Counter to "Why Bitcoin is dropping ...buying." AMA format / doomsday debunked

[btc_n_economics]

Hi everyone.

I see the spreading of a lot of misinformation in the thread referenced above and in these forums - info that is either based on incorrect premises or a misunderstanding about how the financial system works in the United States.  I work in the financial investment industry and want to clear things up so that people do not scare you into buying into their own agenda.  So what I want to do is debunk some of these misconceptions with facts, not opinions or theories, about how our financial system works in the United States.

So please, ask me anything or tell me why you think the US is "going bankrupt" or the Federal Reserve "prints money" or fiat is dead or petrodollar or the implosion of the dollar, and I will respond.  To start things out I can start by saying that the United States is not bankrupt or anything close to it.  A nation which can print its own currency, tax output and has no foreign-denominated debt can never go bankrupt.  The national debt will never be paid down nor does it need to be and this is not a problem.  The government could issue only very short government debt and essentially controls the interest it pays on its own debt, if it were to ever become a problem.

Anyhow, let's hear your doomsday scenarios!

[zeroday]

For sure, USA will never go bankrupt because its debt is denominated in USD and they can issue that currency in unlimited amounts.

The rest of the world goes bankrupt instead

[jaredboice]

Translation: "I see the spreading of information against the banking oligarchy, and I came here to dispel of these facts so that we can continue to enslave humanity.  Don't listen to these bitcoin/liberty mumo-jumbos.  Give us your money and your freedom."

[HeliKopterBen]

[twiifm]

Hi everyone.

I see the spreading of a lot of misinformation in the thread referenced above and in these forums - info that is either based on incorrect premises or a misunderstanding about how the financial system works in the United States.  I work in the financial investment industry and want to clear things up so that people do not scare you into buying into their own agenda.  So what I want to do is debunk some of these misconceptions with facts, not opinions or theories, about how our financial system works in the United States.

So please, ask me anything or tell me why you think the US is "going bankrupt" or the Federal Reserve "prints money" or fiat is dead or petrodollar or the implosion of the dollar, and I will respond.  To start things out I can start by saying that the United States is not bankrupt or anything close to it.  A nation which can print its own currency, tax output and has no foreign-denominated debt can never go bankrupt.  The national debt will never be paid down nor does it need to be and this is not a problem.  The government could issue only very short government debt and essentially controls the interest it pays on its own debt, if it were to ever become a problem.

Anyhow, let's hear your doomsday scenarios!

You realize they're all teenagers or twenty somethings in here don't you?  Smarmy arrogant kids.  I used to have your attitude trying to help folks get better understanding of economics and markets.  But now I just entertain myself watching them suffer

[Foxpup]

I see the spreading of a lot of misinformation in the thread referenced above and in these forums - info that is either based on incorrect premises or a misunderstanding about how the financial system works in the United States.

So? We've got people here who believe in perpetual motion machines; that the world is being controlled by Jews, lizards, and/or Jewish lizards; that aliens walk among us; that humans can survive without food; and IPU knows what other nonsense. The Speculation forum in particular attracts many people who don't understand how financials markets work or even basic economics for that matter. These people are immune to basic logic, and I doubt you'll be able to convince them of anything, though you're of course welcome to try.

I didn't even bother reading the thread you're referring to, as the whole premise is ridiculous on its face and really not worth responding to at all.

I work in the financial investment industry and want to clear things up so that people do not scare you into buying into their own agenda.  So what I want to do is debunk some of these misconceptions with facts, not opinions or theories, about how our financial system works in the United States.

If you think that'll help.

So please, ask me anything or tell me why you think the US is "going bankrupt" or the Federal Reserve "prints money" or fiat is dead or petrodollar or the implosion of the dollar, and I will respond.

I can't speak for the rest of the forum, but I don't think any of those things, except perhaps for the implosion of the dollar. Though I don't think it's going to happen anytime soon, of course, or that it'll be so sudden that nothing can be done about it when it happens.

To start things out I can start by saying that the United States is not bankrupt or anything close to it.  A nation which can print its own currency, tax output and has no foreign-denominated debt can never go bankrupt.  The national debt will never be paid down nor does it need to be and this is not a problem.  The government could issue only very short government debt and essentially controls the interest it pays on its own debt, if it were to ever become a problem.

