Gyroscopic Investing

Gumby wrote:This is not meant as an insult. I know you worked your ass off to get where you are. I'm just having difficulty reconciling how someone can be against govt spending, when so much of the environment that led to their success was tied to govt spending and beneficial private credit environments.

I have never, since I was a teenager, thought government spending and interference was a good idea. My attitudes have never changed.

I don't sit around waiting for people to "give" me a job. And I say this as someone that was on free lunches for a while as a kid. I get it that sometimes people need a hand up, but at what point does it become a debilitating condition for them that builds a lifelong dependency?

These arguments are very Milton Friedmanish in a way. He was of course a big proponent of monetarism. But I listened to an interview with him once when he described that monetarism would work better if we had this computer that could accurately hand out and restrict the flow of money to exactly match the growth of the economy. But this is a very naive view (and he knew it), because it's humans making those decisions and they will do things that are for their own interests of maintaining power, expanding empire, etc. and not what is always the best idea.

So when I read a lot of these MMR arguments I get the same impression. It's like engineers talking about frictionless surfaces, ideal gasses, etc. It would be great if these things existed, but they don't. We have to deal with reality and reality shows that these kinds of ideas of government spending and debt financing aren't sustainable.

And again, it doesn't matter what we personally feel because we won't make the decision on when the party ends, the markets will. But end it will eventually. You can bet on it.

Benko wrote:

Gumby wrote: We all agree that spending has limits

Are you sure Krugman does?  And the gang in the whitehouse?
Hell are you sure everone on this board  does?

I can't speak for politicians, but yes, it's pretty basic stuff. Nobody argues for infinite spending.

Benko wrote:I am not asking about cutting spending now.  But if you look at the amount spent over the last 4 years, it is increasing significantly.  When does it become too much?

Again, you need to look at private credit levels to put it all in perspective. Private credit (the overwhelming majority of the money supply) dropped significantly while all this spending happened.

All monetary systems use some kind of "buffer stock policy" in order to determine how much is too much. Your buffer stock policy can be gold, wheat, chariot wheels, or some other metric. When we were on a gold standard, our "buffer stock policy" was the number of bars gold in a vault. Now, we just use more modern metrics like unemployment figures and inflation to determine when it's time to cut spending. Right now, the metrics suggest that we need to spend more to mend balance sheets.

Make sense? Hopefully you and craigr won't continue to paint MR and the various modern monetary theories as "infinite spending" since nobody advocates for that.

craigr wrote:

Benko wrote: I've read about the debt based money theory on this forum multiple times.  It is not intuitive and best I can tell basically says that the US can spend an unlimited amount.

There is not a single example in history where a government could spend money forever and rack up massive debts without serious repercussions. Saying otherwise is like arguing against gravity.

How about Japan today at 210% debt/GDP or Britain in 1945 w/ 270%?

craigr wrote:So when I read a lot of these MMR arguments I get the same impression. It's like engineers talking about frictionless surfaces, ideal gasses, etc. It would be great if these things existed, but they don't. We have to deal with reality and reality shows that these kinds of ideas of government spending and debt financing aren't sustainable.

And again, it doesn't matter what we personally feel because we won't make the decision on when the party ends, the markets will. But end it will eventually. You can bet on it.

I generally agree with you, craigr. I just have no idea on the timeline. And to me, MR is just about describing how the system works, and all of its problems. Thanks for the response.

craigr wrote:

moda0306 wrote: And, respectfully, don't try to say "they earned that money and have the right to do with it as they please," because I agree.  This isn't an argument about rights, but about what kind of support of human dignity we find appropriate even though that person hasn't earned it on their own.  Having someone too sick to work and/or get health insurance slide into utter poverty and despair isn't dignity, and if helping them is lowering the floor of human dignity, I'd challenge you to visualize your mother or father sliding into that scenario and you struggling to hold the attitude that they made their own bed and should sleep in it.  My apologes for getting over-dramatic, but I think this is a valid way of looking at how we see government's role in maintaining human dignity: If it would disgust us to our core to let one of our family members fall into the scenario and do nothing, maybe it's not "lowering the floor of human dignity" for the government to try to provide a modest safety net in that arena... just maybe.

This is a straw man argument really. Nobody is discussing eliminating the elderly.

The expansion of government spending at this point in areas around healthcare in particular has had huge negative impacts. Near me there are many doctors that won't accept Medicaid/Medicare patients any longer. The payments from those patients come nowhere near close to offsetting the actual costs. Government mandates flowing into the system has driven costs up in other unexpected ways. So the idea that government is going to improve things is unlikely.

