The Coming Dollar Devaluation

[Pearshape]

I'm not seeing how this supports house prices- if affordability is crashing the market now, then won't houses be even less affordable if your income and cash loses 40% of it's buying power? Surely the impact would be to speed up the crash, and force it to even lower levels.

If you read the article it says

“This currency devaluation can be done on a country-by-country basis, but a coordinated devaluation would work best. A devaluation of 30% would raise the dollar value of all assets by 43%. A $200,000 home with a $230,000 mortgage would become a $286,000 home with the same mortgage. Presto! The homeowner who was $30,000 upside-down now has $56,000 equity and a good reason to make his payments. Both the homeowner and the bank are immediately better-off"

simples !!!

[Guest Daddy Bear]

Dollar Devaluation To Fix (ANOTHER) Great Depression

History is testament currency devaluation proved effective in ending the Great Depression. In 1930, Australia was the first to leave the gold standard, immediately devaluing the Aussie by more than 40%, and the economy quickly recovered. New Zealand and Japan followed suit in 1931, each with the same result. By 1933, at least nine major economies had enacted a devaluation of their currency by removing it from the gold standard, all of whom emerged from depression.

In 1933, through a series of gold-related acts, culminating in the Gold Reserve Act of 1934, America realized a dollar devaluation of 41% when the price of gold was adjusted from $20.67 per ounce of gold to $35 per ounce. America, like the others before, had its economy bottom and recover as a result. Of the larger economies, only the French and Italians continued to adhere to the gold standard, and their economies remained depressed until finally, in 1936, they allowed their currencies to devalue, and their economies then recovered.

I see no reason to believe we would have any different result today. Only debt would remain the same. All other assets would immediately be worth more (in nominal terms), whether it be a home, a stock, an ounce of gold or a used car...all would rise in price. Furthermore, Bank balance sheets would immediately improve, as many loans would be moved from non-performing to performing status. Banks would be paid with devalued dollars.

In my considered opinion the current use of government's multi-trillion dollar stimulus program through the creation of dollars will certainly lead to a similar or even greater devaluation, so this is likely a net gain for the banks too.

DOLLAR DEVALUATION IS A WIN-WIN SITUATION

FOR THE ENTIRE NATION

History teaches that inflation cures deflation. And one sure way to create INFLATION (ie to generate inflation) is via a sharp devaluation of the currency.

What Happened After Franklin Delano Roosevelt Devalued the Dollar in 1934?

In early 1934 F.D.R. devalued the US greenback via increasing the price of gold by 69% ($20.67 to $35/oz). Within a few weeks nearly all of the nation's economic indicators began to materially improve, indicating the beginning of the end of the Great Depression.

[Tricksy]

A devaluation of 30% would raise the dollar value of all assets by 43%. A $200,000 home with a $230,000 mortgage would become a $286,000 home with the same mortgage.

A devaluation relative to what? And could you explain how this might be achieved?

[Guest Daddy Bear]

A devaluation relative to what? And could you explain how this might be achieved?

the IMF SDR - co-ordinate with BOE devaluing UK Sterling at same time.

Use enforced bank holiday

Edited August 16, 2009 by Daddy Bear

[daddybear]

If you read the article it says

“This currency devaluation can be done on a country-by-country basis, but a coordinated devaluation would work best. A devaluation of 30% would raise the dollar value of all assets by 43%. A $200,000 home with a $230,000 mortgage would become a $286,000 home with the same mortgage. Presto! The homeowner who was $30,000 upside-down now has $56,000 equity and a good reason to make his payments. Both the homeowner and the bank are immediately better-off"

simples !!!

Not very simple at all,

The people only have a finite amount of money coming in, so if by devaluation cost of the basic essentials goes up then the heirachy of needs comes into play

1/ Food

2/ Warmth

3/ Shelter

if the person has to pay more for the first two then ability to pay for such a big number three becomes impossible therefore causing more defaults and more reposessions.

