Gyroscopic Investing

Kshartle wrote:The 222 trillion is not a problem. It can just be printed. This will also stimulate demand and fix the economy so it's like two birds with one stone!

I am kidding btw.........

And, in exchange for that printing, people will (hopefully) create 222 trillion worth of goods and services over the next few decades. I'm sure it's all evil and terrible, and everyone has a gun to their head, but whatever.

Gumby wrote:

Kshartle wrote:The 222 trillion is not a problem. It can just be printed. This will also stimulate demand and fix the economy so it's like two birds with one stone!

I am kidding btw.........

And, in exchange for that printing, people will (hopefully) create 222 trillion worth of goods and services over the next few decades.

Yeah....a stick of gum! ahahahahah

Gumby wrote: And, in exchange for that printing, people will (hopefully) create 222 trillion worth of goods and services over the next few decades. I'm sure it's all evil and terrible, and everyone has a gun to their head, but whatever.

Gumby, I have the highest respect for you (I assume you are the poster of the same name who has enriched the Boglehead list for so many years.) I don't claim to hold vast knowledge on financial matters, but it seems to me basic common sense that there are limits to the vast debt we can encumber ourselves with before the wheels start flying off the turnip truck.

As for the phantasmagorical 222 trillion dollar increase in goods and services that will allegedly cure us of our irresponsibility in the misty and far distant future, what miracle-workers appeared on the scene to "solve" the colossal debt problems of Weimar Germany, Mugabe's Zimbabwe and today's Venezuela? Gumby, in the name of all we hold holy, please re-think your position. Yes, when we finally try to solve the debt problem we may fail, but the longer we wait to take action, the more likely we are guaranteed to fail, with horrendous consequences for generations to come.

goodasgold wrote: when we finally try to solve the debt problem we may fail, but the longer we wait to take action, the more likely we are guaranteed to fail, with horrendous consequences for generations to come.

What do you think can be done to solve the problem?

Kshartle wrote:

goodasgold wrote: when we finally try to solve the debt problem we may fail, but the longer we wait to take action, the more likely we are guaranteed to fail, with horrendous consequences for generations to come.

What do you think can be done to solve the problem?

I don't have any easy solutions (those are for the financial gurus to devise), but there is wisdom in the old saying: "When you realize you are digging yourself into a hole, stop digging."

goodasgold wrote:

Kshartle wrote:

goodasgold wrote: when we finally try to solve the debt problem we may fail, but the longer we wait to take action, the more likely we are guaranteed to fail, with horrendous consequences for generations to come.

What do you think can be done to solve the problem?

I don't have any easy solutions (those are for the financial gurus to devise), but there is wisdom in the old saying: "When you realize you are digging yourself into a hole, stop digging."

Well, if you guys win the national debate on this issue then I'll be ever so thankful for the bonds and cash I hold cause we are going to spiral into one nasty deflationary depression

doodle wrote:

goodasgold wrote:

Kshartle wrote: What do you think can be done to solve the problem?

I don't have any easy solutions (those are for the financial gurus to devise), but there is wisdom in the old saying: "When you realize you are digging yourself into a hole, stop digging."

Well, if you guys win the national debate on this issue then I'll be ever so thankful for the bonds and cash I hold cause we are going to spiral into one nasty deflationary depression

Doodle the point is the only way to rescue one is to destroy the other. I personally would rather save the cash since it's our medium of exchange.

The depression is coming one way or another...wait didn't Lord Krugman already say we're in it? To quote Denzel from Training Day "How you want it dog, closed casket (hyperinflation)?"

Ok he didn't actually say hyperinflation. The point is we're gonnna get one or the other eventually. The sooner we get it the better. I own stocks and gold but I have my fingers crossed for deflation. At least then prices will fall.

The point really is that the people who are working need to be productive enough to support those who aren't working, in whatever form that takes. 

All these dollar figures are ancillary to that.

Xan wrote: The point really is that the people who are working need to be productive enough to support those who aren't working, in whatever form that takes. 

All these dollar figures are ancillary to that.

Bingo.

People are counting on social security and government pensions that have nothing but IOUs in them. 'merica is consuming hundreds of billions of dollars worth of stuff each year beyond what it produces. This is set to get worse and worse as the boomers leave the workforce to be replaced with our current crop of high school and college grads. The college grads in particular have less incentive to work since they have to start paying off student loans and cough up lots of money for health insurance and taxes.

