than using it as a currency, which is caused by it being deflationary. Now look at monero, which is inflationary, is largely used for day to day purchases (of mostly illegal items) and has a much more stable value, which is one of the key attributes of a good currency.
The USD was metal based, in one way or another, from 1792-1971, with two brief interludes after the Civil War and Great Depression. That's a really good pedigree.
So our current inflationary system only really kicked off in 1971 and is already looking somewhat clearly unsustainable. But what makes this particularly relevant is that 1971 was also right when major breakthroughs in computing were about to unlock a huge economic leap. That helped briefly enable the infinite exponential growth that this inflationary system requires. Without that, I doubt this system would have seen its 50th birthday.
On the topic of stability, the Fed worked to calculate inflation levels from 1800 onward here. [1] You'll notice that from 1800 to 1950 prices never shifted by more than 50% relative to the initial baseline of 51. That's pretty wild if you think about it because it includes the Civil War, both world wars, Great Depression, Spanish Flu, and all of these sort of things. Then in just the relatively calm ~50 years from 1971 to to today, prices increased around 800%.
for much of that time you could not actually receive any metal from the US, notably after the great depression domestically. The entire issue is that the US economy grew far faster than the supply of gold so could not physically purchase the required amount of gold as it did not exist.
There were ~10 years after the great depression where convertibility was suspended. One decade out of nearly two centuries is not "much."
The amount of currency need not, and arguably should not, scale with the size of the economy. Everything is relative in an economy. When the amount of 'stuff' in an economy grows faster than the amount of currency, then prices decrease - your money becomes worth more - deflation. Vice versa, if the amount of currency in an economy grows faster than the amount of stuff in that economy, then prices increase - inflation.
Inflation is undesirable, but it's in a constant tug-of-war with governments and fiat currency. When governments give themselves the power to print infinite money, they end up doing exactly that, often to the point of destroying their own economy. This is precisely why the Founding Fathers chose the US currency to be coins made of precious metals. It limits the government's ability to damage the country through reckless monetary policy.
Think about how fragile everything is already seeming being glued together by massive fed involvement, quantitative easing, and ever more archaic economic ideas like zero or even negative interest rates. And we're only 50 years into this experiment which, on the scale of something like a broad monetary concept, is barely a blink, and it's starting to come apart at the seams. And this is all during extremely stable years compared to the World Wars and other such events that we overcame in the past.
> The replacement will probably be a multinational currency with strictly controlled quantity tied to [...] probably [...] gold.
This is econolibertarian fan fiction. Literally no one wants that except people already involved in speculating[1] on gold. Are there bad externalities to relying on a unlitaterally controlled reserve currency? Yes. Are they made better by handing financial control over to a bunch of fucking mine and vault operators? Let's be real, here.
Basically this idea appeals to people who've convinced themselves they can get rich betting on financial policy and stay rich by burying their loot in their metaphorical backyard.
[1] The very fact that such speculation even exists should be a triple exclamation point red flag on any argument about hard currency, but alas no.
SDR valuations were tied to gold when the USD was still gold-based. Needless to say Bretton Woods didn't survive that transition at all. Again, it was a failed (!) experiment, not a recipe to try again. Believing otherwise is fan fiction.
Because dumping all of your US treasuries is a political statement. You can only sell to a willing buyer and announcing that you’re going to do that is tantamount to lighting wealth on fire. Treasuries are assets so there’s no counterparty that will “run out”.
I’m pretty sure no-one has argued that a gold standard would prevent economic disasters. That sounds like a straw man. My understanding is that there would be more of them but the individual and cumulative impact would be far less. You can still have fractional reserve banking with the gold standard so the gold standard alone is not sufficient to prevent that.
> I’m pretty sure no-one has argued that a gold standard would prevent economic disasters. That sounds like a straw man. My understanding is that there would be more of them but the individual and cumulative impact would be far less.
Contrary to popular opinion, the historical record shows that gold does not actually bring price stability; see "Why the Gold Standard Is the World's Worst Economic Idea, in 2 Charts":
Before what we call "The Great Depression" (of the 1930s), that label was applied to another years-long economic malaise, which was in part caused by using gold-backed currency (as was the 1930s Great Depression):
Many things work just fine right until they stop working, our current strategy of blowing ever bigger economic bubbles has worked for a long time and I expect it will continue for long time. It has the very stable property of enriching the already wealthy.
