Episode-1103- David Crawford and Glenn Tate on One Show? Only at TSP! — 37 Comments

  1. Jack I’m going to have to disagree with your statements regarding the US being in a good position as a result of being a reserve currency, not to mention how a reserve currency works.

    Mish Shedlock has hit this issue numerous times and makes quite the compelling case why being the reserve currency does NOT have the advantages people think (particularly regarding the events of today). This quick read quickly illustrates the point.

    The most important points are as follows:
    “This cost comes as a choice between rising unemployment and rising debt.? The mechanism is fairly straightforward.? Countries that seek to supercharge domestic growth by acquiring a larger share of global demand can do so by gaming the global system and actively stockpiling foreign currency, mainly in the form of, but not limited to, central bank reserves.?? This allows them forcibly to accumulate domestic savings while relying on foreign demand to compensate for their own limited domestic demand.

    In practice, dollar liquidity, limited Washington intervention, and the size and flexibility of US financial markets ensure that these countries always stockpile dollars.? There is no real alternative to the dollar, and most other governments would anyway actively discourage massive purchases of their own currencies because of the adverse trade impacts.? Why?? Because if foreigners accumulate euros or yen at anywhere near the rate they accumulate dollars, they would force Europe and Japan into massive current account deficits, and neither Europe nor Japan has any interest in seeing this happen.

    Foreign acquisition of dollars, in other words, automatically forces the US into running a corresponding current account deficit as foreign policies that constrain consumption in the accumulating country require higher consumption abroad.?? Active trade intervention in countries that engineer large trade surpluses have to be accommodated by rising trade deficits elsewhere, and because reserves are accumulated in dollars, this “elsewhere” is the US.”

    • We are in a good position right now unfortunately by abusing it we are setting up for a huge failure. But to infer you are at a disadvantage when you produce the world currency, shows you don’t have a meaningful understanding of modern economics.

      • At this point I’m going to assume you didn’t read the article. Do you know who Mish Shedlock is? I assume you must since I’ve heard you quote Zero Hedge, and every now and again articles written by Mish end up on there.

        To simply cast away my argument with referencing material as “show you don’t have a meaningful understanding of modern economics” is silly. I had a feeling by posting I would get this response. It seems to be the response that is received when anything contrary is posted, regardless of argumentation, presentation, or references. Since I’ll not stoop to personal statements (like you just made regarding a person you don’t even know), I’ll explain the argument further.

        Being the reserve currency is a double edged sword. I made the statement “particularly regarding the events of today” because it used to be extremely beneficial (consume cheap labor and resources world over by papering over with debt and increase in trade inbalance), where as, the other side of the sword is now showing itself. In a currency war in the context of a global export war, everybody is attempting to lower the value of their currency to encourage exports. Michael Pettis puts what has happened quite succintly.
        “In practice, dollar liquidity, limited Washington intervention, and the size and flexibility of US financial markets ensure that these countries always stockpile dollars.? There is no real alternative to the dollar, and most other governments would anyway actively discourage massive purchases of their own currencies because of the adverse trade impacts.? Why?? Because if foreigners accumulate euros or yen at anywhere near the rate they accumulate dollars, they would force Europe and Japan into massive current account deficits, and neither Europe nor Japan has any interest in seeing this happen.”

        If you have the reserve currency which all other commodities (particularly oil) is denominated in, then others seek to stockpile US dollars. This creates an upwards pressure on US dollar value. This inturn makes imports cheaper, and exports more expensive. Since this has continued for decades, the US finds itself further and further from being able to compete in an global export (war) because of the cost of labor, denominated in its own dollars. This is why its a double edged sword. China wouldn’t mind having another reserve currency so long as it isn’t theres. (Otherwise they’d float the yuan, but again, it would appreciate, and their export market would collapse).

        I never argued that abusing global currency status wasn’t going to lead to failure.

        • @Mike again WTF dude you said you were done commenting here. Are you a liar or were you just all bitchy because we put sand in your panties?

