Jim Cramer recommends gold

[doodle]

Jim Cramer just recommended up to 20% of a retirement portfolio allocated to gold on his show. Can you imagine the bubble that would form if the baby boomers all rushed to put this quantity of their assets into gold? That would truly create a parabolic move.

[MediumTex]

Where was Cramer in 1999?

That was when it would have been good advice to buy gold.

It may be good advice today as well, but new money coming into gold right now will hit the exits at the first 10% decline.

One of the great things about the PP is that it allows a person to safely purchase gold at almost any time and provides an orderly way to buy and sell it going forward through the PP rebalancing bands.  Few other allocations can say that.

[gizmo_rat]

One of the great things about the PP is that it allows a person to safely purchase gold at almost any time and provides an orderly way to buy and sell it going forward through the PP rebalancing bands. 

Just curious. Did you have specific circumstances in mind when you'd be wary of purchasing gold even within a PP (by implication entering or adding to a PP) ? 

[MediumTex]

One of the great things about the PP is that it allows a person to safely purchase gold at almost any time and provides an orderly way to buy and sell it going forward through the PP rebalancing bands. 

Just curious. Did you have specific circumstances in mind when you'd be wary of purchasing gold even within a PP (by implication entering or adding to a PP) ? 

I suppose if gold was in what looked like a blow off top as we saw in 1980 or if there was a parabolic move like we saw in silver earlier this year it might make sense to wait a few weeks or month to see what was going to happen next.

Taking such an approach woud be unlikely to cost you much in missed returns and it might make you feel more comfortable with the overal approach.

In general, though, the PP is fine to buy as a package basically any time.

[AdamA]

Wow, even ol' Cramer has discovered gold, after it's increased by over 5x.  Welcome to the party, Cramer - we're happy to have you (not really).

This is the reason that I think over the next 5 years or so long term treasuries will outperform gold. 

I am hearing more and more mainstream media personalities recommend gold.  I hear almost no one recommending 30 year treasuries. 

[doodle]

In this case I think the contrarians might get slaughtered.

I think contrarian investment might be actually betting against the so called safest asset class in the world.

When you look at our government, does it really make you want to buy anything they are selling?

[AdamA]

In this case I think the contrarians might get slaughtered.

I think contrarian investment might be actually betting against the so called safest asset class in the world.

When you look at our government, does it really make you want to buy anything they are selling?

I wouldn't bet against gold.  I just think LTTs will do better over the next five years.

[doodle]

Step up to the table and place your bets! Why go to Vegas when you can get the same adrenaline rush of risking your life savings in the topsy turvy politicized bond market!

[AdamA]

Step up to the table and place your bets! Why go to Vegas when you can get the same adrenaline rush of risking your life savings in the topsy turvy politicized bond market!

I also wouldn't change my PP in any way based on this prediction.

[Gumby]

Step up to the table and place your bets! Why go to Vegas when you can get the same adrenaline rush of risking your life savings in the topsy turvy politicized bond market!

You bet it's politicized... But, just because it's politicized, doesn't mean rates have to go up.

[moda0306]

There's no market that isn't politicized.

I wonder what the price of gold would be today if not for the conservative radio talk-shows that push it, daily.  I'm not saying gold is overpriced.... heck, the attention gold gets from the Glen Becks out there is probably justified in many ways... but simply that riling people up about government confiscation and hyperinflation has probably been a nice bump to the price of gold.

PS,

In light of these debt-deadline issues, take a look at what gold is doing vs other commodities... today (ok, I don't like going day-by-day as evidence, but I think this time it's valid): Gold is up .94%, oil is down -.92%.

This, my friends, is why you want GOLD, not some "diversified" commodity index, as part of the PP.  Gold is money and feeds on uncertainty, oil depends on expected future demand (read: economic growth).

At times this difference may not show itself.  When the US starts to look like it might purposefully default on its debt, that difference is plain to see.  This may all end soon, but just take a look at the price jumps these next few days if you doubt gold vs commodities.  It could serve as a good mini-lesson on HB's assertion on gold vs other commodities.