Of course they're not discussing eliminating the eldersly... they're arguing, however, that the elderly, as everyone else, should fend for themselves, essentially saying that if they don't have the resources, and any half-witted lender of money can see that they're broke, and any doctor can see the same, they will not be able to afford care and therefore will be left to die.

So it's not a straw man.  Plenty would be left with no resources and therefore to die on their own.

moda0306 wrote: How about Japan today at 210% debt/GDP or Britain in 1945 w/ 270%?

There's the magic part I keep talking about where the market makes these decisions.

You see Japan at 210% debt/GDP may not bother holders of their debt for a variety of reasons. But I suspect it's because Japan does not have a history of screwing investors and the Japanese culture is very trustworthy and generally conservative fiscally.

Then you have Argentina today that is "only" 44% debt/GDP ratio and they are having a hard time with inflation. Why? Because Argentina screws people and investors know it intuitively.

At this point if you had to choose, would you rather own Japan Bonds or Argentina Bonds? I mean the Argentina debt to gdp ratio is much lower, right? Now ask yourself why when the Japanese macro outlook is so bad you'd rather own their bonds. I suspect deep down you know it's because Japan probably won't leave you holding the bag with their debt. They'll pay you back barring something very bad happening.

Again, it gets back to that culture argument that is always behind the scenes. But I will say that good business is built on trust and if you don't trust who you're doing business with you should get away from them ASAP. Investors make the same decision when they buy and sell any asset.

Now, at what point does America flip from the "trustworthy" to "untrustworthy" side of the equation? There is no way to know. The markets will decide collectively. And, when the markets do decide that things have changed, watch out below.

Again MMR looks at these things like a formulaic certainty in many aspects. It is false precision and frankly the main thrust of their arguments are very suspect when thinking about human reactions to the policies.

craigr wrote:Again MMR looks at these things like a formulaic certainty in many aspects. It is false precision and frankly the main thrust of their arguments are very suspect when thinking about human reactions to the policies.

I get that. But, I don't think any economic framework looks at human reactions in that way. And secondly, MR doesn't really offer prescriptive policies — it just describes the system as it is. When I say we need to spend more, I'm not quoting MR. I'm just using MR to determine that prescription. You could use MR to determine a completely different prescription.

Kshartle wrote: If someone would let their sick parents slip into complete poverty and despair I'd really have to question the up-bringing. Clearly they didn't do a very good job with their kids. Being charitable to help these people so you feel better about yourself is great. I fully support that. Forcing people at gunpoint to fork over a dollar so 30-40 cents can go to the elderly isn't a solution, and it itsn't charity. It's an industry. the FEDs are poverty-pimps. The social programs are public relations stunts. It's also immoral. No one has a claim on my life or my property. Taxation is the theft of someone’s life because it steals the property they justly acquired through their time and talent. It is slavery. To say that you can choose to avoid taxes by not working is like saying the bully at school isn't a problem because you can just skip. It's the kind of rationalizing a slave mentality would make. The immorality of socialism and fascism is it's undoing though and hopefully we see the end of it in our lifetime.

Most federal healthcare and income replacement programs are pretty low-overhead, so I'm not sure what yo mean when you assert 60-70 cents end up not making it to the elderly.

Also, once again, if taxation is slavery, so is every form of government.  Can I assume you're an anarchist?

And this "forced at gunpoint" logic is being taken a little to far... in 1855, a slave's options were to work a miserable life in bondage or he dies... today, you enter economic transactions aware of your take-away and choose to anyway.  It's not like the government suddenly shows up at your door and beats you until you pay some arbitrary amount.  To equate taxes to slavery is similar Godwin's Law of Nazi Analogies... and even if it's appropriate, it's essentially a screaming argument for anarchy and nothing less.

Gumby wrote:

craigr wrote:Again MMR looks at these things like a formulaic certainty in many aspects. It is false precision and frankly the main thrust of their arguments are very suspect when thinking about human reactions to the policies.

I get that. But, I don't think any economic framework looks at human reactions in that way. And secondly, MR doesn't really offer prescriptive policies — it just describes the system as it is. When I say we need to spend more, I'm not quoting MR. I'm just using MR to determine that prescription.

And I'm simply saying that spending has unintended consequences. Some of it is short term and some of it is long term. But there are consequences. It's not harmless.

craigr wrote:And I'm simply saying that spending has unintended consequences. Some of it is short term and some of it is long term. But there are consequences. It's not harmless.

And again, that's true within any economic framework, no? MR doesn't say that we have to spend. It just describes how spending works (debt-issuance, private sector credit, etc). That's why it's called "Monetary Realism".