          Anyway this is what you and Mr. Shedlock who I do know all about do not get, holding the reserve currency allows us to profit from the entire global GDP but that doesn’t matter right. Effectively US and via the world bank and IMF the ECB get to profit from every single dollar spent in the world. We call that a global tax by the way.

          Oh just ignore it though and tell me why Obama is the lesser of two evils, LMMFAO!

      • I have been reading Mish every morning for a few years and he has been so consistently correct in his predictions that I give his logical conclusions the benefit of the doubt, even if I don’t completely understand how he gets there. Of course, you can twist this statement around, Jack, but I suggest you check out Mish’s words before you dismiss something that does not agree with your thinking. BTW, I think “modern economics” is ruled by Keynesians and the coming crash will disprove that theory in spades.

    • @Mike –

      I think the thing that needs to be defined when we’re having the a discussion about ‘good for’ is the WHO.

      This is usually stated as:
      – x is bad for ‘us’
      – y is good for ‘us’

      Which pretty much means its good (or bad) for the person talking..

      Its also overly simplistic as there are usually uneven costs and benefits to the involved parties.

      In the case of being the reserve currency, its enormously advantageous to the central bankers. And it carries some advantages for US business doing business overseas (lower currency risk. companies in other countries have to deal with exchange rate issues between their currencies and dollars).

      Regarding Mish’s comments:
      As dollars have to be loaned into existence.. if the central bankers want more free stuff from foreign countries (free because real goods are traded for imaginary money) they need an excuse to make more money. And of course dollars held by foreign entities don’t necessarily benefit the US economy. If China is paid in dollars, they may use them to buy oil from Venezuela, who may use them to buy machine parts from Germany..

      The crisis of course comes when no one wants dollars anymore, and all the dollars being used as barter tokens and reserve barter tokens by foreign nations suddenly want to go anywhere they can be traded for something of value.

      As they’re US dollars, we’re the only country that ‘must’ accept them as payment.. so they’re likely to come here. (IMHO)

      This kind of ties into the labor comments in another thread.. if you could get stuff for worthless pieces of paper, or for something of value.. which would you choose to trade? (Gresham’s Law)

      So.. reserve status is GOOD for the FED, US banks, US businesses and indirectly US consumers (cheaper stuff, including energy). Its bad for US producers (unemployment) as they have to compete with Ben Bernanke’s printing finger.

      • That is more or less my argument. While I’m not trying to be overly simplistic, I was attempting to counter the notion that its somehow in our best interest to hold the reserve currency.

        I’ve been reading Mish’s blog for probably around 3 years now and have heard his argument for quite some time now (regarding whether or not reserve status is advantageous or not). I pretty much agree with everything that you’re saying. I’m still not quite so convinced its good for the FED and US banks since producing of money is a liability, therefore, other countries holding US dollars and bonds is actually a liability on their accounts.

        I was able to find this one article on Mish that I was actually looking for. I think it was around the same time.

        Without a doubt this paragraph sums up basically what we’re both saying and the real nature of reserve status:

        “Curse of Global Reserve Currency

        The benefit (if one can call it a benefit) to having the world’s reserve currency is the ability to finance endless wars and live beyond one’s means. The mathematical counterpart is being at the mercy of foreigners on trade wars, outsourcing, and unemployment.”

        We buy tangible assets for less than they’re worth and can produce less, put in less hours and be less innovative. The flip side to the coin is we are susceptible to positive currency valuation, trade wars, outsourcing and eventually. Obviously I consider positive currency valuation to savers, but what good is a higher currency without an occupation? I do agree with Jack that they’re attempting to slip away as best as possible and not get sucked into the collapse. Unfortunately for them, I don’t think its going to be quite so easy.

        • Well the ‘liability’ is just a notation on a piece of paper.

          For the ‘powers’ behind the FED & banks.. you just let that company go bankrupt.. and go off and start FED 2.0 and Banks 2.0 and start passing out *NEW* Dollars TM.. not quite as worthless as those nasty old dollars.

          In other words, as soon as the notes get called in.. you just fold and start another game.

