Let's debate: Money

Discussion of the Cash portion of the Permanent Portfolio

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vincent_c
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Let's debate: Money

Post by vincent_c » Sat Mar 13, 2021 11:51 pm

50% of the PP is allocated to forms of money so I'm curious if there is a consensus on the forum about what is money. I was asked in the other thread when talking about money whether I was referring to "real money" or "nominal money" and although I understood what this meant I must admit that I paused to think about it for a bit.

My view of money is that it is a store of value and represents the absence of risk and unit of measurement.

Personally I have always considered gold as money, the reason being that a dollar ought to be a liability of the federal reserve hence in my mind "cash" in the PP has always fallen into the category of "someone else's debt". This becomes clearer when we hold t-bills or even t-notes in our portfolios.

But is this right?

As I write this I am realizing that holding t-bills is just a proxy for cash and that we should be thinking of holding t-bills or t-notes as going further out the risk curve by increasing duration risk. Take the bullet type fixed income investor, have they lost any of the "cash" component of their fixed income portfolio by holding ITTs instead of cash and LTTs? They certainly have different risks when it comes to the shape of the yield curve so I would argue they have actually compromised their cash position.

If the US dollar is akin to a "native coin" in the US economy, those who control its supply and hypothecation would only increase it if doing so were better for the economy. The more centralized that banking system is, the more efficient it will be and it seems the US has a very centralized banking system.

So let's hypothetically assume that the central banking system is so perfect that every move it makes increases the GDP of the economy and the value of the USD goes up relative to goods and services so real things get cheaper and the standard of living of everyone in the economy goes up.

What would this mean for cash and gold as money? In other words, if deflation is actually the norm is gold still a good form of money vs cash? How should we measure deflation, because it does seem like the standard of living of everyone does goes up in the long run by a significant amount even for the person who is holding 100% cash and is being "inflated" away.

What kind of inflation or deflation is gold as real money meant to track?

If cash is money and a comparably liquid form of money to gold, and it has more utility, what makes it inferior to gold once we put in the assumption of perfect central banking. Now I know that's a big assumption to make, but it does seem like what this means is that holding gold is a bet against the central banker's ability to do what's right for the economy.
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Re: Let's debate: Money

Post by doodle » Sun Mar 14, 2021 10:52 am

I mean the textbook definition ascribes three basic functions to money...

Unit of account
Mean of exchange
Store of value

Some shaky historical background from memory...

Historically it would seem that primary function of money was as a means of exchange to avoid inefficiency of barter. Technically I guess one wouldn't really even need anything other than an IOU or an accounting ledger so long as the trade occurred between a small enough group of people under a single governing body able to resolve disputes. Clay Sumerian tablets and tokens I believe we're used to keep track of trade and exchange thousands of years BC. Once trade expanded between people of different governing tribes or empires it would logically seem to become necessary to find some other item to exchange..a commonly valued commodity obviously being the natural solution...in the West societies gravitated towards metal coins either of some type of precious metal or fiat in nature when backed by an empire. Gold and silver eventually became the international standard because of their inherent physical properties and rarity.

At the outset in the United states colonies pretty much printed their own fiat currency with various degrees of success. At some point I also believe that private banks also had their own currencies...at any rate that had issues with periodic inflation and what not so eventually sometime in the mid 1800s I believe we created a gold backed currency. Things kind of plugged along that way with periodic depressions for three quarters of a century until the Fed was created to help lend some better stability to the monetary system.

The US then confiscated gold and raised price to allow expansion of money supply and that sort of continued until we went off the gold standard with Nixon. Although, we didn't update the language of government finance after this happened and still seem to suffer from illusion that our money is constrained....hence all the hand wringing over debt and deficits.

Economics has tried to move past this with MMT which attempts to update the way we think about government finances and money to the modern fiat world. Money when managed properly and wisely can be used to alleviate downturns and promote greater economic growth....and that is where we find ourselves today...with a Fed pushing directing the monetary policy and manipulating bank reserves and interest rates and the government pushing on the fiscal policy lever by giving out money to people in the mail. So far despite the cries of the Austrians there has been lower than average inflation and the financial crises have been relatively short lived compared to historical depressions....
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Re: Let's debate: Money

