"Full Faith & Credit" when the inmates take over the asylum

[Mdraf]

<--Ray Dalio's video - This is how money works--> Correct up to this point <--Ray Dalio's video - Consequences of helicoptering without productivity-->  ignored by MR

Correct. We agree. But where are we helicoptering beyond productivity?

Ray Dalio is talking about helicoptering to reflate some of the lost private credit — not helicoptering beyond productivity.

Debt to GDP ratio is increasing hockey-stick like

[Gumby]

<--Ray Dalio's video - This is how money works--> Correct up to this point <--Ray Dalio's video - Consequences of helicoptering without productivity-->  ignored by MR

Correct. We agree. But where are we helicoptering beyond productivity?

Ray Dalio is talking about helicoptering to reflate some of the lost private credit — not helicoptering beyond productivity.

Debt to GDP ratio is increasing hockey-stick like

We've already been over this. Robert Schiller explains that Debt to GDP ratio is fairly useless — particularly for a currency issuer.

http://www.project-syndicate.org/commen ... d-delusion

Could it be that people think that a country becomes insolvent when its debt exceeds 100% of GDP?

That would clearly be nonsense. After all, debt (which is measured in currency units) and GDP (which is measured in currency units per unit of time) yields a ratio in units of pure time. There is nothing special about using a year as that unit. A year is the time that it takes for the earth to orbit the sun, which, except for seasonal industries like agriculture, has no particular economic significance.

We should remember this from high school science: always pay attention to units of measurement. Get the units wrong and you are totally befuddled.

Source: http://www.project-syndicate.org/commen ... d-delusion

[AdamA]

<--Ray Dalio's video - This is how money works--> Correct up to this point <--Ray Dalio's video - Consequences of helicoptering without productivity-->  ignored by MR

It's not ignored by MR at all.  MR states that inflation is the only constraint on "money printing." 

[moda0306]

Really the term "helecopter drop" shouldn't be used with anything but deficit spending, and even then we have our trade deficit to contend with (aka, foreign demand for our currency paid for in "stuff").

When the fed buys back bonds they don't use them as collateral or for any economic purposes.  They just sit on them and pay the interest to the treasury.

The video had some errors, one of which was the idea that "printing money" was somehow fundamentally different than the lowering of interest rate, rather than the mechanism used to lower interest rates, and that the bond-repurchase (especially given the nature of our banking system) really makes it mostly a non-event.

[Mdraf]

I know what you guys think and you are wrong.  But since you always insist on having the last word, go for it.

[AdamA]

<--Ray Dalio's video - This is how money works--> Correct up to this point <--Ray Dalio's video - Consequences of helicoptering without productivity-->  ignored by MR

It's not ignored by MR at all.  MR states that inflation is the only constraint on "money printing." 

I know what you guys think and you are wrong.  But since you always insist on having the last word, go for it.

I'm definitely not an MR expert, but I'm pretty sure that it states that inflation is the main constraint on "money printing."  Is this wrong?

[moda0306]

I know what you guys think and you are wrong.  But since you always insist on having the last word, go for it.

We aren't trying to "have the last word," we're trying to continue the debate.

What is it that we think that is wrong?  Please lay out a series of points where our assertions are false and why.

[Lowe]

  For the most part, we have an amazingly productive economy.

While it is still good it is getting worse, and compared to other countries - much worse.

Thank you for posting this graphic, Mdraf.  That countries like Sweden and Austria would be more productive than others, long term, was an idle theory of mine.  Until I saw your post.  Now I will consider investing in this theory.

Germany, Austria, and Sweden all outlawed the hitting of children during or before the periods shown, indicating the cultures had already soured to the practice.  Studies show that hitting children causes decreases in intelligence, and increases in aggressiveness and delinquency.  It stands to reason that populations, who will not abide the practice of hitting, are raising their children to be more productive.

[Mdraf]

Correct. We agree. But where are we helicoptering beyond productivity?

Ray Dalio is talking about helicoptering to reflate some of the lost private credit — not helicoptering beyond productivity.

Debt to GDP ratio is increasing hockey-stick like

It is?

You left out the second part. Here it is:

[Kshartle]

Germany, Austria, and Sweden all outlawed the hitting of children during or before the periods shown, indicating the cultures had already soured to the practice.  Studies show that hitting children causes decreases in intelligence, and increases in aggressiveness and delinquency.  It stands to reason that populations, who will not abide the practice of hitting, are raising their children to be more productive.

