Schiff and other Doom Porn

[Jeffreyalan]

Reading through all threats here I've seen several disparaging comments on so called "doom porners" like Peter Schiff and Harry Dent. Aside from the sensationalism they sometimes peddle when they have a new book (ie a crash will happen in the first quarter of 2018), what are people's main issue with them?

I have been listening to Peter Schiff's podcasts over the last six months. He seems to make a lot of sense to me in regards to the debt and interest rates etc. Do people just object to the fact that he has a company that sells gold and therefore they feel he is just selling gloom for profit? Just wondering.

[boglerdude]

Most doom porners sell gold or are paid "advisors" to companies like Sprott

But we still need to understand if they are wrong. Check out MMT for a counter-argument that debt doesn't matter
https://en.wikipedia.org/wiki/Modern_Monetary_Theory

[clacy]

My main issue with them is that they've been saying the crash is coming for 6+ years.

Eventually they will be right but the old broken clock saying comes to mind.

Economic doom and gloom is non-stop in some circles, but unless they have a crystal ball, the global economy is far too complex for people like Dent and others to forecast.


History says you're better off being a perma-bull even though that's pretty silly too.


I think this is the crux of the matter on why people like the PP. We simply can't predict, so taking a balanced, lower vol approach works best for managing human emotions.

[flyingpylon]

Doom porn eventually led me to the PP, so I suppose I am thankful for that. It's convincing at first but after a while you start to realize that it's really just a waste of time.

[Cortopassi]

My main issue with them is that they've been saying the crash is coming for 6+ years.

Eventually they will be right but the old broken clock saying comes to mind.

Economic doom and gloom is non-stop in some circles, but unless they have a crystal ball, the global economy is far too complex for people like Dent and others to forecast.


History says you're better off being a perma-bull even though that's pretty silly too.


I think this is the crux of the matter on why people like the PP. We simply can't predict, so taking a balanced, lower vol approach works best for managing human emotions.

Same for me, 100%. The world has been/is/will be near an end for these people forever. And they are virtually never right. It also gets old and depressing to hear that everyone is out to screw you, everything is a conspiracy, etc.

[Maddy]

I read the article linked to above, which is cited for the argument that trillions in new debt per year IS sustainable. I'm afraid I'm too economically illiterate to understand much of it at all. Is there anyone who could explain, in a nutshell, how the government would get out from under its debt load without sacrificing the dollar? Or if sacrificing the dollar is the end-game, how that might play out in a benign way?

[ochotona]

I read the article linked to above, which is cited for the argument that trillions in new debt per year IS sustainable. I'm afraid I'm too economically illiterate to understand much of it at all. Is there anyone who could explain, in a nutshell, how the government would get out from under its debt load without sacrificing the dollar? Or if sacrificing the dollar is the end-game, how that might play out in a benign way?

I think the US Government meeting it's nominal, contractual US Treasury obligations and the US Dollar steadily losing it's purchasing power over several decades is what they would call "benign". Benign for office holders, a disaster for civilians.

[Jeffreyalan]

I read the article linked to above, which is cited for the argument that trillions in new debt per year IS sustainable. I'm afraid I'm too economically illiterate to understand much of it at all. Is there anyone who could explain, in a nutshell, how the government would get out from under its debt load without sacrificing the dollar? Or if sacrificing the dollar is the end-game, how that might play out in a benign way?

That is my thought process. Even if I do not buy in to the doom sellers that things are going to crash tomorrow or next week or next quarter, I take seriously their arguments that eventually the music will stop and a lot of people will be left with no chairs. I have no idea when that will be of course.

I understand govt finances cannot be compared to a household checkbook. However, it seems common sense that with $20 trillion in current debt and perhaps $80 trillion in unfunded obligations coming in the next 40 years, that unless money/numbers do not mean anything, then at some point the debt has to be unsustainable.