Post by doodle » Sun Mar 14, 2021 12:02 pm


If cash is money and a comparably liquid form of money to gold, and it has more utility, what makes it inferior to gold once we put in the assumption of perfect central banking. Now I know that's a big assumption to make, but it does seem like what this means is that holding gold is a bet against the central banker's ability to do what's right for the economy.
That's the big unknown...I'm not so concerned with central bankers as I don't think they have the power to really do much...seem like they can adjust reserves in banking system in order to manipulate interest rates.... It's the governments fiscal policy and politicians that really have the power to debase currency. From an accounting standpoint continued government deficits are simply private sector surpluses but at what point that creates inflation is an unknown...I guess once incresses in money supply outstrip real economic production gains.. One would like to think that pols would behave responsibly and reign things in when prices start to rise but that is an unknown. In the past goverbments haven't shown themselves to do that very well.
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Re: Let's debate: Money

Post by vincent_c » Sun Mar 14, 2021 2:01 pm

doodle wrote:
Sun Mar 14, 2021 10:52 am
I mean the textbook definition ascribes three basic functions to money...

Unit of account
Mean of exchange
Store of value
I think crucially money needs to be an effective store of value and that it's efficacy as a unit of a account and a means of exchange are properties of money that make it a better store of value. We can extend this to the properties that make certain things a better means of exchange or unit of account like divisibility or portability.

But I think for the purpose of the PP, what we are really interested in is the store of value part, because in the long term if the money we choose as our store of value doesn't actually perform its function (ie it devalues relative to real goods and services) then in the long run it isn't a good idea to use that thing as a store of value.

So let me just gather my thoughts so far.

It seems to me that the PP chooses two forms of money and that they are at odds with each other. This is by design, and my question is why this design and are the reasons for such design still good reasons?
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Re: Let's debate: Money

Post by vnatale » Sun Mar 14, 2021 2:31 pm

vincent_c wrote:
Sun Mar 14, 2021 2:01 pm

doodle wrote:
Sun Mar 14, 2021 10:52 am

I mean the textbook definition ascribes three basic functions to money...

Unit of account
Mean of exchange
Store of value


I think crucially money needs to be an effective store of value and that it's efficacy as a unit of a account and a means of exchange are properties of money that make it a better store of value. We can extend this to the properties that make certain things a better means of exchange or unit of account like divisibility or portability.

But I think for the purpose of the PP, what we are really interested in is the store of value part, because in the long term if the money we choose as our store of value doesn't actually perform its function (ie it devalues relative to real goods and services) then in the long run it isn't a good idea to use that thing as a store of value.

So let me just gather my thoughts so far.

It seems to me that the PP chooses two forms of money and that they are at odds with each other. This is by design, and my question is why this design and are the reasons for such design still good reasons?


Excellent posing of the salient question!
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Re: Let's debate: Money

Post by doodle » Sun Mar 14, 2021 2:44 pm

vincent_c wrote:
Sun Mar 14, 2021 2:01 pm
It seems to me that the PP chooses two forms of money and that they are at odds with each other. This is by design, and my question is why this design and are the reasons for such design still good reasons?
As I understand it, gold is a form of money that is outside the scope of governments ability to devalue. Ignoring legislation that would make it illegal of course. During normal environments it should preserve purchasing power over the long run and in crisis spikensharply higher due to relative tiny nature of it's market.

The other forms of "money" are like a government checking account (cash) and a savings account (bonds). The savings accounts value does well when there is deflation...falling prices. And the cash is there for dry powder when there is a recession...it doesn't really do well per se as Harry couldn't find an asset that did well in recession.

As far as store of value I'd say bonds do reasonably well as at least on the long end they are marginally higher than inflation...and on the short side are marginally lower than inflation which I guess is the cost for having a liquid asset ready to deploy.
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Re: Let's debate: Money

Post by vincent_c » Sun Mar 14, 2021 2:58 pm

doodle wrote:
Sun Mar 14, 2021 2:44 pm
As I understand it, gold is a form of money that is outside the scope of governments ability to devalue.
I think this is a useful point, to say that gold is international money whereas cash held in USD is a bet on the US economy. This is why the PP should be measured in units of gold and if the US economy does well then you should be able to buy more units of gold with your USD. This is also the reason why the USD being the dominant reserve currency is important to how the PP functions.

The problem I see is that relative to gold, USD has a risk premium associated with it that increases or decreases in liquidity on a global scale as a measure of its status as a global reserve currency. At what point do we say that there is a material shift in the status of the USD. Again, like I don't believe bitcoin will replace gold in a step function, I also don't expect the USD to lose its dominant position in a step function.

