You never know

[Libertarian666]

I would think that having a PP would make even this sort of brazen theft somewhat less horrifying:

http://blogs.barrons.com/focusonfunds/2 ... mmeting-5/

[Mdraf]

I would think that having a PP would make even this sort of brazen theft somewhat less horrifying:

http://blogs.barrons.com/focusonfunds/2 ... mmeting-5/

What?! I thought government bonds in a fiat currency issuer country were the same as cash !

[goodasgold]

I would think that having a PP would make even this sort of brazen theft somewhat less horrifying:

http://blogs.barrons.com/focusonfunds/2 ... mmeting-5/

Argentina, anyone? Coming soon to a country very near to you.

Of course, if (like a lot of folks on this board) you believe that massive and growing unfunded liabilities do not exist, or never need to be repaid, or can be paid by merely issuing a "trillion dollar platinum coin," then there is nothing to worry about. 

[craigr]

I would think that having a PP would make even this sort of brazen theft somewhat less horrifying:

http://blogs.barrons.com/focusonfunds/2 ... mmeting-5/

Argentina, anyone? Coming soon to a country very near to you.

Of course, if (like a lot of folks on this board) you believe that massive and growing unfunded liabilities do not exist, or never need to be repaid, or can be paid by merely issuing a "trillion dollar platinum coin," then there is nothing to worry about. 

For the record, I don't believe these things. There is nothing in history to support the idea that a government can spend indefinitely without repercussions.

[Kshartle]

I would think that having a PP would make even this sort of brazen theft somewhat less horrifying:

http://blogs.barrons.com/focusonfunds/2 ... mmeting-5/

Argentina, anyone? Coming soon to a country very near to you.

Of course, if (like a lot of folks on this board) you believe that massive and growing unfunded liabilities do not exist, or never need to be repaid, or can be paid by merely issuing a "trillion dollar platinum coin," then there is nothing to worry about. 

Wait, we need more than a couple platinum coins to take care of the millions of non worker seniors who have no money?  Awwwww man, Krugman suckered me again.  He's so tricky with all that economic gobldy gook talk.

[goodasgold]

Awwwww man, Krugman suckered me again.  He's so tricky with all that economic gobldy gook talk.

Just yesterday Krugman denounced the U.S. president, complaining that Obama should have poured THREE times as much "ghost money" (i.e., THREE times as much unfunded liabilities) into Solyndra-type ratholes.

Even more bizarrely, Krugman praises geniuses like Obama and Calif. Governor Brown for "successfully reducing debt." Krugman arrives at these cooked-up figures by completely ignoring, as if they do not exist,  the continuing massive and unfunded liabilities being piled up by his heroes. I may not be alive when the house of cards finally collapses, but God help the next generation, because nobody else will.

I've said it before and I'll say it again: We PPers will buy some time through our gold coins, but following the inevitable and drastic rise in gold prices, the pitchfork-and-torch-wielding peasants, with righteous academics like Krugman in the lead, will besiege our modest castles to despoil us of our "wicked wealth."

[Kshartle]

I think Harry Browne was much more on point with his earlier works where he always included some portion of one's wealth going into a retreat of sorts.

That could very well end up to be the most valuable of all investments.

[craigr]

I think Harry Browne was much more on point with his earlier works where he always included some portion of one's wealth going into a retreat of sorts.

That could very well end up to be the most valuable of all investments.

If someone told me they were going to not hold 25% gold and instead use some to buy a foreign property that could be a backup escape option, I wouldn't have any strong arguments against the plan. It's a hard asset that is less liquid. But it would still offer the same protection against confiscation and localized problems.

[Mdraf]

I think Harry Browne was much more on point with his earlier works where he always included some portion of one's wealth going into a retreat of sorts.

That could very well end up to be the most valuable of all investments.

If someone told me they were going to not hold 25% gold and instead use some to buy a foreign property that could be a backup escape option, I wouldn't have any strong arguments against the plan. It's a hard asset that is less liquid. But it would still offer the same protection against confiscation and localized problems.

