Not Even Harry Browne Thought It Was Going To Be This Bad

[MediumTex]

To address your second point: in the view of many on this board, a US PP performs in "all economic conditions" yet to my view it only performs in two:  US prosperity and geopolitical/currency crisis.  The short of it is the world (and all it's invest-able assets) is far too big of a place for any investment to be as risk-free as you seem to believe. 

The PP is premised upon the following assumptions:

1. At a given point in time, the economy can only be on an expansion trajectory or a contraction trajectory.  It's possible for the economy to be neither expanding nor contracting, but such a condition rarely lasts for very long.

2. At a given point in time, price levels across the whole economy are either increasing or declining.  It's possible for the price level to be neither increasing nor declining, but such a condition rarely lasts for very long.

What combination of economic conditions can you visualize that wouldn't fit into one of the four combinations of conditions based upon the assumptions above?

[Pointedstick]

Libertarian666, that seems like an eminently reasonable post to me.

Furthermore, I personally think us PP holders are doing a decent enough job of acknowledging those tail risks by holding 25% in gold. That's a heck of a lot more gold than most people, and if you do indeed view the currency collapse scenario as a tail risk and not a certainty, then it makes sense to take precautions against it but not go overboard, in case it doesn't happen in your lifetime. To me, 25% gold makes me feel like I've done a good enough job balancing the mitigation of those risks with my desire for growth and income during other conditions.

[MediumTex]

Ok, so then this would be an acceptable post? If you say so.

-------------------
I really think if "monetary realists" didn't have such a deep reluctance to admit the tail risks they are ignoring, they would have a much easier time seeing the light.

They are literally being blinded by their inability to admit that their portfolio could be demolished by a freeze-up of the US financial system.  I mean if you've gone your whole life thinking you're essentially safe in believing that the US empire is different from every other one in history, it can be hard to look at the system as one that could collapse without warning and leave your "safe portfolio" in ruins.

Admitting Austrian economics is correct would mean that a "monetary realist's" belief in the stability of the financial system was mostly a myth.  People don't like to concede that kind of "wrongness," especially if we've held these views for a long time. 

I'm not saying there isn't some life left in the current system, but it becomes a lot more of a nuanced discussion rather than "tail risks in the current system can be safely ignored" or whatever the common wisdom is.

I think that's a perfectly reasonable position.

Please understand that recognizing that the current system is based upon a monetary realism model doesn't mean any of us is saying it's a good idea.  It's just acknowledging reality as it currently exists.

We all still hold gold for the day when and if things change to some other type of monetary arrangement.

[Gumby]

I really think if "monetary realists" didn't have such a deep reluctance to admit the tail risks they are ignoring, they would have a much easier time seeing the light.

They are literally being blinded by their inability to admit that their portfolio could be demolished by a freeze-up of the US financial system.  I mean if you've gone your whole life thinking you're essentially safe in believing that the US empire is different from every other one in history, it can be hard to look at the system as one that could collapse without warning and leave your "safe portfolio" in ruins.

Admitting Austrian economics is correct would mean that a "monetary realist's" belief in the stability of the financial system was mostly a myth.  People don't like to concede that kind of "wrongness," especially if we've held these views for a long time. 

I'm not saying there isn't some life left in the current system, but it becomes a lot more of a nuanced discussion rather than "tail risks in the current system can be safely ignored" or whatever the common wisdom is.

Perfect. No hard feelings.

And I agree with you... the whole system could come crashing down if people lose faith in the government. But, then again, that's why we hold 25% gold here on this forum.

Now can we continue the conversation?

[Gumby]

Please understand that recognizing that the current system is based upon a monetary realism model doesn't mean any of us is saying it's a good idea.  It's just acknowledging reality as it currently exists.

Exactly. Nobody here thinks that MR somehow proves that a debt-based fiat monetary system is some kind of perfection. From my perspective, it causes all sorts of problems in the long run. All MR does is describe the system as it is — flaws and all.

All we are saying is that Austrian economics is using an obsolete framework that doesn't apply to an autonomous debt-based fiat currency issuer. Surely you can have a conversation about that, tech.

Ultimately, you should know that we all used to believe the same things you currently believe. The only difference is that we picked up our noses from our obsolete textbooks and explored the operational realities of our current system.

[Libertarian666]

Please understand that recognizing that the current system is based upon a monetary realism model doesn't mean any of us is saying it's a good idea.  It's just acknowledging reality as it currently exists.