When the USD is very dominant or increasing in dominance, investing in USD cash is going to buy you more units of gold in the long run when the US economy increases productivity. I would argue that small decreases or volatility in that dominance will not be an issue but a secular shift in dominance ultimately will mean that you will end up buying fewer units of gold in the long run with USD cash and I think this could be problematic for the US PP.

I used to think holding gold was a sufficient hedge for this. However, when I reflect on what I have just discussed, I think it is necessary to identify where the USD is losing ground to, if it is, and how we can hedge this gradually without breaking the PP philosophy.
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Re: Let's debate: Money

Post by doodle » Sun Mar 14, 2021 3:05 pm

I don't see evidence that the US dollar is losing to any other currency..be that the Euro or Yen...it seems quite stable over last twenty years. Why do you think this is happening or inevitable?

As far as golds appreciation relative to dollar this seems to be purely speculative at this point...perhaps an irrational fear of impending inflation that hasn't materialized yet?
Last edited by doodle on Sun Mar 14, 2021 3:08 pm, edited 1 time in total.
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Re: Let's debate: Money

Post by vincent_c » Sun Mar 14, 2021 3:07 pm

vincent_c wrote:
Sun Mar 14, 2021 2:58 pm
investing in USD cash is going to buy you more units of gold in the long run when the US economy increases productivity.
So this obviously isn't the case in practice which tells me a choice was made to increase the money supply that didn't actually increase productivity? Maybe someone can chime in to help me figure this out.
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Re: Let's debate: Money

Post by doodle » Sun Mar 14, 2021 3:09 pm

vincent_c wrote:
Sun Mar 14, 2021 3:07 pm
vincent_c wrote:
Sun Mar 14, 2021 2:58 pm
investing in USD cash is going to buy you more units of gold in the long run when the US economy increases productivity.
So this obviously isn't the case in practice which tells me a choice was made to increase the money supply that didn't actually increase productivity? Maybe someone can chime in to help me figure this out.
If money supply increase outstripped productivity then why haven't we seen inflation in CPI?
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Re: Let's debate: Money

Post by doodle » Sun Mar 14, 2021 3:12 pm

vincent_c wrote:
Sun Mar 14, 2021 3:07 pm
vincent_c wrote: ↑investing in USD cash is going to buy you more units of gold in the long run when the US economy increases productivity.
Does same hold true for bitcoin? Has the dollar lost 60,000% of it's purchasing power because bitcoin has appreciated that much? Or is bitcoin, like gold just a speculative asset that ebbs an flows according to psychological sentiments not based in measured reality?
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Re: Let's debate: Money

Post by vincent_c » Sun Mar 14, 2021 3:14 pm

doodle wrote:
Sun Mar 14, 2021 3:05 pm
I don't see evidence that the US dollar is losing to any other currency..be that the Euro or Yen...it seems quite stable over last twenty years. Why do you think this is happening or inevitable?
I think it is a risk. It's hard to know the direction whether the USD is gaining dominance or not.

I monitor the eurodollar market as a barometer for this and I believe the Fed extending swap lines to other central banks is actually to try to preserve the usage of the USD.

I think the one most people are concerned about is the CNY. Projections about China's economy overtaking the US's in size as well as how well the economy has handled the impact of Covid may speed things up. If it wasn't for withholding taxes on their sovereign debt, I was looking at China government bonds because of the yield difference.

So its a 2 part issue, one is what currency is trade shifting to and I think you can argue for increasing trade being conducted in the Chinese currency. The second part will be what currency people and companies store their money in and right now the liquidity of US treasuries is still dominant not to mention the eurodollar market.

My question was at what point do shifts become material and if there was anything that can be done about it portfolio wise.
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Re: Let's debate: Money

Post by vincent_c » Sun Mar 14, 2021 3:16 pm

doodle wrote:
Sun Mar 14, 2021 3:12 pm
vincent_c wrote:
Sun Mar 14, 2021 3:07 pm
vincent_c wrote: ↑investing in USD cash is going to buy you more units of gold in the long run when the US economy increases productivity.
Does same hold true for bitcoin? Has the dollar lost 60,000% of it's purchasing power because bitcoin has appreciated that much? Or is bitcoin, like gold just a speculative asset that ebbs an flows according to psychological sentiments not based in measured reality?
I don't think it holds true for bitcoin.