This is the real problem. There is a lot of suffereing coming as a consequence of the violence and the lies and the theft that's been going on for decades. There is no way out that doesn't involve a lot of pain. People who think printing slips of paper or minting trillion dollar coins can magically solve this......are delusional. I understand the delusion though because recognizing the cause means admitting what you've been taught your entire life is a lie. The entire American "quasi-morality" that the ends justify the means and the individual is the slave to the collective is getting exposed for the lie that it is.

Xan wrote: The point really is that the people who are working need to be productive enough to support those who aren't working, in whatever form that takes. 

All these dollar figures are ancillary to that.

Mark the calendar, Xan, Kshartle, and moda all agree.

Except you have to be nervous as hell about our ability to grow our productive capacity to be nervous about entitlements to the retired.

We might have some constraints, but in the end those will adjust in plodding ways, not a giant powderkeg of unemployment-hyperinflation-Galtopia-secondcomingofChrist or whatever Austrians are trying to convince us is the combo platter of disastrous events that's SURE to strike us someday if we don't stop helping poor/old people.

goodasgold wrote:

Gumby wrote: And, in exchange for that printing, people will (hopefully) create 222 trillion worth of goods and services over the next few decades. I'm sure it's all evil and terrible, and everyone has a gun to their head, but whatever.

Gumby, I have the highest respect for you (I assume you are the poster of the same name who has enriched the Boglehead list for so many years.) I don't claim to hold vast knowledge on financial matters, but it seems to me basic common sense that there are limits to the vast debt we can encumber ourselves with before the wheels start flying off the turnip truck.

As for the phantasmagorical 222 trillion dollar increase in goods and services that will allegedly cure us of our irresponsibility in the misty and far distant future, what miracle-workers appeared on the scene to "solve" the colossal debt problems of Weimar Germany, Mugabe's Zimbabwe and today's Venezuela? Gumby, in the name of all we hold holy, please re-think your position. Yes, when we finally try to solve the debt problem we may fail, but the longer we wait to take action, the more likely we are guaranteed to fail, with horrendous consequences for generations to come.

My apologies, goodasgold. I do appreciate the kind words. But, you see, I used to be a hardcore deficit hawk. And now I no longer believe that the US has a debt servicing problem. This is not to say that the debt doesn't matter. It does. If the US issues more debt than the productive capacity of our private sector can handle, that would be inflationary.

But, let's be clear, the debt is not something we need to "pay off" entirely, or eradicate, because our debt-based money supply comes from either private credit or the National Debt (that's where our money comes from). If we paid off the National Debt, there wouldn't be any US bank reserves and there wouldn't be any Treasury bonds (which represent a good chunk of our private sector savings). So, it's about having a balance.

Edit: James Galbraith explains why the US can't have a debt servicing problem...

http://youtu.be/qD3XMyNmfeY

Note: I disagree with Galbraith's summary that debt "doesn't matter". It does matter if we want to avoid high inflation (which he would agree with, since he knows better).

But, the general point is that the US can service $222 Trillion in debt over many decades and keep inflation low if people are productive enough.

goodasgold wrote:

Gumby wrote: And, in exchange for that printing, people will (hopefully) create 222 trillion worth of goods and services over the next few decades. I'm sure it's all evil and terrible, and everyone has a gun to their head, but whatever.

Gumby, I have the highest respect for you (I assume you are the poster of the same name who has enriched the Boglehead list for so many years.) I don't claim to hold vast knowledge on financial matters, but it seems to me basic common sense that there are limits to the vast debt we can encumber ourselves with before the wheels start flying off the turnip truck.

As for the phantasmagorical 222 trillion dollar increase in goods and services that will allegedly cure us of our irresponsibility in the misty and far distant future, what miracle-workers appeared on the scene to "solve" the colossal debt problems of Weimar Germany, Mugabe's Zimbabwe and today's Venezuela? Gumby, in the name of all we hold holy, please re-think your position. Yes, when we finally try to solve the debt problem we may fail, but the longer we wait to take action, the more likely we are guaranteed to fail, with horrendous consequences for generations to come.

