Mosler: "7 Deadly Innocent Frauds of Economic Policy" (BC#2)

[Tom]

@Dragline: Thanks for the big(ger) picture that puts Mosler's ideas in context. I was having the same kind of "Okay, but is that REALLY how things work?" thoughts that Spartan_Warrior expressed. Your explanation and analysis, especially about medium of exchange vs store of value issues and the "Exorbitant Privilege" (operating the world's reserve currency) makes it all more sensible to me.

@Spartan_Warrior: To answer your discussion questions...

1. From Mosler's argument and Dragline's clarifications, what I'm taking away is that the state of the economy of the nation that provides the world's reserve currency will be a function of how tight the government's monetary policy is. Easy money => more economic activity, more prosperity, higher inflation. Tight money => less economic activity, potential or actual recession, higher unemployment. Based on this, any economic downturn would be due to money being tight. There might be other good reasons for keeping money tight despite the lid it puts on the economy, but I think I'm hearing that there's a direct relationship between the monetary policy and the liveliness of the economy. Am I misunderstanding anything?

2. Before starting reading this book (I haven't finished yet), I believed 1, 2, 5, and 6. I was afraid that Social Security was broken, but wasn't sure, just figured I shouldn't count on it (hell, I still think I shouldn't COUNT on it, even if I'm less concerned that it will disappear before I can collect any of it).

With regard to 2 ("With government deficits, we are leaving our debt burden to our children"), I think I understand Mosler's argument that the deficit is not going to force the government to default (at least as long as it controls the world's reserve currency). However, I don't see that anything will ever make the deficit reverse itself. Based on Mosler's thinking, it seems to me that the government debt HAS to grow forever in order for the economy to grow. Is that a misunderstanding of something on my part?

3. Government budget deficits take away savings.

This didn't make sense to me when I first read it. I didn't see how increasing government deficits would reduce the number of dollars I have in the bank. After understanding some of what Mosler says, it seems like large enough government deficits could drive inflation, which could reduce the value of my savings over time. So I'm closer to believing 3 after reading Mosler than before.

5. The trade deficit is an unsustainable imbalance that takes away jobs and output.

I think in the long run trade deficits are unsustainable because the people on the other side are either 1) going to export to us so effectively that they will eventually have more money and a better standard of living that we do and they'll become net importers like we were, or 2) are going to feel so exploited and oppressed that they'll stop being willing to do business with us and instead want to make war on us (e.g., the anti-Western rage of Islamist jihadis, etc.). As far as jobs and output is concerned, I think trade imbalances do move them around. However the global economy is all connected and we haven't yet found a way to out-source to Mars. The jobs will benefit someone.

6. We need savings to provide the funds for investment.

We could borrow (from the government!).

7. It’s a bad thing that higher deficits today mean higher taxes tomorrow.

Not sure whether he's saying that "higher deficits today mean higher taxes tomorrow" is a mistaken notion so whether it's a bad thing is moot, or whether he's saying that it's actually good thing. Later on, he says stuff that sounds like the second but it's not clear to me why higher deficits today necessarily mean higher taxes tomorrow.

I'm enjoying learning about this stuff. Thanks all for making it happen, especially Dragline (IIRC) for suggesting the book club in the first place.

[jennypenny]

“I’ve heard it all, and it’s all total nonsense. We are benefiting IMMENSELY from the trade deficit. The rest of the world has been sending us hundreds of billions of dollars’ worth of real goods and services in excess of what we send to them. They get to produce and export, and we get to import and consume. Is this an unsustainable imbalance that we need to fix? Why would we want to end it? As long as they want to send us goods and services without demanding any goods and services in return, why should we not be able to take them?” (Kindle Locations 1167-1171).

• This is quite true when money is primarily used as a medium of exchange and not a store of value. Value question has to do with whether the dollars are more valuable than the goods and services consumed. When money is not a store of value, but only a medium of exchange, best to buy the stuff.

Could someone explain this a little more? At first reading, I thought it just meant that if goods and services were overpriced, it was better to hold the cash. When the situation reversed, it was better to buy the goods to store the wealth. Is that incorrect? Are we using money primarily as a medium of exchange?

