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

[Gumby]

MR works up until the point where people lose faith in the issuer. Then the whole things flies apart.

So what MR describes is technically correct in so far as the issuing authority still maintains control. But the moment that goes out the window, then all bets are off.

Also I think MR ignores a lot of significant questions like what government spending actually does in areas that are detriments to society. For instance the MR people may say debt doesn't matter because the government controls the currency. But if that debt is being used to build a fleet of unmanned aerial vehicles, fund wars, and expand the surveillance state by building a massive data storage facility in Utah to spy on all communications, then I think the MR types are missing the point. I'd much rather have spending constrained with a metallic standard if it means I don't have to worry about what the government is recording about who I communicate with, watching me with drones, subsidizing stupid policies, etc.

agreed plus i would add paying bureaucrats and regulators to perpetually create kudzu vine like regulation that chokes the real drivers of prosperity.

I agree. We don't use MR for political analysis. It's just descriptive of the banking system. That's all!

[craigr]

I agree. We don't use MR for political analysis. It's just descriptive of the banking system. That's all!

I think MR mostly provides an ex-post academic smokescreen for big government and bad spending policies. Policies that ultimately are going to do serious harm to the country.

[Gumby]

true enough but "accurate description but still a gawd awful mess doomed to collapse" wasn't an option

Heh... Well, I would have voted that way too if it was an option!

[clacy]

I voted "don't know/don't care" although what I really mean is that "I don't know, but do care".

I see validity in several of the monetary schools of thought that I've looked into, including MMT/R.  However, any time you have real humans making the decisions, emotions (fear, greed and the pursuit of power) will taint the "theory" and cause it to become imperfect.

[Gumby]

I voted "don't know/don't care" although what I really mean is that "I don't know, but do care".

I see validity in several of the monetary schools of thought that I've looked into, including MMT/R.  However, any time you have real humans making the decisions, emotions (fear, greed and the pursuit of power) will taint the "theory" and cause it to become imperfect.

I agree with your point about things not working one day. However, it's important to note that a descriptive framework, like MR, doesn't say "this will always work". It is just descriptive of the banking system and it doesn't offer any prescriptions.

It's just like your car manual. Your car manual doesn't suggest that the car won't crash due to human error or from an external situation. It simply describes how the car works and is put together. That's it!

Again, we were simply asked whether or not you agreed with the description — not if you liked it or thought it would work forever.

[moda0306]

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.

[Gumby]

as the poll question is worded i admit i am technically a yes... but my biggest problem with MR is the failure of MR discussions (and poll questions) to address bigger picture issues, to use your analogy it would be like a doctor describing over all lung health and when asked  about the harm/benefit of smoking he just repeatedly rambled on about the cellar makeup of alveoli and made comprehensive arguments against some pre-microscope understanding of lung function.
focusing on the descriptive side without ever addressing the rest of what fiat dollars do seems myopic.

or to put it simply i voted disagree not because the the description is wrong but as a protest vote because the conversation is perpetually incomplete

I think it's more like protesting a car manual because it doesn't acknowledge that lighting a match in the gas tank will cause it to explode.

Anyway, technically political discussions aren't even allowed on this forum unless they relate to investments...

http://gyroscopicinvesting.com/forum/pe ... /politics/

This is an investing forum, not a politics forum.

1) Political commentary is OK if it is factual and pertains directly to the topic of investing

Source: http://gyroscopicinvesting.com/forum/pe ... /politics/

And anybody is free to say, "I agree with MR's description, but boy do I wish the government was smaller". And most of us would nod our heads in agreement.

[Gumby]

I agree. We don't use MR for political analysis. It's just descriptive of the banking system. That's all!

I think MR mostly provides an ex-post academic smokescreen for big government and bad spending policies. Policies that ultimately are going to do serious harm to the country.

Fair enough. It sounds like you prefer your economic frameworks to have your political ideologies baked in. I prefer to keep economic frameworks separate from political agendas.

