Date: November 19th, 2017 8:47 PM
Author: Chocolate very tactful parlour wagecucks
1) https://salo-forum.com/index.php?threads/the-secret-currency-war-s-of-2008-present.5933/
"As we have seen in prior political eras, there has been a great deal of theoretical and semi-theoretical economic and political discussion around the role of currencies, and modern economies in general. In at least part, these discussions often gravitate to the extreme views of Austrian influenced Goldbugs (in the US, often overlapping with "Paulbots") on one side, and the "Everything is fine" school spread by modern media and major governments. The purpose of this thread is not to debate the differences between Keynes, Austrians, and MMT, but to explain why much of our understanding of not only the current economic and political environment is wrong, but also our understanding of the last decade.
By way of background, prior to mid-2005, the People's Republic of China (PRC) Yuan (CNY) was "pegged" at roughly 8.27 to the United States (USG) Dollar (USD). In theoretical terms, the People's Bank of China (PBOC) would print money to buy up the USD received by Chinese Exporters. Depending on one's views of economics, either the PBOC was paying a subsidy to Chinese Exporters, a subsidy to US Importers, or allowing the USG to export it's inflation to the PRC. After much cajoling by the administration of President George W Bush, this "peg" was dropped over time to roughly 6.83 USD/CNY. Noticably on a chart, this new peg started roughly July 2008. As we know, by late 2007, signs of serious financial contagion were visable, with the fall of Bear Sterns in March 2008, and a dramatic escalation of the crisis in the fall of 2008, which would culminate in the Global FInancial Crisis (GFC) of 2008-2009.
The author is negative towards accusations that the lack of PBOC money printing before this point trigged the crisis, since the crisis has been going for months at that point, and was completely predictable years before.
In November 2008, to respond to the GFC, the USG Federal Reserve (Fed) purchased 600 Billion dollars of Mortgage Backed Securities by the simple expedient of printing (electronic) money, referred to as "Quantitative Easing" (QE). While normally the injection of 600 Billion USD into the global economy would have caused an impact, conditions were such that the Fed continued to do so for months afterwards, ending up with 2.1 Trillion USD worth of purchases by June 2010, when they attempted to let the purchased securities mature ("tightening").
At roughly the same time, the PBOC let it's "peg" slide even more, letting the CNY "strengthen". Why?
As a basic concept, the author has a dim view of politicians around the world. Politicians do not put much stock in a stable currency, which is the reason almost every fiat currency since the Bank of England (BOE) banknotes has been overseen by some form of separate body, even if only on paper. Left to their own devices, politicians seldom go to any effort to redeem excess money supply. Almost every Western government, save perhaps Germany, Norway, Japan, and Switzerland, has engaged in questionable accounting for pension liabilities, preferring to spend to buy votes or the support of factions today, rather than secure tomorrow.
Almost every government, going back to the Romans, faced with a crisis that requires spending, will print money if it can get away with it. For the most spectacular recent example, the NSDAP government of Germany (1933-1945) spend it's entire period in government engaged in one form or another of inflationary spending until ending the war with even the death penalty not being enough to stop major business stakeholders from accumulating illegal foreign reserves.
The historical record suggests that the ascension of former World Bank employee, then New York Federal Reserve Bank President Timothy Geithner, to the position of Secretary of the Treasury, engaged in a very dangerous game with the PRC. By allying with his former colleagues at the Fed to print money to stabilize the Global Financial System, he forced the PRC to either accept socially disruptive levels of inflation, or drop the peg against the dollar. Where Goldbugs, in particular, go wrong is in ascribing the QE1 era to wanting to subsidize the massive deficit spending of the late Bush II/Early Obama transition, while that was part of it, it also was something of a defensive measure to force the PRC to stop it's currency war or subsidize the USG in it's moment of weakness.
However, the USG could no longer act in a vacuum. The BOE had printed right along with the Fed. Starting in March 2009, the European Central Bank (ECB) has started it's own QE. In October 2010, the Bank of Japan (BOJ), returning to traditional Japanese Mercantilist views, started it's own QE. Other banks, ranging from the Swiss National Bank (SNB), to Sweden, Israel, even Canada, went along with QE, arguably to prevent the USG or ECB from undermining their economies in turn. The world was in yet another a barely controlled currency war, parts of which rage to this day.
Faced with this situation, the Fed announced another round of QE, now called QE2, from November 2010-June 2011. In turn, the other banks did as well. Also, at this point, political developments such as the Fiscal Cliff in Congress further increased the amount of debt issued by the USG, as well as worried political decision makers about the stability of the US Economy.
Because both the political and economic decision makers in the US at this point aligned, the Fed decided to embark on QE3, open ended purchases of roughly 40 (later 85) Billion USD a month, plus reinvestment of maturing securities. By comparison, the issuance of US Treasury debt around that time was roughly 40-55 Billion/month (annualized). In effect, the Central Banks of the World had reached the point where all of them were printing money, which made their political masters (and their financial markets) happy, and were buying up government debt at an incredible pace.
One of the unexpected events of this global money printing was that previously uneconomic projects, such as high-risk oil exploration, creating a massive logistics network for 3rd party goods, or building new retail space in already saturated markets, was actually viable on a financial basis. The credit-fueled oil boom, and cheap global credit, allowed a massive expansion of global production, that in turn kept global goods inflation down, in nominal dollar terms. On paper, it looked like the world's central banks had achieved Economic Paradise, buying government debt, reducing (real) government expenses, dropping interest rates, beating inflation, and all of it dumped on someone else.
The problem was, however, is that there were two major costs. While most goods are subject to commoditization, real estate, financial services, and health care, to name a few, are not. Hot money flowed around the world, from Cyprus to London to Vancouver to New York, destabilizing local housing markets and forcing out prospective home buyers across the world. Residential Rents went up for all classes around the Western world, and Private Equity Funds and financial instruments because methods to generate immense fees for the Financial-Industrial Complex, both in USG and Globally.
As for the other major cost, assuming a world of no inflation, increase to the demand for debt (too much money) means that the price paid for debt will go up, dropping the yield (or increasing risk). This was, and is, a serious issue for the net creditors of the world, be they Japanese insurance policy owners, US Pension Funds, or elderly retirees. In real terms, they ended up being the loser of the Secret Currency Wars. "
2) lol at paying a normal interest rate on the national debt, at 5% it would be half the budget on interest alone.
(http://www.autoadmit.com/thread.php?thread_id=3802525&forum_id=2#34726647)