Buy Out

This (via Mangan) is such naked precious metals propaganda — and yet it’s so right.

… markets are behaving exactly as one would expect at the end of a major economic era. That is, markets are totally divorced from the reality of what is going on both economically and geopolitically. Markets are now in a manic phase, driven by false hope and momentum. […] It clearly helps that many economic figures are manipulated and therefore totally inaccurate. If we add to this the most massive money creation in history, we can be certain that these are not normal times. […] We are experiencing the beginning of a hyperinflationary period, with hyperinflation, so far, being noticed only in financial markets, property markets, and other key assets such as art and classic cars. […] And currencies will continue their decline to zero. Continued money printing will guarantee this. And we have to remember that the major currencies don’t have far to go since they are down between 97 and 99 percent in the last hundred years. As currencies start the next major phase of decline we will experience hyperinflation in all parts of the economy. This hyperinflation will be happening in most major countries. …

It’s not just that the analysis is solidly grounded in an obdurate realism (this is the raw economics of Gnon), it’s also that:
(a) Gold is the traditional medium of economic-regime exit, and therefore
(b) This discourse is immediately anti-politics (or resistance).
It says: Get out! That’s not a message to be easily decrypted for representational content, because it’s a war cry.

How does a hyperinflationary collapse begin? With a flight to gold. There’s going to be hyperinflation — flee to gold. It’s a circuit. The Cathedral’s economic authorities are entirely justified in considering such messaging aggressive (even ‘terroristic’), in the specific mode of a self-fulfilling prophecy. If people listened, they’d bring everything crashing down.

It’s no less crucial to understand that, by inversion, the voice of central monetary authority is equally incapable of isolating the communication of objective information from the continuous flow of psychological operations. When the state monetary apparatus speaks, it exercises effective power. It commands. The sole value of fiat currency lies in a popular habit of obedience, which the state money power systematically sustains. There is no other usage of macro-economic signs.

‘Buy gold’ is a counter-revolutionary instruction to participate in the destruction of the state money system.

(… and now we have Bitcoin too.)

August 22, 2014admin 128 Comments »
FILED UNDER :Political economy

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128 Responses to this entry

  • Alrenous Says:

    Oblig.

    [Reply]

    admin Reply:

    Thanks — perfect.

    [Reply]

    Posted on August 22nd, 2014 at 5:20 pm Reply | Quote
  • Aeroguy Says:

    Predicting hyperinflation is easy. Mapping out the path and prerequisite events to get there is hard. Timing it is hardest of all.

    [Reply]

    Posted on August 22nd, 2014 at 7:04 pm Reply | Quote
  • Michael Says:

    it seems the USG spent all of Germany gold it was holding because they have been trying to get it back for about seven years .some think they spent all Us gold and a lot they didn’teven have [ naked shrts] to suppress gold prices and hide inflation.. the derivatives are about 800 trillion in credit default swaps that a highly significant amount of money.The bank of international settlements got the major western countries to formally legalize “bail ins ” a few years back; essentially a bank in trouble can convert you deposits into worthless shares of your bank and you wont be covered by deposit insurance.- yeah like in Cyprus only all of it that was the test run. They are also planning to convert everyone’s retirement accounts into social security bonuses. I thought all this was alex jones type paranoia but its not its real and probably why hey are really stocking up on enough ammo to fight ten iraq wars so dark knights the collapse may come sooner than you think better get that neo cameralism thing worked out soon just in case ill suggest you figure out how post apocalypse communication works

    [Reply]

    VXXC Reply:

    Mike,

    #post apocalypse communication

    It works AM/HF.

    Ham Radio [HF/AM] even has it’s own data and packet switch protocols. AX.25 for instance. TexNet. Yes Texas has it’s own Ham radio protocol. Their State Militia has this as part of their Mission.

    https://www.tapr.org/pr_intro.html#AX.25

    I’m not in Texas and haven’t used it, the literature looks solid.

    http://www.eham.net/reviews/detail/10349

    amazon has a large selection.

    There’s a whole little subculture I’m just about to explore.

    http://chirp.danplanet.com/projects/chirp/wiki/Home

    [Reply]

    Michael Reply:

    LOL yeah subculture doesn’t begin to describe but thanks I hadnt found this packet aspect to ham

    [Reply]

    Posted on August 22nd, 2014 at 9:11 pm Reply | Quote
  • VXXC Says:

    Amateur [Ham] Radio Mike. Even has packet protocols like AX.25 [from the original internet X.25 packet switching protocol], LINUX packet switches, etc.

    and admin’s right buy gold. gold $1280.00, Silver $19.90 right now. Still cheap.

    [Reply]

    Michael Reply:

    yes Im into and out of and into metals since 08 mining stock were great earlier this year Kitco has best prices for physical and is Canadian
    energy wise im set i built a self reliant homestead in the Rockies with my own electric and alcohol production in the early 90s

    [Reply]

    Posted on August 22nd, 2014 at 9:31 pm Reply | Quote
  • Kgaard Says:

    This is nuts. Those guys on King World News have no shame. They have been wrong for years and keep saying the same nonsense. I thought this entire debate was had here on Outside In about six months ago and people basically agreed that QE was necessary, Sumner and the market monetarists are right and hyperinflation is NOT right around the corner. In that context this post feels like backsliding. Nick I thought you in particular were on board with the Sumnerian analysis of monetary policy. (??)

    None of this is to say Bitcoin isn’t a nice end-around from fiat money. It can be. But the fact remains that there is no bubble in US stocks and there is no realistic hyperinflation risk here. If anything the real risk is that the US tightens TOO SOON — just as Europe has done. Many of Europe’s problems are a function of egregious monetary policy errors by the ECB — on the too-tight side. That’s why all of Southern Europe is in de facto recession/depression. If the ECB were split in two and Bernanke was appointed central banker for the southern half, Southern Europe’s economy would be healed very quickly.

    As birth rates fall, populations age and productivity increases, the real threat is going to be DE-flation — not inflation. Bernanke recently said the US may not see 4% interest rates again in his lifetime and I think he could be right.

    And before somebody writes “Dude, just shut up,” please make your case HOW our current monetary policy is going to lead to hyperinflation. Remember that there is relentless, insatiable demand for bonds of the US, Germany and Japan, partly from pension funds (which will only grow) and insurance companies. You can’t have a hyperinflation in the face of insatiable demand for your currency.

    Where the doomsdayers screw up is in conflating countries like Argentina and Brazil and 1920s-era Germany — which borrowed in FOREIGN currency — with the US, Japan and Germany today — all of which borrow in their own currency. It’s apples and oranges …

    I feel it’s important for any neoreactionary to get monetary policy right or else his political prognoses are going to be disastrous (and his investment portfolio will be a trade wreck to boot) …

    [Reply]

    Aeroguy Reply:

    What, you almost sound like a Keynesian. Deflation is a symptom of bad things, not a bad thing in of itself, unless you’re a central banker or politician trying to hide that bad things are going on, which they are. Yes if there was no QE we would have had a depression, but that doesn’t mean they made things better, they just kicked the can down the road. Or put another way, they got drunk, decided they really didn’t want a hangover, so they decided to keep drinking into the morning instead. The banks are toxic and deserve to topple over, they’re zombies, sometimes you need a brush fire to clear out all the rotten wood crowding out the new growth. You’re absolutely right that tightening now would put us into depression, but low interest doesn’t make things better, it just puts off the inevitable pain and makes it worse.

    You are correct that many have been premature in their estimates of when hyperinflation will hit, but with fiat, it’s not a question of if but when (did Rome borrow foreign currency, nope, currency debasement is all you need). You are right about how the boomers retiring and productivity taking a hit (I’m going to assume that’s what you meant because deflation is a result of a contracting economy), deflation would happen, if not for pumping (deflation is a natural market adjustment mechanism, fighting it hurts the market, it’s only bad if you’re in debt, which the USG is, which is why they say it’s horrible). S+P 500 is in nose bleed highs with shit fundamentals and the bond market you mentioned is exactly where the bubble is at. We’ve been printing, and more recently Japan has been printing, and having their central bankers put the freshly printed money into the bond market so the banks have a nice juicy bubble to feed on. Not to mention there’s more than $700 trillion dollars in the derivatives market.

    So we have shitty fundamentals crowding out real growth while we pile on debt to hide the shitty fundamentals forcing us into low interest rates as the money just keeps printing. The banks are smart enough to sit on the money which is what’s kept inflation from hitting hard (and reason Krugman got to crow about the goldbugs being wrong, as I said in my earlier post, predicting is easy but path is hard (I”m trying to do that here) and timing is hardest).

    Stagflation (you call this a recovery?), something we’re already seeing if you use the shadow stats and not the FED’s bogus numbers (which will get worse as the US looses it’s grip on the oil dollar causing dollars to return home), is only going to get worse as we continue seeing an effective negative interest rate making real investment all but impossible forcing all investment money into moar bubbles as the real economy gets sicker and more debt dependent (because government spending is compassionate and it counts as GDP even if it’s paying economists to eat shit). As the oil dollar loses it’s effectiveness, debt won’t be as easily inflated away to foreign countries, it will stay home. Ballooning entitlement liabilities thanks to retired boomers plus even small increases in interest rates will eventually force USG into default. This obviously causes a cascade effect that ripples into the derivatives market (just like how an A-bomb sets off an H-bomb, but for financials) blowing out the entire financial system.

    There’s hardly a day that goes by where I don’t try to convince myself that you’re right and there isn’t going to be a financial collapse. Please rip this to shreds and prove me wrong, it would make me so happy. My thesis rests on the erosion of the oil dollar, prove I’m wrong about that alone and you’ll be right.

    [Reply]

    blogospheroid Reply:

    Shadowstats doesn’t believe their own shtick. There was a decent azizonomics article some while ago which compared billion prices project to cpi and found that the cpi was decently correlating. And in the many years that shadowstats was publishing its INFLATION alarm bells , they themselves had not raised their subscription price. If you’re rational, you’ll conclude that shadowstats doesn’t believe their own stuff. Then why should you?

    [Reply]

    blogospheroid Reply:

    The thing about the shadowstats price remaining the same comes from Krugman. But it’s a fact and facts have a weight of their own.

    Michael Reply:

    i dont need shadow stats to tell me that since i was a teenager
    housing has gone up 4000% in my NYC home
    my NYU tuition 900%
    my medical insurance 2500%,
    my gold 600 – 1000%
    the stock market 1400%
    oil 500%
    pick up truck 1300%
    movie ticket 700%

    my wages with benefits 200%

    Orthodox Reply:

    “As birth rates fall, populations age and productivity increases, the real threat is going to be DE-flation — not inflation. Bernanke recently said the US may not see 4% interest rates again in his lifetime and I think he could be right.”

    If you’ve got decades of low real growth ahead, and in the case of Europe and Japan, very little or even no nominal growth, and you pile up huge amounts of debt, eventually you’re going to have either a deflationary crisis or inflationary crisis. The problem you are seeking to avoid today only becomes worse and worse over time. It also transfers the crisis off of the private balance sheet and on to the public balance sheet. It assumes no problems, no natural disasters, no wars, etc., which is a bad bet given current trends.

    Japan’s earthquake sent the nation into trade deficit and now they have been there for 40 straight months. They didn’t need to borrow from foreigners before because they exported to them and used that profit to fund their debt. Now the foreign lender is the marginal lender in Japan. If foreigners refuse to lend, or Japanese refuse to lend and foreigners do not pick up the slack, the yen will collapse in value. You can only stuff so much debt onto your domestic economy before you run out of borrowers, or you can force them to lend as in Argentina.

