Тред №143738

На данный момент версия перевода в таком виде (уже отсмотрено переводчиком, но русскоязычным):


Hyperinflation of the US dollar and its consequences for Euro


Adventurer

11.12.2008


Question:

What are the reasons to expect that after the dollar’s inevitable hyperinflation it will necessarily be devaluated to ruble, for example to the rate of 1dollar = 7 rubles, instead of just returning to the present level of 1$ = 30 rubles? In other words, what are the reasons to believe that Russia will definitely remove the dollar from its bicurrency basket? The rate of 1dollar = 1.3 euros automatically stays the same. If hyperinflation occurs during the time of economic well-being of other countries, certainly there will be a devaluation, but now...Why hyperinflation in the USA will not lead to devaluation of all other currencies in the same proportion?

The USA also reserves the right to throw on the market, in one go, trillions of euros, yens and other currencies stored by the FRS, collapsing for sure the financial markets of the corresponding countries…



Answer:

Economic situation of the countries doesn’t matter here. How the currencies will or could behave during the hyperinflation in the USA will be determined by degree of their integration with the USA. I’ll explain it taking euro as an example.

We consider it a fact that in the second half of 2010 – first half of 2011 in the USA there will be a hyperinflation. Technically this process most likely will be a monetization of financial and physical assets, i.e. money will be allocated by the FRS at the special fixed rate through 4-5 authorized banks for the total redeeming of financial assets and real estate.

What will happen to such financial assets as bonds, credits, etc.? Their value in dollars will remain the same, but as a result of violent devaluation of dollar, their cost in other currencies will fall. Now let's think of how this will affect the EU. A significant part of assets of European financial institutions is the US financial assets. Naturally, I don’t have the exact figure, but it can be estimated approximately.


The sum total of the US financial assets belonging to foreigners in the end of 2007 was $16,049 billion. (1) $10,518 billion of them, i.e. 2/3, were in credits, deposits, bonds and other securities with the fixed nominal value, and also in receivables. $3,108 billion was in corporate shares and in share funds’ stocks, and $2,423 billion – in direct investments. I think, I won’t be mistaken, if I assume that about of 50% of all these assets belong to subjects of Eurozone, i.e. about $8 trillions. If we accept the analogy with distribution of financial assets between sectors of economy in the USA, then about $5 trillion of American financial assets should be concentrated in hands of European financial institutions.

Let's check, making estimate in a different way. According to the ECB (2), European financial institutions in the end of 2007 had about €5247 billion or about $7,600 billion in foreign assets at the euro/dollar rate of 1.45. Taking into account that the world financial market without the US and European markets is not all that big, the figure of $5 trillion in the US assets looks quite realistic.

According to the ECB, the consolidated assets of European financial sector in the end of 2007 constituted about €22,331 billions. Only €3,255 billion of them were in ready European assets, i.e. in securities of all types. €5,247 billion were in foreign assets, out of which approximately €3,500 billion were in the US assets. The rest are credits given in Europe, key assets and other low-liquid assets.

Let's think of what will happen, if hyperinflation in the USA starts and the dollar turns five times cheaper. Cost of the US assets  on the balance of European financial institutes will fall down to €500-1000 billions. Short-term losses will constitute €2.5-3.0 trillions, i.e. 30-40% of all quick assets, and these losses will be impossible to hide. What are the consequences?

- Shares of all European financial institutions instantly fall practically to zero. Accordingly, possibility to attract additional share capital is lost. We’ve just observed that on the example of some US financial institutions.
- Cost of bonds of all banks also falls in times, and their yield flies up to tens of percents as all banks became technical bankrupts. Accordingly, access to the market and interbank loan capital for all banks disappears instantly and completely – nobody will lend them in such situation.
- The depreciated shares and bonds of financial institutions are the securities, in trillions of euros, on credits to physical and legal persons in other financial institutions. Hence, the value of credit portfolios tends to zero, i.e. now cash cannot be received even at the expense of credit portfolios sale.
- Banks try to obtain cash by selling their European and foreign quick assets, bringing about collapse of stock exchange prices. Because the same shares and bonds constitute an essential part of assets of non-financial corporations too, that brings about collapse of quotations of shares and bonds of all European corporations. A state of the European stock markets at that time is best described by the term Armageddon – nominal falling of indices can be down to levels of the beginning of the 70-ies.

