Tapering called off

[MediumTex]

From my perspective, we're discussing what the system actually is, and how it functions.  And that knowledge is valuable and interesting to me, even if it isn't to you.

This fanatical belief in the face of reality is known as The Zeal Of The Convert

How is a description of the way a system actually works a fanatical belief (especially when one is skeptical of the wisdom in that particular system design)?

Are you suggesting that the system actually works in a different way?

[Gumby]

In general, most economists and policy makers evolved their understanding of money from a gold standard type world where bankers hoarded gold and then loaned credit as claims on that gold.  When we went off the gold standard economists and policy makers (and all their textbooks) just swapped gold for bank reserves, held at the Fed, and cash and acted like nothing changed.

When the gold standard died, gold bug economists turned into paper bugs. They just assumed that the paper dollars were the same as gold in their models. However, the more digital our money becomes, the less and less their models are holding up.

Now we live in a world where you can buy things with digital credit and the cash reserves held at the Fed simply just need to be enough to complete an interbank transfer at the end of the day. Beyond that, the extra cash has very little effect in a highly digital credit world where reserves aren't even needed for many everyday transactions.

[Mdraf]

From my perspective, we're discussing what the system actually is, and how it functions.  And that knowledge is valuable and interesting to me, even if it isn't to you.

This fanatical belief in the face of reality is known as The Zeal Of The Convert

How is a description of the way a system actually works a fanatical belief (especially when one is skeptical of the wisdom in that particular system design)?

Are you suggesting that the system actually works in a different way?

I am, and so does the CBO and everyone else who is not a devotee of Cullen Roche

[Gumby]

I am, and so does the CBO and everyone else who is not a devotee of Cullen Roche

And we are simply saying that they are wrong. Their models are all based on gold standard era logic. They didn't change their models after the gold standard died — which is crazy when you consider how different our money supply became after we went off the gold standard.

[MediumTex]

This fanatical belief in the face of reality is known as The Zeal Of The Convert

How is a description of the way a system actually works a fanatical belief (especially when one is skeptical of the wisdom in that particular system design)?

Are you suggesting that the system actually works in a different way?

I am, and so does the CBO and everyone else who is not a devotee of Cullen Roche

I'm sure this has been covered before, but which part of the description of the way the system currently works is not accurate?

Please walk me through which part of the mechanics of a bond auction and Fed asset swap that is not being accurately described here.  Don't talk about consequences of certain policies--just walk us through what part of the description of the way the system actually works is flawed.

I assume that you followed the 2011 budget debacle.  You saw what happened when people started to think that the U.S. government might actually "default" on its debt, right?  Do you not see how that validates much of what we are talking about here?

"Default" by a currency issuer (especially one with the world's largest military, largest economy, largest bond market, etc.) is like some kind of bizarre urban legend that for whatever reason people can't seem to stop retelling as truth.  It's like the story of the retarded kid who captured the hobbit and turned his closet into a hobbit den, and it turned out that the "hobbit" was a midget pizza delivery guy.

The government certainly may do a soft default in the form of inflation, but we are all in agreement that under the current system the government is always constrained by inflation, so we are all aware of that risk.

[MediumTex]

I am, and so does the CBO and everyone else who is not a devotee of Cullen Roche

And we are simply saying that they are wrong. Their models are all based on gold standard era logic. They didn't change their models after the gold standard died — which is crazy when you consider how different our money supply became after we went off the gold standard.

Maybe that's a good entry point for trying to find some common ground here.

Looking back to the early 1970s, what dramatic changes were made in the way that the government described and tracked its assets and liabilities?  I am not aware of any changes, which means that their methodology is almost by definition flawed, since it is based upon a set of obsolete gold standard era assumptions.

Maybe there is a more cynical explanation, though.  Consider this scenario: assume that all of the priests in the Catholic church suddenly became aware that God did not exist.  What do you think they would do?  Would they make the necessary adjustments in the Catholic church, or would they perhaps just continue rolling on under the current system, even though they knew for a fact that its most basic premise had been invalidated?

I think that perhaps in order for the confidence game of a pure fiat money regime to continue the government MUST cling to certain obsolete assumptions because people need to believe in such things for the confidence game to continue.  Thus, we wring our hands endlessly about "default", "unfunded liabilities", and "budget deficits" without realizing that we are doing the fiscal equivalent of worrying that a high scoring football game may need to be suspended due to a lack of points (to cite Gumby's metaphor).

[Mdraf]

I'm not interested in the mechanics. I am addressing the fact that you cannot differentiate between currency and debt

Rinse and Repeat

[MediumTex]

I'm not interested in the mechanics.

Okay, but the mechanics are all that I'm talking about.

