October 6, 2013

Making money

The new $100 bill, with its additional anti-counterfeiting features
The $100 bill is an especially hot item on the global stage: The Federal Reserve estimates that one-half to two-thirds of $100 notes in circulation are abroad at any given time, making them one of the nation’s largest exports.

Remember how, before internationally usable credit cards, when you were about to travel abroad you first bought a bundle of American Express travelers checks? You told yourself that when you returned, you would take your unused travelers checks to the Amex office to get (most) of your money back. But, it turned out, you were tired from your trip so you just stuck them in a drawer, rationalizing that you were sure to travel internationally real soon now again so you'd just use them then. But, it turned out, you actually didn't get out of the country for several years, and by the time you did, you'd forgotten you had travelers checks sitting around, and even if you did remember, they were probably in one of those 8 still unpacked moving boxes of old vacation souvenirs and eight track tapes, so you just bought some more travelers checks from American Express. Meanwhile, interest rates were running 10% annually.

What a great business Amex had! Just sell people fancy pieces of paper for money. 

This is totally different from what the U.S. government does, of course. I think. But I have to say that I've never understood money at all. Trading salt for bullets in the Sahara is about as far as my powers of abstraction go when it comes to money. By the way, if you someday take the tour of the U.S. Bureau of Engraving and Printing in Washington, don't ask any of the employees if they ever have so much work to do that they have to take some of it home with them. They've heard it before.

I'm reminded of the scene in the 1984 movie The Killing Fields when Dr. Haing S. Ngor is making his escape from the Khmer Rouge. There's a close up shot of a roll of American $100 bills that will be essential in getting out of Cambodia. This was one of 1984's U-S-A! U-S-A! moments. It's hard to recall just how battered American economic self-esteem was after the late 1970s, but I spoke to several viewers at the time who felt like Sally Field accepting an Oscar: "You like it! You really like our paper money!"

Of course, most money doesn't exist in paper form, just in electronic notation. So, how much does it benefit America that the digital dollar is the reserve currency for, say, the oil trade? Former French president Valery Giscard d'Estaing argued that the U.S. enjoyed a sizable "exorbitant privilege." This Wikipedia article sums up various studies attempting to quantify this concept, but they make my head hurt.

But, the vague sense that a few insiders' heads must not hurt so that we'd all better do what they say, has vague but broad political effects. Because I, like most people, don't comprehend anything about reserve currencies, I find myself a sucker for those who intimate that they know just how uncountable are the benefits America gets from dollars being the reserve currency and that they know how to keep the dollar the reserve currency.

So, they imply, if the government were to prosecute Wall Street muckety-mucks, or tax billionaires more, or not build the F-35 flying money pit, or not bomb Syria, or not invite the world, or whatever violates this moment's DC-NY Economist-reading consensus ... well that would have catastrophic consequences that little me can't begin to understand. They obviously must understand things I don't, so who am I to question their plans to, say, build 10 new aircraft carriers?

86 comments:

Anonymous said...

In God We Trust should be changed to To God We Pray.

Dave Pinsen said...

You're in luck, Steve: the Internet is full of monetary experts these days. Some are sure to weigh in here.

Anonymous said...

Game of power is fought between not so much as left vs right or as progressive vs conservative but as aggressives vs passives, and the aggressives usually defeat the passives.
It's like a sports game with an aggressive team vs passive team will lead to victory of aggressive team.

In the case of aggressive vs aggressive, much of the outcome will rely on refereeing. If an aggressive team goes against another aggressive team and if the dishonest referee favors one team over the other, the aggressive team that is favored by the referee will win.

In politics, the referee is the media and the courts(largely dominated by Jews, homos, and Lib Wasps). We know courts don't enforce laws against illegals. We know the courts favor legal/open discrimination against white gentiles.
We know the media favors the Libs over Cons, favors Jews over whites, favors homos over straights.

Of course, skills are essential too, and it is true enough that the Lib side attracts the best talents from top colleges. Even red states try to draw the best Lib talents from best colleges to start businesses there.

But there is a lot of foul refereeing in the game of power. So, Cons are in a bad spot. If they are passive and 'nice', they lose to aggressive Libs. But if they're just as aggressive, they are called foul as 'mean', 'extreme',

Anonymous said...

Recently saw some film taken by a journalist who was somehow allowed into N. Korea. N.Korean taxi drivers take American money - even give change.

K

wren said...

I think it was a William Gibson novel in which the protagonists were tracking a shipping container of $100 bills around the world that had originally been sent to Iraq after the war to jump start the Economy.

I have since often wondered about all those pallets of bills sent to Afghanistan and Iraq and other places.

Mike said...

Travel tip: International banks will have a restriction on how old of a $100 bill they will accept. Let's say for example five years. So they won't accept any bill older than on '08.

They have no reservations about selling you a $100 bill that is older than what they will accept.

wren said...

Our government appears to be in league with the Chinese and Russians in dethroning the dollar as the medium of exchange for petroleum.

Whiskey said...

Reserve currencies only accrue to hegemonic powers. The Krona, Swiss Franc, Aussie and Canadian dollars are valuable but not reserve currency. Oil is not quoted in them. They are vulnerable to dumping.

Being a hegemon means military power. Otherwise the dollar is a supersized UK pound. Buying dollars is a bet on US power. Military decline means currency decline absent reordering the US to resemble Switzerland.

Anonymous said...

A friend pointed out that high denomination US bills are the currency of choice among criminal enterprises world-wide. These enterprises do not have enough social capital of trust that they can create and use their own electronic transfer systems. Instead, high denomination US bills provide an acceptable, verifiable way to track and record financial transactions that more legitimatre businesses do via electronic banking. But this means that most of this currency is never actually used for purchases or investments. It's essentially paper. On the other hand, it was originally a US promissory note. As a result the US is collecting a very large float on these uncirculated bills. Essentially the US federal government is making a large profit facilitating (other) international criminal enterprises.

Anonymous said...

Steve, it makes sense for the US to spend boatloads on those new carriers, since the Navy basically backs the US dollar.

http://churlsgonewild.wordpress.com/2011/02/24/travels-with-mullen/

"If behind the Australian dollar stands the power of the domestic state to impose and enforce tax obligations, behind the US dollar stands the Navy’s Fifth Fleet.

The US currency, like its Australian counterpart, is merely a certificate that can be rendered to the government as settlement for taxes due. It is an IOU, no longer convertible for bullion, etc.

The central banks of China and Japan don’t pay tax in the US. Yet they hold great troves of dollar reserves. This allows the US to afford massive quantities of imported manufactured goods and oil, far beyond its ability to export, and provides virtually unlimited funding for the international activities of the US armed forces.

Why is this? One reason lies in the wish of these exporting countries to keep their currency exchange rates competitively low.

