Elite and currency devaluation

[BH]

I have read that if our national debt gets too high other nations will not use our US dollar as a reserve currency, making the dollar severely lose value and prices go up very very high. If this is true how are our elites protecting themselves from this if and when it happens?

 

[Elixir]

I have read that if our national debt gets too high other nations will not use our US dollar as a reserve currency, making the dollar severely lose value and prices go up very very high. If this is true how are our elites protecting themselves from this if and when it happens?

Stock market. Dollars are worth less, so they get more of them for doing nothing.

 

[laughing dog]

Since it has not happened and there is little reason to expect this to happen anytime in the near future, the elites and non-elites really do not have to do anything. But if one is worried about the value of the dollar falling, one should purchase real physical assets whose prices rise as the value of the dollar falls.

 

[Horatio Parker]

If the savers of the world want to dump dollars they still have buy products or find counter parties.

 

[Loren Pechtel]

I have read that if our national debt gets too high other nations will not use our US dollar as a reserve currency, making the dollar severely lose value and prices go up very very high. If this is true how are our elites protecting themselves from this if and when it happens?

They don't have dollars in the first place. They have investments.

 

[RVonse]

I have read that if our national debt gets too high other nations will not use our US dollar as a reserve currency, making the dollar severely lose value and prices go up very very high. If this is true how are our elites protecting themselves from this if and when it happens?

https://commons.wikimedia.org/wiki/File:If_US_land_mass_were_distributed_like_US_wealth.png

The elites control the entire monetary process (the fed) which ALWAYS serves their interests first. First rule is to remember that you will never see the middle class being saved before the banksters and central banks.

https://www.youtube.com/watch?v=8A956p4q7Iw This guy is an ordinary middle class school teacher doing youtube videos how best to succeed in today's environment. With all the zombie companies being propped with low interest money it is very difficult to make good pricing decisions on value stocks. So a value investor like Warren Buffet is at a disadvantage and now sitting with huge cash positions. The days of easy investing are probably gone now. For the normal person, it seems only speculators can flourish right now as swing traders. I do not know much about swing trading yet but it is probably something to learn much more about.

 

[skepticalbip]

Since it has not happened and there is little reason to expect this to happen anytime in the near future, the elites and non-elites really do not have to do anything.

It is, and has been, happening. Although the federal reserve works hard at trying to keep inflation below 3% per year. But still, the buying power of a dollar today is the same as the buying power of $0.15 in 1970.
In 1970 a decent new house could be purchased for $15,000 and a new car for $3,000.

But if one is worried about the value of the dollar falling, one should purchase real physical assets whose prices rise as the value of the dollar falls.

Right. The wealthy by real estate, businesses, precious metals, gems, art, etc. (that do not decrease in value through inflation) to preserve the value of their wealth. Many also stash some of their liquid assets in off-shore banks in currency other than the U.S. dollar, currencies like the Swiss Frank.

 

[laughing dog]

Since it has not happened and there is little reason to expect this to happen anytime in the near future, the elites and non-elites really do not have to do anything.

It is, and has been, happening. Although the federal reserve works hard at trying to keep inflation below 3% per year. But still, the buying power of a dollar today is the same as the buying power of $0.15 in 1970.
In 1970 a decent new house could be purchased for $15,000 and a new car for $3,000.

And you believe that is due to the national debt? Wow.

 

[skepticalbip]

Since it has not happened and there is little reason to expect this to happen anytime in the near future, the elites and non-elites really do not have to do anything.

It is, and has been, happening. Although the federal reserve works hard at trying to keep inflation below 3% per year. But still, the buying power of a dollar today is the same as the buying power of $0.15 in 1970.
In 1970 a decent new house could be purchased for $15,000 and a new car for $3,000.

And you believe that is due to the national debt? Wow.

No. Venezuela's hyper-inflation is due to their government spending more than they have. The same happened in Zimbabwe, in Germany after WWI, and several other countries. Hopefully, the U.S. won't go on as big a spending spree with money we don't have.

 

[DBT]

A mighty strange and convoluted world we have constructed for ourselves...

 

[RVonse]

Since it has not happened and there is little reason to expect this to happen anytime in the near future, the elites and non-elites really do not have to do anything. But if one is worried about the value of the dollar falling, one should purchase real physical assets whose prices rise as the value of the dollar falls.

