Gyroscopic Investing

moda0306 wrote: I don't disagree that mr can sound like Keynesianism on steroids. 

However, Austiqnw have a ton to answer for from a fundamental standpoint... Not just operational

If you're not attached to a way of thinking based upon ideology, I think it is easier to see its weaknesses and possible incoherence in some situations.

I don't really give an oink about MMT/MR, but it does make sense to me as an explanatory tool, and its acknowledgement that inflation can derail the whole thing seems like a very reasonable explanation for why its not some kind of monetary perpetual motion machine.

When it comes to what beliefs I do have that are anchored to ideology, it is probably Austrian economics, because that is what makes sense to me from an intellectual perspective.  It's sort of like saying that I acknowledge that Britney Spears has sold a lot of albums and that there are a number of reasons and explanations for that, even though I prefer different music that hasn't sold as well Britney Spears has.

Bernanke weighed in today:

"Where does the Fed get the money to buy [assets],”? Congressman Keith Rothfus asked the Chairman.  “Do you create the reserves,”? he queried in a follow up, receiving a simple “yes”? from Bernanke.  And finally, the money shot: are you printing money? “Not literally,”? the Fed Chairman surprisingly responded."


http://www.forbes.com/sites/afontevecch ... literally/

It is all going to be OK.

Mdraf wrote: Bernanke weighed in today:

"Where does the Fed get the money to buy [assets],”? Congressman Keith Rothfus asked the Chairman.  “Do you create the reserves,”? he queried in a follow up, receiving a simple “yes”? from Bernanke.  And finally, the money shot: are you printing money? “Not literally,”? the Fed Chairman surprisingly responded."

http://www.forbes.com/sites/afontevecch ... literally/

It would have been funny if Bernanke had asked Congressman Rothfus where the federal government got the money to pay interest on treasuries.

MediumTex wrote:It would have been funny if Bernanke had asked Congressman Rothfus where the federal government got the money to pay interest on treasuries.

My favorite (fake) Bernanke testimony:

The Onion: U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion

It's sad when the best description of our monetary system comes from The Onion

But, my absolute favorite testimony was from Marriner Eccles, Governor of the Federal Reserve Board, in hearings before the House Committee on Banking and Currency in 1941. Wright Patman — U.S. Congressman from Texas — asked Eccles how the Federal Reserve got the money to buy government bonds.

Hearing Before The Committee On Banking And Currency House Of Representatives (1941) wrote:"Mr. PATMAN: How did you get the money to buy those $2,000- 000,000 of Government securities?

"Mr. ECCLES: We created it.

"Mr. PATMAN: Out of what?

"Mr. ECCLES: Out of the right to issue credit, money.

"Mr. PATMAN: And there is nothing behind it, is there, except the Government's credit?

"Mr. ECCLES: We have the Government bonds.

"Mr. PATMAN: That's right, the Government's credit.

"Mr. ECCLES: That is what your money system is."

...

"Mr. ECCLES: ...if there were no debt in our money system... There wouldn't be any money.

Source: http://fraser.stlouisfed.org/docs/histo ... rchgov.pdf (Pages 52, 63)

I'm picturing two Marshmallow Men sitting across the table from one another and one of them telling the other in a serious voice with a smug undertone:

"You know you're made out of marshmallows, right?"

Gumby wrote: But, my absolute favorite testimony was from Marriner Eccles, Governor of the Federal Reserve Board, in hearings before the House Committee on Banking and Currency in 1941. Wright Patman — U.S. Congressman from Texas — asked Eccles how the Federal Reserve got the money to buy government bonds.

Hearing Before The Committee On Banking And Currency House Of Representatives (1941) wrote:"Mr. PATMAN: How did you get the money to buy those $2,000- 000,000 of Government securities?

"Mr. ECCLES: We created it.

"Mr. PATMAN: Out of what?

"Mr. ECCLES: Out of the right to issue credit, money.

"Mr. PATMAN: And there is nothing behind it, is there, except the Government's credit?

"Mr. ECCLES: We have the Government bonds.

"Mr. PATMAN: That's right, the Government's credit.

"Mr. ECCLES: That is what your money system is."

...