But the deeper answer comes from the protection racket Washington runs with the rulers of Saudi Arabia, Kuwait, Bahrain, Qatar, Yemen, Iraq, Jordan etc. Military control over many of the world’s great oilfields, refineries, export terminals and shipping lanes is what secures the dollar’s status as global reserve currency.

It is widely known that, in the 1970s, officials from the US Treasury and State Department pressured the central banks and finance ministries of oil-exporting states (chiefly Saudi Arabia) to become massive holders of US Treasury securities.

OPEC governments were informed that oil prices could rise as much as desired (they had cheapened relative to grain) so long as they were denominated in US dollars, and so long as the revenues were disbursed in an agreeable manner. Oil funds were not to be converted into US corporate acquisitions, real estate or any hard assets. Instead, the Saudi government was to buy US-made military hardware: weaponry, armoured vehicles, fighter jets, helicopters, etc.

The result, four decades on, is that military expenditure makes up around 10% of Saudi GDP, a proportion easily among the highest in the world. Secondly, and above all, funds were to be invested in US government paper."

https://churlsgonewild.wordpress.com/2011/06/24/dollars-and-pence/

"[I]n July 1974 US Treasury Secretary William Simon, together with State and Commerce Department officials, pressured the central banks and finance ministries of OPEC states to convert revenue from oil exports into purchases of US Treasury securities outside the regular auction.

Through diplomatic, commercial and security arm-twisting, the Saudi Arabian Monetary Agency was dissuaded from what the CIA called a ‘modest diversification program’ of its foreign-reserve portfolio. Lack of cooperation, US officials reportedly told their Gulf allies, would be interpreted as an ‘act of war.’"

Matt said...

You'd think the Ford-class aircraft carriers would be a dramatic example of government profligacy. In fact, their $14 billion cost is printed by Helicopter Ben roughly every 5 days.

Anonymous said...

Universal aristocracy.

Anonymous said...

I like money...

But I like art better.

http://www.cnn.com/2013/10/06/business/record-asian-art/index.html?sr=fb100613lastsupper730p

Anonymous said...

In the early 1990's, I was in the army and travelled across France to see the Normandy beaches. It was a last minute decision: my plan was to stop by the ATM on base, get money, drive all night, spend the day at the beaches, spend the night at a hotel, check a museum on Sunday, and come home Sunday afternoon.

At the time, I had no credit cards (young, didn't think I needed them). The cash I got at the ATM was $100 bills.

As I drove all night across France, I was unable to spend my $100 bills-for gas, for coffee, etc. I assumed it was the middle of the night, those Frenchmen couldn't change foreign bills at 2 in the morning. So, I used my cash on hand (a few deutchmarks in my wallet, and some small bills in American money) and continued on my way.

When I got to the beaches, I learned the truth: there are so many counterfit $100 bills, they are not accepted (at least not at 2 am on the highway). So although I had about 300 dollars on me, I was effectively broke. I couldn't afford food, I couldn't buy a hotel room. The next day was Sunday: banks wouldn't be open, so I couldn't exchange my $100 bills for acceptable cash to get home to go to work Monday.

I milked my money (as I mentioned, cash in my wallet, as well as spare change in the car) all the way across France (which includes pretty high tolls for the highway) all night. Also as mentioned, after having driven all night before. I couldn't afford food. I was so worried about gas mileage, I left the heater off (it was November) and drove slowly (I think 50 or 55 mpg) to save gas. I did stop briefly at a rest stop and slept in the car, but continued on in a cold car at 50mph hoping to make it back to my base in Germany.

I made it.
Lesson: get a credit card. Don't trust $100 bills.



anon

sunbeam said...

Ok, I'll bite.

Whiskey wrote:

"Being a hegemon means military power. Otherwise the dollar is a supersized UK pound. Buying dollars is a bet on US power. Military decline means currency decline absent reordering the US to resemble Switzerland."

Those are grand sounding words, but what exactly do they mean?

I'm going to present an argument that has as it's base assumption one thing:

Nukes are unusable.

Now if for some reason the Russians or Chinese send the missiles flying over the North Pole, of course they are usable in a Gotterdammerung scenario, but I don't think that's happening because no one wants the consequences.

Now are we going to use Nukes to punish Iran? Are we going to surface a ballistic missile sub off of India, and tell their media to take a good look at our little friend? We going to use tactical nukes on the battlefield somewhere?

No we aren't. There are a number of reasons to my mind, but the biggest is that other people can play that game too. And no one really wants to play Russian Roulette. Cause if you do it, someone else is going to do the same thing to someone you like, or an allied country. And things are going to get real serious, real fast.

This ain't 1880 where no one really gave a damn if you used a Vickers gun to mow down some dervishes or other suitable wog.

I really think that's at the base of the thinking of people that use words like hegemon. They want it to be just like the good old days in the Sudan where the wogs didn't have the same population numbers, the same ability to afford to have a standing army with no other purpose than to kill other wogs that got out of line (they used amateurs in those days), comparable (or at least competitive) weapons, or indeed anything resembling an economy.

They just want it to be open season on the fish in the barrel forever. Then write memoirs and treatises on the Great Game, or The Influence of Sea Power on History, or maybe even "The World Island."

Things change though. An Afghan teenager that buys his bullets by the kilogram (and the scale proves it) then puts them in a paper bag can kill your special forces or blackwater op that literally millions of dollars have been spent training, supplying, and operating with one hell of a supply chain.

Besides it would make for a bad movie if the truth came out: A bullet just don't give a damn.

Well I'm digressing a little. But explain to me how Hegemon and military power work.

Say Brazil does something we don't like. We gonna send a gunboat? Fly B-52's over Rio? Seize an offshore oil rig? Put a hit out on their ambassador to Iran?

We got our own Flashman? Sure doesn't seem like we got many government/military guys with a sense of humor (or a personality). You out there Dan Senor?

How does it work exactly?

Military operations are strictly a sideline to the kind of military we have in this country. Their real purpose is something else, many something elses that satisfy many different interest groups.

Anonymous said...

Axe wielding gang of gypsies steal millions in jewelry in Paris:

http://www.dailymail.co.uk/news/article-2446571/Police-hunt-15-strong-gang-axe-wielding-raiders-1million-jewellery-robbery-Paris.html

"Police hunt for 15-strong gang of axe-wielding raiders after £1million jewellery robbery in Paris

Police believe Roma gypsy gang behind the heist, which saw £1million worth of watches stolen from Vacheron Constantin store, Paris, on Friday
Five Eastern Europeans in custody today following midday raid
Robbery saw two well-dressed men enter shop before holding doors open to crowd of hooded accomplices wielding axes and smoke grenades"

Mr. Anon said...

The British government re-introduced the gold sovereign in 1957, after a 40 year hiatus, because they were deemed important to HMG's foreign policy for paying off spies and bribing foreign officials and the like - particularly in the middle east, where gold is highly prized.

Anonymous said...

If anyone has ever argued that military spending is necessary to maintain the US dollar's status as the world's reserve currency, I haven't heard it.