But, I'll point out that those of us who use MR are doing so for an understanding of investments, the markets and the banking system. We typically aren't interested in using it to analyze the political ramifications of government spending — as interesting or important as that may be. (And to be honest, MR would do terrible at analyzing such ramifications since it is simply a descriptive framework of the banking system.)

If you disagree with big government, that's totally your prerogative to say so, and I suspect a number of MR followers would agree with you.

But, when we are trying to discern what policies are inflationary or deflationary, it helps to not get wrapped up in political/moral distractions.

[craigr]

But, when we are trying to discern what policies are inflationary or deflationary, it helps to not get wrapped up in political/moral distractions.

I have said that government debt/stimulus does not need to be inflationary and have said this to Austrian adherents that are good friends of mine back in 2008 when the QE was first going on. They can't make people spend money/take on debt and there is only so much that kind of activity can accomplish:

https://web.archive.org/web/20160324133 ... portfolio/

So my general feelings diverge from Austrians in that regard, but I don't think the actions will have no consequences. That's why I stay agnostic and own LT bonds along with gold.

But I don't think MR is going to do any better job predicting inflation/deflation than any other theory. I don't even know if what it is saying is that revolutionary in terms of looking at government issuing money, debt, etc. A lot of this process is as old as the hills in terms of what governments have done.

Since I think that monetary problems are trailing, not leading, indicators of trouble I just don't get wrapped up in these debates. By the time a currency shows a problem things have gotten pretty far out of hand in most other areas.

[craigr]

Why do you think adherence to a metal standard will stop surveillance and drones?  History shows me that people in government will do stuff I don't like regardless of whether we have a gold standard or not.

I think anything that slows down the ability of government to easily get into debt is a good thing. If they were angels it might not be a problem. But since a lot of people involved in government aren't angels, I figure it's best to keep them away from the bottomless checkbook for everyone's own good. Even if the method (metallic) isn't perfect, it's at least a start.

[Gumby]

That's why I stay agnostic and own LT bonds along with gold.

Me too. While you had the ability to grasp this on your own, I needed to understand MR, and how the banking system worked, to help me see why LTTs are safe and worth owning in a portfolio. Otherwise I probably would have been convinced to shun them and become a gold bug. My interest in explaining MR is often to make the case for LTTs.

I think it's very easy for people to shun LTTs when they let their politics guide their investments.

[moda0306]

We can debate about the nature of the government making claims on private resources, and putting them to different uses in the economy, and what those effects will be.

We can debate about the speculative growth as a result of easy lending.

We can debate about the advantages and disadvantages about whether a government should manage a money supply.


Here are a few things that I don't think are all that debatable:

- The government's fiat, nominal liabilities (treasury bonds and reserves) are fiat, nominal assets on our inividual balance sheets.

- Those fiat nominal assets give us purchasing power in the real economy.

- The fed, treasury and member banks do a circle jerk that makes them all part of an overall monetary system.

- Supply and demand are both two sides of the same coin.  One requires the other.  A lack of one hinders the possibility of expansion of the other.



I think there's a pretty simple clarification that needs to be made here.  There are only a couple possibilities... Either the markets set treasury rates, or the fed does, and if the fed does, they have a couple methods they could use to set rates

- If markets set rates, then default is possible, but that means then that they are screaming at the federal government "please borrow my money from me.  PLEASE!

- If the fed sets rates, and do so independently with the standard inflation/unemployment balance they like to strike, then the fed MIGHT let the government default if conditions are right, but are currently simply following their mandate of keeping rate low when inflation is low and unemployment is high.  This means that any money "created" would likely be removed once inflation rises.

- If the fed sets rates, but is in such a tight circle-jerk with the treasury and member banks that they won't let the treasury default, then we have NO default risk on treasury debt, and treasury bonds/bills are essentially as good as cash, but just have an interest rate element to them.


