Question for the MT/MR advocates...what's your position on "tapering"?

Other discussions not related to the Permanent Portfolio

Moderator: Global Moderator

murphy_p_t
Executive Member
Executive Member
Posts: 1285
Joined: Fri Jul 02, 2010 3:44 pm

Question for the MT/MR advocates...what's your position on "tapering"?

Post by murphy_p_t » Tue Sep 17, 2013 9:11 pm

Question for the MT/MR advocates...what's your position on "tapering"?

Is there any reason / theoretical need to do it?
User avatar
moda0306
Executive Member
Executive Member
Posts: 7665
Joined: Mon Oct 25, 2010 9:05 pm
Location: Minnesota

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by moda0306 » Tue Sep 17, 2013 9:34 pm

Tapering indicates that the fed will raise rates quicker than it otherwise would have.

With unemployment high and us far from our productive potential and inflation very low, raising rates seems premature.

I'd like to see the fed actually raise its inflation target to 3%. Not talking about raising rates prematurely.

But I don't speak for all MR.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."

- Thomas Paine
Kshartle
Executive Member
Executive Member
Posts: 3559
Joined: Thu Sep 22, 2011 4:38 pm

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Kshartle » Wed Sep 18, 2013 6:59 am

moda0306 wrote: Tapering indicates that the fed will raise rates quicker than it otherwise would have.

With unemployment high and us far from our productive potential and inflation very low, raising rates seems premature.

I'd like to see the fed actually raise its inflation target to 3%. Not talking about raising rates prematurely.

But I don't speak for all MR.
How does QE help employment? How does inflation help employment?

If inflation does help the economy, why 3%? Why not 4%? Why not 50? Too much of a good thing?
murphy_p_t
Executive Member
Executive Member
Posts: 1285
Joined: Fri Jul 02, 2010 3:44 pm

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by murphy_p_t » Wed Sep 18, 2013 8:55 am

I note the irony that a thread specifically requesting the insight of the MT/MR folks gets very little feedback...but the ones which really have nothing to do w/ MT/MR are rapidly dominated in MT/MR chatter.
Kshartle
Executive Member
Executive Member
Posts: 3559
Joined: Thu Sep 22, 2011 4:38 pm

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Kshartle » Wed Sep 18, 2013 9:03 am

murphy_p_t wrote: I note the irony that a thread specifically requesting the insight of the MT/MR folks gets very little feedback...but the ones which really have nothing to do w/ MT/MR are rapidly dominated in MT/MR chatter.
Perhaps a thread discussing the effects of QE/Tapering from a non-MR/MMT perspective would be interesting. Or maybe everyone is just exhausted.
Gumby
Executive Member
Executive Member
Posts: 4012
Joined: Mon May 10, 2010 8:54 am

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Gumby » Wed Sep 18, 2013 9:15 am

murphy_p_t wrote: I note the irony that a thread specifically requesting the insight of the MT/MR folks gets very little feedback...but the ones which really have nothing to do w/ MT/MR are rapidly dominated in MT/MR chatter.
Not sure what you are looking from us. We don't view QE as having an enormous impact on the private sector. We didn't get any richer from it. If anything we have less interest income. It just swapped one financial asset for another and that brought down interest rates. Kind of a big yawn in my book.

The reason why we get animated in the other threads is because people, usually with political agendas, will attempt to paint QE as some kind of terrible policy that somehow makes people in the private sector too rich — but it does no such thing.
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
Kshartle
Executive Member
Executive Member
Posts: 3559
Joined: Thu Sep 22, 2011 4:38 pm

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Kshartle » Wed Sep 18, 2013 9:18 am

Gumby wrote: The reason why we get animated in the other threads is because people, usually with political agendas, will attempt to paint QE as some kind of terrible policy that somehow makes people in the private sector too rich — but it does no such thing.
It redistributes purchasing power from producers to non-producers and distorts the economy in negative ways. I've given an example of this in the other thread that I think is very clear. Perhaps it's lacking.
User avatar
MediumTex
Administrator
Administrator
Posts: 9083
Joined: Sun Apr 25, 2010 11:47 pm
Contact:

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by MediumTex » Wed Sep 18, 2013 9:46 am

I wouldn't call someone who acknowledges the more or less accurate description of current monetary policy as an "MR/MT advocate."

That would be like saying that someone who gets a flu shot is a "flu advocate."