This is Economics 101. Tell us something we don't already know.

[8up]

LOL. Best thread ever!

The problem with the Dollar - is trust. And this is why OP is apperaing here. Bitcoin is all about trust. The economy is just another playground, which will (always) build around trust. Like it did with the Dollar for the last 100 years.

Edit: I might add, that it's also about the trust in a political system that has seen its best days. When have you see the U.S. standing up for humanity and civic liberty the last time?

[btc_n_economics]

Surprisingly logical replies so far (except for the person claiming something insane about me silencing people).

So please, ask me anything or tell me why you think the US is "going bankrupt" or the Federal Reserve "prints money" or fiat is dead or petrodollar or the implosion of the dollar, and I will respond.

I can't speak for the rest of the forum, but I don't think any of those things, except perhaps for the implosion of the dollar. Though I don't think it's going to happen anytime soon, of course, or that it'll be so sudden that nothing can be done about it when it happens.

Curious to hear why you think that is?  The truth is that a local currency is almost always dependent on inflation to keep its value - that is why people would not accept UST at a low rate, they will want higher rates to justify the higher inflation - and the US does NOT have an inflation problem, nor does most of the developed world.  In fact, it is quite the opposite.  This is probably the most important issue here that people are saying will happen - a hyper-inflationary spiral which kills the USD.  I think we should talk more about this because it is pretty important!

As long as the rest of the world believes that our government can tax citizens and pay interest on its debt, the international community will have a demand for dollars.  Demand for dollars is not only buying and selling of goods - most of the time it is transfer of US Treasurys, which act as cash equivalents.  So if people think they will get paid back on their UST, they will have no problem dealing with the US and holding our debt.  And this payments, we agree, will always be made.

In the past countries "blow up their FX" because their economy relies too much on one product - like oil and Russia or agriculture and Argentina in the mid 1900s or Venezuela today - or rely too much on foreign capital flows to operate - like many countries during the Asian Currency Crisis of 1997/1998.  The US does not have this problem.  If you think the USD will collapse, I assume you think that many many other countries will have gone down first, since the USD is the most stable, liquid and widely accepted form of payment in the world (again payments are usually in UST, not dollars for candy bars, on aggregate).

[podyx]

  A nation which can print its own currency, tax output and has no foreign-denominated debt can never go bankrupt.  The national debt will never be paid down nor does it need to be and this is not a problem.  The government could issue only very short government debt and essentially controls the interest it pays on its own debt, if it were to ever become a problem.

[btc_n_economics]

http://cdn.meme.am/instances/500x/52353817.jpg

Judging by your name I assume you fall into the "inflation is just around the corner and hyper-inflation is just around that corner so USD is worth nothing" crowd.  Amirite?

[spazzdla]

Alright, why does any country that attempts to sell oil for anything but USD get bombed back into the stone age?

[btc_n_economics]

Alright, why does any country that attempts to sell oil for anything but USD get bombed back into the stone age?

I'm not familiar with any countries that this happened to? Countries are free to transact in any fx they like. They choose the USD because of reasons posted in my previous post. Mainly, it's stable and widely accepted.

[Wilhelm]

For sure, USA will never go bankrupt because its debt is denominated in USD and they can issue that currency in unlimited amounts.

The rest of the world goes bankrupt instead

Try buying foreign products with pieces of toiletpaper.....

[Wilhelm]

Alright, why does any country that attempts to sell oil for anything but USD get bombed back into the stone age?

My assumption....

Because oil is the only backing for the USD.
If people buy oil in any other currency the USA gets screwed over since there is no more demand in USD.
Having control over the oil supply effectively gives control over every country requiring it.

Power == Money == Power

[btc_n_economics]

Alright, why does any country that attempts to sell oil for anything but USD get bombed back into the stone age?

My assumption....

Because oil is the only backing for the USD.
If people buy oil in any other currency the USA gets screwed over since there is no more demand in USD.
Having control over the oil supply effectively gives control over every country requiring it.

