Gyroscopic Investing

Kshartle wrote:

moda0306 wrote: If you really promise to do asset swaps, and go out and buy a bunch of bonds from people, your only material affect on the economy will be on the bond market, lowering the yield, which MIGHT have a SMALL effect on people's propensity to save or consume.  But sorry... Bobby Bondholder isn't going to go out and spend $1 Million all of a sudden because you took his bonds of his hands and gave him money.

Then why did he sell me the bonds for cash? If he just wanted cash why didn't he sell them before I printed? The simple fact is more cash exists to bid up prices than before I printed it. It makes no difference what I choose to buy. The same amount of bonds exist alongside more cash. Do you think Bobby Bondholder is just going to bury his cash in the backyard and never spend it? What do you think he's going to do with it?!?!? Burn it?!?!?!

I thought the point of the printing and the bond-buying was too stimulate demand for goods and services by debasing the currency and driving down yields to discourage savings?

You don't think driving up bond prices and drving down currency value causes some people to sell their bonds and "stimulate" demand? I thought that was the entire justification for the QE. Why else are they doing it?

Ahhhh but we've done this dance before.

If you take it to the extreme conclusion you can understand it better. Imagine I print enough money in my basement to buy up every outstanding dollar denominated debt in the entire world. Every single person who had a bond now has cash instead and I own every dollar denominated liability. What do you think would happen? The effect is identical even I just buy a tiny bit it's just much much smaller.

Bobby sold you the bonds because you were willing to pay him a tad over FMV to get them from him, and he knew he could go back and buy more bonds.  You were helping him increase his financial position.

Bobby will eventually spend the cash after retiring his bond positions over time, as he decides to retire and spend down his bonds.  This happens over a LONG period of time.

It is true that you have the ability to bid up prices with more cash, but if you choose to bid up the PRICE of a bond, we still haven't figured out what this means for goods and services... which is what people are trying to measure when they calculate inflation.  If goods and services are not rising in cost, we probably wouldn't even measure inflation.  Most people don't give two shits about what the bond market is doing until they either A) go to buy a home, or 2) retire.  Since PEOPLE are what make up an economy, this is why we focus on goods and services rather than financial tools when looking at the price level.

Absolutely, driving up bond vales and yields down will have an effect on people's marginal propensity to spend or save.  But it's nowhere near the top priority.  Having the bond market yield a .5% less than it did yesterday does NOT fundamentally change much for most consumers.  They're not going to all of a sudden buy a home they otherwise wouldn't have, or spend significantly more than they otherwise wouldn't have in retirement.

Further, let's not forget, like the Fed, you're not going to SPEND those bonds back into the economy (you promised!! And breaking a promise is a clear NAP violation )).  So for all intents and purposes, those bonds that you hold don't exist.  They haven't given you spending power, so it's not really "the same amount of bonds alongside more cash."  Your bonds, functionally, don't exist.  They are like a tank of gas in a car that will never be found by anyone.  They will EVENTUALLY be paid off with cash from elsewhere in the economy, but as long as your promise still holds not to SPEND the money, but instead only swap it for bonds, that cash now functionally doesn't exist.

And this doesn't even deal with us in the real world that know that the fed has set unemployment/inflation targets that it is MANDATED to abide by, and that base money earns IoR, making it remarkably similar to a short-term bond anyway.

All this is why we don't see inflation even with huge "stimulus" from the fed, nor do we see high interest rates even with huge "stimulus" from the treasury via deficit spending.  Like tech said, you can't just ignore the laws of economics simply because money printing is involved.  I'm sure he didn't mean it the way I mean it, but he would if he was doing his economic analysis correctly. 

Sorry for the hijack.  Let's do this somewhere else.  Perhaps after we've proven morality.

moda0306 wrote: Bobby sold you the bonds because you were willing to pay him a tad over FMV to get them from him, and he knew he could go back and buy more bonds.  You were helping him increase his financial position.

No he can't. The price is now higher than he's willing to pay, that's why he sold them to me. The price reached the point where he wanted the cash more so he could buy something else or just have the cash. Even if he buys some different bonds now that person has more cash than before. They can buy bonds from someone else but this is just passing the extra cash around until it gets spent on something other than more bonds. This is also why Browne said it takes ab out 2 years for the Central Bank bond-buying schemes to work their way through the entire economy to bid up the general price level.

Anyway let's leave this thread to William Wallace. We've dissagreed on these economic ideas enough.

TennPaGa wrote:

stone wrote: The thing that spooks me about it is that the independence campaign don't seem to have bothered to think about what it means to have a sovereign currency or to lack one. They say that voting for independence will mean that Scotland can choose to reject austerity politics. That would be true IF they had a sovereign currency but they seem hell bent on avoiding having a sovereign currency.
I've had a go posting about this:
http://directeconomicdemocracy.wordpres ... -scotland/

Hey stone!

I agree with this... that is, whether or not they have their own currency will be a huge deal.  And I would think they'd want their own.

I would bet that 90% of their theoretical international trade would be conducted with the UK. A different currency is going to introduce a lot of complication and additional transactions. That means costs go up for the money changers at the expense of everyone else. Why would they want their own currency rather than just stick with the pound and avoid all that unnecesary complication?

It seems highly inconvenient for everyone conducting trade and travel from scotland and the rest of the UK to pay a fee everytime they switch currency.