    I boil it all down to the marginal utility of debt. In most countries, MUD has gone negative, to be revealed in the next recession.

    [Reply]

    Michael Reply:

    in construction and i would think all industries effected by affirmative action productivity crashes with whites forced out and those remaining retiring. it takes me at least three tries at half the old speed each time to get a minority to accomplish a task to barely passable standards we will have to find ways to get this automated lee iacoca claimed in his book the detroit collapse was not due to Japanese ingenuity or high union wages but affirmative action i can believe this. We all knoww the cost and productivity in government and it looks like the tech industry will soon experience this as well

    Michael Reply:

    well the banks couldn’t sit on the money because inflation discount rate greed stockholders etc so we got 800 trillion derivatives of affirmative action mortgage market shakedown.
    good point and ironic about petro dollars

    [Reply]

    Kgaard Reply:

    Aeroguy … the notion that the Fed “kicked the can down the road” by printing and that the economy is today based on some unsustainable level of liquidity is not correct. This is another of the mistakes the hyperinflationists make. Again … if there is too much liquidity … if the fed printed too much money … why is CPI 2% rather than 10%? The answer is that all that money they printed was DEMANDED by various entities. In a shaky economy the demand for cash goes through the roof. If the Fed DOESN’T print that cash, you have a deflationary vortex banking crash — just like 1931. Now … over time … some of that excess cash demand eases, and thus monetary base eases too.

    There’s another way to think about this as well. If a central bank does make an inflationary error — let’s say a bad one like in the ’70s — then it has two choices: Unwind the whole thing and have a deflationary crash, or else acknowledge the error and print enough to keep prices stable-ish instead of crashing. The US has tried both approaches in its history. Most economists include the latter approach, on the grounds that two wrongs don’t make a right. In other words, you can’t fix an inflation with a deflation. All you’ll get is twice the pain and a monetary rollercoaster.

    On the question of whether this is a decent recovery … well … I agree it’s pretty anemic. Some of that is structural (jobs being shipped overseas, machines taking the place of people, Obamacare, tax hikes etc). But on paper the economy has indeed been recovering reasonably well — and FAR better than Europe. Also far better than Japan.

    [Reply]

    admin Reply:

    “…. sometimes you need a brush fire to clear out all the rotten wood crowding out the new growth.” — Without creative destruction, capitalism is merely a parody of itself. Fortunately, Creative Destruction is no more susceptible to suppression by ideological fiat than Social Darwinism in general is — the ultimate result of all the softness is tough cosmic medicine intensified to apocalyptic strength.

    [Reply]

    Hurlock Reply:

    ” there is no bubble in US stocks”

    Are you high?

    “Many of Europe’s problems are a function of egregious monetary policy errors by the ECB — on the too-tight side.”

    Ok, at this point I know for sure you have no idea wtf you are talking about.

    “And before somebody writes “Dude, just shut up,” please make your case HOW our current monetary policy is going to lead to hyperinflation.”

    You are essentially saying that printing a ton of cash is the best fking idea ever and will help the economy even long-term. I am curious if you really believe your own bullshit. You are either retarded or a troll and I am not sure which one is better.

    Seriously, it’s like I am reading Paul Krugman.

    [Reply]

    blogospheroid Reply:

    Hurlock, please read up on market monetarism. One of its predictions is that after basing the monetary policy on a nominal GDP level targeting path, you essentially wind up macroeconomics. Everything after that is exactly as in classical economics. It’s better for the government to balance their budgets exactly like they’re under the gold standard. All reforms have to be supply side reforms.

    The reason the point is made that the European monetary mechanism is too tight is because the prices of all the factors reflect an expectation of a higher ngdp than what actually came out. Declare a NGDP growth path and do level targeting on that. You can even have the growth path taper to zero growth of NGDP eventually. This will be a world of purely good deflation.

    Low growth turns people away from capitalism, please do keep that in mind.

    [Reply]

    Hurlock Reply:

    If you are balancing your budget as if you are under the gold standard there can be no talk of tight or loose, because the government simply can’t print money in the first place.

    blogospheroid Reply:

    The central bank can buy securities that are not government bonds. It can buy foreign government bonds or private sector bonds or shares or even the staid old land. So, loose or tight monetary policy (defined with respect to a prespecified target) does not lose meaning for the Central bank of a country whose government balances its budget.

    Kgaard Reply:

    Hurlock … You’re just wrong here. I’m not saying “printing a bunch of cash is the best idea ever.” I’m saying “printing a bunch of cash in the wake of a 1930-caliber liquidity squeeze that threatened to destroy the entire banking system and put the US in a 1930s-style depression” was a great idea. It’s a one-time thing. If you are going to have a fractional banking system (different debate), which we do, then you MUST have a central bank to intervene during panics. That’s what the Fed did. It did the right thing. And we’re all much better off for it. If you want to see the results when a central bank doesn’t intervene during a panic, go to Greece and check out the barter economy that has sprung up there among the destitute.

    And if it seems like you’re reading Krugman, that’s because Krugman has actually been completely right about this. He is a vicious tard when it comes to fiscal policy, but on monetary policy he has been very good. One reason the Republicans freak me out is because they are obsessed with too-tight money and starting wars …

    As for US stocks … P/Es are maybe a tad above their long-term average. I’m not doing anything in US stocks because there are cheaper things elsewhere — particularly Japan. The BoJ is now finally getting on the stick and printing enough money to get CPI out of negative territory. They are overcoming their deflation and starting to grow a bit.

    [Reply]

    Hurlock Reply:

    Maybe you have been reading too much Friedman.

    You wouldn’t have this whole “1930-caliber liquidity squeeze that threatened to destroy the entire banking system and put the US in a 1930s-style depression” crap if you didn’t have a central bank which undertakes a policy of credit expansion and artificially lowering interest rates so that populist government policies can pass, while at the same time propping up an essentially bankrupt banking sector.

    You seem to be ignorant of this, but I am curious have you ever read Moldbug’s posts on economics?

    “The BoJ is now finally getting on the stick and printing enough money to get CPI out of negative territory. They are overcoming their deflation and starting to grow a bit.”
    Hilarious stuff.
    I am laughing so hard I literally can’t breathe right now.
    If Japan’s economy somehow scrapes to survive if it will in spite of the printing, not because of it.

    "NICK, PLEASE RULE OVER ME WITH AN IRON FIST WHILE I DROOL AWAY IN YOUR COMMENTS SECTION." Reply:

    I like how Hurlock was one of the people crying about Nick’s comment section, and yet here he is posting one line comments attacking people and assertions without supporting claims.

    Must be the low slav IQ.

    [Reply]

    Hurlock Reply:

    quality trolling right here

    Michael Reply:

    I think your mixing things up i supported QE and bought Gold I support religion and am an atheist. Im in no hurry for the end it will not be some romantic fantasy of vikings riding wolves.
    Modern systems are not as predictable as we think so it might not be hyper inflation it might be another crash followed by banks seizing all assetts and martial lawit might me depression deflation and martial law
    who know maybe they wont be able to keep an army but as long as they can feed them a little better they will stay. whatever happens whether you have no cash or wheel barrows full you disconnect from the fiat and start bartering what you have i dont think stacks of cash will be that useful at least id want options. i dont think all metal is wise either they will try to destroy the metal markets and seize it to hold power. the collapse could be slow and convoluted . First thing I would have is some land thats sustainable and far away from the masses i recommend the mountain west its beautiful and full of well armed whites who have basically been preparing for the united nations invasion for 30 years LOLOLOL whtever they are well armed and hold the high ground and all their kids were trained by the USMC If you have a little ranch and a sawmill or garden you dont need gold

    [Reply]

    VXXC Reply:

    “QE was necessary.”

    For Finance and for Western Governments.

    For the rest of us, who suffer it’s consequences something else is now unavoidably necessary.

    The beneficiaries suffer consequences or the rest of us will perish. Surely you know you’ll eat it all merely by your natures. With justifications aplenty, like the suffering transferred to others has been aplenty.

    Every man in prison is innocent, but there have seldom been so many innocent men outside of it…just doing what is necessary. For themselves. Which grants innocence, apparently.

    It’s you or us. The choice has been made by you. What the rest of us do remains to be seen.

    [Reply]

    Posted on August 23rd, 2014 at 3:14 am Reply | Quote
  • Orthodox Says:

    And yet, the main problem with the hyperinflation argument (albeit one that may be right in the end) is that we no longer live in a fiat world, but a credit world. In order to increase the supply of money and credit, one must increase the supply of credit. In China this is trivial: Xi Jinping says, “Banks! Lend!” Yet China doesn’t do this, seeing the mistake of 2008. Nor does the Federal Reserve, ECB or BOJ. They all work at swapping bad debt for “good”, but if no one wants to borrow, there is no increase in credit. Credit is more than 10x the size of base money, the Fed would need to print on the order of $3-4 trillion in one year order to move the needle and offset the lack of credit growth. The recent QE was about $1 trillion in a year.

    Gold is just a good a bet in “hyper” deflation though, since your bank account will be zero’d because the money supply is more than 90% credit. And the end result is no less catastrophic. Of course, hyperdeflation is much better if you’re a bank that is too big to fail. In hyperinfaltion, the cost of debt is socialized. Banks get clean balance sheets and survive. In deflation, if you’re too big to fail, you collect title to all the property in the economy. If I was a banker who knew the govt would never let me go bankrupt, I’d much rather lose money and end up owning most of the property in the country, than have hyperinflation bail out all my creditors.

    [Reply]

    Orthodox Reply:

    at the end creditors = borrowers.

    [Reply]

    blogospheroid Reply:

    In the BBC documentary on the China bubble, it was said that post 2008 crash, they pretty much did that – told the banks to lend and boy, did they lend! The curbing part is expected to happen one of these days and the people are scared that the whole thing would collapse.

    [Reply]

    Orthodox Reply:

    The curbing is happening right now. The debate is whether Xi and Li are skittish or not, since even a mild curbing led to major panic in certain sectors of the economy.

    [Reply]

    Michael Reply:

    well since along with fiat you get reserve banking fiat was always a debt system whether it was the medicis giving letters of credit backed by their name or chase loaning your deposits out 9 times same thing always susceptible to a run thus central banks etc. Im not even opposed with out it we would still be serfs, but government deficits is a whole other story.

    [Reply]

    Posted on August 23rd, 2014 at 3:24 am Reply | Quote
  • blogospheroid Says:

    Who bells the cat? Which society volunteers to be the first to get on the golden cross? Everyone, even the super conservative swiss, want a currency that floats along with the others in the world. Neither too high nor too low. A clever technocommercial administration would have utilised this crisis of lack of safe investments to scoop up money at cheap rates and pay them out to the world at leisure.

    But anyways, i’m pretty much a market monetarist in these matters. If the cb’s of the world engage in this dance of withdrawal and increase of liquidity without laying out a clear nominal GDP path, then yes , anything can happen as that increases uncertainty. Uncertainty is always good to pm’s.

    OTOH, If they layout a clear path for nominal GDP, that will initially be great for gold as people will be scared at the amounts that enters markets, but with time PM’s will crash as uncertainty will be drastically reduced. Scott Sumner has shown with his examples of Australian and Israeli economies that in a country with a firm nominal income path, base money as percentage of GDP is actually lesser. Announce NGDPLT and you don’t need QE except for the initial demo. Kinda like the Israeli tactic of shooting the leader of the mob and preventing it from becoming a riot.