The distinction between currency and debt is, I assume, only relevant when trying to figure out what the inflation risk is (why else would it matter in the first place?).  That's not a mechanical issue. 

[Mdraf]

I'm not interested in the mechanics.

Okay, but the mechanics are all that I'm talking about.

The distinction between currency and debt is, I assume, only relevant when trying to figure out what the inflation risk is (why else would it matter in the first place?).  That's not a mechanical issue.

I don't think so. The purported "sameness" of currency and debt lies at the heart of your MR theory. You are using accounting jargon but ignore the fact that not all assets are the same thing and not all liabilities are the same thing.

[Pointedstick]

I don't think so. The purported "sameness" of currency and debt lies at the heart of your MR theory. You are using accounting jargon but ignore the fact that not all assets are the same thing and not all liabilities are the same thing.

We're not saying they're the same thing. We're saying they have the same effect on your balance sheet. Whether the assets column of your balance sheet lists 100k of bonds or 100k of stock or 100k of cash or a 100k house, you still have a net worth of 100k if you have no liabilities.

[Gumby]

I'm not interested in the mechanics. I am addressing the fact that you cannot differentiate between currency and debt

You're a Monetarist that believes in Metalism.  The rest of us look at the credit-based monetary system that exists in the private sector and we believe in the Credit Theory of Money.

It would be easier to believe you if our currency was backed by metal, but it isn't! Our monetary system is overwhelmingly credit-based.

[Kshartle]

You're a Monetarist that believes in Metalism. 

You guys (including me) are all doo-doo heads. Now that that's settled, can anyone answer my questions? They are in bold.

If I print one trillion dollars do I have more purchasing power?It doesn't depend on what I do with it. The power to purchase exists for me where it didn't before. Irrelevant what I choose to do with it.

You (Gumby) stated quite correctly that purchasing power comes from well I'll quote you "purchasing power was created because you went to work, worked hard and provided goods and services."

If I printed money, and I have more PP, and I didn't do anything of the things YOU SAY are neccessary to create additional PP, then where did the PP come from?

[Mdraf]

The purported "sameness" of currency and debt lies at the heart of your MR theory. You are using accounting jargon but ignore the fact that not all assets are the same thing and not all liabilities are the same thing.

Could you expand on this?  Sure, it is probably in the thread you linked to, but I'd rather not guess.  Plus the conversation will flow better.

You have $100 in cash in your hand.
You also have $100 as an IOU from Pointedstick payable in July 2014 (using previous example)
This means you have assets of $200
Which $100 is more valuable to you right now ? The cash in your hand or the note?

Next:
A business has a building worth $100,000 (an asset on the balance sheet)
They have Accounts Receivable worth $100,000 (an asset on the balance sheet)
They have Good Will worth $100,000 (an asset on the balance sheet)

Would you pay $300,000 for this business?

[Gumby]

Which $100 is more valuable to you right now ? The cash in your hand or the note?

They are equally valuable right now so long as PointedStick's note is easily traded for cash. An IOU that is easily tradable for cash (i.e. highly liquid) is just as valuable as cash. It's kind of a dumb example since so much of our private credit is easily traded for goods/services in the blink of an eye.

A business has a building worth $100,000 (an asset on the balance sheet)
They have Accounts Receivable worth $100,000 (an asset on the balance sheet)
They have Good Will worth $100,000 (an asset on the balance sheet)

Would you pay $300,000 for this business?

Are their assets easily tradable for cash, or not?

[Mdraf]

Which $100 is more valuable to you right now ? The cash in your hand or the note?

They are equally valuable right now so long as PointedStick's note is easily traded for cash. An IOU that is easily tradable for cash (i.e. highly liquid) is just as valuable as cash. It's kind of a dumb example since so much of our private credit is easily traded for goods/services in the blink of an eye.

A business has a building worth $100,000 (an asset on the balance sheet)
They have Accounts Receivable worth $100,000 (an asset on the balance sheet)
They have Good Will worth $100,000 (an asset on the balance sheet)

Would you pay $300,000 for this business?

Are their assets easily tradable for cash, or not?

Your answer speaks for itself

[Kshartle]

If I print one trillion dollars do I have more purchasing power?

Are you the Fed?

EDIT: KShartle asked the same question here.  I propose that the question be addressed in that other thread.

Thanks I didn't want anyone ignoring that thread to miss the question. Appreciate it very much.

[Kshartle]

The purported "sameness" of currency and debt lies at the heart of your MR theory. You are using accounting jargon but ignore the fact that not all assets are the same thing and not all liabilities are the same thing.

Could you expand on this?  Sure, it is probably in the thread you linked to, but I'd rather not guess.  Plus the conversation will flow better.