As far as the topic of tapering goes, I'm not really sure what the Fed means by that term.  I am anxious to see, though.
Only strength can cooperate. Weakness can only beg.
-Dwight Eisenhower
Gumby
Executive Member
Executive Member
Posts: 4012
Joined: Mon May 10, 2010 8:54 am

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Gumby » Wed Sep 18, 2013 10:02 am

Kshartle wrote:It redistributes purchasing power from producers to non-producers and distorts the economy in negative ways. I've given an example of this in the other thread that I think is very clear. Perhaps it's lacking.
I think it is lacking, because I still don't understand how anyone has more purchasing power after a QE transaction. The Treasury Bond market is the world's most liquid market. Nobody has any trouble instantly converting their Treasury bonds into cash whenever they want to spend them. All we have to do is walk up to an ATM and hit TRANSFER TO CHECKING and people instantly have the ability to spend their savings that their bank had invested in Treasury Bonds.

Now, I'll tell you why QE does bid up asset prices in the FIRE sector... The reason why is because when a Primary Dealer loses its interest-bearing Treasury Bonds, it winds up with excess reserves. It is no richer, but now it is only getting interest from IOR and not from a 4% 30-year Treasury. So, the bank is up a creek because it has a huge pile of sh*tty reserves that can't be lent out in the overnight market for the FFR (since many banks already have excess reserves) and the Fed will only pay a measly IOR. So, the bank doesn't really enjoy all that excess cash. It's a drag on their balance sheet.

So, there is an opportunity cost to holding excess reserves. Bankers have a quota to generate a certain amount of income for the bank, so the bank will use these reserves to bid up FIRE sector asset prices (gold, stocks, etc) using their quants and High Speed Trading.

In effect, QE stimulates makes banks play "hot potato" with their excess reserves — and the negative real interest rate has a similar effect on you and me — but since the net purchasing power in the economy hasn't changed, the inflationary effect from QE is not very meaningful. In other words, there is no extra purchasing power backing up the "hot potato" effect that QE causes.

So, maybe that's what you are trying to say. And if so, I would agree. But, I don't see our net purchasing power is increasing from a QE transaction. And any inflated asset prices wouldn't be supported very well since the purchasing power is still no different in the private sector.
Last edited by Gumby on Wed Sep 18, 2013 10:18 am, edited 1 time in total.
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
Kshartle
Executive Member
Executive Member
Posts: 3559
Joined: Thu Sep 22, 2011 4:38 pm

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Kshartle » Wed Sep 18, 2013 10:17 am

TennPaGa wrote:
Gumby wrote:
Kshartle wrote:It redistributes purchasing power from producers to non-producers and distorts the economy in negative ways. I've given an example of this in the other thread that I think is very clear. Perhaps it's lacking.
I think it is lacking, because I still don't understand how anyone has more purchasing power after a QE transaction.

...

In effect, QE stimulates makes banks play "hot potato" with their excess reserves — and the low interest rate has a similar effect on you and me — but since the net purchasing power in the economy hasn't changed, the inflationary effect from QE is not very meaningful. In other words, there is no extra purchasing power backing up the "hot potato" effect that QE causes.
+10
If I print a trillion dollars do I have more purchasing power?

No one has made the argument that there is more purchasing power in total. At least I haven't. Some have more and some have less.

If you can't see how me printing 1 trillion gives me more purchasing power than before..........

Where did that purchasing power come from? Is there more out there now? Or did it come from everyone else?

Can anyone answer those bolded questions?
Last edited by Kshartle on Wed Sep 18, 2013 10:30 am, edited 1 time in total.
Gumby
Executive Member
Executive Member
Posts: 4012
Joined: Mon May 10, 2010 8:54 am

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Gumby » Wed Sep 18, 2013 10:46 am

Kshartle wrote:If I print a trillion dollars do I have more purchasing power?
Depends on what you do with that $1 trillion. If the Fed were to buy a bag of dirt with that $1 trillion, that would be the equivalent of a helicopter drop (since the bag of dirt has no value) and it would be highly inflationary. Luckily the Fed is restricted, by Congress, as to what it can buy and who it can buy from. So, the Fed can only buy financial assets on the Secondary Market — and it can only buy them from Primary Dealers.

So, their purchases are very different from buying a bag of dirt. The Primary Dealers are losing $1 Trillion in financial assets (plus interest) when the Fed prints up $1 Trillion and buys that financial asset.