I personally favor diamonds. Easily hidden. Easily moved even across borders. Foreign property should ideally be legally owned by a local proxy.

[notsheigetz]

If someone told me they were going to not hold 25% gold and instead use some to buy a foreign property that could be a backup escape option, I wouldn't have any strong arguments against the plan. It's a hard asset that is less liquid. But it would still offer the same protection against confiscation and localized problems.

What good is the foreign property going to do in this kind of SHTF scenario if you still have all of your monetary assets tied up in the U.S.?  Wouldn't it be better to keep the 25% gold allocation, especially if the gold is stored somewhere outside the U.S? Maybe it would be better to give up the 25% LTT allocation instead?

[craigr]

If someone told me they were going to not hold 25% gold and instead use some to buy a foreign property that could be a backup escape option, I wouldn't have any strong arguments against the plan. It's a hard asset that is less liquid. But it would still offer the same protection against confiscation and localized problems.

What good is the foreign property going to do in this kind of SHTF scenario if you still have all of your monetary assets tied up in the U.S.?  Wouldn't it be better to keep the 25% gold allocation, especially if the gold is stored somewhere outside the U.S? Maybe it would be better to give up the 25% LTT allocation instead?

I'm not saying don't own gold. Just that some people really hate the idea of holding gold and want income producing assets only. So for that situation if they wanted some geographic diversification, foreign property could fill part of that role.

Downsides of course is maintenance, upkeep, management of tenants if you use them, navigating local real estate laws and taxes, lack of liquidity, etc. That's where gold has real estate beat, it's simpler. However gold may be easier to force repatriation because it is so liquid. All these are extreme considerations though.

[Rien]

I think Harry Browne was much more on point with his earlier works where he always included some portion of one's wealth going into a retreat of sorts.

That could very well end up to be the most valuable of all investments.

Exactly, so far I see the PP as being for the Portfolio portion of your wealth.
I will not put all of my wealth into a portfolio. A part will be tied up in real estate and even some productive capacity of my own like food (garden) and energy (solar). (Not self-sufficient, but it will reduce my cost of living)

[frommi]

I'm not saying don't own gold. Just that some people really hate the idea of holding gold and want income producing assets only. So for that situation if they wanted some geographic diversification, foreign property could fill part of that role.

Downsides of course is maintenance, upkeep, management of tenants if you use them, navigating local real estate laws and taxes, lack of liquidity, etc. That's where gold has real estate beat, it's simpler. However gold may be easier to force repatriation because it is so liquid. All these are extreme considerations though.

Just buy MCD, you have all the things you mention + a cash cow in prospering times. 

[MediumTex]

Of course, if (like a lot of folks on this board) you believe that massive and growing unfunded liabilities do not exist, or never need to be repaid, or can be paid by merely issuing a "trillion dollar platinum coin," then there is nothing to worry about. 

This post reflects a misunderstanding of what many members here believe.

In any fiat currency arrangement, the government is ALWAYS constrained by inflation.  No one has ever disputed that.

What many members here have argued is that basically inflation is the ONLY constraint on a currency issuer, which sort of makes life easier in many ways because you really only need to pay attention to a single data point (i.e., inflation) to figure out what's going on with monetary policy.

There is nothing magical about this way of thinking.  It simply says that a currency issuer can basically do anything it wants with credit, currency, debt, and spending until inflation catches up with it.

For whatever reason, this point of view seems to really bother a lot of people, but it shouldn't, considering that we are ultimately all in complete agreement that inflation is the ultimate risk that we should all be concerned about.

If the government engages in stupid monetary policies and there is little to no inflation (as we have seen in the 2008-2013 period, for example), of what concern is that stupid monetary policy to us?  Think about it.