          This is kinda similar to people not understanding execs running a company into the ground.. as long as they get out with their fat check and golden parachute, they don’t really care what happens to the company, the shareholders or their employees.


      • @Jack
        Clearly have me mistaken for somebody else.
        “Mike again WTF dude you said you were done commenting here.”
        ??? That was the first post I’ve written on the TSP blog and nowhere did I say that I didn’t want to comment…

        “Are you a liar or were you just all bitchy because we put sand in your panties?” ??? By illustrating Ad hominem attacks? I think if somebody was attempting to add to a discussion and was countered by “ur wrong becuz ur dumb” style response, pointing out the ridiculousness of the argument is the only rational step. Typically functioning communities work by give and take of ideas of equals rather than immediate shut downs. We’re on the same side buddy. Not asking for you to pamper my ass, I’m not delicate, but perhaps some reasonable respect to an MSB, forum/community member, fellow brother in arms (marine corps), fellow libertarian/anarchist, level headed rational prepper/survivalist, and supporter? =) Same team bud.

        I would ask for some deeper explanation, particularly sources where you make the cite that every dollar transaction receives a tax and a cost. Especially since these dollars you’re speaking of, are generally bond purchases and direct liquidity giveaways by the FED. I’m not going to, nor would I expect anybody else to wholesale believe that such a transaction is occurring. Commodities and otherwise priced in dollars is used as an understanding of relative value, hence currency indexes directly tied to the dollar. The argument that the pros of reserve currency status outweigh the negatives seems more like a Paul Krugman argument where “debts don’t matter.” In general Reserve status = debt, “deflation” in products, “inflation” in labor costs, Non-Reserve Status = capability to currency manipulate, and “deflate” labor costs. The big one there is debt.

        @Mykl Mahr
        No kidding. I have a friend who doesn’t like Mish because he is a “deflationist” but as always is the case people believe in a dichotomy of you think prices will increase therefore your a inflationist or prices fall therefore you’re a deflationist. Obviously much more things at play than the simplicity of those statements (Which prices, and what is increasing/decreasing). I’d say I pretty much agree with him on how things will play out.

        I agree 100% with what Jack says about the amount of dollars being able to cover any number of assets. While it seems like hyperinflation is around the corner, that would require a totally different set of tools currently given to the treasury and federal reserve. They can boost asset prices in 0s and 1s. They would have to receive a mandate from congress to issue new denominations of currency and then print them to cover asset prices (as a true way to creating hyperinflation).

        Not to mention how would one cover the entire globe using dollars? The 0 and 1 system would essentially have to be pulled out from the system (we know that isn’t going to happen). There simply isn’t enough dollars to go around to cover anything, hence why I will be backing the proverbial truck up. Even if they started printing 100 dollar bills insanely fast, nonstop, it wouldn’t even come close to covering all of the dollar denominated liabilities. If congress authorizes increase in bill denominations, we know we’re in trouble.

        • @Insidious

          Whoops, meant to put this in the other post. There is no doubt about it the plunder of dollars. The better question is what are they doing with those dollars? And by dollars of course i mean 0s and 1s. If they’re rotating them out of dollars and into physical goods such as gold, then thats quite telling, but in general that doesn’t seem to be the case. Although, obviously there is the argument about property/land/rental bubbles. If anything I definitely agree with Kyle Bass that we’re looking at quite a many hot wars in the years to come. Need real goods for that.

        • You know I believe you are the same Mike you sure sound like the same one but when you use a common name like Mike as a blog handle any confusion it might create is your problem.

        • Thanks for the link. Hilarious and predictable.

          In all my days around government the one thing I could count on was the spectacular level of incompetence and likelihood of things to get completely fucked up. There is no shortage in the inability for government to make non-blundered decisions. That’s the purpose of bureaucracy. Its a double edged sword as well. Things go significantly slower (and therefore more time for criticism and less likely to follow trendy beliefs) but you can’t move on a dime particularly quality decisions.

