Operation Bernhard

[Dr.Who]

In world war II the Germans wanted to destabilise the British economy so they printed about a million pounds of counterfeit currency per month knowing that the flood of currency would cause inflation. They never did get to distribute the cash, thankfully, because that much money appearing out of thin air (they intended to drop it from planes) really would have wrecked the economy.

Today the U.S. government prints about 85 billion a month calling it quantitative easing. Granted they don't drop it from planes, though no doubt they have a means to distribute the money so that someone other than you benefits.

Operation Bernenke is no better than Operation Berhard.

Evey dollar you saved, earn, or will earn is decreasing in value exponentially. At present you are bankrolling the U.S. government but if Bernenke is not able to pull off the impossible and it hits the fan the dollar may be worth as much as a 1921 German Mark.

I don't know what to do for sure but I do know that it is more important than ever to be diversified.

When the housing market fell some years a go I had the good fortune of both listening to the talking heads on TV and of working as a mortgage lender at the time. I saw what was coming and sold my overpriced house just before the crash while buying an under-priced house at the same time. I saved tons of what would have been loss. How will we survive quantitative easing? I know that saving or holding money is not safe while borrowing money at the right time is a benefit. Gold may not be safe but consumer staples might be. Oil may or may not be safe but natural gas just might be a safe investment. What about foreign currency? Certainly not the British Pound they are doing the same thing as we are. Emerging markets? Emerging markets in Asia? Maybe Asian currency? Suppose if one become the guy that every bank wants to loan money to then when it gets bad one borrows a lot to invest in Asian currency?

Presently Asian currency is not doing well. of course just as U.S. politics hurts our currency so does Asian politics and well they are not always that economically healthy. then again China is the one buying all our debt, will they be hurt or benefit if our currency loses value? Canada anyone? Argentina, Iceland, Mexico?

Suppose one bought a certificate of deposit in Canada. It would earn interest in Canadian dollars. When it matured if the exchange rate were good one could cash it in in US dollars. But if the exchange rate were bad one could buy goods in Canada with Canadian dollars then bring those goods back home.

 

[dogtowner]

Look to Brazil, India or Australia.

 

[Dr.Who]

The Fed had the choice to discontue QE, to continue it, or to increase it. All bad choices.

Today they announced that they plan to continue it at about 85 billion per month. Expect no sudden changes in the economy, but also expect things to be more or less stagnant unless...

Unless the Fed loses even more control over the economy. If the QE stops being effective and they need to spend more than 85 billion per month then hyperinflation would probably be in the near future.

The good news is that maintianing QE at 85 billion per month when this type of situation often demands ever increasing monetization might even be considered a "reduction".

on another note, any government that chooses to engage in economic policy like QE is not to be trusted with your future. You have been warned.

 

[dogtowner]

The Fed had the choice to discontue QE, to continue it, or to increase it. All bad choices.

Today they announced that they plan to continue it at about 85 billion per month. Expect no sudden changes in the economy, but also expect things to be more or less stagnant unless...

Unless the Fed loses even more control over the economy. If the QE stops being effective and they need to spend more than 85 billion per month then hyperinflation would probably be in the near future.

The good news is that maintianing QE at 85 billion per month when this type of situation often demands ever increasing monetization might even be considered a "reduction".

on another note, any government that chooses to engage in economic policy like QE is not to be trusted with your future. You have been warned.

I see this as keeping a braindead economy on life support. Take it away and the body assumes room temperature. Increase it does not improve it at all and it harms every other thing in the economy like one too many leeches. One way or another there is going to be pain as there is no way it can just keep going. One way offers a quick drop to rock bottom after which real recovery can occur. The other way is what Zimbabwe did. Didnt work out so well for them. But amke no mistake, the body is long gone and starting to smell.

 

[Dr.Who]

Look to Brazil, India or Australia.

ya know ive been doing just that.

and i have been failing. i called an australian bank and while their term deposits are paying 4% one cannot buy them unless one is an australian citizen. meanwhile I can buy canadian GIC's which pay 2% but I have to go to Canada (trying to get around that).

Everbank in Florida will sell a CD in any currency I want but at US rates which frankly are the pits - .6% - blah.
Citi international will sell some sort of product that might be nice but one has to start with an account balance of 5o grand.
ING has banks all over the world but their website and the people on the phone have different info. Cant learn if they can sell foreign term deposits in foreign currency.
I saw a bank in the Uk which is selling australian term deposits but what are the logistics of an american banking in the Uk buying TD's from Australia?

 

[dogtowner]

ya know ive been doing just that.

and i have been failing. i called an australian bank and while their term deposits are paying 4% one cannot buy them unless one is an australian citizen. meanwhile I can buy canadian GIC's which pay 2% but I have to go to Canada (trying to get around that).

