Lofty/LEFTY ONE/Chris
Now that you've got my name right at last, what would you like me to call you?

The groupthink is worse than the belief that all is well. It's the belief that we can't do any better than we are, and that governments will some day need to reach a position of zero debt.

Governments impose taxes to fund things. Without taxes to create a demand for it, the money they issue would have negligible value. And without taxes to take money out of the economy, government spending would be far more inflationary than it currently is. And just because there's no limit to the amount a country can borrow doesn't mean there's no consequence. Running too big a deficit is too inflationary.

Fixed currencies are much more susceptible to attack than floating currencies. With floating currencies you're just as likely to lose money than make it, and you generally can't make money by betting on the currency reading a value that it's not likely to reach if you do nothing. Whereas with fixed currencies, it's relatively easy for currency speculators to get rich at the expense of the government that's fixing the currency. With the single exception of China, which has enormous ability to defend its currency's value, all fixed currencies are vulnerable to attack. And even China would be better off floating its currency IMO.

What is it you regard as "robbing Peter to pay Paul"?

If Japan borrowed US dollars (or any other foreign currency) then all the creditors heading for the exit would be a serious problem. But Japan only borrows in Yen. If the Yen falls, that's their creditors' problem not theirs. And the value of floating currencies is self correcting; the lower the yen goes the more it favours exports and the better an investment it becomes.

BTW your answer to Bazz is completely wrong. Special drawing rights are not a fiat currency, firstly because there's no fiat (as nobody demands taxes be paid in that currency) and secondly because they're not a currency, they're a basket of currencies. See https://en.wikipedia.org/wiki/Special_drawing_rights

Aidan
You choose.
As you are aware zero debt was achieved in Australia’s history. I can’t remember when or for how long. It is also a fact as money and debt are two sides of the same coin; if all debts were paid off then there would be no money.
I am sorry I don’t understand the first couple of lines, Could you rephrase it.

As the present governments are collectively creating trillions in extra liquidity why is inflation so low?

Have a read of the time Soros broke the bank of England a while back, and see if you think there is no money to be made in currency trading. There are many traders in the industry who make millions a year using algorithmic programs on computers. China along with a few other with fat sovereign wealth funds have an advantage, but the sharks are happy just being in the middle of every time money moves from one currency to the another millions of times a day.

My analogy I guess was a bit to obscure. What I meant was that if you owe a person money and they ask for it back and you don’t have it, what can you do. One solution is borrow from someone else. Or as is done with most big loans such as mortgages/bonds, you simple roll them to the same person.

In Japans case it now owes more than 10 times its annual budget, which has never been done before. You might like to check out how much of the entire stock listed on the stock market, has been bought by the JCB. Japan is the world’s 3rd largest economy, but it seems the JCB is the only one buying any financial product. While it is true that a lower Yen means they can sell more Toyota's etc.

You might also be interested to know how they sell Japanese made Toyota's for 25,000 dollars when the same product made in their Thailand or South African factories sell for 15,000 dollars
Chris

Cont’
So to you’re finally point that I am completely wrong about SDR’s. I read the Wikipedia link, but could find no reference regarding taxation. As I am sure you are aware a fiat currency is one that has no backing of physical worth, I believe the last currency remotely tied to anything was Switzerland (25% gold) , but it is not one of the those convertible to SDR’s.
So they are handed out as is seen fit and their value is based on a basket of fiat currencies, so please explain in your own words why it is not a fiat currency.
Chris

Lefty,

More by good luck than anything else, the Howard government, with Peter Costello as treasurer, achieved zero net government debt. But there was still plenty of money around because there was a record amount of private debt.

Right now inflation's so low because the private sector's reluctant to borrow.

When Soros made his billions at the BoE's expense, the pound was not freely floating. Instead the government were manipulating its value to keep it in the Exchange Rate Mechanism at the (rather high) rate that they'd chosen to join the Euro at. His actions forced Britain out of the ERM, and the pound refloated. And taking the long view, his actions helped Britain, as it never joined the Euro which would've been a far worse fate.

Currency traders make or lose money effectively betting on the future value of a currency. They make far more money when a nation is trying to keep the currency above market value.

Borrowing is not robbing. Your analogy fails.

Japan's central bank is the Bank Of Japan.

And yes, I would be interested to know how they sell Japanese made Toyota's for 25,000 dollars when the same product made in their Thailand or South African factories sell for 15,000 dollars. I'm guessing they have substantial trade barriers?

Fiat currency is backed by government decree (which is what "fiat" means) that it is valid for settling debts. Taxation then gives it its value by creating the debts, and therefore a demand for the currency. Currencies like Bitcoin have no physical worth but are not fiat currencies; their value is purely speculative.

http://en.wikipedia.org/wiki/Special_drawing_rights specifically says they're "not a currency per se". It also says:
One reason XDRs may not see much use as foreign exchange reserve assets is that they must be exchanged into a currency before use. This is due in part to the fact private parties do not hold XDRs: they are only used and held by IMF member countries, the IMF itself, and a select few organizations licensed to do so by the IMF.

Aidan and Bazz

SDR’s came into the thinking at the financial wizards in the 1944 Breton woods meeting when they were planing the post ww2 financial system. They first appeared in 1969, and were created out of thin air by the IMF to help smooth out the financial crises of the day. The last allocation was in 2009 to steady the effects of 2008 GFC which nearly shut down the entire financial system worldwide.

SDR’s are not as you say a fiat currency; in that. when they are created there is no counter party liability as with national currencies. I would argue that makes their creation even more troubling than quantitative easing. They are by definition of the US accounting office annual report an asset, along with paper gold (which is a whole other story) equably troubling to me. These invented products are IMO created to give the illusion a country is not broke when it is.

The US$ is the reserve currency of the world, which took over from the fading empire of Great Britain in 1913, the same year the FED was created. As the owner of the reserve currency, everyone else has to swap their currency to buy any real asset (stuff), because all stuff is priced internationally in the reserve currency of the day.

In resent time there have been three men who challenged the idea that the all mighty dollar could not be pushed of its lofty perch.

They were Strauss-Khan, Qaddafi, and Hussein all three were removed one way or another from positions of influence on the world stage. Now before you attack me for being a conspiracy wing nut, please do a little research in the financial ideas all three were working on at the time of their demise, and you will find had their idea’s been implemented, the almighty dollar would have lost a lot of its influence on the world’s financial stage, thus throwing the US economy into even more trouble than it is at the moment.
Chris

Lefty,

With currency trades now done in milliseconds it makes very little difference what currency commodities are sold in. And while reserve currency status does boost the short term value of the US dollar, the effect is very small. Someone else selling oil in Euros, for example, would have no noticeable effect. Indeed far from being worth fighting a war over, the effects of even a total loss of reserve status would be virtually forgotten within a year.

I stand by my earlier comment:
It would be appropriate for the IMF to use special drawing rights to counteract the next GFC in countries that aren't in a position to solve the problem themselves. However the IMF itself is an anachronism, and with hindsight it would've been far better to have avoided the need for its creation in the first place. A much better solution would be to encourage all countries to float their currencies. Once they've done that, there's really no need for the IMF.