But it will not last forever and I do expect to see the end of it within my lifetime. It is this calamity that I'm interested in diminishing and it is on this basis that I think a weaker federal reserve would be less damaging. Since the federal reserve obscures the true state of the economy uncovering the true state will coincide with a weakling of the federal reserve and will appear causal.
I'm not a gold bug, I don't own any of it, I do own some bitcoin but my main asset is my software company.
> Many things work just fine right until they stop working, our current strategy of blowing ever bigger economic bubbles has worked for a long time and I expect it will continue for long time. It has the very stable property of enriching the already wealthy.
The enriching of the already-wealthy is happening because of non-progressive policies (taxes, and others). Plenty of countries have fiat currencies and independent central banks, and yet don't have inequality rates like that of US currently has.
In fact, the US used to not have inequality rates that the US currently has. This is a phenomenon that has a fairly definitive starting point, with particular policies that (US) society has "accepted" and can 'simply' choose to start rejecting:
The US is a completely different country compared to what it was 100 years ago, or even 50 years ago, and economic policy is not the only thing that has changed.
It appears that you see ‘progressive solutions’ as an answer which I would expect to arrive in the form of tax normalization which alongside monetary inflation constitutes the much coveted wealth tax. I am in disagreement with progressives that this would result in a decrease of inequality, for one the state will be completely reliant on the wealth of the wealthy increasing, as opposed to the income of the middle class increasing. I see inflation as a regressive tax, the poor will pay a higher percentage in tax but a lower in relative terms due to the increase in inequality caused.
> I am in disagreement with progressives that this would result in a decrease of inequality, for one the state will be completely reliant on the wealth of the wealthy increasing, as opposed to the income of the middle class increasing.
Funnelling more money from the top tax brackets to social programs like childcare, better teacher salaries (to attract better talent), lower tuition for (community) colleges and (public/state) universities would be helpful to the lower deciles of the population IMHO.
> I see inflation as a regressive tax, the poor will pay a higher percentage in tax but a lower in relative terms due to the increase in inequality caused.
Look at the history of the gold standard and deflation (which often happens under gold regimes): it was poorer folks that were mostly against it. Inflation helps those with debt (like mortgages, student/car loans), which I would think is more helpful to lower income folks. Deflation helps creditors.
It hurts those with debts more, they have to pay a higher interest rate than the wealthy and with things being more expensive they have to borrow more. Wages don’t keep up with inflation.
The problem with large redistribution initiatives is that they invite corruption. When such initiatives can be reliably delivered without corruption then maybe I could have some faith in it. I’m to see how all these Somali ‘learning’ daycare centers shake out. Prima facie it looks rather fraudulent. I fail to see how giving more money to fraudsters will help matters.
Price stability is overrated. Prices must change according to scarcity. Letting the government print money any time prices start to fall is literally letting the government profit off your back. It makes accounting easier, but it destroys market information like "Supply of goods is catching up to demand, find something better to produce".
And the money supply that is created by government(-ish) institutions is by central banks, which—in modern times—are generally operated independently from the government (except in, e.g., Turkey; and some folks want less independence). Central banks often work in opposition to what politicians want: just ask Powell.
You are preaching to the choir, for the most part. People just got brainwashed into expecting prices to be "stable" but what is really happening is the price of money is being manipulated for various reasons.
Credit is a very thorny issue. Politicians and banks have promised people impossibly good and contradictory outcomes.
>And the money supply that is created by government(-ish) institutions is by central banks, which—in modern times—are generally operated independently from the government
In all cases the independence is an illusion. Conflicts over policy are manufactured to make the government appear more frugal than it is. Every fiat currency ever has gone to zero.
Hah. This is merely your lack of imagination speaking. It could be that reality plays out that you are right, but what a sad, constrained world of ideas that would be.
US Treasuries have terms, if you aren’t refreshing your treasury buys, it is the same as selling them. US treasuries and by extension USD was useful because it could soak up billions of dollars of savings (debt for America) without taking a huge inflation hit (treasury rates were often less than inflation, so you still take some hit).