Exactly. Nobody here thinks that MR somehow proves that a debt-based fiat monetary system is some kind of perfection. From my perspective, it causes all sorts of problems in the long run. All MR does is describe the system as it is — flaws and all.

All we are saying is that Austrian economics is using an obsolete framework that doesn't apply to an autonomous debt-based fiat currency issuer. Surely you can have a conversation about that, tech.

Certainly, as long as you can have a conversation that acknowledges that I am right about everything and that any disagreement with me is heresy.

[Gumby]

All we are saying is that Austrian economics is using an obsolete framework that doesn't apply to an autonomous debt-based fiat currency issuer. Surely you can have a conversation about that, tech.

Certainly, as soon as you acknowledge that the Flying Spaghetti Monster is the one true god.

Well, if you want to be narrow-minded and not explore how our debt-based fiat monetary system really works, that's your prerogative. Your loss.

Personally, if it were my money, I'd want to explore all of the contrarian scenarios to make sure I wasn't doing something totally stupid (like listening to inflationists who have been wrong for decades).

[Xan]

Certainly, as long as you can have a conversation that acknowledges that I am right about everything and that any disagreement with me is heresy.

There certainly was a major change in the nature of money in 1972, when gold officially became decoupled from the dollar.  We went from a federal government that couldn't create money out of thin air to one that could.

If a school of monetary thought didn't undergo a major change right along with it, then it's pretty obvious that school is not going to have predictive power under the new regime.

That isn't at all saying that they were wrong about anything.  The principles and consequences could all be absolutely correct.  It's just that they now describe a different universe from the one that we now occupy.

[Libertarian666]

All we are saying is that Austrian economics is using an obsolete framework that doesn't apply to an autonomous debt-based fiat currency issuer. Surely you can have a conversation about that, tech.

Certainly, as soon as you acknowledge that the Flying Spaghetti Monster is the one true god.

Well, if you want to be narrow-minded and not explore how our debt-based fiat monetary system really works, that's your prerogative. Your loss.

Personally, if it were my money, I'd want to explore all of the contrarian scenarios to make sure I wasn't doing something totally stupid (like listening to inflationists who have been wrong for decades).

Belief in the Flying Spaghetti Monster is a contrarian view as well. That doesn't make it correct or sensible. After reading all the posts about "monetary realism", I have exactly the same respect for it as I do for the FSM.

And as for inflationists having been wrong for decades, the reason I could retire early was because of a gold-heavy portfolio that STILL is outperforming the PP in the long term (15 years) after the recent unpleasantness. So if that is wrong, I don't want to be right.

[MediumTex]

Please understand that recognizing that the current system is based upon a monetary realism model doesn't mean any of us is saying it's a good idea.  It's just acknowledging reality as it currently exists.

Exactly. Nobody here thinks that MR somehow proves that a debt-based fiat monetary system is some kind of perfection. From my perspective, it causes all sorts of problems in the long run. All MR does is describe the system as it is — flaws and all.

All we are saying is that Austrian economics is using an obsolete framework that doesn't apply to an autonomous debt-based fiat currency issuer. Surely you can have a conversation about that, tech.

Certainly, as long as you can have a conversation that acknowledges that I am right about everything and that any disagreement with me is heresy.

I assume that's a joke.

Seriously, though, what about the explanation that is being provided about how the current system works do you disagree with?

For example, we may both agree that Britney Spears' music is crappy (with the obvious exception of "Baby One More Time":)) ), but that doesn't mean that conclusions regarding the musical structure of her songs should be dismissed as nonsense.  The product itself may be nonsense, but it still has an internal structure and logic, whether you like it or not.

[Libertarian666]

Exactly. Nobody here thinks that MR somehow proves that a debt-based fiat monetary system is some kind of perfection. From my perspective, it causes all sorts of problems in the long run. All MR does is describe the system as it is — flaws and all.

All we are saying is that Austrian economics is using an obsolete framework that doesn't apply to an autonomous debt-based fiat currency issuer. Surely you can have a conversation about that, tech.

Certainly, as long as you can have a conversation that acknowledges that I am right about everything and that any disagreement with me is heresy.

I assume that's a joke.

Seriously, though, what about the explanation that is being provided about how the current system works do you disagree with?

For example, we may both agree that Britney Spears' music is crappy (with the obvious exception of "Baby One More Time":)) ), but that doesn't mean that conclusions regarding the musical structure of her songs should be dismissed as nonsense.  The product itself may be nonsense, but it still has an internal structure and logic, whether you like it or not.

