ChrisMartenson.com

[BearBones]

Has anyone followed Chris Martenson's work? The Crash Course is very logically presented and very scary, and it has definitely changed how I invest. I found the following 80 minute presentation most compelling. Be sure to listen to the Q&A session, if skeptical.

http://www.chrismartenson.com/blog/unfi ... sletter_47

[moda0306]

Can I go out on a limb and guess that this is a hyperinflation and/or high-inflation piece of journalism?

[Gumby]

Has anyone followed Chris Martenson's work? The Crash Course is very logically presented and very scary, and it has definitely changed how I invest. I found the following 80 minute presentation most compelling. Be sure to listen to the Q&A session, if skeptical.

http://www.chrismartenson.com/blog/unfi ... sletter_47

I've read enough of Chris Martenson to know that A) he is very good at recognizing the risks we face B) he really wants you to make money off of scaring the crap out of you.

Every post ends with something like...

"How can you invest to profit from the coming crisis? Sign up for my newsletter and book and I'll show you how!"

He's right to point out the problems we face, but it's difficult to say whether any of them will pan out. Having said that, I do enjoy reading his opinions for their contrarian view.

[moda0306]

I find it funny how these "pay me in dollars for my advice" dollar doom & gloomers make a big mystery of how to invest during hyperinflation... I can't imagine anything more easy!

Here goes:

1) Get a 30-year fixed mortgage on your existing home.

2) Invest all or most of that money in gold and some foreign currencies, and maybe a little short-term US dollar debt to serve you until the collapse comes.

3) Do the same with your retirement accounts... load up on your Roth for tax purposes.

TADAAAAA!

That'll be $13.99!

I can't view this though so I don't even know if that's what we're dealing with.

[BearBones]

Can I go out on a limb and guess that this is a hyperinflation and/or high-inflation piece of journalism?

Almost. He tries to tie together the "three Es':" Economy, Energy, and the Environment (largely other natural resources). The first is dependent on continued exponential growth while the latter two are at or near peak production on most fronts. Yes, inflation is part of the story as is the possibility of eventual collapse of many modern fiat currencies. But, for the most part, he just offers a lot of frightening facts and cogent arguments, asks that we consider them without following blindly, and suggests that we take appropriate precautions unless we have equally valid data supporting an alternate, more rosy outcome.

I, like you Gumby, are turned off by anything that is an attempt at profit from fortune-telling. And there is a bit of that here, agreed. But most of his stuff is free. And it is possible that he is using the profit honestly to spread the word to those who might still have a small hope of influencing policy.

Regardless, I'd encourage all to look at the video clip that I linked and form your own opinion. I would not consider myself brilliant, but I usually have the intuition to see through BS. And I found this interview more powerful and bullet-proof than anything I have seen in a long, long time.

[MediumTex]

I started reading his website back before he had completed the Crash Course.  I eagerly awaited his next serving of doom and delighted in how screwed each chapter suggested that we are. 

I think that is a smart guy and an outstanding presenter of information.  He would probably make a great college instructor.

The problem is he only has a few years of serious market observation under his belt and I kind of think that he went into his new career as a market commentator with a pretty strong set of preconceived notions (inflation!!!), and all of his narratives seem to arise from his basic set of starting assumptions and theories.  I haven't seen a lot of evolution in his thinking.  I also sense a lack of historical perspective in a lot of the things that he says.

I think that he is a great guy to follow if you are certain that the future will be inflation, inflation and more inflation.  If you are not ready to put all your chips on inflation, however, you may need to keep looking for another market commentator to follow.

I would say that Gary Schilling is basically the opposite of Chris Martenson, and if you listened to them both you would probably get a pretty nuanced understanding of how the deflation and inflation narratives work and relate to one another.

I think it was last year that Martenson was just about ready to jump out of his skin because it bugged him so much that people were buying 30 year bonds that paid 4%.  In the period since he made those comments the 30 year bond has easily been the best performing asset in the PP.

[BearBones]

The problem is he only has a few years of serious market observation under his belt...

Market observations will only take us so far if the future is different than the past 50 years. Most "market observers" naively assume that, given enough time, things will always go up; hence the standard investing advice from most financial advisors, PARTICULARLY those with years of market observation under their belt. I've seen Martinson make both inflationary arguments (certainly the most common) as well as one for imminent deflation, but it seems that the more consistent message is simply we are in for some big changes ahead.