[Dragline]

A few comments and questions. I agree that reserve currency status is relevant for international trading, but why would a lack of international esteem hinder government spending? Sure, one cannot buy so easily abroad since the FX rate makes it a bad deal. But internally it would still work and inflation could be kept at bay through higher taxes. Japan would be an example of a country that has created enormous public deficits while keeping interest rates and inflation low. I guess I don't really understand how reserve currency status comes into play here.

Also, after Excelgate, I stopped reading "This time it is different", as I started to doubt Reinhart and Rogoff's sincerity and/or accuracy. Would you still recommend it?

Regarding the first point, if you want to operate a closed economy, you do not need a currency that is acceptable internationally. Historically, closed systems with non-convertible currencies have been failures and only work well so long as the country is internally wealthy and does not need to trade much with the outside world. That's part of the reason the Greenback could work in the US at least for a time -- the US in the 1800s did not really need outside trade to function, especially short-term. The old Soviet system is another good example. The communist ruble was so worthless that a whole generation saw it as a "token" and would freely share it will neighbors and friends. Its only function was as a means of exchange. It could work for awhile, but eventually the system broke down. Many countries operate dual systems or partially convertible systems successfully, but usually only when they are large -- like today's China. The history of Argentina from 1900 when it was one of the world's wealthiest countries to today when its second or third rate also tells a cautionary tale of repeated currency abuses.

What makes the dollar particularly almighty these days is that oil is priced in it. If you want to buy oil from the Middle East you need dollars. Most countries want to buy oil.

Japan is an interesting situation, but almost unique in how it structured itself to encourage exports and accumulation of wealth internally, but never allowed immigration so is having severe demographic issues. One thing we did not get into here is how policies affect the velocity of money -- Japan's is as low as it gets. With no velocity there can be little economic activity regardless of the amount of money in the system. Mosler's book does not discuss this - its kind of a topic for another day.

"This Time it is Different" is extremely valuable not for its conclusions, but for the raw historical data that has been collected there about the financial crises in various countries for the past 500 years. I would expect anyone who is serious about putting forth theories about economic systems would need to study that data to see if their theory is borne out by historical experience -- they should at least be able to pick out a few that support their thesis. Most popular theories are too simplistic and can be falsified pretty quickly with that data.

[Seneca]

I think Mosler’s model of the current system is essentially accurate for the years of his investing lifetime/observations, albeit incomplete. I don’t think he appreciates why this is likely to be so. In my view, the primary reason why our government can print money with little adverse consequences is that the dollar is the world’s reserve currency – this is otherwise known as “The Exorbitant Privilege”. See this recent article for an explanation as to what this means practically: http://www.mauldineconomics.com/editori ... e-us-brand...

"This Time it is Different" is extremely valuable not for its conclusions, but for the raw historical data that has been collected there about the financial crises in various countries for the past 500 years. I would expect anyone who is serious about putting forth theories about economic systems would need to study that data to see if their theory is borne out by historical experience -- they should at least be able to pick out a few that support their thesis. Most popular theories are too simplistic and can be falsified pretty quickly with that data.

EXACTLY- Mosler and his acolytes are the ones who need a book like This Time it is Different the most, and having read that book previously on your suggestion, I found Mosler's book torturous within a few sentences.

I always felt Mosler was myopic as I've read the links Felix has posted over the course of our many discourses, but with his book, he got very in your face with this by labeling things as fact that history has already proven to be more than the match of.

Ultimately to me Mosler's work here is probably useful to helping general understanding of fiat money, certain short term trading, and very short term economic predictions, but I think it would be extraordinarily dangerous to use when making long-term policy decisions.

Another book I read on the suggestion of an economist friend of mine while discussing fiat money was (read This Time... first!)-

http://www.amazon.com/Paper-Money-Colla ... 1118095758

[Felix]

Not so fast.

"Mosler and his acolytes are the ones who need a book like This Time it is Different the most"

They have read it:
http://www.levyinstitute.org/pubs/wp_603.pdf

As far as I see it, Mosler's suggestions would only be bad if they resulted in price instability (high inflation) and a corresponding lowering of foreign exchange value. This is highly dependent on policy and not a natural inevitable result of the use of fiat money. If the economy produces products desired by other countries and prices remain stable, where is the problem?