    [Reply]

    Kgaard Reply:

    Blogospheroid — Yes … this is right. And the better central bankers of the world are laying out a path for nominal GDP — sort of. That seems to be part of what is happening in the US. Yes central bankers can print too much or too little on a fiat system, but that is the job of the central banker, to figure out how much to print. The key is what CPI path they choose. Most are settling on 2% — but having trouble hitting it in many cases (ECB, Japan).

    One of the fundamental mistakes the hyperinflationists make is in assuming central banks are passive actors and that a group of angry citizens can sort of go on strike against the dollar, buy gold and drive the central bank out of business. This doesn’t work because every central bank has a monopoly on money creation — they can create and destroy it at will. If prices start to rise excessively, no problem, just sell bonds into the system and suck out the excess money. Prices normalize. The reason there won’t be some flight en masse from US bonds is because the Fed has built up 30 years of track record of being pretty bent on low inflation.

    The 70s was an outlier. They kind of goofed there for a while, targeting growth in monetary aggregates rather than nominal GDP or CPI. Much of the inflation of the last century really occurred under one period of extreme error in the 70s.

    [Reply]

    Posted on August 23rd, 2014 at 10:27 am Reply | Quote
  • Michael Says:

    DUDE JUST SHUT UP THERE’S 800 TRILLION IN CREDIT DEFAULT SWAPS AND 200 TRILLION IN USG DEBT AND LIABILITIES divide that by WORLD GDP !!!

    AND WE HAVE JUST IMPORTED 150 MILLION LOW IQ PEASANTS WHO EXPECT TO BE TAKEN CARE OF, ALL THE GOVT STATS FROM VARIOUS MONEY SUPPLY METRIC, INFLATION, GOLD RESERVES , IMMIGRATION AND NOW CENSUS ARE BULLSHIT SO
    yeah they might keep the balls in the air because we all and i mean the whole world desperately want the system to not collapse big open conspiracy then again once it starts seeming possibly inevitable the calculations change to will first mover [defaulter } have the advantage? is it better to default while we can still kick everyones ass ? should we monetize afrika the ukrain ? its not that we have left the ranch on economics its that its gotten so insane that people like alex jones are becoming right. The 2008 bailout of affirmative action mortgages stopped a melt down yes but the QE created ten times more credit default swaps than we had before

    [Reply]

    Posted on August 23rd, 2014 at 11:37 am Reply | Quote
  • Handle Says:

    1. In dollars, the nominal price of gold is the same today as it was 4 years ago, and the real price nearly 5 years. Same goes for Pounds and Euros, though it’s only 3/4 years for Yen. After the panic-insurance buying bubble burst, it has definitely flatlines for the last 15 months or so. You should listen to what the market is telling you.

    2. For over six years now we’ve been hearing constant calls for imminent hyperinflation which never, ever arrives. That has to weigh in favor of Chicken Little or the Boy Who Cried Wolf over Cassandra, no? Japan has been going through deflation, and still arguably is even after Abe’s heroic interventions. Europe is on the brink of deflation. This despite periods of zero interest rates of unprecedented duration and explosions in the money supply and debt held by the public. Also despite the availability, widespread knowledge of, and slowly growing adoption of cryptocurrencies for several years now.

    3. Meanwhile, if you want to see actual crazy inflation, you can look at Belarus, Venezuela, Argentina, Syria, South Sudan, or any number of African or Muslim-World basket-case countries any day. Most even poor and corrupt but more-or-less normal-ish countries have been keeping it below 7 percent for years, which is pretty good given the historical track record.

    4. This is also despite a recent demand shock and supply inelasticity that has doubled petroleum prices. But you would expect that to increase inflation only in countries that are particularly petroleum sensitive regardless of how well governed they are. E.g. Singapore, which usually comes in for a lot of admiration and esteem around these parts, especially regarding public finances, is still running pretty hot around 4.5% inflation.

    5. Anyway, if you are worried about monetary inadequacy as a store of value, then you think cash is unsafe and shouldn’t be holding any, and it really isn’t that difficult to reallocate one’s assets into hedged futures contracts that reflects one’s expectations for one’s own future, idiosyncratic consumption baskets.

    Instead what I head is pretty incoherent. “I want something safe to hold, so I hold cash, because I don’t want to participate in the giant speculative casino that is the overall market.” But you can’t hedge cash, yet you can hedge and diversify volatility in the market. So, if you really think that cash is also just as bad a speculative casino, then you should just abandon the unhedgable nominal casino for the hedgable one that will follow the price-level and preserve real value.

    So 1. complaints about money should lead to 2. an abandonment of money which should lead to 3. a completely indifferent attitude about money, which should lead to 4. a lack of complains.

    Some people make it all the way from 1 to 4, but other people get stuck between 1 and 2.

    [Reply]

    Michael Reply:

    cash like anything else is hedge able and the Casino is in the Hotel California there’s no exit your wealth is in something; land and bullets, gold and silver held in canada, ausi dollars and short Japaneses sovereign debt ETFs , cash and art in your house ,NYC and London real estate,USG bonds and Asian stocks , carparts and seeds, its all going to adjust in a nanosecond to everything else theres manipulation and information and manipulation/ information limits,Assets held in casino owned institutions are subject to change without notice,almost anything speculative must be held in such institutions, time is unpredictable so is geographical consequence,human survival needs are known start with basics gamble according to excess asserts but before you decide to spin the wheel on whatever asset you think you have the edge on before you have a lifetimes supply of sweat socks and penicillin and the means to protect them
    You need to ask yourself one question
    do you feel lucky, well do you punk?

    [Reply]

    Hurlock Reply:

    “1. In dollars, the nominal price of gold is the same today as it was 4 years ago, and the real price nearly 5 years. Same goes for Pounds and Euros, though it’s only 3/4 years for Yen. After the panic-insurance buying bubble burst, it has definitely flatlines for the last 15 months or so. You should listen to what the market is telling you.”

    Please ignore the FED rigging gold prices and China and Russia stockpiling gold as if there is no tomorrow, there is definitely nothing to see here.
    Virtually everyone who has been paying any attention to the markets in the past couple of years knows that the price of gold is heavily rigged.

    [Reply]

    VXXC Reply:

    “the Fed would need to print on the order of $3-4 trillion in one year order to move the needle and offset the lack of credit growth.”

    That’s odd you say that. They printed up another Trillion just this past year, increased to $4.1T. From about $2.6T.

    here you are. One time thing indeed, apparently that “one time” is forever. Which,it isn’t.

    http://research.stlouisfed.org/fred2/series/BASE/

    [Reply]

    VXXC Reply:

    I myself don’t know what’s going to happen, it could be terrible deflation [not so terrible for those people who eat you know, as opposed to the ones who apparently don’t] or it could be hyperinflation. Or one leading to the other.

    I can however make a reasonable prediction based on past behaviors of those still extant, and the history of money and men that there will be consequences from Fiat from thin Air.

    Gold isn’t perfect, it’s handcuffs upon the apparently congenitally criminal and mad. Who aren’t getting anymore likable for these continued protestations of innocence, indeed demands that they be praised for their courage in sacrificing others, in doing so transferring the consequences of their madness to others.

    For instance everyone who has died in the Arab Spring and many who have died in Latin America can justly say this was Finance bribing their governments and above all USG. Not to mention many here who got sucked in, yes the McMansion owners were greedy. But they paid, they lost. Finance came out even richer and with more solid guarantees. Sure Dodd-Frank retards matters. But any prosecutions under USG are a matter of losing either clout or being unable to continue payoffs. So simply adapt to the new environment.

    However the problem is that the bill will come due. When it does the entire world* and much of the Continental US will have business with all the Madoff’s on free rein. You see they know the truth.

    Wave all the charts and figures you like, this psychic but prolongs your sickly days.

    *please take note Handle, matters should be handled in a way to minimize loss of valor and productive human capital. You see it’s already cascading and telescoping into one giant mess. need every swinging Richard. Esp those rare valiant ones. Hard to replace. 18th century war has the answers.

    [Reply]

    admin Reply:

    Fiat survival and the Cathedral winning are the same thing. This isn’t merely an epistemological problem. It’s war. If we’re serious about the game, we assume fiat will come down in exactly the same way that a chess player assumes the enemy king ends in check-mate. It’s not a prediction, but a Regulative Idea for coherent (teleological) action. Dismiss this idea, and you’re resigning the game.

    [Reply]

    VXXC Reply:

    Yes Fiat is the Cathedrals current and we may pray last confidence game. Agree with Admin.

    Agree. Except Chess part.

    Can we do STRATEGO= BOOM!! or something? Battleship? toss me a bone I’m agreeing.

    [Reply]

    Different T Reply:

    Now you want everything?

    [Reply]

    Michael Reply:

    i think it will play out more like they lost their queen they wont go quietly

    [Reply]

    Aeroguy Reply:

    “i think it will play out more like they lost their queen they wont go quietly”
    This

    Throwing the bankers under the bus doesn’t end progressives, they’ll be happy to do it. Their ideology won’t end quietly.

    admin Reply:

    Fiat crash is a necessary condition, even if is is not — as you say — a sufficient one.

    Alrenous Reply:

    Checking your claims, I found out that all this gold stuff is severely distorted by everyone.

    During previous ‘real’ highs more than 20% of all invested money was in gold and gold shares, today this percentage is still below 1%.

    using government inflation statistics then we’ll see that the 1980 peak of $850 equals $2500+ today.

    using shadowstats inflation statistics we’ll see that the 1980 peak of $850 equals $9000+ today.

    So…yeah. Gold still had a massive influx, but apparently its low was due to everybody but the dogs getting out of it, so ‘massive’ is relative.

    I can’t verify that the Yen is deflating. I can only verify that journalists have said it’s deflating. Everyone is denominating in dollars, as if which currency is racing downward faster is important. Also they seem to be straight-up lying, since the yen’s been fairly stable at 95-105 per dollar since 2013. http://www.xe.com/currencycharts/?from=USD&to=JPY&view=2Y

    As to hyperinflation, it is pretty well inevitable. However, there seems to be an IQ-scaled non-appreciation for the ignorance, hysteresis, and general sludginess of markets. All these things slow down the transformation, and as we can see, they can slow it down dramatically.

    Hyperinflation will arrive when it is least expected. Either when predictions of it have fallen off by say 80%, or when everyone has become accustomed to the background noise of the predictions and thus factored 80%+ of them out. Post mortem, it will be extraordinarily hard to tell apart who actually predicted hyperinflation from who happens to like predicting contrarian things and got lucky that time.

    Handle, how much as a percentage of a representative good’s cost is oil, do you think?

    [Reply]

    Michael Reply:

    you are right as far as that goes but can you verify that Germany has been asking for its gold back for seven years and the double entry for physical gold reserves don’t tally.

    [Reply]

    Posted on August 23rd, 2014 at 1:10 pm Reply | Quote
  • Hurlock Says:

    Damn, I never though that of all places on the internet it would be in the comment section of an NRx blog where people would claim that central bankers are saving the world.

    [Reply]

    VXXC Reply:

    Well see my last reply.

    Of course the Central Bankers aren’t saving the world, including their own.

    They’re merely compounding the interest of reality coming due, as they did last time.