As for where that money is going now? Other currencies and saving instruments probably..
In some ways, this effect can have a positive impact on US citizens; demand for the US dollar requires supply to satisfy the demand. Where does that supply come from? Oftentimes: Printing. The US generally does not make a habit of telling US dollar buyers "no, we don't have any US dollars to sell you", so less demand on the dollar for reserve holdings can have a deflationary impact on its value. This can be combined with lowering interest rates, which creates more domestic demand for dollars, to help balance out the inflationary impacts from that.
Many economists take the stance that being the world's reserve currency is something of a two-edged sword; a curse that does come with geopolitical advantages, but bundles those advantages with significantly more difficult global financial responsibilities.
It’s either printing or increasing taxation for constant benefits. We all know what happens when the government tries to increase taxes at all, now try doing it for zero increased benefits. This is a populace that’s had candy for dinner since WW2, and forcing them to eat their vegetables will result in a never before seen level of civil unrest from people of all political inclinations.
The Fed most commonly uses Open Market Operations to modify the money supply, with "money printing" or Quantitative Easing used in more emergency situations.
But more broadly your comment doesn't really represent reality, whatever happens in the markets and economy the Fed manages inflation (or deflation) and it's much more complicated than a single relationship like you describe.
More interesting is trade, where the US consumes so much and pays out so many dollars for goods that places like China which run huge surpluses have few choices other than lend it back to the US.
Sure; and I'm referring directly to those "emergency situations", which aren't much of an "emergency" as most people would understand the word given that they've engaged in QE for ~7 of the past twenty years.
But you seem upset by QE in general. It seems to upset a lot of people, possibly because the Fed created a lot of money, but that's what central banks do, they create and destroy money. It's really not that much of a big deal. People lose sight of the fact that money is an abstraction and not something concrete.
It's always been that way. The notion that currency is backed by something concrete like gold is an illusion, one that some people cling to these days.
Even if it were true, inflation makes the whole issue moot. Money is only worth what it will buy, so it is at the mercy of prices.
Finally money depends on people's collective acceptance of it. No point in holding gold if people lose confidence in gold, for instance if people start producing convincing fakes. How does the average person verify gold? It almost always goes back to trusting some central authority.
It doesn't necessarily have to be one thing. We've had multi-currency regimes in the past (before one generally took over). See How global currencies work past, present, and future by Barry Eichengreen, Arnaud Mehl, and Livia Chitu:
The British pound was displaced by the US dollar. Currently, the US dollar just doesn't have a proper rival. The euro, yuan and rupee are considered politically suspect (each for its own unique reasons); the pound and yen have too small a base. Without further transformation of the global financial system, the only alternative is for banks to hold a basket of currencies, and in such a basket the dollar would likely still play a significant, if reduced, role. This is a slow process because it means changing the nature of currency reserves from a single safe haven to a "nest". What this means for USG spending power is not immediately clear.
Ok, let's see - yuan isn't a freely traded currency, it's heavily regulated by China. From that alone it can not be used a reserve currency by anyone - unless they want to hand over all control over their assets to CCP.
The rupee is better, but there's not a lot of trust in Indian institutions globally, so black swan events are more likely. I can see it becoming a better proposition as India further matures and taps into its population more.
No, euro - that's a solid contender. Not only it's already used in a lot of countries, and therefore backed by more than one economy, the EU institutions are legit to a fault - they continuously refuse to seize Russian assets, because there's no solid legal grounds for it, despite all political will towards doing so.
That alone makes it far removed from being politically suspect in my book, unless there's some blatant case against the euro that I'm missing.
The main issue with the euro has been the stinginess of the ECB. The Fed always makes plenty of dollars available but during the Great Recession this was not the case in Europe. This is a problem for euro-denominated debt. (It is also a problem for the yuan.) The unusual political structure of the EU — not a single country — is also potentially concerning, as is its apparent dependence on the United States for defense.
> That alone makes it far removed from being politically suspect in my book, unless there's some blatant case against the euro that I'm missing.
Lack of integration/solidarity. A common currency is a pretty bad idea if economies are allowed to diverge (see previous sovereign debt crisis, there's no reason why eg France can't be the next trigger).
You need a common tax base, and solidarity across member (much more than the current state) to have an effective monetary policy.