"Mr. ECCLES: ...if there were no debt in our money system... There wouldn't be any money.

Source: http://fraser.stlouisfed.org/docs/histo ... rchgov.pdf (Pages 52, 63)

Selectively quoted.  Suggest you read the whole conversation you linked to, including:

"...Mr. PATMAN. Let me finish. But we have demonstrated we cannot sell enough
bonds to the public, we cannot levy enough taxes to balance our expenditures in
this war and the difference, my dear sir, has got to be created money on the
Government's credit"

Mdraf wrote: "...Mr. PATMAN. Let me finish. But we have demonstrated we cannot sell enough
bonds to the public, we cannot levy enough taxes to balance our expenditures in
this war and the difference, my dear sir, has got to be created money on the
Government's credit"

…and? 

Point being that Patman was advocating buying the government bonds with thin air due to exceptional circumstances and no other choice. Other parts of the conversation show he would not have done so under normal circumstances.

Mdraf wrote: Point being that Patman was advocating buying the government bonds with thin air due to exceptional circumstances and no other choice. Other parts of the conversation show he would not have done so under normal circumstances.

So what? That's his political choice.

All us MR folks care about is the mechanics, which Eccles confirms.

Mdraf wrote: Point being that Patman was advocating buying the government bonds with thin air due to exceptional circumstances and no other choice. Other parts of the conversation show he would not have done so under normal circumstances.

If we actually expected treasury bonds to be paid back plus interest with the existing money supply, we'd all lose our collective sh!t as it's impossible...

We're all admitting that the treasury isn't "playing the game" like private sector participants.  We're actually shouting that from the mountain tops.  Harry Browne realized it way before most people really internalized it.

Here's a point Austrians should maybe consider

There are things that the government does every single day without society even batting an eyelash that if people in the private sector did, we'd be absolutely flabbergasted (war, subpeana, arrest, car chase, garnishing funds, detainment, "printing money," financial privacy invasion.... I could go on and on).

We don't look at these things in any way the same light as if "some guy" were to do these things.

In fact, our entire view of society changes because of what government does.

Now you can point to a cop who's a dick, and on a moral level, you could very well use an argument based on his "false authority," and "if anyone else did this it would be a crime."  And you'd be right... but but what you can't argue, or at least not with a straight face, is that when the cops arrest 300 people in a town in a given year, that "there were 300 forced kidnappings and this society is breaking down, etc."

People, for better or worse, simply go on about living their lives when the government is the one doing some of these weird things.  For some reason, when the fed goes "poof" and turns our treasury bonds into money, we don't necessarily feel like we have a reason to go out and spend it before it turns into nothing... plus we feel kind of poor anyway and this didn't make us feel any richer in nominal terms, and we have to pay our taxes come April or I'll get arrested, so we really don't even have the tools to induce a hyperinflation even if we tried to.

Now if our teachers started to try to arrest us, and cops started teaching our daughters and sons sex ed, we'd lose our collective $hit.

If our USPS employees tried to audit us, and our IRS agents started handling our mail... we'd probably start revolting.

The government set the rules of the game in 1972, and we really don't care whether we hold a savings bond or a dollar, with the exception of that nice little sliver of interest on the bond.  If a counterfeiter in town tried to, though, we'd know that he's going to go out and use those bonds to exchange, however indirectly, for real goods and services, and THAT'S what causes inflation.  Not money or bonds just sitting on our balance sheets, but it actually moving around.  And when the fed holds something, the only reason it's going to move around is to buy a different kind of fiat asset... no real goods and services.

When the fed starts buying cars with QE, or starts using its T-Bills to trade for dollars to buy The Bernanke an island in the Bahamas, then we'll know the game has changed, yet again, we'll lose our $hit, and we could see some heavy inflation.

Until then, we know how the game works.  And under the rules of this game, nobody's going to feel any richer with a dollar in their hand than if they had a savings bond their grandma gave them of the same nominal value.  Hard to induce a hyperinflation if you just feel a different kind of poor and debt-ridden .

moda0306 wrote: If we actually expected treasury bonds to be paid back plus interest with the existing money supply, we'd all lose our collective sh!t as it's impossible...

Not only that, but the Treasury Bonds themselves are our collective national savings. The government's liability is the private sector's asset.

