How many people agree with MR/MT theory described on the forum

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Do you agree with MT/MR advocates on how money and debt work?

Poll runs till Fri Jul 06, 2057 4:03 am

I agree
14
41%
I disagree
8
24%
I don't know and I don't care
12
35%
 
Total votes: 34
edsanville
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Re: How many people agree with MR/MT theory described on the forum

Post by edsanville » Thu Sep 19, 2013 1:41 am

moda0306 wrote:
edsanville wrote:
moda0306 wrote: What do you think gives it value?  I mean other than our massively productive economy around it.
I'm not entirely sure, but I'd say it's a combination of legal tender laws, convenience, scarcity, and the self-perpetuating fact that it's the standard that people are currently exchanging amongst themselves...
Hey man I agree in a lot of ways.

Legal tender laws help.

This element of scarcity helps.

Convenience helps.

But until I heard Warren Mosler described his business card hold up (holding the people in the room he's in hostage unless they can supply him with one of his own business cards, gives those cards value), I really felt lost as to what actually clinched it.  I think the real clincher is taxes.  It's the only one that makes a damn bit of any motivational value sense.

We could all look at each other and have a big "a ha" moment with our currency and it collapses in a day... unless we all believe the government is going to put us in jail for not supplying them with some by the end of the year.  It's the negative value they put on NOT having it that helps give POSITIVE value on having it.
I understand that point of view, but I just don't think that taxation is the main reason fiat currency has value.

To clarify what I mean:  I don't believe taxation affects currency value, outside of how it affects the money supply.

If the United States stopped collecting taxes tomorrow and paid for everything by purchasing its own debt, I believe the US dollar would still have value and still be traded in the marketplace.

Do you agree with that statement, or do you believe that the dollar would be worthless in such a scenario?
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Re: How many people agree with MR/MT theory described on the forum

Post by Gumby » Thu Sep 19, 2013 6:29 am

Actually, I believe edsanville is correct. That's what MR says too!

http://pragcap.com/the-ft-does-mmr-on-currency-demand
Cullen Roche wrote:We choose how our govt exists. And we use the govt as a form of partnership to better our collective living standards. We choose to mobilize resources from pvt to public domain because we view this as an efficient form of resource utilization that will help improve living standards. But it is not the tax that gives the money its true value or demand. It is the efficient and accepted mobilization of these resources that gives the money value and helps maintain its demand.  Therefore, it’s best to think of taxes as being secondary in the hierarchy of money demand.

Source: http://pragcap.com/the-ft-does-mmr-on-currency-demand
In other words, edsanville agrees 100% with the MR view. The rest of us have been using Mosler's explanation, while MR evolved to recognize that the private sector chooses to use dollars for reasons beyond taxation.

Edsanville is more of an MR-ist than we are. And that means now he has to change his vote! :)

EDIT: And MR's take on the true value of fiat money (absent of taxes) is further explained here:

http://pragcap.com/thoughts-on-the-value-of-fiat-money
http://pragcap.com/understanding-the-mo ... em-part-2b
Last edited by Gumby on Thu Sep 19, 2013 7:10 am, edited 1 time in total.
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Re: How many people agree with MR/MT theory described on the forum

Post by TennPaGa » Thu Sep 19, 2013 7:14 am

edsanville wrote:
moda0306 wrote:
edsanville wrote: I buy that it mostly describes reality, but I disagree that taxation is what gives a fiat currency value.  Which option do I choose for that?
What do you think gives it value?  I mean other than our massively productive economy around it.
I'm not entirely sure, but I'd say it's a combination of legal tender laws, convenience, scarcity, and the self-perpetuating fact that it's the standard that people are currently exchanging amongst themselves...
I'm on board with this.

The Onion is not that far off the truth:
What began as a routine report before the Senate Finance Committee Tuesday ended with Bernanke passionately disavowing the entire concept of currency, and negating in an instant the very foundation of the world's largest economy.

"Though raising interest rates is unlikely at the moment, the Fed will of course act appropriately if we…if we…" said Bernanke, who then paused for a moment, looked down at his prepared statement, and shook his head in utter disbelief. "You know what? It doesn't matter. None of this—this so-called 'money'—really matters at all."

