Gyroscopic Investing

Saw this today on economicpolicyjournal.com:

"Philippa "Pippa" Malmgren is an insider's insider. She was Special Assistant to the President for Economic Policy on the National Economic Council. She was also a member of the President's Working Group on Financial Markets, aka, the Plunge Protection Team. Her client list includes every elite corporate firm in the world (Take a minute to look at the list, it is mind boggling, the list is here.). You don't get much more insider than this."
"Most shocking, she stated openly that your "cash is increasingly at the risk of ending up in the hands of government." She says money will be expropriated in many different ways, but that it will be taken.

She also makes clear that there is no way that the US government will be able to pay off its debt and that it is only a matter of how the government defaults. She lists money printing inflation as a very strong possibility.

She ends the interview with some bullish comments on gold, saying that you just have to hold gold through its volatility."

Link to the article:
http://www.economicpolicyjournal.com/20 ... ction.html

Link to the video interview. Worth listening for the whole 20 minutes.
http://kingworldnews.com/kingworldnews/ ... mgren.html

That is scary that the special assistent to the president for evonomic policy has no idea how the monetary system works. We might have a captain, but he is blind in both eyes.

doodle wrote: That is scary that the special assistent to the president for evonomic policy has no idea how the monetary system works. We might have a captain, but he is blind in both eyes.

Could you elaborate further if you have the time? The things she was saying in the interview somewhat confirm how I understand governments and economics. Perhaps I also misunderstand something critical?

JonathanH wrote:

doodle wrote: That is scary that the special assistent to the president for evonomic policy has no idea how the monetary system works. We might have a captain, but he is blind in both eyes.

Could you elaborate further if you have the time? The things she was saying in the interview somewhat confirm how I understand governments and economics. Perhaps I also misunderstand something critical?

As I understand it, the US Government is very unlikely to default because it pays its bills in currency that it can print.

I didnt read the article, but the minute I hear something akin to the government paying off its debt I realize that person is still operating under the mistaken notion the the government balance sheet is the same as that of a private household.

Just as an exercise, what savings vehicle would we use for the permanent portfolio if the government paid off its debt? That debt that everyone maligns as so evil comprises 50 percent of our portfolio.

I would recommend doing an internet search and a little reading regarding monetary realism. It seems to be the way that most people here understand the workings of our countrys fiat monetary system. Initially you might recoil in horror, but I can assure you that what you will read will be an accurate representation of reality.

This will give you a good start http://moslereconomics.com/wp-content/p ... s/7DIF.pdf

Oh boy, here we go again! 

I'd start with http://pragcap.com/understand-the-moder ... ary-system

Mosler's book is also good, but a bit much for a first introduction.

There is no effective difference between a government trying to "pay off its debt" by directly raising taxes and one reducing a high debt/GDP ratio through inflationary currency printing. Both are equally confiscatory from the standpoint of the citizenry. Either way your purchasing power is reduced.

Members of this forum probably prefer the currency printing because the PP has tools that attempt to combat the effects. Nothing can combat higher tax rates except emigration. To the average citizen though, I don't see that there'd be much difference.

RuralEngineer wrote: There is no effective difference between a government trying to "pay off its debt" by directly raising taxes and one reducing a high debt/GDP ratio through inflationary currency printing. Both are equally confiscatory from the standpoint of the citizenry. Either way your purchasing power is reduced.

Members of this forum probably prefer the currency printing because the PP has tools that attempt to combat the effects. Nothing can combat higher tax rates except emigration. To the average citizen though, I don't see that there'd be much difference.

What motivation does the government have to do either? Why would it even engage in the exercise of payingndown debt to begin with? Also, correct me if Im wrong but with almost 6 years of big deficits and so called currency printing (I dont see how bolstering bank reserves qualifies as currency printing) where exactly is this hyperinflation some pundits have been calling for? Despite all of this it looks more and more to me that we are ready to tilt back into deflation again.

I would also argue that not all currency printing is inflationary. In our present environment of private deleveraging and low appetite for debt, somebody has to maintain economic demand or else we'd be in a real pickle.

doodle wrote: I didnt read the article, but the minute I hear something akin to the government paying off its debt I realize that person is still operating under the mistaken notion the the government balance sheet is the same as that of a private household.