Anonymous said...

Military decline means currency decline absent reordering the US to resemble Switzerland.

Most of us on this blog would rather like the US to resemble Switzerland.

Anonymous said...

http://www.theguardian.com/technology/2013/oct/06/big-data-predictive-analytics-privacy

Anonymous said...

"Most of us on this blog would rather like the US to resemble Switzerland."

Unfortunately, even Switzerland is going down diversity road.

I saw black police in Geneva and black guys pushing the refreshment cart on the train.

There are also quite a few Muslims in the country.


Have you seen the Swiss soccer team lately?

I still would rather live in Switzerland right now, but it isn't headed in the right direction.

Someone told me Vienna, Austria is getting bad too.

Glossy said...

If the popularity of US paper money with international criminals is such a boon for the US government, why doesn't said government make gangster's lives easier by issuing $1,000, $10,000, etc. bills? Who wants to lug around suitcases of money?

Maybe this is like Microsoft not caring about the MS Office user experience because there's really no competition.

ben tillman said...

Lesson: get a credit card. Don't trust $100 bills.

Another lesson: Running the heater doesn't use any extra gas.

Mike said...

Glossy,

The problem with helping out those criminals with $1,000 and $10,000 bills is that we peasants would benefit too. Can't have that.

Harry Baldwin said...

The US used to issue high- denomination bills. The bills, along with the presidents on them, were: $500 (William McKinley), $1,000 (Grover Cleveland), $5,000 (James Madison), $10,000 (Salmon P. Chase, sixth U.S. Chief Justice), and $100,000 (Woodrow Wilson). Can you imagine if the gov't put out a $10,000 bill today with arch-progressive Woodrow Wilson on it? Glenn Beck's head would explode.

A $100 bill 40 years ago would be equivalent to a $500 bill today, so one wonders why they don't re-introduce it. I think they don't for the same reason that they don't discontinue minting pennies, nickels, and dimes. Until 1857, the US had a half-cent coin, but discontinued it because its buying power had fallen too low. It was worth about what a dime is today. But if the gov't were to stop minting dimes, as well as pennies and nickels, it would remind people of how much the buying power of their currency has fallen, and maybe--worse--that it has only imaginary value in the first place. Everything depends on people continuing to believe in the value of the fiat currency and certain theatrical steps must be taken to ensure that, like making no radical changes in the denominations people are used to.

Sam said...

As a monetary non-expert it would seem to me that there are disadvantages to having a reserve currency. Sure it helps the financial types but raises the value of the dollar. That lowers our exports and kills the manufacturing sector. Oops... what was I thinking in America working type Men are evil. Lets print more dollars.

An oddly enough I happened to be thinking about aircraft carriers all day today. Thinking about how easy they are to sink. That lead me to thinking about how to make them submarines and how to afford them. The answer is concrete. Concrete is cheap. Low labor to pour. No skilled welding needed. Would it work? They've been making boats out of it for a long time. What about strength. I found this little ocean depth calculator,

http://www.calctool.org/CALC/other/games/depth_press

and it said at 3000 meters the pressure is 4388.37 PSI. Easy! Two building in Seattle were built with 19,000 psi concrete. Throw in some carbon and/or steel fibers for tensile strength and you're good to go. The propeller could be driven by an electric motor inductively coupled. Wouldn't have to have a shaft through the structure. Maybe even have a lot of directionally controlled propeller /fans like the submersibles have. With a low cost structure you could make it BIG. Land C-130's on it. It would have lots of ballast space so it could go most anywhere with a small draft.

Steve likes to think about population trends. I like to ...sigh...think about concrete.
Look at this great Fabric formwork concrete link. Wouldn't it make a great cathedral or aircraft carrier?

http://www.umanitoba.ca/cast_building/research/fabric_formwork/

Ex Submarine Officer said...

"Another lesson: Running the heater doesn't use any extra gas."

Assuming you aren't using the fan, it may even cause a slight (theoretical) gain in gas efficiency.

Randall Parker said...

The Chinese Navy is building ships faster than the US Navy is.

Also, the Chinese are building cheap UAVs that will probably be able to take out carrier battle groups.

NOTA said...

Anon 4:06:

It's not lack of ability or trust. Most governments go out of their way to prevent criminals from having effective banking systems of their own. Even with those efforts, plenty of dirty money gets laundered through the above-ground banking system, and there are banks that specialize in dealing with criminals.

Anonymous said...

"Nukes are unusable." - Exactly, he is talking about Carriers though. We can still use those to bully nations we don't like. Or rather the powers that be can provided the American people don't object.

"Say Brazil does something we don't like." - Well presumably we'd start agitating about the poor condition of the underclass there to build casus belli to act. Find some Evo Moralez analog to arm, etc. As soon as Brazil makes enough screwups(and thats a thing that human beings do) the hammer comes down. There are no shortage of conflicts around the world, and its only going to get worse. Likewise interventions will continue, provided again that the American people don't object.

Jeff W. said...

Money, like anything else that people trade, is subject to laws of supply and demand.

Because there is strong demand for the Yankee dollar all over the world, that increases the value of dollars, and that means that Ben B. can print more dollars without causing inflation.

Canada probably has only about 5% of the money printing capability of the U.S. If they try to print a lot of Canadian dollars, the value of the Canadian dollar would quickly plummet.

The U.S. is very much a money printing country. I'm sure that the people who manage the money printing operation know how much they can print without causing major inflation, and they also know how to spur demand for dollars so that they can print even more.

Jeff W. said...

By the way, the economic studies in that Wikipedia article don't seem to address the pertinent question: How much wealth does the U.S. grab for itself by printing money?

It would be interesting to see an answer to that question in absolute terms and in comparison with other countries. It's a simple question that can be answered with dollar amounts and does not require long dissertations filled with Greek letters and math symbols.

David Davenport said...

If anyone has ever argued that military spending is necessary to maintain the US dollar's status as the world's reserve currency, I haven't heard it.

The US dollar is upheld by US military power.

Auntie Analogue said...


So now our navy names an aircraft carrier - indeed an entire class of carriers - for an unelected president who was famous for falling down airstairs, getting beaned by a golf ball, pardoning gratuitously the only president ever to have resigned the office for having criminally exceeded his constitutional powers, and losing his only presidential election bid to Jimmy "Malaise" Carter. And this new carrier, this entire new class of carriers, our Dear Rulers will "pay" for with credit which they importune from Red China. Then our Dear Rulers will use these carriers to "project power" all over the globe except along our own southern border.

Oooo-kay.

Anonymous said...

So now our navy names an aircraft carrier - indeed an entire class of carriers - for an unelected president who was famous for falling down airstairs, getting beaned by a golf ball, pardoning gratuitously the only president ever to have resigned the office for having criminally exceeded his constitutional powers, and losing his only presidential election bid to Jimmy "Malaise" Carter. And this new carrier, this entire new class of carriers, our Dear Rulers will "pay" for with credit which they importune from Red China. Then our Dear Rulers will use these carriers to "project power" all over the globe except along our own southern border.