So, for those who don't buy into MR, which is it? 

Does the market set rates, and therefore the government is being ASKED to borrow at negative real rates by the market in spite of all this monetizing?

Does the fed set rates, and simply abiding by their simple and logical independent mandate, and therefore those reserves could very well leave as quick as they came if inflation fires up, thereby making QE a non-event from the perspective of guaranteed inflation indicator?

Or does the fed set rates in a circle-jerk with the treasury and member banks, essentially making treasury-bonds as good as cash, and QE a non-event?

No matter which way you answer, you don't arrive to the standard Austrian line.  You can't say that the fed is in a tight circle jerk with the government and banks and is their whipping boy, only to say that government bonds contain default risk and that the market will eventually force rates back up.... these are inconsistent with one another

[moda0306]

That's why I stay agnostic and own LT bonds along with gold.

Me too. While you had the ability to grasp this on your own, I needed to understand MR, and how the banking system worked, to help me see why LTTs are worth owning in a portfolio. Otherwise I probably would have been convinced to shun them and become a gold bug. My interest in explaining MR is often to make the case for LTTs.

I think it's very easy for people to shun LTTs when they let their politics guide their investments.

Exactly!  The main reason I googled the sh!t out of this and found Warren Mosler and MMT writings in the first place was because I didn't feel confident trying to grasp HB's assertion that t-bonds and T-bills were completely free of default risk and worth holding 50% of my freaking wealth in!

And keep in mind that NOBODY was giving well-laid-out descriptions of how the monetary system functioned a few years ago.  Not Paul Krugman (liquidity trap, etc)... definitely not Austrians (OMG printing money REVOLUCION!).  HB was the closest thing to MR/MMT I had going for me, from the standpoint of investing in t-bills and calling it "cash."

I wasn't looking for a socialists guide to monetary control.

I just wanted to know that my goddamn bonds were going to get paid back no matter what, even if it was in inflated dollars .  The last thing I wanted was default risk in my portfolio, and not have gold skyrocketing to make up for the loss.

If you think about it, the entire premise of the PP depends on MR being accurate.  If t-bills actually do carry default risk, and aren't hot-swappable for cash on our balance sheets, then what the hell are we doing debating macroeconomics while 1/4 - 1/2 of our PP could perform WILDLY different than what we expect.  We could have a deflationary credit collapse, and a self-fulfilling debt/interest-rate spiral in T-bonds/bills and be f'ked from all sides while gold falls too, a la 1981.

Little did I know that "t-bills are as good as cash" also might work on a macroeconomic scale a well when looking at the effects of "monetizing the debt," which makes one even more comfortable.

Guys... if we're having such a big issue debating MR, maybe we need to decide if the PP is even the correct investment strategy if we truly believe that 75% of our portfolio could nearly collapse in a debt crisis (not hyperinflation) without a corresponding reaction from gold, because our portfolio is friggin built on the idea that the treasury bonds we have are nominally risk-free.  We could see a self-fulfilling deflationary depression with very little favorable reaction from gold.

[edsanville]

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...

[moda0306]

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...

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.

[whatchamacallit]

I agree that Monetary Realism is a description and not a theory. It is not there to accomplish anything, just describe what is happening.


Here are some examples of descriptions and theories (things we have seen happen and things we haven't seen happen):

Descriptions:
http://en.wikipedia.org/wiki/Water_cycle
http://en.wikipedia.org/wiki/Burning

Theories:
http://en.wikipedia.org/wiki/Petroleum#Formation
http://en.wikipedia.org/wiki/Evolution

[edsanville]

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?

[Gumby]

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

http://pragcap.com/the-ft-does-mmr-on-currency-demand

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

[Gumby]

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.

[moda0306]

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."

[Gumby]

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:

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.

[Gumby]

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.

[notsheigetz]

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.

[Lone Wolf]

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.

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.

[Gumby]

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.