The reason is because gold has much more liquidity from its thousands of years of being money. The rise of bitcoin is due to it's price discovery, network effects of increasing liquidity and speculation on the way to getting to where it will stabilize.
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Re: Let's debate: Money

Post by vincent_c » Sun Mar 14, 2021 3:31 pm

doodle wrote:
Sun Mar 14, 2021 3:09 pm
vincent_c wrote:
Sun Mar 14, 2021 3:07 pm
vincent_c wrote:
Sun Mar 14, 2021 2:58 pm
investing in USD cash is going to buy you more units of gold in the long run when the US economy increases productivity.
So this obviously isn't the case in practice which tells me a choice was made to increase the money supply that didn't actually increase productivity? Maybe someone can chime in to help me figure this out.
If money supply increase outstripped productivity then why haven't we seen inflation in CPI?
Great point!

Okay, so it might be because the USD is used internationally and the Fed cannot control credit creation in the eurodollar market. So there is an increase in supply of USD credit globally that makes the USD devalue against gold but not CPI.

Edit: In other words, the US is a net exporter of inflation because it’s supplying more USD but it is also importing more than it exports so buying from the US is more expensive for other countries.
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Re: Let's debate: Money

Post by Hal » Mon Mar 15, 2021 2:17 am

vincent_c wrote:
Sun Mar 14, 2021 3:31 pm
doodle wrote:
Sun Mar 14, 2021 3:09 pm
vincent_c wrote:
Sun Mar 14, 2021 3:07 pm
vincent_c wrote:
Sun Mar 14, 2021 2:58 pm
investing in USD cash is going to buy you more units of gold in the long run when the US economy increases productivity.
So this obviously isn't the case in practice which tells me a choice was made to increase the money supply that didn't actually increase productivity? Maybe someone can chime in to help me figure this out.
If money supply increase outstripped productivity then why haven't we seen inflation in CPI?
Great point!

Okay, so it might be because the USD is used internationally and the Fed cannot control credit creation in the eurodollar market. So there is an increase in supply of USD credit globally that makes the USD devalue against gold but not CPI.

Edit: In other words, the US is a net exporter of inflation because it’s supplying more USD but it is also importing more than it exports so buying from the US is more expensive for other countries.
[/quote]

If money supply increase outstripped productivity then why haven't we seen inflation in CPI?
[/quote]

Perhaps the CPI isn't accurate? In Australia the CPI doesn't include food and housing (not exactly a luxury ;) )
I believe ShadowStats calculates the CPI a more accurate way.

PS: Have a read of the Mises book on money, still haven't finished it, but it's very thought provoking.
https://cdn.mises.org/Mises%20on%20Money.pdf
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Re: Let's debate: Money

Post by vincent_c » Mon Mar 15, 2021 10:08 am

Hal wrote:
Mon Mar 15, 2021 2:17 am
Perhaps the CPI isn't accurate?
This is another great point, and one that we know to be true to some extent especially if you are thinking in terms of different types of inflation.

I do think the idea behind CPI is meant to track inflation for consumer expenditure and so when I make a suggestion that real goods and services are getting cheaper relative to the USD and that we can tell by a general increase in the standard of living of everyone then CPI is perhaps more relevant than asset price inflation.

So even though CPI may be inaccurate, perhaps it is even inaccurate to the extent that it is too high? Just a thought.
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Re: Let's debate: Money

Post by Kriegsspiel » Mon Mar 15, 2021 7:42 pm

vincent_c wrote:
Sun Mar 14, 2021 3:14 pm
doodle wrote:
Sun Mar 14, 2021 3:05 pm
I don't see evidence that the US dollar is losing to any other currency..be that the Euro or Yen...it seems quite stable over last twenty years. Why do you think this is happening or inevitable?
I think the one most people are concerned about is the CNY. Projections about China's economy overtaking the US's in size as well as how well the economy has handled the impact of Covid may speed things up. If it wasn't for withholding taxes on their sovereign debt, I was looking at China government bonds because of the yield difference.

So its a 2 part issue, one is what currency is trade shifting to and I think you can argue for increasing trade being conducted in the Chinese currency. The second part will be what currency people and companies store their money in and right now the liquidity of US treasuries is still dominant not to mention the eurodollar market.

