Gyroscopic Investing

Hi all,

researching on internet about global debt, i got a conclusion that is very scary: according to the official statistics, the total debt to GDP of 3 of the 4 biggest economies in the world (total debt: corporate, household, financial and government), is near to 400% total GDP (http://ftalphaville.ft.com/files/2012/1 ... Minack.jpg
).

according to wikipedia GDP world list:

http://en.wikipedia.org/wiki/List_of_co ... _(nominal)

USA GDP: 15.600 trillion $
Europe GDP: 16.500 trillion $
Japan: 6 trillion $
TOTAL APROX. GDP: 38 trillion $

so if we sum up, we have a total debt for just this three countries of 152 Trillion $. We are not taking into consideration other countries like China, Canada, India, Rusia, etc.

So my question is, what do you think is the future of fiat money, and how is going to be the impact to the PP of the biggest money supply crisis of humanity history?

regards

The MMT'ers will have you believe that there are no ramifications for such debt. I just can't imagine anything in life comes that easy.

There are plenty of ramifications, but they're all largely dependent on factors in addition to the debt, such as a graying population, a declining industrial base, diminished productivity, etc. Without any of those worrisome conditions, the debt is probably fine. With them, it can become dangerously inflationary. But then again, a country experiencing those conditions even without much debt is probably still in trouble. Rather than worrying about the large scary debt numbers, look to the health of the real economy and productive bases of these countries.

Simonjester wrote: also the honesty of the government, big fiat dollar numbers mean a lot less in an honest corruption free government than they do in one that is choked with misallocation and regulation that kills some busyness's and hands sweetheart deals to its cronies..

That's why PP has GOLD

clacy wrote: The MMT'ers will have you believe that there are no ramifications for such debt. I just can't imagine anything in life comes that easy.

Exactly, MMT seems crazy when there are historical case studies showing there are always ramifications. What makes this point in history immune?

They would say the detachment from the gold standard would be one big reason that "this time is different".

After looking into MMT I can honestly say that I've moved from the firm Austrian camp the the "I have no clue how this plays out" camp, but my gut just tells me nothing in life comes that easy.

They do make some good, logical arguments. So do the other guys.

Arturo wrote: So my question is, what do you think is the future of fiat money, and how is going to be the impact to the PP of the biggest money supply crisis of humanity history?

GDP is 1 year.  Debt is measured over decades.  Apples vs oranges.  It's like the US debt clock that shows outstanding unfunded liabilities in the trillions going on for all eternity but not outstanding uncollected revenues.  Without revenues coming in from productivity, we would already have been in a state of hyperinflation long ago.  We now have more technological breakthroughs in 6 months than we did in all of the previous 10 years.  I'm not worried.

All MR says is that the Treasury cannot default.  That's it.  Even under the "gold standard", it confiscated everyone's gold rather than default.  What more proof is needed?

P.S.  When you take out a mortgage, do you measure the total debt owed by your yearly salary which would be several orders of a magnitude lower?  No, you measure your future expected cash flows and your ability to service the debt, aka debt to income ratio.  Cash flows is the basis of all finance.  The doom porners are intentionally misleading you!

TennPaGa wrote: 2. Government deficit = non-government surplus = private surplus + trade deficit (this is just an accounting identity), so reducing government deficit must result in the reduction of the private surplus and/or the trade deficit.  Without reducing the trade deficit, private savings will decrease (this was the origins of the 2000-2001 recession).

I don't think that is correct in regards to the trade deficit, but I'm not eloquent enough to mount a counterargument.  All I recall is the trade deficit is not a bad thing, its a good thing.  Or more precisely, the current account deficit is a good thing.

3. The main ramification is inflation: if we have too much money (via deficit spending and/or excessive bank credit generation) chasing too few goods, prices will rise.

Any and all spending relative to productive capacity, not just deficit spending.

3a. The main issue is, as PS points out, the productive capacity of the U.S., not how much money or debt or gold we have.

Technically, its how much cash flows are generated from productive capacity to service the debt.