    The Central Bankers would have us cannibalizing each other before they held one auction at Sotheby’s.
    They’re under the impression their machines and Mexicans can handle the loss of Europeans, Americans, Japanese.

    It’s a consequence of thinking in aggregate terms, and academic detachment.

    [Reply]

    admin Reply:

    Welcome to the Gray Enlightenment.

    [Reply]

    VXXC Reply:

    Gray Enlightenment.

    Well jeez. What kind of Ragnarok is that?

    [Reply]

    kgaard Reply:

    (This is in response to Hurlock’s reply at 3:27 pm.) Yours is exactly the kind of obnoxious — yet totally incorrect — comment that sets back the entire discourse. Readers may think that because you are both rude and confident you are right — but you are totally wrong. In discussing the proper response to the 2008 crash you can’t upfront declare that if we were on an entirely different monetary policy from the get-go the Fed’s QE wouldn’t have been necessary. NO SHIT.

    On a gold standard everything would be different. But that’s not what we have. You can’t have democracy (with universal suffrage) and a gold standard. Until we get some moldbuggian city-state start-ups we have to think about the real world — which means fractional banking and booms and busts. That’s life.

    Now… on Japan…. what do you even know about japan’s challenges? The yen had strengthened from 250/USD to about 82 prior to Abe coming in. It was a deflationary death trap. Nobody will invest in a country where they expect nominal prices to perennially fall because the nominal value of that fixed investment is sure to fall too. Without a policy change to get CPI positive Japan was headed for a permanent fade-out and ever rising debt, because the government would be the only aggressive investor in the real sector. So, counter-intuitively, Japan’s QE program will lessen government’s role and increase the role of the private sector. It has already started.

    Seriously Hurlock, you should a) be more polite and b) know what you are talking about before you go around insulting people.

    [Reply]

    admin Reply:

    The tone point is fair. The substance is … weird. Why should anyone care about “nominal terms”? The very word “nominal” basically shrieks that they shouldn’t. This is bizarre Keynesian mumbo-jumbo — the notion that the magic of nominal monetary value totally over-rides all rational economic calculation. Why on earth should we subscribe to this peculiar dogma?

    [Reply]

    blogospheroid Reply:

    There is a weird word thing here. Nominal GDP is the best estimate of the actual money flowing around an economy. “Real gdp” is actually a calculation and subject to all kinds of variations and choices of price indices, hedonics etc.

    vimothy Reply:

    Why should anyone care about “nominal terms”?

    Because contracts are written in nominal terms; prices are quoted in nominal terms. Changes in nominal quantities (such as nominal income) can therefore have real effects.

    In economics, what is “nominal” does not “exist in name only”. It simply means current prices, implying that direct comparisons across time periods cannot easily be made, since the units of measurement are different.

    admin Reply:

    @ Vimothy — fair enough, but it doesn’t affect the point. There’s no reason why a competent business should find it more difficult to engage in profitable activity via a deflationary currency than an inflationary one. Naturally, it makes calculations about optimum debt levels different — in a direction that should surely be appreciated.

    Concretely, it’s absolutely clear that the functional parts of the economy are deflationary. The tech sector, in our times, most notably. Deflation-terror is among the most inherently leftist biases at work in the modern world. It is radically statist, redistributionist, and time-horizon shrinking in its effects.

    Kgaard Reply:

    Nick … This is a critical point. It’s hard to get away from nominal considerations because so many prices are sticky — particularly wages, utilities and debt, but really everything except raw commodities. In an ideal world they wouldn’t be sticky, but we have to deal with the fact that they are. I hate to say this … but a guy who has this absolutely correct is Krugman. As noted earlier … Krugman is horrendous on fiscal policy but actually very good on monetary policy in times of deflation. (Conversely, Laffer is a great economist on fiscal matters but absolutely clueless on monetary.)

    Here’s one of Krugman’s several discussions of sticky wages:

    http://krugman.blogs.nytimes.com/2012/04/03/screw-your-analysis-to-the-sticky-point/

    This post includes a GREAT chart from the San Francisco Fed that pretty much proves wages are sticky to the downside and that employers simply do not want to cut wages if it can ever be avoided.

    As an aside, this is one reason why QE works so well to get deflationary economies like Japan’s moving: What happens is your top line grows but you can keep a lid on SG&A for a while (because you’d been wary of cutting it during the tough times), so margins expand and investment picks up. Animal spirits revive as entrepreneurs become more hopeful. Stock prices rise.

    Vimothy Reply:

    There’s no reason why a competent business should find it more
    difficult to engage in profitable activity via a deflationary currency
    than an inflationary one.

    If that’s true and the choice between inflation and deflation is
    arbitrary (and I agree that it is, under certain conditions), there
    seems to be little point in arguing for one over the other.

    What conditions would make it true? The most critical is that the path
    of inflation is _known_. What we principally want to avoid is large
    unpredictable swings in either direction. A big deflationary shock
    would revise debt contracts in unexpected ways, leading to widespread
    creditor windfalls and debtor defaults. It would play havoc with the
    price system. It would dampen economic activity as businesses in need
    of operating capital refrained from borrowing against future earnings,
    and consumers refrained from spending, and incurring losses due to the
    rapid appreciation in the value of currency.

    All of this mirrors what happens under an inflationary shock, but with
    the value of money surging in the opposite direction, and a
    concomitant redistribution of unearned profits and losses. What
    purpose does it serve to allow the economy’s unit of account to
    undergo such large revisions in value? What are the advantages of low
    and stable deflation over low and stable inflation?

    Peter A. Taylor Reply:

    Suppose I have a business opportunity that pays a 7% real return, but inflation is running at -10%. Should I take the 7% real return, or keep my money under a mattress and get 10%? The situation w.r.t. inflation vs. deflation is asymmetric because there is an implicit non-negativity constraint on nominal interest rates. Or am I missing something?

    Vimothy Reply:

    You should take the 10% return. You’re right that there is a non-negativity constraint on nominal interest rates. That’s usually taken to be an argument in favour of moderate inflation — but it’s not necessary for the purposes of my argument.

    Different T Reply:

    The situation w.r.t. inflation vs. deflation is asymmetric

    Can you expand on this?

    Peter A. Taylor Reply:

    @Different T:
    The nominal rate of return I can get from an investment is normally the real rate of return plus inflation. So if inflation were high, but steady and predictable, everyone would be able to take it into account, and it would merely be an annoyance. But if we have high deflation, no matter how steady and predictable, I have the option of stuffing my money under a mattress. I might pay someone to guard my money, but I would be silly to accept a negative real interest rate. So there is an implicit non-negativity constraint on the nominal interest rate. If people think that deflation is going to be greater in absolute value than the real rate of return, they disinvest. You can no longer just add the signed value of it to the real interest rate and carry on as before. It isn’t just an annoyance any more. It affects people’s behavior.

    Aeroguy Reply:

    Peter A. Taylor,

    I think I get what you’re saying about the behavior of capital investors (which is different from financial investors so thank you for pointing that out) but my understanding is that the interest rate and inflation are linked. If we let the interest rate float we would have deflation (and a depression) but it would be floating so high it would keep the real interest rate positive. (Although I’m starting to understand that with the interest rate kept low but without QE there could be enough deflation to cause the effects you describe) The status quo right now is negative real interest rates for financial investors (as opposed to capital investors) forcing money out causing a flood toward higher interest (and risk) investments inflating them with the sound investments so overbought that we’re seeing alpha being chased in garbage because investors have no other choice which is why so many junk bonds have got inflated.

    Under your deflation scenario shouldn’t there be an army of savers (financial investors) trying to loan to reluctant builders (capital investors). Also during the hyperdeflation episodes with bitcoin, miners fueled with their deflating bitcoins, kept reinvesting into capital goods (better mining equipment) in spite of the machines being a deprecating asset, when the deflation stopped going crazy and partially inflated the capital investment also dropped off.

    A negative real interest rate is obviously bad, but the deflation boogie man has got the CBs in Europe so scared they’ve actually discussed setting a nominal negative interest rate to counter it (but they need a cashless society to do that).

    Different T Reply:

    @ Peter Taylor

    This is still not understood. For instance, Vimothy’s response is suitable, possibly because it doesn’t address this supposed “asymmetry.”

    If people think that deflation is going to be greater in absolute value than the real rate of return, they disinvest. Isn’t this just a rewording of “there is a non-negativity constraint on nominal interest rates” w.r.t. investors? Which is actually only a rewording of “investors expect to be compensated, not pay, for taking additional risk?”

    Again, it’s the asymmetry part, specifically “you can no longer just add the signed value of it to the real interest rate and carry on as before,” that is not understood.

    Vimothy Reply:

    Vimothy addressed this in his response to Mr Taylor. He is not trying to show that low and stable inflation is to be preferred to low and stable deflation, merely that, given Admin’s assumptions, there is no reason to prefer low and stable deflation.

    Kgaard Reply:

    @Peter A. Taylor … Yes … you are right. This is the problem with deflation. You are better off in cash than any investment you might make. Moreover, because potential entrepreneurs KNOW this, they are wary to put capital to work. Thus the whole economy grinds to a halt. The only entity who can overcome this is the central government, which will go on a spending rampage if it’s able to borrow the money to do so. This is how Japan got into its current pickle. I have charted Japan CPI versus government deficits. When CPI gets positive, the deficit goes down because private industry invests more (because it fears deflation less) and thus government has to do less to keep the economy from imploding altogether.

    What’s going to be interesting is how the developed world deals with a situation where productivity is climbing so fast that the real cost of producing both goods AND services is falling. In other words, annual price declines of 1-2% would be the order of the day without some form of QE. As someone noted above, these price declines might be acceptable precisely because they are happening due to sharply higher productivity. It would be like the tech-industry’s strategy writ large: You invest knowing prices will fall but your costs are falling faster and/or your volumes are rising exponentially.

    Still, it’s gonna create some challenges. Gotta think about this more. One issue would be the federal debt. Does the real weight of it ($17 trillion) get heavier as the purchasing power of each dollar rises? Or do productivity gains lead to strong-enough growth that the tax revenues rise fast enough anyway, making it easy to finance the debt despite negative CPI? I think I would lean toward that more positive scenario.

    Peter A. Taylor Reply:

    The position I am trying to attack is the one that I thought Vimothy was taking:

    Proposition 1: The nominal interest rate is the real interest rate + inflation, regardless of whether inflation is high or low, positive or negative. Therefore neither high inflation nor high deflation is a problem, as long as they are steady and predictable.

    I am proposing instead:

    Proposition 2: The nominal interest rate is the real interest rate + inflation, or zero, whichever is greater, because savers have the option to hold cash instead of investing it. Therefore high deflation will cause people to play qualitatively different games than the ones they will play under low deflation, or high or low inflation.

    What I mean by “asymmetry” is that people “play qualitatively different games”. It was probably a poor word choice.

    I think Aeroguy is suggesting that the problem of deflation is self-limiting, that deflation causes shortages, which tend to cause inflation. That sounds plausible, but I suspect there are other scenarios we haven’t thought of. Kgaard seems to disagree. I don’t understand Japan at all. I don’t understand capital vs. financial investors. I only understand mattresses.