You might say "but those stupid monetary policies are precursors to other bad things" or "the stupid monetary policies are canaries in the coal mine", and that may be true, but PP investors are already protected against whatever bad things might follow from stupid monetary policies, so what's the point in worrying about that, especially before it has even happened, and especially considering that the cause and effect relationship between inflation and stupid monetary policies over the last 30 years has been questionable at best.

[Rien]

In any fiat currency arrangement, the government is ALWAYS constrained by inflation.
...
You might say "but those stupid monetary policies are precursors to other bad things" or "the stupid monetary policies are canaries in the coal mine", and that may be true, but PP investors are already protected against whatever bad things might follow from stupid monetary policies, so what's the point in worrying about that, especially before it has even happened, and especially considering that the cause and effect relationship between inflation and stupid monetary policies over the last 30 years has been questionable at best.

I would not say that govt is constraint by inflation, govt creates inflation because it profits from it.

I have a fire insurance on my home, but that does not mean that I am careless about fire in the house. Yes, I am "protected" against total loss if a fire happens, but if I can avoid that fire then I will surely do so.

[Kshartle]

In any fiat currency arrangement, the government is ALWAYS constrained by inflation.
...
You might say "but those stupid monetary policies are precursors to other bad things" or "the stupid monetary policies are canaries in the coal mine", and that may be true, but PP investors are already protected against whatever bad things might follow from stupid monetary policies, so what's the point in worrying about that, especially before it has even happened, and especially considering that the cause and effect relationship between inflation and stupid monetary policies over the last 30 years has been questionable at best.

I would not say that govt is constraint by inflation, govt creates inflation because it profits from it.

I have a fire insurance on my home, but that does not mean that I am careless about fire in the house. Yes, I am "protected" against total loss if a fire happens, but if I can avoid that fire then I will surely do so.

They are most certainly constrained by inflation. Otherwise you believe that can inflate to any amount or price level without negative consequence to themselves. This is obviously untrue.

This is why I submit that if they are in fact constrained by inflation (which they are), then there is also default risk to their debt. You can't say they don't have default risk because they can always inflate and then admit their is some level of inflating that would put them in a worse position and they would be unlikely to go that route. That is a self-contradicting statement and that means it must be incorrect.

If they cannot inflate indefinately without suffering negative consequences they might not do it and that means their debt is not 100% riskless in terms of a nominal principle default.

This is also what I've been saying about bonds and why I choose to not own them at the present time. I think they will be forced into either massive inflation or outright default at some time in the future and once that happens (even if it's a long-time from now) the losses will be so big it will wipe out anything that preceeded it for years.

I'll probably buy during the crisis when it looks very bleak if I can summon the emotional strength.

Or something else entirely will happen. Time will tell.

[Rien]

I would not say that govt is constraint by inflation, govt creates inflation because it profits from it.

I have a fire insurance on my home, but that does not mean that I am careless about fire in the house. Yes, I am "protected" against total loss if a fire happens, but if I can avoid that fire then I will surely do so.

They are most certainly constrained by inflation. Otherwise you believe that can inflate to any amount or price level without negative consequence to themselves. This is obviously untrue.

...

I think they will be forced into either massive inflation or outright default at some time in the future and once that happens (even if it's a long-time from now) the losses will be so big it will wipe out anything that preceeded it for years.

You seem to contradict yourself, because if govt are constraint by inflation they surely cannot create massive inflation?

Btw I am more on Armstrongs line: He believes that govt will crack down on the populace in order to finance itself. They would rather destroy all private ownership than hyper inflate. The signs of this crackdown are all around you. The NSA is just the tip of the iceberg.

[Kshartle]

I would not say that govt is constraint by inflation, govt creates inflation because it profits from it.

I have a fire insurance on my home, but that does not mean that I am careless about fire in the house. Yes, I am "protected" against total loss if a fire happens, but if I can avoid that fire then I will surely do so.

They are most certainly constrained by inflation. Otherwise you believe that can inflate to any amount or price level without negative consequence to themselves. This is obviously untrue.