That's actually a pretty good summary of how money works today.

Anti-Democracy Activist said...

"The US dollar is upheld by US military power."

Then the dollar is doomed. Name a war the US has won since 1945. Not a draw, not an inconclusive armistice, but a win. And no, Gulf War One doesn't count - if you find yourself fighting another war against the exact same enemy a decade or so later, then you really didn't "win" the first time.

Anonymous said...

Basically, since Nixon reneged on the promise to redeem US dollars for gold, back in '71, the entire world monetary system has been f*cked-up and based on a lie. It's no accident that the oil crisis of 1973 followed hot-on-the-heels of Nixon's treachery - and the global economy has been a roller-coaster mess ever since.
1960s America thought it was rich and invincible, a society that the world had never seen before, but the costs of Vietnam, Apollo, the 'great society' etc proved that even the USA iis not immune from the law of supply and demand and hence the decison to renege on a solemn promise and overnight render currency worthless.
As I say it's all about supply an demand, the only 'law' in economics actually matters. Yes, all trade bills are settled in dollars (including oil), therefore the third world and others are deeply desirous of dollars. But even the dollar itself is only as worthy as its market value - the nations that do best, the ones with trade surpluses always but always end up on top in the currency game (eg Germany, Japan), simply because people wish to but that which they poduce. That's the long and short of it, no other explanation is necessary.

jody said...

didn't the mint just redesign the 100 like 5 years ago? or was that the 50? i figured their countermeasures were pretty good now, but i guess not. i guess the counterfeiting is getting better, not worse, since they are redesigning the bills far more often now than they did in the past. years between redesign seems to be getting shorter and shorter.

when i lived in vegas, one year i lived in this apartment where the guy in the apartment next to me did 7 years in federal prison for counterfeiting 12 million US dollars. he told me him and his crew only got to use them for a year or so before they got caught. i figure this was sometime in the early 1990s. he was a BMW mechanic now who also taught karate as a second job. interesting character.

it's kind of funny how i was interested in the secret service back in my younger, should-i-serve-my-country years. now i just consider them drones. secret service agents are tools. overbearing toolboxes protecting tyrants and shutting down free speech in their new 'no free speech here' zones. most of them are probably failed jocks who stalled out at the college level. 'To Live and Die in LA' is still a good movie though. and the secret service currency mission still offers more value than ATF or some other crap agencies which have no function anymore.

"The Federal Reserve estimates that one-half to two-thirds of $100 notes in circulation are abroad at any given time"

is this a required state of affairs if you want to have the global reserve currency though? or is it just a coincident state. does the holder of the global reserve currency have to run a trade deficit in their currency in perpetuity, always sending more units out every year than units coming in? or is that not necessary.

jody said...

"Remember how, before internationally usable credit cards"

remember how when you used credit cards at all, the sales guy brought out that carbon copy machine and did the 'chunk chunk' thing. now it's all instant telecommunications of electronic fiat dollars, which is one of the few situations in which the elimination of physical money has been an improvement. back in the 80s, teenagers were able to card (buy stuff with stolen CC information) using the very weak security offered by the existing CC transaction infrastructure.

i know i'm not expressing any deep insight here, but there's a reason the 100 is the largest bill. they don't want you using cash. if you could still get bills with higher denominations that would make it a lot easier to avoid the feds tracking your every move. even the EU still prints a 500 euro bill. the US discontinued bills above 100 decades ago.

if they could phase out cash completely, they would. they're working on it, anyway.

speaking of the US mint, why does the mint still coin the penny? since it is beyond dispute now that it costs more to coin a penny than a penny is worth face value. at least they discontinued that 1 dollar presidential coin fiasco from the GW bush administration.

Anonymous said...

Sunbeam : Things change though. An Afghan teenager that buys his bullets by the kilogram (and the scale proves it) then puts them in a paper bag can kill your special forces or blackwater op that literally millions of dollars have been spent training, supplying, and operating with one hell of a supply chain. Besides it would make for a bad movie if the truth came out: A bullet just don't give a damn.

More than a hundred years ago, Kipling made exactly the same argument in Arithmetic On The Frontier.

http://www.kipling.org.uk/poems_arith.htm

A number of commentators seem to think that it was the decison of Iraq to sell its oil for Euros rather than dollars which "provoked" the 2003 invasion. Iran also sells oil for Euros. I believe Libya was considering something similar before the recent unpleasantness.

Mr. Anon said...

"jody said...

when i lived in vegas, one year i lived in this apartment where the guy in the apartment next to me did 7 years in federal prison for counterfeiting 12 million US dollars. he told me him and his crew only got to use them for a year or so before they got caught. i figure this was sometime in the early 1990s. he was a BMW mechanic now who also taught karate as a second job. interesting character."

Only the federal reserve is permitted to debase our currency. They don't want any competition.

I agree about To Live and Die in L.A. Great movie. As you say, those feds one could kinda root for. When I see any other feds in movies, FBI in particular, I'm now inclined to root for the criminals. The FBI has always been rotten, root-and-branch, going all the way back to that tyrannical old degenerate, J. Edgar Hoover.

Mr. Anon said...

"Jeff W. said...

Because there is strong demand for the Yankee dollar all over the world, that increases the value of dollars, and that means that Ben B. can print more dollars without causing inflation."

There is inflation though. Have you bought a set of tires recently? Sometime in the last two years, tires doubled in price. Also, a lot of inflation has been masked by packaging. Cereal boxes are thinner. The cardboard-tube in many brands of toilet-paper role has increased in diameter (with the o.d. of the roll staying the same). One also sees it in restaurants. A barbecue joint in my town stopped serving beef, and they replaced the name-brand potato chips with crappy, no-name chips. A local chinese buffet hasn't raised their prices in 10 years............but they did stop serving beef and shrimp. Now they only serve chicken and pork (well, we hope it's chicken and pork).

Anonymous said...

when i lived in vegas, one year i lived in this apartment where the guy in the apartment next to me did 7 years in federal prison for counterfeiting 12 million US dollars.

I knew you were a prole.

Simon in London said...

Seems pretty simple to me - dollar is reserve currency because US economy is biggest. Everything else is ancillary. If/when the US economy is no longer the biggest, the dollar will cease to be reserve currency pretty quickly.

Farang said...

If anyone has ever argued that military spending is necessary to maintain the US dollar's status as the world's reserve currency, I haven't heard it.

Some things are both obvious and taboo in polite company (yes, not only black crime and Jewish overrepresentation). Do you think that Saudi Arabia would bother to sell its oil il US$ if it didn't need US military protection against its own people?