[Gumby]

I'm not saying gold is overpriced.... heck, the attention gold gets from the Glen Becks out there is probably justified in many ways... but simply that riling people up about government confiscation and hyperinflation has probably been a nice bump to the price of gold.

If anything, Treasuries have been pretty much impervious to all of the politicization. Despite all of the unwarranted fear-mongering about sky-rocketing interest rates, yields are still very low.

[Lone Wolf]

You bet it's politicized...

I think this discussion was better before the bomb-throwing left-wing political cartoon showed up.  Surely we can do better than this?

I'm still unable to get my mind around the thinking behind the "deficits don't matter" camp.  It's not about some guarantee that interest rates will or won't rise at any particular time.  It's about the fact that if interest rates rise, debt service will rapidly become much, much more expensive.  As short-term debt rolls over, you face the equivalent of an adjustable rate mortgage.  Interest charges pile up rapidly and the deficit only widens.

Once this begins, your options narrow rapidly.  There's a limit to how much revenue you can draw via taxation before you negatively impact the economy.  "The rich" simply don't have enough money to foot the bill, no matter how Draconian of a tax scheme you employ.  To raise serious cash, you inevitably wind up having to tax the middle class.

The fact that a rise in interest rates hasn't happened yet is no more justification than is an ARM that you can't afford.  And just because this might unfold on my kids instead of on me doesn't make it any more acceptable IMO.  Less so.

Why not simply emply a much smaller government (for example, one that operated within the boundaries of the Constitution)?  Up until World War I, government consumed only a tiny fraction of the national income.  This took us through some of our most prosperous times as a nation.  What has changed that makes the present so different from the past?

[Gumby]

I think this discussion was better before the bomb-throwing left-wing political cartoon showed up.  Surely we can do better than this?

It's meant to be thought provoking — not antagonistic. The first time I saw that cartoon, I had the same reaction you did.

I'm still unable to get my mind around the thinking behind the "deficits don't matter" camp.

I was in the same boat you were just a few weeks ago. Calling it the "deficits don't matter" camp is what's preventing you from getting your mind around it. It's a mischaracterization of MMT. Deficits certainly DO matter.

See: http://pragcap.com/resources/understand ... ary-system

(Your first instinct may be to scan that link and not read it carefully. Don't. It takes about a week to even begin to digest the ramifications of MMT in a fiat economy.)

It's not about some guarantee that interest rates will or won't rise at any particular time.  It's about the fact that if interest rates rise, debt service will rapidly become much, much more expensive.  As short-term debt rolls over, you face the equivalent of an adjustable rate mortgage.  Interest charges pile up rapidly and the deficit only widens.

Once this begins, your options narrow rapidly.  There's a limit to how much revenue you can draw via taxation before you negatively impact the economy.  "The rich" simply don't have enough money to foot the bill, no matter how Draconian of a tax scheme you employ.  To raise serious cash, you inevitably wind up having to tax the middle class.

Absolutely. But, why will interest rates rise so much? I'm not saying they can't rise. But, the reasons why they'll rise tend to have political motives behind them. The cartoon tries to point that out.

Why not simply emply a much smaller government (for example, one that operated within the boundaries of the Constitution)?  Up until World War I, government consumed only a tiny fraction of the national income.  This took us through some of our most prosperous times as a nation.  What has changed that makes the present so different from the past?

I'm not arguing that government should become more invasive. That's certainly not what I'd want. I'm simply saying that government spending is necessary right now, to get us out of this mess. The major argument against government spending is that yields will rise and the cost of borrowing will rise — a heavily politicized argument. But, if that's true, why hasn't that happened over the past decade? Where are the bond vigilantes?

The answer that seems to make the most sense right now lies within the logic of MMT. What's changed? The fact that we aren't reserve constrained anymore. That's what's changed. If we were still on a gold standard, you'd be 100% correct. It's not only about printing more money to support a growing economy. There's more to it than that. MMT seems to provide an accurate description of how fiat economies should work.