In other words, if the government wants to quickly mend private sector balance sheets, here's how it can issue the money to mend them and set interest rates, etc. But, if you prefer to let the free market do it on that's your prerogative. MR doesn't make you spend. It just describes the options. You can easily use MR to argue for a smaller government if you want to.

But, yes, I agree that all spending has consequences. Every action has consequences. Even not spending has consequences.

craigr wrote:

moda0306 wrote: How about Japan today at 210% debt/GDP or Britain in 1945 w/ 270%?

There's the magic part I keep talking about where the market makes these decisions.

You see Japan at 210% debt/GDP may not bother holders of their debt for a variety of reasons. But I suspect it's because Japan does not have a history of screwing investors and the Japanese culture is very trustworthy and generally conservative fiscally.

Then you have Argentina today that is "only" 44% debt/GDP ratio and they are having a hard time with inflation. Why? Because Argentina screws people and investors know it intuitively.

At this point if you had to choose, what would you rather own Japan Bonds or Argentina Bonds, which would you buy? Now ask yourself why when the Japanese macro outlook is so bad. I suspect deep down you know it's because Japan probably won't leave you holding the bag with their debt. They'll pay you back barring something very bad happening.

Again, it gets back to that culture argument that is always behind the scenes. But I will say that good business is built on trust and if you don't trust who your'e doing business with you should get away from them ASAP. Investors make the same decision when they buy and sell any asset.

Now, at what point does America flip from the "trustworthy" to "untrustworthy" side of the equation? There is no way to know. But the markets will decide and when it does decide that things have changed, watch out below.

Again MMR looks at these things like a formulaic certainty in many aspects. It is false precision and frankly the main thrust of their arguments are very suspect when thinking about human reactions to the policies.

No, MR doesn't.  They look at the facts on the ground... in fact they do this much more thoroughly than the "inflation is everywhere and in all blah blah a monetary event" folks.  Most of them simply don't put so much weight on supply-side "confidence" freak outs based on micro-analysis during a balance-sheet recession.

Further, what qualifies as "holding the bag?"  You'll see here that Japan's central bank owns a similar percentage of its national debt (aka, they've monetized it) as the US, about 11%:

http://www.clearonmoney.com/dw/lib/exe/ ... 2012q3.png

And what about britain in 1945?

TennPaGa wrote:
What do you do if it is one of your children?  Do you go Galt and abandon them?  Maybe put your AK to use?

I can't believe I'm replying to this because it's smacks of 13 year old level reasoning. I mean seriously. I don't stick a gun in everyone's face and say they now owe me their productivity because I have a gun. That's the socialist solution. It's the solution of immoral tyrants to control the population.

I can hear some of you guys in 1861 arguing that if the slaves are freed who will pick the cotton? Or better yet, "Do you like wearing clothes? You know we'll be naked without the cotton-pickin slaves. How could free people (the free market) ever figure out something so complex as picking cotton"?

It's the same with the damn roads and healthcare and everything else. Humans trading peacefully works, violence doesn't.

Kshartle wrote:It's the same with the damn roads and healthcare and everything else. Humans trading peacefully works, violence doesn't.

"Damn roads?" Are you against national highways?

moda0306 wrote: And this "forced at gunpoint" logic is being taken a little to far...

Humans must have production or they die. If they are productive some of that productivity will be stolen from them. If they refuse to pay off the thieves men in blue costumes will come to put them in cages. If they resist strongly enough they will be shot.

Mao nailed it when he said all political power comes from the barrel of a gun.

It's all stolen at gunpoint. If it was voluntary it would be charity, not taxes/theft.

Yes, full blown anarchist, for moral and ethical reasons above and beyond the obvious economic ones.

Gumby wrote:
"Damn roads?" Are you against national highways?

Against highways? Are you kidding?

I said damn because people always say we need violence to make the roads.

I suppose if I said I didn't think they should enforce a national language you'd think I was against communicating or words.

Kshartle wrote: I said damn because people always say we need violence to make the roads.

Who says that?

Kshartle wrote:I suppose if I said I didn't think they should enforce a national language you'd think I was against communicating or words.

You're against words??

Kshartle wrote:

moda0306 wrote: And this "forced at gunpoint" logic is being taken a little to far...

Humans must have production or they die. If they are productive some of that productivity will be stolen from them. If they refuse to pay off the thieves men in blue costumes will come to put them in cages. If they resist strongly enough they will be shot.

Mao nailed it when he said all political power comes from the barrel of a gun.

It's all stolen at gunpoint. If it was voluntary it would be charity, not taxes/theft.

Yes, full blown anarchist, for moral and ethical reasons above and beyond the obvious economic ones.