"It's just an illusion," a wide-eyed Bernanke added as he removed bills from his wallet and slowly spread them out before him. "Just look at it: Meaningless pieces of paper with numbers printed on them. Worthless."
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Re: How many people agree with MR/MT theory described on the forum

Post by Gumby » Thu Sep 19, 2013 7:39 am

TennPaGa wrote:
edsanville wrote:
moda0306 wrote: What do you think gives it value?  I mean other than our massively productive economy around it.
I'm not entirely sure, but I'd say it's a combination of legal tender laws, convenience, scarcity, and the self-perpetuating fact that it's the standard that people are currently exchanging amongst themselves...
I'm on board with this.
That's pretty much the standard MR interpretation, too (although, legal tender laws is considered to be a lesser reason). I believe Edsanville is in full agreement with MR.

Truthfully, if we use Mosler's and MMT's "gun to the head" analogy, we just wind up getting lost in another political discussion. I believe that's at least partially why MR deviates from MMT/Chartalism on this.
Last edited by Gumby on Thu Sep 19, 2013 7:45 am, edited 1 time in total.
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Re: How many people agree with MR/MT theory described on the forum

Post by moda0306 » Thu Sep 19, 2013 7:52 am

I'm still stuck between MR and MMT on that one.  It's not like we have guns to our head in how we behave.  We actually desire to use dollars.  However, I can't help but think that the taxation adds a unique element to the recipe.

If we stopped taxing, the currency would still have value.  However, this would be much more fragile if the population thought the government would never tax again.  I think it would leave our currency in a more fragile state for reasons only our collective subconscious can understand.

But in the end that's just my "gut feel."
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Re: How many people agree with MR/MT theory described on the forum

Post by Gumby » Thu Sep 19, 2013 8:02 am

moda0306 wrote: I'm still stuck between MR and MMT on that one.  It's not like we have guns to our head in how we behave.  We actually desire to use dollars.  However, I can't help but think that the taxation adds a unique element to the recipe.

If we stopped taxing, the currency would still have value.  However, this would be much more fragile if the population thought the government would never tax again.  I think it would leave our currency in a more fragile state for reasons only our collective subconscious can understand.

But in the end that's just my "gut feel."
For what it's worth, Cullen expounded on it further in this side comment:
Cullen Roche wrote:Yes, the govt can and does choose what is used to pay taxes. In our system, the govt chooses the unit of account (the USD) and then outsources money creation to the banks who create the loans that create the deposits that the govt redistributes in the means of taxes and spending. But I think you have to be careful assuming that the govt FORCES us to use money. Resources always precede money. Therefore, output always precedes money. To claim that the money can be forced upon us is to assume that the output can be forced on us as well. I think it’s more accurate to say that we choose to be productive and that this output sustains the money system. It’s not the butt of a government gun that sustains the output that we USE MONEY to chase after….Balance matters here. Always start with output as the end and money as the means. For instance, Mugabe didn’t run out of power and guns and murderers in Zimbabwe. He ran out of output.

Source: http://pragcap.com/understanding-the-mo ... ent-141831
I dunno. I say both. I still say that taxing enables the masses to hold government officials responsible for their actions (even if their fiat dollars are shredded on tax day).

But, if you were trying to avoid political discussions, Cullen's explanation makes a lot of sense.
Last edited by Gumby on Thu Sep 19, 2013 8:08 am, edited 1 time in total.
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Re: How many people agree with MR/MT theory described on the forum

Post by Gumby » Thu Sep 19, 2013 8:16 am

moda0306 wrote:If you think about it, the entire premise of the PP depends on MR being accurate.
Bingo. That's pretty much the only reason why I ever discuss MR.
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Re: How many people agree with MR/MT theory described on the forum

Post by notsheigetz » Thu Sep 19, 2013 8:38 am

clacy wrote: I voted "don't know/don't care" although what I really mean is that "I don't know, but do care".
I also voted "don't know/don't care" but debates like this do help increase my confidence in the PP. If people of diametrically opposing views on economics still come to the conclusion that the PP is the safest strategy, then once again all bases are covered without me having to figure out which theories are correct.
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Re: How many people agree with MR/MT theory described on the forum

Post by Lone Wolf » Thu Sep 19, 2013 11:42 am

That Cullen Dude wrote:But it is not the tax that gives the money its true value or demand. It is the efficient and accepted mobilization of these resources that gives the money value and helps maintain its demand.
Bingo.  One of many, many reasons that MR is a far superior framework to MMT, even if I don't count myself as an MR adherent per se.  MMT is riddled with errors, politically-tilted thinking, and all kinds of nonsense that actively inhibits arriving at correct economic conclusions.  MR did a good job in finding these problems and correcting them.  (This tax thing is only one example of many that MR gets right and MMT gets wrong.)