Mind you, I'm still wrapping my head around it as well. I think it's worth exploring.

[MediumTex]

Why not simply emply a much smaller government (for example, one that operated within the boundaries of the Constitution)?  Up until World War I, government consumed only a tiny fraction of the national income.  This took us through some of our most prosperous times as a nation.  What has changed that makes the present so different from the past?

I think the problem is that aroud 1983 the politicians figured out that you can have a lot more government than you can actually pay for through tax revenues by running large deficits.

Now they don't know any other way to do it.

[moda0306]

LW,

That's one area I wonder what the monetary/fiscal implications are... assuming that our attempts to control interest rates and keep them low fail (or we choose not to), what are the implications on the US fiscal situation at that point?  We may be on an ARM, but that doesn't change the fact that for every additional dollar going towards interest payments, another dollar can be "created" by the fed purchasing $1 worth of bonds off of the market.

This will have a rate-lowering effect on the short end of the curve, most likely, but even if it doesn't, it hasn't resulted in $1 of necessary taxation or borrowing.  The MMT rules still stand pat.

Keep in mind, this is all assuming that 1) we've lost control of interest rates, but 2) the prosperity/growth that would most-likely cause the rise in short-term rates wouldn't be sufficient to create enough tax revenue to service the debt, AND 3) that we can't somehow monetize debt to both reduce rates and eliminate the necessity to tax.

So I basically find that narrative to be a real unlikely one to unfold before my eyes.  Between our ability to control short rates (historically), monetize both high-interest and low-interest debt, and the deleveraging that's going to suck up most $$'s that are printed into the economy I really can't see this kind of interest-rate spike even happening, much less it being some kind of fiscal disaster.

[moda0306]

MT,

I partially agree with your 1983 statement... but part of me wonders whether PRIOR to 1983 (and post Bretton-Woods), economists and politicians didn't know how to use a currency that was free from the gold standard, and whether those deficits were completely legitimate, as they were fundamentally different than they had been in the past.

I see that Japan operated a fiat currency without their private sector running huge deficits (this is much more of a concern to me than public-sector fiat debt)... I wonder whether it was their central bank, their regulations, their people, or some other factor that lead to the high savings rates and solid private sector balance sheets.

That's where I see is America's Achille's Heel right now... not that Japan is a poster-child for perfect monetary policy, but how did our balance sheets get so effed up while theirs stayed solid?  If government induced, what were the differences?  If populace-induced, would we have seen expansion of credit anyway?

[moda0306]

I guess I try to view some of these ponderings on debt and fiat currency in terms of what a "full monetization" would imply... but rather than a one-shot "full monetization," this is an interesting thing to think about...

Imagine we wish to continue to run relative deficits, but the fed/treasury, in the realization that we're in some kind of interest-rate-quagmire but still need to run defecits (assuming they buy into MMT's view on economics), decide to not issue any debt going forward... that we're going to fund the treasury directly by the fed printing dollars for their use.

This would mean that we AREN'T on an ARM... that the only debt we'd have to worry about is the debt we already have at the rates we've already agreed upon.

What would the implications of this be?  What would this do to our inflation?  Unemployment?  GDP?  Balance of Trade?

Because this is the obvious "trick" to beat the interest-rate-hike disaster LW is scared of, I wonder what kind of other consequences we'd see.

[Lone Wolf]

I was in the same boat you were just a few weeks ago. Calling it the "deficits don't matter" camp is what's preventing you from getting your mind around it. Deficits certainly DO matter.

Thanks for the link, but I have actually run across MMT several times recently.  (It has popped up big-time in the context of justifying the current deficits.)  Some of my thoughts on it are in this thread.  (The summary is that while I don't "reject" it outright, I am so far very unimpressed with it.)

Are you aware that MMT uses a really odd definition of both "deficit" and "private savings"?  Do you find it strange that they need to do this?  (For MMT, deficits = government deficits OR money created by the Fed.  Private savings = Private savings minus private investment.)  These definitions IMO make MMT's observations more like tautologies than anything truly mind-expanding.  Furthermore, it's all presented in an excruciatingly complex manner.