+1 This is critical. Children who are hit learn to solve problems through hitting and have a decreased capacity to solve problems through communication and negotiation. It's by communicating, negotiating and trading voluntarily that humans beings improve their standards of living.

Right now it's outlawed, but eventually it will just be commonly accepted. for instance, we don't need laws prohibiting the ownership of humans anymore, not one accepts that behavior.

When everyone understands that children are just little humans and no one has a right to hit them, they will grow up not speaking the language of violence. This will also be the undoing of the state in my opinion since it boils down to a collection of people using violence to "solve" problems.

This is one of the best observations I've seen in a while Lowe.

[Pointedstick]

It stands to reason that populations, who will not abide the practice of hitting, are raising their children to be more productive.

That is an interesting theory, corporal punishment is extremely common in Singapore, administered by parents, schools, and the government itself as an official punishment. Wouldn't you expect this effect to show up there even more strongly?

Disclaimer: I do not support corporal punishment, have never hit my child, and never plan to.

[Kshartle]

Debt to GDP ratio is increasing hockey-stick like

It is?

You left out the second part. Here it is:

The government's liability is someone else's asset and income man. It doesn't matter that the debt was racked up on welfare payments and missles. If the government didn't borrow to buy votes we'd run out of money and the economy would grind to a halt for lack of paper. Government borrowing money and spending it helps the economy, especially when non-government credit is shrinking because people want to save and pay down debt.

[Mdraf]

Yeah but I still want to know what happened to my $9.75 from the egg deal !

[Kshartle]

That is an interesting theory, corporal punishment is extremely common in Singapore, administered by parents, schools, and the government itself as an official punishment. Wouldn't you expect this effect to show up there even more strongly?

It's just another factor. Singapore has no minimum wage, very low taxes, the government doesn't manipulate the interest rates, there are zero tariffs etc.

It's very free economically despite the fact it's not perfect.

[Kshartle]

Yeah but I still want to know what happened to my $9.75 from the egg deal !

I told you there is no mention in the video about eggs. Therefore, it's not relavent.

[Gumby]

Yeah but I still want to know what happened to my $9.75 from the egg deal !

I told you there is no mention in the video about eggs. Therefore, it's not relavent.

It really isn't relevant because we are taking about trading financial assets that don't enter circulation, not eggs. Huge difference.

[Mdraf]

That is an interesting theory, corporal punishment is extremely common in Singapore, administered by parents, schools, and the government itself as an official punishment. Wouldn't you expect this effect to show up there even more strongly?

It's just another factor. Singapore has no minimum wage, very low taxes, the government doesn't manipulate the interest rates, there are zero tariffs etc.

It's very free economically despite the fact it's not perfect.

They have a very high Social Security tax. Up to 20% for individuals and 16% employer. The money goes into a retirement fund that belongs to the individual and pays out about 4% interest.  It's like a forced IRA system.  I used to manage a corporate branch there about 20 years ago. Maybe things have changed. Nice place to live.

[Kshartle]

Debt to GDP ratio is increasing hockey-stick like

It is?

You left out the second part. Here it is:

It looks like debt to GPD started to diverge rapidly in '71-'72.  Why do you think it happened then?

[Mdraf]

Yeah but I still want to know what happened to my $9.75 from the egg deal !

I told you there is no mention in the video about eggs. Therefore, it's not relavent.

It really isn't relevant because we are taking about trading financial assets that don't enter circulation, not eggs. Huge difference.

Tomorrow morning I'll have some poached financial assets on toast

[Pointedstick]

You left out the second part. Here it is:

Unfortunately, the firewall at work won't allow tinypic images to be shown (I just see a red "X").

Run the page through Google Translate.

[moda0306]

Kshartle,

Voting is irrational.  The government can't "buy votes."

And your illustration of private credit is completely valid... which means we have to factor in private credit expansion AND contraction alongside government liability expansion/contraction.

[Kshartle]

The government's liability is someone else's asset and income man. It doesn't matter that the debt was racked up on welfare payments and missles. If the government didn't borrow to buy votes we'd run out of money and the economy would grind to a halt for lack of paper. Government borrowing money and spending it helps the economy, especially when non-government credit is shrinking because people want to save and pay down debt.

  this is close to the point where MR and I split company, MR says we cant cause inflation with the numbers used in the book keeping since the system is fully fiat (fake) i think its probably true...... but in the world of fake money the new measure of inflation "trouble brewing" is the size and rate of government expansion, the size of the mis-allocation in gov spending, the percentage of corruption and cronyism, the weight of bureaucratic regulation choking small business, the size of the military and prison industrial complex, the militarization of the police force, loss of liberty, etc etc  because those things are what that "faith" in fiat now rest on.  and since ever expanding spending  = ever expanding government it seems we are getting more of all of these almost continually...