No, it is not a joke, but a reductio ad absurdum. Continuing a conversation that requires one to agree to a proposition that one finds absurd is nonsensical. Why would anyone do that?

[MediumTex]

After reading all the posts about "monetary realism", I have exactly the same respect for it as I do for the FSM.

But in what ways does monetary realism fail to correctly identify the current monetary arrangement in the U.S.?

I would say that MR differs from FSM in that FSM doesn't provide me with a coherent explanation for the current nature of any aspects of reality, while MR does.

Do you agree with my distinction between MR and FSM?

[Libertarian666]

After reading all the posts about "monetary realism", I have exactly the same respect for it as I do for the FSM.

But in what ways does monetary realism fail to correctly identify the current monetary arrangement in the U.S.?

I would say that MR differs from FSM in that FSM doesn't provide me with a coherent explanation for the current nature of any aspects of reality, while MR does.

Do you agree with my distinction between MR and FSM?

No. MR provides absolutely no value regarding the financial risks I am concerned with, as the FSM provides absolutely no value for me in the spiritual realm.

[MediumTex]

No, it is not a joke, but a reductio ad absurdum. Continuing a conversation that requires one to agree to a proposition that one finds absurd is nonsensical. Why would anyone do that?

Fair enough, but what proposition exactly do you find to be absurd?  If you find all of MR to be absurd, then why does it seem to so clearly and coherently describe the current system?  You may say that the entire current system is absurd (and I would agree with you), but notwithstanding its overall absurdity, it's still important to understand how it works if you want to have an investment strategy that is based upon reality as it is, as opposed to how we would like it to be or wish it to be.

If MR's explanation of the current monetary system is wrong, what would be a correct explanation?

[MediumTex]

After reading all the posts about "monetary realism", I have exactly the same respect for it as I do for the FSM.

But in what ways does monetary realism fail to correctly identify the current monetary arrangement in the U.S.?

I would say that MR differs from FSM in that FSM doesn't provide me with a coherent explanation for the current nature of any aspects of reality, while MR does.

Do you agree with my distinction between MR and FSM?

No. MR provides absolutely no value regarding the financial risks I am concerned with, as the FSM provides absolutely no value for me in the spiritual realm.

You don't see the deflationary risk in an MR model if policymakers choose not to provide liquidity in response to a credit crisis?

This risk would seem to be of great interest to a gold enthusiast.  Why is it of no interest to you?

[systemskeptic]

The PP is premised upon the following assumptions:

1. At a given point in time, the economy can only be on an expansion trajectory or a contraction trajectory.  It's possible for the economy to be neither expanding nor contracting, but such a condition rarely lasts for very long.

2. At a given point in time, price levels across the whole economy are either increasing or declining.  It's possible for the price level to be neither increasing nor declining, but such a condition rarely lasts for very long.

What combination of economic conditions can you visualize that wouldn't fit into one of the four combinations of conditions based upon the assumptions above?

There are dozens of scenarios, but here is one which seems contrary to your above statements:
1. US Economic stagnation/contraction (poor performance on US stocks)
2. Low real rates in $USD (poor performance on USG cash/bonds)
3. Positive real rates in other currencies (per performance on gold and/or $USD)

You don't necessarily have to have a crisis for the market favor to shift from one region to another.  So over the last 40 years, is the performance of the PP due to it covering all economic conditions, or it covering all economic conditions of a strong region?

Also, is it possible for a region-specific permanent portfolio to perform well if the overall prosperity / world presence of that region is declining / shifting to different areas?

[Libertarian666]

No, it is not a joke, but a reductio ad absurdum. Continuing a conversation that requires one to agree to a proposition that one finds absurd is nonsensical. Why would anyone do that?

Fair enough, but what proposition exactly do you find to be absurd?  If you find all of MR to be absurd, then why does it seem to so clearly and coherently describe the current system?  You may say that the entire current system is absurd (and I would agree with you), but notwithstanding its overall absurdity, it's still important to understand how it works if you want to have an investment strategy that is based upon reality as it is, as opposed to how we would like it to be or wish it to be.

If MR's explanation of the current monetary system is wrong, what would be a correct explanation?

The Austrian explanation.
But of course you knew that already.

[MediumTex]

The PP is premised upon the following assumptions:

1. At a given point in time, the economy can only be on an expansion trajectory or a contraction trajectory.  It's possible for the economy to be neither expanding nor contracting, but such a condition rarely lasts for very long.