    I listened to an EconTalk podcast with Doug Irwin on the Great Depression and the Gold Standard. It didn’t make any sense to me until near the end, when they started talking about the “cover ratio”. Now I’m wondering what Ron Paul’s position is on the cover ratio, because to my way of thinking, that makes all the difference in the world to whether or not I want a gold standard.

    http://www.econtalk.org/archives/2010/10/irwin_on_the_gr.html

    I am treating the real interest rate as exogenous to savers’ decisions, something determined largely by technology and political interference. I am thinking of inflation/deflation also as exogenous to savers’ decisions, something likely to be caused by central bankers lying about how much their money is worth and how much gold they own.

    If you have fiat currency, then printing money seems like the easiest thing in the world to do. So what’s the problem? I can kind of see why there are conflicts of interest between Greece and Germany, but Japan? I don’t get it, unless the problem is political interference that has nothing to do with currency shortages.

    Personally, I’m afraid of high inflation, not deflation. I don’t understand “sterilization” or why it couldn’t be reversed at any moment. I don’t understand why China or Switzerland haven’t created currencies based on baskets of commodities.

    Vimothy Reply:

    With respect, your Proposition 1 is so obviously false I can’t believe anyone who’s given the issue more than five minutes thought would propose it.

    I’m finding it hard to parse the rest of your comment. There is a zero lower bound on nominal interest rates. That’s a problem for the central bank, in extremis and under certain policy regimes, but it shouldn’t prevent businesses from attracting capital, as long as deflation is moderate and known. (If this were not the case, it would only strengthen the argument against deflation, which you seem to favour.)

    Different T Reply:

    You’re practicing an exercise in futility.

    If you are balancing your budget as if you are under the gold standard there can be no talk of tight or loose, because the government simply can’t print money in the first place.

    Doesn’t seem like he can separate fiscal and monetary policy.

    [Reply]

    Hurlock Reply:

    Yeah dude, I am clearly the guy here who has no idea what he is talking about

    Cheers

    Hurlock Reply:

    Oooh deflation, oooh scary.

    Deflation has been propped up as the great boogeyman of new economics, despite the historical record which clearly shows that in periods of increasing real growth, deflation also follows suit. From 1820 to 1900 when was the period of greatest growth in the US prices were cut in half. (There were only small incidental outbursts of inflation like for example during the civil war, when the government would go off gold)

    Now, when you have a central bank trying to do vodoo magic on the economy and initiates an unsustainable boom through credit expansion and inflation, during the bust that will necessarily follow prices will of course always fall. This period of readjustment which is known as a “depression” because of the falling prices is necessary if you want your economy to ever get out of the crisis. If you instead pump your economy with printed money again, you will simply prolong the process and likely make it more painful and harder to complete. No, you can’t simply get rid of the readjustment phase, the same way you can’t get rid of gravity. Assuming a boom, a bust will follow and nothing can change that.

    Of course you should be very well aware of all of that, so me saying it should be redundant.
    What is curious is, why if you are aware of how the boom and bust cycle goes, you are so scared of deflation (fall in prices)?
    First of all as I said, historically the tendency has been for steady growth to also lead to steady deflation as well.
    Also if prices are falling somewhere that doesn’t mean that investors will be always reluctant to invest there as there are a lot of other factors that they take into account. The question is not whether prices are falling or not, but can you make a profit or not.
    Now, a falling demand for current goods, resulting a fall in prices, might indicate that people have simply reduced their current consumption because they want to save more, because their time preference has fallen. In this situation interest rates would naturally fall (ceteris paribus, and especially assuming the central banks in not tinkering with them) which is a clear indication that starting, or investing in, long-term projects is a good idea (interest rates being low, people can now more easily borrow and invest in long-term projects). So no, deflation does not necessarily mean that investment is a bad idea, it can actually mean precisely the opposite.

    Contrary to the magical keynesian thinking that you are espousing, it is inflation via expanding the money supply which is much more likely to discourage long-term investment. First of all, inflating the money simply means (other things being equal) that the value of the currency will fall compared to other currencies. If a country is constantly devaluing its currency, why would you want to invest there? When you invest there, you will eventually be expected to generate some profit in that currency, but if you expect rampant devaluation of the currency in the future, investing in that country is much less attractive. If the value of this currency is expected to steadily drop against other more stable currencies, why would you ever want to hold that currency?
    And assuming high inflation you will in fact be steadily losing money on your original investment. Suppose someone decides to invest 100,000$ at a 5% yearly interest rate with the expectation of making 200,000$ in 10 years. Taking the interest rate into account your current 100,000$ are essentially currently valued at 155,132.83$ in 10 years, after the interest rate calculation. (you seem like a big boy in economics, so you should be able to do the calculation yourself)
    (To make all of this easier, we are assuming the interest rate stay stable at 5% for all of the 10 year period; we will later do the same with inflation)
    So in order to make a profit on your current 100,000$ investment after 10 years, our investor needs to make over 155,132.83$. So if he does make 200,000$ in 10 years he is clearly making a profit. But! Let’s not forget that there is inflation which we didn’t account for. To make this easy let’s assume inflation (here I mean expansion of the money supply, which ceteris paribus, of course leads to higher prices) is at a steady 5% yearly rate as well, just like interest. The money supply being expanded with 5% every year, this means that the value of money, or in other words its purchasing power, is dropping with 5% every year in relationship with goods and services on the market and in relationship with other currencies (ceteris paribus). So how much will 200,000$ be worth after ten years in current money assuming 5% steady yearly inflation. We can do this the same way we calculated interest, but this time we are subtracting, not adding.
    Once again, try to do it yourself. 200,000$ in 10 years time at a 5% inflation rate will have the value of 126,050.65$ in money now. Whoops. Unfortunately as we can see, that is significantly lower than the required minimum of over 155,132.83$ in order to make a profit. In fact, at this interest rate and at this inflation rate it seems our interested investor will actually be at a loss. Yikes! And this is not even a very high inflation rate, mind you. Some would even say that 5% yearly inflation is pretty mild. But as we can see, even such a relatively mild inflation rate can lead to a significant loss on investment even at a relatively low interest rate of 5%.
    Our dear investor has after all his investment troubles in fact lost purchasing power, not gained. And of course the only thing we really care about is not how much money we have in terms of monetary units, but how much stuff we can buy with that money. I.E. we only care about the purchasing power. And that, has clearly dropped far too much in this 10-year period of 5% inflation and 5% interest rate.

    And this is how too high of an inflation rate (money expansion) discourages investment.
    Any questions?

    [Reply]

    Different T Reply:

    Contrary to the magical keynesian thinking that you are espousing,

    Again, Doesn’t seem like he can separate fiscal and monetary policy.

    Hurlock Reply:

    @ Different T

    Maybe you will educate me on where I conflate the two, o, wise one!

    Different T Reply:

    keynesian theory regards fiscal policy.

    kgaard is “espousing” thinking about monetary policy.

    Maybe you will educate me on where I conflate the two, o, wise one!

    Contrary to the magical keynesian thinking that you are espousing,

    Again, Doesn’t seem like he can separate fiscal and monetary policy.

    VXXC Reply:

    If you accept that the self interest of those in Finance is the very heart of humanity’s interests high and low, the lodestone and center of the Universe then Hurlock’s tone is indeed ignorant and disrespectful.

    If however you’re not sociopaths employed – and only employed – by Finance and see the horrific harm Finance has done to the world, not to mention the wars and other catastrophe’s now baked in then Hurlock’s words and tone are mild.

    [I must say as an aside this sounds like a University Professor corrected a student who has questioned religious dogma.]

    Sir the entire world is coming at you with blood and vengeance in their eyes. Look across the Hudson River. Now extend that to the entire planet.

    QE saved the lifestyles of Finance at the expense of many lives, including their own. That’s all.

    Even Ferdinand Ward and Madoff had shame afterwards. Well in front of the Jury anyway.

    Yes thank you we know it hasn’t happened yet. You may return to the comfort of charts and self-serving equations. Good Afternoon.

    [Reply]

    admin Reply:

    I can’t speak for Hurlock, but it seems to me his argument (as it intersects your specific concerns) is that by alienating the responsibility of vigilance to government, dupes are bred in a social fast-breeder reactor. There are always going to be con men, and anybody trusting central authorities to protect them against fraud is embracing their own docile idiocy. Responsibility starts at the bottom.

    Different T Reply:

    If you accept that the self interest of those in Finance is the very heart of humanity’s interests high and low, the lodestone and center of the Universe then Hurlock’s tone is indeed ignorant and disrespectful.

    If however you’re not sociopaths employed – and only employed – by Finance and see the horrific harm Finance has done to the world, not to mention the wars and other catastrophe’s now baked in then Hurlock’s words and tone are mild.

    The anger (to put it very mildly) is understandable. Yet in another post you state: “Look there was no system that was going to withstand the Boomers.”

    You also said: “Well what you are calling culture I’m calling right and wrong.”

    Something was missing. Acting like it was not missing does not change this.

    And acting like we live in “idealized universe where contracts quickly reset downward and economies bounce back from deflationary crashes” is not worthless, it’s costly.

    The same for “attempting to technocrat yourself away from the problem of confronting Evil Men.”

    Kgaard Reply:

    VXXC — If we’re talking ethics — and de-fanging the bankers in particular — then creating a never-ending tight-money quasi-depression in Southern Europe is simply not the way to go. You’re targeting the wrong people. Maybe a few bankers lose a few bucks, but the real victims are millions of poor and middle-income Italians, Spaniards, Portuguese and French who have sharply-reduced economic prospects for half a generation.

    A better approach would be to do enough QE to get the European economy on a decent nominal growth path — and simultaneously sharply raise reserve requirements on banks. The core evil here is excessive bank leverage combined with the presence of a lender of last resort that is de facto backed by the government. THAT is the recipe for evil — and that’s what you need to attack.

    Recall that the creation of the Fed in 1913 — which easily ranks as among the top 5 conspiracies of the 20th century — was prompted by falling margins at the big east coast banks. They couldn’t make a high-enough return on equity to be competitive with other forms of financing (i.e. equity capital) because they had to keep too much in reserve against each loan. So, the bankers came up with the idea of creating a centralized entity (the Fed) that would bail out the banks in the case of a panic, or generalized bank run. With that guarantee in hand, the banks could ramp up the leverage on their capital (i.e. lending 10x their capital rather than 5x) and thereby boost their returns on equity while offering clients interest rates that were competitive with the cost of equity finance.

    Left semi-unsaid in 1913 was that if there were ever a panic and the Fed did have to step in, the country would be at such risk that politicians would feel compelled to support the Fed’s operations, either through QE or some sort of financing. And that’s exactly how things worked out. Having a central bank and lender of last resort isn’t, by itself, evil. The evil comes in the exploitation of the moral hazard created thereby. The way to counter that is with very high reserve requirements and tight collateralization requirements.

    Now … as an addendum to this … it has to be pointed out that in a democracy politicians will generally encourage banks to run at maximal leverage in order to boost economic growth. As fiscal policy becomes more anti-growth (a function of 100% voter suffrage), the pressure on banks to lend recklessly increases to take up the slack. That’s the situation we face today. So, in a sense, you can call banks quasi-government entities.

    admin Reply:

    “You can’t have democracy (with universal suffrage) and a gold standard.” — This is an excellent point.

    [Reply]

    blogospheroid Reply:

    My understanding of NRX isthe quest for good government. A government aligned with the best knowledge known till that time. If you want to waste the knowledge gained by macroeconomics, be my guest. It doesn’t mean that everyone follows that line.

    I don’t believe that the CBs are doing any saving of the world if they don’t declare what their policies actually are.

