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  • OT Asset backing of the US$

    One for the economists. When business analysts look at the state of a company one of the things they check is the value of the issued shares compared to the value of the company's assets. If the asset value per share exceeds the value of the share all is well, if the reverse is true things are not so rosy.

    While the comparison between what works for a company and what works for a country may not be entirely valid, looking at USA Inc, what is the face value of all the printed money, treasury bonds, and other securities on issue (shares) and how does that compare to the value of the assets of the USA?

  • #2
    Its a good point Bob, but its a tough one to tie down, Many companies are disconnected from "asset" values --- some may be mostly R&D with very little to show for in the form of hard core assets, Its not to say the'll never make any money, they could turn into financial giants if their research pans out,
    Like so many things it turns into a "gray area"
    It can be picked apart to where the word asset turns gray.
    Even trying to pin down a country in this way is difficult as then you end up trying to judge the state of flux within the tangibles, is it something of real value -- or just a pipe dream, and where do you draw the line?

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    • #3
      There is probably no significant country on earth which has actual assets backing every monetary unit issued.

      And, a snapshot on one day is totally invalid the next.

      NOT ONE of the monetary units has any intrinsic value, even gold. So a valuation based on gold, for instance, is invalid. Plus, with gold not "tied" to a monetary unit, the value changes. ($35 per ounce, anyone? would YOU sell at that price?)

      Then again, the "value" of any other asset is variable against the monetary unit, and so one dollar/yuan/peso may need to be backed by more or less of whatever asset you are talking about.

      These things have value ONLY because YOU SAY THEY DO.

      When YOU stop agreeing that there is a monetary or any other sort of value to something, it becomes worthless. Or at least worth "less".

      The "something" may be oil, gold, pieces of paper with promises printed on them (contracts, bonds, stocks and money), or whatever.

      That is the fundamental issue at stake. Enough people "declare" or "decide" that a particular item has no value, and then nobody wants it, because they cannot ever sell it.

      In this case it is threatening to be stocks, mortgages, and to a large extent, commercial paper.
      1601

      Keep eye on ball.
      Hashim Khan

      Comment


      • #4
        OT- Asset backing

        Jerry, the Irish Government is backing all monetary deposits in Irish Banks.

        Causing a bit of a flutter amongst the fly by nights in UK and Europe.

        Norm

        Comment


        • #5
          How in the hell can Eire underwrite all of that? It beggars belief that their treasury could be that robust-this seems like the kind of well intentioned confidence play that can backfire tragically. I'm not sure how much comfort that I'd take from this if I still had an Ulster Bank account, or an I-O-M one for that matter.

          To the original question: its different with countries because of the practical difficulties of claiming the collateral in the event of default.

          Comment


          • #6
            Ot-

            Oh, dear, I do wish that someone else had done economics.
            Guaranteeing assets is dead easy. look at a British note.
            It says, I promise to pay the bearer x Pounds. Not X pounds or ounces of gold or 1.2 Euros to the pound.
            The Euro is even more hilarious. The Irish use the Euro but you cannot interchange an Irish bank cheque for a French one. It involves a penalty or commission.

            It's called 'Pontoon' or something similar in some smoky rooms. It's called High Finance in other places.
            Whatever it is, the banker always wins

            Comment


            • #7
              sorry Bob, i gotta blow this one up

              When business analysts look at the state of a company one of the things they check is the value of the issued shares compared to the value of the company's assets. If the asset value per share exceeds the value of the share all is well, if the reverse is true things are not so rosy.
              They do not look at this as it doesn't take into account any liabilities. What they may look at, almost for something to do as it doesn't mean much, is the book value of the equity (assets - liabilities) vs the market capitalization - # of shares x current price.

              your paragraph says that if the assets are great than the market cap all is well. I'll take it as equity book value rather than assets but its still not true - market cap will and should almost always be higher than book. There are several reasons for this. First off, assets are record conservatively based on the lower of market value and cost less depreciation. Secondly, publicly traded companies tend to be valued based on the earning power - why else would you want to own them right?

              If at whatever multiple the market will pay for a given business/industry, multiplied by the current earnings equals a value that is less than the book value (what your statement said is good) this means the net book value is greater than the market cap. If so, that assets - liabilities > stock price, well then the company shouldn't be in business. Shareholders would be better serve by liquidating and returning them their money. For example, if all the assets net of liabilities were worth $100, and the stock price was $50 - which would be better serve shareholders, having the $50 or $100?

              on rare occasions when the company value is less than book it means they are rapidly going out of business or it is a extraordinary buying opportunity. In practice, it doesn't happen unless the market feels the assets are severally impeded and should be written down or they are going belly up and liquidation being imperfect and sometimes expensive means they may not realize book value. They should be above book as that the point of the company; to take a bunch of assets and through how they're utilized make it worth more as an income multiple than the value of assets buy themselves. Why else an investor ever give them money to go purchase the assets with.