There are limits to the debt... we're far from them... and remember, debt isn't just a liability in a vacuum.  It's not like we all have to do a bunch of push up someday and we're all putting them off, and it'll suck for everyone to do them.  One person's liability is another person's asset.  As long as the economy grows, debt can grow.

Zimbabwe and Weimar were unique NON-monetary disasters that resulted in eventual hyperinflation.  If you think about it, any fiat currency, even if linked to something, is going collapse if its government collapses.  Insert any conditions that would collapse a government, and a currency will collapse simultaneously.

moda0306 wrote:

Xan wrote: The point really is that the people who are working need to be productive enough to support those who aren't working, in whatever form that takes. 

All these dollar figures are ancillary to that.

Mark the calendar, Xan, Kshartle, and moda all agree.

Marked it. I'll scan a copy of it and send via snapchat so it's saved forever 

moda0306 wrote: whatever Austrians are trying to convince us is the combo platter of disastrous events that's SURE to strike us someday if we don't stop helping poor/old people.

Hahahaha...I have to hand it to you....you definitely know how to frame someone's argument in a way that completely flips it upside down.

It's the statists who don't care about old people. They stole from them all their lives and worked hard to keep them from earning a lot. They advocate zero percent interest so they can't make anything safely of their investments. Now they want to pretend they care and they will express that care by robbing other people.

You think the people entering retirement now with meager savings are gonna be all taken care of due to social security? Do you think making people wards of the state is helping them? Do you think the state is going to be able to keep it's promises?

moda0306 wrote:

goodasgold wrote:

Gumby wrote: And, in exchange for that printing, people will (hopefully) create 222 trillion worth of goods and services over the next few decades. I'm sure it's all evil and terrible, and everyone has a gun to their head, but whatever.

Gumby, I have the highest respect for you (I assume you are the poster of the same name who has enriched the Boglehead list for so many years.) I don't claim to hold vast knowledge on financial matters, but it seems to me basic common sense that there are limits to the vast debt we can encumber ourselves with before the wheels start flying off the turnip truck.

As for the phantasmagorical 222 trillion dollar increase in goods and services that will allegedly cure us of our irresponsibility in the misty and far distant future, what miracle-workers appeared on the scene to "solve" the colossal debt problems of Weimar Germany, Mugabe's Zimbabwe and today's Venezuela? Gumby, in the name of all we hold holy, please re-think your position. Yes, when we finally try to solve the debt problem we may fail, but the longer we wait to take action, the more likely we are guaranteed to fail, with horrendous consequences for generations to come.

There are limits to the debt... we're far from them... and remember, debt isn't just a liability in a vacuum.  It's not like we all have to do a bunch of push up someday and we're all putting them off, and it'll suck for everyone to do them.  One person's liability is another person's asset.  As long as the economy grows, debt can grow.

Zimbabwe and Weimar were unique NON-monetary disasters that resulted in eventual hyperinflation.  If you think about it, any fiat currency, even if linked to something, is going collapse if its government collapses.  Insert any conditions that would collapse a government, and a currency will collapse simultaneously.

+1

Isn't it interesting that our assets are around $220 trillion as well.
https://en.wikipedia.org/wiki/Financial ... ted_States

The liabilities aren't so ominous when taken in context.

kka wrote:

moda0306 wrote:

goodasgold wrote: Gumby, I have the highest respect for you (I assume you are the poster of the same name who has enriched the Boglehead list for so many years.) I don't claim to hold vast knowledge on financial matters, but it seems to me basic common sense that there are limits to the vast debt we can encumber ourselves with before the wheels start flying off the turnip truck.

As for the phantasmagorical 222 trillion dollar increase in goods and services that will allegedly cure us of our irresponsibility in the misty and far distant future, what miracle-workers appeared on the scene to "solve" the colossal debt problems of Weimar Germany, Mugabe's Zimbabwe and today's Venezuela? Gumby, in the name of all we hold holy, please re-think your position. Yes, when we finally try to solve the debt problem we may fail, but the longer we wait to take action, the more likely we are guaranteed to fail, with horrendous consequences for generations to come.

There are limits to the debt... we're far from them... and remember, debt isn't just a liability in a vacuum.  It's not like we all have to do a bunch of push up someday and we're all putting them off, and it'll suck for everyone to do them.  One person's liability is another person's asset.  As long as the economy grows, debt can grow.