Just as an exercise, what savings vehicle would we use for the permanent portfolio if the government paid off its debt? That debt that everyone maligns as so evil comprises 50 percent of our portfolio.

I would recommend doing an internet search and a little reading regarding monetary realism. It seems to be the way that most people here understand the workings of our countrys fiat monetary system. Initially you might recoil in horror, but I can assure you that what you will read will be an accurate representation of reality.

Listen to the interview.  She is saying that there are multiple ways in which a country can default.

1. Default Argentine Style..... wake up one morning and say "sorry, we're not going to pay"
2. Greek style...... "We're going to pay you, but it's going to be a little less and take a little longer than what we originally promised"
3. Default through printing, which is what she's suggesting the US will do.

Fortunately, we'll see just how well the MMT theories work out with Japan as the canary in the coal mine.

Early Cuyler wrote:

JonathanH wrote:

doodle wrote: That is scary that the special assistent to the president for evonomic policy has no idea how the monetary system works. We might have a captain, but he is blind in both eyes.

Could you elaborate further if you have the time? The things she was saying in the interview somewhat confirm how I understand governments and economics. Perhaps I also misunderstand something critical?

As I understand it, the US Government is very unlikely to default because it pays its bills in currency that it can print.

She's not suggesting that the US will go through a hard default, just a soft one via money printing and inflation.

RuralEngineer wrote: There is no effective difference between a government trying to "pay off its debt" by directly raising taxes and one reducing a high debt/GDP ratio through inflationary currency printing. Both are equally confiscatory from the standpoint of the citizenry. Either way your purchasing power is reduced.

Members of this forum probably prefer the currency printing because the PP has tools that attempt to combat the effects. Nothing can combat higher tax rates except emigration. To the average citizen though, I don't see that there'd be much difference.

Inflation is only theft to savers to the degree that inflation outstrips risk-free interest rates.  A real yield is impossible in any natural way without taking some risk.

So from 1981 through the early 2000's we were in an almost consistent state of subsidizing savers.

Thank you, doodle, I do understand that the US can't default in nominal terms. As clacy and others have said, she is referring to "real value default" as one of the options. Other options being more overt confiscation. I think one of her main points is that future obligations can't be repaid in full without some level of suffering.

What is "printing money," really?  Trading reserves for different fiat assets, with no net change to the size of the fiat private sector balance sheets.

What if banks aren't truly reserve constrained to boot, making reserves even less relevant?

What is a currency issuer doing by issuing debt as well, anyway?  Is it really cheating when they print to pay off a financial asset they naturally had no need for to begin with?  Is it not just an interest rate management tool at that point?

If printing were truly the functional equivalent of default, and not an interest-rate management mechanism, wouldn't we see really high inflation and a rejection of currency?  Where are our wheelbarrows full of cash?  I don't think Americans feel like they have that much cash, nor will the any time soon.

We are equipped to reject the dollar as a currency no better than we are equipped to reject oxygen as the air we breathe.

I prefer to look at QE as essentially hanging the flammability of the fuel people can use to heat there homes, when there simply isn't enough fuel to begin with.

Yes, I'm saying we need more dollars/tbills in the private sector to act as clearing assets for a functional economy.

I'll check out those links above, but honestly I've read so many books by Rothbard, Hayek, and Mises that I think I'm immune to the assumptions in modern monetary theory!

Jonathan,

There are a couple things to focus on.  One are the descriptive elements of our monetary system.  The other is the prescriptive elements, or maybe even some of the more subjective descriptive elements.

One can understand that our system isn't what it seems and still feel that there are moral issues with it and that our government is still inherantly inefficient and immoral.

However, once you get your head around enough of it, you may end up like me, and be fully comfortable seeing why we don't have high inflation or high interest rates.

JonathanH wrote: I'll check out those links above, but honestly I've read so many books by Rothbard, Hayek, and Mises that I think I'm immune to the assumptions in modern monetary theory!

Oh boy, join the club! I was in the same situation about a year ago. They have a lot of really good points, but Austrian economics IMHO needs an updating for the era of non-gold-backed fiat currency. Their political and moral prognostications still make sense to me, but economically, their assumptions and beliefs puts them in the position of chicken little, constantly predicting hyperinflation around the corner ...for the last 30 years. They have a part of the puzzle, but can't see the whole thing.