              In accounting, the different between what the shares are worth and book value only becomes an entry when there's an acquisition - and its called goodwill. its the dollar amount between actual value and book - if a company's real value has no good will (market<book), it shouldn't be in business and liquidation might maximize investor return

              While the comparison between what works for a company and what works for a country may not be entirely valid, looking at USA Inc, what is the face value of all the printed money, treasury bonds, and other securities on issue (shares) and how does that compare to the value of the assets of the USA?
              I don't know that this comparison makes sense; I suppose the big buyers of bonds ultimately are charged with this, assessing the risk of a US bond. Though, through the principal of eminent domain, I suppose the debt is well secured.

              In trying to do a analogous comparison between a companies market value and book, remember, it was almost nonsensical because stocks are valued on earnings whereas book is the lower of depreciated cost or current value. You're lumping different things together here, such as money supply and securties. For example, money supply alone is a complex, M1, M2, M3 and what has it to do with bonds - one's a promise to pay and one is not. What do you group into your list of securities?

              However the biggest problem is that most asssets aren't securitized. Private businessess, the equity in your home, the clothes in your closet for that matter. So even if you could create an accurate list of credit (what would be included; why would you include money and stocks, what about stock in private companies, what about mortages or commerical paper, then are you double counting those things because they also show up on a lenders balance sheet as asset, etc etc), how would you estimate the value of the underlying assets (basically every including the land, that exists)

              I sort of know what you getting at with the question, is the value overstated, like a balloon with too much air....but value of what? A company is such an easy little sound bite to analyze, a nation is not. Its impossbile to fully understand the assets and much of the securities you mention are really internal credit - the equivelant of departmental budgets and transfer payments within a company that of course don't factor into the net finanical position
              Last edited by Mcgyver; 09-30-2008, 10:53 PM.
              .

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              • #8
                Economic facts?

                In these exciting days, when we're beginning to suspect that money may not actually exist, a good source of real info is wikepedia.

                I found this gem yesterday when trying to find our exactly how much the US Treasury takes in as taxes each year (answer around 2 trillion)

                This should answer many of your questions, assuming any of it is actually true, as they may be talking about monopoly money :-)
                Richard in Los Angeles



                http://en.wikipedia.org/wiki/United_States_public_debt

                Comment


                • #9
                  Originally posted by RPM
                  I found this gem yesterday when trying to find our exactly how much the US Treasury takes in as taxes each year (answer around 2 trillion)

                  This should answer many of your questions, assuming any of it is actually true, as they may be talking about monopoly money :-)
                  That's a great Wiki entry Richard, and the figures correlate well with what I've seen in the WSJ:

                  As of September 2008, the total U.S. federal debt was approximately $9.7 trillion, about $31,700 per capita (that is, per U.S. resident). Of this amount, debt held by the public was roughly $5.3 trillion.[3] Adding unfunded Medicaid, Social Security, Medicare, and similar obligations, this figure rises to a total of $59.1 trillion, or $516,348 per household.[4] In 2007, the public debt was 36.9 percent of GDP [5], with a total debt of 65.5 percent of GDP.

                  The total debt has increased over $500 billion each year since FY 2003, considering both budgeted and non-budgeted spending.
                  "Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did."

                  Comment


                  • #10
                    Originally posted by aviemoron
                    Jerry, the Irish Government is backing all monetary deposits in Irish Banks.

                    Causing a bit of a flutter amongst the fly by nights in UK and Europe.

                    Norm
                    Backing it with what? If more currency then that's not much backing when paper money is losing face value.

                    Comment


                    • #11
                      Originally posted by lazlo
                      As of September 2008, the total U.S. federal debt was approximately $9.7 trillion, about $31,700 per capita (that is, per U.S. resident).
                      It is an interesting number but nobody's been around asking me to pay my bit. I'd bet that's true for everyone. And as it happens, my contribution (since retiring) is zero so I'm not part of the solution. That means somebody else will have to pick up my part of it. Then there's that growing percentage of people who pay no taxes, and also those who pay no taxes but live on welfare. Who ever is picking up my bit of it will also have to pay for those people.

