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Author Topic: The federal reserve collapse... and rise of bitcoin?  (Read 5024 times)
notig
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February 03, 2013, 10:56:55 PM
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some people project the federal reserve and the US financial system to collapse. Here is my question though: From what i've read the Federal reserve is very similar to the Bank of England. And the bank of England has been around since 1600 something. Doesn't that basically mean our federal reserve system can have hundreds more years ?

Also I haven't done the calculations but... does anyone know if there is a mathematical certainty things can fail just judging by the public debt and the interest on it? If the interest and the public debt both keep growing isn't there a guaranteed collapse? Or not?

Is anyone buying bitcoins especially for this reason?
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February 04, 2013, 12:02:11 AM
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I think a better question would be "can a central bank collapse, since it creates money out of thin air"!

I would say no.

http://www.ukpublicspending.co.uk/uk_national_debt_chart.html
In the above link you can find data about UK's debt to gdp. You will notice that it has been very very high at times, yet, as you state, their central bank has not collapsed.
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February 04, 2013, 12:11:50 AM
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The system can go on forever as long as every once in a while debt is forgiven. But each forgiving changes the system so take that with a grain of salt.  Wink

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February 04, 2013, 03:13:25 AM
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The BoE has been around since the 1690s but was constrained by the gold standard until the 1920s. The Fed was formed in 1913 and was similarly constrained until 1971. Nevertheless, both the dollar and pound have lost about 98% of their value in the past century.

Contrary to what some people think both the BoE and Fed want to preserve the value of their currencies, not debase them through printing. It is Congress (US) and Parliament (UK) who continually overspend, forcing money printing, inflation targeting and interest rate manipulation. These governments also allow excessive lending by banks, bail them out, and permit a huge shadow-banking system - all of which cheapen the value of currency and cause inflationary pressures.

These currency systems will collapse eventually, like the Mexican and Argentinian pesos have (more than once), or the classic case of the Zimbabwean dollar. When it will happen is the real question. At the current rate it will be some years yet. Perhaps during the 2020s. Bitcoin should be super-strong by then!

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February 04, 2013, 03:21:15 AM
 #5

some people project the federal reserve and the US financial system to collapse. Here is my question though: From what i've read the Federal reserve is very similar to the Bank of England. And the bank of England has been around since 1600 something. Doesn't that basically mean our federal reserve system can have hundreds more years ?

Also I haven't done the calculations but... does anyone know if there is a mathematical certainty things can fail just judging by the public debt and the interest on it? If the interest and the public debt both keep growing isn't there a guaranteed collapse? Or not?

Is anyone buying bitcoins especially for this reason?

Past performance does not guarantee future performance.

Just because the bank of England has been around for centuries does not mean that either they or the Federal Reserve cannot do something stupid or otherwise get into a dire situation which destroys them.

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February 04, 2013, 07:47:32 AM
 #6

in this day and age banks and reserve banks are just another part of history

its going to be sad in a way to watch them die out but who knows we may feel a sense of nostalgia from time to time

im sure that all these banks and reserve banks will transfer most of the wealth to the new system  Cheesy

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February 04, 2013, 07:54:35 AM
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The BoE has been around since the 1690s but was constrained by the gold standard until the 1920s. The Fed was formed in 1913 and was similarly constrained until 1971. Nevertheless, both the dollar and pound have lost about 98% of their value in the past century.

Contrary to what some people think both the BoE and Fed want to preserve the value of their currencies, not debase them through printing. It is Congress (US) and Parliament (UK) who continually overspend, forcing money printing, inflation targeting and interest rate manipulation. These governments also allow excessive lending by banks, bail them out, and permit a huge shadow-banking system - all of which cheapen the value of currency and cause inflationary pressures.

Correct up to here...

These currency systems will collapse eventually, like the Mexican and Argentinian pesos have (more than once), or the classic case of the Zimbabwean dollar. When it will happen is the real question.

False.

They *might* collapse, sure, but people fail to fully appreciate the reality of a modern fiat nation that issues debt solely denominated in its own currency. The Fed can simply BUY ALL THE BONDS on the market (they're already buying a large percentage) to keep rates at or near zero. If they do that, there's no exponential feedback loop which requires more and more printing. The only printing that's required is to purchase all the outstanding bonds ONCE, and then to create enough new money to cover the on-going fiscal deficit.

So, yes...no matter what the dollar will be severely devalued. But saying that it *must* actually collapse 3rd-world style, you're not appreciating some key structural differences in how US debt is issued and managed versus the Zimbabwe story.

The non-collapse scenario might actually be worse since it means the nonsense can continue unabated, basically sapping productivity out of the economy forever. At least in the collapse case, after the massive short/medium term pain, some sanity would be restored for a generation or two.

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February 04, 2013, 08:07:06 AM
 #8

How is it that a collapse of the USD is considered a collapse of the FED?

They have many tricks up their sleve like government and military!


 
 
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hashman
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February 04, 2013, 11:40:22 AM
 #9


[...] both the BoE and Fed want to preserve the value of their currencies, not debase them through printing.



Those three letter acronyms do not refer to individuals, so it is incorrect grammar to assign such a "want" or behavioral tendency to them.  Rather they are made of individuals which have their own incentives and behavioral tendencies like the rest of us. 



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February 04, 2013, 11:45:38 AM
 #10

Certainly not hundreds of years.

A few years probably, maybe.

IMHO there is a lot going on scenes that the general public does not know about.

For example, on this website it is claimed that there exists a lot more gold than is generally thought to be:
http://divinecosmos.com/start-here/davids-blog/1107-new-russian-doc

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herzmeister
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February 04, 2013, 06:31:44 PM
 #11

some people project the federal reserve and the US financial system to collapse. Here is my question though: From what i've read the Federal reserve is very similar to the Bank of England. And the bank of England has been around since 1600 something. Doesn't that basically mean our federal reserve system can have hundreds more years ?

yes, but they have to throw in a little (world) war once in a while.

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solex
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February 04, 2013, 06:39:18 PM
 #12


[...] both the BoE and Fed want to preserve the value of their currencies, not debase them through printing.



Those three letter acronyms do not refer to individuals, so it is incorrect grammar to assign such a "want" or behavioral tendency to them.  Rather they are made of individuals which have their own incentives and behavioral tendencies like the rest of us. 





Quite right. I meant to imply the management and institutional culture of these organizations...

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February 05, 2013, 04:57:31 PM
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[...] both the BoE and Fed want to preserve the value of their currencies, not debase them through printing.



Those three letter acronyms do not refer to individuals, so it is incorrect grammar to assign such a "want" or behavioral tendency to them.  Rather they are made of individuals which have their own incentives and behavioral tendencies like the rest of us. 





Quite right. I meant to imply the management and institutional culture of these organizations...

Well I'm not sure I agree.  If these organizations encouraged their members to preserve values of their currencies, why have they instead steadily debased them over the last century? 
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February 05, 2013, 05:28:01 PM
 #14

That UK chart is interesting... US debt recently went above 100% of GDP (it had previously only reached this level during WWII), but the fact that the UK recovered quite well from debt at 2.5 times GDP is fairly impressive.

I think the US is going to see some pretty quick inflation in coming years, as well as more taxes, in order to pay off the debt they have accumulated.
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