2. At a given point in time, price levels across the whole economy are either increasing or declining.  It's possible for the price level to be neither increasing nor declining, but such a condition rarely lasts for very long.

What combination of economic conditions can you visualize that wouldn't fit into one of the four combinations of conditions based upon the assumptions above?

There are dozens of scenarios, but here is one which seems contrary to your above statements:
1. US Economic stagnation/contraction (poor performance on US stocks)
2. Low real rates in $USD (poor performance on USG cash/bonds)
3. Positive real rates in other currencies (per performance on gold and/or $USD)

What would price levels across the whole U.S. economy be doing in your example above?  Would it be rising or falling?  It must be one or the other.

You don't necessarily have to have a crisis for the market favor to shift from one region to another.  So over the last 40 years, is the performance of the PP due to it covering all economic conditions, or it covering all economic conditions of a strong region?

I don't know.  The PP tests pretty well in any economy that has at least some diversification and a reasonable stable currency.  I don't know how well a Zimbabwe PP would work.

Also, is it possible for a region-specific permanent portfolio to perform well if the overall prosperity / world presence of that region is declining / shifting to different areas?

I assume you aren't talking about the United States, which is the largest economy in the world.  If a tectonic shift occurred, the U.S. would still be a top 5 world economy.  I don't see the U.S.'s many structural economic advantages coming unraveled as quickly as many doomsters seem to imagine (though I used to believe that a fast collapse was possible and even likely, but I no longer feel that way).

[moda0306]

Ok, so then this would be an acceptable post? If you say so.

-------------------
I really think if "monetary realists" didn't have such a deep reluctance to admit the tail risks they are ignoring, they would have a much easier time seeing the light.

They are literally being blinded by their inability to admit that their portfolio could be demolished by a freeze-up of the US financial system.  I mean if you've gone your whole life thinking you're essentially safe in believing that the US empire is different from every other one in history, it can be hard to look at the system as one that could collapse without warning and leave your "safe portfolio" in ruins.

Admitting Austrian economics is correct would mean that a "monetary realist's" belief in the stability of the financial system was mostly a myth.  People don't like to concede that kind of "wrongness," especially if we've held these views for a long time. 

I'm not saying there isn't some life left in the current system, but it becomes a lot more of a nuanced discussion rather than "tail risks in the current system can be safely ignored" or whatever the common wisdom is.

Who's not properly handling tail risks.  Most people here hold 25% of their investment portfolios in an asset that will go absolutely gangbusters, even in real terms, upon the demise of the currency of the most stable legal entity in the world, and the world's reserve currency.

When I say "it's really hard" to change one's opinions when you're emotionally invested, I'm not saying you're emotionally immature, I'm saying you're human.

I could have gone on about similar things among liberals or conservatives.  I've found most MR'ists to have a deep desire to understand the system, not diagnose it before they even understand it.

[MediumTex]

No, it is not a joke, but a reductio ad absurdum. Continuing a conversation that requires one to agree to a proposition that one finds absurd is nonsensical. Why would anyone do that?

Fair enough, but what proposition exactly do you find to be absurd?  If you find all of MR to be absurd, then why does it seem to so clearly and coherently describe the current system?  You may say that the entire current system is absurd (and I would agree with you), but notwithstanding its overall absurdity, it's still important to understand how it works if you want to have an investment strategy that is based upon reality as it is, as opposed to how we would like it to be or wish it to be.

If MR's explanation of the current monetary system is wrong, what would be a correct explanation?

The Austrian explanation.
But of course you knew that already.

But where is the inflation that the Austrians would suggest we should be experiencing?  We are now five years into this crazy Fed intervention, and so far inflation has been very tame.

If we say that the Austrian prediction will eventually come true, that doesn't comfort me if I had already been waiting for it for five years and had sat out stock market gains of almost 100% because I thought the economy had to fully crater before a real recovery was possble.

[moda0306]

After reading all the posts about "monetary realism", I have exactly the same respect for it as I do for the FSM.

But in what ways does monetary realism fail to correctly identify the current monetary arrangement in the U.S.?

I would say that MR differs from FSM in that FSM doesn't provide me with a coherent explanation for the current nature of any aspects of reality, while MR does.

Do you agree with my distinction between MR and FSM?

No. MR provides absolutely no value regarding the financial risks I am concerned with, as the FSM provides absolutely no value for me in the spiritual realm.