Ok, I'll read the paper - it's only 40 pages. if I find some issues or insights I'll admit that. I don't want to be dogmatic about it.

I agree with PS above.  The von Mises school of economics is immensely appealing from an intellectual and philosophical perspective, but it just doesn't adequately explain what actually happens in the real world, and thus it should be viewed as partially the economic equivalent of science fiction--it describes a world that we don't live in, though it's a world that many people would like to live in.

I read the two linked papers above, and there are a lot of assumptions in there the Austrians would have a problem with.  I have to agree with the sentiment that the Austrians describe the "world that should be" but MMT describes the world "as it is". But I feel the Austrian story of "why things are all messed up" to make more sense than the solutions prescribed by the other theories.

Fortunately, Mosler recently debated Bob Murphy and I look forward to the video when it is released!

http://www.modernmoneynetwork.org/mmt-v ... chool.html

How are things any more or less messed up now than they have ever been? Life on earth is a messy enterprise...and I have a feeling that if the world economy were run according to the tenets of Austrian economics, it would continue to be a messy place.

I have been on this earth for about three decades and I can't remember a period for longer than a year when something or another wasn't in upheaval.

I think where Austrians mess up is not in stating where "thing are messed up" (we could say that about anything), but in what the end result will be in terms of human behavior.  They may be right that government is evil and inefficient, but their logical conclusion that government activity in the economy is inherantly unstable or will result in some kind of extremely undesirable outcome seems to be where they really struggle.

Examples:

"All this money-printing is going to result in inflation, and is essentially a soft-default on debt."

"Rates are being held grossly unnaturally low, and this is going to lead to rampant speculation."

"This recession is being caused by inadequate supply-side motivations (taxes are too high, employers are uncertain about regulations (rather than demand), government borrowing is "crowding out" private investment), rather than a demand crisis."

Meanwhile, we have no examples of an Austrian model that works in the modern world.  The most wildly productive economies usually have heavy government infrastructure, centralized healthcare and educational institutions, regulation, central banks, etc.  We also don't have much apparent demand for such a society to exist, as the wildly productive people in these wildly productive societies seem to actually enjoy the more fast-paced, social lifestyle of urban centers (aka, centers inherantly dependant on a very involved government).

We could argue about morality until we're blue in the face (which I think we actually have), but some of evidence on the functional results of a mixed economy (government involved in regulation, infrastructure, monetary policy, etc) are showing that there is probably a much more robust nature to government-involved economies, and something inherantly fragile about Austrian Utopias, even if that fragility is simly due to them being vulnerable for other big governments that they don't believe in. 

Most Austrians woul have you believe the opposite... that by trying to correct small problems within our machine we are dooming it to failure, because we're making ourselves weak.  However, this would mean, logically, that we'd have lots of robust Austrian societies all over the world, and the statist empires would be inherantly fragile entities.  We don't see this.  We actually see the opposite, where stateless societies are inherantly fragile, and, for all its problems, countries with a relatively even mix between state and private activity (in the right areas (w/ government regulating industry, building infrastructure, and enforcing property/contracts rather than killing people)) have the best chance of being here tomorrow, and have the safest environment for the populace to relax, enjoy their family, and try to think of creative ways to make a profit.

It seems to me that if a country has a relatively honest culture, a decent amount of natural resource, and can strike the right mix of private and public roles/responsibilities, they've struck a very "robust" balance that can be hard to undo... I think it would do Austrianism well to start realizing this, even if they want to continue their moral crusade against said governments.

moda0306 wrote: It seems to me that if a country has a relatively honest culture,

OT but...

"Statistics show that cheating among high school students has risen dramatically during the past 50 years. "

Perhaps that part is slipping away...

moda0306 wrote:It seems to me that if a country has a relatively honest culture, a decent amount of natural resource, and can strike the right mix of private and public roles/responsibilities, they've struck a very "robust" balance that can be hard to undo... I think it would do Austrianism well to start realizing this, even if they want to continue their moral crusade against said governments.

That's the rub though and an argument I've had against MMT for a while. Even if I thought stimulus spending, large debt, etc. were needed at some level, governments do destructive things with it. Whether it is a new war overseas, drones over American cities, or the latest Prism surveillance disclosure, governments with bottomless checkbooks can do really bad things.