Where in Mosler's book do you see the suggestions to actually overinflate the currency through massive government overspending? He argues for tax cuts instead of bailouts and tax increases and spending cuts in case of inflation.

That's a fear grounded in the model of Austrian economics, which simply redefines inflation as increase in money supply (in contradiction to the common usage of the term).

http://austrianeconomics.wikia.com/wiki/Inflation

But deficit spending does not simply equal hyperinflation. It's Mv=PT, not M=P.

[Seneca]

Not so fast.

"Mosler and his acolytes are the ones who need a book like This Time it is Different the most"

They have read it:
http://www.levyinstitute.org/pubs/wp_603.pdf

As far as I see it, Mosler's suggestions would only be bad if they resulted in price instability (high inflation) and a corresponding lowering of foreign exchange value. This is highly dependent on policy and not a natural inevitable result of the use of fiat money. If the economy produces products desired by other countries and prices remain stable, where is the problem?

Where in Mosler's book do you see the suggestions to actually overinflate the currency through massive government overspending? He argues for tax cuts instead of bailouts and tax increases and spending cuts in case of inflation.

That's a fear grounded in the model of Austrian economics, which simply redefines inflation as increase in money supply (in contradiction to the common usage of the term).

http://austrianeconomics.wikia.com/wiki/Inflation

But deficit spending does not simply equal hyperinflation. It's Mv=PT, not M=P.

I'll admit to the surprise Spartan mentioned above, that Mosler isn't Keynesian. At least I don't have to listen to the absurd idea the government allocates resources more efficiently by some neatly calculable multiple! Tax cuts are much less dangerous form of stimulus spending in my opinion, particularly as I think taxing behaviors you want to encourage, like citizens working/supporting themselves, is stupid. Secondarily, they seem more democratic, manipulation by lobbyists and game makers is more overt.

However, my concerns are not Austrian based, nor do they need to be. My concerns are Taleb-style fragility based. Fiat systems break, they often surprise people when they do(or in Mosler's case in Russia, don't). That type of collapse makes a recession or three pale in comparison.

I guess it comes down to, do you think it is better to ride out smaller recessions with strong money to avoid a total fiat money collapse?

Or would you rather try to moderate recessions while piling on the low risk of a >6 sigma event occuring?

For that matter, do you think a bit of recession occasionally perhaps is actually good for a population?

[Seneca]

I can't edit the post, but please note, the "don't" should not be present in my discussion about Mosler's losses in Russia.

http://www.businessweek.com/1998/38/b3596001.htm

[Dragline]

“I’ve heard it all, and it’s all total nonsense. We are benefiting IMMENSELY from the trade deficit. The rest of the world has been sending us hundreds of billions of dollars’ worth of real goods and services in excess of what we send to them. They get to produce and export, and we get to import and consume. Is this an unsustainable imbalance that we need to fix? Why would we want to end it? As long as they want to send us goods and services without demanding any goods and services in return, why should we not be able to take them?” (Kindle Locations 1167-1171).

• This is quite true when money is primarily used as a medium of exchange and not a store of value. Value question has to do with whether the dollars are more valuable than the goods and services consumed. When money is not a store of value, but only a medium of exchange, best to buy the stuff.

Could someone explain this a little more? At first reading, I thought it just meant that if goods and services were overpriced, it was better to hold the cash. When the situation reversed, it was better to buy the goods to store the wealth. Is that incorrect? Are we using money primarily as a medium of exchange?

What I think Mosler was saying was that since we can print all the money we want and others are willing to accept it, we might as well take advantage of them and take their stuff in exhange for our dollars.

My point was, yes that's true if we don't care about whether the money holds its value, so long as we are buying things that do not deteriorate in value as quickly as the money.

Whether we care about whether money is a store of value or not is basically a policy choice. You will have more economic activity if that function is not a priority.

Some commentators have said that having the reserve currency is actually a "curse" because it makes the currency overvalued and thus has a negative impact on the US's ability to export and increase domestic employment and production. On the other hand, it also tends to make imports cheap, so whether its a curse or a benefit kind of depends on who you are. It's definitely a benefit for the government and for banks that can make loans in dollars.

