The Euro vs Dollar Conspiracy Theory: part II - "The P

[Huck]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

The USA, because it is the creator of the money, can print and create out of thin air the required funds to buy the goods.

:lol:

Does the government send me checks in the mail to buy these goods? I have never seen any of it, or do they buy the goods and then ship it to all Americans?

Excellent question ITN, we should look it up. But, economic projections from the last years can be used to know just about how much money to print. I mean, no matter how, the USA DO print money, right? this 70% of world reserve must come from somewhere.

The exact process can be discovered, but we know that there is USD out there.

 

[I think not]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

Huck a little story for you:

In a market economy, money enables the goods of one specialist to be exchanged for the goods of another specialist. For instance John the baker has produced ten loaves of bread, which he has exchanged for ten dollars. He then uses the ten dollars to buy twenty tomatoes from a farmer Bob. Note that in order to acquire twenty tomatoes John had to produce ten loaves of bread first. In short, his consumption of tomatoes is fully backed up by the production of bread. Also, note that the money here is honestly earned and hence fully backed up by John’s production of bread. Or we may also say that here we have a case where something useful is exchanged for money and money in turn is exchanged for some other useful thing—something is exchanged for something else by means of money.

Let us now consider a case of a counterfeiter—call him Charlie—who instead of producing something useful has created ten dollars by means of printing these ten dollars. He then uses these dollars to buy twenty tomatoes from Bob the farmer. His counterfeiting amounts to an "exchange" of nothing (since Charlie hasn’t produced anything economically useful) for ten dollars, which is in turn exchanged for twenty tomatoes.

Consequently, by means of money, which was created out of "thin air," Charlie the counterfeiter can consume without any production. Note that the money here, which was created out of "thin air," is not supported by any production of useful goods or services. Or we can also say that here we have a case where nothing useful is exchanged for money and money is exchanged for useful things—nothing is exchanged for something useful by means of money out of "thin air."

By creating money out of "thin air," Charlie the counterfeiter has in fact boosted or inflated the stock of money. This inflation of money in turn has enabled Charlie to secure tomatoes at the expense of a genuine wealth producer John the baker. In other words, while John the baker has contributed to the pool of funding, i.e., the pool of final goods this is not the case as far as Charlie the counterfeiter is concerned—he is consuming final goods without putting anything useful to the pool of these goods.

 

[Toro]

RE: The Euro vs Dollar Conspiracy Theory: part II - "T

Toro, simple question:

If the 70% of USD reserves were to return quickly to the USA, would it cause massive inflation?

This question merely demonstrates that once again you do not understand how this all works. Reserves cannot be "returned." There is a mechanism for altering the composition of the reserve base, but Huck appears to not know what it is.

All you've done is told us about Bretton Woods, what the trade deficit is, etc., and offered some unusual explanation of the international monetary system. That's all you've done.

 

[Huck]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

Good question ITN, we had already covered this:

Toro, thank you for your reminder of Econ 101, by with all due respect, I believe your view remained overly simplistic.


Lets see:

First, the US only scenario:


If a country has a certain amount of money and prints more money, as you said the value will diminish by effect of dilution. This “may” cause the investors to be reluctant to invest in this country due to this. (note that the keyword is “may” and will be important later on). To stimulate investors, the banks will increase the interest rates, which will in turn increase inflation. So, here, you are right.


Now, let’s take the scenario of the USA and the world hegemony. Because of the hegemony we discussed above, world countries are more than willing to sell goods to the USA to get USD for commodities, local currency value and loans. So, in example, Canada will sell steel to the USA and get USD. If the USA print new money and use this exact amount to buy the steel, it could devalue the money. BUT, what happens is that this new dollar does not remain American wned (and devalues its own currency), it becomes Canadian money converted in USD. So, it is Canada’s (and assists in ensuring the value of the CAD). Plus, we must remember that the USA, now have steel. So, they can use this steel, to create goods which will then be sold for more money. In this case, world investors may not be as much afraid to invest in the USA and the interest rates will not need to rise. As long as this mechanism is maintained, the inflation will not occur. This mechanism is currently obvious as despite a trade deficit and high debt, the USA still remain fairly well and imports still keep rolling, as much as investors interest. Combined with the help of Asia buying us bonds, things are doing pretty well…

 

[Huck]

Re: RE: The Euro vs Dollar Conspiracy Theory: part II - &qu

This question merely demonstrates that once again you do not understand how this all works. Reserves cannot be "returned." There is a mechanism for altering the composition of the reserve base, but Huck appears to not know what it is.

All you've done is told us about Bretton Woods, what the trade deficit is, etc., and offered some unusual explanation of the international monetary system. That's all you've done.

Can you explain us how the creation of new money works (we know a country prints new money, please tell us how).