...

I think they will be forced into either massive inflation or outright default at some time in the future and once that happens (even if it's a long-time from now) the losses will be so big it will wipe out anything that preceeded it for years.

You seem to contradict yourself, because if govt are constraint by inflation they surely cannot create massive inflation?

Btw I am more on Armstrongs line: He believes that govt will crack down on the populace in order to finance itself. They would rather destroy all private ownership than hyper inflate. The signs of this crackdown are all around you. The NSA is just the tip of the iceberg.

How does the NSA help the government finance anything? Destroying the goose that lays the golden egg will not save them in the long-run.

I am certainly not contradicting myself. The contradiction is that they are contstrained by inflation but the principle repayment is risk free in nominal terms becuase of inflaiton.

You said "because if govt are constraint by inflation they surely cannot create massive inflation?"

That's like saying because a guy is constrained by gravity plunging him to his death he surely cannot jump off a bridge. He still can get out of all him problems by jumping, it's just the problem created here (his death) might force him to just accept the other ones instead.

[Gumby]

This is why I submit that if they are in fact constrained by inflation (which they are), then there is also default risk to their debt. You can't say they don't have default risk because they can always inflate and then admit their is some level of inflating that would put them in a worse position and they would be unlikely to go that route. That is a self-contradicting statement and that means it must be incorrect.

If they cannot inflate indefinately without suffering negative consequences they might not do it and that means their debt is not 100% riskless in terms of a nominal principle default.

This is also what I've been saying about bonds and why I choose to not own them at the present time. I think they will be forced into either massive inflation or outright default at some time in the future and once that happens (even if it's a long-time from now) the losses will be so big it will wipe out anything that preceeded it for years.

Not trying to get into another argument here, but I am simply stating the counter-argument to that position.

The logic that the US must choose between inflation and default assumes that increasing the amount of base money is the definition of inflation (rather than the standard economics measure of a rise in price level). It's an obsolete and over-simplistic Monetarist definition of inflation that becomes even less relevant as our highly-liquid money-like private credit assets — which represent the overwhelming majority of our purchasing power — becomes more digital, privatized and streamlined.

People who disagree with the Monetarist/Austrian analysis simply argue that increasing the amount of base money in circulation does not necessarily result in inflation — as shown by recent historical events in the US and Japan. Base money is really just a tiny fraction of our total purchasing power.

Like most of the economic schools in existence today, Austrian Economics is predicated on a political ideology. Austrians tend to be vehemently anti-government and pro-market.  So they build a world view that conforms to the world they want and not the world we actually have...

Austrian economists actually change the definition of inflation to serve their own ideological needs.  In Austrian Economics inflation is not the standard economics concept of a rise in the price level.  Inflation in Austrian economics is just a rise in the amount of money.  This leads to all sorts of emotional commentary, the most common of which, is the idea that the USD has declined 95% since the creation of the Fed in 1913 (which is true).  But this misunderstands several concepts and misleads us in understanding how the monetary system works.

First of all, the private sector creates lots of “money like”? instruments that are not technically included in the money supply but comprise the vast majority of private sector net worth.  I use a “scale of moneyness”? to help better understand this concept so that we don’t place an undue specialness on the idea of “money”? when trying to understand inflation.  Instead, I try to explain that spending is a function of income relative to desired saving.  And that saving is comprised not only of “money”?, but money-like instruments like stocks, bonds, options, etc.  To completely understand how the economy is impacted by inflation we shouldn’t merely focus on narrow definitions of “money”?, but should understand the aggregate economic balance sheet.  For instance, if you sell a stock at no gain and obtain cash you’re not necessarily more likely to spend than you were before because your net worth is the same.  Your income relative to desired saving is precisely the same as it was before.  This is basically what QE is.  It is a swap of one type of asset for another and doesn’t actually alter the net worth of the private sector.  Changing the moneyness of private assets does not necessarily mean there will be higher inflation!