You have $100 in cash in your hand.
You also have $100 as an IOU from Pointedstick payable in July 2014 (using previous example)
This means you have assets of $200
Which $100 is more valuable to you right now ? The cash in your hand or the note?

Next:
A business has a building worth $100,000 (an asset on the balance sheet)
They have Accounts Receivable worth $100,000 (an asset on the balance sheet)
They have Good Will worth $100,000 (an asset on the balance sheet)

Would you pay $300,000 for this business?

I would sell the good will for a stick of gum and put stick of gum on the balance sheet with a value of 100k per GAAP. If I could find a rueb willing to trade a stick of gum for it.

[Kshartle]

They are equally valuable right now so long as PointedStick's note is easily traded for cash. An IOU that is easily tradable for cash (i.e. highly liquid) is just as valuable as cash. It's kind of a dumb example since so much of our private credit is easily traded for goods/services in the blink of an eye.
Are their assets easily tradable for cash, or not?

Your answer speaks for itself

If your goal here is to convince someone that the MR view monetary system is incorrect, this riddle of a response is not very helpful.

In other words...

Dude! SPELL IT OUT!  You may think it is obvious, but I don't.  So explain it so it is obvious to me.

I tried to with my joke.

The 100k of goodwill on the books cannot be traded for cash. It is a journal entry. It is listed on the balance sheet as being worth 100k but in fact has no value.

[Mdraf]

They are equally valuable right now so long as PointedStick's note is easily traded for cash. An IOU that is easily tradable for cash (i.e. highly liquid) is just as valuable as cash. It's kind of a dumb example since so much of our private credit is easily traded for goods/services in the blink of an eye.
Are their assets easily tradable for cash, or not?

Your answer speaks for itself

If your goal here is to convince someone that the MR view monetary system is incorrect, this riddle of a response is not very helpful.

In other words...

Dude! SPELL IT OUT!  You may think it is obvious, but I don't.  So explain it so it is obvious to me.

I'm not willing to continue this nonsense of "if this, if that".  Nobody will address the question without an "if..."

[Mdraf]

Your answer speaks for itself

If your goal here is to convince someone that the MR view monetary system is incorrect, this riddle of a response is not very helpful.

In other words...

Dude! SPELL IT OUT!  You may think it is obvious, but I don't.  So explain it so it is obvious to me.

I tried to with my joke.

The 100k of goodwill on the books cannot be traded for cash. It is a journal entry. It is listed on the balance sheet as being worth 100k but in fact has no value.

Exactly. And the $100K in Accounts Receivable has no value without knowing who the debtor is and how good they are for payment. What if it's Solyndra?

This is why if your business has $100K in accounts receivable and you go to the bank and ask for it in cash they will double up laughing.

[Gumby]

Nobody will address the question without an "if..."

Sorry, but it's because you and KShartle are obsessed with these ridiculous fantasy examples of "PointedStick Notes" and islands with limited money on them. MR is a description of reality... not some made up fantasyland.

We can't very well answer questions when you have unrealistic limitations on the examples.

[Pointedstick]

The 100k of goodwill on the books cannot be traded for cash. It is a journal entry. It is listed on the balance sheet as being worth 100k but in fact has no value.

I'd love to get Craig's response to this, as an entrepreneur who has sold and perhaps bought companies himself. My impression is that "goodwill" or whatever the technical term for is may be absolutely has a value. I mean, Google bought YouTube for $1.65 billion before they had made a red cent.

[Gumby]

Exactly. And the $100K in Accounts Receivable has no value without knowing who the debtor is and how good they are for payment. What if it's Solyndra?

This is why if your business has $100K in accounts receivable and you go to the bank and ask for it in cash they will double up laughing.

And yet, if your business has $100K in Treasury Bonds, suddenly the story is very different.

[Kshartle]

The 100k of goodwill on the books cannot be traded for cash. It is a journal entry. It is listed on the balance sheet as being worth 100k but in fact has no value.

I'd love to get Craig's response to this, as an entrepreneur who has sold and perhaps bought companies himself. My impression is that "goodwill" or whatever the technical term for is may be absolutely has a value. I mean, Google bought YouTube for $1.65 billion before they had made a red cent.

His response might be entertaining, but it's certainly not needed to understand the concept. You cannot trade the "goodwill" on the balance sheet for anything. If I'm wrong someone teach me.

[Mdraf]

Exactly. And the $100K in Accounts Receivable has no value without knowing who the debtor is and how good they are for payment. What if it's Solyndra?

This is why if your business has $100K in accounts receivable and you go to the bank and ask for it in cash they will double up laughing.

And yet, if your business has $100K in Treasury Bonds, suddenly the story is very different.

How come my T-Bonds are more valuable today than they were yesterday ? If they are the same as cash they should always be worth the same.. Yet my balance sheet just miraculously increased!