This is a reply to MayDay from a post he had directed to me a few pages back. I wanted to clarify some of the ideas & terms he spit out, because 2 members reached out to me via PM for clarification as to what MayDay is talking about. His terms are a bit complicated to the uninitiated financial mind. So, I wanted to clarify and post with some definitions made clear for those that did not understand completely. For those that do understand, please disregard by Matt-like post...in this thread just as the pandemic broke, the QE method was discussed as to how the world would begin a bailout. Nearly 1 year later and we can see the impact for the US where the Index started at 99 and has fallen to 91, pretty much a 10% decline in one year. To be fair, the US Index spent many years in the 75-85 region prior to now so a reading of 91 is actually significantly higher than it was in the decade prior. The US has a stronger currency today than in 2010.
Less concerned with the dollar index, because as you know, so as long as the USD is the world reserve currency, it will always lead against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. Why? Because most of their international trade is conducted in USD and purchasing of their oil is also done via the USD. What I believe the world is noticing is that the US is printing itself into a hole. We are meeting all the necessary requirements to be on our way to a massive deleveraging of our debt. When that happens, it will be a very sad time.
What is meant by the US Dollar Index? The US Dollar index measures of the value of the U.S. dollar relative to the value of a basket of currencies of the majority of the U.S.'s most significant trading partners. Who are those trading partners? The Euro (EUR), Japanese yen (JPY), Canadian dollar (CAD), British pound (GBP), Swedish krona (SEK), and Swiss franc (CHF).
The IMF are talking of doing a one off devaluation. Something like a 50% currency injection in one year to cause inflation using trickle up economics. Doing in unison means nobody would really gain an advantage in terms of trade. Apparently it’s going to happen in 2021. After that I believe they will lock around 2% annual. So they are going for a hard kickstart instead of a prolonged period. Makes sense.
This is a good point that needs clarification for those in attendance. An IMF proposal of 50% currency injection is incredibly risky, because it devalues the currency. Additionally, the trickle-up economics comment made by Mayday should be stated clearly to show that the major benefits of this 50% infusion will first be felt by the RICH, because their assets (stocks, bonds, ETF, Index funds etc) will be the first to appreciate in value due to the inflation that is felt immediately by those market assets. In other words, create more money, which is held by the big banks, who then will purchase into the stock market, which ultimately leads to the price of stocks going up. Hence the term trickle-up economics, which will really trickle-up into the pockets of the dirty rich.
Poor people, and by poor I mean everyone from the lower class (dirt poor) to even lower middle class rarely feel the effects of this currency infusion. Yes, they will get some cash flung at them via one-time stimulus checks, unemployment benefits and other welfare programs, but it won't be life changing, nor will it increase their wealth. The rich automatically experience expansion of their wealth.
1973-1980 we saw roughly 16% average annual M3 expansion which came with a 12% Annual GDP, 11.7% Annual CPI, a gold price increase of 460% over the whole period and a wage inflation of 100% meaning consumer debt devaluation of 50%.
For those that are wondering what the hell MayDay means when he throws around M1, M2 & M3 (I know some of you know, but other don't), these represent measurements of the US money supply (typically called money aggregates).
M1 = USD in circulation + checkable deposits in banks
M2 = M1 + savings deposits (less than $100,000) + money market mutual funds
M3 = M2 + large time deposits in banks
Now, increases to annual GDP were seen between 1970-1980, which were certainly substantial, but the USA was also still seen as a financial powerhouse by the entire world and our products were at the very least respected. Today, unfortunately, not so much. We are no longer the superpower we were by way of trade. Today, China leads world trade by a substantial marker. Also, Russia and China have become involved in a 14-country trading bloc that very conveniently left out the USA. Loss in confidence can certainly partially explain this bold move, but more particular to this is likely a loss in the desire to have the USD as the world reserve.
11.7% CPI is tragic (Consumer Price Index/CPI is simply the inflation, less buying power of your dollar, felt by way of what the average person pays for goods and services on main street). Granted, it led to a wage inflation of over 100%, which allowed for consumer debt (credit card bills and garbage debt along those lines) to be eradicated in half the time, which kept the poor appeased by making them believe that things can't be that bad if they are managing to clean their financial situations up a bit via eradication of debt.
I think the monetary system has survived many hard times and the result is transformations over rather than a complete collapse. The Germans post war was a scenario where they were physically destroyed and overwhelmed by debt. impossible to get out of and all alone with really no hope to get out of. This is a global scenario and we are intact so I feel it’s a very different problem we face than post war.
I think what you might not be considering is that we, the USA, are following the same path as other great empires in the past. Consider the archetypical examples that were Athens from the late 400s to the 300s BC, the end of the Roman Republic in the century or so preceding 27 BC, Germany’s Weimar Republic in the 1920s and the weak democracies of Italy, Japan and Spain in the 1920s and 1930s that turned to autocracies of the right (fascism) to bring order to the economic chaos. We are committing all of the major mistakes they committed and are being driven by our greed that doesn't allow for us to see past our present situation.
I know people are crazy scared of inflation but what would you pick if given the option?
1) double wage. Halve debt value but you can’t afford big TVs, expensive phones, holidays
2) no wage growth and risk of lower wages. Debt remains as full term loan. Can afford the luxuries but risk of higher unemployment.
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1) Double salaries & wages and it will allow for the working middle class to eradicate their debts in half the time. Granted, CPI will catch up and yes the modern day luxuries will be harder to acquire, but if you have debt-free citizens with active employment, they can acquire the things they *want" slowly over time, so as long as they have what they need (food, roof over their head, reserves in the bank etc). Keeping in mind that INFLATION is already taking place by way of assets going up in price (stocks, real estate, commodities etc). The issue here is that the common man doesn't care about inflation that affects market assets because that's above their paygrade, they care more about the effects of inflation on main street, that being the cost of their daily products and services (Consumer Price Index).
Allow for inflation to be revealed. We can't just keep monetizing the debt and assuming we will print our troubles away. All this continual QE will not end well. As soon as velocity picks up, inflation will certainly ensue. The only reason inflation has yet to kick in is because the money is either sitting at the Big Banks or has been sent out to foreign nations as part of US aid & spending projects. As soon as it starts to properly hit the ground level (and I don't mean via one-time stimulus checks and unemployment checks, but actual infusion of that new *currency*) and people regain confidence in public spending, CPI will undoubtedly rise.
Moreover, I think part of the reason why so many whales are going into crypto is partly because they see the writing on the wall with regards to the fate of the US Dollar. That, and of course they can make tons of money from speculative trades and ballooning crypto values.
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