To my limited understanding, devaluation helps nobody

[Pearshape]

A devaluation relative to what? And could you explain how this might be achieved?

gold - a bank holiday weekend

Its all been done before!

“In 1933, through a series of gold-related acts, culminating in the Gold Reserve Act of 1934, America realized a dollar devaluation of 41% when the price of gold was adjusted from $20.67 per ounce of gold to $35 per ounce. America, like the others before, had its economy bottom and recover as a result. Of the larger economies, only the French and Italians continued to adhere to the gold standard, and their economies remained depressed until finally, in 1936, they allowed their currencies to devalue, and their economies then recovered.”

Edited August 16, 2009 by Pearshape

[InternationalRockSuperstar]

A devaluation relative to what?

tangibles.

And could you explain how this might be achieved?

printy printy.

[grumpy-old-man-returns]

the IMF SDR - co-ordinate with BOE devaluing UK Sterling at same time.

Use enforced bank holiday

that's what I am expecting.

[daddybear]

More than this getting down to basics there has to be a basic transaction of one seller + one buyer

If say the chinese produce something that because of devaluation nobody can afford to buy then their economy falls apart just as quickly as ours does

[Hip to be bear]

It worked in the 1930's depression.

I think australia was the first to devalue in 1930/1 - about 40% - against gold

It took until 1933 for the US to devalue against gold - again I think it was around 40%

If you look at the stats it was from 1933 that the depression reached its trough - recovery began through devaluation.

It appears to be the only solution now.

Problem is all currencies were backed by gold then.

In my opinion - which I have posted before Re: dollar devaluation - the USD will be devalued Formally against the value of the European SDR. They may well do it in conjunction with UK sterling - on the same day. Possibly have an enforced bank holiday.

I am sure you can work out the consequences on the effect of asset prices.

Scaring stuff to see the value of your pound lose 40% overnight (e.g. an STR fund).

Mind I don't think this will happen - or that the governments (Central Banks) have any other tricks up their sleeves to pull the rug out from under people

I reckon if you have STR'd or have saved up loads of cash you are going to pull in to the housing market in 2-3 years right at the trough and clean up - Nominally 60% below peak - probably get a desirable 5 bed detached mortgage free with land for less then £200K........ (now where is that sarcasm smiley? )

A few questions:

What is the European SDR?

How would they carry out this devaluation?

How given we are no longer tied to gold?

What happens to currency markets after such an event?

Is Britain going to be able to do it while within the EU, though not the Euro?

Won't it give us a massive competitive advantage over our European colleagues in terms of our exports, while shafting the buying power of the £ in a globalised world economy?

Edited August 16, 2009 by Hip to be bear

[Tricksy]

gold - a bank holiday weekend

Its all been done before!

“In 1933, through a series of gold-related acts, culminating in the Gold Reserve Act of 1934, America realized a dollar devaluation of 41% when the price of gold was adjusted from $20.67 per ounce of gold to $35 per ounce. America, like the others before, had its economy bottom and recover as a result. Of the larger economies, only the French and Italians continued to adhere to the gold standard, and their economies remained depressed until finally, in 1936, they allowed their currencies to devalue, and their economies then recovered.â€

But that was when the gold standard was extant.

There is no link between the price of gold and the price of USD today. So the USD can't be devalued in the way it was in 1933/34. As I said earlier, maybe this time it really is different!

Central banks/governments can engineer devaluation against other currencies, but that won't help in the same way. And besides, most other governments would themselves like to devalue so there's something of a Mexican stand-off on this front.

[Guest Daddy Bear]

To my limited understanding......devaluation helps nobody

daddybear

Definitely not the real Daddy Bear - beware of cheap imitations

Daddy Bear

[Pearshape]

But that was when the gold standard was extant.

There is no link between the price of gold and the price of USD today. So the USD can't be devalued in the way it was in 1933/34. As I said earlier, maybe this time it really is different!