There is no bag of dirt.
Kshartle wrote: No one has made the argument that there is more purchasing power in total. At least I haven't. Some have more and some have less.
Who has more and who has less? The bank's balance sheet is no larger or smaller after the QE transaction!
Kshartle wrote:If you can't see how me printing 1 trillion gives me more purchasing power than before..........

Where did that power come from? Is there more out there now? Or did it come from everyone else?

Can anyone answer those bolded questions?
All of the purchasing power in our society represents hard work, real goods and real services.

For instance, if you go to work for Verizon every day, Verizon is able to give you purchasing power with various forms of private credit. They do it by selling bonds which increases deposits in Verizon's bank account, at Bank of America, that are used to pay your paycheck. Some reserves may flow into BOA from the sale, but not necessarily. BOA could choose to buy the bonds and simply credit Verizon's account at BOA with a deposit in the form of credit.

Now, Bank of America simply needs to make sure it has enough reserves on hand for the end-of-day interbank transfer that happens when you deposit your payroll check in TD Bank and the Fed needs to settle up the difference between the two banks at the end of the day. If more people transferred money from TD Bank to BOA that day, then the Fed doesn't need to transfer any reserves from BOA to TD Bank that day. They just figure out the net difference and settle up between the two banks. That's all reserves are used for and that's the main role of the Fed. When a bank is low on reserves for those interbank transfers, the bank can get overnight loans from other banks with excess reserves. (It's not really a problem right now since a lot of banks have excess reserves from the artificial scarcity of T-Bonds).

If Verizon has incentivized employees to use Bank of America, then that means that Bank of America doesn't even need the reserves to give those BOA-friendly employees purchasing power — all it has to do is increase the digits in those employees' accounts (and reduce the digits in Verizon's account) and it can keep the purchasing power invested in whatever credit/debt instruments it pleases. In other words, the purchasing power is mostly just represented by dollar-denominated credits.

But, here's the key point... If the entire set of transactions from Verizon raising capital from BOA to BOA creating deposits in the accounts of Verizon employees stays within BOA the whole time, not a single penny of reserves is needed to give those employees purchasing power..........until they need to transfer or withdraw that purchasing power from BOA. Then, and only then does BOA need to find the reserves for those transactions, and ONLY for situations where BOA has a larger outflow of reserves than an inflow of reserves.

In short, purchasing power was created because you went to work, worked hard and provided goods and services. Most purchasing power is created by the private sector and the reserves are only used for interbank transfers at the Fed.
Last edited by Gumby on Wed Sep 18, 2013 10:54 am, edited 1 time in total.
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
Kshartle
Executive Member
Executive Member
Posts: 3559
Joined: Thu Sep 22, 2011 4:38 pm

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Kshartle » Wed Sep 18, 2013 11:16 am

If I print one trillion dollars do I have more purchasing power?
It doesn't depend on what I do with it. The power to purchase exists for me where it didn't before. Irrelevant what I choose to do with it.

You stated correctly that purchasing power comes from well I'll quote you "purchasing power was created because you went to work, worked hard and provided goods and services."

If I printed money, and I have more PP, and I didn't do anything of the things YOU SAY are neccessary to create additional PP, then where did the PP come from?
User avatar
MediumTex
Administrator
Administrator
Posts: 9083
Joined: Sun Apr 25, 2010 11:47 pm
Contact:

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by MediumTex » Wed Sep 18, 2013 11:41 am

Kshartle wrote: If I print one trillion dollars do I have more purchasing power?
It doesn't depend on what I do with it. The power to purchase exists for me where it didn't before. Irrelevant what I choose to do with it.
What if you built a bonfire with it and burned it all up?
Only strength can cooperate. Weakness can only beg.
-Dwight Eisenhower
Gumby
Executive Member
Executive Member
Posts: 4012
Joined: Mon May 10, 2010 8:54 am

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Gumby » Wed Sep 18, 2013 11:48 am

Kshartle wrote: If I print one trillion dollars do I have more purchasing power?
It doesn't depend on what I do with it. The power to purchase exists for me where it didn't before. Irrelevant what I choose to do with it.

You stated correctly that purchasing power comes from well I'll quote you "purchasing power was created because you went to work, worked hard and provided goods and services."