The in-between status quo for EU really isn't great (either you need to keep building EU institutions/start having proper eu taxes and budget -- something that is not really popular at the moment--, or euro should be reconsidered). (From what I understand it's not really a controversial opinion in economic circles).
Who considers them politically suspect? I’m guessing the people who live in the countries that use them don’t, and on the contrary would increasingly be seeing the USD as politically suspect.
The people who live in the countries that use them aren't relevant, because we are talking about them as reserve currencies. What matters is whether other countries see them as politically suspect.
Treasuries are not some kind of artifacts that can be stored indefinitely, they are bonds with maturity dates. As they mature they turn into cash automatically and that cash used to come from selling new treasuries. As the demand dwindles the US has to sell its bonds cheaper thus borrowing at higher interest and that interest will have to be paid by selling even more treasuries at even higher interest so it's already a feedback loop.
Not sure what your links are supposed to prove but here is the link[1] to the actual yield on the 10 year bond, higher yield means the bond is sold at higher discount i.e. cheaper.
> higher yield means the bond is sold at higher discount i.e. cheaper
Yes. The Fed set a policy of higher rates. It did that by selling bonds and driving the price up.
Then it set a policy of reducing rates, and was able to do that by just selling fewer bonds. Not buying them. That implies strong demand for these assets. (You can’t use price as a proxy for demand in Treasuries since it’s an explicitly manipulated price by its issuer.)
Long bond rates have somewhat decoupled from short term rates set by the fed. For instance, they just slashed short term rates 25bps, but long bond rates (10+ years) have actually gone up a few basis points since the cut.
This is exactly what we'd expect if demand for treasuries wasn't keeping pace with US debt issuance. I mean, if you look at the debt, and the USD's current position, there really is no way out for the US government other than inflating the currency and cashing in that reserve status for a reset. The obviousness of that reality is why precious metals are going nuts.
> For instance, they just slashed short term rates 25bps, but long bond rates (10+ years) have actually gone up a few basis points since the cut
Could you point to the date range you’re referencing?
> if you look at the debt, and the USD's current position, there really is no way out for the US government other than inflating the currency and cashing in that reserve status for a reset
Of course there is. Loads of options.
Broadly speaking, the talk around rates and commodities tends to involve serious people totally divorced from the talk-show/Zero Hedge circuit.
> Could you point to the date range you’re referencing?
The last two months. There was a rate cut in October and again in December, but since late October long bond yields have been rising.
> Of course there is. Loads of options.
For instance?
The US debt is currently rolling over into higher rates bringing the average yield of our debt up. The only way around that, if long bond yields don't come down, is to roll the debt into short term treasuries where the rate is tied more to fed funds rate. That would be inflationary.
If they stop buying treasuries, that's still a big problem, because the US continues to run a deficit, and therefore continues to need to sell treasuries.
If it's more profitable to keep your money under a mattress than to make things, provide services, or provide loans, the economy will tilt toward hoarding cash instead of more productive activities.
This is the classical argument, but I think it's been largely refuted by practice. Instead of hoarding cash inflationary systems motivate hoarding 'things' and then trying to rent them out to everybody. This is arguably even less productive as it's fundamentally socially harmful.
When the value of things naturally declines over time, there's no real motivation to hoard them. And I think hoarding is less harmful than never-ending rent seeking. This entire issue of sidestepping inflation by hoarding+renting is what led to things like the WEF predicting that 'You will own nothing, and be happy.' That's just fundamentally dystopic because it's setting the recreation of feudalism, under a capitalist shell, as a goal. The unstated implication of their prediction is that the super-rich would own everything, and then rent it to you.
Gold is a terrible unit of international money because the supply isn't flexible enough to accommodate any growth in international trade.
Contrary to popular belief, during history gold has always had limited role in the monetary system, because it was too scarce to really be useful (in most of human history, Silver, not gold was the cornerstone of trade, and trade itself was a tiny part of economic activity in an era where most of it was subsistence farming). It's only when banking and paper money replaced silver that gold took a bigger role in the monetary system. The gold standard is in fact an invention of the late 19th century and it didn't last long before it disappeared progressively (the first world war being the beginning of the end).