Perhaps I'm missing the boat.  I've missed many a boat in my lifetime.  But aren't you concerned that this very complex economic framework (which you have only discovered weeks ago and whose prescriptions have never actually been attempted) might have gotten some of this wrong?  Could this be the flavor of the month that conveniently justifies government's irresponsibility?

Because if MMT's prescription to "print it up" yields inflation, the MMT solution is to raise taxes.  Can you imagine blasting tax hikes into the 1970s stagflation?  Anyhow, that debt still has to get serviced, either via inflation or eventual taxation.  You can't bend reality.

I'm not arguing that government should become more invasive. I'm simply saying that government spending is necessary right now, to get us out of this mess. The major argument against government spending is that yields will rise and the cost of borrowing will rise — a heavily politicized argument. But, if that's true, why hasn't that happened over the past decade?

If more spending is necessary, why hasn't it worked so far?  We're fighting three hot wars.  Bush racked up incredible deficits.  Then Obama managed to make Bush look like some kind of penny-pinching grandma.  We blew a trillion dollars on stimulus.  How much more must we spend?  Did we simply not blow enough money?  Did we not get in a sufficient number of really bruising fights?  Every time we double down, the stakes get higher.  Perhaps we ought to try a new game.

And I'd say that the major argument against government spending is that you must one day pay it back.  Since government doesn't have any money, it must either collect taxes or borrow the money.  In return, it provides the lender a claim to future tax revenue.

I think the problem is that aroud 1983 the politicians figured out that you can have a lot more government than you can actually pay for through tax revenues by running large deficits.

The first hit of credit (especially cheap credit) feels really, really good.  The comparisons to other forms of addiction are almost too easy to make.

[moda0306]

LW,

I wonder if the inability to have government spending work to engineer full employment is the fact that so much of it goes to buy overseas products shortly after its "issuance."

In this world, it will be much harder for a country to keep that kind of MMT-pontificated full employment possible, but I think there's a silver-lining balance to this...

Every dollar spent by us in the foreign markets is 1) a dollar they wish to earn interest on if kept, or 2) a dollar they will send back to us if "sold."  This gives us a situation where we either have more demand for our debt (ie, foreign savers) or more foreign consumers of our goods (also they could invest in our stocks or buy a factory, but I try to keep this simply for now so I can think through it more easily).

If they're saving, first of all, that makes it easier for us to issue more dollars (run defecits) without generating inflation.  This will be needed more in this world of negative trade balance because our defecits of yesterday are having less of a multiplier effect within our economy to generate positive private-sector balance sheets and full employment.  This also puts us in a situation where if we DO generate inflation by running these defecits, it will 1) mostly be "felt" by the foreign debt-holders while issued to domestic citizens, and 2) will make them want to divest their dollars at some point (we have apparently not reached that point yet), and #2 will result in foreign demand for our goods or foreign investment in the US.

[Lone Wolf]

Imagine we wish to continue to run relative deficits, but the fed/treasury, in the realization that we're in some kind of interest-rate-quagmire but still need to run defecits (assuming they buy into MMT's view on economics), decide to not issue any debt going forward... that we're going to fund the treasury directly by the fed printing dollars for their use.
...
What would the implications of this be?  What would this do to our inflation?  Unemployment?  GDP?  Balance of Trade?

You know, I've often had a certain grim fascination with this scenario as well.

My best guess is the quick development of a gigantic government and a rent-seeking society.  Today, government's excessive size often makes investing in capital less attractive than simply investing in a politician.  When a politician is able to directly counterfeit as much money as they like, this would greatly accelerate.

I think you'd also see particularly terrible inflation in sectors that the government enjoys taking an active role in (health care and education.)  You already see this tendency with today's government.  With an unlimited money spigot, it would likely get much worse.  As this created affordability problems, government intervention and assistance would be regarded as even more necessary.