Which greatly and unfairly favors the already rich.

Because only the already rich have the means and ability to store away majority positions in physical assets for lengthy periods of time. Storing in physical assets means having no liquidity to meet daily subsistence needs.

 

[laughing dog]

Since it has not happened and there is little reason to expect this to happen anytime in the near future, the elites and non-elites really do not have to do anything. But if one is worried about the value of the dollar falling, one should purchase real physical assets whose prices rise as the value of the dollar falls.

Which greatly and unfairly favors the already rich.

Everything but progressive taxation or outright confiscation of assets favors the rich. That is life.

Because only the already rich have the means and ability to store away majority positions in physical assets for lengthy periods of time. Storing in physical assets means having no liquidity to meet daily subsistence needs.

Nonsense, many middle income households (mostly white) have a substantial portion of their wealth held for lengthy periods of time - their home.

People who can only meet their subsistence needs can only be helped by helping them increase their real income or real wealth - something that Trump supporters voted against last election and will vote against this time around.

 

[RVonse]

Nonsense, many middle income households (mostly white) have a substantial portion of their wealth held for lengthy periods of time - their home.

You mean those same middle income households who lost their homes during the 2008-2009 banking crises???

People who can only meet their subsistence needs can only be helped by helping them increase their real income or real wealth - something that Trump supporters voted against last election and will vote against this time around.

Lower middle class people? You mean those people who hired back in their jobs in the coal mining and steel industries? And the related industries that Obama gutted and Trump brought back to light again??

Without getting into the merits and/or cons of the "green new deal", its not going to do anything at all to help the uneducated lower middle class. Trump did and will do far more to help them then the Democrats. Because all Democrats cared about is getting them into more debt. And further lowering their existing wages with more competition with immigrants. Trump gave them jobs and a fighting chance for higher wages.

I'm not necessarily the big fan of Trump many think I may be. But when it comes to helping the lower middle class people, there is simply no comparison what he accomplished to what was being done to them by the Obama administration.

 

[laughing dog]

Nonsense, many middle income households (mostly white) have a substantial portion of their wealth held for lengthy periods of time - their home.

You mean those same middle income households who lost their homes during the 2008-2009 banking crises???

More middle income households did not lose their homes or property values.

People who can only meet their subsistence needs can only be helped by helping them increase their real income or real wealth - something that Trump supporters voted against last election and will vote against this time around.

Lower middle class people? You mean those people who hired back in their jobs in the coal mining and steel industries? And the related industries that Obama gutted and Trump brought back to light again??

Underground coal miners earn $30+ per hour - that is not lower middle class. I have seen that steel workers earn about $60K per year which is also not lower middle class (usually thought to between #35K to $50K).

Coal mining employment has been steadily following for decades (https://fred.stlouisfed.org/series/CES1021210001), and employment in irin and steel is below what it was in 2016 (https://www.ibisworld.com/industry-statistics/employment/iron-steel-manufacturing-united-states/). And that ignores that Trump's tariffs that made consumer and investment goods more expensive, and harmed the farming sector.

Without getting into the merits and/or cons of the "green new deal", its not going to do anything at all to help the uneducated lower middle class. Trump did and will do far more to help them then the Democrats. Because all Democrats cared about is getting them into more debt. And further lowering their existing wages with more competition with immigrants. Trump gave them jobs and a fighting chance for higher wages.

A green new deal has the potential to help production workers - whether it does depends on the details. But is certainly could do no worse than Trump's policies.

I'm not a big fan of Trump many think I may be. But when it comes to helping the lower middle class people, there is simply no comparison what he accomplished to what was being done to them by the Obama administration.

Trump has buffaloed a lot of people with his hot air, but the data does not confirm your views about his help to the lower middle class.

 

[ZiprHead]

Lower middle class people? You mean those people who hired back in their jobs in the coal mining and steel industries? And the related industries that Obama gutted and Trump brought back to light again??

Frankly i'm not seeing a big increase in coal and steel industry jobs.

