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

Other discussions not related to the Permanent Portfolio

Moderator: Global Moderator

Post Reply

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
Gumby
Executive Member
Executive Member
Posts: 4012
Joined: Mon May 10, 2010 8:54 am

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

Post by Gumby » Thu Sep 19, 2013 1:07 pm

Mdraf wrote: 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?
Sorry, but what is a "manageable" percentage of GDP if you just admitted that "a traditional default is not in the cards"?

See: Robert J. Shiller: Debt and Delusion

For instance, Japan's is over 214% and they have no problem servicing their debt. How do we know what is "manageable" if Debt/GDP thresholds are fairly meaningless, in terms of default, for a currency issuer:
Robert J. Shiller wrote:After all, debt (which is measured in currency units) and GDP (which is measured in currency units per unit of time) yields a ratio in units of pure time. There is nothing special about using a year as that unit. A year is the time that it takes for the earth to orbit the sun, which, except for seasonal industries like agriculture, has no particular economic significance.

Source: http://www.project-syndicate.org/commen ... d-delusion
But, if you're simply talking about having a smaller government, that's a different story altogether.
Last edited by Gumby on Thu Sep 19, 2013 1:11 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
moda0306
Executive Member
Executive Member
Posts: 7610
Joined: Mon Oct 25, 2010 9:05 pm
Location: Minnesota

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

Post by moda0306 » Thu Sep 19, 2013 1:28 pm

I think we need to be a little careful about the assumption that any government debt crisis would get a hopeful bounce from hold even if default risk started to enter the picture.

2008 brought a very slight rise in gold. If our long-term bonds go to crap and our short-term bonds do ok or get defaulted on, I'm not as confident that gold would react in time.  I mean if real interest rates are high gold's first instinct might be to go down or stay stagnant.

So I think things look a lot scarier for the PP if treasury bonds contain default risk, and to a degree that might leave gold unsure where to to go due to its typical triggers.
"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
User avatar
moda0306
Executive Member
Executive Member
Posts: 7610
Joined: Mon Oct 25, 2010 9:05 pm
Location: Minnesota

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

Post by moda0306 » Thu Sep 19, 2013 1:52 pm

I mean haven't we agreed that the PP is built for a sovereign fiat currency that will not overtly default?  And that any real default risk makes the PP work considerably differently (a la Greece in Europe)?
"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: 3561
Joined: Thu Sep 22, 2011 4:38 pm

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

Post by Kshartle » Thu Sep 19, 2013 2:07 pm

They do contain the smallest amount of default risk. Even Browne recognized this. He was a master of the English language and no doubt understood perfectly what he was writing. In "Why The Best Laid Investment Plans...." he wrote of Treasury Bonds: "They are virtually free of credit risk, since the U.S. government can, if it needs to, can print the money to pay them off."

According to Webster's:

Virtually means -  very nearly or almost entirely
It's near antonym (near opposite) is listed as: absolutely, totally, entirely, completely etc.

Can means - to be able to do, accomplish.

The sentence could be re-written, without changing it's meaning to "They are very nearly free of credit risk, since the U.S. government is able to, if it needs to, print the money to pay them off"

This is not the same as "They are free of credit risk, since the U.S. government will, if it needs to, print the money to pay them off"

So let's not be confused about Browne saying the US government could not overtly default. The possibility is extremely remote, but as it grows larger the incentive to print grows and this provides clues to what is going on. If base money is becoming a greater percentage of the money supply it means the economic engines are getting weaker and the economy increasingly needs to be propped up with printing. Maybe gold and stocks don't go anywhere and it takes more and more printing just to keep prices from falling. This is a signal that the economy needs to re-adjust and wants to re-adjust. Ignoring it does not make it go away.