Such big-scale processes cause problems and failures of bank payments, transfer of funds, withdrawal of money from deposits and settlement accounts – banks simply don't have the money. Combined with TV news about huge losses of financial institutions and mass bankruptcies of corporations, it all strongly affects population of the EU.

- Investors and depositors at once rush to banks, share funds, broker's offices, insurance and pension funds to withdraw their deposits and investments, justifiably afraid that they will not have enough time to reach them before these institutions officially go bankrupt.
- Legal bodies try to transfer a part of funds from their settlement accounts to the foreign banks – Swiss, British, Japanese, and even Russian.

Under such circumstances the bankruptcy of all European financial institutions is inevitable. Trying to avoid a collapse, the governments take the first emergency measures – they nationalize a part of financial institutions, terminate operations of exchange markets, introduce restrictions on withdrawals from accounts and transfer of funds abroad, together with ECB they allocate several hundreds of billions in stabilization credits to the most odious banks.

But all this is useless – a financial hole is too big and it quickly grows bigger. All financial and non-financial companies are in a state of total lack of liquidity, not to mention that they all are already technically bankrupt. All companies and physical persons try to extract as much debits and debts from the debtors as they can, and to delay payments under their own financial obligations for as long as possible. The credit market actually disappears – when your deposits are frozen, only fools keep paying for credits. The consumer limits his purchases to the bare minimum, striking production a mortal blow. Circulation of money in economy almost completely ceases, as money is not available. Business activity plummets down. Methods of settling accounts that do not require banks – cash payments, barter, promissory notes, etc. – come into use spontaneously, as it was in Russia in 1992.




What should European governments do? Should they simply watch their economies quickly degrade, their financial systems disintegrate and their peoples growing wild? In general there are two options. The first is total nationalization of all economy. It seems to me that Europeans are not yet ready for that, though probability of events developing under such scenario increases in EU by the end of 2013. The second option is a fast total monetization of all financial assets - i.e. a simple redeeming of any financial assets of banks, corporations and population for a ready cash at face value (because there is no time for a real estimation of each asset). A bond? It doesn’t matter what bond it is – here’s cash at its face value. A credit portfolio? Its quality doesn’t matter – here’s cash at its face value. A share? Give it away at the “fair” price! In such way it will be possible to restore order of payments and functioning of financial system and economy within several days. But previously in Europe there existed financial instruments, worth €50 trillion, which lived their own speculative bubble life, were mutually exchanged, absorbed an excess money from economy and bothered nobody. And now they are all monetized, turned into cash. And the generated cash will not go back to former financial instruments. Where is it possible to put €50 trillions of cash, if not into financial assets? To put them under a mattress? It is obvious they will start to filter to the consumer market. To filter means that within a couple of weeks people will spend a little bit on the consumer goods – 2-3% of €50 trillions. A trillion or two. Inflation will sky rocket. It is not necessary to be a genius to guess that all will rush to spend for goods their money that grows cheaper and cheaper. I have given an approximate estimation – about 1000%. Maybe a little less, maybe significantly more. But there are no other options, except military communism or fascist dictatorship.

(1)
http://www.bea.gov/n…tYear=2007

(2) https://stats.ecb.eu…b02_02.pdf


Now think of how much of the said above concerns Russia. It doesn’t concern it at all? Then why should we bring the ruble down into a hyperinflation if there are no fundamental reasons for that as the ruble is practically not invested into any notable US financial assets?