Comment by JumpCrisscross
2 months ago
> Dollars are currently only in demand for short-term use in transactions
This is all currencies. You store value in debt. You spend in the hot currency.
> no one wants to hold them because they devalue and will continue to do so at an accelerating rate
Literally what Treasuries are for.
> everyone should think of their checking account as something that they pay negative real interest on for the privilege of being able to transact with the rest of the world
One, you shouldn’t be storing wealth in cash-like instruments, that’s literally using currency wrong (and has been across human history). Cash is for transacting.
But in today’s economy, you generally can find checking accounts with pay around inflation. And if it really worries you, you can buy TIPS.
> One, you shouldn’t be storing wealth in cash-like instruments, that’s literally using currency wrong (and has been across human history). Cash is for transacting.
Talk to Mr. Buffet and see what he thinks about this with his mountain of cash… Cash being just transacting might be the most insane thing I’ve read here this year, well done
I think it speaks volumes that Buffet has nowhere else to put that ~$382B in cash; that speaks more about current asset valuations ("everything bubble" [1]) more than that US cash is trash. If assets classes are inflated, US treasuries are no longer a safe haven, gold and other precious metals are overbought, where do you go? There is no immediate answer, imho, but only a slow burn as the world reconfigures around the US not being a superpower, the dollar not being a reserve currency, etc. As Workaccount2 comments downthread, "The dollar sucks but everything else sucks more. [2]"
[1] Look around: Bubbles are everywhere. - https://news.ycombinator.com/item?id=46407032
damn shit is really bad, sky is failing, bubbles are bursting… any other clickbait I need to read up on before I go spend the last of the good days with my kid…?
coolest thing about us in the 50’s is that we’ve seen and read this shit many times before and don’t fall the “bubble du jour” or “shit’s really bad this time…” - especially readers here on HN, bubbles be bursting for yeeeears now, recession is coming, crashes are coming… genuinely am sitting here scared and shook about Buffet hoarding cash, that never happened before…
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> Talk to Mr. Buffet and see what he thinks about this with his mountain of cash
When finance types say "cash," we mean cash and cash equivalents. Berkshire Hatahway doesn't literally hold cash, they hold yield-generating cash equivalents.
> Cash being just transacting might be the most insane thing I’ve read here this year, well done
I strongly recommend a home economics course if this is the case. If you want to go deeper, anything about monetary theory
> I strongly recommend a home economics course if this is the case. If you want to go deeper, anything about monetary theory
I have a degree in Finance so it is not all that necessary but maybe a 2025/26 refresher course will do me good :)
Does he really hold cash? Or does he hold TIPS for example, and people colloquially refer to it as "cash"? I assumed it's the latter since it makes much more sense.
> Does he really hold cash?
No. Berkshire Hathaway isn't a squirrel.
> people colloquially refer to it as "cash"?
Cash and cash equivlants are referred to in finance as cash, since they are–for all practical purposes–equal to it. Except yield generating. Which, if you're not an idiot, is how you hold cash.
This seems a little pedantic, but sure, no one wants to be owed debt denominated in dollars.
> no one wants debt denominated in dollars
Source? Every indication is that dollar-denominated financial assets are tremendously in demand. (What metric are you looking at?)
The Fed has been reducing rates while selling assets, all while U.S. public debt explodes. The Treasury is selling more debt. The Fed is selling debt. Rates went up, and then they went down. That means there is, ceteris paribus, more demand outside the Fed and Treasury than there was when Russia invaded Ukraine.
It isn't cetiris paribus, the Fed rate tells us nothing about demand because they purposefully devalue the dollar. The entire world could be refusing to accept US debt except Broke Boris and they could technically negotiate a 4% rate with just him. Assessing demand for US debt has to be linked to real goods/services/assets somewhere along the line or there just isn't anything to say. The BRICS arguably make up around 40% of the world's economy and they appear to be either slowly evacuating or less-interested in treasuries [0]. It is by no means clear that US debt demand is up or even stable.
Great time to own gold, unfortunately. I wish mine had been a bad purchase but with all the "real growth" it has been experiencing I'm probably going to need a bigger vault box.
[0] https://ticdata.treasury.gov/resource-center/data-chart-cent...
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I wish I was more sophisticated in these areas. But I'm not. My fear isn't so much reduction in USD is our American stupidity in current account deficits, and debt which is to precisely point fingers at our insipid Congress. The last gasp --- which proved to be all air --- was Paul Ryan who was gonna try to fix things. Since that time it's a combination of we didn't, and we can't, plus reactionary moves. In so doing we're just wasting our soft power here. The other head wind is trade deficits. But unlike that, our budget and it's knock on effects is more directly in control.
I once ran into Tom Keene of Bloomberg news around 2014. In discussing this his view of Washington's view was we can print whatever we want. I was surprised he didn't criticize that ... but it's stuck we me ever since.
The 10-year Treasury rate has more than doubled since 2001. I skipped Econ 101 - If you have to pay people twice as much to take your debt, is there more or less demand for it?
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You are mistaking owning US debt and having your debt denominated in dollars. Many foreign countries find it desirable to own US treasuries, but they don't want to borrow dollars and have a dollar-denominated debt. When that happens, and your own currency is devalued, you still owe the same number of dollars. You now have to buy these more expensive dollars to repay your dollar-denominated debt.
People want to be dollar debtors, not dollar creditors. When I said no one wants dollars, I was referring to people's willingness to hold actual dollars or obligations that pay them dollars in the future.
Your other comment mentions the AI bubble, and also makes me think you don't understand what I'm saying, since we seem to agree about what happens to dollars and debt in a bubble. Companies are glad to take dollars now in exchange for owing dollars in the future (something they would be less willing to do if the dollar was strong). They then turn around and spend those dollars on GPUs and electricity. They think they can get more done with a dollar this quarter by trading it to NVIDIA or a power company than by holding T bills.
Fed rates do not track the real demand to be a dollar creditor. That's kind of the point, the Fed is the lender of last resort. If no one wants to give dollars now for more later, then the Fed becomes a creditor to the treasury at an arbitrary rate.
I think you’ve destroyed his whole argument.
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A checking account that pays around inflation in interest doesn't net out to that unless you don't pay any tax on the interest.
Try that same argument with a zero coupon bond. It works fine because you don't have any coupon payments, thus no income tax until the principal is repaid at maturity.