Jody wrote:
when i lived in vegas, one year i lived in this apartment where the guy in the apartment next to me did 7 years in federal prison for counterfeiting 12 million US dollars. he told me him and his crew only got to use them for a year or so before they got caught.
The guy was an amateur. I know: I worked in a French police unit specialized in counterfeit money for a year and a half, in the late 80's. Real pros print millions of banknotes in one weekend, usually in a small printing shop. If you printed, say, 10 million dollars, you sell them for one million dollars to professional criminals (preferably in genuine banknotes). You still make a HUGE profit. Then, before opening your printing shop for business as usual on Monday morning, you get rid of EVERYTHING that can be used against you as evidence. Be careful about what you do with one million dollars in cash, though.

The professional criminals sell the counterfeit dollar bills to several layers of criminals. Eventually, hundreds of poor schmucks will have counterfeit dollar bills which they paid as much as $80 each. Most of the time, those guys are repeat offenders, and just one step away from homelessness. Then the schmucks buy $1 hamburgers with $100 notes (or 100 euro notes, depending on the country) and the $19 change is their profit. The schmucks favor burger joints, because : a) the students who work there are underpaid and couldn't care less. They don't bother looking twice even at $100 bills, b) employees don't stand behind the same cash register all day long. At the end of the day, when the manager notices that there's a counterfeit banknote in the cash box, it's impossible to know who accepted it. That's one of the reasons why the cashiers don't care: it isn't their money, and they shall suffer no consequence. Shopkeepers are more wary, because they own the business, and a fake $100 bill is a $100 loss. Well-trained personnel identify counterfeit currency immediately.

When someone gets arrested, it's the poor schmuck, who's so far down the criminal food chain that he doesn't know the name of the big villain who pulled the strings. Nevertheless, counterfeiting is a dangerous business, because police wiretap known offenders preventatively, and there are lots of snitches in the underworld. The police always try to catch the offenders in action. Once the money is printed and sold and re-sold, it's too late.

We often worked with American colleagues, the US $100 being the most counterfeited currency in the world, sometimes with government protection (as in Iran and North Korea). One of them, I think he was from Philadelphia, told me that he enjoyed working on counterfeit money, because it was too complicated for blacks, and he didn't like working on black criminals. For cops, it's easier to work on criminals who share the same cultural background as themselves.

Jody wrote:
i know i'm not expressing any deep insight here, but there's a reason the 100 is the largest bill. they don't want you using cash. if you could still get bills with higher denominations that would make it a lot easier to avoid the feds tracking your every move.
The real reason is that when you pay something in cash, bankers make no profit. When you pay something with a credit card, they do.

Oswald Spengler said...

Is it just me or does US currency, with each iteration, look increasingly like old fashioned food stamps?

However, it does seem all too appropriate...food stamp currency for a food stamp nation.

Anonymous said...

Slightly off topic, but why on earth does the US dollar always have to be in green ? When the guys who created the first dollars and only picked green as the colour what were they thinking ?

I can understand that this will likely never change now because of tradition, but even the most chest thumpingiest of USA USA chanter should agree that it is stupid to have only picked one single colour.

Anonymous said...

You do a really good job pretending to be as dumb as your regular commenters, Steve.

josh said...

It would seem fairly straightforward to say that the exchange rate between dollars and other goods depends on the relative supplies and demands for dollars and goods respectively. If you have to buy your oil in dollars, this would create demand for dollars. Hence, you can buy a lot of stuff for a dollar. Also, US "real" GDP would plummet if, say, oil and the like were denominated in Yen.

Anonymous said...

RE:large denomination bills.

There is a EUR500 note worth $650-$700 and sky doesn't fall. Most shops do not accept larger than €20-€50 bills though.

Anonymous said...

Yeah, Wren, it was Gibson's Spook Country. I think the novel also had the line about the $100 bill being the international currency of bad shit.

NOTA said...

If the dollar is upheld by military power, then why wasn't the Soviet Union's currency ever a competitor as the world's reserve currency? They were a serious competitor for the world's most powerful military for decades, after all. But if you didn't want to buy weapons, all they could sell you was a bleak, concrete version of socialist "prosperity," so their currency wasn't sought after.

Anonymous said...

>I have since often wondered about all those pallets of bills sent to Afghanistan and Iraq and other places.

$6Bn+ CASH was missing then wasn't, there's nothing to see, move on

Anonymous said...

If you want to understand the major fault of the current global monetary regime, read Jacques Rueff, economic advisor to De Gaulle, - in particular "Deficits without tears". Although, he wrote this during the gold exchange standard, the arguments still hold with today given the perfectly elastic currency regime that the world has adopted.

In effect, while other countries have to earn their hard currency for global purchases in dollars, such as oil, the US has only to manufacture it, either electronically or by printing.

The Anti-Gnostic said...

I'm with you on this, Steve-o. I have no idea how you can print up $85B a month and buy your own debt with it. I would have thought your creditors would be laughing and tossing your money back in your face.

Maybe some iSteve commenter can explain.

Anonymous said...

Anonymous @ 4:10 speaks Truth.

Jubilee said...

The easy explanation:

Because it is in demand to facilitate trade, the reserve currency has value as a commodity in itself. In short, foreign countries trade goods to the US for dollars. i.e, they trade real things for dollars, not for other real things.

It is estimated that 40% of US imports are not "paid for" by real goods. i.e., 40% of imports are essentially free, dumped into the American economy to attain dollars.

Thus, we can run gargantuan trade deficits and fiscal deficits. If the USD/FRN was not world reserve currency, we would have to balance our trade account and fiscal account immediately.

The over-valued dollar is also the driver of economically-motivated immigration to America.

Dave Pinsen said...

Maybe it would be simpler separate two questions: what makes a currency valuable, and what makes it a reserve currency.

Some commenters seem to overstate the impact of military strength. It seems to me that military strength supports a currency's strength only to the extent that it supports national sovereignty. If a country is at risk of getting conquered, it's currency won't be worth much. But in this context, Switzerland's citizen militia (and mountainous borders) count for as much as our aircraft carriers. I don't think the Swiss franc would go up in value if Switzerland doubled its current spending on arms.

Other factors that support the value of a currency:

- rule of law
- government stability
- desirable real estate

Switzerland has all that, as does the UK, and the US. Think about it from a billionaire's perspective: where would you want to have a house? Somewhere with nice amenities but also somewhere where you're not worried about the government confiscating your wealth or being replaced by a junta anytime soon that might.

Russia and China both have strong armed forces but weak rule of law, which makes their currencies less attractive.

Now, to be a reserve currency, you probably need all of the above (rule of law, government stability, desirable real estate) plus economic size. The only two contenders now would be the dollar and the euro (the EU economy is larger than that of the US), though the EU's political stability is somewhat uncertain.

Anonymous said...

"A number of commentators seem to think that it was the decison of Iraq to sell its oil for Euros rather than dollars which "provoked" the 2003 invasion. Iran also sells oil for Euros. I believe Libya was considering something similar before the recent unpleasantness."