Equally or more important to market observations, IMO, is a strong knowledge of economics, a strong knowledge of the relationship between the economy, energy, and other natural resources, and a knowledge of the limits imposed by human population growth. It is very unusual, in my experience, for someone to be able to connect all of these things and put together a logical view of the future.

One should probably watch the interview before commenting on the evolution of Martenson's thinking. Then, I'd be curious as to what specific flaws folks find in his logic. I sincerely would like to hear an informed rebuttal rather than what folks have posted so far.

[doodle]

I recently watched the video link above and went through Chris Martenson's Crash Course. As MT said, he is a fantastic presenter of information...almost Carl Sagan like in his ability to take the complex and make it intelligible for the average layperson.

As to flaws in his logic I can find none...other than to say that it discounts the adaptability of humans. Most of these theories and prognostications (economics included) fail because they assign a fixed set of assumptions about human behavior and don't take into account our ability to massively transform ourselves and our societies.

As an example, in the period of two years I have gone from an average consumptive American lifestyle to one where I practically consume less resources than Ghandi. For example, my YEARLY power bill for my apartment is about 250 dollars...about half of which is taxes and fees...despite this, I have a TV, computers, a fridge, I cook at home...etc. This is only one example of many ways in which I have changed...see Early Retirement Extreme.com for a more detailed idea of what I live like from the master of frugality Jacob Lund Fisker.

My lifestyle transformation (although drastic) has had little to no impact on my overall health or happiness...in fact I feel freer and less preoccupied with insignificant crap than ever before. Chris Martenson's biggest flaw is to underestimate human's ability to undertake these massive transformations and emerge on the otherside stronger, healthier and happier.

My only worry is that our idiotic growth based economic and money system ends up devastating the very ecosystem that we need for survival before any changes are undertaken. My worries are somewhat soothed when talking to educated people my age that see the folly in trying to integrate the economic model of the last 50 years with the next 50 years.  

[BearBones]

I appreciate the critique. I am much less sanguine about the adaptability of humans. Rather than accept change, we tend to deny and blame (the Chinese, the Islamic extremists, the immigrants, the liberals, the government, the conservatives, etc). But I would like to think that you are right.
I am in awe if you have been able to reduce your consumption to that degree, and I will definitely check out the resources you quoted. I can see how this could be the most important "investment" that a person could make, both economically and in terms of one's sense of well being.
Thanks for sharing.

[doodle]

I recommend Jacob's 21 day makeover which can be found by scrolling down the page on the left hand side at http://earlyretirementextreme.com/. It is a good first step introduction to his philosophy and lifestyle.

Here is a little more about the author in his own words: http://earlyretirementextreme.com/about

Regarding your less than sanguine outlook, I too have days where I feel like we are screwed....mostly after watching a Republican debate. And if we consider the stages of grief:

Denial, Anger, Bargaining, Depression and Acceptance

I think we are still somewhere between denial and anger. 2013 will be bargaining (hopefully....) then depression as reality sets in and finally acceptance.

The funny thing is that although I have embraced a life of material poverty by American standards (I find wealth in other things such as free time, independence, education, friendship) I can honestly say I feel more content than ever before. I believe that America's decades of excess created emotional and moral poverty. I really think a downsizing and reevaluation of our cultural values would be positive for us. I only hope that more people could come to realize that the bling bling bigger is better lifestyle is anathema to a well adjusted and happy life.

[melveyr]

I found a big flaw in his logic regarding government. He said that the government is insolvent, which makes is simply not true.

The governments liabilities are largely denominated in dollars, and the government has an infinite amount of dollars they can unleash whenever they feel like. Let's see liquid assets (infinite), minus 15 trillion, is....

Then he said that the government needed 2 trillion to fix our infrastructure. This is ridiculous. The government doesn't need 2 trillion dollars, the government has an infinite amount of dollars. The government needs gravel, cement, engineers, contractors, bulldozers etc. Right now we just have a government that refuses to spend money on the real economy. We don't need 2 trillion dollars, we need common sense and a politician brave enough to explain how a fiat monetary system actually works.

