Cullen Roche interview

[systemskeptic]

Belief in MR vs Austrianism would have some serious affects on your investment allocation depending on

How do you reconcile a belief in MR and an allocation of 25% Gold?  If you truly believe Cullen, I can't see any reason to hold Gold at such a percentage.  He himself says this: http://pragcap.com/gold-is-not-an-investment.

The problem with MR is thus, even if you believe it describes the system today (debatable) it doesn't describe the system 20 years ago, or necessarily describe it 20 years from today.  So what use is a theory which [may] describe a system which can be abolished or upturned at any moment?

[Kshartle]

Belief in MR vs Austrianism would have some serious affects on your investment allocation depending on

How do you reconcile a belief in MR and an allocation of 25% Gold?  If you truly believe Cullen, I can't see any reason to hold Gold at such a percentage.  He himself says this: http://pragcap.com/gold-is-not-an-investment.

The problem with MR is thus, even if you believe it describes the system today (debatable) it doesn't describe the system 20 years ago, or necessarily describe it 20 years from today.  So what use is a theory which [may] describe a system which can be abolished or upturned at any moment?

More importantly, who cares about understanding mechanics if you don't understand or even attempt to understand the consequences? Its the consequences that arise from the understanding that the government has a printing press that are important, not the press itself. Saying they won't default outright on their bonds because they can print is all well and good. If you think that's the case and can clearly see they will need to print massive amounts to avoid it....this is a case for gold buying....not bond buying.

[Kshartle]

From the Roche article linked to by SystemSkeptic:

"Real investment is done on primary markets via IPOs or via private equity or through private purchases not consumed for the purpose of future production.  What most of us do through our portfolios is allocate savings.  You obtain income that goes unspent and you then allocate that into various asset classes like stocks and bonds.  But these assets serve very different purposes in terms of portfolio construction."

How is there a difference between buying a stock on IPO day and buying it the next day, or the next day? You are still the owner of the shares. You are buying out another owner. Yes the company technically only recieved capital at the IPO but the shareholder you are buying out is a real owner. You are trading your money for ownership of a slice of the company just the same. There is zero difference to you who recieves the shares.

This is called a distinction without a difference. It's not seeing the forest for the trees. This is what I constantly see from this MR stuff. I don't mean to offend you guys, and I'm sure Cullen is a nice fellow. I really don't (mean to offend). It's stuff like this though that demonstrates lack of understanding rather than an abundance of it.

To say that "if everyone in the world agreed that gold is not an alternative form of money its value would likely crater" shows a lack of understanding of what gold is, what money is, and why gold has value. Human beings have agreed gold was money informally all over the world for thousands of years for very specific reasons that have not changed. No one has to tell them it's money, convince them it's money, or force them to accept it by stamping "legal tender" on it or requiring them to pay taxes in it.

How long have they agreed that slips of un-backed paper are money, and for what reasons, and how's that working out? Which one of these will stand the test of time as money.....un-backed slips of paper or Gold?

One reader attepmts to ask Cullen how everyone could agree that gold is not money. He asks three times....three times the subject is changed. This is telling. There is no backing for the original statement. It looks to me like just throwing something against a wall to see what sticks and who will buy into it. If you make a statement like that you need to have a rationale for it as a possibility. Otherwise it's just more fluff....If my aunt had balls she'd be my uncle nonsense.

[moda0306]

Belief in MR vs Austrianism would have some serious affects on your investment allocation depending on

How do you reconcile a belief in MR and an allocation of 25% Gold?  If you truly believe Cullen, I can't see any reason to hold Gold at such a percentage.  He himself says this: http://pragcap.com/gold-is-not-an-investment.

The problem with MR is thus, even if you believe it describes the system today (debatable) it doesn't describe the system 20 years ago, or necessarily describe it 20 years from today.  So what use is a theory which [may] describe a system which can be abolished or upturned at any moment?