          While obviously I’m just as concerned as everybody else about growth of big brother, with government growth comes growth in government blunders. Do I think for two seconds that the clowns in washington can come up with “split second” saves to the financial system (not fixable) or the lack of being able to provide bernake clown bucks when needed (when everybody is rolling out of 0s and 1s due to unknown counter party risk, bond failures, and bank contagions)? No. The biggest problem with the US regarding a loss of value in currency (or really the lack therefore of currency) is the lack of a realistic “regional” alternative currency to use. Wouldn’t surprise me for a second to start seeing state currencies to paper over crises, with washington unable to control the flames.

        • @Jack yet again

          OK. So my wife who reads the blogs, saw the other Mike you were referring to the other day and made me aware of what you were getting at.

          ROGER THAT. Apparently the name Mike is now off limits.

        • Not off limits at all, just MikeS or MikeR or your the new mike, LOL. I was unduly harsh on you due to a long annoying perceived inaccurate history I connected to you, for that I am sorry.

        • @The New Mike –
          I also thought u were the ‘old mike’.. 🙂

          On hot wars.. I understand WANTING hot wars, but I don’t think they’re possible at this point. Or to put it slightly differently, if you had one, it would be very short.

          For two simple reasons:
          1) Weapon systems are insanely expensive. And that expense isn’t just due to cost overruns.. they’re extremely complex and built from very expensive materials. (F-35 $162.5M to $4.5 billion for a nimitz class aircraft carrier) Because of that complexity, they can’t be cranked out like Sherman tanks.. and that leads to..
          2) Interdependence between countries for weapon system components. Even if your F-35 is ‘made in america’ the machine tools and the raw materials aren’t. Even the electronics are coming from other countries.

          I’m not saying there isn’t anyone dumb enough to start a war.. just saying i think it would be very expensive, and very short.

        • @Jack

          Now it makes total sense hah. I mean it was just a few days ago no less…. sheesh. You’ve talked about situational awareness. Guess I shoulda applied a little just now.

          As far as a hot war, I don’t by any stretch of the imagination a hot war. Nobody wins wars that’s for sure. I’m mostly referring to a war to enforce contracts (value of assets) that weren’t enforced by governments (go figure, who knew?). To be honest I think we’re much more likely to “devolve” into cheaper less expensive war capabilities if that were to be the case. A handful of those expensive toys go down and its more than a real issue. As you state, its extremely expensive, not to mention takes some serious time to bring online new platforms. I’m doubtful we’d be able to flick a switch and create war factories and entirely sourced chains of industrial material. Kinda need an industrial based country for that kinda stuff.

          At the flick of a switch we might be able to market worthless derivative financial products to them.

  2. Tried checking out the Lights Out websites and I think we overloaded their servers 🙂

  3. This has nothing to do with anything, but does anyone else think Glenn sounds a little bit like Keith Snow, or does Keith snow sound like Glenn?

    • Funny… I think he sounds like David Kubler (sp?) aka Souther Prepper 1 on YouTube..

  4. I made a mistake in what I said about Chicago’s pension liabilities. I had it at 100 “million.” It’s 100 “billion” (and estimated to be 600 billion in 10 years). I also got the location wrong; it’s all of Illinois, not just Chicago, that has the 100 billion current unfunded liability. My bad.

  5. For those who have read Lights Out recently (I read it back when it was first put out for free)- did the book specify what make/model the tractor was they found in the barn?

    I was just wondering how specific that portion of the book was.

    • @Bob

      I’m reading it now. When I get to that part, I’ll let you know (if you don’t get an answer before then).

  6. @glen Looking at the gifts on the Indiegogo fundraiser, what is the Limited Edition DVD? I would assume it’s the full movie when released but it says they will be mailed on Nov 14th of 2013, which seems a bit soon for the whole filming and production. Just wanting some clarification. Thanks!

  7. Everybody else has already said everything, but I just have to say that I love that you mentioned both Gary Vaynerchuk and Tim Ferriss at the end! My 2 biggest heroes since Batman!

    Keep “Crushing It” Jack!