Yep, drop the dollar for your oil sales and your sky will darken with cruise missiles.

Anonymous said...

http://movies.yahoo.com/news/sandra-bullock-george-clooney-gravity-soars-record-breaking-143806632.html

As with Life of Pi and Twilight, this is encouraging. Non-mindless-junk becomes big hit.

Anonymous said...

This person is certainly making money off the various wars:

http://www.bloomberg.com/news/2013-10-06/supreme-owner-made-a-billionaire-feeding-u-s-war-machine.html

Glossy said...

"...there's a reason the 100 is the largest bill. they don't want you using cash. if you could still get bills with higher denominations that would make it a lot easier to avoid the feds tracking your every move."

This theory sounds plausible to me.

Anonymous said...

David Davenport said...If anyone has ever argued that military spending is necessary to maintain the US dollar's status as the world's reserve currency, I haven't heard it.

"The US dollar is upheld by US military power."

That is not an explanation or an argument. It is a baseless assertion.

pat said...

Maybe you really don't understand money. I don't understand aircraft carriers.

Just what are we doing with all the damn carriers? A quick peek in Wikipedia tells me that ten nations have carriers. Italy surprisingly has two. Both of which are non-nuclear and rather small. Everyone else only has only one. Russia has one, China has one, Britain and France each have one.

The number three and four economies - Japan and Germany don't have any.

We have 19 and most of them are nuclear. And most are much bigger ships than those of other countries. Yet we have plans to build even more. India which has one small carrier has plans for two more smallish carriers. No other nation has any carrier construction planned.

Are we in an arms race against India?

The year before last I celebrated New Years on the USS Hornet. They had a forties style dance band in the big area under the flight deck. This ship is older than I am but it is still the third longest carrier in the world outside of the other US carriers. One wonders why we don't just spruce it up a little and put it back to sea. China, Russia and France have bigger carriers - no one else.

Maybe we should give it to Britain so that they would have a full size carrier. Or just give it to me so that I could be a major world naval power. I'd be the first on my block.

Albertosaurus

Anonymous said...

For the most part, using the heater doesn't hurt your gas mileage - either the waste heat from the engine will be dumped to outside via the radiator in the front or it will be dumped to a 2nd little radiator under the dashboard called your heater core. But there is plenty of waste heat that has to be disposed of so your engine doesn't melt, so the heat is "free".(BTW, if your car is ever overheating on a hot day, turn ON the heater, on HIGH and it may help (though you will roast)).


Of course if you want to feel any significant amount of heat you have to use the blower fan - THAT uses electricity which in turn increases the load on your alternator which uses gas (but really not that much).

Someone said that using the heater might improve your mileage. How? I think that's pretty much impossible.

In any case, even in the old days, I dunno why anyone would have traveled to France with only US $100 bills. Either you changed for francs or you got travelers checks (in books of small denominations so they were easy to cash as needed) so this was a stupid move even then.

Dave Pinsen said...

"Basically, since Nixon reneged on the promise to redeem US dollars for gold, back in '71, the entire world monetary system has been f*cked-up and based on a lie. It's no accident that the oil crisis of 1973 followed hot-on-the-heels of Nixon's treachery - and the global economy has been a roller-coaster mess ever since.
1960s America thought it was rich and invincible, a society that the world had never seen before, but the costs of Vietnam, Apollo, the 'great society' etc proved that even the USA iis not immune from the law of supply and demand and hence the decison to renege on a solemn promise and overnight render currency worthless."


There's a line in Bonfire Of The Vanities where a bond trader says the (US Treasury) bond market has been sinking since the Battle of Midway. But right about when Tom Wolfe wrote that, that reversed, and there's been a huge bull market in US Treasury bonds since. Remember that bond yields move inversely with bond prices and look at how the 10 year Treasury yields have dropped since the early 1980s.

If bond investors thought the value of the dollar was going to rapidly erode via high inflation, presumably, they would be bidding up the yields (and bidding down the prices) of US Treasury securities to compensate for that. And indeed some financial pundits have predicted for years that this is inevitable. Hasn't happened so far though.

David Davenport said...

If a country is at risk of getting conquered, it's currency won't be worth much.

True. That's why it's good that the USA can't be conquered except by swarming immigration, excuse me, a swarm of infiltration.

If foreigners decide not to buy Treasury bills, the long term consequence is all to the good. America will become self-sufficient in manufacturing again.

But in this context, Switzerland's citizen militia (and mountainous borders) count for as much as our aircraft carriers.

Switzerland wouldn't be ablt to defend itself against a serious invader. The Nazis didn't invade Swissland because the Swiss basically played along with the Berlin regime. And weren't Goering and some other big wigs stashing money in Swiss banks during the war?

... Money Goering was skimming from his own regime. Outright takeover of Swissland would have been problematic for some of the big National Sozialists.

If the dollar is upheld by military power, then why wasn't the Soviet Union's currency ever a competitor as the world's reserve currency? They were a serious competitor for the world's most powerful military for decades, after all.

They might have been a serious competitor, but they weren't #1. To quote the late Osama B. L., "When people see a strong horse and a weak horse, they want to go with the strong horse."

But if you didn't want to buy weapons, all they could sell you was a bleak, concrete version of socialist "prosperity," so their currency wasn't sought after.

There you've sort of answered your own question. A bleak, concrete version of socialist "prosperity." -- Obamacare, or something similar.

If you had to choose between banking in Moskva or with an American bank or some European bank under the American military aegis -- including Swiss banks, you wouldn't pick Soviet.

We have 19 and most of them are nuclear.

Wikipedia says:

Name: Nimitz-class aircraft carrier

In commission: 3 May 1975

Preceded by: Kitty Hawk-class aircraft carrier and
Enterprise-class aircraft carrier

Succeeded by: Gerald R. Ford-class aircraft carrier

Subclasses: Theodore Roosevelt class and
Ronald Reagan class
In commission: 3 May 1975

Planned: 10
Completed: 10

Active: USS Nimitz (CVN-68)
USS Dwight D. Eisenhower (CVN-69)
USS Carl Vinson (CVN-70)
USS Theodore Roosevelt (CVN-71)
USS Abraham Lincoln (CVN-72)
USS George Washington (CVN-73)
USS John C. Stennis (CVN-74)
USS Harry S. Truman (CVN-75)
USS Ronald Reagan (CVN-76)
USS George H.W. Bush (CVN-77)


Current plans are for the USS Nimitz to be retired in the year 2020 or thereabout.

USS Ford is not yet active, so we have ten aircraft carriers, all fission powered. Wasp-class amphibious assault ships are not counted as aircraft carriers.

My own opinion is that big aricraft carriers are the dreadnoughts of the 21st century. That's not a compliment.

geoff said...

the us dollar is the world reserve currency because if you act like it isn't you get Quaddafi'ed by us military.