    Market monetarists are in favour of monetary constitutions, monetary standards. They believe that nominal income is a better standard than a commodity standard.

    Assume that there are 3 city states, all of them have declared monetary constitutions. One of them chooses to maintain nominal money flow, one pegs to gold, one simply uses bitcoin. In the first the price level reacts to results of wage surveys. In the second the price level reacts to findings of gold and in the third, it reacts to news of people losing their private keys or someone finding an old wallet and maybe, going on a spending spree. What seems more rational?

    You may feel that the possibility of manipulation of the wage survey makes the first one useless, but what people trust more at any given moment in time is an empirical question and I believe cannot be answered by theory alone. Blockchain solutions are probably most trustworthy, but finite limit Blockchains are only one possibility. Nominal flow maintaining chains are also possible.

    [Reply]

    Posted on August 23rd, 2014 at 3:43 pm Reply | Quote
  • Hurlock Says:

    @Different T

    “keynesian theory regards fiscal policy.”

    lol

    so supposedly Keynes never said anything about monetary policy?

    lolololololololololololol

    From wikipedia on keynesian economics:

    “Theory:

    Keynes argued that the solution to the Great Depression was to stimulate the economy (“inducement to invest”) through some combination of two approaches:

    A reduction in interest rates (monetary policy), and
    Government investment in infrastructure (fiscal policy).”

    What’s that? Keynes talked about monetary policy? But didn’t you just say…?

    hilarious stuff dude, but you should try harder next time

    [Reply]

    Different T Reply:

    You are right on Keynes.

    What did you mean by this:

    If you are balancing your budget as if you are under the gold standard there can be no talk of tight or loose, because the government simply can’t print money in the first place.?

    [Reply]

    Hurlock Reply:

    I was referring to monetary policy (the monetary policy of the ECB specifically). Which is probably what I should have said instead of talking about budget balancing in general, which is what caused your confusion.

    [Reply]

    Different T Reply:

    Can you expand on this?

    What about Eurozone governments balancing their budgets eliminates monetary policy?

    kgaard Reply:

    In response to admin, Hurlock, et al …

    The debate about nominal vs real gets to the crux of the matter. There is a saying in economics that during deflation, “the nominal IS the real.” The problem is that contracts (especially wages and debts, but also services) are sticky on the downside. If there’s a deflation you won’t often see employers slashing wages — you’ll see them keep wages flat, while profits and capital investment fall. Similarly, if you borrow money and the value of the currency rises by 100 percent (which happened in Japan) then the nominal value of the assets you bought falls by half and you can’t pay it back. This is why japan crashed in the early 90s and Argentina crashed in the late 90s.

    Hurlock, the sort of persistent deflation you describe did indeed occur in the US in the 1800s but we did not have strong unions, universal suffrage or high tax rates. As such, wages could be cut and people laid off much easier. That said, there many rough periods. The depression of the 1870s was worse than the 1930s. There were panics all the time. JP Morgan personally acted as our lender of last resort TWICE or the US would have had a big deval in the late 1800s.

    Now… there is also absolutely a degree to which monetary and fiscal policy interact. If monetary policy is too tight the economy will sputter and tax revenues will fall, leading to rising deficits and rising social welfare spending. This is why austerity doesn’t work anymore. Argentina’s crash is once again a great example of this.

    On Keynes … he correctly figured out what was going on in the 30s with monetary policy and how to fix it. That’s why he is famous, FDR was elected four times and Hoover has been consigned to history’s reject bin. Not saying he got everything right, just that he got the 30s right.

    The key thing to keep in mind is that 2008-09 was an exact rerun of 1929-31. Yes the preceding booms led to the busts, but once you have the bust in your face you must deal with the facts as they exist.

    Hurlock let’s make a bet: I’ll go long the Nikkei and you can short it. We’ll see who’s ahead in a year. If your thesis is right the BoJ’s policy will lead to lower profits — not sharply rising profits (such as are now being posted).

    [Reply]

    Different T Reply:

    Hurlock let’s make a bet:

    You might want to reconsider your credit policy.

    [Reply]

    Hurlock Reply:

    “On Keynes … he correctly figured out what was going on in the 30s with monetary policy and how to fix it. That’s why he is famous, FDR was elected four times and Hoover has been consigned to history’s reject bin. Not saying he got everything right, just that he got the 30s right.”

    No, he got them wrong. He didn’t realize that the bust was caused by an artificial boom by an expansionary monetary policy in the 20s and he instead prescribed what caused the bust in the first place – an even more expansionary monetary policy.
    Keynes, as a matter of fact, got almost nothing right.

    “but once you have the bust in your face you must deal with the facts as they exist.”
    Yes, and to deal with the facts as they exist, you must let the markets readjust and redistribute capital from the failed industries propped up by the artificial boom, to the industries where this capital is really needed. Instead what you are proposing is simply the central bank creating another artificial boom all over again. And round in circles we go.

    As it is well know, the definition of insanity is doing the same thing over and over again and expecting different results. This is what you are proposing.

    Nobody gives a monkey’s ass if the Nikkei is going to be at a higher point in a year. It might as well be. As we know from recent history, propping up bubbles in the stock markets is pretty easy for central banks.

    [Reply]

    Different T Reply:

    No, he got them wrong. He didn’t realize that the bust was caused by an artificial boom by an expansionary monetary policy in the 20s and he instead prescribed what caused the bust in the first place – an even more expansionary monetary policy. Keynes, as a matter of fact, got almost nothing right.

    As returns to capital over the following 80 years have shown…

    Capitalism defined as “capital optimized for more capital optimized for more capital”

    What happens to this DENRx whenever it is required to discuss anything real.

    ———-

    What is this, ‘Neoreaction’, the political as a forensick ‘free-for all’?
    A discourse of distribution resentments?

    kgaard Reply:

    Hurlock you are describing an idealized universe that doesn’t exist. In your perfect world contracts quickly reset downward and economies bounce back from deflationary crashes. The reality of your proposal is on display right now in Italy, Spain, Portugal and Greece: depopulation, 50 percent youth unemployment, stubbornly high fiscal deficits. It’s been that way for going on 7 years now — a biblical caliber depression. Is that your idea of good policy? It’s not mine…

    [Reply]

    Hurlock Reply:

    “The reality of your proposal is on display right now in Italy, Spain, Portugal and Greece:”

    LOL.
    Yes, because those countries have just let markets readjust and there has been no tinkering from the ECB or the IMF.
    You are the one living in the fantasy world and on top of that you have the audacity to tell me that I am.
    The last time markets were left alone to readjust naturally during a recession was in 1921 in the US during one of the biggest crises of that century.
    Markets were left alone and a year later the market had completely readjusted and the economy was once again stable and growing.
    Unfortunately some time late the FED starts tinkering with the markets again, expanding the money supply and thanks to that the Great Depression was sure to follow.
    Unfortunately this time USG did not leave the markets alone and it hasn’t done so since.
    The “austerity” of Europe is the biggest myth of the recent years. Austerity means spending less than your income. Virtually all of the governments of the countries you have listed are running deficits and their public debt levels have been rising in recent years. So stop talking crap.

    [Reply]

    Kgaard Reply:

    Hurlock … think about what you are saying. It doesn’t make sense on its face. The fact that 1929 didn’t self-correct as 1921 did is evidence right there that it was a crash of far greater proportions than 1921. Everyone in 1929-30 thought as you do — if we do nothing it will get better. But it didn’t. It got worse. Sometimes if you leave things alone you get a complete vortex collapse. That’s what 1929-31 was — and what 2008-09 WOULD have been without Bernanke.

    On Europe … the reason they are spending more than they are taking in is BECAUSE THEIR MONETARY POLICY IS STRANGLING THEM. You can only cut spending so far. In recessions the demands for social spending are fairly relentless. As I noted earlier, you can’t use austerity to get yourself out of a trap like this. You need easier monetary policy.

    I’m worn out with this debate Hurlock. I urge you to read Sumner, think about your positions and for Chrissakes be more polite. Arguing with Austrian fanatics is like arguing with zombies or Jehovah’s Witnesses. No matter what I say, you just go back to the same old tropes. I just can’t take it anymore. Say whatever you want. Have the last word.

    Posted on August 23rd, 2014 at 7:09 pm Reply | Quote
  • Hurlock Says:

    @ Different T

    This is once of those cases once again, when I don’t really know what the hell you are trying to say.

    [Reply]

    Posted on August 23rd, 2014 at 9:02 pm Reply | Quote
  • Different T Says:

    To start, the contention is: it doesn’t seem like you can separate fiscal and monetary policy.

    You stated: I was referring to monetary policy (the monetary policy of the ECB specifically). Which is probably what I should have said instead of talking about budget balancing in general, which is what caused your confusion.

    Can you expand on this?

    What about Eurozone governments balancing their budgets eliminates monetary policy?

    ————

    Here is a previous exchange:

    {Hurlock} Resources are being continuously re-invested in productive activities in order to make the process even more productive resulting in the economy growing richer.

    {Different T}Growing richer, for what?

    {Hurlock}With slightly more precise terms – people want to be richer so that they can achieve a greater satisfaction of their needs.

    yet earlier you stated: You can’t be ‘just’ a consumer.

    But isn’t that exactly what you state the goal is? Get rich to “achieve a greater satisfaction of needs.” To consume.

    ————-

    What is this, ‘Neoreaction’, the political as a forensick ‘free-for all’?
    A discourse of distribution resentments?

    In crude terms, aren’t you just upset about your position?

    [Reply]

    Hurlock Reply:

    “To start, the contention is: it doesn’t seem like you can separate fiscal and monetary policy.”

    I can separate them just fine, the problem is that in the real world one can significantly influence the other.
    As I said, about ECB, I was saying that if there was a gold standard we wouldn’t even be considering a fast and loose (printing) monetary policy as possible.

    “But isn’t that exactly what you state the goal is? Get rich to “achieve a greater satisfaction of needs.” To consume.”

    Yes, but to do that you also need to produce, if you don’t produce anything you have no purchasing power, therefore you cannot buy anything to consume.

    “In crude terms, aren’t you just upset about your position?”

    Ummm, what?

    [Reply]

    Different T Reply:

    I was saying that if there was a gold standard we wouldn’t even be considering a fast and loose (printing) monetary policy as possible.

    Oh. We are firmly back in your fantasy land.

    Yes, but to do that you also need to produce, if you don’t produce anything you have no purchasing power, therefore you cannot buy anything to consume.

    No.

    You need a claim to production (if we are operating under a system of property rights [clarification is a must since fantasy-land is also being contrasted]), such as a trust-fund baby, stay-at-home mother, child with paying parents (which you approve of), a disabled person, or child with the state paying (which you disapprove of).

    Ummm, what?</i

    In crude terms, aren’t you just upset about your position?

    ——–

    Good luck, Hurlock.

    [Reply]

    Hurlock Reply:

    No, we are back to your fantasy land.

    (I should really make a note to myself to stop replying to trolls)

    Posted on August 23rd, 2014 at 9:43 pm Reply | Quote
  • Hurlock Says:

    @Kgaard

    This is not about having the last word this is about schooling you in history and economics, which I shouldn’t have to do. You clearly haven’t read Moldbug on the subject, you have read a few articles by/about market monetarism, a few articles by Krugman and now you are a fking expert on economics. This would be hilarious, if you weren’t seriously thinking it.