More importantly, who cares about understanding mechanics if you don't understand or even attempt to understand the consequences? Its the consequences that arise from the understanding that the government has a printing press that are important, not the press itself. Saying they won't default outright on their bonds because they can print is all well and good. If you think that's the case and can clearly see they will need to print massive amounts to avoid it....this is a case for gold buying....not bond buying.

Kshartle,

Please stop with this STRAW MAN.  Cullen, MMTers and MR'ists, upon realizing that we don't face a "solvency" constraint, have dove into the inflation constraint in depth.  Aggregate demand, capacity utilizations, prior hyperinflations and other historical monetary events... they have done FAR more work than Austrians in analyzing inflation and yelling "ZIMBABWE!" whenever more nuanced discussions attempt to emerge.



Regarding gold, I don't agree much with Cullen on gold, HOWEVER, Gold's usage was driven more by governments than by individuals.  Gold, simply put, is not currently used as money.  It is a decent store of value once you realize what it is (most Austrians can't even figure it out in a fiat economy, claiming that it's the gauge of inflation when it has risen, but not after it has fallen).

So Cullen may be even more right than I choose to believe... it's currently not used as money, and it was pushed mostly as a result of the state... not individuals deciding that "barter just isn't working as well as this yellow metal would."

[systemskeptic]

Regarding gold, I don't agree much with Cullen on gold,

I know you don't agree with him on Gold, or you probably wouldn't be posting on a forum which advocates a 25% allocation.  How do you reconcile that with your belief in MR, and likewise with Cullen?  Seems strange to argue that someone is so sharp, difficult to debate, etc. but that some of his ideas (such as those on Gold) can be easily dismissed without argument? 

If MR is true, what reason is there to own Gold?  Seems like a losing proposition as he correctly argues [under his own perspective]

[Tom Brown]

Kshartle,

Re: IPO: I think his point there is that he's looking at it from the company's perspective: stock purchases on the 2ndary market don't result directly in any further funding for the company in question.  He did a piece some months ago with lots of simple examples where he looked into the accounting of it. Sounds dull I know, but it was one of his more popular pieces. He had a couple of accountants chime in on the examples. I wanted to create an example out of that discussion for my blog, but I never got around to it. MR/PKE types are very interested in making sure all the accounting is correct (and so am I!). I think it really helps to clarify things.

But don't take my word for it, perhaps ask him about it on his "Ask Cullen" page. He's pretty good about answering questions there. I'd actually like to see his answer to that.

Re: "unbacked pieces of paper": take a look at this exploration of truly unbacked currencies. I found it to be a well thought out piece (by one of my favorites: JP Koning):

http://jpkoning.blogspot.com/2014/01/bi ... traps.html

I think the spectrum of "fiat" currencies is a little broader than you might first think.

[systemskeptic]

Gold, simply put, is not currently used as money.  It is a decent store of value once you realize what it is (most Austrians can't even figure it out in a fiat economy, claiming that it's the gauge of inflation when it has risen, but not after it has fallen).

Not to derail the thread as the moneyness of Gold is one of the core points of contention, but I'm not sure it's useful or accurate to claim that Gold isn't used as Money. 

It is true that a subset of the traders who form the Bid/Ask hold this view, labeling it a trading vehicle for short term profits or a commodity in a bear market.  But what about the long term holders?  I for one view Gold as money, so that is my use for it.  I'm probably not the only one with this mindset but really, does it matter whether I label it a currency and a trader labels it a commodity?  That is semantics and offers no real meaning.  What matters is how much demand there is for Gold, and what rate people are willing to exchange it at.

So maybe a more practical question than "Is Gold Money" would be "Is the current exchange rate for Gold favorable or unfavorable?"  Knowing Gold is money or isn't money doesn't necessarily tell you what to do next.  This is the same criticism I have of Cullen and MR, it's intellectual but not actionable.

Personally, I sell dollars and buy Gold because over the long run I expect the dollar to experience inflation (value decrease) and I expect Gold to experience deflation (value increase).  If I didn't believe in that dynamic I wouldn't own Gold in the absence of dollars. 