"The obvious economic ones?"

No, the only reasons are moral/ethical... anarchy would probably be an utter disaster from almost every common economic measure.

Glad to hear you're full blown anarchist.  At least your logic is sound in that area. 

I agree that any action is a "forced at gunpoint" scenario... I'm just arguing that you're taking it too far when you compare someone who is earning far, far more than he or she needs to simply prevent death, knows the tax code, yet chooses to work anyway and pay the taxes, yet yells afterward that he was "stolen from" and compares it to slavery.

You have many options slaves and holocaust victims didn't.  This governmental moral relativism works well if you look at it juuuuuuuuust right but falls apart completely when you carry this theory to reality.  To truly compare this, slaves would have had to knowingly come to the U.S. and stayed even though they had free passage to anywhere else in the world they'd rather be, and were being whipped and forced to work here.

If you're so miserable, stop working so much... I promise you won't dies as a result, and the government won't come and kill you.  Further, and more importantly, if you DO choose to work more, you might see a lack of sympathy lamenting on message boards how the government stuck a gun to your head and made you pay taxes... you knew those taxes were in place when you chose to do the work and earn the income.

Kshartle wrote:

Gumby wrote:
"Damn roads?" Are you against national highways?

Against highways? Are you kidding?

I said damn because people always say we need violence to make the roads.

I suppose if I said I didn't think they should enforce a national language you'd think I was against communicating or words.

So who do you propose own all the roads?  Who should the ownership of that property?  The "owners" themselves?  Who's to say they're legitimate owners of the roads?  Who's to say any land beyond your stick home and a small yard is even legitimately ownable by you?  Doesn't it all seem a bit arbitrary?  Who settles land disputes?

I think it's time PS gets his Libertarian Utopia post up.... I literally have no idea how this wouldn't be a complete friggin' disaster.

Simonjester wrote:

we have 10,000. bureaucrats filing paperwork, giving best buddy deals to there cronies, and regulating every aspect of road building down to the length of the laces allowed in road workers boots, and 100 guys building roads, doing a half assed job of it, and who are incapable of keeping up with even the basic wear and tear on the system... if we had 100 bureaucrats managing the system honestly applying free-market solutions anywhere they could and 10,000. guys building roads repairing the wear and tear and updating the system to meet future needs at the same time as they build job skills that they can use in the private sector when the work is caught up and the government job disappears, and the shiny new infrastructure helps private sector growth. then talk of building roads would be exiting.. but with government we ever only get the exponential growth of the former and never get any of the latter.
[/quote]

Gumby wrote:
You're against words??

I'm getting close. 

Personal experience is that whenever anyone mentions the idea that maybe we shouldn't have armed gangs calling themselves governments robbing people and deciding what economic activity we can engage in they respond "How will we have roads?"

TennPaGa wrote: For you, clearly, the culture more the determinant of business-worthiness than government debt. 

I agree with this.

But they don't seem to be linked at all to me.  Do you think they are?

The debt/gdp ratio is a funny thing. It's just a number. It doesn't tell you anything about who owns it or how the debt is being used. I may not necessarily care if a country is using debt to pay for elderly retirement pensions. But I probably care quite a bit if they are using that debt to "give" people jobs, provide free housing, food, overseas wars, etc.

But this is just my opinion and I'm one of billions. However in terms of spending, Japan has me a lot less concerned than the U.S. by far. The uses of the debt is a huge factor.

moda0306 wrote: And what about britain in 1945?

What about Britain in 1940 when London was being bombed? Would you have been an investor if you didn't live there?

Again it's the trust thing. If you were looking at Britain in 1940 you could very well have believed that the government wouldn't be there in 1941. We know how it ended up now, but back then who did? This isn't an indictment on the grounds of helping out in WWII, etc. It's just that the circumstances from a purely financial perspective would indicate that the UK (and Germany) would both be very high risk because one was going to win and the other lose.

Back to point, no amount of MR arguments is going to convince me to ever buy Argentinian bonds, etc.. I don't care if their debt to gdp ratio was 0 and they had perfect MR aligned economists driving things. Economics does not predict human action very well and trust is a bigger factor than people like to admit.

moda0306 wrote: Who settles land disputes?

I think it's time PS gets his Libertarian Utopia post up.... I literally have no idea how this wouldn't be a complete friggin' disaster.

I don't know how land disputes would be settled without a central authority that can violate property rights at will. I have some ideas, but I don't know the solution that humans would choose. Luckily it wouldn't be up to you or me or any one person but the marketplace of ideas would provide it. To think otherwise is akin to a society with all arranged marriages saying that without the arrangements no one would get married.

