Gyroscopic Investing

Gumby wrote:

Bean wrote: The treasury market increased in size and that asset swap will someday hit the open market directly via a sale or indirectly via new debt to pay debt. So the Fed buys that debt indefinitely with interest or the music stops and there are not enough buyers to support these low rates.

If the Fed holds the bond, all of the profits are returned to the Treasury. The banks would rather get the interest so it's the banks and private sector that miss out on the interest income that gets recycled back to the Treasury.

And you are overlooking the fact that QE has been implemented many times, in many different countries, over the past century. There is nothing new about it. In the modern era, QE has never had the doomsday effect that you've described. There is just no evidence to support what you are saying.

And furthermore, the Fed would stop buying when it wants rates to float with the market.

Well, you are wrong, but I honestly don't want to spend hours proving you wrong to no result.  Nothing against you, more me being tired.

Bean wrote:Well, you are wrong, but I honestly don't want to spend hours proving you wrong to no result.  Nothing against you, more me being tired.

Nice. More talk and nothing to back it up.

Gumby wrote:

Bean wrote:Well, you are wrong, but I honestly don't want to spend hours proving you wrong to no result.  Nothing against you, more me being tired.

Nice. More talk and nothing to back it up.

Sweet baby jesus.  Debate after debate, you are clearly entrenched in your Keynesian economic views, so let's have history be the judge on who is right.

Backup: If I have to point out that all fiat currencies fail and you argue against that...what the hell can convince you?  Are you going to try and collect on some Roman bonds?

This is why I avoid the "other" forum.  You troll it with your inflexible thought process.

Bean wrote: Sweet baby jesus.  Debate after debate, you are clearly entrenched in your Keynesian economic views, so let's have history be the judge on who is right.

Backup: If I have to point out that all fiat currencies fail and you argue against that...what the hell can convince you?  Are you going to try and collect on some Roman bonds?

This is why I avoid the "other" forum.  You troll it with your inflexible thought process.

C'mon Bean. This isn't about Keynesian policy. I don't even agree with Keynesian policy. All I'm doing is talking about the mechanics of QE — not whether to fiscally spend or not.  We were talking about QE — which is nothing more than a monetary policy to change the composition of private sector assets and manipulate interest rates. QE is not the same as a fiscal stimulus — which is what you are talking about. The two are totally different. So, please don't put words in my mouth. I am not advocating for or against fiscal spending. I'm merely explaining when the Fed will likely taper (from the Fed's point of view). Complaining about the system and its policies doesn't help us interpret it.

If you want to say that all fiat currencies fail, I would agree. But, the same goes for any paper currency (including all the gold backed ones). Take a look around. All of the gold-backed currencies are all dead. They all failed too.

The only true currency that never dies is gold in the hand. Yes. But, that's not what we are talking about here. QE is not fiscal a stimulus — it doesn't increase the broad money supply. And the money from QE doesn't even enter circulation. It's pretty much a non-event. And there just isn't really any evidence that QE does that much (positive or negative).

Bean wrote: Sweet baby jesus.  Debate after debate, you are clearly entrenched in your Keynesian economic views, so let's have history be the judge on who is right.

Backup: If I have to point out that all fiat currencies fail and you argue against that...what the hell can convince you?

Gumby wouldn't argue against that at all, I believe. Neither would I. Of course all fiat currencies fail. So have all commodity-backed currencies. They're all transient. None of them have lasted. Some have lasted a long time, and some haven't, but IMHO most of the time the military strength and political stability of the issuing country has been the biggest thing determining a currency's stability and duration.

Pointedstick wrote:

Bean wrote: Sweet baby jesus.  Debate after debate, you are clearly entrenched in your Keynesian economic views, so let's have history be the judge on who is right.

Backup: If I have to point out that all fiat currencies fail and you argue against that...what the hell can convince you?

Gumby wouldn't argue against that at all, I believe. Neither would I. Of course all fiat currencies fail. So have all commodity-backed currencies. They're all transient. None of them have lasted. Some have lasted a long time, and some haven't, but IMHO most of the time the military strength and political stability of the issuing country has been the biggest thing determining a currency's stability and duration.

Disagree. A gold coin minted in the 6th century BC is still a gold coin, and will likely have value into the indefinite future. Paper money from that era, on the other hand...

Libertarian666 wrote: Disagree. A gold coin minted in the 6th century BC is still a gold coin, and will likely have value into the indefinite future. Paper money from that era, on the other hand...

It has value as a commodity, not as a currency, though. If I unearth a gold coin and the spot price of gold happens to be $25/oz, I might not be very happy. Clearly gold as a material has more value and more longevity than paper. But we're not talking about the value of the material itself; we're talking about the longevity and durability of a monetary system that uses that material to back a currency.