Contrastingly, if you own both Gold and Dollars, it would imply that you are uncertain what the future dynamic will be, correct?  This is what the PP posits: the future is unknowable, so rather than placing a concentrated bet (high risk high reward) it suggests holding both.  This is effectively a hedge on future outcomes.  Fair enough, as it is really just a different point on the risk-reward spectrum. 

Note however that the PP holds these assets at a 2:1 ratio so there is a built in bias towards the dollar -- which may explain the high incidence of support for MR?

[Tom Brown]

Again on the "unbacked pieces of paper" ... I think you can make a good argument, that for a nation like Canada with a central bank fully committed to an inflation targeting scheme (2% a year), that the Medium of Account is well represented by a slice of the basket of goods and services which make up the Canadian CPI, and that slice will shrink by 2% each year.

Nick Rowe does a good job of getting us to that conclusion here:

http://worthwhile.typepad.com/worthwhil ... ndard.html

(See especially JP Koning and Mike Sproul comments), but it takes JP to really go all the way with that one:

http://jpkoning.blogspot.com/2012/11/di ... could.html

(see especially Nick's "slippery slope" comment (the 1st comment))

[moda0306]

Regarding gold, I don't agree much with Cullen on gold,

I know you don't agree with him on Gold, or you probably wouldn't be posting on a forum which advocates a 25% allocation.  How do you reconcile that with your belief in MR, and likewise with Cullen?  Seems strange to argue that someone is so sharp, difficult to debate, etc. but that some of his ideas (such as those on Gold) can be easily dismissed without argument? 

If MR is true, what reason is there to own Gold?  Seems like a losing proposition as he correctly argues [under his own perspective]

He does advocate a 5%-10% gold position if I remember correctly.

MR makes me want to own the PP more than if I was questionable about US nominal solvency.  Actually, not to toot my own horn, but it was HB's assertion that ST treasuries were "risk-free" that led me to scouring the World-Wide Interwebs about how the government prints money, whether we have a solvency constraint, etc, finding Warren Mosler's stuff on MMT, and posting it here, that got us talking about MMT/MR to begin with. As you can imagine, any new-comer to the HB-PP was questioning US solvency, interest rates, etc.  It became pertinent over and over again.

I swear to you all... you weren't here to see it... but I was too damn skeptical of HB's claim that treasuries should make-up 50% of our portfolio. I still have a degree of doubt (obviously... can't ever not have that).  But once you understand the problem from a standpoint of balance-sheets and inadequacy of aggregate demand, the f*cking red sea parts and things become so clear.  But still it was confusing, and I witnessed numerous arguments where MMT/MR guys debated Austrians and each other and it became far more clear that they had realized something about our monetary system that finally made sense beyond the Austrian "inflation is coming, trust me," approach, or the Keynesian "Liquidity Trap" economics that simply didn't "feel" right.

Even if we DIDN'T have that, Paul Krugman has had some pretty logical explanations on why we can have a shortfall of aggregate demand, and what that can mean for the fed's ability to "stimulate."  This issue is actually as old as 1990's Japan.  There were HUGE debates around this stuff back then (the 1990's), but for different reasons than MR, some economists were predicting huge inflation in Japan that never occurred, while others had a different model that actually worked, bringing Keynesianism (rather than monetarism) back into the fray, since simply "lowering interest rates" as monetarists (like Milton Friedman) wanted, wasn't working to bring aggregate demand to full capacity.

[moda0306]

Gold, simply put, is not currently used as money.  It is a decent store of value once you realize what it is (most Austrians can't even figure it out in a fiat economy, claiming that it's the gauge of inflation when it has risen, but not after it has fallen).

Not to derail the thread as the moneyness of Gold is one of the core points of contention, but I'm not sure it's useful or accurate to claim that Gold isn't used as Money. 

It is true that a subset of the traders who form the Bid/Ask hold this view, labeling it a trading vehicle for short term profits or a commodity in a bear market.  But what about the long term holders?  I for one view Gold as money, so that is my use for it.  I'm probably not the only one with this mindset but really, does it matter whether I label it a currency and a trader labels it a commodity?  That is semantics and offers no real meaning.  What matters is how much demand there is for Gold, and what rate people are willing to exchange it at.