    First off, on the Great Depression, when it came along Hoover pretty much almost immediately started taking interventionist methods to deal with it. The 1929 depression did not self-correct as the 1921 because no one allowed it to and the government took the exact opposite economic policy this time. The myth of Hoover not doing anything exists only because the interventions taken by FDR were much more radical. (actually, FDR was simply continuing on the path that Hoover laid out in his time) The radical interventions taken in the 30’s actually didn’t get the US out of the depression, the US was able to exit the depression only after WW2, specifically after 1946. Even the Keynesians admit that their interventions didn’t do squat to help the depression. So stop lying through your teeth, or if you are really ignorant about this, don’t run your mouth about stuff you know nothing about and go read some history. Compare what Hoover did in his administration in economic policy to deal with the depression and what Harding did in his administration to deal with the 1921 depression and then come here and tell me what the difference is.
    As a start, during 1921 Harding cut spending and the whole budget, while Hoover did exactly the opposite and in response to the depression increased spending and the budget. Go read up on the other differences in measures taken too. (don’t worry, I am not expecting you to)

    “On Europe … the reason they are spending more than they are taking in is BECAUSE THEIR MONETARY POLICY IS STRANGLING THEM. You can only cut spending so far. In recessions the demands for social spending are fairly relentless.”

    No, the government CAN cut spending, the thing is that it DOESN’T WANT TO. Please note the gigantic abyss of a difference between those two.

    “As I noted earlier, you can’t use austerity to get yourself out of a trap like this. You need easier monetary policy.”

    First of all, no one has even tried to use austerity as I already pointed out.
    Second of all, you are simply making an assertion with no argument. I understand that that’s what pretty much all progressives do, but considering that you are a regular commenter here I was hoping (clearly mistakenly) that you have more of a brain than that.

    Do you know what you are proposing with that loose even more inflationary than before monetary policy? You are proposing that the central bank simply restarts the boom-bust cycle all over again.
    “Well the previous market bubble just popped, so let’s just replace it with another market bubble”
    Coincidentally that’s what all the central banks have been doing anyways. (do you happen to work for the FED btw?)

    Gee, I know that in the long run we are all dead, but talk about short-sightedness…

    Although I am most certainly expecting to much from you in thinking you know anything about how an artificial boom is started on the market by an expansion of credit. So, go read some Hayek on that.
    Fk it, go read some of Moldbug’s posts on the subject as he talks about these topics at length on several instances.

    There, I got the last word.
    Now, for everyone else that is reading (who actually knows his economics), let’s take a moment to appreciate the comedy of this:

    “Sometimes if you leave things alone you get a complete vortex collapse. That’s what 1929-31 was — and what 2008-09 WOULD have been without Bernanke.”

    Bernanke, a Hero of Humanity and a Hero of Neoreaction (clearly)

    All hail Ben’s mighty printing press!!!

    In the FED we trust!

    [Reply]

    Izak Reply:

    “Bernanke, a Hero of Humanity and a Hero of Neoreaction (clearly)

    All hail Ben’s mighty printing press!!!

    In the FED we trust!”

    Hurlock, I’m not trying to be rude or anything, but seriously.

    You talk like a fag and your shits all retarded.

    And queer.

    [Reply]

    Kgaard Reply:

    Against my better judgment I am dipping back in here because an important point has been made which has bearing on neoreactionary political/economic thought. You write, (with respect to Europe):

    “No, the government CAN cut spending, the thing is that it DOESN’T WANT TO. Please note the gigantic abyss of a difference between those two.”

    As I tried to explain earlier: Europe is composed of democracies. As such, their governments cannot cut spending without voter approval. If Italy’s prime minister walked in tomorrow and announced a 15% across-the-board spending cut he would be out of office in 48 hours. That’s why you cannot have a gold standard and a 100% participatory democracy.

    The flaw in applying Moldbuggian economics (gold standard, in particular) to a democracy with fractional banking in place is precisely that contracts can’t be adjusted downward following busts. Thus the only way out is an incredibly-long, grinding depression (i.e. the 1930s, 1870s, or Southern Europe 2008-14) or QE. Now … it’s not unreasonable to do a combination of the two (i.e. SOME QE and SOME recession) and that’s largely what the world has done from 2008-2014.

    I don’t know why you assume I am a progressive for making this point. It’s pretty obvious to me. If you want Moldbuggian economics you’ve got to start with a polity that is non-democratic. Voters want everything they can get their paws on in a democracy, and they want it NOW. They will vote out anyone who doesn’t give it to them. That means credit booms and busts, fixed contracts in nominal terms … the works. It’s no coincidence that as suffrage has widened in the west currencies have fallen in value.

    When a Moldbuggian city-state gets rocking in Honduras or somewhere, feel free to set up the economic policies along Austrian lines. I would love to see that. (Though, even there, be sure wages and other contractual items are ruthlessly slashable in nominal terms in all sectors because when the rest of the world devalues, which it inevitably will, the new city-state’s currency is gonna go through the roof, creating challenges for exporters.)

    [Reply]

    Different T Reply:

    (Though, even there, be sure wages and other contractual items are ruthlessly slashable in nominal terms in all sectors because when the rest of the world devalues, which it inevitably will, the new city-state’s currency is gonna go through the roof, creating challenges for exporters.)

    And we thought

    we been spending most our lives
    living in a lawyer’s paradise.

    Looks like you might have found a powerful lobby to assist.

    [Reply]

    Hurlock Reply:

    Hmm, ok.

    I am actually inclined to agree with all of this.

    So essentially here the problem seems to be that I am focusing on what I think is the economically sound course of action, while you are focusing on what is the politically feasible course of action. (correct me if I am wrong)

    (So we are actually talking about two different things here)

    Fair enough, but still, saying that what is being done by the Central Banks is a sound economic policy still rubs me in a bad.
    It might be the only possible political choice as you say, but it’s definitely not the best economic policy. In the current political climate it might be the only option possible, but then we are no longer talking about economics, but about politics. (which is the whole problem)

    [Reply]

    blogospheroid Reply:

    It depends on the announced policy of the city state. If the currency was pegged to an index of the world currencies, the result will just be plain old inflation. If pegged to gold, then the companies investing would probably be careful to have their contracts in USD. Those who have their contract in the city’s currency would learn the very hard way.

    [Reply]

    kgaard Reply:

    Blogospheroid: You beat me to it. The big challenge of a Moldbuggian city state will involve contracts and currencies. In a world of floating currencies trying to run a fixed currency can (and does) lead to a world of pain. The swiss stayed on gold til like ’73 but had to throw in the towel because demand for the currency was so ferocious and exporters were being driven out of business. The swiss could have stuck with it but the entire country would have become one big bank.

    Now… a new start-up city on a gold standard would have the same problem. The first thing they’d have to do is build a giant border fence to keep people out, since everyone in the world would want to move there. The contract thing would be a constant challenge. I suspect companies in the city state would do some mix of dollar-linked, CPI-linked, gold-linked, bitcoin and currency-basket-linked contracts. It will be a source of great experimentation.

    One key to managing the growth will be to outlaw or limit fractional banking (via high reserve requirements). Then downturns won’t prove systemically dangerous and the pre-existing currency integrity can be maintained.

    [Reply]

    Posted on August 24th, 2014 at 10:55 am Reply | Quote
  • Funeral Mongoloid Says:

    One thing that is quite clear from the exchanges on this topic is that economics is not a science.

    [Reply]

    Different T Reply:

    If able, go further.

    What are these arguments about?

    [Reply]

    Funeral Mongoloid Reply:

    Economics.

    [Reply]

    Different T Reply:

    That’s disappointing.

    Posted on August 24th, 2014 at 11:18 am Reply | Quote
  • Funeral Mongoloid Says:

    But by far the most falsifiable statement on this thread.

    [Reply]

    Izak Reply:

    You can’t debate the Austrian school because no one with a theory is ever wrong. That’s what makes it a theory.

    The Austrians are so damn good they’ve predicted 14 of the last 5 recessions.

    Who can argue with that?

    [Reply]

    Posted on August 24th, 2014 at 1:23 pm Reply | Quote
  • VXXC Says:

    You do realize that when you argue against self interest you’re never going to convince them ?

    If billions must die for Theory [and ah self interest] then they must die.

    If billions must die for Keynes, then they weren’t worthy of Keynes.

    [Reply]

    Different T Reply:

    Then just become a democratic politician already
    ?

    [Reply]

    Posted on August 24th, 2014 at 5:18 pm Reply | Quote
  • VXXC Says:

    @Kggard,

    “The core evil here is excessive bank leverage combined with the presence of a lender of last resort that is de facto backed by the government. THAT is the recipe for evil — and that’s what you need to attack.”

    Well yes. But that is now a suicidal criminal enterprise, there’s nothing for it then. No talk anyway.

    By the Way, is it really fair to blame the voters for the Federal Reserve Act, snuck in at dead of night Christmas 1913? Democracy never voted for the Fed, and wouldn’t now. And voted against this nonsense in 2008 and 2010, or so they thought.

    Democracy In America [which merely extended the Republic’s Franchise Broadly] ended in 1933.

    We’ve had Elite, Administrative rule for 81 years. It’s called Democracy, so is North Korea. It’s not.

    The voters have no vote and no choice of candidates anyway. We really need to stop blaming an 80 year old corpse.

    Printing more money madly simply won’t work, it never has, it isn’t now. You are compounding the interest on the reckoning. Get out of the market [I have] and make the adjustments we all are, or will have to. Sooner the better.

    I’m beginning to wonder if you are somehow trying to advocate for the greater good, if so Bravo but the System cannot be saved. The country, and western civilization can be saved. I choose the latter.

    [Reply]

    Kgaard Reply:

    Well, I hear you, but I have to say that in my view the current system, sloppy and corrupt as it is, is in fact sustainable. Not to be a broken record but I urge you to read Sumner on nominal GDP targeting. What it does is square the circle created by the insatiable desires of a democratic electorate. The solution is that you give them what they demand in nominal terms — but every time shave a little more off the edges of the coins. It’s sloppy but it can work for a loooong time (as evidenced by the 2% interest rates prevailing in the US, Europe and Japan). It’s fine to rail against it and I wouldn’t blame you for doing so. But … I would at least be a little careful about going long gold. As the population ages there will be just as much demand for tight money as loose money (if not more). And central bankers often view their personal self-esteem in terms of how low they can keep CPI. Personally I’m neutral on gold (and, if pressed, could make a case for it going higher or lower).

    I take the system as it is and do what I can with it. If you’re in finance you have a fiduciary responsibility to help clients navigate the effed-up world we live in. (I see tremendous opportunity in Japan, digging out of a two-decade deflation.) Recall that this whole thread was triggered by comments of Egon von Greyerz, a European gold bull, who also has fiduciary responsibility to his clients, and who is not serving them well by stocking up their accounts with gold.

    If we were in a Moldbuggian city-state, then I would invest according to the opportunities that system created. I just deal with the world as it is and try to explain what I see to people as best as I can. The amount of confusion is phenomenal. In fact, one way to think about the evil of the current economic system is simply that it’s so complex and volatile that it’s virtually impossible for the average guy to understand it — and thereby invest properly. I almost never meet anybody outside of finance (or even in finance) who really understands how the world works. It’s quite sad. I look at people’s portfolios and they are almost universally basket cases …

    [Reply]

    Funeral Mongoloid Reply:

    ‘I almost never meet anybody outside of finance (or even in finance) who really understands how the world works.’