And all those things you mention harm the economy. The distort it by encouraging unproductive economic activity. When they stop distorting the bubble bursts and the recession starts. Printing again and repeating the mistakes only does more harm. The government can't help by creating additional credit or money to offset the recession. 

exactly and that's why MR "takes no stance on those issues".. bookkeeping with imaginary money is neat and tidy, an "ever expanding" government is messy..

[Lowe]

It stands to reason that populations, who will not abide the practice of hitting, are raising their children to be more productive.

That is an interesting theory, corporal punishment is extremely common in Singapore, administered by parents, schools, and the government itself as an official punishment. Wouldn't you expect this effect to show up there even more strongly?

Disclaimer: I do not support corporal punishment, have never hit my child, and never plan to.

Congratulations on never hitting your child.  I think that's great, and I think you're making a better tomorrow through your choices today.  If I ever have children, I plan the same.

The graphic shows that Singaporean economic growth from 2010-2011 was slower than the average for the entire period.  Whereas it was much larger for Sweden etc.  This could be the beginning of a trend.  Sweden outlawed hitting in 1979, being one of the first nations to do so.  Children, born since, are only now entering their most productive years.

[moda0306]

The government's liability is someone else's asset and income man. It doesn't matter that the debt was racked up on welfare payments and missles. If the government didn't borrow to buy votes we'd run out of money and the economy would grind to a halt for lack of paper. Government borrowing money and spending it helps the economy, especially when non-government credit is shrinking because people want to save and pay down debt.

  this is close to the point where MR and I split company, MR says we cant cause inflation with the numbers used in the book keeping since the system is fully fiat (fake) i think its probably true...... but in the world of fake money the new measure of inflation "trouble brewing" is the size and rate of government expansion, the size of the mis-allocation in gov spending, the percentage of corruption and cronyism, the weight of bureaucratic regulation choking small business, the size of the military and prison industrial complex, the militarization of the police force, loss of liberty, etc etc  because those things are what that "faith" in fiat now rest on.  and since ever expanding spending  = ever expanding government it seems we are getting more of all of these almost continually...

Simon,

I've never heard MR'ists assert that these numbers can't cause inflation.  Am I misinterpreting your post? 

Also, I think they're quite clear that giving the government powers can cause all sorts of problems and misallocations of resources (this is when they start getting out of MR a little and into opinionizing).

[Gumby]

<--Ray Dalio's video - This is how money works--> Correct up to this point <--Ray Dalio's video - Consequences of helicoptering without productivity-->  ignored by MR

It's not ignored by MR at all.  MR states that inflation is the only constraint on "money printing." 

I know what you guys think and you are wrong.  But since you always insist on having the last word, go for it.

I'm definitely not an MR expert, but I'm pretty sure that it states that inflation is the main constraint on "money printing."  Is this wrong?

You are correct. When I agreed with MDraf that MR "ignores" this, what I meant is that MR doesn't offer any specific prescriptions on when to pull up off the gas pedal or when to floor it. MR is politically agnostic in that regard (i.e. you can crash the car if you are dumb).

However, you are correct that MR understands why productivity is important.

Here is what MR does say about productivity...

The willingness of the consumers in the economy to use these notes is largely dependent on the underlying value of the output and/or productivity, the government's ability to be a good steward of the currency, the banking system’s distribution of money and the ability to regulate its usage. I like to think of this as an interconnected bond between these various forces. If any link in the bond is broken the nation's monetary system is at risk of collapse...

...Production is vital in giving money its value. The goods and services that are produced by the citizens and the value that other citizens are willing to pay for these goods and services is what ultimately makes any fiat money viable. Therefore, government has an incentive to promote productive output and maintain sound stewardship of the money supply.

Source: http://papers.ssrn.com/sol3/papers.cfm? ... id=1905625

I doubt MDraf would disagree with that statement. I doubt anyone would.

And honestly, if MDraf agrees with Ray Dalio's interpretation of the system's mechanics, and MDraf agrees with the MR statement, above, then he agrees with MR's teachings and doesn't even know it.

Keep in mind that MR does not "approve" or "disapprove" of any current policies. It just accurately describes the system.