Or, explained another way...

Cullen Roche wrote:The USA is an autonomous issuer of the US dollar.  The country has endless supply of this currency meaning that no one else can produce it.  Most importantly, the debt that is issued due to Congressional mandate, is denominated entirely in this currency.  So, when you hear someone say that we might not be able to “pay back”? our debts the proper response is “you, sir are full of it”?.  There is no such thing as not being able to cover the liabilities which are entirely denominated in a currency that we can create out of thin air.

Now, where this all gets more nuanced is with respect to the actual holdings themselves.  People think that the debt is an inherent negative because they assume that it needs to be paid back at some point and that it generates some sort of solvency issue for the US Federal government.  But that’s just a misconception.  Warren Mosler sent me an email last night highlighting this point:

Warren Mosler wrote:Ever hear anyone say ‘I wish they’d pay off those Tsy bonds so I could get my money back and go buy something.’?  Of course not. Tsy borrowing gives people who have already decided to save, a place to go. Dollars that came from deficit spending – dollars spent but not taxed. If they were spent and taxed, they’d be gone, not saved.

Tsy bonds provide a resting place for voluntary savings. They are bought voluntarily. They don’t ‘take’ anything away from anyone.

For example, imagine two people, each with $1 million. One pays a $1 million tax. The other doesn’t get taxed and decides to buy $1 million in tsy bonds. Pretty obvious who’s better off, and who’s still solvent and consuming. Someone tell the Democrats and the Republicans, thanks.”?

Great explanation.  Now, we can alter the image from the scary article above to visualize this point.  US citizens own roughly TEN TRILLION DOLLARS worth of US government bonds.  These are securities that the US government has issued due to Congressional mandate which US citizens park their savings in.  I think of them as a form of persistent stimulus as they add to the net financial assets of the private sector via interest payments (by adding to the budget deficit).  These savings include pension funds, the Social Security Trust fund, the US Civil Service Retirement Fund, the US Military Retirement Fund, 401K’s and a whole slew of other forms of private sector savings.  The remaining 30% is foreign owned and due to the fact that the USA runs a current account deficit with foreigners whereby we send them pieces of paper with old dead white men on them, they send us real goods and services and they park this “cash”? in the form of US government bonds because there’s not much else they can do with dollars (good luck buying Chevron next time China!).

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Source: http://pragcap.com/whoa-thats-a-lot-of- ... -mean-debt

...And the biggest myth perpetuated by politicians and pundits is convincing people that our grandchildren will inherit the "burden" of our national debt. Nothing could be further from the truth.

Consider the following...

Francis X. Cavanaugh wrote:But look now at the words of a leading spokesman of the party of Lincoln, New Gingrich: "For the children trapped in poverty, for the children whose futures are trapped by a government debt they're going to have to pay, we have an obligation tonight to talk about the legacy we're leaving our children and grandchildren." At least as far as the national debt is concerned, Mr. Ginrich's Contract with America appears to be nothing more than new voices spouting old myths.

By the reckoning of Washington, Jefferson, Eisenhower, Regan, Clinton — and perhaps all presidents except Lincoln — and many other notables such as Ross Perot, Peter Peterson, and Newt Gingrich, we apparently have never paid for World War II.

The Federal debt at the of the war was approximately $270 billion, which was about equal to total defense spending in the four fiscal years 1942-1945. World War II was financed largely by debt (deficit spending) rather than by taxes. The debt was commonly viewed by politicians as a staggering legacy of the war. So it should not be be surprising that after the war there was intense political debate about the future burden of the war debt, even though economists generally recognized that the cost of the war could not be shifted to the future.

The economic burden of World War II, in terms of debt or otherwise, was borne by the Americans who made the sacrifices at the time: no new cars from 1942 through 1945, a ration of a few gallons of gas a week for pleasure driving, and scarcities of housing and consumer goods across the board. Americans could not consume the tanks and guns they produced in the war effort. Instead, they increased their savings, which became a source of funds for the government's war debt. In addition to the stepped-up sales of Treasury marketable securities, the government conducted massive campaigns of patriotic appeals to small savers to help finance the war effort by buying U.S. savings bonds (then caled war bonds and defense bonds). The war was thus paid for at the time, and future generations benefited, not burdened, by the national security they achieved.