So maybe a more practical question than "Is Gold Money" would be "Is the current exchange rate for Gold favorable or unfavorable?"  Knowing Gold is money or isn't money doesn't necessarily tell you what to do next.  This is the same criticism I have of Cullen and MR, it's intellectual but not actionable.

Personally, I sell dollars and buy Gold because over the long run I expect the dollar to experience inflation (value decrease) and I expect Gold to experience deflation (value increase).  If I didn't believe in that dynamic I wouldn't own Gold in the absence of dollars. 

Contrastingly, if you own both Gold and Dollars, it would imply that you are uncertain what the future dynamic will be, correct?  This is what the PP posits: the future is unknowable, so rather than placing a concentrated bet (high risk high reward) it suggests holding both.  This is effectively a hedge on future outcomes.  Fair enough, as it is really just a different point on the risk-reward spectrum. 

Note however that the PP holds these assets at a 2:1 ratio so there is a built in bias towards the dollar -- which may explain the high incidence of support for MR?

He has mentioned that the "moneyness" of something only has limited usefulness as a concept.

Regarding the PP, gold is FAR more volatile than dollars or even LTT's on a nominal AND real basis, so it has to be taken in context of what it can do for an overall portfolio.

You're right that mostly what matters is gold as a STORE OF VALUE... rather than medium of exchange today... in fact I like it much better as an asset within a diversified fiat portfolio than where there are mixed expectations about whether we own it or not (aka, dollars within a gold-linked currency).

Regarding why you own gold vs dollars, for me more goes into it.  I expect gold to rise, generally, long-term with the rate of inflation.  But in the short-term, I expect it to counter "real interest rates."  If interest-rates are positive in real terms, gold will drop.  If interest-rates are negative in real-terms, gold will rise.

Within the PP, this is what I want it to do.

[Kshartle]

Kshartle,

Re: IPO: I think his point there is that he's looking at it from the company's perspective: stock purchases on the 2ndary market don't result directly in any further funding for the company in question.

Certainly not. Did you read the article? He's clearly talking about it from the perspective of the "investor" or in his words "allocator of savings".

[Kshartle]

Kshartle,

Please stop with this STRAW MAN. 

What straw man?

[Kshartle]

Gold's usage was driven more by governments than by individuals.  Gold, simply put, is not currently used as money.  It is a decent store of value once you realize what it is (most Austrians can't even figure it out in a fiat economy, claiming that it's the gauge of inflation when it has risen, but not after it has fallen).

So Cullen may be even more right than I choose to believe... it's currently not used as money, and it was pushed mostly as a result of the state... not individuals deciding that "barter just isn't working as well as this yellow metal would."

Gold's usage was not pushed by the state. It's non-usage is pushed by the state. If I use gold as a medium of exchange I have to report my purchase price in dollars and the value in dollars of my sale, record the difference as income then pay taxes on it.

That's a result of the law, not the free market or what individuals would choose absent the threat of violence.  The goal is for the gubmit to steal back the inflation value the gold holder protected themselves from and to discourage the buying and holding of gold which undermines their paper and the scam they are running on everyone.

[Gumby]

(Seriously I challenge anyone to go over to monetaryrealism.com and try to debate him).

And MR is simply describing the system as it is, so I don't see how it can possibly have "no practical application." 

There is nothing tangible to gain from debating theory with no practical application IMHO.

What actionable information do you gain from "understanding the system as it is"?  You and Kshartle (for example) have polar opposite views yet you seemingly have similar allocations if you are both on a PP forum?  So what difference does it make whether MMT is true or not?  What changes?

A lot of people use MR for Macro analysis and to make money (that's what Cullen uses it for). For instance, MR-ists knew that Treasury yields shouldn't skyrocket after the US credit rating was downgraded (they were right, while the gold bugs and pundits were all wrong).