I think that's where we are at now and why the economy will continue it's downtrend with periodic short-term boosts; until the printing stops and resources are re-allocated to meet market demands rather than centrally planned artificial demands.
Last edited by Kshartle on Thu Sep 19, 2013 2:11 pm, edited 1 time in total.
Kshartle
Executive Member
Executive Member
Posts: 3561
Joined: Thu Sep 22, 2011 4:38 pm

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

Post by Kshartle » Thu Sep 19, 2013 2:15 pm

This is why the FED is stuck and why it's still printing despite evidence that it's not helping the economy.

It's like how I believe Andrew Jackson described slavery: "Its like you've got a wolf by the ears. You hate every second of it but you don't dare let go".

The FED doesn't dare let go but there is little hope it will end well.

It's buddies probably also make a killing front-running everyone also. And politicians love it because recessions are very bad for incumbents.
tennpaga
Global Moderator
Global Moderator
Posts: 3126
Joined: Tue May 17, 2011 1:44 pm

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

Post by tennpaga » Thu Sep 19, 2013 2:18 pm

Are banks counterfeiters?  Why or why not?
* Gresham's Law: Bad behavior drives out good.
* Gresham's corollary: Avoid participating in systems where good behavior cannot win.

https://fs.blog/2009/12/mental-model-greshams-law/
Kshartle
Executive Member
Executive Member
Posts: 3561
Joined: Thu Sep 22, 2011 4:38 pm

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

Post by Kshartle » Thu Sep 19, 2013 2:36 pm

TennPaGa wrote: Are banks counterfeiters?  Why or why not?
The definition of counterfeit is made in imitation so as to be passed off fraudulently or deceptively as genuine; not genuine; forged:

I would submit that 99% of the population isn't aware of fractional reserve banking or how money is created. Banks don't advertise this so there is an element of deception. However they are legally permitted to deceive. So that's the rub. If you believe that legality trumps all then no.

If a soldier kicks down a door in Fallujah and shoots a kid he thinks has an AK but doesn't is he a murderer? Looks like one, smells like one, but is he one..........

Browne wrote on page 30 of "How you can Profit from the coming devaluation" - Inflation is the printing of paper money substitues that are not backed by real money. And it doesn't matter who does the counterfeiting. Any increase in paper money-not backed by real money in storage-is going to cause the same reaction: prices will be higher than they would have been without the inflation.

I would disagree slightly and say counterfeiting is only the illegal reproduction of something with intent to defraud etc.

But the effect is the same. That's why it's easier to understand how the government printing is bad. It's OBVIOUS that anyone else doing it is bad. If they are functionaly identical then it's easy to see that government/FED printing hurts more than it helps.
User avatar
MediumTex
Administrator
Administrator
Posts: 9078
Joined: Sun Apr 25, 2010 11:47 pm
Contact:

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

Post by MediumTex » Thu Sep 19, 2013 2:41 pm

When does anyone think that prices will start rising in a strong and sustained upward direction in response to Fed policies?

I'm assuming we all agree that prices have been pretty stable (especially wages) in the five years or so since the Fed began its "printing."

All I hear from people is how hard it is to raise prices in the current environment.  I just wonder when anyone thinks that will change beyond the Fed's inflation target of 3-4%.
Only strength can cooperate. Weakness can only beg.
-Dwight Eisenhower
User avatar
moda0306
Executive Member
Executive Member
Posts: 7610
Joined: Mon Oct 25, 2010 9:05 pm
Location: Minnesota

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

Post by moda0306 » Thu Sep 19, 2013 2:43 pm

Kshartle wrote:
TennPaGa wrote: Are banks counterfeiters?  Why or why not?
The definition of counterfeit is made in imitation so as to be passed off fraudulently or deceptively as genuine; not genuine; forged:

I would submit that 99% of the population isn't aware of fractional reserve banking or how money is created. Banks don't advertise this so there is an element of deception. However they are legally permitted to deceive. So that's the rub. If you believe that legality trumps all then no.