The reason the doom porners have trouble with Monetary Realism is because they view money and the government as a black or white situation, i.e. no amount of government spending can ever be good, so they don't literally perceive that monetization of productivity by direct government spending can ever have a positive productivity outcome.  It is simply against their Austrian Road to Serfdom, gold buggerism, right wing philosophy.  Perceptions vs reality.

MachineGhost wrote:
GDP is 1 year.  Debt is measured over decades.  Apples vs oranges.  It's like the US debt clock that shows outstanding unfunded liabilities in the trillions going on for all eternity but not outstanding uncollected revenues.  Without revenues coming in from productivity, we would already have been in a state of hyperinflation long ago.  We now have more technological breakthroughs in 6 months than we did in all of the previous 10 years.  I'm not worried.

Hi Machine,

this reflection is relative,

how much money does USA use to pay back debt from federal budget? Is your cash flow prepare to achieve double? triple? is private sector capable of paying back 400% GDP? 600%? 1000%? how is the arithmetic between productivity and sustainable debt?

according to your example, is like buying a 400K$ house, having a salary of 100K$, but just using 30K$ anually for morgage. But with one difference. The Morgage increases every year a certain %.

Arturo wrote: according to your example, is like buying a 400K$ house, having a salary of 100K$, but just using 30K$ anually for morgage. But with one difference. The Morgage increases every year a certain %.

Yes, but the population is steadily growing so the money supply has to expand a certain % each year so there is enough money to grease the wheels of commerce.  Besides, how do you propose every debtor pay back the interest on all the debt owed or their taxes without an expanding money supply?  It would be rather fascist to have restrictions and play favorites.

frugal wrote: That's why PP has GOLD

Theoretically it has Gold.  In reality, most hold GLD, which may not perform the same in a (paper) monetary crisis.

systemskeptic wrote:

frugal wrote: That's why PP has GOLD

Theoretically it has Gold.  In reality, most hold GLD, which may not perform the same in a (paper) monetary crisis.

That's a lot better than nothing, at least. And many of us do in fact have physical gold.

Pointedstick wrote:

systemskeptic wrote: Theoretically it has Gold.  In reality, most hold GLD, which may not perform the same in a (paper) monetary crisis.

That's a lot better than nothing, at least. And many of us do in fact have physical gold.

I should have used "many" instead of "most" but the impression I get from the comments and polls on this forum is that people who hold physical / physical in size are actually a minority.

If the ETFs/futures market was wiped out in an MF Global / Libor / Cyprus like scandal, it is possible GLD shares could actually be no better than holding nothing at all.

It is not unfathomable to imagine a paper based PP (TLT, SPY, SHY, GLD) experiencing a 50, 75, even 90% [inflation adjusted] draw-down in the event of an extreme monetary crisis in the dollar.  That's not to say such an event is likely or even believable at this point in time, but that is the nature of a black swan.

systemskeptic wrote:

Pointedstick wrote:

systemskeptic wrote: Theoretically it has Gold.  In reality, most hold GLD, which may not perform the same in a (paper) monetary crisis.

That's a lot better than nothing, at least. And many of us do in fact have physical gold.

I should have used "many" instead of "most" but the impression I get from the comments and polls on this forum is that people who hold physical / physical in size are actually a minority.

If the ETFs/futures market was wiped out in an MF Global / Libor / Cyprus like scandal, it is possible GLD shares could actually be no better than holding nothing at all.

It is not unfathomable to imagine a paper based PP (TLT, SPY, SHY, GLD) experiencing a 50, 75, even 90% [inflation adjusted] draw-down in the event of an extreme monetary crisis in the dollar.  That's not to say such an event is likely or even believable at this point in time, but that is the nature of a black swan.

you are right it is riskier but easier

I will add physical in the future probably

Worst days than today is hard and difficult

TennPaGa wrote: Do a thought experiment: say aliens visited the U.S. and made everybody stupid and lazy, but also gave each person 20 lb of gold.  Austrians would delight in this.  However, it would be catastrophic for society.  For example, read this.

You are mistaken about Austrians being delighted about this.

One of the tenets of Austrian economics is that increasing the stock of the monetary commodity has no benefits. Other than in its greater availability for use as a "use commodity", of course, e.g., if the monetary commodity is gold, that would allow cheaper jewelry and more common use of gold-plating for corrosion resistance.