For me it's mostly for understand the Treasury market — allowing me to feel extremely comfortable with that portion of my PP and not worry so much about what pundits want me to worry about (QE/debt/printing, etc).

Gold bugs think that Treasuries are always on the verge of default, but a keen understanding of the banking system shows us that as long as there is electricity powering computers — and Congressional representatives allowing those computers to continue working — there is virtually ZERO risk of Treasuries not being purchased by Primary Dealers, and non-banks at auction. An understanding of MR allows us to see how these Treasury auctions are rigged to succeed.

Sure, if Congress goes crazy and spends $40 trillion in one year, bad things will probably happen. But, MR allows me to laugh at pundits who get riled up about a measly $1 trillion in spending or QE. With MR, we know that the real action (and potential for inflation/deflation) is in the private credit market — which dwarfs the size of base money and the Treasury market and is mainly influenced by interest rates (not government "printing").

And the best part is that I'm not surprised when real world evidence shows inflation staying low after trillions of dollars get swapped between Primary Dealers and the Fed — year after year after year. It's a nice feeling to understand how that dance actually works and to see the evidence in real time.

Far better than waving your finger angrily at everyone and saying... "wait and see... one day I will be right! You'll see!"

Now... maybe I miss the point at how "evil" government is, but I really don't care much about politics. I find the economics far more interesting.

[Gumby]

I know you don't agree with him on Gold, or you probably wouldn't be posting on a forum which advocates a 25% allocation.  How do you reconcile that with your belief in MR, and likewise with Cullen?  Seems strange to argue that someone is so sharp, difficult to debate, etc. but that some of his ideas (such as those on Gold) can be easily dismissed without argument? 

If MR is true, what reason is there to own Gold?  Seems like a losing proposition as he correctly argues [under his own perspective]

MR is really just a description of the banking system. That's it! Just because Cullen views gold differently than I do, doesn't make the MR description of the banking system any less relevant.

[Gumby]

Have those quoting Cullen watched him in live interviews such as this one?  Comes across as someone who doesn't understand reality, only theory that has no practical application...

Prediction: MMT/MMR will be thoroughly discredited/laughed upon 20 years from now.

Meh. Cullen doesn't have media training like Schiff does. Big deal. It's not his job to look/sound good on TV. His writing is what I pay attention to.

Lumping MMT with MR (it's not "MMR") shows a lack of understanding between the two. They are different.

MMT is a liberal-minded economic framework.
MR is just a description of the banking system that liberals, libertarians, conservatives, communists, anarchists, etc. can all agree with (if they took the time to read it). Many conservatives, libertarians and anarchists can't bring themselves to read MR, but from my view that just shows a lack of intellectual curiosity. (Heck, KShartle just admitted to debating MR for the past year without ever even reading it). If they did take the time to read it, they would see that it's just a description of the banking system mechanics and not some politically-biased framework.

Seriously. If there's anything that's incorrect with MR's mechanical description of the banking system, you can ask/tell Cullen and help refine the MR description of the banking system.

In a nutshell, MR offers no prescriptions. (The tagline for MR is, "Economics without politics"). MR is nothing more than a description of the banking system and how the government's spending and bond swapping influences the banking system and the private sector. Most people who use MR are using it as a framework for investing purposes — they aren't even interested in politics.

And for those who have political opinions, MR is agnostic in that regard:

That’s the thing about MR – you can understand the basics of MR and then decide what policy YOU prefer. You could go full on Anarchist, Marxist, Fiscalist, Monetarist, etc. There is no one size fits all approach and I think that’s one of the key lessons from MR. But just make sure you understand the operational realities before building a policy position

Source: http://pragcap.com/the-taxonomy-of-nerds

And that really is true. MR is really just an accurate description of the banking system. Those of us who understand MR, even on this forum, tend to have very different political perspectives. If the MR critics on this board took the time to ask questions and really understand MR — rather than just ridiculing it — they would soon realize that MR would allow them to enhance and hone their political beliefs.