Zimbabwe and Weimar were unique NON-monetary disasters that resulted in eventual hyperinflation.  If you think about it, any fiat currency, even if linked to something, is going collapse if its government collapses.  Insert any conditions that would collapse a government, and a currency will collapse simultaneously.

+1

Isn't it interesting that our assets are around $220 trillion as well.
https://en.wikipedia.org/wiki/Financial ... ted_States

That would mean after hundreds of years the entire US has zero equity. Assets - liabilities = equity.

Ahahaha, that dang accounting equation....

The nominal debt is growing at 3-4 times the nominal GDP now and if you add in unfunded liabilities....whoa. Can't last.

Kshartle wrote: That would mean after hundreds of years the entire US has zero equity. Assets - liabilities = equity.

Ahahaha, that dang accounting equation....

Umm.... You are just proving our point for us. That's the nature of sectoral balances in a debt-based monetary system — the financial assets cancel each other out. The government's liability is the private (and foreign) sector's asset. And then there's like ~$100 trillion in private credit that the private sector owes to itself on top of that (as more assets and liabilities).

See: https://en.wikipedia.org/wiki/File:Sect ... _the_chart

[align=center][/align]

By definition, a liability is someone else's asset — that's why they cancel each other out.

Or said another way...

Cullen Roche wrote:When the government runs a deficit (spends more than it taxes) they sell a T-bond to Peter who supplies his bank deposits to the government who then spends those bank deposits into Paul’s account.  The deposits get redistributed and the T-bond is a new financial asset for the non-government sector.  That T-bond is technically a liability of the US Treasury so the US Treasury’s new liability is the owner’s asset (the Treasury has a new liability and Paul owns the T-bond which is an asset).  Said differently, the government’s deficit results in surplus for the non-government (some of this surplus could be held by the foreign sector or even the Fed so we really shouldn’t say “government deficits equal private surpluses”? or the accounting nerds will have our necks!).  This is a net financial asset (NFA) because there is no private sector corresponding liability.

That’s all pretty obvious.

Source: PragCap: Yes, Government Deficits Equal Private Surpluses (Basically)

Kshartle wrote:The nominal debt is growing at 3-4 times the nominal GDP now and if you add in unfunded liabilities....whoa. Can't last.

You know quite well that the US has no trouble servicing its debt so long as electricity exists to power the computers that roll over the debt. We are basically talking about bitdollars and bittreasuries that can be rolled over indefinitely with the help of willing and mandated banks (i.e. Primary Dealers). If people are productive enough to earn those government liabilities — as their assets — then everything should be business as usual.

Gumby wrote: That's the nature of sectoral balances in a debt-based monetary system — the financial assets cancel each other out. The government's liability is the private (and foreign) sector's asset. And then there's like ~$100 trillion in private credit that the private sector owes to itself on top of that (as more assets and liabilities).

Let's say I borrow $1,000 from the bank as a "personal" loan. I have $1,000 now I also owe $1,000 and the bank has a $1,000 asset right (my debt).

I blow the money on cheap booze and cheaper women......I can't repay...I declare bankruptcy. My debt is erased and the bank rights off the loss.

What happens to the dollars I spent on booze and women? What is the liability attached to them? Did they cease to be a financial asset when the liability I incurred to obtain them was extinguished?

Kshartle wrote:

Gumby wrote: That's the nature of sectoral balances in a debt-based monetary system — the financial assets cancel each other out. The government's liability is the private (and foreign) sector's asset. And then there's like ~$100 trillion in private credit that the private sector owes to itself on top of that (as more assets and liabilities).

Let's say I borrow $1,000 from the bank as a "personal" loan. I have $1,000 now I also owe $1,000 and the bank has a $1,000 asset right (my debt).

I blow the money on cheap booze and cheaper women......I can't repay...I declare bankruptcy. My debt is erased and the bank rights off the loss.

What happens to the dollars I spent on booze and women? What is the liability attached to them? Did they cease to be a financial asset when the liability I incurred to obtain them was extinguished?

I could be wrong, but I believe it's no longer a liability, but rather a "loss" on the other side of the balance sheet.

http://en.wikipedia.org/wiki/Double-ent ... ing_system
http://en.wikipedia.org/wiki/Debits_and_credits

It's all very technical, but the point being that the internal balance sheet of the private sector "balances" out one way or another — much like the balance sheet between the government and non-government sectors.