[Cortopassi]

You may not agree with a lot this guys discusses (Cullen Roche), but there are succinct topics on many of the concerns surrounding debt, interest rates and gold in and around this page. I found it interesting.

https://www.pragcap.com/biggest-myths-in-economics/

[Kriegsspiel]

You may not agree with a lot this guys discusses (Cullen Roche), but there are succinct topics on many of the concerns surrounding debt, interest rates and gold in and around this page. I found it interesting.

https://www.pragcap.com/biggest-myths-in-economics/

I think Mr. Roche would say that not being able to pay national debt obligations isn't something to be worried about:

3) The US government is running out of money and must pay back the national debt.

There seems to be this strange belief that a nation with a printing press whose debt is denominated in the currency it can print, can become insolvent. There are many people who complain about the government “printing money” while also worrying about government solvency. It’s a very strange contradiction. Of course, the US government could theoretically print up as much money as it wanted. As I described in myth number 1, that’s not technically how the system is presently designed (because banks create most of the money), but that doesn’t mean the government is at risk of “running out of money”. As I’ve described before, the US government is a contingent currency issuer and could always create the money needed to fund its own operations. Now, that doesn’t mean that this won’t contribute to high inflation or currency debasement, but solvency (not having access to money) is not the same thing as inflation (issuing too much money).

[Libertarian666]

Since debt doesn't matter, why should the government bother to collect taxes at all? They should just print whatever they want to spend!

[boglerdude]

I read the article linked to above, which is cited for the argument that trillions in new debt per year IS sustainable. I'm afraid I'm too economically illiterate to understand much of it at all.

MMT is not explained well, they like to speak in abstractions. Here's my ham-fisted attempt to be concrete.

Currency is a receipt. You sell me a pig, I give you a piece of paper redeemable for a gallon of gas. The more transactions there are, the more paper receipts we need. (the more pigs that are grown, the more oil that's pumped up and sold, more paper is needed for this)

The King (aka US gov, = Treasury + the Fed) prints those receipts (photocopies dollars) and spends them into the economy by buying tanks, sending out social security checks, and paying medicare doctors. (war is highly inflationary)

The Fed prints the dollars and buys bonds from the treasury. The treasury just writes up the bonds to sell. IOUs. The treasury spends the cash. All of this is "out of thin air"

The record of all the money printed, is the bonds. So the larger the economy, the more debt it's going to have. Not necessarily a bad thing. (banks issuing credit is a longer story)

In theory the gov can print as much cash as it wants. The BOJ is buying up Japan's public companies. The consequence is inflation, especially asset price inflation.

How much inflation is too much? When people riot Then, you collect cash via taxes and burn it, or raise rates to pull cash out of circulation.

So, cash is not savings, you must by stocks or bonds not to "invest" but simply to preserve what you've saved. Investment is spending cash on something that increases productivity like building another room on your house to rent out, or buying a bigger tractor to farm with.
************************************************************************

Is this mostly right? I get confused because dollars aren't redeemable for anything anymore so I'm not sure if the receipt analogy is good.

[Kriegsspiel]

Since debt doesn't matter, why should the government bother to collect taxes at all? They should just print whatever they want to spend!

This, maybe?

This is what the MMT people say. Taxes don’t fund spending. When I first came across it in 2010 it sounded right. I worked through the accounting and it actually makes sense in a certain context. For instance, when the Tsy spends money they are spending from their reserve account. If you combine the Fed and the Tsy as both govt entities then the govt is obtaining its own liability when it taxes. This can’t “fund” spending. It MUST, by definition, destroy the money because you can’t be repaid in your own liability since that would result in a debiting of your own liability. So, if you start the circuit of spending from this consolidated Fed/Tsy account then taxes destroy money and spending creates new money. It’s basically like a new loan. New loans creates new deposits and repaying loans destroys deposits.