The conflating of real goods and services with currency has infected the modern mans thought process to such an extent that I am terribly hopeless. As a 20 year old, I am pretty angry with the generation before me. The average boomer thinks that the government has gone on a "debt binge" and that the prudent thing to do is to take the hangover now because its "prudent." The comparison is a complete fallacy when applied to the government and now my generation is going to pay the price for lazy thinking.

/End rant

[Lone Wolf]

The governments liabilities are largely denominated in dollars, and the government has an infinite amount of dollars they can unleash whenever they feel like. Let's see liquid assets (infinite), minus 15 trillion, is....

But does this plan look past phase one?

If you create a lot of debt, you are either going to pay this off via future taxation (which will certainly be a drag on the future economy) or by "printing it up".  I assume that you are advocating the latter.

If you believe that printing can go on indefinitely with no negative consequences to the currency, then... well, the world's a much simpler, nicer place than I thought.  Honestly, this would be great.  If this is the world we live in, I happily concede the point (and look forward to enjoying my free lunch.)

If there are potentially very negative consequences to burning up the printing presses (and I believe that history shows us that there are), then you should consider very carefully your recommendation to further balloon the national debt.  Are we not already doing a pretty good job of "stimulating ourselves" by blowing up the debt to never-before-seen proportions?  Is it helping?

In short, if the MMT prescription of "print baby print!" runs into a 70s-style stagflation with high unemployment, rising inflation, (and now, thanks to MMT's recommendations, lots and lots of debt), what is the exit strategy?  While I love that they try to bring interesting ideas to the table, the sense of moral certainty with which MMT (a completely unproven system) tackles these macro questions is unsettling.

[stone]

Lone Wolf, from what I can gather, the MMT lot argue that the "free lunch" comes from making use of man power that otherwise would have remained idle. I can see their point that man hours unused do represent a resource that, if not used, is impossible to save. I also agree with you that an ever growing mountain of financial assets (whether debt or base money) must surely create distortions. To my mind it is important to both make sure that all willing man hours are free to be deployed and also to have a faily stable stock of money etc so that people can concentrate on doing real stuff rather than be diverted to trying to profit from/cope with monetary distortions.

[moda0306]

LW,

Our debt, assuming the piece that is of more concern is the stuff held by foreign countries, represents foreign savings in our currency all around the world, because at one point you and I decided to buy widgets from them instead of our factories.  To divest themselves of US bonds, they'll either hold dollars (even worse than a ST bonds and doesn't create inflation for us) or simply have to spend it back in the US to get something else.

When that demand comes, if we're not at full capacity, it seems to me that'd be a very good thing, not a bad thing... it'd be a reverse of the negative trade balance that we've been experiencing for decades.  It also wouldn't be very inflationary, as we'd be putting otherwise idol resources to work.

If we are at full capacity, then things could indeed become inflationary, as our factories hit full capacity.  The 70's might be the exception to early-enough fed inflation-stomping, but as we approach full capacity, we can raise rates to a moderate and appropriate level to re-engage foreign savers and prevent excess demand from turning into inflation.  It seems to me we have the tools in our tool belt for preventing some kind of self-fulfilling runaway fiscal/inflation issue.

Do you really think there's a scenario where we could get into something that's self-fulfilling... where somehow rates get to 6-8% on all our debt and we can't service it or reduce the rates and we end up like Greece-lite?

Also, I'd add that all this stimulus is coming at a time when private-sector balance sheets are in ruin, and much of it is now going to simply pay down debt from demand we previously exercized, not to keep factories pushing out products.  Likewise, QE is an exchange of financial assets, not a helecopter drop, and really doesn't change the makeup of assets on the market to any great degree.  We can't look at stimulus and money printing in a vacuum... it matters what the rest of the economy is doing.  These deficits may seem massive, as does QE, but when you take it in context of the balance-sheet repair going on in households and the fact that QE is an asset transfer of similar financial assets it doesn't seem like it's really doing all that much.

[moda0306]

stones point on using idol workers is great.  It's not a free lunch... our economy has to still make real products and services that people can use... but if it's not got the right amount of currency and savings for people to function, we resort to bartaring and hoard money.  It limits our ability to go out and work hard to create something, because people don't have the ability to efficiently pay us for it.  I see this with my friends that trade stuff on craigslist because they don't have the money to pay for it, but have skills and stuff to sell.  So it's certainly not free... someone still has to go out and DO something.  It certainly is not about printing wealth out of thin air as much as making sure that assets aren't literally disappearing every day that someone is sitting on their butts when they'd rather be mowing a lawn or building a more efficient freeway interchange.

