Diluting Currency by printing Money - Damaging Australian Economy

[tech/a]

Continued US money printing which dilutes its value and hence its debt is the aim of the US FED.

But Australia bears a brunt with a high AUD and diminishing export market.
Foreign goods look even more inviting.
China --- linked to the USD becomes even more attractive as the US keeps printing $$s.

Our Manufacturing/Tourism/Mining/and of course car industries are all feeling the brunt.
With the EUROZONE contemplating the same measures it isn't going to get better for Australia in the for foreseeable future.

The end result will eventually come and it may well be years off.
Where the US and EU find their currencies of little value and their
retirees not that happy that their nest eggs are of little value.

 

[VSntchr]

I guess the big question is - How do we positon ourselves to best protect ourselves and our interests.

Long-term is this where we should be/want to be/can be living?
Should we be short/long certain currencies?
What should we be gaining/reducing exposure to?
What asset classes?

The big questions to which the answers will provide the profits over the next 10 - 20 years??

 

[prawn_86]

Where the US and EU find their currencies of little value and their
retirees not that happy that their nest eggs are of little value.

Only internationally. The values of goods and services within their own country are unlikely to change too much. The Fed has been printing for 5+ yrs now and prices in the US have hardly changed

 

[CanOz]

I'm stunned you didn't mention Japan. Thier planned JGB re purchase plan is bigger than the US when compared to GDP.

They've opened the flood gates.

CanOz

 

[FlyingFox]

I guess the big question is - How do we positon ourselves to best protect ourselves and our interests.

Long-term is this where we should be/want to be/can be living?
Should we be short/long certain currencies?
What should we be gaining/reducing exposure to?
What asset classes?

The big questions to which the answers will provide the profits over the next 10 - 20 years??

Yes this is the million dollar question. Traditionally, precious metals flourish in this scenario but we have been almost completely weaned off of them in western society.

Currencies are a mixed bag. Some like the yen will be easy (having said that they have now openly published their plans so I don't know how the market has factored this in). Some like the AUD will be tricky.

Also traditionally any asset class that produced an income and was reasonably scarce would go up in value as the currency depreciated if not for any other reason than that debt would be smaller. However we are quickly approaching an era of low demand due to high debt and slowing population growth not to mention a few asset bubbles around.

Only internationally. The values of goods and services within their own country are unlikely to change too much. The Fed has been printing for 5+ yrs now and prices in the US have hardly changed

True. Imported good will go up in price but wages will not keep up. Also in the US case the money is still in the banks (or still in the reserve earning the banks a nice interest?) as they are still not lending like they used to.

I'm stunned you didn't mention Japan. Thier planned JGB re purchase plan is bigger than the US when compared to GDP.

They've opened the flood gates.

CanOz

I don't think they have much of a choice.

 

[craft]

Continued US money printing

This is a graph of US money supply to GDP. Is this the money printing you are referring too?

 

[craft]

Diluting Currency by printing Money - Damaging Australian Economy.

This is the above US money supply/GDP graph overlayed with the AUS/US exchange rate. There doesn’t seem to be any historical correlation to my eye.

 

[sinner]

This is a graph of US money supply to GDP. Is this the money printing you are referring too?

View attachment 51737

If the Government is in a budget deficit and the current account is in deficit and the trade balance is in deficit, then Government spending over taxation (definition of budget deficit) has to be funded from elsewhere. It's an unequivocal fact that currently the US Gov is being funded in large part by net new issuance of Treasuries, purchased in majority by the Fed. Since the Government consumes (does not produce) then all Govt spending eventually makes its way into the real economy for goods and services as consumption.

QED.

 

[craft]

This is the full data set for US Money Supply to GDP.




When demand is outstripping supply, monetary policy works like pulling on a string. When supply outstrips demand it flips to be like pushing on a string.

Last time the demand/supply balance flipped in 1929 it took up to and including WW2 before the excess supply was absorbed and the liquidity had to be drained.

Money supply is a symptom not a cause of imbalances in the global economy – and that imbalance is too much supply which is directed at consumer bases without the demographics or productivity to afford it.

 

[sinner]

When demand is outstripping supply, monetary policy works like pulling on a string. When supply outstrips demand it flips to be like pushing on a string.

From
http://fofoa.blogspot.com.au/2011/04/big-gap-in-understanding-weakens.html

The value of money, like everything else in life, derives from supply and demand. There are two distinct entities that each control one side of the equation, kind of like a tug-of-war. The printer controls supply and the marketplace controls demand. A tug-of-war is actually an apt analogy. When demand for a currency spikes its price, the printer just eases his grip on the rope, releases more rope and the whole demand side just falls on its butt.

We saw this with the yen after the earthquake and with the dollar a little over a year ago. With a fiat currency, this is the way it works. No matter how hard demand pulls, if the printer doesn't want the price of the currency to spike all he has to do is release more rope. It's his ace in the hole. He can always send the marketplace to its butt. The printer is firmly in control of the supply side.

But in the same way that the marketplace has no control over the supply side, the printer is powerless on the demand side. ANOTHER alluded to this years ago when he wrote:

Know this, "the printers of paper do never tell the owner that the money has less value, that judgment is reserved for the person you offer that currency to"!

So it is the receiver of currency””not the giver””that determines its value. That's the power of demand. And what do you think happens to the printer when the demand side drops the rope? If he was pulling he falls on his butt. If he was releasing, he's now pushing on a limp string. And this is part of what confounds deflationists. They can only imagine hyperinflation happening while demand is pulling and the printer is releasing. They imagine "inflation-on-steroids," but that's not how hyper works.