David Davenport said...

This ship is older than I am but it is still the third longest carrier in the world outside of the other US carriers. One wonders why we don't just spruce it up a little and put it back to sea.

Let's suppose some former US Navy sailor is the third tallest sailor of the 20th century. Why not just spruce that old boy up a bit and send him back to sea, instead of some younger sailor-person. Never mind if his joints are a wee bit arthritic and his heartbeat a little irregular.

Wouldn't that be a good idea?

Dave Pinsen said...

"Switzerland wouldn't be ablt to defend itself against a serious invader. The Nazis didn't invade Swissland because the Swiss basically played along with the Berlin regime. And weren't Goering and some other big wigs stashing money in Swiss banks during the war?

... Money Goering was skimming from his own regime. Outright takeover of Swissland would have been problematic for some of the big National Sozialists."


Invading Switzerland was on Nazi Germany's to-do list, but they didn't get around to it, and one of the reasons why they didn't is because Switzerland would have been hard to conquer.

Dutch Boy said...

"reordering the US to resemble Switzerland."

At last Whiskey has a good idea!

RS said...

> But even the dollar itself is only as worthy as its market value - the nations that do best, the ones with trade surpluses always but always end up on top in the currency game (eg Germany, Japan), simply because people wish to but that which they poduce. That's the long and short of it, no other explanation is necessary.

There's no good or service in this world quite like not having your women raped, and then you get shot. And next to that, light sweet crude at a high EROEI.

These are some of the most interesting questions.

I've seen some people argue that it doesn't matter what oil is denominated in -- that this doesn't create demand for $ that wouldn't exist otherwise. Madness. Oil is important and its price fluctuates, therefore if OPEC takes dollars you need to stockpile dollars and/or oil, or be ready to do without or pay an undesirable exchange rate should one ever crop up. Case closed.

Of course, if that were /enough/, we wouldn't have the Saudi sovereign wealth fund (allegedly) 'obliged' to buy US arms and US T-bills.

But PRC (and Japan) also buy tons of T-bills. I'm not exactly certain why. (PRC also buys mountains of gold which seems to make sense.) That is surely the more confusing part of the equation. But at the end of the day I do think a certain 'tribute' is - probably - paid to the USA through dollar hegemony. There are various grades of this theory. John Michael Greer seems too maximalist on this for me: Japan and Western Europe seem fine wealth-wise, so obviously unless we are voluntarily giving them part of the tribute, then said tribute can be only so vast. Granted, those are pretty much high-IQ high-C countries, and the USA is, relatively, not really such a country lately. They have some demographic age inversion problems, we have some nice economies of scale, we have more natural resources than Japan or W-Europe, so it's not so clear how one would make a comparison... but yes I do think we might be a little poorer than the Dutch without the 'tribute' that comes from quasi-owning OPEC, Qatari gas, and other such things.

If the dollar is partly or largely backed by power . . . well, that ain't gonna last forever if our relative power is declining. There are other powers in this world. We probably aren't going to be nuking each other's homelands (hopefully). So basic game theory tells you we cough up control over some of the high EROEI energy to others who are increasingly able to project force.

RS said...

> one of the reasons why they didn't is because Switzerland would have been hard to conquer

Undoubtedly true given topography, and I'm not sure how much was there other than money. Which in certain situations ain't worth much. They needed oil, coal, food, and iron -- lots. But I'm not sure who they had to buy things from, necessarily.

David Davenport said...

Here's August, 2013 text and video of F-35B's and V-22 tiltrotors operating from the USS WASP. The Wasp is an amphibious assault ship, not an aircraft carrier.

Anonymous said...

They have no reservations about selling you a $100 bill that is older than what they will accept.

So how did they get the $100 bill in the first place? Unless they had been hanging on to it for ages of course.

Anonymous said...

Another lesson: Running the heater doesn't use any extra gas.

But it must be using some electric power and thus is going to use some a little extra gas.

Anonymous said...


"In any case, even in the old days, I dunno why anyone would have traveled to France with only US $100 bills. Either you changed for francs or you got travelers checks (in books of small denominations so they were easy to cash as needed) so this was a stupid move even then."

As I said, a last minute decision. I worked Friday, stopped at the ATM after work, went to sleep, woke up at midnight, and left.

anon

jody said...

" knew you were a prole."

LOL i lived in that apartment for 6 months and now i'm a prole? let's see you buy a house in las vegas in 2005. that's right dead in the peak of the biggest housing bubble in history, in one of the cities (THE city?) with the biggest bubble in the nation. house prices were going up 5000 bucks PER WEEK in the summer of 05.

it's MIND BOGGLING how much the values of those houses crashed in 2008. we're talking MORE THAN 50%. good luck being upside down on one of those loans, and being a middle class european american who pays their taxes. that's exactly who the banks and government go after if you try to walk away from the house once the loan gets out of control. the other people get to just walk away, but oh ho ho, you don't, whitey.

"The guy was an amateur."

LOL they did not print 12 million dollars then slowly and steadily buy stuff with it directly. they turned the bills over via whatever their scheme was, but eventually it got back to them. it usually does. the feds traced the bills back to them, found the source and busted their ring.

"The real reason is that when you pay something in cash, bankers make no profit. When you pay something with a credit card, they do."

credit cards were not in common use back when large denomination bills were removed from circulation in the US. people mainly used cash and checks back then. heck, the US was still on the gold standard when big bills were dropped.

it's all about eliminating cash transactions which they can't track and tax.

"Slightly off topic, but why on earth does the US dollar always have to be in green?"

greenbacks. before that, paper bills came in all different sorts of colors.

"If the dollar is upheld by military power, then why wasn't the Soviet Union's currency ever a competitor as the world's reserve currency?"

they didn't win at bretton woods.

RS said...

> If bond investors thought the value of the dollar was going to rapidly erode via high inflation, presumably, they would be bidding up the yields (and bidding down the prices) of US Treasury securities to compensate for that. And indeed some financial pundits have predicted for years that this is inevitable. Hasn't happened so far though.

Can't argue with that. But how to view the gold boom paradox?

I guess one way it might not be a paradox is if you think the dollar is a good investment but has a very low probability of a high-magnitude wipeout, hence is an investment you really want but also one you want heavy insurance on. Ie you think the T bill is either a really great think to hold or a really terrible thing to hold, with not much probability density in between.

RS said...

> Of course if you want to feel any significant amount of heat you have to use the blower fan - THAT uses electricity which in turn increases the load on your alternator which uses gas (but really not that much).

At a modest setting, I would guess a few mL per hour, thus maybe ~4 cent at today's prices. After all a gasoline blower, albeit without the waste from converting to electricity first, will blow like a hurricane for an hour on some hundreds of mL.