Unfortunately for us, it just happened to be the period when a bunch of influential economists grew up (particularly Ludwig Von Mises), and like every human being they assumed that the system they grew up with was special and what came after was decadent, an idea that has unfortunately since then become widespread in the general population.
Most people wrongly assume that the key property for a commodity to become the basis of a monetary system is scarcity, but in reality scarcity is a drawback. Money must be abundant enough (too abundant is bad, but too scarce is even worse).
Isn't a more modest opinion that gold admits a guaranteed minimum on its price because of scarcity and demand from industrial applications? That guaranteed minimum on its price is what enables it to be used as a hedge against a possible hyperinflation event of the USD. By comparison, the USD, like all other fiat currencies, might not have any guaranteed minimum price.
That argument comes from an ancient list of arguments against gold. But nobody seems to be able to explain why that would matter at all. There doesn't need to be any correlation with the amount of currency and the economic output. And there has never been any such correlation, including right now with the dollar or any other currency.
If you want an economy to prosper the currency value has to remain stable. That means it has to scale with economic output. You can, of course, not do that, if you want to kneecap yourself.
OK, now do dollar-denominated assets. Stocks, bonds, commodities, real estate. How have those fared over the same time period? Those types of assets are where I put my money for long-term savings.
Only idiots that don’t understand inflation hold lots of cash, bringing that up is a strawman. Cash is not a store of value, it’s a unit of exchange and unit of account. Again, cash is not for saving, it should be used to purchase assets if you want to create long-term wealth.
Inflation is a tool used to encourage people to spend or invest their money instead of hoarding it. By spending it or investing it in dollar denominated assets, economic activity and GDP increased. Hoarding cash doesn’t help anyone.
Have you ever considered that perhaps your ideas about the monetary system are wrong?
If you think 3% inflation is bad, wait until you see what happens when you don't have it. The value of money has to decrease or it won't circulate - see Bitcoin.
Only the fact that it would be an idiotic policy that would destroy the economy.
Why would you let your monetary policy be run by gold miners in China, Russia and Australia? They could cause inflation or deflation simply by increasing or decreasing gold production.
Conversely how is the Fed supposed to manage inflation if it runs out of gold?
Gold is an industrial metal, also used in jewelry, not a financial panacea.
Now you know why so many countries want to leave the dollar system. There are no meaningful constraints on the supply of dollars.
Gold at least places real constraints on the growth of the money supply. Imperfect as it is, it’s better than a financial cabal in one country creating money to suit their needs irrespective of any other objective.
Imagine if there was a gold which could be transferred across borders easily and completely securely within seconds, proof of holdings and ownership could be easily proven, and there was no future risk of gold supply shocks (eg gold asteroid hitting earth or alchemy becomes viable).
All the arguments against gold are completely bogus because there is nothing stopping the price of gold from climbing to meet the economic need. The price of gold was suppressed for a long time by institutions, but this active suppression is increasingly difficult to continue.
As for verification and transfer, that's what electronic shares are for, distributed across a few key physical asset holders.
Price of a commodity metal can do whatever they want without causing a big problem. It is just a resource allocation signal. However if you base your currency value on it suddenly you are forcing debtors into bankruptcies if the value shoots up. Credit relationships aka investments are what make an economy run and grow, not some arbitrary commodity price.
Debtors who roll their loans also go bankrupt when the fed raises interest rates.
Rolling loans is par for the course for many capital intensive businesses. This is because in a low interest rate environment if you act prudently you’ll get outcompeted.
You're just so used to a debt fueled economy that you can't think of it being any other way. That is the problem though in that 99 times out of 100, debt goes rogue in a runaway sense and blows up the system. It is a time bom.
In essence, debt doesn't need saving from the system; it's the system that needs saving from debt.
A system that lasts a hundred years before failing is a successful system. This reminds me of comments about bankrupt companies that made massive profits for 10 years, calling them failures. That's a success and the comment is sour grapes.
I'm guessing this is kind of a "It's not a problem until it's a crisis" situation? So far other central banks haven't begun selling treasuries, they've just stopped buying them. But once one starts selling it could become self reinforcing?
What could replace it? There doesn't seem to be any new hegemonic power on the same level. Could we enter a world where all central banks hold a mix of currencies and nobody benefits from being the reserve?