MR dives heavily into productivity, past hyperinflations, and the most meaty assertion (that t-bills and cash are not fundamentally all that different) is absolutely fundamental to your analysis... it might serve you well to at least explore the possibility before addressing it as absolutely absurd.

What, truly, is the fundamental difference between a claim on confetti that pays confetti as interest, and the confetti itself? 

[Libertarian666]

But in what ways does monetary realism fail to correctly identify the current monetary arrangement in the U.S.?

I would say that MR differs from FSM in that FSM doesn't provide me with a coherent explanation for the current nature of any aspects of reality, while MR does.

Do you agree with my distinction between MR and FSM?

No. MR provides absolutely no value regarding the financial risks I am concerned with, as the FSM provides absolutely no value for me in the spiritual realm.

MR dives heavily into productivity, past hyperinflations, and the most meaty assertion (that t-bills and cash are not fundamentally all that different) is absolutely fundamental to your analysis... it might serve you well to at least explore the possibility before addressing it as absolutely absurd.

What, truly, is the fundamental difference between a claim on confetti that pays confetti as interest, and the confetti itself?

It is absolutely unimportant to me whether t-bills and cash are the same. They are both devoid of value other than that provided by the "bigger fool" theory, as your equation of them with confetti implicitly admits.

[Libertarian666]

Fair enough, but what proposition exactly do you find to be absurd?  If you find all of MR to be absurd, then why does it seem to so clearly and coherently describe the current system?  You may say that the entire current system is absurd (and I would agree with you), but notwithstanding its overall absurdity, it's still important to understand how it works if you want to have an investment strategy that is based upon reality as it is, as opposed to how we would like it to be or wish it to be.

If MR's explanation of the current monetary system is wrong, what would be a correct explanation?

The Austrian explanation.
But of course you knew that already.

But where is the inflation that the Austrians would suggest we should be experiencing?  We are now five years into this crazy Fed intervention, and so far inflation has been very tame.

If we say that the Austrian prediction will eventually come true, that doesn't comfort me if I had already been waiting for it for five years and had sat out stock market gains of almost 100% because I thought the economy had to fully crater before a real recovery was possble.

My investment performance has been quite good over the time that I have had this "delusion", so maybe I don't need to be disabused of it.

As for when the inflation will show up, that will happen when either of these events occurs:
1. The banks start lending
2. Foreigners stop taking dollars

and probably some other events I haven't thought of yet.

[systemskeptic]

What would price levels across the whole U.S. economy be doing in your example above?  Would it be rising or falling?  It must be one or the other.

I assume you aren't talking about the United States, which is the largest economy in the world.  If a tectonic shift occurred, the U.S. would still be a top 5 world economy.  I don't see the U.S.'s many structural economic advantages coming unraveled as quickly as many doomsters seem to imagine (though I used to believe that a fast collapse was possible and even likely, but I no longer feel that way).

What does it matter what price levels are doing if real rates on cash durations < 15 year are near zero or negative? (50% of the PP).  Are you suggesting all currencies must have real rates all the time, or even over long periods?

The US can still be a top 5 economy while experiencing stagnant returns as it shifts even from #1 to #2.  At the very least, it will be significantly under-performing if it is losing ground while other economies advance.  It seems rooted in your beliefs that the US can only stay in a top position?

Lastly, it is already established that you do not believe in any scenarios other than the PP maintaining it's past performance, so I do not think there is much to gain by further raising and dismissing specific scenarios.

The idea that past returns will continue as they have is a dangerous belief that IMHO anyone should be able to recognize.

[MediumTex]

No. MR provides absolutely no value regarding the financial risks I am concerned with, as the FSM provides absolutely no value for me in the spiritual realm.

MR dives heavily into productivity, past hyperinflations, and the most meaty assertion (that t-bills and cash are not fundamentally all that different) is absolutely fundamental to your analysis... it might serve you well to at least explore the possibility before addressing it as absolutely absurd.

What, truly, is the fundamental difference between a claim on confetti that pays confetti as interest, and the confetti itself?

It is absolutely unimportant to me whether t-bills and cash are the same. They are both devoid of value other than that provided by the "bigger fool" theory, as your equation of them with confetti implicitly admits.

One of the illustrations in the PP book from last year shows a guy checking out in a store, and when he attempts to give the cashier a stock certificate the cashier points to a sign on the wall that says "Cash Only", to which the man replies "But I thought cash was trash."

Regardless of how you feel about fiat money, it still can be exchanged for things of real value.  Do you disagree?

How can a thing be devoid of value if it can be converted into something of value instantly at any time?