[Dragline]

However, my concerns are not Austrian based, nor do they need to be. My concerns are Taleb-style fragility based. Fiat systems break, they often surprise people when they do(or in Mosler's case in Russia, don't). That type of collapse makes a recession or three pale in comparison.

I guess it comes down to, do you think it is better to ride out smaller recessions with strong money to avoid a total fiat money collapse?

Or would you rather try to moderate recessions while piling on the low risk of a >6 sigma event occuring?

For that matter, do you think a bit of recession occasionally perhaps is actually good for a population?

[Felix]

Well, the great depression happened while on the gold standard. Greece was near collapse due to being dependent on a foreign currency. So are Spain and Italy. Hard money is far from a means against economic collapse. One could much easier make the case that a government with more fiscal wiggle-room has more chances to avoid such disasters. So I would say that a fiat money system has more chances of averting collapse. Take the bank bailout. Without the US government's ability to do this, you'd be in the same position as Greece or Cyprus without an ECB to bail you out.

Do I think a little bit of recession is good? I suppose you mean in the sense of it being educational, teaching people to save for bad times, strengthening their moral fiber etc.

I don't think this is a good thing. While it is good to be prepared I think it is bad to unneccessarily inflict pain on innocent people. If the recessions are preventable, it is the moral fault of those who could prevent them, not those who are hit by their impact without warning. I don't believe hardship and suffering breed good character traits, so I guess that is one reason for me evaluating it this way.

[Dragline]

Hmm, my comment didn't make it. I was going to say that I'm unaware of any instance where a the global reserve currency blew up in some kind of hyperinflationary episode, whether fiat-based or not. I am not convinced it can happen untill the status is lost.

I've asked many times in discussions like this one for any historical examples of the reserve currency blowing up and never been given one -- everyone always starts talking about Weimar or Zimbabwe. Instead, what you usually get after a crises in such a country is a period of slow growth or deflation like Great Britain 1873-1895 or present-day Japan.

Mosler's two big mistakes on Russia were not recognizing that its not a reserve currency and not taking into account Russia's history of defaults.

[jennypenny]

Thanks. I still struggle with the distinction. To my mind, once an official currency is established, it has value (albeit fluctuating). If it was just a medium of exchange, no one would hold it, right? Wouldn't it immediately be exchanged for goods? The exchange between old goods to money to new goods would happen quickly, almost instantaneously, right?

[jacob]

@jennypenny - That's why there's only some $2000 in cash per US person in existence. However in case of bigger amounts (held in bank accounts), one might want to spend it later ... even much later. E.g. I have no immediate desire to spend all my money this instant.

[Dragline]

Thanks. I still struggle with the distinction. To my mind, once an official currency is established, it has value (albeit fluctuating). If it was just a medium of exchange, no one would hold it, right? Wouldn't it immediately be exchanged for goods? The exchange between old goods to money to new goods would happen quickly, almost instantaneously, right?

That is, in fact, what happens in the hyper-inflationary scenario. Currencies are not perceived to have any value and are exchanged as quickly as they are received. Or, in some circumstances, currencies have been designed specifically to decrease in value so that they are spent quickly to stimulate an economy. This was done in the famed "Worgl Experiment." See http://www.lietaer.com/2010/03/the-worgl-experiment/

A fiat currency created through loans is designed to depreciate via inflation and grow with an economy. The idea is to match the amount of money with the productivity of the economy. That's essentially what the Fed tries to do. It's not expected to hold its value long-term -- the the "medium of exchange" function is its primary purpose.

That with contrasts to a hard currency like one backed by gold. That kind of money retains its value because the supply of money can only grow when people mine gold and sell it to the government. Such a currency is more of a store of value and is not usually a good medium of exchange in a dynamic economy. In a growing/more productive economy it results in deflation because the money supply cannot grow as fast as the economy. But it preserves the wealth of savers because you don't really have to invest it to keep up -- inflation is zero most of the time.

An interesting phenomenon when you have two such currencies in the same economy is Gresham's Law, colloquially stated as the bad money driving out the good. In the early US, there was a bimetallic standard -- both silver and gold. But since silver was cheaper, all the gold money was hoarded for its store of value and only silver money was used as the medium of exchange. This changed after the gold rush, because there was more gold available and the price fell. The same was true in the Greenback era, which existed side-by-side with gold certificates. Greenbacks were spent relatively quickly and gold certificates were hoarded.