    Of course, this is nonsense. The problem of the global economy is clearly a moral one. The math is irrelevant. To address the chaotic rottenness, and bring it under control, we need to reintroduce the notion of Original Sin.

    “By the sympathy of your human hearts for sin, ye shall scent out all the places–whether in church, bed-chamber, street, field, or forest–where crime has been committed, and shall exult to behold the whole earth one stain of guilt, one mighty blood-spot. Far more than this! It shall be yours to penetrate, in every bosom, the deep mystery of sin, the fountain of all wicked arts, and which inexhaustibly supplies more evil impulses than human power–than my power at its utmost!–can make manifest in deeds. And now, my children, look upon each other.”

    They did so; and, by the blaze of the hell-kindled torches, the wretched man beheld his Faith, and the wife her husband, trembling before that unhallowed altar.

    “Lo! there ye stand, my children,” said the figure, in a deep and solemn tone, almost sad, with its despairing awfulness, as if his once angelic nature could yet mourn for our miserable race. “Depending upon one another’s hearts, ye had still hoped that virtue were not all a dream! Now are ye undeceived! Evil is the nature of mankind. Evil must be your only happiness. Welcome, again, my children, to the communion of your race!”

    [Reply]

    Kgaard Reply:

    I think you may have this backwards. If we’re all sinners, then it ALL comes down to math: The key is to control the sin. To balance each party’s sinfulness against the others. (That was Madison’s vision for democracy, coincidentally.) In a fiat money system, the sinfulness of the electorate (gimme gimme gimme) is balanced against the sinfulness of the central bankers (we’ll give you what you want in nominal terms but will shave down the edges of the coins). The sins balance, the system balances. The envy of the masses is contained and tranquilized. But go out there and try to CUT nominal wages and transfer payments and all hell breaks loose. Then you’ve got a whole new caliber of sin on your hands (violence, strikes, wars, the works).

    Funeral Mongoloid Reply:

    We’re all sinners, but we’re not all conscious of our sinfulness. Least of all banker types.

    ‘THE WHOLE EARTH ONE STAIN OF GUILT, ONE MIGHTY BLOOD-SPOT.’

    With this fundamental warning against our own corrupt nature properly instilled, honest finance should follow, along with careful and modest conduct in general.

    Funeral Mongoloid Reply:

    If you combine the tenet of ORIGINAL SIN with aspects of AGRARIAN SOCIALISM, it seems to me you have the BARE ESSENTIALS of a SUSTAINABLE PROGRAM for the FUTURE of HUMAN CREATURES on PLANET EARTH.

    Funeral Mongoloid Reply:

    http://youtu.be/3xFiPQS29pI

    Blogospheroid Reply:

    It’s a behavioural conflict.

    Humans have money illusion in the current era. NGDPLT uses this money illusion to make capitalism look good to people as they maintain their wages and slowly see their standard of living improve.

    On the other hand, the deflationists have the point that deflation is good for a lot of baseline and below humans, because all you need to do to prepare for retirement is save money. The saved money automatically acts as an index fund of everything. Saving is very simple behaviour, even ants do it.

    See your salary remaining the same, but having to manage your investments, versus easily saving money but your spouse seeing your salary drop year by year – Which effect dominates is not something that theory can answer.

    [Reply]

    VXXC Reply:

    @Kggard,

    I will take you as someone trying to be a Gentleman and do the right thing.

    Sir,

    Sir your government [and mine] are a disorganized multi-headed rabble of various criminal factions. They do not rise to the level of organized crime. O/C has discipline, business sense and would be an improvement. The Mafia has no interest in destroying Western Civilization, they just want to grind out a profit.

    Sir the government uses it’s enterprises to further what are unquestionably criminal and worse evil ends. This includes war, something I know. Not war itself. Things move in War Sir.

    Sir the current new staff of the Federal Reserve is Stanley Ficsher And the Rape of Russia Crew. They have a record, it’s prudent to assume they are here to do it again.

    In fact the Fed is part of government, regardless of flimsy statute. It “governs” moreover it’s holding up the entire world under a virtual Fiat Atlas. It will not stand. Moreover they have lost us, the armed and sworn defenders. They cannot rely on the police.

    The people arm [check BATF, 46.5K background checks daily 2008-2012.]. The Majority of the Country has no representation at the national level, knows it and behaves accordingly. The People do not vote, the People Arm.

    Finance is seen as part of government. And this is essentially correct. Government is seen as hopelessly corrupt – it is, beyond redemption – and Finance as Fraudulent.

    Our money is seen as counterfeit waiting to explode. This is historically correct, you are denying the 5000 year history of money.

    There is a veritable forest of swords hanging by threads suspended above us all, a Damoclean Chandelier. The declared debt, the actual govt debt, private sector debt, the $800T USD in derivatives and no small matter that an small increase in interest rates makes the Federal Government insolvent. When I last looked an increase from ZIRP to a mere 0.6% on the 90 Day UST brings insolvency.

    The best thing you can do for your clients is to get them into physical assets of some sort and get them away from the market. This is also the best thing you can do for yourself. There are other physical assets. I am not long in gold, I have a small amount of it in a safe.

    Mr. Kggard There is no Long .

    Please understand that far beyond NeoReaction, America is waiting for this to end.

    [Reply]

    Kgaard Reply:

    VXXC …

    Various thoughts.

    First, it’s important to recognize that while, yes, paper money has declined in value sharply over the eons, those declines happen in waves, interspersed with long periods where nothing happens. We had devaluations in 1933, 1971-80 and 2002-2011. But from 1980 to 2002 gold FELL by more than half. That’s 22 years. A long time.

    Monetary history is cyclical. Devaluations are periodic exercises in squaring the books, so to speak. But once they’re done, they’re done. We are now coming to the END of a QE period — not the beginning of one. The Fed is going to be printing less money relative to demand — not more. Yellen is trying to hold off the hawks and keep rates lower for longer, but the hawks are many.

    With respect to the national debt, it’s about 1x GDP. That’s a little high but not outrageous. It was higher in WWII when we were borrowing money to finance the war. The debt/GDP ratio might actually fall a bit going forward because tax revenues have been rising pretty solidly and the economy is expanding. Meanwhile the path of spending growth has been pretty subdued under Obama (shocking as that may seem).

    The idea that a small increase in interest rates will explode the national debt is not accurate. As a practical matter interest rates are only going to rise in the US if nominal GDP growth rises. And that, in turn, means higher tax revenues. So in theory you will have more tax revenues to offset higher interest costs. It usually works out exactly like that unless we are talking about a banana republic where they print money and use it to pay expenses (which is NOT what the US does — the Treasury sells bonds to pay expenses, which is an entirely different dynamic).

    This is all Austrian heresy but I don’t know what to tell you. This is the way the world works on a fiat money + interest-rate-targeting system with a 2% CPI mandate.

    Posted on August 24th, 2014 at 6:47 pm Reply | Quote
  • Aeroguy Says:

    Triple digit responses, so much is going on in this thread that we need a way to break this stuff apart so we can assess which issues are reconcilable information gaps vs irreconcilable value assessments causing cladding (NRx is hardly a monolith after all).

    Things we have little/no dispute on:
    1. Hard currency is highly desirable as a monetary policy. (but isn’t entirely compatible with demotists)

    Things that caused confusion/disagreement in this thread:
    1. Conflating what our monetary policy should be with fiscal policy under the existing monetary policy.
    2. Short term personal fiscal management, Stack vs BTFD
    3. Nominal vs Real GDP as it relates to deflation

    Heated disagreement:
    1. Numbers, the extent that metrics like inflation are measured and manipulated.
    2. Austrian vs nonAustrian. Austrians have a knee jerk reaction to assume any criticism is coming from Krugman, the very mention of which causes us to involuntarily froth at the mouth. Kicking Keynesians before criticizing Austrains will go a long way in keeping us from going feral (I will give Keynes credit to the extent that his idea was to pay off the people just enough to keep from revolting and going full communist, which succeeded, but nothing further than that. That FDR’s economic policies prolonged the depression is right wing canon). (If we do have straight up Keynesians we’ll need a separate clade for them)
    3. Whether or not central bankers are the willing tools of the cathedral or soldiers making due with bad circumstances.
    4. Letting the economy be periodically cleansed in the fire of depression vs “soft impact” central banking (yeah I’m biased).

    Because I feel like it:
    1. Fractional reserve banking
    2. Does cryptocurrency represent a potential Exit from the FED (I say yes)

    [Reply]

    Different T Reply:

    1. Hard currency is highly desirable as a monetary policy.

    Why is this classified as “little/no dispute?”

    ————

    3. Whether or not central bankers are the willing tools of the cathedral or soldiers making due with bad circumstances.

    Seems as though kgaard’s discussion is not understood. Hurlock’s response “So essentially here the problem seems to be that I am focusing on what I think is the economically sound course of action, while you are focusing on what is the politically feasible course of action” is also evidence of this. Again “acting like we live in “idealized universe where contracts quickly reset downward and economies bounce back from deflationary crashes” is not worthless, it’s costly.”

    ———–

    4. Letting the economy be periodically cleansed in the fire of depression vs “soft impact” central banking (yeah I’m biased).

    Does this make since here, yet?

    Because the first stage, of ‘peace,’ is merely a cessation of overt hostilities, one that shouldn’t be mistaken for an overall consensual agreement. It is a state of forced expedience, not that of amicable understanding. The state of war transitions from the battlefield to the realm of unresolved, sullen resentments. Any subsequent ‘order’, ‘law’, or ‘freedom’ is often only a veneer over this basic irresolution. This can only be exacerbated by iniquitous applications & distributions of this veneer. -Artxell Knaphni

    [Reply]

    Posted on August 25th, 2014 at 6:32 am Reply | Quote
  • Blogospheroid Says:

    @ admin August 25th, 2014 at 12:50 pm

    “Concretely, it’s absolutely clear that the functional parts of the economy are deflationary. The tech sector, in our times, most notably”

    There is a difference between having to cut the price of your products to actually bringing in lower revenue or profit. Intel, Microsoft or Google never show steadily lowering revenue or profit compared to when their IPO happened. All this deflation has happened in the background of increasing nominal income all around. All good deflation in the world has happened at a time of increasing/steady nominal income. The times when nominal income started dropping, everything collapses.

    Quote from F. A. Hayek
    ““The moment there is any sign that the total income stream may actually shrink, I should certainly not only try everything in my power to prevent it from dwindling, but I should announce beforehand that I would do so in the event the problem arose.” – See more at: http://hayekcenter.org/?p=5047#sthash.SE6FAyEH.dpuf

    [Reply]

    Kgaard Reply:

    Yes! This on Hayek! Rothbard basically intimated the same though I could never actually find the quote in black and white. He HINTS at this all through The Mystery of Banking. Rothbard was very cognizant of the problem of sticky contracts on the downside and the problems they caused during panics and recessions. He argued that the last true “cleansing collapse” was in the 1830s. After that it just became too damn hard to get costs to a market-clearing level due to the growing instance of contracts for so many of a business’s line items.

    [Reply]

    Posted on August 25th, 2014 at 2:29 pm Reply | Quote
  • admin Says:

    Inflation re-distributes the industrial surplus (positive externalities of capitalism) to the state and its cronies. That’s the main reason to promote hard (deflationary) money.

    [Reply]

    Posted on August 27th, 2014 at 1:21 pm Reply | Quote

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