My question was at what point do shifts become material and if there was anything that can be done about it portfolio wise.
I've been reading some of Peter Zeihan's stuff, and it's pretty interesting how he paints a picture of China (and others) as being in very bad shape demographically, geographically, etc. Not only that, but how he makes the point that, without the Bretton Woods system and the American Navy, China would be a shadow of its current self. If other countries want to trade in something other than US dollars, the US has no reason to protect the planet, especially the oceans, with its military.

"Except for US Treasuries, what can you hold? Gold" You don't hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option. We hate you guys. Once you start issuing $1 trillion - $2 trillion [in new debt]. . . we know the dollar is going to depreciate, so we hate you guys, but there is nothing much we can do."
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Re: Let's debate: Money

Post by Kbg » Mon Mar 15, 2021 8:15 pm

Let's start here on money...this works.

Unit of account Absolutely, no questions asked. Not even debatable in my view. That is NOT the same as saying the unit of account can't be changed for a different unit of account.

Mean of exchange Absolutely, no questions asked. This is why "money" is one of the greatest of all human inventions. We don't have to bring tens of semi trucks full of grain to the car dealer to buy a new car.

Store of value The truth/fallacy of this statement I think is completely time dependent in my view. An informed opinion on if something is a good store of value must take in a temporal view. Some simple illustrations I don't think anyone on this board could dispute if they simply look at the historical record of both.

Dollar...an outstanding store of value over the short term (think flight to the dollar during crises) and the candy bar I buy at the gas-n-go probably costs the same most every day for a while. A horrible store of value over the long term as in what is a single dollar worth if held over 50 years, not much.

Gold...a horrible store over value over the short term that can quickly lose a lot of its value as measured in more stable things. Gold also appears to be one of the best long term stores of value out there, nothing else really comes close that is actually "money".

The reality is that while conceptually these three are good theoretical explanations/definitions of money, in practice they are moving targets. By way of application let's look at each of them assuming we reside in the US.

The unit of account is the dollar...nothing else is legally recognized and literally everything has it as the denominator.

Mean of exchange is the dollar...almost, but not quite exclusively the means of exchange. Barter still happens, BTC, etc. really whatever two entities agree to. I'd argue 1s and 0s are in reality our modern mean of exchange. To me at a fundamental level it is mind blowing that I can tap my iphone on a plastic thingy in a grocery store and leave with food.

Store of value...well this is the thing we constantly debate right? The best stores of value have two properties. They are fixed in amount (e.g. physical/quantitative), they are recognized as being of worth (psychological/tangibly useful). The latter can make a huge difference. Think land in Saudi Arabia in 1899 vs. 1999 which could revert to 1899 by 2099.
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Re: Let's debate: Money

Post by vincent_c » Mon Mar 15, 2021 10:39 pm

Kriegsspiel wrote:
Mon Mar 15, 2021 7:42 pm
"Except for US Treasuries, what can you hold? Gold" You don't hold Japanese government bonds or UK bonds.
I don't think the USD dominance is in question but I do think whether that dominance is increasing or decreasing is important especially if there has been a secular shift. I don't believe a shift is happening, but I think it is trending that way until something worrying happens.
Kbg wrote:
Mon Mar 15, 2021 8:15 pm
Store of value...well this is the thing we constantly debate right? The best stores of value have two properties. They are fixed in amount (e.g. physical/quantitative), they are recognized as being of worth (psychological/tangibly useful).
I tried to stay away from the textbook definitions of money in my original post and I want to reiterate that I think that in the context of the PP, it really should be thought of as the unit of measurement that represents risk-off (the absence of risk). This means that the form of money is the default, and that every other return is measured against that form of money.
Kbg wrote:
Mon Mar 15, 2021 8:15 pm
Dollar...an outstanding store of value over the short term
I don't believe this is relevant to me, because in the short term I can only spend so much money and in terms of the portfolio I manage is negligible.
Kbg wrote:
Mon Mar 15, 2021 8:15 pm
assuming we reside in the US.
For the same reasons I also think that whether someone living in the US or not the actual short term expenditure is irrelevant to measuring the portfolio. I recognize that someone like MJ may have a different perspective in that he uses the USD as a measurement of gains and losses in the present, but I am just sharing my perspective and I wonder how many people would agree with my view.
Kbg wrote:
Mon Mar 15, 2021 8:15 pm
An informed opinion on if something is a good store of value must take in a temporal view.
So this temporal view of a store of value I think can be reconciled with what I am trying to say by splitting up funds into what is needed in the short term and what is not needed and managing them separately according to different unit of measurements. This is totally inline with why money that needs to be used in the short term should be in a savings account or t-bills only.
Kbg wrote:
Mon Mar 15, 2021 8:15 pm
Gold also appears to be one of the best long term stores of value out there, nothing else really comes close that is actually "money".
The whole discussion on CPI is to really try to understand why gold is money. It is probably because gold is global money and that as the US exports inflation gold is holding its value on average in the long term.