I'd also add that it's not just idol workers, but idol machinery.  I can probably put about 5,000 miles per year on my car without wearing it out any more than it wears out just sitting in my garage.  If I don't put that 5,000 miles on doing something productive... my oil's probably sludged up a bit and my battery may have gone dead.

[Gumby]

If you create a lot of debt, you are either going to pay this off via future taxation (which will certainly be a drag on the future economy) or by "printing it up".  I assume that you are advocating the latter.

It helps if you understand that Federal "debt" is where our base money supply comes from. If we paid it off, we'd have virtually no base money supply in the private sector. So, you have to realize that our "debt" is how our base money supply exists. And you need a base money supply for private credit to exist.

When more base money is needed (to support a growing economy) the US spends the money into existence first and then issues bonds to offset the bonds later. There is always enough money to buy those Treasury bonds because the money already exists as reserves in the banking system and banks want to put those reserves into Treasuries. The banks coordinate with the Fed and the Treasury to make sure this happens with or without bidder involvement.

If there is too much base money (i.e. Federal "debt") in the private sector, then taxation (or some other money destruction mechanism) must be employed to prevent inflation. But, keep in mind that paying the entire debt back, using taxes alone, would imply a complete vanishing of the base money supply. Without direct "printing" there needs to be Federal "debt" in order to maintain the base currency.

Don't let the word "debt" scare you into believing that we are insolvent. We aren't. It's impossible. All non-metallic money comes from something we just happen to call "debt," because the laws on how base money is created were never changed after we became fiat. Most of the confusion about "debt" comes from the fact that economics textbooks weren't changed either.

[Lone Wolf]

It helps if you understand that Federal "debt" is where our base money supply comes from. If we paid it off, we'd have virtually no base money supply in the private sector. So, you have to realize that our "debt" is how our base money supply exists. And you need a base money supply for private credit to exist.

Federal debt (particularly government debt of this size) is not required for any of this.  Government debt is not the only asset that the Federal Reserve may purchase in order to expand the money supply.  Just look at all of the MBS's that the Fed has purchased in the past (not that I necessarily recommend this!)  The entire national debt could be paid off and the Fed could still expand or contract the money supply.

The Bank of Japan actually bought stocks at one point!  (Strange but true.)

If there is too much base money (i.e. Federal "debt") in the private sector, then taxation (or some other money destruction mechanism) must be employed to prevent inflation.

Yeah, this is one of the problems that I have.  This implies that the MMT playbook for the 1970s (rising unemployment and rising inflation) would have been to raise taxes.  As if the 70s needed to be more unpleasant!

Furthermore, as you just pointed out, a large federal debt implies that high future taxation will be MMT's prescription to break inflation once it starts picking up.  This is why I argue we should avoid getting ourselves into such a jam in the first place.  If the money supply must be expanded, the Fed has tools to do this that do not require the Federal Government to engage in the enormous levels of wasteful spending that we see today.

[stone]

Lone Wolf, when the Fed buys MBS, could it be said that there is no increase in net financial assets? I realize that MBS are trash and are being exchanged for base money BUT if we suspend disbelief and supose that they have the value the Fed pays for them, then it is an asset swap not an increase in net financial assets. MTTers say that the unique monopoly function that the government has is to increase net financial assets. In typical circumstances this is done in the form of increasing the stock of treasuries. MTTers claim that it makes little difference what form the net financial assets take. In their eyes, base money, treasuries or even MBS (so long as they don't default) are all net financial assets and so creating any of them constitutes vertical money creation. Only government deficit spending can create net financial assets (private banks making loans creates a matched liability for every asset so no net increase). I hope I'm not in a muddle with this.

[moda0306]

LW,

The 70's are definitely something I don't think the MMT'ers have addressed with sufficient detail, but we're not in the 70's... we're borrowing at somewhere between 0%-3% and have unemployment at 9%.

We have savers seeking interest, but not getting it because households & businesses don't want to borrow/expand (outside of short-term payroll loans).