 

[Toro]

Re: RE: The Euro vs Dollar Conspiracy Theory: part II - &am

This question merely demonstrates that once again you do not understand how this all works. Reserves cannot be "returned." There is a mechanism for altering the composition of the reserve base, but Huck appears to not know what it is.

All you've done is told us about Bretton Woods, what the trade deficit is, etc., and offered some unusual explanation of the international monetary system. That's all you've done.

Can you explain us how the creation of new money works (we know a country prints new money, please tell us how).

Now, you tell me how reserves are "returned". Do they put the money in paper bags and ship them over on boats?

 

[Jay]

RE: The Euro vs Dollar Conspiracy Theory: part II - "T

You borrow it.

 

[Huck]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

http://en.wikipedia.org/wiki/Printing_money


The USD is a fiat currency, which means that its value is not backed by anything. Before, currency printed had to be backed by an equal amount of gold.

now, the USD is a fiat currency and has no real value. Only the value the world gives it. This is why the USA can "print as much as it wants". the value is in the eyes of the world and its value will diminush only if the money comes back to circulation.

 

[Huck]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

Toro: loan payments, oil purchase (commodities priced in USD), or imports FROM the USA.

 

[Toro]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

http://en.wikipedia.org/wiki/Printing_money


The USD is a fiat currency, which means that its value is not backed by anything. Before, currency printed had to be backed by an equal amount of gold.

now, the USD is a fiat currency and has no real value. Only the value the world gives it. This is why the USA can "print as much as it wants". the value is in the eyes of the world and its value will diminush only if the money comes back to circulation.

Every currency in the world is a fiat currency, and thus every country in the world can do the same thing.

"Returned"?

 

[Toro]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

Toro: loan payments, oil purchase (commodities priced in USD), or imports FROM the USA.

A central bank only deals in loan payments. It does not deal in oil or imports.

Who holds what loans, and what is the mechanism for altering the reserve base?

 

[Huck]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

Yes toro, this is why they buy and stock US dollars to value their own currency. If their currency falls in the market palce, they can buy it back with USD.

But, you knew that, right?

 

[I think not]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

http://en.wikipedia.org/wiki/Printing_money


The USD is a fiat currency, which means that its value is not backed by anything. Before, currency printed had to be backed by an equal amount of gold.

now, the USD is a fiat currency and has no real value. Only the value the world gives it. This is why the USA can "print as much as it wants". the value is in the eyes of the world and its value will diminush only if the money comes back to circulation.

Most currencies in the world have been fiat money since the end of the international gold standard of the Bretton Woods system in 1971. However, some of the major currencies today, despite being based essentially on arbitrary decree, have become so trusted that they are termed hard currency.

 

[Huck]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

Toro: loan payments, oil purchase (commodities priced in USD), or imports FROM the USA.

A central bank only deals in loan payments. It does not deal in oil or imports.

Who holds what loans, and what is the mechanism for altering the reserve base?

Lol, toro, what an economist

Countries must: repay loans. If this load is in USD< they will usually repay it with their US reserves.

Also, (independently), it must be able to buy commodities. Important commodities, such as oil priced in USD is better paid with USD. Again, paid from their reserve.

 

[Huck]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

ITN: what does that do to the topic?

 

[Jay]

Re: RE: The Euro vs Dollar Conspiracy Theory: part II - &am

What is it you do for a living, Huck?

Sorry, can't say that on boards...

Yes you can.

 

[I think not]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

ITN: what does that do to the topic?

The way you worded it made it sound as if only the US currency is fiat currency, thus implying an edge.

 

[Huck]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

ITN: what does that do to the topic?

The way you worded it made it sound as if only the US currency is fiat currency, thus implying an edge.

Ahh, hehe. sorry, no.

 

[Toro]

Re: The Euro vs Dollar Conspiracy Theory: part II - "T

Lol, toro, what an economist

Countries must: repay loans. If this load is in USD< they will usually repay it with their US reserves.

Also, (independently), it must be able to buy commodities. Important commodities, such as oil priced in USD is better paid with USD. Again, paid from their reserve.

Go back and look at my very first post, Huck.

You aren't getting this.

If a country is a net creditor to the United States, i.e. China and Japan, and China and Japan have lots of reserves like they do now, how do they alter the composition of their reserves? And what exactly composes the reserves held in US dollars by China and Japan?

Now, you tell me, if the world diversified from the US dollar, is it inflationary? (And I think I know how you will answer, and if I'm correct, you are wrong. And the reason why you are wrong are the dynamics which occur in the answer to the first question. It is another reason why the conspiracy theorists do not understand simple economics and capita flows.)

Second central banks do not buy commodities. Other organizations do.

 

[Toro]

RE: The Euro vs Dollar Conspiracy Theory: part II - "T

Oh, and we've already shown the US imports from OPEC account for 0.8% of GDP, and are thus a very small part of US capital flows.