Libertarian666 wrote:

Pointedstick wrote:

Bean wrote: Sweet baby jesus.  Debate after debate, you are clearly entrenched in your Keynesian economic views, so let's have history be the judge on who is right.

Backup: If I have to point out that all fiat currencies fail and you argue against that...what the hell can convince you?

Gumby wouldn't argue against that at all, I believe. Neither would I. Of course all fiat currencies fail. So have all commodity-backed currencies. They're all transient. None of them have lasted. Some have lasted a long time, and some haven't, but IMHO most of the time the military strength and political stability of the issuing country has been the biggest thing determining a currency's stability and duration.

Disagree. A gold coin minted in the 6th century BC is still a gold coin, and will likely have value into the indefinite future. Paper money from that era, on the other hand...

Well, PS did say "gold-backed" currency — not gold in the hand, per se. I took that to mean gold certificates and gold-backed dollars, etc. I agree that gold in the hand is a form of currency that never dies.

Pointedstick wrote:

Libertarian666 wrote: Disagree. A gold coin minted in the 6th century BC is still a gold coin, and will likely have value into the indefinite future. Paper money from that era, on the other hand...

It has value as a commodity, not as a currency, though. If I unearth a gold coin and the spot price of gold happens to be $25/oz, I might not be very happy. Clearly gold as a material has more value and more longevity than paper. But we're not talking about the value of the material itself; we're talking about the longevity and durability of a monetary system that uses that material to back a currency.

I will repeat the definition of money: the commodity (or rarely, commodities) with the highest liquidity.
So a gold coin is money, whether or not it is currency.

But I'm not talking about money, as you define it. I'm talking about currency. Again, you're right that gold will always have some value due to its being a precious metal. What I am saying is that currencies that were based on the value of gold have all failed just like all fiat currencies. All currencies are transient, human-created institutions subject to all the dumb things we can do to them.

Bean wrote:

Gumby wrote:

Bean wrote: The treasury market increased in size and that asset swap will someday hit the open market directly via a sale or indirectly via new debt to pay debt. So the Fed buys that debt indefinitely with interest or the music stops and there are not enough buyers to support these low rates.

If the Fed holds the bond, all of the profits are returned to the Treasury. The banks would rather get the interest so it's the banks and private sector that miss out on the interest income that gets recycled back to the Treasury.

And you are overlooking the fact that QE has been implemented many times, in many different countries, over the past century. There is nothing new about it. In the modern era, QE has never had the doomsday effect that you've described. There is just no evidence to support what you are saying.

And furthermore, the Fed would stop buying when it wants rates to float with the market.

Well, you are wrong, but I honestly don't want to spend hours proving you wrong to no result.  Nothing against you, more me being tired.

The only result will be being more tired. Something can't come from nothing. Purchasing power can't be created by borrowing dollars or printing them or spending them. Savings does not come from any of these either, it's nonsense. If they have purchasing power it came from reduced purchasing power of others. QE facilitates this. It's called inflation of the money supply and debasement of the dollar. A child could understand this. Not understanding it is an emotional issue, not an intellectual one.

Kshartle wrote: QE facilitates this. It's called inflation of the money supply and debasement of the dollar. A child could understand this. Not understanding it is an emotional issue, not an intellectual one.

A child could understand QE? Man, you must know some seriously gifted children!

Kshartle wrote:QE facilitates this. It's called inflation of the money supply and debasement of the dollar. A child could understand this.

The money from QE never enters circulation. Deal with it.

Pointedstick wrote:

Kshartle wrote: QE facilitates this. It's called inflation of the money supply and debasement of the dollar. A child could understand this. Not understanding it is an emotional issue, not an intellectual one.

A child could understand QE? Man, you must know some seriously gifted children!

The concept of more slips of paper to buy the same amount of stuff resulting in the price of everything in slips of paper has to go up is not tricky.

By overcomplicating it and getting caught up in minutia a person fails to understand it.

Kshartle wrote:The concept of more slips of paper to buy the same amount of stuff resulting in the price of everything in slips of paper has to go up is not tricky.

And that might be true if the money from QE entered circulation. But, it doesn't. And since it also happens to be a swap, the effects are even more limited.

Gumby wrote:

Kshartle wrote:QE facilitates this. It's called inflation of the money supply and debasement of the dollar. A child could understand this.

The money from QE never enters circulation. Deal with it.