There's little reason to believe that politicians would be responsible with this unchecked power.  This would be absolute power and would likely lead to absolute corruption.  My guess is that the ultimate outcome would be reform of the currency or hyperinflation.  We can let some other country try this out and tell us how it goes. 

[stone]

Lone Wolf, from what I can see government bonds are the source of the "wealth" that pays for buying more government bonds. Banks  use government bonds as collateral to create loans to buy more bonds. From that perspective it doesn't make much odds whether or not the debt is "monetarized". For practical purposes it is effectively monetarized even in the form of bonds. I think the result of the mounting government debts is to increase the amount of aggregate global purchasing capacity as compared to actual things available for purchase BUT to keep that purchasing capacity in the hands of people who already have an excess of purchasing capacity that they are choosing to save rather than spend.

I think that leads to financialization of the private sector to the extent that the real economy gets neglected and that is "addressed" by the government stepping in and taking over what the private sector abandons. The end point is the real economy being run by the government (which is almost impossible to do effectively) and the private sector just being a parasitic finance sector.
Personally I think an asset tax is essential and needs to match government spending.

[moda0306]

LW,

Don't they have that power now?  I think if the fed & treasury wanted to, they could enact that operation (but I really don't know).

And keep in mind that we're not all trying to be economic engineers to the degree that FDR was... I would probably be for as much of this newfound "deficit allowance" resulting in income & payroll tax cuts as spending initiatives... and much of the spending initiatives I'd like to see be in the form of a check sent to people, simply for them to repair their balance sheets.

I mean, to think in the current environment (debt-ceiling debate consisting of VASTLY more spending cuts than tax-hikes, even in Obama's plan) that steep increases in spending would result from an "expanded deficit plan" is unlikely.  I'm actually quite surprised that so much spending-based austerity is being near-agreed upon with the difference between democrats & republicans being merely the degree, not the substance, of whether cuts should be made.

[Lone Wolf]

Personally I think an asset tax is essential and needs to match government spending.

As a net saver in an environment of negative real interest rates, I can't help but bristle at the idea of the government reaching into my already-taxed assets and helping themselves.  The United States already has a terrible savings rate.  Why would you ever want to worsen it?

And what could be more cruel than to reach into the savings that a person is trying to protect for their retirement and start grabbing?  This would make my "Never Ever Retire" portfolio obsolete!    Remember that this is a real person we're talking about.  This is someone who worked hard, saved, denied themselves that boat or that extra-nice watch, and tried to live within their means.  These assets you're looking to take represent their labor and irreplaceable time that they spent away from their loved ones, likely doing something they'd rather not be doing.

Apart from the moral issues that come with such an asset tax, I think you've incorrectly cast the saver in the role of the villain in this economic tale.  Remember that a saver is one who consumes less than he produces.  The capital that the saver doesn't use can become a capital investment that yields greater productivity tomorrow.  Economic progress literally requires this process.  If we as a species instantly consumed everything we produced we'd still be persistence-hunting antelope for dinner.

And if this Scrooge sticks it in a mattress rather than investing it?  The result is generally lower prices for those that are willing to spend.  I like those results a lot better than what you get from everyone trying to consume more than they produce.

[Gumby]

I was in the same boat you were just a few weeks ago. Calling it the "deficits don't matter" camp is what's preventing you from getting your mind around it. Deficits certainly DO matter.

Thanks for the link, but I have actually run across MMT several times recently.  (It has popped up big-time in the context of justifying the current deficits.)  Some of my thoughts on it are in this thread.  (The summary is that while I don't "reject" it outright, I am so far very unimpressed with it.)

From your comments, and statements, it doesn't seem like you've spent much time learning about it. Generally the more people learn about MMT, the more it makes sense and the harder it is to refute. Most people who appreciate MMT actually started out trying to debunk it.