We have businesses seeking demand, but not getting it because people's balance-sheets are a mess and they might lose their job.

We have people wanting to work, but not getting it because the private sector doesn't have enough demand for their products and services to hire everyone.

Maybe the gov't should continue to borrow at between 0%-3%, hire construction workers for the cheapest they're likely to be, and build/improve the things WE KNOW we want gov't to build/improve eventually as the economy grows, instead of letting labor, machinery & capital go to waste just sitting around.  This isn't about getting the gov't into healthcare & postal work... it's about creating an environment where gov't does the things its supposed to do well (build infrastructure) while simultaneously keeping the currency such that our people can engage in enough economic activity to prevent misery.

The 70's saw a strain of real resources' ability to keep up with demand.

Today we have real resources sitting around waiting for something to do.

This debate may seem like it's around currency, but it's all about real products and services, and our ability to produce much more than our currency will allow us to consume at this point... so we've been reduced to bartaring and high-unemployment.

[Lone Wolf]

Lone Wolf, when the Fed buys MBS, could it be said that there is no increase in net financial assets? I realize that MBS are trash and are being exchanged for base money BUT if we suspend disbelief and supose that they have the value the Fed pays for them, then it is an asset swap not an increase in net financial assets. MTTers say that the unique monopoly function that the government has is to increase net financial assets.

Interesting way to put it, stone.  Can I drill down a bit on what "net financial assets" means to you in this case?  Does "net financial assets" = "total financial assets - private financial assets"?  If "total financial assets" = "public financial assets + private financial assets", you get the following:

Net Financial Assets = Public Assets + (Private Assets - Private Assets) = Public Assets

There must be more to it than this.  Otherwise this would just be a tautology.

Clearly the concern isn't "total financial assets", since the private sector creates financial assets all the time (founding companies, building a bunch of houses and selling MBSs on their house notes, etc.)  It seems to me that in either the public or private case your asset is someone else's liability.

The private sector creates financial assets by adding value to something.  The government does so by promising money from a future taxpayer or printing press.  What's special in the case of the government is that they're (virtually) guaranteed to pay their bills, either via future taxation or the inarguably unique ability to print currency.

The 70's are definitely something I don't think the MMT'ers have addressed with sufficient detail, but we're not in the 70's... we're borrowing at somewhere between 0%-3% and have unemployment at 9%.

Yeah, I agree that we're not in the 70s.  This is what I'm getting at when I talk about "looking past phase one".  Economic circumstances will change with time but debt that we accrue today will still be there tomorrow.  You have to consider whether you will be able to service that level of debt if\when economic circumstances change.

There are a lot of people that were able to afford their ARMs... until interest rates rose.  The United States rolls most of its debt short-term and thus has the equivalent of an ARM.

[moda0306]

The private sector creates financial assets by adding value to something.  The government does so by promising money from a future taxpayer or printing press.  What's special in the case of the government is that they're (virtually) guaranteed to pay their bills, either via future taxation or the inarguably unique ability to print currency.

How does the private sector create financial assets by adding value?  Financial assets (trying to remove fiat currency here cuz it confuses things) consists of person A loaning person B widgets, gold, and/or coconuts for future value to be provided by person B to person A as calculated by the contract.  Investment happens when Person B puts those things to productive use to increase GDP.

The financial asset and liability offset each other, but the value that can be added to the economy now that Person B can work, eat, and invest is what TRULY was added to the economy... the "financial asset & liability" just greased the wheels to allow idol labor & resources be combined, as Person A wanted to save for the future, and Person B wanted to add value but only had his hands with which to do so.

Government can come in and create a currency, and now a lot more of the contracts just mentioned can/will be denominated in that currency, but we're still talking about people creating net-zero financial assets (privately-contracted debt denominated in dollars) with the idea that there are idol resources not being used if we don't create those assets/liabilities to introduce savers seeking interest to borrowers seeking value to combine with their skills.