Land is also something I think is akin to gold, except that you need to build something on top of it and charge rent to cover the taxes and costs of building and depreciation of that building. The real reward in land is that you get to leverage the land that is acting as a store of value as long as you manage the business side to break even or give you a slight profit for operating that business.

Going back to the USD, I have always thought that interacting with any particular country necessarily exposes one to some degree of currency risk (you need another currency other than gold). Not only in terms of tax liabilities and spending but even when it comes to just investing in stocks and long term bonds, you have to choose a currency.

My view is that if it were possible you would construct a PP where you would weight all the parts of the PP according to the weighting in the SDR and then hold a basket of currencies that represented the SDR as well. I think the only reason the US PP is used is because it is less complicated. Thoughts?
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Re: Let's debate: Money

Post by Kbg » Tue Mar 16, 2021 9:14 am

vincent_c wrote:
Mon Mar 15, 2021 10:39 pm

For the same reasons I also think that whether someone living in the US or not the actual short term expenditure is irrelevant to measuring the portfolio. I recognize that someone like MJ may have a different perspective in that he uses the USD as a measurement of gains and losses in the present, but I am just sharing my perspective and I wonder how many people would agree with my view.

I think there is an implicit assumption here that one wants to eventually consume savings and most of that occurs where you live. If that assumption is not accurate, then yes the "home" currency as a unit of measure doesn't matter as much, but I would think for most people it is the home currency that matters most.

So this temporal view of a store of value I think can be reconciled with what I am trying to say by splitting up funds into what is needed in the short term and what is not needed and managing them separately according to different unit of measurements. This is totally inline with why money that needs to be used in the short term should be in a savings account or t-bills only.

This is exactly the point and manifests itself a lot in retirement planning assumptions.

The whole discussion on CPI is to really try to understand why gold is money. It is probably because gold is global money and that as the US exports inflation gold is holding its value on average in the long term.

Not really germane, but it is demonstrably false that the US exports inflation. Inflation, deflation or stable is a function of the home currency primarily. Not saying the dollar being the global unit of measure doesn't impact it, but it's only a factor and not a dominant one.

Going back to the USD, I have always thought that interacting with any particular country necessarily exposes one to some degree of currency risk (you need another currency other than gold). Not only in terms of tax liabilities and spending but even when it comes to just investing in stocks and long term bonds, you have to choose a currency.

My view is that if it were possible you would construct a PP where you would weight all the parts of the PP according to the weighting in the SDR and then hold a basket of currencies that represented the SDR as well. I think the only reason the US PP is used is because it is less complicated. Thoughts?

Goes back to my previous point on the implicit assumption that consumption occurs where you live. What does such an approach really buy you other than currency risk which could be a tailwind or headwind? If you are a global citizen and travel a TON then ok, it probably makes sense. At the end of the day you have to chose your denominator for your unit of measurement. I think I would have a hard time making a good argument one way or another as to what someone should chose for their denominator, but if it isn't in your home country's unit of measure then as long as you are aware you are taking on currency risk who's to say that isn't a good decision? In Argentina it would be a great decision, in other places not so much.
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Re: Let's debate: Money

Post by vincent_c » Tue Mar 16, 2021 9:30 am

Kbg wrote:
Tue Mar 16, 2021 9:14 am
I think there is an implicit assumption here that one wants to eventually consume savings and most of that occurs where you live. If that assumption is not accurate, then yes the "home" currency as a unit of measure doesn't matter as much, but I would think for most people it is the home currency that matters most.
This is really the crux.

Once you can budget for all of your consumption by doing liability matching, shouldn't my approach make more sense for the remaining funds?

I would seriously challenge this implicit assumption and would like to hear more viewpoints that go beyond a personal reason. If we talk about real returns, should this return be different depending on which country a person resides?

