Gyroscopic Investing

http://www.cnbc.com/id/43381362

CNBC Article trying to help the "layman" understand the national debt... no mention of the federal reserve buying back bonds and how we aren't like a household and can print money... no mention of fiat currencies vs pegged currencies

Once again, this doesn't necessarily legitimize MMT, but the distinction of how our currency operates seems to be extremely important to the average investor (Japan vs Greece), or at least to his advisor, not to mention the most well-known investing media operation in the world.

Do you ever feel like you know a really big secret... one that will significantly affect your finances, or at least your peace of mind, going forward... and you try to tell people the secret but they don't want to listen?  Both the PP and some of the details about how currencies function fall into this category.

I totally understand the feeling. It's satisfying yet frustrating at the same time.

I think you would like "Understanding Modern Money" by Randall Wray. You can find it on amazon. It's a little dry, but if you are interested in Chartalism and MMT then it's great.

EDIT:

This is the most important piece of the Federal Reserve act IMO...

"Use of Earnings Transferred to the Treasury

(b) The net earnings derived by the United States from Federal reserve banks shall, in the discretion of the Secretary, be used to supplement the gold reserve held against outstanding United States notes, or shall be applied to the reduction of the outstanding bonded indebtedness of the United States under regulations to be prescribed by the Secretary of the Treasury. Should a Federal reserve bank be dissolved or go into liquidation, any surplus remaining, after the payment of all debts, dividend requirements as hereinbefore provided, and the par value of the stock, shall be paid to and become the property of the United States and shall be similarly applied."

This links the Fed's income statement to the Treasuries. This is huge.

Picturing our government as a body, the left hand (Treasury) can be in debt while the right hand (Fed) has unlimited funds. Making claims that the entire body is insolvent is always false because of this linkage. The Fed is independent within the governmental entity.

moda0306 wrote: CNBC Article trying to help the "layman" understand the national debt... no mention of the federal reserve buying back bonds and how we aren't like a household and can print money... no mention of fiat currencies vs pegged currencies

I think you're underestimating the layman when you assume that he\she doesn't understand that we can "just print it up" if we decide that's what we want to do.  This turns out to be precisely what many people I talk to are concerned will be the "solution" to all of this debt once we can no longer properly service it via taxation.

Argh.  Another MMT thread.

LW,

I think the layman, while they may hear "print money" and think they have some idea that the fed cheats a bit, doesn't really know the details of the implications of that.  Heck, I still feel like I don't.  This was a discussion of the deficit and debt, something that's much easier to grasp (in the terms that they described it in) than the operations of a fiat currency... so to say that the "layman understands we can print," but that somehow this article helped inform them of something the don't know doesn't make sense to me.

I tried to make clear that this isn't an instant conclusion straight to MMT, but you can't rest an entire argument on the idea that we operate like a household.  If inflation is the issue, then make that the centerpoint of the discussion, but then we need to take a much bigger dive into macro, not just talk about household finance.  You can't talk about "rising deficits causing higher interest rates" without at least mentioning the lack of default risk and the fed's ability to buy bonds to hold down those rates (by "you" I mean these article writers).

The entire article wreaks of trying to tell us why "it's important we keep an eye on the deficit" because of the same factors that affect a household or business.  Like we'll hit some kind of self-fulfilling default-risk hurricane from which we can never escape.  I don't think it said the word "federal reserve" or "inflation" once.... at least not in a context that is valid.

Of course inflation and misallocation of resources are considerations with a sovereign fiat currency... I don't think anyone's denying that in the MMT realm... but if our government can't ever reach that self-fulling default risk slope (like Greece has appeared to have hit), nor truly be affected by it the way normal people/businesses are, then this is a vital fact that has to be discussed that almost every discussion of our deficit is devoid of until Keynesians or moreso MMT'ers voices are heard.  You seem to not like their definitions of savings vs investment and quickly write all of their input off as hogwash because of it.  I think there are some great observations that it seems only MMTers are bringing to the surface regarding what our options truly are at this point.  This article (http://www.levyforecast.com/assets/Profits.pdf) discusses their definitions in detail of investment and savings.  It comes at MMT from a relatively different angle than in the past, and really helps one visualize the system.  This one I think would definitely connect with you well on exploring this topic.

So I guess, in essence, if the "layman" really understands that the printing, not default, is going to be the source of the problem, why are we discussing these things like we're a household and not a completely different kind of entity that can play by a different set of rules?  The insistance of this argument to meander in the realm of personal finance, not macroeconomics, is pretty frustrating to me.

moda0306 wrote:You can't talk about "rising deficits causing higher interest rates" without at least mentioning the lack of default risk and the fed's ability to buy bonds to hold down those rates (by "you" I mean these article writers).

Yeah.... Japan...

jmourik wrote:

moda0306 wrote:You can't talk about "rising deficits causing higher interest rates" without at least mentioning the lack of default risk and the fed's ability to buy bonds to hold down those rates (by "you" I mean these article writers).

Yeah.... Japan...

Not sure what you meant by that, but of course Japan is a nice example of what a sovereign fiat currency looks like... at least one possible outcome of monetizing debt in the face of deflation.

Japan, at the very least, should be part of the discussion.  Trying to brush it aside seems hasty.