Economic genius required---to explain these?

[tech/a]

Posted this on another forum but seems there are no geniuses--

Genius's.
While I understand the basics of these economic problems and how governments (Abolition of the Gold Standard---introduction of the FIAT policy) have arrived at the point there are some specifics I cant get a grip of.

So I need some genius Economic help to these specific questions.

(1) Where does all this money required to bail out these Companies come from---I believe its just printed and isn't actually a "surplus" as such.So wheres it come from?

(2) Where does this money go ---who gets it---who benefits---how is it used---what actually IS the debt being paid out?

(3) OK so these debts are paid out---who owes who for what?
Does the Government now own the companies bailed out? Do they have to pay back the debt---ever?

(4) OK so now the American government is in deeper and deeper debt---TO WHO? Whats to stop a never ending increase in debt?
How would this debt be paid back? Who would pay it back? If its never paid back then what.

(5) I understand that hyper inflation will devalue the monetary system of the country involved.At that point of collapse what happens to start it up again as Germany did?
Whats the process?

I cant find the answers hopefully here!

 

[fimmwolf]

1) "To facilitate the funding, the statutory ceiling on US public debt is being raised from $10.6 trillion to $11.3 trillion a rise of 6.6 per cent"

2) dunno

3) Does the Government now own the companies bailed out?
In the cases of fannie mae, freddie mac, and AIG the answer is yes. (they have been "nationalised")

Re: fannie & freddie:
"places the two companies into a "conservatorship" to be overseen by the Federal Housing Finance Agency. Under conservatorship, the government would temporarily run Fannie and Freddie until they are on stronger footing."

4) national deficit ?? All countries have debt don't they?

5) There are 3 stages of inflation:
creeping
galloping 30% +
hyperinflation 1000% +

Our current inflation rate is 4.5%, so we are a fair way off hyperinflation at the moment.

 

[johenmo]

(1) Some countries have been known to keep printing. Zimbabwe is a good example.

(2) I don't know either - I presume the debt trail leads back to someone, somewhere or the wagon circle of debt between institutions.

(3) Depends on the terms - in some situations the Govt takes a stake (like Air NZ a few years back) or it's a "loan".

(4) My basic understanding is there is a juggling act between countries of debt - from import/export imbalances. And if the term lasts long enough and the loan balance doesn't impact too much then it may be written off. Like lending to your kids!! Not sure when you're lending to yourself. Perhaps put too simply and narrowly.

(5) Germany and Japan were rebuilt by foreign money after the war - Britain only finished paying off the cost in recent years. But if hyperinflation is at work then someone, sometime has to bite the bullet and stop spending. Foreign aid usually assists.

 

[theasxgorilla]

(5) I understand that hyper inflation will devalue the monetary system of the country involved.At that point of collapse what happens to start it up again as Germany did?

You are probably thinking of the post WW1 hyper-inflation. The answer is that a dictatorial government arrived and started placing all number of controls in place, and in addition fudged the books to make it look like the economy was doing better than it was eg. Jews lost citizenship, no longer counted as unemployed.

Behind the scenes and in reality wealth and earnings was being redirected toward preparing for the war effort. During the war all bets were off.

After the war the price controls were lifted and Germany got a new currency (deutsche marks).

http://www.econlib.org/library/Enc/GermanEconomicMiracle.html

It's an interesting economic case study but I don't know how much we can apply to this situation.

 

[chops_a_must]

You are probably thinking of the post WW1 hyper-inflation. The answer is that a dictatorial government arrived and started placing all number of controls in place, and in addition fudged the books to make it look like the economy was doing better than it was eg. Jews lost citizenship, no longer counted as unemployed.

Behind the scenes and in reality wealth and earnings was being redirected toward preparing for the war effort. During the war all bets were off.

After the war the price controls were lifted and Germany got a new currency (deutsche marks).

http://www.econlib.org/library/Enc/GermanEconomicMiracle.html

It's an interesting economic case study but I don't know how much we can apply to this situation.

Wasn't it due to the crippling debts imposed by the Allies?

 

[chops_a_must]

This seems to be the answer to number 5 as per Germany:

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

 

[theasxgorilla]

No a direct answer to any question posed, but keep in mind that as inflation debases a currency it also lowers the real value of debt. I'm suggesting the US Gov or Fed actual knows what they're doing or what will happen, but I would be willing to bet that they know this fact.

 

[theasxgorilla]

Wasn't it due to the crippling debts imposed by the Allies?

Kind of. And here in lies the reason why I don't think the guy with the wheelbarrow full of money going to buy a loaf of bread can be applied to US right now or into the future.