Obviously, dollars have both attributes. But the lionshare of the value component with today's dollar comes from the fact that its the world's reserve currency. Thus, it is hoarded in times of crisis to the chagrin of the policy makers. In a way, Mosler is saying (without understanding why) that we can just print away and not worry about the value aspect. But he erroneously thinks that's true because its a fiat currency. It's really only true due to the reserve currency aspect of it -- other governments are constantly hoarding it and there's really no good substitute at the moment.

Lot of news articles about this recently -- here's a discussion: http://usnews.nbcnews.com/_news/2013/10 ... ollar?lite

[Seneca]

Well, the great depression happened while on the gold standard....

Interesting you bring this up under the context of a system that believes the big stimulus stick is a income tax cut. I wonder if Mosler was there, he'd have predicted the Great Crash and recession becoming a Great Depression based on the fact the largest peacetime income tax increase in history, the Revenue Act of 1932, passed?

If you want to see the true scale of it, start at page 51.

http://taxfoundation.org/article/us-fed ... d-brackets

Do I think a little bit of recession is good? I suppose you mean in the sense of it being educational, teaching people to save for bad times, strengthening their moral fiber etc.

Is that "moral fiber" point stinky bait?

There's a lot you could bring up. Educational, teaching people to save for, and be ready for, bad times, and confident in surviving them. Public confidence afterall, being the true backer of fiat money. People consuming less, the recession changed my household's habits drastically, any feelings of immortality left the building.

There's even research that shows people lived longer in the Great Depression, and are living longer again now in the Recession. The causes being suggested are strangely similar to the reasons people here on the forum believe in "voluntary poverty".

I don't think this is a good thing. While it is good to be prepared I think it is bad to unneccessarily inflict pain on innocent people. If the recessions are preventable, it is the moral fault of those who could prevent them, not those who are hit by their impact without warning. I don't believe hardship and suffering breed good character traits, so I guess that is one reason for me evaluating it this way.

I don't like pain more than anyone else. Among members of my immediate family, 2 owned houses going in to this recession, neither kept them. It was agonizing for both families. But it definitely could've been worse. I would not argue to inflict pain casually, but I don't believe recessions/panics/depressions are altogether preventable. And of course, living longer is not really a bad thing is it?

[Seneca]

Hmm, my comment didn't make it. I was going to say that I'm unaware of any instance where a the global reserve currency blew up in some kind of hyperinflationary episode, whether fiat-based or not. I am not convinced it can happen untill the status is lost.

I've asked many times in discussions like this one for any historical examples of the reserve currency blowing up and never been given one -- everyone always starts talking about Weimar or Zimbabwe. Instead, what you usually get after a crises in such a country is a period of slow growth or deflation like Great Britain 1873-1895 or present-day Japan.

Mosler's two big mistakes on Russia were not recognizing that its not a reserve currency and not taking into account Russia's history of defaults.

What happens when a highly indebted and defecit running country who operates under the reserve currency, loses that privelege?

Special Drawing Rights have been proposed to replace the dollar as reserve currency variously by the IMF and UNCTAD, with support from China, Russia smaller countries and OPEC.

[Dragline]

Yes, I've heard those ideas bandied about for some time -- even back to the time when Nixon closed the gold window. But there's no real traction to them, except among economists with not much better to do. Moreover, historically, reserve currencies are already in existence and migrated to over time -- they don't pop out of thin air. The Euro, Yen, Pound and Swiss Franc all have partial reserve status along with the dollar, but almost nothing else out there is held in any quantity by central banks, who really make this decision.

In my view, the only way the US loses its status as the primary reserve currency in our lifetimes is if it defaults on actual payments on bonds (and more than once) or if it adopts some crazy scheme like Mosler suggested about doing away with debt over 90 days altogether.

There is always the confidence game to this too. That's why you always hear public officials talk up the strength of the dollar and paying down deficits, even when its just lip-service. If they started talking like Mosler, confidence could erode. Outside of rogue Congressmen, you won't see that happen, even if they are planning on helicopter drops of cash in the background.