Central banks/governments can engineer devaluation against other currencies, but that won't help in the same way. And besides, most other governments would themselves like to devalue so there's something of a Mexican stand-off on this front.

The article acknowledges this - and says - either the dollar dies - or it re assimilates its self with the gold standard.

quote

While gov-co and the world may devise several schemes to maintain the illusion of the paper and digital dollar’s credibility for the next several quarters, sooner or later the existing dollar must be recognized as intrinsically worthless. When that happens, either the dollar will die and everyone will clamor for gold, or the “masters of the universe†will bow to the truth and once again back the dollar with gold to give it real value.

[Tricksy]

The article acknowledges this - and says - either the dollar dies - or it re assimilates its self with the gold standard.

quote

While gov-co and the world may devise several schemes to maintain the illusion of the paper and digital dollar’s credibility for the next several quarters, sooner or later the existing dollar must be recognized as intrinsically worthless. When that happens, either the dollar will die and everyone will clamor for gold, or the “masters of the universe†will bow to the truth and once again back the dollar with gold to give it real value.

I did read that. But I would suggest that a direct US invasion of China would be marginally less provocative and is therefore a more likely scenario!

[Pearshape]

I did read that. But I would suggest that a direct US invasion of China would be marginally less provocative and is therefore a more likely scenario!

Personally, the last throws of a dice would be the invasion of north korea for me!!

god help us

[Hip to be bear]

daddybear

Definitely not the real Daddy Bear - beware of cheap imitations

Daddy Bear

You wouldn't want anyone to devalue your over inflated self worth would you???

[Guest Daddy Bear]

You wouldn't want anyone to devalue your over inflated self worth would you???

What makes you seem to think its over inflated?

[scottbeard]

I'm not seeing how this supports house prices- if affordability is crashing the market now, then won't houses be even less affordable if your income and cash loses 40% of it's buying power? Surely the impact would be to speed up the crash, and force it to even lower levels.

If the number of £s in the world doubles

- prices of everything (including houses) will roughly double

- wages will roughly double

We can quibble a bit - maybe food will increase 2.2x and houses 1.8x but basically it will all double. So a single pound loses a lot of its buying power, but the good news is you earn twice as many pounds, and the VERY good news (for the government) is that debts of £1 are not twice as easy to repay. The BAD news is if you have a pile of cash, which now buys you half as much.

[Tricksy]

If the number of £s in the world doubles

- prices of everything (including houses) will roughly double

- wages will roughly double

We can quibble a bit - maybe food will increase 2.2x and houses 1.8x but basically it will all double. So a single pound loses a lot of its buying power, but the good news is you earn twice as many pounds, and the VERY good news (for the government) is that debts of £1 are not twice as easy to repay. The BAD news is if you have a pile of cash, which now buys you half as much.

Good news for Grant and Anthea as well then.

[Hip to be bear]

What makes you seem to think its over inflated?

The arrogance of posts like that one. I think you may well be right about many things and I am impressed with several of your predictions. It doesn't affect the impression you give on here of being an arrogant, pompous, self important prat. A hint of humility might gain you more friends on here and in the real world I guess.... not that we are here to make friends

You might or might not have formed on opinion on me... It doesn't really matter.

My opinion.. I am entitled to hold it and chose to voice it since you asked. I doubt it will cause you any offence or alter your perception of yourself. I have no desire to get into a slanging match.

Nothing else to say on that matter though...

Your hyperinflationary scenario......What will govts do to interest rates in its early stages, and what will be the impact on house prices?

[Guest Daddy Bear]

I think you may well be right about many things and I am impressed with several of your predictions.

Thankyou for your kind words.

You are also correct in that "I am right about many things".

Good Luck in your future

DB

[InternationalRockSuperstar]

What makes you seem to think its over inflated?

well the supply recently doubled

[IMHAL]

Thankyou for your kind words.