In the absence of the private-sector being able to continue to put idol resources to work considering the mix of financial (loans & money) & non-financial (houses, machinery) assets in the domestic economy (a lot of our liabilities are Chinese financial assets, leaving us holding a lot of financial liabilities rising in burden and non-financial assets that are now dropping in price), then the government can step in and put those resources to work.  The gov't does this by spending the most efficient medium of exchange and financial asset (money) and HOPEFULLY doing things it would/should eventually do anyway in the form of infrastructure... yes, this could EVENTUALLY lead to inflation, but keep in mind, inflation is just the real economy's relation to financial assets & liabilities, not a destruction of real wealth or productive capacity.  Inflation is only as bad as the doubt and fear it puts into the economy that stifles productive activity, or, to some, the morality of the redistribution of wealth between the asset & liability holders.  Weimar inflation wasn't bad just because... it was bad because of the social disorder that resulted and the inability to engage in truly productive activity because 1) you were pushing wheelbarrows down the road, and 2) contracts formed in 1,000% inflation are avoided due to complete lack of certainty, so bartaring naturally but inefficiently develops, leaving all sorts of people unable to productively function in society due to the ridiculous transactions they've been reduced to making or aren't making at all.

Yeah, I agree that we're not in the 70s.  This is what I'm getting at when I talk about "looking past phase one".  Economic circumstances will change with time but debt that we accrue today will still be there tomorrow.  You have to consider whether you will be able to service that level of debt if\when economic circumstances change.

I wonder how much to worry about this... once you get past the threshhold of admitting that we will one day see high inflation & rates due to present spending (it's tough to even get to this place for deflationists... but I'll try), then you have to wonder whether it becomes a fiscal worry.

First off, every 1 % inflation increase we have is an increase in nominal GDP in 1% without any real increased production taking place.  So in 5% inflation, we could produce the same amount every year and still have our debt/gdp ratio be adjusted in the denominator by 5% each year.  This is why inflation can change balance sheets of countries, businesses, and households to something more manageable.

If rates were to rise to 8% average on our current debt load, we'd have over $1 Trillion in interest payments per year.  If we choose to print instead of tax, the Austrian worry is that you get into a spiral of simply printing to pay interest on your bonds causes new money to enter the system and cause even more inflation.  I feel like the fact that the fed doesn't simply print, but BUYS BONDS (taking supply of a product off the market, raising prices, and lowering rates) is the supposed feedback loop interrupter.

This is all assuming the fed couldn't avoid rates getting to 8% to begin with... it seems to me that an entity (gov't) that has the power to both create inflation, and manipulate their bond market to where it pays interest LESS than that inflation, is in a position to never really be in fiscal trouble of the self-fulfilling kind.  Keep in mind, this may sound unfair, but all this "manipulation" is done with the idea that people who are otherwise able to add to the wealth of the nation are sitting on their butts when they'd rather work, AND many of them are becoming miserable and losing their skills to boot, not to mention the machinery that is depreciating without being run.

It's all about real assets & wealth & production.

[Gumby]

It helps if you understand that Federal "debt" is where our base money supply comes from. If we paid it off, we'd have virtually no base money supply in the private sector. So, you have to realize that our "debt" is how our base money supply exists. And you need a base money supply for private credit to exist.

Federal debt (particularly government debt of this size) is not required for any of this.  Government debt is not the only asset that the Federal Reserve may purchase in order to expand the money supply.  Just look at all of the MBS's that the Fed has purchased in the past (not that I necessarily recommend this!)

Yes, that's correct. And remember, that the Treasury spends money into existence and offsets that spending with Treasury Bonds after the fact (so that the reserves exist to buy the Treasury bonds). The Fed backs its liabilities with Treasuries (and now MBS), and all of those liabilities must net to zero.  My point is that Congress prefers controlling the monetary base through Treasury issuance. And the Fed prefers purchasing Treasuries, because they are technically risk free. And that's how the obsolete gold-standard laws were written to let Congress regulate spending — it would have been a constitutional mess to upgrade those laws and optimize them for our fiat currency. So, the Fed and the Treasury just found a way to keep the "debt" laws working — thereby maintaining Congress's oversight — and still maintain a strong fiat currency, while targeting interest rates and draining bank reserves in a risk-free manner. It's a pretty nifty system.

The entire national debt could be paid off and the Fed could still expand or contract the money supply.

When you say that the "entire national debt could be paid off and the Fed could still expand or contract the money supply," I would wholeheartedly agree with that statement. The Treasury could simply mint a multi-trillion dollar platinum coin, coordinate with the Fed, and be done with the whole matter. I think that highlights the ridiculousness of our so-called "debt" problem. But, doing that would take away Congress's ability to pinpoint where money is spent into existence, and Congress would likely be highly critical of such a maneuver — even though it could easily be done without creating inflation.