A disaster, yes absolutely. The current batch of humans on the planet are not ready to solve all their problems without violence. That's why I actually don't bring up anarchy much anymore with people. It's kind of pointless because who cares. We aren't on the verge of it, and even though it might be a lot better it certainly wouldn't be utopia. In order to have a world where all the problems (health care, poverty, happiness, property disputes etc.) are solved through reason negotiation and trade we need to raise children who don't speak the language of violence, of stateism. Then the counterfeiting can stop, the market can decide what works best as money, what interest rates should be, which industries we want, how we like the roads. Maybe we'll find out we don't even like roads and they suck. Maybe they'll be another statist relic like outright slavery and state-sponsored religion.

Craigr,

How can you lament about US government "money printing" as having debasing traits, and then say "Japan pays its debts," when their central bank owns as much debt as ours does... and it does it DIRECTLY from the government no less, not giving banks the chance to bid on it.

I don't see how we can trust Japan and have reasonable worries about the U.S.

Kshartle wrote:

Gumby wrote:
You're against words??

I'm getting close. 

Personal experience is that whenever anyone mentions the idea that maybe we shouldn't have armed gangs calling themselves governments robbing people and deciding what economic activity we can engage in they respond "How will we have roads?"

But then libertarians just say "roads would work, trust me," essentially.  "We'll just sell them to corporations that will do a better job managing them... as we will with sewer... and you'll be so free!  Especially when they send you a bill for your neighborhood street maintenence that they have no means to make you pay.... errr...." 

Let's be honest here... I really can't argue against your moral assertion against government... it's a way to see things that I think has some solid philisophical consistency that's hard to truly dispute...

However, let's also be honest about the functional realities and what an utter mess it would be.  There's no efficient mechanism for the organized recognition of natural resources as being one person's but not someone else's.  Let's acknowledge what a mess it would at least.  All this "Galt Utopia" bs is a bit nausiating.

PS, there'd be plenty of violence.  In fact probably much, much worse violence in a world of anarchy.

moda0306 wrote: Craigr,

How can you lament about US government "money printing" as having debasing traits, and then say "Japan pays its debts," when their central bank owns as much debt as ours does... and it does it DIRECTLY from the government no less, not giving banks the chance to bid on it.

I don't see how we can trust Japan and have reasonable worries about the U.S.

Well you know I can't prove this and won't be around to claim the prize, but I suspect in 100 years that Japan will still be around and the U.S. will have flown apart at the seams. Just a hunch.

There's a lot more to my outlook on economics than looking at numbers in a spreadsheet. In terms of outlook, if you've read Nassim Taleb's Black Swan, I'm more like Fat Tony. One story stands out.

You get someone flipping a coin 1000 times in a row. Each time it comes up heads. You ask the math wonk what the odds are of the next flip coming up tails. He will say 50%.

But what does Fat Tony say?

100% chance it comes ups heads. Why? Because the coin is rigged.

So when I look at these economic issues there is always a Fat Tony inside of me. I don't care if the balance sheets look good in a country like Argentina. I know the history of the place and I'm going to avoid it. I don't care how the debt is owned or how it is used. They are a bad bet.

I guess some of you would say I'm taking micro issues of personal credit risk and applying to macro issues of countries. And, quite frankly, you're damn right I am. And it's not perfect, but it mostly works fine.

And this gets right back to the U.S. and debt. I don't really care how it is structured. I care about what it is being used to do and what are the odds the outcome is going to lead me to think it is trustworthy enough to be paid back. So when the MR arguments come around again about spend, spend, spend I just cringe. They don't know what they are spending on, they don't care, and the end result will be something nobody expected will happen but will likely be pretty bad and against everyone's best interest.

I encourage investors to be like Fat Tony and not like a math wonk. Economics is not a hard science.

moda0306 wrote: I think it's time PS gets his Libertarian Utopia post up.... I literally have no idea how this wouldn't be a complete friggin' disaster.

Yeah I know, I'm working on it... I'm working on it! 

Gumby wrote: That's not really what happens. When you pay taxes, your money is just shredded for all practical purposes and entered into a ledger. Yes, it's stealing, but let's not pretend that you are "paying" for anything with your Federal taxes. If the Federal government wants to help the elderly, or build an air-craft carrier, it just spends its own debt-based money. The theft has nothing to do with the government's ability to spend. Here we are talking about lowering taxes and increasing spending and you can't help but focus on obsolete myths. Sounds like you never read Mosler.

Remember, the Income Tax Return isn't called a return for nothing.  You had the privilege of using Ceasar's money ahead of time and you must return your tribute!!!