Everbank in Florida will sell a CD in any currency I want but at US rates which frankly are the pits - .6% - blah.
Citi international will sell some sort of product that might be nice but one has to start with an account balance of 5o grand.
ING has banks all over the world but their website and the people on the phone have different info. Cant learn if they can sell foreign term deposits in foreign currency.
I saw a bank in the Uk which is selling australian term deposits but what are the logistics of an american banking in the Uk buying TD's from Australia?

just go with securities based on foreign outfits. go crazy and offshore your money first for the tax benefits if you are into clever financial doings.

 

[Dr.Who]

just go with securities based on foreign outfits. go crazy and offshore your money first for the tax benefits if you are into clever financial doings.

Hmmm? No I am not very clever with financial doings.

So the first thing I did was to go look up what a security is. It's a stock. We do have a really small portfolio and will be meeting with the guy who represents the managers to adjust the way it is managed. I agree that weighting it more to foreign stocks is good. I would add that many foreign countries will be following in the footsteps of our problems so it will be important to know which coutries might be safer. But that is why I was interested in CD's/ GIC's/term deposits.

 

[Dr.Who]

Decided to read up some history this morning to get a feel for what it is like to live through hyperinflation - though I really hope that as a country we can avoid the major pitfalls of quantitative easing. I would prefer a decade of stagnation to hyperinflation.

So anyway the first article i read was published in business insider, appears to have been written in 2012, and was called "How nine countries saw inflation evolve into hyperinflation."

The takeaway I start with is that in each case once the hyperinflation starts it is over within a year, very often in one month. So this kind of adjustment is quite quick.

Second is that there were some common themes"

In each case the country experienced a loss of capital first. In several, wars destroyed the capital, in one redistribution destroyed output, in a couple trade was limited (either due to war, embargoes, etc.), in a couple outside governments made unrealistic demands that destroyed capital, in a few nationalization destroyed capital. In most of the cases socialism was a force but in a few it was an outside government that imposed financial policies that were highly coercive like socialism would be - lets call this one a loss of free markets.

Secondly each country there was a reckless fiscal policy like quantitative easing and in most the policy actually was quantitative easing.

In our country we are seeing loss of capital in the forms of:

Artificially high wages that drive manufacturing overseas (though a little has returned recently), redistribution that punishes producers and results in too many of the people who are receiving the money to lose interest in being productive, nationalization of certain sectors, and a socialistic mindset existing within the country. Could China call us on our debt to them and impose coercive fiscal policies?

http://www.businessinsider.com/wors...-table-of-all-56-hyperinflations-on-record-10

 

[Dr.Who]

The other side:

There are those who say we are nothing like countries that have had hyperinflation. Three ways we are different: (1) we don't have any problems selling our debt; (2) we aren't actually printing money; and (3) the United States is a highly productive economy that is nothing like bombed-out Budapest.

It is true we don't have any problems selling our debt. It is also true that China is complaining about the debt we owe them and is attempting to replace the dollar as the world reserve currency. That can't be good and time will tell.

Is it true that we are not printing money or is someone deluding themselves with a distinction that really does not matter?

Yes we are a productive economy. Though it is easy to point out how we are less productive than we have been or could be. So just how unproductive does a country need to be before we can say it is unproductive enough for there to be a risk of hyperinflation? If one of the wars we are in or a new war began to harm our productivity what would the impact be? In Germany the hyperinflation was precipitated by a strike. Do we never have strikes? One sixth of our economy was recently nationalized in a practical sense, what will the impact of this be on productivity? In short, is there a promise that we will remain productive?

Lastly, all of this only concerns hyperinflation which I imagine to be the least likely, though most dramatic, of the pitfalls of QE. We could still experience deflation, inflation, or stagnation - not to mention combinations of the above.

I remember before the housing bubble burst about 7 years ago how much talk there was of a bubble bursting. Some said yes and others said no. I sided with those who said yes and it paid off for me. Today there is a lot of talk of the ill effects of QE. While I don't side with those who are calling for doomsday I do want to hedge my bets.

 

[Dr.Who]

Here is an appropriate quote written about a year ago:

In over 100 cases of hyperinflation I don't believe there has ever been a single "decision to have hyperinflation". Hyperinflation is when things get out of control. It is not something central banks or government voted on. No group in government or a central bank has had a show of hands like "all in favor of hyperinflation raise your hands". Not the way hyperinflation happens. Hyperinflation is a market response to government debt over 80% of GNP and deficit over 40% of spending when the central bank starts printing money and buying up government debt. Everyone thinks they just need to print a bit more money to make it through the next week or month and there is nothing else they can do since the government needs money to keep in operation. Nobody votes for hyperinflation. Nobody wants it. It just happens

and

It seems obvious that if you just have the central bank stop buying government debt the hyperinflation would stop. The problem is that the government needs money to operate and is spending far more than what it gets in taxes and has debt around the size of the GNP. The deficit is so large that cutting government or increasing taxes enough is not possible. The only way the government can keep in operation, when other people stop buying their bonds or even rolling over their bonds, is if the central bank steps in. So the government always makes sure the central bank steps in. This may take changing laws or replacing people at the central bank, or just ignoring laws, but the government will get the money or it is bankrupt.