[Riggerjack]

You know, in all of felix's links to moslers writing, i'd skim thru it, and see a bunch of unsubstantiated statements, and think, "really? I should have to start from scratch, to get all his theory up to this point to make this make sense? i don't have time for that!" and then try to get the cliff notes from felix. I got called on my laziness, and linked to the book club, and started "7".

Previously, i called mosler a guru, i was mistaken. He is a genius! his name should be up there with Ponsi, and Rasputin! as a master of misdirection, he could show david copperfield some tricks!

let's just start with:

Lawrence Summers
Several years ago I had a meeting with Senator Tom
Daschle and then-Assistant Treasury Secretary Lawrence
Summers. I had been discussing these innocent frauds with
the Senator, and explaining how they were working against
the well-being of those who voted for him. So he set up this
meeting with the Assistant Treasury Secretary, who is also a
former Harvard economics professor and has two uncles who
have won Nobel prizes in economics, to get his response and
hopefully confirm what I was saying.
I opened with a question: “Larry, what’s wrong with the
budget deficit?” He replied: “It takes away savings that could
be used for investment.” I then objected: “No it doesn’t, all
Treasury securities do is offset operating factors at the Fed. It
has nothing to do with savings and investment.” To which he
retorted: “Well, I really don’t understand reserve accounting,
so I can’t discuss it at that level.”
Senator Daschle was looking on at all this in disbelief. This
Harvard professor of economics, Assistant Treasury Secretary
Lawrence Summers didn’t understand reserve accounting?
Sad but true.
So I spent the next twenty minutes explaining the
“paradox of thrift” (more detail on this innocent fraud #6
later) step by step, which he sort of got right when he finallyresponded: “…so we need more investment which will
show up as savings?” I responded with a friendly “yes,”
after giving this first year economics lesson to the good
Harvard professor, and ended the meeting. The next day, I
saw him on a podium with the Concord Coalition - a band
of deficit terrorists - talking about the grave dangers of the
budget deficit.

He uses this technique several times, quoting conversations with people with name recognition, (Al Gore, Robert Rubin, Steve Moore etc...) and leaves the impression that they were too sleazy, stupid, or stubborn to change their ways when he Enlightened them. His name dropping crosses into all kinds of fields. maybe it's the skeptic in me, but when i picture these conversations, i easily see people thinking things like:

"Mmmm, i really need to go over the rules with my staff, rich contributors are fine, but I don't need to be wasting my time with any loser with a checkbook"
or
"Security? where's my security detail?"
or
"Wow, those hair plugs really cover up his tin foil hat!"

Now, I'm never going to get awards for my writing style, but neither am i writing a book. These attempts at legitimacy by proximity always set off alarm bells.

Now, to give him full credit, he seems to have figured out the "nuts and bolts" of a fiat currency, ie, you can keep running the presses! or, stroking the keyboard, if you see a difference there. he does touch on inflation, lightly, as though that weren't the primary and direct objection to his theory.

also, i agree with him, with surprise, that tax holidays are the most effective and efficient form of stimulus, if you must go that way.

The reason i label him a charlatan is he makes arguments like:

Here’s a story that illustrates the point. Several years ago, I ran
into former Senator and Governor of Connecticut, Lowell Weicker,and his wife Claudia on a boat dock in St. Croix. I asked Governor
Weicker what was wrong with the country’s fiscal policy. He
replied we have to stop running up these deficits and leaving the
burden of paying for today’s spending to our children.
So I then asked him the following questions to hopefully
illustrate the hidden flaw in his logic: “When our children
build 15 million cars per year 20 years from now, will they
have to send them back in time to 2008 to pay off their debt?
Are we still sending real goods and services back in time to
1945 to pay off the lingering debt from World War II?”

So what's wrong with that, besides name dropping? he paints a pretty funny picture, where you don't have to think about what he's saying at all. If you did, you'd know that the children of those investors in the past are being paid out of today's taxes, spent on today's goods and services, without any time travel at all. this is simply misdirection to get you thru, having felt like "yeah, this guy makes sense!"