If a soldier kicks down a door in Fallujah and shoots a kid he thinks has an AK but doesn't is he a murderer? Looks like one, smells like one, but is he one..........

Browne wrote on page 30 of "How you can Profit from the coming devaluation" - Inflation is the printing of paper money substitues that are not backed by real money. And it doesn't matter who does the counterfeiting. Any increase in paper money-not backed by real money in storage-is going to cause the same reaction: prices will be higher than they would have been without the inflation.

I would disagree slightly and say counterfeiting is only the illegal reproduction of something with intent to defraud etc.

But the effect is the same. That's why it's easier to understand how the government printing is bad. It's OBVIOUS that anyone else doing it is bad. If they are functionaly identical then it's easy to see that government/FED printing hurts more than it helps.
If I "printed money in my basement," deposited it in my TD Ameritrade account and bought some T-Bills with it, and that's it, then I have done something similar to what the fed does when it prints money.  This is going to have a very, very different effect than if I take that money and go out and spend it on stuff. 
"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
User avatar
technovelist
Executive Member
Executive Member
Posts: 5975
Joined: Wed Sep 15, 2010 11:20 pm

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

Post by technovelist » Thu Sep 19, 2013 3:11 pm

MediumTex wrote: When does anyone think that prices will start rising in a strong and sustained upward direction in response to Fed policies?

I'm assuming we all agree that prices have been pretty stable (especially wages) in the five years or so since the Fed began its "printing."

All I hear from people is how hard it is to raise prices in the current environment.  I just wonder when anyone thinks that will change beyond the Fed's inflation target of 3-4%.
Some prices have been anything but stable: The S&P 500 has almost doubled from the low in 2009, and the housing market is now roaring ahead.

That's where the money has been going.
Another nod to the most beautiful equation: e + 1 = 0
Gumby
Executive Member
Executive Member
Posts: 4012
Joined: Mon May 10, 2010 8:54 am

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

Post by Gumby » Thu Sep 19, 2013 3:14 pm

Kshartle wrote:The possibility is extremely remote, but as it grows larger the incentive to print grows and this provides clues to what is going on.
Either you've misconstrued what Browne wrote, or Browne didn't want to wade into the mechanics in his book (i.e. he oversimplified it). There is no "Printing Press" that is rolled out to fund the government when the debt somehow appears to be large. Any left over T-Bonds at auction are always purchased by the excess reserves in the banking system that is created by previous government spending. If the reserves don't exist, they either delay the auctions until they do exist or the Fed makes a short term loan to create the reserves and then the reserves are paid back to the Fed once the Treasury spends to create the reserves. That's how it works. The system is rigged so that the banking system always has the reserves to buy Treasuries at auction.

Currently there is ZERO problem of finding the reserves to buy Treasuries at auction because THERE IS A LARGE SURPLUS OF RESERVES right now that the banks would love to swap for Treasury bonds!
Kshartle wrote:If base money is becoming a greater percentage of the money supply it means
It means very little since Base money is only about 5% of the broad money supply.
Last edited by Gumby on Thu Sep 19, 2013 3:33 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.
tennpaga
Global Moderator
Global Moderator
Posts: 3126
Joined: Tue May 17, 2011 1:44 pm

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

Post by tennpaga » Thu Sep 19, 2013 3:15 pm

Kshartle wrote:
TennPaGa wrote: Are banks counterfeiters?  Why or why not?
I would disagree slightly and say counterfeiting is only the illegal reproduction of something with intent to defraud etc.

But the effect is the same. That's why it's easier to understand how the government printing is bad. It's OBVIOUS that anyone else doing it is bad. If they are functionaly identical then it's easy to see that government/FED printing hurts more than it helps.
Private banks print far more than the Fed, you know.
* Gresham's Law: Bad behavior drives out good.
* Gresham's corollary: Avoid participating in systems where good behavior cannot win.

https://fs.blog/2009/12/mental-model-greshams-law/
Post Reply