So? is our debt over 80% o GNP? Is the deficit over 40% of spending? Does the Fed think it just needs to print a little bit more? Does the government need money just to keep operating? Can the Fed just stop printing money (google "QE trap")? Can the gov collect enough in taxes to cover its spending? Are people buying our bonds? (now here is a ray of hope since other countries are buying are bonds - for now.)

 

[dogtowner]

Hmmm? No I am not very clever with financial doings.

So the first thing I did was to go look up what a security is. It's a stock. We do have a really small portfolio and will be meeting with the guy who represents the managers to adjust the way it is managed. I agree that weighting it more to foreign stocks is good. I would add that many foreign countries will be following in the footsteps of our problems so it will be important to know which coutries might be safer. But that is why I was interested in CD's/ GIC's/term deposits.

Mutual funds also are available that feature various classes of foreign holdings. Your financial analyst can help you understand the types so you can find the best matches for your level of risk. Pretty sure they can fetch you better than 2%return. Mutual funds afford built in diversification that you rightly seek. Good luck.

 

[dogtowner]

Here is an appropriate quote written about a year ago:

In over 100 cases of hyperinflation I don't believe there has ever been a single "decision to have hyperinflation". Hyperinflation is when things get out of control. It is not something central banks or government voted on. No group in government or a central bank has had a show of hands like "all in favor of hyperinflation raise your hands". Not the way hyperinflation happens. Hyperinflation is a market response to government debt over 80% of GNP and deficit over 40% of spending when the central bank starts printing money and buying up government debt. Everyone thinks they just need to print a bit more money to make it through the next week or month and there is nothing else they can do since the government needs money to keep in operation. Nobody votes for hyperinflation. Nobody wants it. It just happens

and

It seems obvious that if you just have the central bank stop buying government debt the hyperinflation would stop. The problem is that the government needs money to operate and is spending far more than what it gets in taxes and has debt around the size of the GNP. The deficit is so large that cutting government or increasing taxes enough is not possible. The only way the government can keep in operation, when other people stop buying their bonds or even rolling over their bonds, is if the central bank steps in. So the government always makes sure the central bank steps in. This may take changing laws or replacing people at the central bank, or just ignoring laws, but the government will get the money or it is bankrupt.

So? is our debt over 80% o GNP? Is the deficit over 40% of spending? Does the Fed think it just needs to print a little bit more? Does the government need money just to keep operating? Can the Fed just stop printing money (google "QE trap")? Can the gov collect enough in taxes to cover its spending? Are people buying our bonds? (now here is a ray of hope since other countries are buying are bonds - for now.)

They are printi g money because the governmwnt needs the money to operate because we no longer can sell enough debt. We are in a qe trap so there is no easy painless way out. But we do have a choice of painfull ways out. Waiting out the stagflation is not an option.

 

[Dr.Who]

They are printi g money because the governmwnt needs the money to operate because we no longer can sell enough debt. We are in a qe trap so there is no easy painless way out. But we do have a choice of painfull ways out. Waiting out the stagflation is not an option.

We may get stagflation but I think waiting out the stagnation is the plan of the Fed.

 

[Dr.Who]

Mutual funds also are available that feature various classes of foreign holdings. Your financial analyst can help you understand the types so you can find the best matches for your level of risk. Pretty sure they can fetch you better than 2%return. Mutual funds afford built in diversification that you rightly seek. Good luck.

Thanks for the advice. I have to think about it. Yes I am sure they can offer better than 2% but will the stock markets survive the end of QE? Or even he continuation of QE? The only reason the stock market has not already collapsed is because QE continues. And are foreign stock markets any better? I am hoping for fixed returns.

 

[dogtowner]

Thanks for the advice. I have to think about it. Yes I am sure they can offer better than 2% but will the stock markets survive the end of QE? Or even he continuation of QE? The only reason the stock market has not already collapsed is because QE continues. And are foreign stock markets any better? I am hoping for fixed returns.

foreign markets can. getlots of professional advice. fixedreturns are probably not possible. you are risk averse, nothing wrong with that at all. but there is always some risk and knly huge assets reaally get it closer to risk free.