I see two extreme approaches, either you design the real returns to reflect the inflation/deflation experienced by the average global citizen or alternatively you design for a personal real return reflecting personal inflation/deflation. There will be an infinite number of possibilities between these two approaches.

How many of you care about managing money that you will never consume in your lifetime in the best possible way? I know some of you will not care and that is fine, but for those of us that feel good about having a rational and well designed portfolio, do you think there is a right answer here?

My view is that by designing as a global citizen you are being agnostic to future portfolio withdrawal patterns.
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Re: Let's debate: Money

Post by vincent_c » Tue Mar 16, 2021 10:06 am

doodle wrote:
Sun Mar 14, 2021 3:09 pm
If money supply increase outstripped productivity then why haven't we seen inflation in CPI?
I forgot that the obvious answer to this question was asset price inflation.
Kbg wrote:
Mon Mar 15, 2021 8:15 pm
Gold also appears to be one of the best long term stores of value out there, nothing else really comes close that is actually "money".
Is there really nothing else, and if there is nothing else does it mean that gold has to equal money? If gold is risk-off, how do we explain viewpoints such as this:
doodle wrote:
Sun Mar 14, 2021 3:05 pm
As far as golds appreciation relative to dollar this seems to be purely speculative at this point...perhaps an irrational fear of impending inflation that hasn't materialized yet?
If more liquidity = better money, then what do we measure gold's liquidity against? Are all other potential forms of money like bitcoin to be measured against the liquidity of gold?

What happens when the liquidity of bitcoin begins to be comparable to gold? Will gold still function as money until it isn't? Or do we need to look at all forms of money and weight our allocation to money according to the the market cap of that form of money?
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Re: Let's debate: Money

Post by vincent_c » Tue Mar 16, 2021 10:39 am

Kbg wrote:
Mon Mar 15, 2021 8:15 pm
Unit of account Absolutely, no questions asked. Not even debatable in my view. That is NOT the same as saying the unit of account can't be changed for a different unit of account.

...

The unit of account is the dollar...nothing else is legally recognized and literally everything has it as the denominator.
Seems like this is the key issue.

Is the dollar the unit of account or is gold the unit of account for the PP?
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Re: Let's debate: Money

Post by Kbg » Tue Mar 16, 2021 1:35 pm

I think you keep mixing up unit of account with store of value which is muddling up your responses.

Unit of account is for all practical purposes your home currency, end, period, dot. (I did note, there could be exceptions but for 99% of the planet it's their home currency. More accurately phrased, it is the currency where most of your consumption occurs and as impacted by your nation state's laws governing these things...so citizenship/home country is a factor that can't be escapted) Unless passing on wealth to "whomever" is going to remain forever not consumed, then unit of measure will eventually matter and whatever the unit of measure is at the time of consumption will pretty much "measure" how successful the approach was. The unit of measure is the "scoreboard." Hence, unit of measure.

HB, wrote about the above but not in the same way...the PP is always in the context of where you live (consume). You can't escape it (well maybe gazillionaires can, but most of us can not).

Switching to store of value, I think the points you make are valid.
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Re: Let's debate: Money

Post by vincent_c » Tue Mar 16, 2021 3:09 pm

Kbg wrote:
Tue Mar 16, 2021 1:35 pm
I think you keep mixing up unit of account with store of value which is muddling up your responses.
Why is it that I am the one that is mixing things up.

There is an assumption here that I am challenging which is this whole notion that for 99% of the planet it is their home currency.
Kbg wrote:
Tue Mar 16, 2021 1:35 pm
Unless passing on wealth to "whomever" is going to remain forever not consumed
Why is this not a valid condition?
Kbg wrote:
Tue Mar 16, 2021 1:35 pm
well maybe gazillionaires can
What is the difference between someone with infinite money and someone who has X% of their money that will never be spent. I would argue that the X% should be managed in the same way as the person with infinite money.

Now the only other argument is that there is no need to manage money in that situation. But if we stipulate that the investor regardless wishes to maximize their portfolio in terms of their chosen unit of account, I don't see why one needs to confine themselves to their home currency.

Especially when we're trying to determine what is the best money for the PP, if money is to be a unit of account and store of value, then we should be able to come to a conclusion like for example "gold is the best form of money for the PP and the PP should only be measured in units of gold".
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