                      I'll just repeat here that it's very painful to be successful in this country.

                      I wonder how much of that debt has been carried forward from the bailout of the great depression and WWII, the police action in Korea, the police action in Vietnam, and the peace keeping actions in Somalia, Bosnia, and Haiti.

                      Comment


                      • #12
                        Originally posted by dp
                        As of September 2008, the total U.S. federal debt was approximately $9.7 trillion, about $31,700 per capita (that is, per U.S. resident).
                        It is an interesting number but nobody's been around asking me to pay my bit. I'd bet that's true for everyone. And as it happens, my contribution (since retiring) is zero so I'm not part of the solution.
                        We don't have the money to pay for the War or the bailouts, so the Fed is issuing T-Bonds to China, Russia, and the Gulf-State "Sovereign Wealth Funds"

                        In other words, we're taking out loans with the Russians, Chinese and Arabs with the US as collateral, to pay for the War and the Wall Street Bailout.

                        That's a big reason why the value of the dollar has been free-falling for the last 6 years -- our debt to GNP ratio is growing out of control...
                        Last edited by lazlo; 09-30-2008, 04:44 PM.
                        "Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did."

                        Comment


                        • #13
                          Value tied to GNP

                          Hello Everyone
                          I am under the impression that the US dollars value is tied to the GNP.
                          Therefore we export hundreds of thousands of jobs every year and ship our manufacturing overseas as fast as we can. Then we appear to be dumbfounded when the value of our dollars go down. DUH I wonder what caused that. How stupid can we get. Then we have the Federal Reserve
                          (what a misnomer that is. It is neither federal or a reserve) Its a money printing service privately owned. The more they print the lower the value.
                          If you put 100.00 in a cookie jar for 10 years and guarded it 24 hours a day.
                          At the end of 10 years in all probabilities it would not purchase the same items it would when it was put in the cookie jar. Where did the value go?
                          Inflation from the increase in money printed. Or consider it a loan you made to the government. You see you have been taxed again without being asked.
                          Say hello to the Federal Reserve System. Now you know why they wanted to discontinue the gold standard. Its difficult to steal from.
                          Chuck

                          Comment


                          • #14
                            Yankee1 I see you understand with is going on.

                            So why do we have this financial mess? Why is the dollar unable to maintain its value? What makes a piece of paper with a 10 printed on it more valuable then a similar piece of paper with a one printed on it? Consider this scenario.

                            You are a store owner and I come in and ask for 2 pounds. You then look at me with a blank stare and ask two pounds of what! Two pounds of butter, nails, grass seed, just what do I what two pounds of? So OK I say I want two pounds of grass seed. You then go get me my grass seed and say that will be $5 please.
                            I then ask $5 of what?

                            Pounds and dollars are both units of measure. So just as you cannot sell me two pounds of something without first knowing what it is I want, I cannot give you $5 worth of something without first knowing what something is.

                            At one time you could have said $5 worth of gold or maybe silver. But of course the bankers found that to be to restrictive on their ability to make loans and manage the money supply so they got the gold standard dropped.

                            Which then leaves us with the question just with is this unit of measure “the dollar” measuring and how do we determine its value?

                            Comment


                            • #15
                              Accountability

                              That is one very interesting relevant and pertinent question Bob.

                              For those that missed or ignored it, here it is again:
                              Originally posted by bob ward
                              One for the economists. When business analysts look at the state of a company one of the things they check is the value of the issued shares compared to the value of the company's assets. If the asset value per share exceeds the value of the share all is well, if the reverse is true things are not so rosy.

                              While the comparison between what works for a company and what works for a country may not be entirely valid, looking at USA Inc, what is the face value of all the printed money, treasury bonds, and other securities on issue (shares) and how does that compare to the value of the assets of the USA?
                              Now if I understand the underlying question here, it is asking whether the US Government is solvent or not based on corporate accounting?

                              Does what it owes - both "funded" and "unfunded" exceed its capacity to pay based on its net worth?

                              In other words, should it be "wound up" or "bailed out"?

                              Is it or can it be bankrupt or bankrupted?

                              If so, what it the liability of its Directors, Executives and Share-holders (tax-payers)?

                              How much are those debts/bonds, when are they due, what is their net worth and who are they held by and on what terms and conditions. Can they they be "called-in/up" by the bond-holder? What if the US Government either defaults or wants to extend or "roll-over" those bonds? And what if the issuer/holder either refuses or imposes new more stringent and costly conditions?

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