Comment by adventured | Hacker News Reader

Comment by adventured | Hacker News Reader

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The gold standard worked in the US for about 170 years, which is part of why the US became the wealthiest nation in history: it had an extraordinarily trusted currency (green back = good as gold). Gold was worth $19 to $35 for 100+ years, and it worked, America had no problem growing dramatically.

The US economy also had no problem growing fast during the 1990s, when the US Dollar was strong and had appreciated extremely strongly against gold over a 20 year period ($600 in 1980, to $270 in 2001).

China also dramatically counters this notion. The Yuan has appreciated significantly (for a currency) over the last decade, while they've simultaneously gotten far wealthier.

The disaster has been what has happened to our money since 1971 (specifically the 1970s and since 2001). The real cost of goods has gone parabolic.

1964, 5 silver quarters (90% silver, 10% copper) for a $1.25 minimum wage, now worth $25.90 ($5.18 each). That's pure destruction via inflation.

And that's not even getting into how the Fed + Congress funds insanity like endless war because there is no gold standard restricting their spending habits.

China also dramatically counters this notion. The Yuan has appreciated significantly (for a currency) over the last decade, while they've simultaneously gotten far wealthier.

Real world calling. China pegs the Yuan at 6.22 Y / $1. It's appreciated by something like 3 cents over the last decade.

How do they do this? They continually buy dollars with Yuan. Increase the supply of Yuan, decrease the supply of dollars. They can't stop, or the Yuan appreciates, devaluing the dollars they already hold and, more importantly, hurting their exports.

This is why you're seeing the federal government borrow money for 0.1% interest, and why there's been almost-zero inflation despite deficts and quantitative easing.

Yes, real world calling.

The Yuan is not pegged to the dollar. The dollar peg was lifted in 2005.

What you mean is, it has appreciated by 15% over just the last 5 years. That's a significant value increase.

There has been dramatic inflation. Which is why a normal price for oil, despite plenty of supply, is now $85 to $90. Also why gold is now $1500 as normal. And also why grocery prices are at all time highs. And why housing prices, even in the supposedly destroyed markets, are up 50% to 100% over 15 years - drastic by any historical norm, particularly so in an economy with 14% real unemployment.

The Federal Government is borrowing at near zero because the global reserve currency is temporarily the US Dollar, and the Fed is buying about 85% to 90% of all new US Government debt because nobody else wants to touch it as they know the disaster that is coming. If you think borrowing rates for the US Govt. are going to stay this cheap for the next two decades, I'll take you up on that bet.

The RMB was 'depegged' as a press release but is only allowed to float in a narrow range of 0.3%. (http://en.wikipedia.org/wiki/Renminbi#Managed_float). Most of the increase in value from 2005 was a command decision from the CCP, not a result of market float.

At any rate, 15% over 5 years is less than 3% inflation. That's low inflation.

I don't think borrowing rates will stay this cheap over the next 2 decades because eventually the private sector will catch up to all the public jobs we've been shedding under socialist obama and GDP growth will resume, creating inflationary pressure again. But for now, and while we're either losing or barely holding even on employment over the next year or so, the interest rates will stay low. The second they touch 3% or 5% (normal inflation range), the fed can start jacking up their interest rate to compensate.

In short: It's ok, our currency is not going to collapse.

I agree the USD is not going to collapse. It's going to continue to devalue at an accelerating pace, as it becomes increasingly less of a global reserve standard.

Interest rates on US debt will climb from here forward.

The Fed will increase its rate of debt monetization as the US economy flails, likely from $85 billion per month up above $125 billion per month in the coming year.

The Fed will also never be able to actually unwind its portfolio, as Bernanke has begun admitting.

The dollar will have a severe crisis of confidence over the next decade, but it won't collapse.

Of course interest rates will climb -- what else are they going to do from 0.1%?

People have been making your predictions since January 2009. When's it going to start?

My prediction is specifically that inflation won't start until growth starts, at which point it's really much less dire than the picture you're painting.

It never really worked in the sense that you mean. Economic growth was virtually nil until the industrial revolution. Not coincidentally, it was around the same time that gold-backed currencies came to be seen as a bad idea. If you have the time, 'The Populist Moment' is an excellent read.

Is the yuan backed by precious metals?

The statement was that appreciating currencies are a disaster. The counter point is that the Yuan has been appreciating for the last decade while China has simultaneously gotten much wealthier and maintained a fast growth rate.

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