 

[Swammerdami]

One form of Piketty's equations is r = α × (g_popu + g_prod) ÷ s where the five variables are the real return on capital, capital return as a share of total income, population growth rate, productivity growth rate, and savings rate. α approaches 30% today and can't get much higher; g_popu is now much less than 1% throughout the developed world, g_prod has slowed. As long as the savings rate (s) holds up, the rate of return on capital is small and getting smaller.

But there's a sort of "paradox" at work. If r = 4%, then a stock paying a steady $4 dividend should be worth $100. But if r is falling or expected to fall to 2%, then the stock will zoom in price to $200. And keep soaring up as long as r is falling. So a general fall in the return on capital assets typically leads to a rise in the price of those assets. Investors make up for their puny dividends and interest with big capital gains. Inflation is low, but interest rates are even lower. The real rate of return on many investments is negative ... and those asset prices keep rising!

If this doesn't make full sense, you're not alone.

A mighty strange and convoluted world we have constructed for ourselves...

I have read that if our national debt gets too high other nations will not use our US dollar as a reserve currency, making the dollar severely lose value and prices go up very very high. If this is true how are our elites protecting themselves from this if and when it happens?

What alternative is there to the Dollar? The Euro and British Pound have problems similar to those of the Dollar. (The German Mark would be strong ... but it no longer exists.) One alternative is Gold: it is up 60% over the course of the Trump Administration. (I'm happy I moved a chunk of my savings into gold last year). Another alternative is BitCoin, up more than 1000% over the same period. (I've never had the nerve to buy cryptocurrencies.)

 

[Loren Pechtel]

One form of Piketty's equations is r = α × (g_popu + g_prod) ÷ s where the five variables are the real return on capital, capital return as a share of total income, population growth rate, productivity growth rate, and savings rate. α approaches 30% today and can't get much higher; g_popu is now much less than 1% throughout the developed world, g_prod has slowed. As long as the savings rate (s) holds up, the rate of return on capital is small and getting smaller.

But there's a sort of "paradox" at work. If r = 4%, then a stock paying a steady $4 dividend should be worth $100. But if r is falling or expected to fall to 2%, then the stock will zoom in price to $200. And keep soaring up as long as r is falling. So a general fall in the return on capital assets typically leads to a rise in the price of those assets. Investors make up for their puny dividends and interest with big capital gains. Inflation is low, but interest rates are even lower. The real rate of return on many investments is negative ... and those asset prices keep rising!

If this doesn't make full sense, you're not alone.

Actually, it makes sense if you understand what the share price really reflects.

In a perfect knowledge economy it's the net present value of all future dividends. The lower the interest rate the less discounting of future dividends and thus the higher the value.

 

[Swammerdami]

One form of Piketty's equations is r = α × (g_popu + g_prod) ÷ s where the five variables are the real return on capital, capital return as a share of total income, population growth rate, productivity growth rate, and savings rate. α approaches 30% today and can't get much higher; g_popu is now much less than 1% throughout the developed world, g_prod has slowed. As long as the savings rate (s) holds up, the rate of return on capital is small and getting smaller.

But there's a sort of "paradox" at work. If r = 4%, then a stock paying a steady $4 dividend should be worth $100. But if r is falling or expected to fall to 2%, then the stock will zoom in price to $200. And keep soaring up as long as r is falling. So a general fall in the return on capital assets typically leads to a rise in the price of those assets. Investors make up for their puny dividends and interest with big capital gains. Inflation is low, but interest rates are even lower. The real rate of return on many investments is negative ... and those asset prices keep rising!

If this doesn't make full sense, you're not alone.

Actually, it makes sense if you understand what the share price really reflects.

In a perfect knowledge economy it's the net present value of all future dividends. The lower the interest rate the less discounting of future dividends and thus the higher the value.

Yes, I DO understand Piketty's equation. I wrote "paradoxical" where I meant "counter-intuitive." Perhaps it isn't even counter-intuitive, just a variation on "when bond prices rise, yields go down."

One thinks of buying stocks or bonds as an opportunity to seek return, but today those stocks and bonds offer low earnings or interest by historic standards. And if rents and businesses's returns on capital continue to fall, risk-free stock prices can be expected to continue rising (and risky stocks as well if the bulls are running). At least this is predicted by Piketty's equation above, but that equation holds true only asymptotically (i.e. in the long run).

But I have no expertise on these topics. Surely several of you have more knowledge of these matters than I do.