Are you aware that MMT uses a really odd definition of both "deficit" and "private savings"?  Do you find it strange that they need to do this?  (For MMT, deficits = government deficits OR money created by the Fed.  Private savings = Private savings minus private investment.)  These definitions IMO make MMT's observations more like tautologies than anything truly mind-expanding.  Furthermore, it's all presented in an excruciatingly complex manner.

Again, I'm still new to this. But, as far as Private Savings go, I believe the reason for the subtraction is so that we don't combine private sector wealth with private sector money. Harry Browne has explained to us on many occasions that wealth and money are not the same. As a collective, we all cannot realize our wealth as savings simultaneously. Just because someone has a million dollar house does not mean they have a million dollars in savings. Same goes with any investment (Gold, stocks, bonds, etc).

The reasoning for these definitions, from what I understand, is to show that the end result is that the national debt level is the same as the money savings in the non government sector, not the total monetary value of all assets used as saving.

A more straightforward explanation can be found here...

See: Sectoral Balances and The United States

For those of you who are still trying to wrap your head around MMT I think this simple image might shed some light on your thinking.  If you’ve been reading for a while you might have seen this before:

"The deficit of the entire government (federal, state, and local) is everywhere and always equal (by definition) to the current account deficit plus the private sector balance (the excess of private saving over investment)."

The following chart from Gavyn Davies at the FT shows this:

Davies writes:

[quote]"The graph shows the financial balances of the three sectors which comprise the US economy – the private sector, the government sector and the foreign trade sector. The financial balance of each sector is equal to its income less its total expenditure. A financial surplus indicates that the sector is a net acquiror of financial assets, while a deficit indicates that the sector is running down its net assets (or increasing its borrowing) to finance its activities. Because the three sectors cover all of the activities of the US economy, at home and abroad, their financial balances must sum to zero.

The first point to note is the dramatic reversal which has taken place in the past 3 years in the private sector’s financial balance. This sector includes both households and corporations, and in most economies it tends to record a small surplus most of the time. This was true in the US until the late 1990s, when the household sector started to run a financial deficit. Basically, rising equity prices, and then rising house prices increased personal wealth, and this induced households to reduce the amount they saved out of current income. As a result of this deficit, the private sector’s leverage ratio (the stock of outstanding debt/income) rose to record levels.

After 2007, falling house prices and the financial panic caused both households and companies to slash their spending relative to their income, and to generate excess cash. The shift in the private balance was a remarkable 14 per cent of GDP, and the consequent collapse in spending caused the recession. Meanwhile, the extra cash was devoted to paying down net debt, so the leverage in the private sector balance sheet started to decline. This process continued to gather momentum until the early part of 2009."

That’s an excellent description of what occurred and shows how the Clinton surplus likely played a larger role in the current crisis than anyone thinks.  That’s right, Clinton’s much applauded budget surplus was not a net benefit for the economy….After all, the government is nothing like a household or business and its balance sheet should never be managed as such.

For now, the government appears to be running a large enough deficit to offset the majority of the de-leveraging that is occurring, but there are many moving parts in this equation.  As the de-leveraging continues it’s important that government not attempt to balance its budget.  For now, we appear to be avoiding the austerity that is driving Ireland and Greece further into depression.   But, imbalances and risks remain and importantly let’s remember that stimulus is far different from self sustaining recovery.  The private sector is getting back to its feet, but remains on a very unsound foundation.

Source: FT, [url=http://pragcap.com/sectoral-balances-an ... ted-states]Sectoral Balances and The United States
[/quote]

Perhaps I'm missing the boat.  I've missed many a boat in my lifetime.  But aren't you concerned that this very complex economic framework (which you have only discovered weeks ago and whose prescriptions have never actually been attempted) might have gotten some of this wrong?  Could this be the flavor of the month that conveniently justifies government's irresponsibility?

How do we really know what's irresponsible in a fiat monetary system unless we learn more about it?