[Kshartle]

I think you can make a good argument, that for a nation like Canada with a central bank fully committed to an inflation targeting scheme (2% a year), that the Medium of Account is well represented by a slice of the basket of goods and services which make up the Canadian CPI, and that slice will shrink by 2% each year.

Confucius said "The beginning of Wisdom is calling things by their proper name"…or something like that.

Calling fiat currency a medium of record that entitles the holder to a slice of the productivity of country is a complete misnomer. It is an attempt to confuse what it actually is in order to display some sophisticated insight that does not exist. Thinking of it as a medium of record or some scorekeeping mechanism de-emphasizes the risks involved in holding it.

Fiat currency is a slip of paper, with pretty pictures, colors and symbols on it, or the electronic equivalent. We use it as a medium of exchange, not because it does a good job as one, or anyone would accept it of their own free will. We use it because guys with military forces, police forces, and dungeons say we cannot refuse it for the remittance of debts and we must record our income in it and pay taxes in it. If we engage in barter, a pure exchange of property we must by law record the purchase price or value of our good and service and the current market price of what we are getting. If there is a difference and one or both sides profit then they have reportable income. The Fiat currency is a mechanism for the rulers to steal your property/labor. That is why is reffered to in that famous saying as the money of slaves.

Even more insidious is the "right" of the rulers to print as many slips of paper as they want. The population is forced to use the paper whether directly or in record keeping so that the rulers can steal a portion of their property.

Imagine the awesome power of being able to print money. It is pure theft, not any of this other ridiculous nonsense that the MR outlook tries to paint it as (greasing the skids, enabling production, providing liquidity to the system, stimulating demand etc.)

[Kshartle]

The rulers have no constraint on how much they print except when they perceive it to not be in their interest. Their interests might be long-term or it might be short-term. You don't know. You can only guess. When they cannot maintain the level of theft they are accustomed to they are encouraged to print and devalue all the paper everyone is holding. This drives up prices for them to so the printing only begets more printing. You don't know when they are going to stop, you can only guess. The deeper in debt they are the more incentive they have to print and the more incentive they have to drive interest rates down because they can't afford interest payments without even more printing.

This is not to say it's not good for some people to have some of their wealth stored in the paper. For some people it makes sense to have a lot. The stronger the position of the government (low debt, budget surplus -meaning they are directly stealing more than they are spending), the less likely they are to print. Higher real interest rates make holding the paper safer and more attractive. A short-term outlook makes it more favorable since it is usually quite stable in the short run. However, since the paper is a con, it is confidence based and since it has no utility or intrinsic value....only value by fiat it can lose value rapidly. If you think you will be able to get out of the way when it's rapidly dropping good luck. When it's losing 7% per year the government it will tell you it's only 3%. When it gets to 10% they will admit to 5% but promise you they are fighting it (hopey changey). When it gets to 20% the capital controls come in, maybe gold confiscation unless you prepared....who knows what else they will dream up. As Harry Browne said...a politician up a tree is a very imaginative creature.

The point is you have to prepare ahead of time by taking an objective look at your situation and the governments and weigh the likely outcomes and the risk level that is acceptable to you. Pretending the slips of paper are some type of scorekeeping or that they entitle you to a slice of the CPI components very close to 100% of what it did last year..........this is fooling yourself and being blind to reality.

Remember what Confucius said….."The beginning of wisdom is calling things by their proper name".

[Xan]

Remember what Confucius said….."The beginning of wisdom is calling things by their proper name".

Where does giving a damn about how things actually work here in the real world fit into the development of wisdom?

[Kshartle]

Remember what Confucius said….."The beginning of wisdom is calling things by their proper name".

Where does giving a damn about how things actually work here in the real world fit into the development of wisdom?

I would say it ranks very highly.

[Gumby]

I think you can make a good argument, that for a nation like Canada with a central bank fully committed to an inflation targeting scheme (2% a year), that the Medium of Account is well represented by a slice of the basket of goods and services which make up the Canadian CPI, and that slice will shrink by 2% each year.