While I disagree with many of the analyses that come out of MR, it is at least making a strong, good-faith, and generally accurate attempt at describing the system as it works.  MMT does not do this.  It is a Utopian framework that makes many completely incorrect assumptions.  There was a time when MMT had some traction on the forum but I think (hope?) those days are in the past.
Gumby wrote:
moda0306 wrote:If you think about it, the entire premise of the PP depends on MR being accurate.
Bingo. That's pretty much the only reason why I ever discuss MR.
I know that you guys mean well, but can you please not say things like this?

The PP does not need or require any specific economic worldview.  Harry Browne was from the Austrian school and literally booed government deficits in his final investment radio shows.  And his portfolio works every bit as well as yours.

Imagine you're talking to someone that's thinking of adopting the Permanent Portfolio.  If you tell them that it works because an alien (to them) economic framework says so, you are requiring that they believe in this economic framework before they can believe in the Permanent Portfolio.

This unnecessarily raises the mental price of entry to embracing the portfolio.

The Permanent Portfolio requires only that you believe that the economy will always be in some mix of four major states: prosperity, recession, inflation, and deflation.  We all need the humility to admit that our economic frameworks are insufficient to reliably predict which of these states we will be in at any given time.

The philosophy is to hedge against everything.  Accept the uncertainty and chaos of the real world and execute a simple plan to deal with it.  Don't develop attachments to worldviews that can and will cloud your investment thinking.
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Re: How many people agree with MR/MT theory described on the forum

Post by Gumby » Thu Sep 19, 2013 11:56 am

Lone Wolf wrote: I know that you guys mean well, but can you please not say things like this?

The PP does not need or require any specific economic worldview.
I agree with what you're saying. That's true. But, what we meant, specifically, was simply understanding the mechanics of why there is no perceived default risk with Treasury bonds. That's all. The PP does depend on that. A lot of people don't understand those mechanics and think that the government will run out of money and be unable to pay its bills. HB was clear that it couldn't happen. We can either take his word (which many are willing to do) or we can try to learn why he was right. But, yeah, I guess we can refrain from making those kinds of extreme statements. :)
Last edited by Gumby on Thu Sep 19, 2013 12:01 pm, edited 1 time in total.
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Re: How many people agree with MR/MT theory described on the forum

Post by Lone Wolf » Thu Sep 19, 2013 12:15 pm

Gumby wrote: I agree with what you're saying. That's true. But, what we meant, specifically, was simply understanding the mechanics of why there is no perceived default risk with Treasury bonds. That's all. A lot of people don't understand those mechanics and think that the government will run out of money. HB was clear that it couldn't happen.
That's right.  Browne said (and I agree) that Treasuries are "virtually free of credit risk".  Not inflation risk, of course, hence the portfolio's hedges with gold coins in a safe deposit box.  (Or secured in the rectum if this is your thing.)

Now with sufficient imagination, we can all concoct scenarios in which there is a default of some kind on Treasuries.  These scenarios are all some version of Armageddon-lite, though, and in all these cases, that 25% in gold is going to be covering our butts in a major way.

I just like the fact that with this portfolio, any or all of us can be completely right or wrong about which model (Austrian, MR, Monetarist, Neo-Classicist, Keynesian, or whatever) is correct... and everything will still continue working just as before.

I'm glad we agree on that, in part because it helps us all sleep at night and it helps take a bit of the "life or death/Thunderdome" edge off of some of the economic debates.  :D
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Re: How many people agree with MR/MT theory described on the forum

Post by Mdraf » Thu Sep 19, 2013 12:55 pm

While a traditional "default" is not in the cards what if, as Lord Turner - the former chief of the Financial Services Authority in Britain -  has suggested, the Fed simply writes off its Treasury portfolio financing "prior" deficits. This could be done with a flick of a switch, reducing our government  debt to a manageable percentage of GDP at a stroke ? Would that not constitute a default?
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