Our government can effectively find legal ways to waive a magic wand and make all our debt problems go away. It chooses not to so that lobbyists Congress can continue to decide who gets what, and provide oversight to government spending.

There is no "debt" problem. It's a myth. There are only inflation, deflation and balance-sheet problems, which the Fed, Treasury and Congress have all the tools they need to solve them. Whether or not they choose to use those tools is anyone's guess.

[stone]

Lone Wolf, the wikipedea entry http://en.wikipedia.org/wiki/Chartalism says:

"Therefore, budget deficits, by definition, are equivalent to adding net financial assets to the private sector; whereas budget surpluses remove financial assets from the private sector. This is represented by the identity: (G-T) = (S-I) – NX (where G is government spending, T is taxes, S is savings, I is investment and NX is net exports). It is important to note that this identity is not unique to Modern Monetary Theory; it is an identity used throughout all macroeconomic theories, because it is true by definition."

I'm not sure what you mean by "private assets" and "public assets". Remember we  are only talking about financial assets (bonds, bank reserves, bank loans) and most definately not anything real such as companies or houses. It is only about accounting identities. It is not about the private sector or the government making stuff. Ofcourse whether or not real stuff gets done does depend on who has the money to see that it gets done and that depends on the accounting. 

MMTers would claim that the private sector creates loans that do have to be paid off such that they subsequently net to zero or default and so also net to zero (the lender then loses as much as the creditor has gained). By contrast the government supposidly can indefinately make more and more "net financial assets" because we don't mind seeing people/banks/insurance companies/pension funds holding an ever greater stock of treasuries. From what I can see, private debt seems to increase too. If individuals take out bank loans to pay off bank loans then that seems similar We have a constraint that banks have to have a certain ratio of capital (eg government bonds that the bank owns) to loans. I guess that causes a ceiling that makes the (governmentally created) net financial assets the limiting factor?

[moda0306]

I'm going to be Devil's advocate here for a sec.

Pretend for a sec we have our fiat currency but don't do the bond issuance and printing song-and-dance, and simply print to spend, tax to destroy, and issue bonds to offer savers interest and as a monetary tool.

The idea is, as long as the threat to go to jail if you don't pay tax (and abide by legal tender laws, possibly) is there, our currency will retain value and we can "print financial assets into existence with no corresponding liabilities."

Maybe we do have a liability here that we're not seeing.  Like I said, the threat to go to jail has to be legitimate, so instead of having to "pay a debt" associated with printed dollars through some sort of relinquishment of wealth or production, we have to maintian a legitimate police/military force and judicial system threatening a negative outcome.

So maybe the true "liability" is the need to maintain the "infrastructure of punishment" necessary to make not paying taxes or abiding by legal tender laws a bad enough idea that people keep faith in the dollar and continue to pay.  Assuming existing mortgages and contracts haven't already been baked into an economy that is now introducing new money, the thing that will decipher how much value the money has is the amount people will have at their disposal vs how fast the "tax-destruction" is.  Instead of storing gold, the gov't has to train IRS agents and judges.

I'm not changing my mind on fiat currency so much as trying to expand definitions here a bit.

[Lone Wolf]

The Treasury could simply mint a multi-trillion dollar platinum coin, coordinate with the Fed, and be done with the whole matter. I think that highlights the ridiculousness of our so-called "debt" problem. But, doing that would take away Congress's ability to pinpoint where money is spent into existence, and Congress would likely be highly critical of such a maneuver — even though it could easily be done without creating inflation.

You're probably (hopefully?) being facetious but I've actually seen this "trillion dollar platinum coin" idea floated as a serious proposal.  Incredible.

As for "without creating inflation", I could not disagree more.  I'm not sure how you figure that printing up $15 trillion in order to overpay for 15 platinum trinkets and then using this money to pay off the national debt would not result in inflation.  I can't see how this action would result in anything but destruction of the currency.

I am amazed that you don't see any danger in what you're suggesting (even setting aside the separation of powers issues inherent in granting the Executive Branch the power to create infinite numbers of dollars to use however it wishes.)