Confucius said "The beginning of Wisdom is calling things by their proper name"…or something like that.

Calling fiat currency a medium of record that entitles the holder to a slice of the productivity of country is a complete misnomer. It is an attempt to confuse what it actually is in order to display some sophisticated insight that does not exist. Thinking of it as a medium of record or some scorekeeping mechanism de-emphasizes the risks involved in holding it.

Fiat currency is a slip of paper, with pretty pictures, colors and symbols on it, or the electronic equivalent. We use it as a medium of exchange, not because it does a good job as one, or anyone would accept it of their own free will. We use it because guys with military forces, police forces, and dungeons say we cannot refuse it for the remittance of debts and we must record our income in it and pay taxes in it. If we engage in barter, a pure exchange of property we must by law record the purchase price or value of our good and service and the current market price of what we are getting. If there is a difference and one or both sides profit then they have reportable income. The Fiat currency is a mechanism for the rulers to steal your property/labor. That is why is reffered to in that famous saying as the money of slaves.

Even more insidious is the "right" of the rulers to print as many slips of paper as they want. The population is forced to use the paper whether directly or in record keeping so that the rulers can steal a portion of their property.

Imagine the awesome power of being able to print money. It is pure theft, not any of this other ridiculous nonsense that the MR outlook tries to paint it as (greasing the skids, enabling production, providing liquidity to the system, stimulating demand etc.)

Way to mischaracterize MR. MR doesn't offer any prescriptions, so I don't know how you can say that. Perhaps we as individuals might suggest prescriptions from time to time, but MR does not. For the millionth time, MR is just a description of the banking system.

[Tom Brown]

Cullen finally agrees to directly address three of hyperinflationist Vincent Cate's points:

http://pragcap.com/a-friendly-reply-on-hyperinflation

Cullen's response to one of Vincent's comments is interesting: he tells Vincent that if he insists that QE is "monetization" then he has to also admit it's simultaneously an un-printing of T-bonds.

Re: origin of money: credit or barter? A contentious issue, but even Bob Murphy admits that Graeber makes some good points:

http://consultingbyrpm.com/blog/2012/04 ... ment-36108

The full exchange between Graeber and Murphy is an interesting read (Murphy does a pretty good job of collecting it).

Kshartle, I detect a bit of a chartalist take in your story of the origin of fiat money (men with guns, etc). I think there are a few examples from history that match that precisely, but I'd ask JP directly:

http://jpkoning.blogspot.com/search/label/chartalism

He's pretty good with historical examples.

... and regarding current chartal objects in circulation, he implies here they are tough to find:

http://jpkoning.blogspot.com/2014/01/bi ... 5069404543

[Kshartle]

I think you can make a good argument, that for a nation like Canada with a central bank fully committed to an inflation targeting scheme (2% a year), that the Medium of Account is well represented by a slice of the basket of goods and services which make up the Canadian CPI, and that slice will shrink by 2% each year.

Confucius said "The beginning of Wisdom is calling things by their proper name"…or something like that.

Calling fiat currency a medium of record that entitles the holder to a slice of the productivity of country is a complete misnomer. It is an attempt to confuse what it actually is in order to display some sophisticated insight that does not exist. Thinking of it as a medium of record or some scorekeeping mechanism de-emphasizes the risks involved in holding it.

Fiat currency is a slip of paper, with pretty pictures, colors and symbols on it, or the electronic equivalent. We use it as a medium of exchange, not because it does a good job as one, or anyone would accept it of their own free will. We use it because guys with military forces, police forces, and dungeons say we cannot refuse it for the remittance of debts and we must record our income in it and pay taxes in it. If we engage in barter, a pure exchange of property we must by law record the purchase price or value of our good and service and the current market price of what we are getting. If there is a difference and one or both sides profit then they have reportable income. The Fiat currency is a mechanism for the rulers to steal your property/labor. That is why is reffered to in that famous saying as the money of slaves.

Even more insidious is the "right" of the rulers to print as many slips of paper as they want. The population is forced to use the paper whether directly or in record keeping so that the rulers can steal a portion of their property.