One important element of MMT is its political agnosticism. There are components of MMT that tend to be left leaning, however, there are also components of MMT that are right leaning. For instance, MMT is agreeable to many right leaning economists because it favors lower taxes, reducing (or ending) the Fed’s role in the monetary system and focusing on efficiency of government (reducing wasteful spending and malinvestment). MMT is also agreeable to left leaning economists because it favors government deficits, tighter bank regulations and a focus on full employment. Importantly, it is neither an offshoot of Keynesianism, Monetarism nor Austrian economics, though there are components of each involved to some extent. Rather, MMT is an offshoot of many different theoretical frameworks with GF Knapp, Abba Lerner, Hyman Minsky and Wynne Godley playing central roles in helping to craft it.

MMT is not a new school of thought. It was conceived in the 1940s and describes the role of a fiat currency in far more accurate terms than anything else I've come across. Again, your comments suggest to me that you haven't read enough about it:

http://pragcap.com/resources/understand ... ary-system

MMT is nothing more than a description of modern fiat currency system. That's all there is to it. Once you understand it, you begin to see how fiat money works in our country. Anyway, I respect your concerns, and I share them. Why not delve deeper into it with me?

LW, you and I normally agree on a lot of things. Trust me when I tell you that there's something there that deserves more exploring. It may be complete crap, but that's not what I'm seeing so far. In fact, my experience with it so far has been very similar to that of the PP. At first I dismissed it as being ridiculous. Then I revisited it. Then I began to see the logic in it. Imagine trying to read about the PP for 10 minutes or 30 minutes — few people see the logic at first because it seems so backwards.

Because if MMT's prescription to "print it up" yields inflation, the MMT solution is to raise taxes.  Can you imagine blasting tax hikes into the 1970s stagflation?  Anyhow, that debt still has to get serviced, either via inflation or eventual taxation.  You can't bend reality.

Now I'm definitely sure that you haven't read enough about MMT. Those are all gross mischaracterizations and inaccurate representations of MMT.

For one, MMT believes taxes are seen as monetary tool:

"Government deficit spending and tax collection should be maintained at a rate that does not impose financial hardship on the private sector. Because the Federal government is not a state or household it should not manage its balance sheet for its own benefit. Rather, taxes and government spending should be managed in a way that most benefits the private sector and encourages private sector prosperity, productivity, innovation and growth."

I'm not arguing that government should become more invasive. I'm simply saying that government spending is necessary right now, to get us out of this mess. The major argument against government spending is that yields will rise and the cost of borrowing will rise — a heavily politicized argument. But, if that's true, why hasn't that happened over the past decade?

If more spending is necessary, why hasn't it worked so far?  We're fighting three hot wars.  Bush racked up incredible deficits.  Then Obama managed to make Bush look like some kind of penny-pinching grandma.  We blew a trillion dollars on stimulus.  How much more must we spend?  Did we simply not blow enough money?  Did we not get in a sufficient number of really bruising fights?  Every time we double down, the stakes get higher.  Perhaps we ought to try a new game.

It's not a matter of the total sum of reckless spending. Spending on wars isn't exactly a smart way to spend money. And reckless spending would probably just lead to inflation.

There was an enormous private sector deleveraging. It's going to take a long time to fill in that hole. The prescriptions are for smart targeted spending to raise incomes, raise sales and doing it a way that keeps a careful eye on inflation or the destruction of the fiat currency.

And I'd say that the major argument against government spending is that you must one day pay it back.  Since government doesn't have any money, it must either collect taxes or borrow the money.  In return, it provides the lender a claim to future tax revenue.

I used to say the exact same thing — almost to the word. If you read more about MMT, you'll understand that Treasury Bonds don't actually fund our spending in the manner you're suggesting. Yes, they certainly used to be a way to fund our spending (when our country was reserve constrained). But, now Treasury Bonds are just a way to control interest rates. I know that sounds crazy. But, you have to read more about it to see what I'm saying.

Unfortunately, everything we know about economics — our textbooks, our households — were all designed with a reserve constraint in mind. When you see how a fiat monetary system really works, without any reserve constraints — and how a Treasury auction is designed not to fail — you begin to see that the system is already working within the confines of MMT. Trust me, it's worth investigating.