You are also correct in that "I am right about many things".

Good Luck in your future

DB

DB - Fact is that the economy is currently driven by the politics of bailouts and market manipulation. The natural conclusion of this, if they keep bailing out every sod will be hyperinflation. Does not take a genius to see that.

The point of this response is that it really does depend on what the CB's do and how the politics of the situation plays out.

'They' are spinning plates - keep ZIRP, lie about inflation, keep pumping the economy, and wait and hope that it turns out nice and dandy.

The fly in the ointment is when those nasty investors take fright and decide that they take their money out of UKPLC - this will force IRs back up and then your prediction will ring hollow. Faced with the prospect of a worthless currency and the real threat of lynch mobs, gallows and guilotines lining Westminster - they will chose to throw swaths of people onto the street - they are cowards afterall - and the police and army will not turn their fire on their own people when push comes to shove.

I too fear hyperinflation - but you would need to get a serious fashcist state to be able to control the masses through force before they would attempt this scenario. I see them (NuLabour) trying to, but no cigar - they are pretty incompetent when it comes to serious endevoure.

[roman holiday]

gold - a bank holiday weekend

Its all been done before!

“In 1933, through a series of gold-related acts, culminating in the Gold Reserve Act of 1934, America realized a dollar devaluation of 41% when the price of gold was adjusted from $20.67 per ounce of gold to $35 per ounce. America, like the others before, had its economy bottom and recover as a result. Of the larger economies, only the French and Italians continued to adhere to the gold standard, and their economies remained depressed until finally, in 1936, they allowed their currencies to devalue, and their economies then recovered.â€

In the 19th century, gold provided globalized trade with stability. It acted as a balance for trade so imbalances could not build up to critical levels as they have done today. When a country had consumed too much, gold was shipped off-shore and the belt was tightened. When a country had produced and saved too much, the idea was they would be flush with gold and feel free to spend [there was a classical theory underlying this, I think outlined by Hume, where money would always find its "natural" level].

The problem today is one of stabilizing the currencies. Devaluation only ever made sense when currencies where on some gold exchange standard. If all currencies were "devaluing" today, you might as well say they are all appreciating because they are only measurable relative to each-other. In fact, in a deflation, that is what you would expect, that they will all appreciate...but then relative to real goods. Prices would fall.

Money is primarily a functional and practical thing. The monetarist idea that an economy can always be reflate/inflated may not necessarily be true. Keep in mind there is a theory at work here, the quantity theory of money, and though it happens to be widely accepted, it is nevertheless a theory. I would suggest this theory is in danger of being falsified today.

Edited August 17, 2009 by roman holiday

[bill still]

May I ask what do you think was going on with the unloading of the Fort Knox Bullion Depository ending in 1972 when Nixon closed the gold window making the dollar "no longer convertible in gold"?

If everything was above board, why does the US govt continue to refuse an annual physical audit of gold reserves in Ft. Knox?

In the 19th century, gold provided globalized trade with stability. It acted as a balance for trade so imbalances could not build up to critical levels as they have done today. When a country had consumed too much, gold was shipped off-shore and the belt was tightened. When a country had produced and saved too much, the idea was they would be flush with gold and feel free to spend [there was a classical theory underlying this, I think outlined by Hume, where money would always find its "natural" level].

The problem today is one of stabilizing the currencies. Devaluation only ever made sense when currencies where on some gold exchange standard. If all currencies were "devaluing" today, you might as well say they are all appreciating because they are only measurable relative to each-other. In fact, in a deflation, that is what you would expect, that they will all appreciate...but then relative to real goods. Prices would fall.

Money is primarily a functional and practical thing. The monetarist idea that an economy can always be reflate/inflated may not necessarily be true. Keep in mind there is a theory at work here, the quantity theory of money, and though it happens to be widely accepted, it is nevertheless a theory. I would suggest this theory is in danger of being falsified today.