Imagine the awesome power of being able to print money. It is pure theft, not any of this other ridiculous nonsense that the MR outlook tries to paint it as (greasing the skids, enabling production, providing liquidity to the system, stimulating demand etc.)

Way to mischaracterize MR. MR doesn't offer any prescriptions, so I don't know how you can say that. Perhaps we as individuals might suggest prescriptions from time to time, but MR does not. For the millionth time, MR is just a description of the banking system.

What perscription did I ascribe to it?

[moda0306]

Confucius said "The beginning of Wisdom is calling things by their proper name"…or something like that.

Calling fiat currency a medium of record that entitles the holder to a slice of the productivity of country is a complete misnomer. It is an attempt to confuse what it actually is in order to display some sophisticated insight that does not exist. Thinking of it as a medium of record or some scorekeeping mechanism de-emphasizes the risks involved in holding it.

Fiat currency is a slip of paper, with pretty pictures, colors and symbols on it, or the electronic equivalent. We use it as a medium of exchange, not because it does a good job as one, or anyone would accept it of their own free will. We use it because guys with military forces, police forces, and dungeons say we cannot refuse it for the remittance of debts and we must record our income in it and pay taxes in it. If we engage in barter, a pure exchange of property we must by law record the purchase price or value of our good and service and the current market price of what we are getting. If there is a difference and one or both sides profit then they have reportable income. The Fiat currency is a mechanism for the rulers to steal your property/labor. That is why is reffered to in that famous saying as the money of slaves.

Even more insidious is the "right" of the rulers to print as many slips of paper as they want. The population is forced to use the paper whether directly or in record keeping so that the rulers can steal a portion of their property.

Imagine the awesome power of being able to print money. It is pure theft, not any of this other ridiculous nonsense that the MR outlook tries to paint it as (greasing the skids, enabling production, providing liquidity to the system, stimulating demand etc.)

Way to mischaracterize MR. MR doesn't offer any prescriptions, so I don't know how you can say that. Perhaps we as individuals might suggest prescriptions from time to time, but MR does not. For the millionth time, MR is just a description of the banking system.

What perscription did I ascribe to it?

You're going on a moral tantrum about fiat money, regarding "rights" to property, when MR is stating that this, in the real world, is what dollars give you.  They may be pieces of paper, but they actually act as claims on real resources, whether this is morally correct or not.

MR isn't stating that it's "morally correct" that we have "rights" to property via printed fiat money, but this is how things work in reality, and reality is what MR is concerned with.

[Kshartle]

Kshartle, I detect a bit of a chartalist take in your story of the origin of fiat money (men with guns, etc). I think there are a few examples from history that match that precisely, but I'd ask JP directly:

I'm not familiar with this term Tom but I'll take it as a compliment. My point was this is a realistic approach to the subject. Fiat money is money by fiat, by order, by law, by force, by violent threat. Preteding it is anything else (credits, scorekeeping, unit of account, grease for the economic skids) is a distortion of reality....a flasehood. When the basic premis of what it is is missunderstood, so will the conclusions about appropriate actions that should be taken.

It is blisteringly obvious that the government can never ever make good on it's obligations without greatly devaluing the dollar. Even with the devaluation they are zero signs that the politicians are willing to cut spending to stop the situation from getting worse. This makes sense because they are each working in their own self-interest. If you advocate spending cuts you are almost always certain to lose the election to the guy promissing free money to everyone.

Saying that the government has a printing press so it can't run out of money might be true technically but what is the aplication of this understanding? There isn't one because that is just a tiny fragment of the puzzle and a very basic one at that. Understanding that it has a printing press does not make the currency or bonds any safer. Default through devaluation or outright default is a distinction without much difference except in the first case you want to hold gold and the latter you want to hold cash. The printing press is an argument for gold....not safety of the bonds.

It might have been a safety net in years past when the debt was a small fraction of the GDP. Now the debt and the growing unfunded liabilites neccessitate the expansion of the money supply just to postpone collapse.