The greatest cost of World War II, of course, was borne by those who paid the ultimate price . . . and by the loved ones left behind.

[...]

We never paid off the war debt — $270 billion plus interest — and today's federal debt is roughly equal to it. At an annual interest rate of 6 percent (the Treasury's approximate average annual borrowing cost since 1946), $270 billion would grow in fifty years to be approximately $5 trillion, which happens to be only slightly less than the $5.2 trillion estimated federal debt at the end of fiscal year 1996. Thus, had we paid off the debt from World War II (including interest) we might have little or no federal debt today (albeit based on the very questionable assumption of "all other things being equal").

What does that mean? That the cost, or debt burden, of World War II has been shifted to this generation? Or that, if we go another fifty years without paying off the debt (with accrued interest continuing at 6 percent), we will shift the World War II debt burden — then $96 trillion — to our grandchildren in the year 2046, one hundred years after the end of the war? No. Whatever the size of the federal debt in 2046, the people alive at that time will not owe it to us or to the World War II generation. They will owe it to one another. They will inherit both the Treasury security assets and the public debt payment liabilities.

Had we borrowed from other countries to help finance World War II (which we did not), and had that borrowing resulted in a net foreign investment in the United States at the end of the war, then there would have been a shifting of costs to post-World War II Americans. Yet that would have been an international shift, not an intergenerational shift.

Source: The Truth About the National Debt: Five Myths and One Reality (1996)

The only thing our grandchildren will inherit is the ridiculous myth that their own grandchildren will be responsible for paying down the national debt.

Re: " The government's liability is the private sector's asset."

LOL. You guys. Your logic reminds me of Zeno's Half Distance paradox.

Then why stop at a mere $16 Trillion. Let's go to $160 Trillion then we'll  all be rich!

Mdraf wrote: Re: " The government's liability is the private sector's asset."

LOL. You guys. Your logic reminds me of Zeno's Half Distance paradox.

Then why stop at a mere $16 Trillion. Let's go to $160 Trillion then we'll  all be rich!

Well, that would trigger massive inflation — if it were done too quickly. Nobody is advocating that.

One day the deficit may very well be that large, and that number will simply represent the private sector's savings — not some kind of economic burden.

Btw, Francis X. Cavanaugh — who wrote that piece about WWII, above — worked for the U.S. Department of the Treasury for more than 30 years. He knows a little bit about the mechanics of the national debt.

If you don't like a large deficit that's your political prerogative. I'm just focussing on the mechanics.

The idea that debt will ever truly be paid off in our monetary system is asinine.  A certain amount of debt for a country (both private and public) is healthy.

How else do you match up the skill/ingenuity of young, productive people with the wealth they don't have, and give people with wealth a much higher degree of income than they could earn by simply spending down their wealth, rather than lending it to someone at interest or for a share of profits in a company.

moda0306 wrote: The idea that debt will ever truly be paid off in our monetary system is asinine.

Not to mention the debt is our collective asset...

Cullen Roche wrote:The obvious thing about the national debt is that it’s the non-government’s saving.  So grandma’s saving bonds in the form of US Treasuries are the Federal Government’s liabilities.  That’s just the simple reality of how this arrangement works.  The government issues debt and the non-government holds it.  You can’t “pay off”? the national debt without taking away grandma’s saving bonds.  But the weird part is that these same pundits always seem to complain about the way the Fed’s policies are hurting savers like grandma.  But low rates reduce Federal interest outlays directly reducing the size of the Federal deficit so you would think that this is something that conservative pundits would love.  But they don’t.  They want grandma to earn more on her saving (thereby increasing government spending through interest outlays), but they also want to “pay back”? the national debt thereby taking grandma’s saving away.

What gives?

Source: http://pragcap.com/my-favorite-monetary-contradiction

Mdraf wrote: Re: " The government's liability is the private sector's asset."

LOL. You guys. Your logic reminds me of Zeno's Half Distance paradox.

Then why stop at a mere $16 Trillion. Let's go to $160 Trillion then we'll  all be rich!