In post WW1 Germany the country's social fabric was badly ruptured, such that there was a severe shortage of organised work and production and towns ended up being run by factions of local thugs...which is what the Nazi's ultimately grew out of (were). Imposing those debts on a country in that kind of situation should lead to what we saw.

The US doesn't have this problem. One must analyse beyond pure economics IMO.

 

[chops_a_must]

No a direct answer to any question posed, but keep in mind that as inflation debases a currency it also lowers the real value of debt. I'm suggesting the US Gov or Fed actual knows what they're doing or what will happen, but I would be willing to bet that they know this fact.

Yes, everything seems to be pointing towards them inflating/ devaluing the dollar, out of the situation.

 

[chops_a_must]

Kind of. And here in lies the reason why I don't think the guy with the wheelbarrow full of money going to buy a loaf of bread can be applied to US right now or into the future.

In post WW1 Germany the country's social fabric was badly ruptured, such that there was a severe shortage of organised work and production and towns ended up being run by factions of local thugs...which is what the Nazi's ultimately grew out of (were). Imposing those debts on a country in that kind of situation should lead to what we saw.

The US doesn't have this problem. One must analyse beyond pure economics IMO.

At the end of the day though, the solution is still the same.

Debt cancellation or equivalents is a big part of that.

 

[theasxgorilla]

No a direct answer to any question posed, but keep in mind that as inflation debases a currency it also lowers the real value of debt. I'm suggesting the US Gov or Fed actual knows what they're doing or what will happen, but I would be willing to bet that they know this fact.

Sorry, that should have read:

"I'm NOT suggesting the US Gov or Fed actually known what they're doing or what will happen"

Certainly not Minister, that would be preposterous!

 

[cuttlefish]

but keep in mind that as inflation debases a currency it also lowers the real value of debt.

This seems the most sensible approach to them getting out of the situation - all Americans become poorer by world standards as their currency devalues but being the insular society they are this approach could be managed better than some internal failures. The challenge is managing an orderly decline of the USD and orderly inflation - highly unlikely to be achieved imo unless they step in and regulate.

 

[tech/a]

http://www.financialsense.com/fsu/editorials/gnazzo/2008/0917.html

Maybe of interest.

As I dont seem to be able to find answers I am going to see if I cant find them through either University academics or Economic Professors,I will let you know what replies (if any I get).

In the meantime My personal view is to hedge yourself with Gold and or Silver.
Quite possibly bullion.
Which is available from the Perth Mint.

 

[mayk]

Perhaps this might help

http://www.amazon.com/Creature-Jekyll-Island-Federal-Reserve/dp/0912986212

 

[bluelabel]

i cant answer q2, perhaps this bloke can. This is an interesting little watch all the way though either way.

http://www.chrismartenson.com/crashcourse

there is a part on debt, and inflation that should help a bit....maybe...

 

[tech/a]

i cant answer q2, perhaps this bloke can. This is an interesting little watch all the way though either way.

http://www.chrismartenson.com/crashcourse

there is a part on debt, and inflation that should help a bit....maybe...

Thanks Blue Ive actually sat through it a very good work.
But like most of these articles raise more questions than answers.
These are indeed very interesting times
and

This time IS different.

 

[prawn_86]

This time IS different.

Fortunately or unfortunately, this is the first of these types of situtaions i have been through with regards to the economy. Im not in a position to say if it is different or not, but im sure each time they would have said the same thing. Am I correct?

Tech, I also remeber you saying a month or so ago that things will recover as they have always done and charge onwards again.

Also, as far as im aware, the government actually owes the central bank the money (plus interest) it borrows. So invest in central banks

 

[mayk]

Also, as far as im aware, the government actually owes the central bank the money (plus interest) it borrows. So invest in central banks

from wiki

The Federal Reserve System (also the Federal Reserve; informally The Fed) is the central banking system of the United States. Created in 1913 by the enactment of the Federal Reserve Act, it is a quasi-public (government entity with private components) banking system.

Who are the private holders/components?

 

[prawn_86]

Who are the private holders/components?

**This is for US only, im not sure about the RBA**

The original families of the founders of the Fed. Big 'finance' names, Morgan, Stanley, Rockafella and the like.

 

[chops_a_must]

http://www.financialsense.com/fsu/editorials/gnazzo/2008/0917.html

Maybe of interest.

As I dont seem to be able to find answers I am going to see if I cant find them through either University academics or Economic Professors,I will let you know what replies (if any I get).

In the meantime My personal view is to hedge yourself with Gold and or Silver.
Quite possibly bullion.
Which is available from the Perth Mint.

Yeah.

Regardless, gold is the only trade I can see as worthwhile, as expressed in the printing money thread.