If I printed money, and I have more PP, and I didn't do anything of the things YOU SAY are neccessary to create additional PP, then where did the PP come from?
I don't understand the question.. YOU don't have the power to print $1 trillion. And the Fed doesn't have the authority to hand out $1 Trillion dollars without removing a financial asset of equal value. Who is printing this $1 trillion and just giving it away for nothing?
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
Kshartle
Executive Member
Executive Member
Posts: 3559
Joined: Thu Sep 22, 2011 4:38 pm

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Kshartle » Wed Sep 18, 2013 12:37 pm

You guys are both avoiding the question. It's obvious why.

Will anyone take up the challenge of these questions and not try to change them, just answer them? The questions are in bold.

If I print one trillion dollars do I have more purchasing power?It doesn't depend on what I do with it. The power to purchase exists for me where it didn't before. Irrelevant what I choose to do with it.

You stated correctly that purchasing power comes from well I'll quote you "purchasing power was created because you went to work, worked hard and provided goods and services."

If I printed money, and I have more PP, and I didn't do anything of the things YOU SAY are neccessary to create additional PP, then where did the PP come from?
Gumby
Executive Member
Executive Member
Posts: 4012
Joined: Mon May 10, 2010 8:54 am

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Gumby » Wed Sep 18, 2013 12:43 pm

Kshartle wrote: You guys are both avoiding the question. It's obvious why.
Yes, because I don't understand the question. Who is printing the money? KShartle? The Fed?

Who is "I"?
Kshartle wrote:Will anyone take up the challenge of these questions and not try to change them, just answer them? The questions are in bold.
Please do a better job of asking the questions. I can't answer them if you don't define who is printing up the money. Last time I checked, Kshartle cannot print money and the Fed cannot conduct helicopter drops.
Kshartle wrote: If I print one trillion dollars do I have more purchasing power?It doesn't depend on what I do with it. The power to purchase exists for me where it didn't before. Irrelevant what I choose to do with it.
No. Your purchasing power doesn't change if you lost a financial asset of equal value — which is what would happen if a Primary Dealer got that money from the Fed.
Kshartle wrote:You stated correctly that purchasing power comes from well I'll quote you "purchasing power was created because you went to work, worked hard and provided goods and services."

If I printed money, and I have more PP, and I didn't do anything of the things YOU SAY are neccessary to create additional PP, then where did the PP come from?
You don't have more purchasing power after a POMO transaction, so the second question is irrelevant.

I'm not going to indulge a fantasy of having KShartle having his own printing press because that's not our reality.
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
Kshartle
Executive Member
Executive Member
Posts: 3559
Joined: Thu Sep 22, 2011 4:38 pm

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Kshartle » Wed Sep 18, 2013 12:43 pm

TennPaGa wrote:
Kshartle wrote: You guys are both avoiding the question. It's obvious why.

Will anyone take up the challenge of these questions and not try to change them, just answer them? The questions are in bold.

If I print one trillion dollars do I have more purchasing power?
Just so I'm clear...

Are you the Fed?
No, I am a dude with a counterfieting machine. This doesn't require the FED. Doesn't even have to be the US. Doesn't even have to be this planet.
Gumby
Executive Member
Executive Member
Posts: 4012
Joined: Mon May 10, 2010 8:54 am

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Gumby » Wed Sep 18, 2013 12:46 pm

Kshartle wrote:
TennPaGa wrote:
Kshartle wrote: You guys are both avoiding the question. It's obvious why.

Will anyone take up the challenge of these questions and not try to change them, just answer them? The questions are in bold.

If I print one trillion dollars do I have more purchasing power?
Just so I'm clear...

Are you the Fed?
No, I am a dude with a counterfieting machine. This doesn't require the FED. Doesn't even have to be the US. Doesn't even have to be this planet.
A counterfeiter is creating a fake financial asset that defrauds people into believing he has purchasing power. It's known as fraud. What's your point?
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
Kshartle
Executive Member
Executive Member
Posts: 3559
Joined: Thu Sep 22, 2011 4:38 pm

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Kshartle » Wed Sep 18, 2013 12:55 pm

Gumby wrote:
Kshartle wrote:
TennPaGa wrote: Just so I'm clear...

Are you the Fed?
No, I am a dude with a counterfieting machine. This doesn't require the FED. Doesn't even have to be the US. Doesn't even have to be this planet.
A counterfeiter is creating a fake financial asset that defrauds people into believing he has purchasing power. It's known as fraud. What's your point?
Gumby now you are on it!!!!!!