But there is a more egregious and nefarious error in this “decline”? of the dollar myth.  It completely misunderstands how living standards can rise even while the money supply rises.  In our credit based monetary system the money supply rises primarily when banks make loans which create deposits.  In a highly productive economic environment these loans are distributed by private competitive banks and provide the borrower with the capability to invest in a manner that actually enhances the living standards of society.  So, you borrow $100,000 from the bank, you invent and distribute the washing machine and suddenly we’re all better off because we no longer have to go to the river to wash clothes.  The technological advancement enhances our lives by giving us more time to consume and produce OTHER goods and services.  In other words, the money supply has technically increased, but we’re not worse off because of it.  We’re better off because of it!  What’s happened since 1913 in the USA is just one gigantic version of the washing machine example where our living standards have exploded through the roof in tandem with a rising level of credit and an innovation boom that human beings have never come close to experiencing in the past.

Austrians, in their fervor to demonize the fiat money system, make several errors here.  First, they assume the government controls the money supply (which they don’t).  It’s actually controlled primarily by private banks in a market system that Austrians should love.  Second, they move the goal posts on the definition of inflation to imply that inflation is always and everywhere a bad thing (which, it can be, but generally isn’t).

That really just scratches the surface on some of the flaws in Austrian Economics.  I think Austrians provide some good insights on the way the economy and money works, but these are glaring flaws in the school of thought that render it highly inadequate in helping us understand the world of money in a balanced and objective way.

Source: http://pragcap.com/understanding-why-au ... -is-flawed

Those of us who don't buy into the exploding-base-money-supply-equals-inflation argument are simply looking at the larger pile of private sector assets that fully represent our purchasing power in the economy. Even if the government has to print like crazy to pay its bills, we just don't see the money printing as being large enough compared to the amount of money-like assets that are created by banks / private credit / shadow banking.

So, the overwhelming majority of our purchasing power (bank deposits, money market funds, CDs) is created by our own private sector — mind you, that's something that Austrians should be happy about. In reality the level of government printing is minuscule compared to the purchasing power from private sector assets (currently only ~$1 Trillion in government net printing vs a ~$56 trillion, and growing, private credit market).

High inflation may come someday, when the government can no longer function, but that can be a very looong time from now.

I'm sure everyone in this thread disagrees with the opposing view I've explained above — and that's fine. I'm just explaining the other side of the coin. Feel free to ignore the opposing view.

As far as I can tell, Austrian/Monetarist economics is generally useful for making political arguments. But, I still don't see any evidence about how it helps us invest successfully over a lifetime.

Personally, I have no interest in politics, so for me I'm looking at all this purely for investment allocation purposes.

[Kshartle]

The logic that the US must choose between inflation and default......

Personally, I have no interest in politics, so for me I'm looking at all this purely for investment allocation purposes.

If I was unclear I apologize. I don't think they have to take one route or the other, I just think it will. I think they could sell assets (I believe this was Browne's plan if elected) and purchase annuities for all the dependants and just stop taking on new ones.

My only interest in politics is taking a look what I think the politicians are most likely to do (in their best interests) and how the market will be distorted by it. Or take a look at where they are distorting now and try to imagine the breaking point (difficult).

If your belief is that expansion of the base money supply or whatever is not by it's nature inflationary then you can logically come to the conclusion that they will ALWAYS choose to print rather than ever overtly default. My point was a person cannot assume that printing money results in damaging inflation, thereby constraining the government/FED and make the assumption the bonds are risk free because they will always print. The two concepts don't mix.

[Gumby]

If your belief is that expansion of the base money supply or whatever is not by it's nature inflationary then you can logically come to the conclusion that they will ALWAYS choose to print rather than ever overtly default.

Right. I agree. They will almost always choose to print rather than sell assets (unless they have absolutely no need for an asset and believe that it will benefit the private sector). From the government's perspective, it doesn't really become any richer by selling its assets because a fiat government is technically neither rich or poor in terms of the currency it creates.