Power == Money == Power

Not really. The USD demand has little to do with oil and more to do with products we export and buy. If you sell oil in usd, the person you bought it from sells usd and you buy usd, so the net is zero demand for usd. The country USA doesn't control oil supply except for oil we make in USA but even that is controlled by thousands of individual firms. So it doesn't help usd demand and is not controlled by the US. If anything marginal supply is controlled by opec, which the US is not a part of.

[Foxpup]

Curious to hear why you think that is?  The truth is that a local currency is almost always dependent on inflation to keep its value - that is why people would not accept UST at a low rate, they will want higher rates to justify the higher inflation - and the US does NOT have an inflation problem, nor does most of the developed world.  In fact, it is quite the opposite.  This is probably the most important issue here that people are saying will happen - a hyper-inflationary spiral which kills the USD.  I think we should talk more about this because it is pretty important!

Well, yes, the US does have an inflation problem, but that's not the main problem or even a particularly important one in the grand scheme of things. In particular, I don't believe the US dollar is going to go the way of the Zimbabwe dollar, like some people here think. Inflation alone is almost certainly not going to be what kills the US dollar.

As long as the rest of the world believes that our government can tax citizens and pay interest on its debt, the international community will have a demand for dollars.  Demand for dollars is not only buying and selling of goods - most of the time it is transfer of US Treasurys, which act as cash equivalents.  So if people think they will get paid back on their UST, they will have no problem dealing with the US and holding our debt.  And this payments, we agree, will always be made.

And here is the problem. There are growing indications that the rest of the world does not think that, and other powerful countires (notably China) are trying to move away from the US dollar as a reserve currency. This is not unexpected - no currency has remained a reserve currency for much more than a century - and it's certainly not going to come without warning, but it's definitely going undermine the value of the US dollar and radically impact the US economy. Will there be a recession? Very probably. Will the US recover? Again, probably. Will there be an apocolypse? Highly doubtful.

In the past countries "blow up their FX" because their economy relies too much on one product - like oil and Russia or agriculture and Argentina in the mid 1900s or Venezuela today - or rely too much on foreign capital flows to operate - like many countries during the Asian Currency Crisis of 1997/1998.  The US does not have this problem.  If you think the USD will collapse, I assume you think that many many other countries will have gone down first, since the USD is the most stable, liquid and widely accepted form of payment in the world (again payments are usually in UST, not dollars for candy bars, on aggregate).

Certainly, many other countries will undergo economic collapse before the US. This appears to be already happening.

[B.A.S.]

The idea of the USD petrodollar was conjured up after WWII and implemented in the late 60s and early 70s during Nixon's presidency as mostly a quest for power; the US could offload some of its inflation and simultaneously increase demand for the US dollar. The US is the largest oil producer in the world, the oil agreement gave them (Saudi Arabia) military protection and arms in exchange for denomination of oil sales in USD. The point of the agreement was to offload some of the US economic inflation as those dollars never entered into the US economy, but most importantly to gain economic power over the one resource that rules them all.

Most countries continue to buy oil in USD because of the protection (well used too in a way) it affords against larger non-allied countries, pirates and other rogue states. Civilization and the military need oil; most importantly, the military. As long as oil is priced in USD, the US government can continuing printing dollars to pay for it and to maintain reserve currency status. If the oil agreement folds, the US can continue printing money, but the economy will suffer. This is one of the ways the US became so big so quickly.

The US looks like its suffering from Dutch Disease with its export being currency and not natural resources. Once the currency well dries up, banks will lose some power and the US will begin a multi-decade race to once again ramp up manufacturing (Made in America TM) to try to mitigate the loss. Problem with this will be that because of the eventual USD decoupling, it will be a race to the bottom.

This is where I believe Bitcoin comes in. SDRs under the guidance of the IMF are nothing new; essentially, a world currency basket to hedge currency volatility. Dump all your country's debt into an SDR and well, you know the rest.

[btc_n_economics]

As long as the rest of the world believes that our government can tax citizens and pay interest on its debt, the international community will have a demand for dollars.  Demand for dollars is not only buying and selling of goods - most of the time it is transfer of US Treasurys, which act as cash equivalents.  So if people think they will get paid back on their UST, they will have no problem dealing with the US and holding our debt.  And this payments, we agree, will always be made.