Will you induldge me just one more time please? Let's say no one can tell the differency between what I counterfeit and the original. For all practical terms....I now have purchasing power, where I didn't before. No new goods or services were created which as you said quite clearly is how purchasing power is created.

You call this fraud. It is fraud because it is theft. What was stolen, purchasing power. Where did it come from? Everyone else holding the paper.

Now what will I do with my stolen purchasing power? I will buy stuff and distort the economy in ways that can only be sustained by my printing. Everyone else will subsidize my lifestyle and those who are close to the fresh money before it is used to bid up all prices. The higher prices they have to pay are the result of me getting more value than I create.

What happens when I stop? Those industries where I've been bidding up prices and signaling that new production is needed to meet demand will go into recession. If the printing has been big enough....a deeper recession is the result.

Does this make sense? Please indulge me just on the island here or whatever and nevermind the FED for the moment.
User avatar
MediumTex
Administrator
Administrator
Posts: 9083
Joined: Sun Apr 25, 2010 11:47 pm
Contact:

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by MediumTex » Wed Sep 18, 2013 12:58 pm

Kshartle,

If private sector credit is contracting on your island, people might not even notice the extra money you are printing.

They might even appreciate it if they found out, assuming you didn't print too much.
Only strength can cooperate. Weakness can only beg.
-Dwight Eisenhower
Kshartle
Executive Member
Executive Member
Posts: 3559
Joined: Thu Sep 22, 2011 4:38 pm

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Kshartle » Wed Sep 18, 2013 1:07 pm

MediumTex wrote: Kshartle,

If private sector credit is contracting on your island, people might not even notice the extra money you are printing.

They might even appreciate it if they found out, assuming you didn't print too much.
Why would they appreciate me living a lavish lifestyle off their backs?

To your first point, they might not notice it, but that's not relevant. We don't notice gamma rays but they still exist right? I don't generally notice the continental drift but it exists right? - I mean this very nicely but this is an irrelevant tangent MT.
Gumby
Executive Member
Executive Member
Posts: 4012
Joined: Mon May 10, 2010 8:54 am

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Gumby » Wed Sep 18, 2013 1:08 pm

Kshartle wrote:Please indulge me just on the island here or whatever and nevermind the FED for the moment.
I just can't do it. We don't live on a little island. We live in a big country with tons of private credit. Followers of MR are simply describing the actual system we have — not Fantasy Island.

[align=center]Image[/align]

You can't expect me to describe your island because A) the island doesn't exist, and B) the island is too oversimplified and ignores realties that only exist in banks that operate with reserves within the strict confines of a central bank.

Please use a real world example.
Last edited by Gumby on Wed Sep 18, 2013 1:10 pm, edited 1 time in total.
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
User avatar
MediumTex
Administrator
Administrator
Posts: 9083
Joined: Sun Apr 25, 2010 11:47 pm
Contact:

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by MediumTex » Wed Sep 18, 2013 1:08 pm

Kshartle wrote:
MediumTex wrote: Kshartle,

If private sector credit is contracting on your island, people might not even notice the extra money you are printing.

They might even appreciate it if they found out, assuming you didn't print too much.
Why would they appreciate me living a lavish lifestyle off their backs?

To your first point, they might not notice it, but that's not relevant. We don't notice gamma rays but they still exist right? I don't generally notice the continental drift but it exists right? - I mean this very nicely but this is an irrelevant tangent MT.
Is it irrelevant if it reflects the core rationale for why our government is doing it?
Only strength can cooperate. Weakness can only beg.
-Dwight Eisenhower
Kshartle
Executive Member
Executive Member
Posts: 3559
Joined: Thu Sep 22, 2011 4:38 pm

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Kshartle » Wed Sep 18, 2013 1:16 pm

Gumby wrote:
I just can't do it.
You were getting so close. You correctly identified where purchasing power comes from and that counterfeiting is fraud/theft. The stolen good would be purchasing power. Therefore counterfeiting (particularly perfectly uncatchable counterfeiting) is  the theft of purchasing power. - This is all very astute and with 100% sincerity I think brings us closer to understanding of these issues.

That is a long way to come in one day.

As they say, Rome wasn't built in a day.
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8783
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Pointedstick » Wed Sep 18, 2013 1:20 pm

The counterfeiter makes fake versions of genuine stuff. Can you really call the government and/or Fed counterfeiters if they're the people who create the money in the first place? It sort of seems like saying Louis Vuitton is counterfeiting all those bags they flood the market with.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
Post Reply