There's rather a lot of energy in chemical substances, including food, more than one might readily appreciate. You don't really see it when filling a car's tank, since of course the work of accelerating the ~1,500-kg car is so staggeringly enormous but is no skin off your hide. Using a weedeater or chainsaw kind of brings the point home. Thing will run for a whiiiile..... and surely the chainsaw making a 6-mm cut is blowing through way more energy than you would use making a 1.5-mm cut with a handsaw.

Also the fact that a fairly vigorous aerobic workout of modest duration burns some ridiculously small amount of calories, like about a granola bar or something. The effect of exercise on obesity is obviously one of metabolic-hormonal normalization, it has almost nothing to do with 'burning off' what amounts to 15 mL of cheddar cheese, three slices or something.

Of course if you ride a bike 100 miles at a serious clip with some hills, or do hard labor for eight hours, /that/ will admittedly require some noticeable excess food intake.

RS said...

>> "If the dollar is upheld by military power, then why wasn't the Soviet Union's currency ever a competitor as the world's reserve currency?"

> they didn't win at bretton woods.

They had power, lots (still had 10M men under arms in '45) but
1. their homeland and empire were 50% smoking rubble
2. they remained potentially subject to invasion by other powers, where the US homeland has not been for a long time
3. they were politically wild and crazy in hugely conspicuous ways

If you hold much of your wealth in a currency whose country gets invaded, or gets politically revolutionized by a bunch of wackos, or has some major crisis (which has often gone hand-in-hand with grave inflation, going back 2000 years+)... you lose.

It's really the /combo/ of power, power projection, regime stability, economic-monetary sanity, safe homeland, etc.

Even if USSR never got deeply invaded, suppose it got in a war with China in 1955, or '65. The Chinks are quite able to kill and be killed, as they proved in Korea and indeed other times in history. The US could get in a war with China in 1965, but unless the lower-48 got deeply invaded, it wouldn't ravage the USA homeland nearly as much as a similar war would mess up USSR if USSR got in that war.

RS said...

> So how did they get the $100 bill in the first place? Unless they had been hanging on to it for ages of course.

They probably got it from some bank-ish entity that probably has some kind of counterfeit insurance and/or detection experts. You don't.

David Davenport said...

How to Sink an Aircraft Carrier

Sam said...

Having your currency being the world reserve is the type of thing any establishment would welcome because it is simply too powerful to turn down. But it is inevitably corrupting and will disrupt and hurt the non-connected people.

It is like the ring in Lord of the Rings.

Basically the world subsidizes the worst aspects of the American economy and their empire. The government doesn't have to make hard choices and the public doesn't care.

Johnsons guns and better is the perfect example of the corruption caused by having the reserve currency. France stood up and demanded gold for the inflated dollars and this started the break down of Bretton Woods and the last link to gold. If you give a person the rights to the printing press don't be surprised when they uses it. So far America can rely on the world having found a suitable replacement with Euro proving a poor choice. Until then America can basically coast.

RS said...

> There is inflation though. Have you bought a set of tires recently? Sometime in the last two years, tires doubled in price. Also, a lot of inflation has been masked by packaging. Cereal boxes are thinner. The cardboard-tube in many brands of toilet-paper role has increased in diameter (with the o.d. of the roll staying the same). One also sees it in restaurants. A barbecue joint in my town stopped serving beef

Plus, just look at consumption figures vs time. Meat. (By weight, I mean, not money spent.) Kinds of meat. Car miles driven. (Car miles driven for non-remunerative purposes would be even better.) Gasoline.

Prices vs time. Average rent. Gasoline.

Read Devin Finnbar on consumer price index and real GDP. He convinced me it is all near-worthless, except for (synchronic) nominal GDP. Too many adjustments that are too questionable. Might as well not even look at these numbers at all.

Stuff like meat has caveats or confounds of its own. Consumption of it might rise or decline for various reasons. Still, looking at a bunch of different concrete things and getting a subjective sense of things with your own senses, is better than the pseudo-objective indicies.

For detecting fine trends, that is. Obviously, if you want to look at the rise of Japanese GDP during the 60s, it is so large that +/-5% error doesn't make much difference. If Greek GDP/head is off 30% from 2008, that is a meaningful statement -- seeing as there, again, 5% error, or even five-percentage-point error, does not suffice to invalidate very much of the meaning of the statement.

Anonymous said...

Steve:

Its all rather simple when you stop and think about it and blow away the smoke of confusion.

The government spends a certain amount of money which ultimately goes to US residents and corporations, and also extracts a certain amount of taxes which come from US residents and corporation.

If it spends more than it takes in, the private sector is gaining money (= wealth). If it spends less than it takes in, the private sector is being squeezed and losing money.

The net surplus to the privte sector accrued by government deficit spending is monetized into private cash which is either saved (= invested) or spent on imported foreign goods in excess of exports.

Even when running a surplus (as in 1997 to 2001), a trade deficit can occur from the private sector dipping into its accrued savings and capital gains from asset appreciation. There is of course a limit to that, which is why the budget cannot be balanced or in surplus for very long without hurting the standard of living.

As noted, the American Dollar is the world reserve currency in trade (meaning that account balances between countries for an imbalance in trade are generally settled in dollars to avoid countries getting stuck with some loser currency like Mexican Peso's). This means that countries are constantly buying and selling dollars and converting them back and forth from their own currency to facilitate their foreign trade. In essence, the dollar performs the role previously played by silver and gold.

A handful of other currencies have some intrinsic desirability because of the country's production of desirable natural resources, food, stable government, rule of law, and profitable financial instruments. In the former category are resource/food exporters like Canada, Australia, South Africa, Chile, and New Zealand. In the latter category of financial investments are the UK and Switzerland. Lastly, two industrial economies have desirable currencies because of their high quality export goods - Germany and Japan.

By rights, the Russian Rubble should be a desirable world currency given the riches of Russia. That it is not is a testament to just how screwed up that country is.

China on the other hand is on the wrong side of the currency battles. No one wants Yuan, and China must earn foreign currency in US, Australian, and Canadian dollars to buy the natural resources needed by its economy to function. In essence this leaves China's masses slaving away paying tribute to us and our allies through their labor in exchange for little bits of paper with funny green ink.

Additionally, the world oil market is priced in dollars, such that all imports of oil are paid directly with dollar currency. Also, many of the larger oil exporters in the Gulf, and also Ecuador and ahandful of other countries use the dollar as their currency. In order to get oil from these countries, other countries must obtain dollars. The only source of dollars is from selling things to the residents of the US in exchange for their surplus dollars resulting from government deficit spending.

In essence we get more goodies from government than we have to pay for, and a steady flow of goods produced by the world's labor for scraps of paper with funny green ink. What's not to like?

Now the final bit of this equation is what countries do with their surplus dollars. We of course make government bonds available as a convenient investment promising to pay them even more surplus dollars. We also have a conveniently liquid stock and real estate market, where additional money inflow means higher valuations on housing and stock portfolios.

If you view it overall, its a win, win, win all around for Americans.