But, in terms of inflation, I think the printing is fairly benign if that printing isn't dramatically increasing our purchasing power. (We now know that QE has no effect on our purchasing power — it just swaps one asset for another). But say, for instance, if the government nerds were to notice that US purchasing power was increasing rapidly from for whatever reason (via full employment, wage increases, increases in disposable income, etc.) they would recommend to the President that he should cut back on the spending or risk further fueling inflation. Now, I can see a situation where a President, or Congress, might ignore those warnings and try to get re-elected by spending more. That would certainly be bad.

But, for the most part, that doesn't seem to happen in our economy. Unemployment is still rather high, productivity can always be expanded by hiring those unemployed workers, and a good chunk of our printing just fills up foreign pockets — which has no effect on our purchasing power since it can't easily be spent (i.e. China's purchasing power is restricted by our laws). And I suspect that the wealthiest 1% have positioned themselves in a way that soaks up a lot of the wealth in our country. That's not really a recipe for 99% of Americans to feel good about their purchasing power.

I can't prove it, but I would almost go as far as to say that there are some politicians who want to keep unemployment high and wealthiest 1% rich so that they can continue to print on their own pet projects with little effect on the broad economy. But, that would be assuming that they are intelligent enough to know what they're doing .

Mind you, I don't like the policies any more than you do, but when I look at the big picture, high inflation isn't something I'm concerned about just yet. I would need to see people feeling richer — and perhaps have some more disposable income — before I started to worry about any such thing.

For what it's worth, some people have noticed a correlation between the %-change in disposable income vs the CPI.

[align=center][/align]

And despite all the recent money printing from the government, most people just don't have lots of disposable income to throw around.

My point was a person cannot assume that printing money results in damaging inflation, thereby constraining the government/FED and make the assumption the bonds are risk free because they will always print. The two concepts don't mix.

Agreed. Harry Browne knew that inflation wasn't just about printing money — which is why he understood that the bonds are the least risky place to hold highly liquid dollar-denominated money-like assets. He was far more worried about the risks to private credit.

[Rien]

I am certainly not contradicting myself.

You said "because if govt are constraint by inflation they surely cannot create massive inflation?"

That's like saying because a guy is constrained by gravity plunging him to his death he surely cannot jump off a bridge. He still can get out of all him problems by jumping, it's just the problem created here (his death) might force him to just accept the other ones instead.

This may be a language thing (I am Dutch)

Constraint by = The state of being restricted or confined within prescribed bounds.

It seems to me that if govt can create inflation or hyperinflation then they cannot also be constraint by it.

The NSA: means they have access to all your income and assets.

And despite all the recent money printing from the government, most people just don't have lots of disposable income to throw around.

Exactly. So far QE has mostly gone into book keeping entries, not into the pockets of the people.

[Pointedstick]

This may be a language thing (I am Dutch)

Constraint by = The state of being restricted or confined within prescribed bounds.

It seems to me that if govt can create inflation or hyperinflation then they cannot also be constraint by it.

How about this: I can create a fire. But if that fire gets out of my control, it will very much constrain my movement and behavior.

Just because an entity can create something with great destructive potential, that does not mean it will always be able to maintain control of it. Heck, look at nuclear weapons. The USA created them and now we have to go all over the world futilely trying to prevent anyone else from getting them. We originally created them, but not their existence is very much a constraint on our action.

[Kshartle]

This may be a language thing (I am Dutch)

Constraint by = The state of being restricted or confined within prescribed bounds.

It seems to me that if govt can create inflation or hyperinflation then they cannot also be constraint by it.

Completely understand your point now. They can create inflation or hyperinflation yes. The negative consequences are what constrain them in my mind. It is a language issue and I was perhaps not as literall with my use of the word constraint.

[Rien]

Constraint: Ah, all clear now.