Minutia

The banks won't accept the prices from the treasury unless they know the FED has their back. Lower prices mean higher yields, means the government needs to cut spending or tax more to afford it's borrowing. This is so basic it's a joke we even waste time discussing it. The bigger question is why have I wasted so much time discussing it?

Oh hell, I give up.

Kshartle wrote:The banks won't accept the prices from the treasury unless they know the FED has their back.

Nope. The banks are desperate for Treasuries since there are too many reserves now. They overbid waaaay more than the amount taken back in QE.

Kshartle wrote:The bigger question is why have I wasted so much time discussing it?

I thought the bigger question is why do you never back up anything you say with any evidence? You're just talk.

Gumby wrote:

Kshartle wrote:The banks won't accept the prices from the treasury unless they know the FED has their back.

Nope. The banks are desperate for Treasuries since there are too many reserves now. They overbid waaaay more than the amount taken back in QE.

Yeah everyone is desperate to loan money to someone who keeps saying they might not pay you back if they can't borrow more.

Bean wrote: The fact the folks on this board miss the forest for the trees on this baffles me.  I think a line in the MR thread says it best: it works, until it doesn't.  Translation: fantasy land.

When you stand one inch from a tree you miss the forest around you.

Kshartle wrote:

Gumby wrote:

Kshartle wrote:The banks won't accept the prices from the treasury unless they know the FED has their back.

Nope. The banks are desperate for Treasuries since there are too many reserves now. They overbid waaaay more than the amount taken back in QE.

Yeah everyone is desperate to loan money to someone who keeps saying they might not pay you back if they can't borrow more.

All you have to do is look at the latest Treasury Auction results and compare the bids to the size of QE purchases for the month :

http://www.treasurydirect.gov/RI/OFGateway

http://www.newyorkfed.org/markets/tot_o ... edule.html

Waaay more demand for Treasuries than what will be purchased by the Fed.

Honestly KShartle, I would love to believe what you are saying, but you need to support your statements with evidence. Otherwise, you really are just wasting your time.

What you are experiencing is what killed off the Monetarists and Milton Friedman-esque thinking during the 1980s. After a few years, the Friedmanites had no more evidence to back up any of their theories. The world just kept proving them wrong day after day. And that's the conundrum you've found yourself in. Lots of theories, but no current real-world evidence to support those theories. Sorry man. Time to evolve your thinking a bit.

Yes, KShartle, where's your evidence that 2 + 2 = 4? All you do is keep blathering about the rules of arithmetic! 

Libertarian666 wrote: Yes, KShartle, where's your evidence that 2 + 2 = 4? All you do is keep blathering about the rules of arithmetic! 

If only something as messy as economics were as simple and abstract as arithmetic.

In fact, wasn't that one of the big lessons of Austrian economics? That mechanistic, mathematical theorems, postulations, and models fail to take into account the diversity and vibrance of human action?

Libertarian666 wrote: Yes, KShartle, where's your evidence that 2 + 2 = 4? All you do is keep blathering about the rules of arithmetic! 

Oh... so that's what he was taught as a finance major. Now it all makes sense.

Libertarian666 wrote: Yes, KShartle, where's your evidence that 2 + 2 = 4? All you do is keep blathering about the rules of arithmetic! 

Yes and the FACT that some people believe 2+2=5 is PROOF that it doesn't equal 4. I know. Using logic is part of my crime.

It would be nice to get past the basics ever.

For instance, I've been seeing a lot of people complaining on CNBC how the quasi-government "shutdown" is affecting their business. CNBC is trying of course to promote the idea that the government is crucial to the economy. They are in fact proving what I've been saying all along.

The government's borrowing and spending has encouraged economic activity (jobs and businesses) that can only be sustained with more borrowing and spending. It's a bubble economy only sustained through debt and money-printing. It can't go on forever. When it stops the recession will hit. The economy is not sef-sustaining in it's current configuration and cannot continue indefinately. They cannot borrow or print their way out of this despite what certain, ahem, economic schools of "thought" say.

Think about these government workers. They work for an institution that must borrow money to pay them or they get laid off. It doesn't pay them with profits. Imagine if Apple could only pay it's employees salaries by floating bonds. It's obvious that this entity is not adding value but destroying it. It sows the seeds of it own destruction.

Picture a cancer. As long as it stays small it can stay alive attached to it's host. When it gets too big the host gets weaker and it goes past the tipping point. It must feed so much on the host to just sustain itself that the host can never recover and eventually dies. Same thing with a parasite.

The government is a giant cancerous parasite on the economy and an economic, ahem, school of "thought" that ignores this basic reality will leave you scratching your head as to why cycles happen, bubbles get blown up, depressions occur, stimulus doesn't work, etc. etc.