The big problem with MMT is that the reserve system only exists to facilitate interbank payments. The circuit doesn’t really start or end with the govt. It starts with the banking system. So reserves only exist to ensure that banks can smoothly transfer deposits. And deposits are definitely not govt liabilities. As a simple example, you can think of the US system as a one bank system. In this case there is no need for reserves since there aren’t multiple banks needing interbank settlement. So this one bank would be the money issuer for the whole economy. The Tsy would have an account and it would tax and spend from this account. You would never call that bank’s liabilities govt liabilities. You’d call them private bank liabilities. In this case it becomes obvious that the govt does not really issue the money or spend its own money. It is taxing private bank money and spending private bank money. When you add the reserve system back into the equation the same thing is true. In the case of the USA the central bank is acting as a facilitator between private banks.

You can further prove this point by considering the case of a private individual who has endless credit at a bank. This is essentially the case with a Central Bank who finances govt spending. In the case of an individual you could say that the person does not need income because they can spend in perpetuity. If you can just borrow new money then you are essentially a money issuer. But that’s silly. Who would accept your money if they knew it was a bottomless pit backed by nothing? They wouldn’t accept it. The thing that gives you credit is your assets and income primarily. The same is true of a govt. Govt’s need to finance their spending to prove to the private sector that they have credit. The fact that a Central Bank can issue money in perpetuity does not mean they don’t need income sources to finance their spending. That’s like saying the Bank of Zimbabwe has credit even though it’s causing hyperinflation. That’s just not true. The reason they have hyperinflation is because they have no credibility. No one trusts the govt liabilities so they sell them or don’t want them. The fact that they didn’t run out of money doesn’t mean they never needed a revenue source….

MMT plays a lot of games with the accounting and tortures the terminology to make the theory fit reality. It doesn't work and I think they do Post-Keynesian economics a great disservice by being so adamant that their theory is right. They intentionally confuse things and confuse people reading their work. Hell, they confused me for over a year when I first came across it. It's too bad because there's some good stuff in MMT, but this sort of thinking on the financing stuff is just flat out wrong.

https://www.pragcap.com/ama/what-are-ta ... -spending/

Further down he answers

So I get it that taxes do fund spending and the MMT narrative is wrong in this regard. But Govts can also fund spending by issuing bonds and creating new money, right? So the fear mongering you hear in the media, by politicians and the general public of “we are running out of money”, “we are burdening future generations”, “our debts/deficits are unsustainable” are also totally wrong, correct? Are they wrong only if the Govt spends it’s money wisely (say in education or infrastructure) or is it wrong no matter what? If the increased Govt spending is for “entitlements” such as Social Security and Welfare benefits, is that bad? What about wars?

with

That’s correct. Here’s the thing. The govt has the ability to sell bonds that are effectively backed by the output of the world’s largest economy. It’s not just a lot of output. It’s highly productive output. When the govt issues bonds they are printing a financial asset that is backed by the income source that is a function of this output. The US govt has unlimited ability to create these assets. And so long as people want them then they will be viewed as valuable. So, the even to be worried about is not a solvency constraint, but an inflation constraint. The time when people will reject US govt issued financial assets will be during a high inflation.

So, the question becomes a bit different in this context. Yes, we can always “afford” social security and all that. But at what point do we risk running a high inflation that will begin to erode our living standards?

Personally, I don’t see a big risk there. I think we’re in a sort of escape velocity environment in terms of sheer output. That is, we create so much new stuff so quickly every year that there’s tremendous turnover in our output. This puts huge deflationary pressure on most goods and services. But what it also means is that our living standards are increasing at a rate where we can afford to splurge on other stuff. I wrote a post a few months back about how we spend less income on necessities than ever before. This means we can afford other stuff like never before. And since the govt is just a leveraging of the private sector then the same basic point is true at the govt level. Yeah, we can afford universal healthcare and stuff like that not because we have a printing press, but because we have a fabulously wealthy and productive private sector that has made it possible.

[boglerdude]

Another popular MMT guy. But like Cullen they should use examples alongside the abstract discussion:

http://bilbo.economicoutlook.net/blog/

Edit: I think his point is the gov doesnt need to borrow at all, and "too much debt" is used as an excuse to cut spending on welfare