How about:

China has a reserve account at the Federal Reserve Bank.
To quickly review, a reserve account is nothing more than a
fancy name for a checking account. It’s the Federal Reserve
Bank so they call it a reserve account instead of a checking
account. To pay China, the Fed adds 1 billion U.S. dollars to
China’s checking account at the Fed. It does this by changing
the numbers in China’s checking account up by 1 billion U.S.
dollars. The numbers don’t come from anywhere any more
than the numbers on a scoreboard at a football come from
anywhere. China then has some choices. It can do nothing and
keep the $1 billion in its checking account at the Fed, or it can
buy U.S. Treasury securities.
Again, to quickly review, a U.S. Treasury security is
nothing more than a fancy name for a savings account at the
Fed. The buyer gives the Fed money, and gets it back later with
interest. That’s what a savings account is - you give a bank
money and you get it back later with interest.
So let’s say China buys a one-year Treasury security. All
that happens is that the Fed subtracts $1 billion from China’s
checking account at the Fed, and adds $1 billion to China’s
savings account at the Fed. And all that happens a year later
when China’s one-year Treasury bill comes due is that the Fedremoves this money from China’s savings account at the Fed
(including interest) and adds it to China’s checking account at
the Fed.
Right now, China is holding some $2 trillion of U.S.
Treasury securities. So what do we do when they mature and
it’s time to pay China back? We remove those dollars from
their savings account at the Fed and add them to their checking
account at the Fed, and wait for them to say what, if anything,
they might want to do next.
This is what happens when all U.S. government debt
comes due, which happens continuously. The Fed removes
dollars from savings accounts and adds dollars to checking
accounts on its books. When people buy Treasury securities,
the Fed removes dollars from their checking accounts and
adds them to their savings accounts. So what’s all the fuss?
It’s all a tragic misunderstanding.

This is the essence of his deception. he will keep talking about how it's all balance sheets, and account manipulation, "what's the big deal?" well, i suspect that when 2 trillion dollars comes out of treasuries, and is converted to another asset (i'm thinking of something like California) there may be some consequences... his equations don't balance. he wants to count one side more often than the other, to show baseless profit. it didn't work for enron, i don't know why it should work here.

The problem with fiat currencies is not inflation, i don't thin inflation or deflation in minor amounts is necessarily bad, it's that some joker like mosler comes along, selling the "money for nuthin" lies, and then the real tragedies hit.

In short, i'm sure if i were 19, high, sitting in a drum circle around a bonfire, Mosler would make perfect sense. but if you aren't in that scene, and chemically enhanced, why would you take any of this seriously?

[Spartan_Warrior]

@Riggerjack:

Having read our first book club selection by Seligman, by comparison I find it hard to accuse Mosler of "name-dropping". He did drop some names, but isn't that a problem--if it's a problem--with his writing style and not the theory itself?

Even if he is committing the appeal to authority fallacy (what I assume you mean by "legitimacy by proximity"), you would be committing the fallacy fallacy by disregarding his arguments on that basis: believing that someone's argument is invalid solely on the basis that the presenter committed a logical fallacy, is itself a fallacy.

https://yourlogicalfallacyis.com/assets ... herRes.jpg

The last part about being 19 and high, of course, would be an ad hominem fallacy. To answer the question, though: I personally give it serious consideration because I make an effort to be open-minded to new thoughts and beliefs until they are proven logically or empirically false. I find such openness to be key to growth.

Your remaining objections seem to be that inflation is not considered thoroughly enough and that you suspect "when 2 trillion dollars comes out of treasuries, and is converted to another asset (i'm thinking of something like California) there may be some consequences..." Could you elaborate on what consequences you mean?

I agree that not enough time was spent on inflation in this text.

[vivacious]

http://seekingalpha.com/article/242669- ... ary-theory

This gets into a lot of my criticisms in my earlier posts but in more detail.

I've said a time or 2 now that you should NOT take the ideas as a dogma. It wouldn't work.

Conceptually it makes sense but it is oversimplified basically. There's not enough meat for the real world.

@spartan_warrior it's not an appeal to authority. It's the opposite. He's saying "Look at me, I'm smarter than authorities!" So in a sense he is appealing to them, and then placing himself above them.

To repeat, there's no way 2007/2008 was because Clinton balanced the budget. It may have been a small factor but was not the cause. Plus that kind of thing was already occurring by 2003.

Anyway read the link if you can.