And here is the problem. There are growing indications that the rest of the world does not think that, and other powerful countires (notably China) are trying to move away from the US dollar as a reserve currency. This is not unexpected - no currency has remained a reserve currency for much more than a century - and it's certainly not going to come without warning, but it's definitely going undermine the value of the US dollar and radically impact the US economy. Will there be a recession? Very probably. Will the US recover? Again, probably. Will there be an apocolypse? Highly doubtful.

It's actually not a problem at all.  Those countries have their own agendas and reasons for doing deals which are political in nature.  China and Russia doing deals on the side means nothing when the rest of the world is not following suit.  If you want to see if people believe in the ability of the US to tax, look at the USD at ten year highs, look at US Treasury yields approaching multi-decade lows.. your assertion that people are losing faith is based on no facts, you are ignoring all the evidence to the contrary.  Let's just say you are right and the US loses it's status.. who is it going to go to?  China with their fabricated economy that no one has faith in?  Or Europe which is teetering on collapse?  There is no one else.  Full stop.  Period.  Besides even if it does happen, that is not a kiss of death.  Great Britain was just fine after they lost reserve status, their economy did not collapse and the world kept spinning.  I'll tell you one thing, it sure as heck won't be Russia or Brazil or China accepting BTC for their goods and services.

Let's step back and ignore what the market is telling you and also put aside our theories for a second and think:  why on Earth would the US all of a sudden not be able to tax its citizens and pay interest on its debt?  That is the fundamental question.  We have a powerful military to protect us, we have one of the best economies in the world and we have the best legal system in the world.  There are no rational or logical reasons to think that the US is on the decline or the dollar is doomed or anything close to that.  And looking at interest rates and FX strength you can see the world does agree with that statement.

[Wekkel]

Let's step back and ignore what the market is telling you and also put aside our theories for a second and think:  why on Earth would the US all of a sudden not be able to tax its citizens and pay interest on its debt?  That is the fundamental question.  We have a powerful military to protect us, we have one of the best economies in the world and we have the best legal system in the world.  There are no rational or logical reasons to think that the US is on the decline or the dollar is doomed or anything close to that.  And looking at interest rates and FX strength you can see the world does agree with that statement.

I think this is were it becomes interesting.

[btc_n_economics]

As long as oil is priced in USD, the US government can continuing printing dollars to pay for it and to maintain reserve currency status. If the oil agreement folds, the US can continue printing money, but the economy will suffer. This is one of the ways the US became so big so quickly.

The US looks like its suffering from Dutch Disease with its export being currency and not natural resources. Once the currency well dries up, banks will lose some power and the US will begin a multi-decade race to once again ramp up manufacturing (Made in America TM) to try to mitigate the loss. Problem with this will be that because of the eventual USD decoupling, it will be a race to the bottom.

This is where I believe Bitcoin comes in. SDRs under the guidance of the IMF are nothing new; essentially, a world currency basket to hedge currency volatility. Dump all your country's debt into an SDR and well, you know the rest.

The US does not need oil to be priced in USD to "print money".  This is a fundamental misunderstanding of the way our monetary system works.  It is not something that can be argued because it is a fact like 1+1=2.  The Federal Reserve can create reserves out of thin air.  This is what people call "printing money".  But it is not actually money printed into our economy as you say.  The banks have to lend in order for new money to be created outside of the federal reserve system.  Banks only lend if qualified borrowers want to borrow.  This is why we have not had inflation despite the Fed "printing" trillions of dollars over the last few years.  The reserve simply sit on the banks balance sheets, there is no mechanism to turn them into cash besides market forces like demand.

Why would the US not be trying to ramp up manufacturing now, and instead waiting for some event?  They are manufacturing more today.  Every individual company tries to maximize profits, there is not one God of USA that says hey, we should all do manufacturing real good now.  It's thousands of companies that work independently in the economy to make a buck.

I'm afraid I do not know the rest.  What I do know is that you are talking about getting rid of volatility with BTC which is down 70% in a year.  That makes no sense.  Look at a chart of the USD over the last ten years and compare it to BTC - which would you rather hold your $ in if you are looking for stability and not wild speculation?  You have ideas about FX and the USD but they are not based on facts and are non sequitur.