Kshartle wrote:

TennPaGa wrote:

stone wrote: The thing that spooks me about it is that the independence campaign don't seem to have bothered to think about what it means to have a sovereign currency or to lack one. They say that voting for independence will mean that Scotland can choose to reject austerity politics. That would be true IF they had a sovereign currency but they seem hell bent on avoiding having a sovereign currency.
I've had a go posting about this:
http://directeconomicdemocracy.wordpres ... -scotland/

Hey stone!

I agree with this... that is, whether or not they have their own currency will be a huge deal.  And I would think they'd want their own.

I would bet that 90% of their theoretical international trade would be conducted with the UK. A different currency is going to introduce a lot of complication and additional transactions. That means costs go up for the money changers at the expense of everyone else. Why would they want their own currency rather than just stick with the pound and avoid all that unnecesary complication?

It seems highly inconvenient for everyone conducting trade and travel from scotland and the rest of the UK to pay a fee everytime they switch currency.

Sovereign fiat currencies allow more opportunities for counter-cyclical monetary policy.

Not that you would like that, but some people do .

moda0306 wrote:

Kshartle wrote:

TennPaGa wrote: Hey stone!

I agree with this... that is, whether or not they have their own currency will be a huge deal.  And I would think they'd want their own.

I would bet that 90% of their theoretical international trade would be conducted with the UK. A different currency is going to introduce a lot of complication and additional transactions. That means costs go up for the money changers at the expense of everyone else. Why would they want their own currency rather than just stick with the pound and avoid all that unnecesary complication?

It seems highly inconvenient for everyone conducting trade and travel from scotland and the rest of the UK to pay a fee everytime they switch currency.

Sovereign fiat currencies allow more opportunities for counter-cyclical monetary policy.

Not that you would like that, but some people do .

I wish I had my own soverign currency I could enforce on people for some counter-cyclical monetary policy!

So what TennPaGa is saying is he thinks the Scots should go with their own currency so if the economy turns south William Wallace can print and spend to "stimulate"?

  "Sir William, we are bankrupt and the economy is slowing down."

"I know the cure Robert the Bruce. Print a bunch of Scottish pounds and buy up all the Whiskey and haggis in the land. We'll have a drunken feast here in Dunedin and the people will get busy again making more Scotch and whatever the heck haggis is".

"Aaaaachhhhhh yer Brilliant sir William!"

You don't know what you are missing by not having the haggis experience.  It actually does not taste too bad if you do not think about what you are eating.

... Mountaineer

Kshartle wrote:

TennPaGa wrote:

stone wrote: The thing that spooks me about it is that the independence campaign don't seem to have bothered to think about what it means to have a sovereign currency or to lack one. They say that voting for independence will mean that Scotland can choose to reject austerity politics. That would be true IF they had a sovereign currency but they seem hell bent on avoiding having a sovereign currency.
I've had a go posting about this:
http://directeconomicdemocracy.wordpres ... -scotland/

Hey stone!

I agree with this... that is, whether or not they have their own currency will be a huge deal.  And I would think they'd want their own.

I would bet that 90% of their theoretical international trade would be conducted with the UK. A different currency is going to introduce a lot of complication and additional transactions. That means costs go up for the money changers at the expense of everyone else. Why would they want their own currency rather than just stick with the pound and avoid all that unnecesary complication?

It seems highly inconvenient for everyone conducting trade and travel from scotland and the rest of the UK to pay a fee everytime they switch currency.

Kshartle, your argument is exactly the one made by the Scottish independence  campaign who want to keep the pound. But it ignores the reality of the situation. From what I can see, if any single factor distinguishes which countries prosper and which are total screw ups it is whether or not a country has its own currency with its national debt denominated in it. New Zealand, Singapore and Norway are examples of countries about the same size of Scotland that prosper with their own sovereign currencies. They don't seem to be held back by the supposed problems of having their own currency. Contrast that with Greece's experience of a currency union, or Ecuador's experience of dollarisation.

Lots of business in the UK anyway is conducted in foreign currency. My other half is self employed and she gets paid as often in euros or USD as in pounds. Her previous employer was a British company that was taken over by a German company and the take over was paid for in USD. People here are used to paying in euros or USD when internet shopping for anything obscure. Let's face it, four trillion dollars a day is exchanged in FOREX speculation much of it in London. Real economy currency exchange is totally dwarfed by that.

Basically in my view Scotland would not really be independent without its own currency. With its own currency it would be down to Scotland whether its economy was fashioned in a way that led to prosperity. If they used the pound (or the euro) they would always have an external financial authority to blame.

For those who may have been living in a cave, the Scots said "NO" to secession yesterday by a 10 pt. super-majority. On a side note, I am not sure if I have ever seen as many kilts as I have in the last three days of endless news coverage. If nothing else the referendum may have sparked a retro fashion trend.

In response to the near secession of Scotland from the United Kingdom, the British government is promising to decentralize, giving more power to regional and local governments.  (Not just Scotland but Wales and Northern Ireland already have their own parliaments.  England hasn’t, being content to rule all of the others, but now England itself may become more like a state in the larger United Kingdom.)

The desire for weaker central governments seems to be a world-wide phenomenon and is exactly what American conservatives have been calling for.  But the British have always put on the best Tea Parties.

By Gene Veith

... Mountaineer