Gumby wrote:

Kshartle wrote:

Gumby wrote: That's the nature of sectoral balances in a debt-based monetary system — the financial assets cancel each other out. The government's liability is the private (and foreign) sector's asset. And then there's like ~$100 trillion in private credit that the private sector owes to itself on top of that (as more assets and liabilities).

Let's say I borrow $1,000 from the bank as a "personal" loan. I have $1,000 now I also owe $1,000 and the bank has a $1,000 asset right (my debt).

I blow the money on cheap booze and cheaper women......I can't repay...I declare bankruptcy. My debt is erased and the bank rights off the loss.

What happens to the dollars I spent on booze and women? What is the liability attached to them? Did they cease to be a financial asset when the liability I incurred to obtain them was extinguished?

I could be wrong, but I believe it's no longer a liability, but rather a "loss" on the other side of the balance sheet.

http://en.wikipedia.org/wiki/Double-ent ... ing_system
http://en.wikipedia.org/wiki/Debits_and_credits

It's all very technical, but the point being that the internal balance sheet of the private sector "balances" out one way or another — much like the balance sheet between the government and non-government sectors.

Ok then let's just start at the start. The bank loans me $1,000. They now have an asset, I have an asset and a liability.

So that's 2k in assets and 1k in liabilities right? Where's the other liability? Is it not a credit on the banks equity section of the balance sheet?

Assets don't have to match liabilities...credits have to match debits.

Is it Cullen's position that financial assets match liabilies? If so.....maybe you can email him my examples....either one

Kshartle wrote:Ok then let's just start at the start. The bank loans me $1,000. They now have an asset, I have an asset and a liability.

So that's 2k in assets and 1k in liabilities right? Where's the other liability?

Huh?

Banks create money by extending credit (loans create deposits) resulting in a liability for the bank (the deposit) and a corresponding asset (the loan). The customer has an asset (the deposit) and a corresponding liability (the loan). This nets to zero. (This is an oversimplification, of course).

Gumby wrote:

Kshartle wrote:Ok then let's just start at the start. The bank loans me $1,000. They now have an asset, I have an asset and a liability.

So that's 2k in assets and 1k in liabilities right? Where's the other liability?

Huh?

Banks create money by extending credit (loans create deposits) resulting in a liability for the bank (the deposit) and a corresponding asset (the loan). The customer has an asset (the deposit) and a corresponding liability (the loan). This nets to zero. (This is an oversimplification, of course).

When I withdraw the money.......I have the cash. I also owe it back....the bank is owed the money...that's the bank's asset.....now what is the bank's liability here? The deposit? There isn't one. It's empty and even if it wasn't who would the bank owe it to? The money I have on deposit at my bank is money the bank owes to me. If I withdraw it the bank doesn't owe me anymore.

Is there not new money where there wasn't money before?

If I never pay back the cash and the losses are written off along with my debt......who owes that $1,000 bucks to anyone or is it just floating around with no liability owed to anyone?

It's been a long time since I did financial accounting, money and banking etc. and I honestly don't know the answer (I can research it of course).

That being said....if anyone knows the answer please chime in!

Kshartle,

The bank had that asset before the loan.  It was called "reserves."

When they paid it to you (assuming you took the withdrawal (few do)), they lost that asset, but replaced it with a loan receivable.

moda0306 wrote: Kshartle,

The bank had that asset before the loan.  It was called "reserves."

When they paid it to you (assuming you took the withdrawal (few do)), they lost that asset, but replaced it with a loan receivable.

Ok so I have the cash (which I didn't have before) and I have the obligation to pay it back (which I didn't have before.

The bank has an asset (the receivable which used to be "reserves") right? What is the other liability? Is there one?

Kshartle wrote:

moda0306 wrote: Kshartle,

The bank had that asset before the loan.  It was called "reserves."

When they paid it to you (assuming you took the withdrawal (few do)), they lost that asset, but replaced it with a loan receivable.

Ok so I have the cash (which I didn't have before) and I have the obligation to pay it back (which I didn't have before.

The bank has an asset (the receivable which used to be "reserves") right? What is the other liability? Is there one?

To the federal reserve, reserves are liabilities.