What we're saying is not that adding financial assets necessarily adds wealth to the private sector (though it does in nominal terms at least, but it certainly doesn't necessarily destroy wealth (there is just as much "stuff" the economy can produce... and it might be that much more likely to produce it when inflation is a fear, in fact).

What we're saying is that there needs to be a balance of net financial assets in the private sector with its productive capacity.  This gets even more complex when you're the world's reserve currency, so you end up bleeding savings to foreigners every year, so the number's going to naturally rise faster than the rate of the economy, perhaps, without inducing inflation.

I think you'll find that if you look into the causes of hyperinflation in other countries, it has much more to do with gross corruption (stuff well-beyond what we experience), foreign debts and losses of a war than just "printing money" or "monetizing debt."

moda0306 wrote:

Mdraf wrote: Point being that Patman was advocating buying the government bonds with thin air due to exceptional circumstances and no other choice. Other parts of the conversation show he would not have done so under normal circumstances.

Here's a point Austrians should maybe consider

There are things that the government does every single day without society even batting an eyelash that if people in the private sector did, we'd be absolutely flabbergasted (war, subpoena, arrest, car chase, garnishing funds, detainment, "printing money," financial privacy invasion.... I could go on and on).

We don't look at these things in any way the same light as if "some guy" were to do these things.

In fact, our entire view of society changes because of what government does.

Now you can point to a cop who's a dick, and on a moral level, you could very well use an argument based on his "false authority," and "if anyone else did this it would be a crime."  And you'd be right... but but what you can't argue, or at least not with a straight face, is that when the cops arrest 300 people in a town in a given year, that "there were 300 forced kidnappings and this society is breaking down, etc."

I don't know which Austrians you're talking about, but this one here looks at it exactly that way (other than the crossed-out part, which is a subjective evaluation that is hard to quantify).

Well if most of society doesn't see them as forced kidnappings, you're not going to have mass exodus from the society or fear to be in it.

That would be the equivalent of a hyperinflation.

moda0306 wrote: Well if most of society doesn't see them as forced kidnappings, you're not going to have mass exodus from the society or fear to be in it.

That would be the equivalent of a hyperinflation.

It only works because most people see the arrestees as deserving of being hurt. If the government does it to too many people who are breaking silly laws but not really hurting anyone, then the trust in the system breaks down, which is exactly what's happening right now. People are coming to view the police as thugs with badges.

In the end, this is terrible news for people who believe in government. The government can only get away with otherwise criminal behavior by convincing everyone that it's not really a criminal. Once its behavior starts to look like ordinary criminal behavior, well, that's a big problem. It's the stuff that social strife, revolutions, and civil wars are made of.

moda0306 wrote: I think you'll find that if you look into the causes of hyperinflation in other countries, it has much more to do with gross corruption (stuff well-beyond what we experience), foreign debts and losses of a war than just "printing money" or "monetizing debt."

...plus the lack of an underlying productive economy aggravated by capital flight triggered by massive corruption (see Zimbabwe).

I don't think that anyone would say that the U.S. is not a productive economy (in fact, by many measures it is the most productive economy in the history of the world), and the protection of property rights in the U.S. is among the finest in the world, notwithstanding many disturbing, but ultimately anecdotal, stories suggesting otherwise.

MediumTex wrote:

moda0306 wrote: I think you'll find that if you look into the causes of hyperinflation in other countries, it has much more to do with gross corruption (stuff well-beyond what we experience), foreign debts and losses of a war than just "printing money" or "monetizing debt."

...plus the lack of an underlying productive economy aggravated by capital flight triggered by massive corruption (see Zimbabwe).

I don't think that anyone would say that the U.S. is not a productive economy (in fact, by many measures it is the most productive economy in the history of the world), and the protection of property rights in the U.S. is among the finest in the world, notwithstanding many disturbing, but ultimately anecdotal, stories suggesting otherwise.

Exactly.

moda0306 wrote: Well if most of society doesn't see them as forced kidnappings, you're not going to have mass exodus from the society or fear to be in it.

That would be the equivalent of a hyperinflation.

I agree that there won't be a mass exodus as long as most people remain brainwashed.
But I don't understand the last part of your first sentence. Who won't fear to be in it?