TLT looking really bad right now

[Mdraf]

And to tell you the truth, Kshartle, you sound an awful lot like our dear friend Doodle did in 2011, when we started this thread...

http://gyroscopicinvesting.com/forum/pe ... -blinders/

Six months later, after lots of discussion and research on his part, he came to this conclusion...

http://gyroscopicinvesting.com/forum/pe ... the-light/

A complete 180º in his thought process. I have to hand it to him — he really opened his mind and challenged his own beliefs.

This is by no means a persuasive argument.  It is condescending like many of your previous posts on other threads

[stuper1]

What if it starts raining Gatorade? Will the elecrolytes make the crops grow better?

Why stop at 1%? How about negative 50%?

I thought you wanted specific examples. Or do you just think that stuper1's example is too far-fetched?

To answer his question, yes I would consider 10 years long term. How on Earth would this happen without the FED buying trillions and trillions? Where do you think prices would be in years against whatever gain this might be?

If stocks go in the toilet for an extended period, where are people going to put their money?  I doubt that most will be buying gold.

[Xan]

This is by no means a persuasive argument.  It is condescending like many of your previous posts on other threads

I think we have to assume that Gumby is right, since you haven't actually been able to point out where anything he says has been wrong.

[Gumby]

And to tell you the truth, Kshartle, you sound an awful lot like our dear friend Doodle did in 2011, when we started this thread...

http://gyroscopicinvesting.com/forum/pe ... -blinders/

Six months later, after lots of discussion and research on his part, he came to this conclusion...

http://gyroscopicinvesting.com/forum/pe ... the-light/

A complete 180º in his thought process. I have to hand it to him — he really opened his mind and challenged his own beliefs.

This is by no means a persuasive argument.  It is condescending like many of your previous posts on other threads

It wasn't meant to be a persuasive argument. It was meant to point out that you need to have an open mind if you want to learn something that challenges your own beliefs. Doodle opened his mind and now he no longer concerns himself with the inflationistas and fear-mongerers who have been consistently wrong for the last 30 years.

It is condescending like many of your previous posts on other threads

Condescending? I was Doodle before Doodle was Doodle. A few years ago, I used to be very concerned over the size of the deficit and inflation. Since then, I've learned that there are other explanations that do a better job of making sense of our monetary system.

Doodle did too.

...So did MT.

...So did Moda.

...So did TenPaGa

...So did melveyr

...So did Pointedstick.

We all used to believe the inflationistas at one point or another. We've just all challenged our own belief systems, swallowed the bitter red pill, and came to a different conclusion after lots and lots of disbelief. It wasn't easy.

Most of us learned about MR by trying to disprove it. If you can disprove it, let me know how — I'd love to know.

[Gumby]

This is by no means a persuasive argument.  It is condescending like many of your previous posts on other threads

I think we have to assume that Gumby is right, since you haven't actually been able to point out where anything he says has been wrong.

I don't even think it's about being "right" or "wrong." All we need to acknowledge is that free-floating debt-based fiat money might behave differently from fixed-exchange/commodity currency and we invest accordingly.

[Mdraf]

But you still haven't explained to us uninformed neophytes where the taxes are going to come from?

[Gumby]

But you still haven't explained to us uninformed neophytes where the taxes are going to come from?

I don't understand the question. If the government spends too much money, it just taxes that excess money away. The money to pay the taxes comes from the same money the government spent into existence in the first place. Where else would it come from?

[Mdraf]

But you still haven't explained to us uninformed neophytes where the taxes are going to come from?

I don't understand the question. If the government spends too much money, it just taxes that excess money away. The money to pay the taxes comes from the same money the government spent into existence in the first place. Where else would it come from?

Here we go again ! Because that money spent by the government has already been taxed  - in the future.

[Gumby]

Here we go again ! Because that money spent by the government has already been taxed  - in the future.

Please explain, in detail, how that is so, for us "uninformed neophytes".

[Mdraf]

Here we go again ! Because that money spent by the government has already been taxed  - in the future.

Please explain, in detail, how that is so, for us "uninformed neophytes".

No more. I said earlier I wasn't taking the bait but, alas, I did. Since we're just going around in circles it probably get boring for everyone else.

I started this thread with a technical chart. I'm interested more in discussing the technical chart of TLT.  Kshartle said he doesn't like moving averages.  I'd like to know what his view is about support levels of TLT. I'm looking at 102.13 as the next support level. Any comments?

[Gumby]

Here we go again ! Because that money spent by the government has already been taxed  - in the future.

Please explain, in detail, how that is so, for us "uninformed neophytes".

No more. I said earlier I wasn't taking the bait but, alas, I did. Since we're just going around in circles it probably get boring for everyone else.

Oh, good gravy. All our money (except coins) comes from debt — not taxes. In our monetary system, you can't pay taxes without debt/credit-based money existing in the first place. Period.

How can you pay taxes without either the government or someone going into debt first, to create the money to pay those taxes? The answer is you can't.

[Pointedstick]

But you still haven't explained to us uninformed neophytes where the taxes are going to come from?

I don't understand the question. If the government spends too much money, it just taxes that excess money away. The money to pay the taxes comes from the same money the government spent into existence in the first place. Where else would it come from?

Here we go again ! Because that money spent by the government has already been taxed  - in the future.

Aren't those taxes the ones Gumby's talking about?

1. Government spends $100 billion
2. Military-industrial complex receives $100 billion and constructs and sells weapons, pays wages, etc.
3. Military-industrial complex and all others later pay taxes on those wages, sales, and purchases

Ta-da! You're both right! Mdraf is right that all domestic government spending ultimately leads to future taxation, and Gumby is right that the money to pay those taxes comes from the very entity that demands the payments.

Weird, huh?

[Gumby]

Good point, PS.

But, I think, and I could be wrong since he won't explain himself, that Mdraf is trying to suggest that spending beyond the ability to tax in the future would result in unfunded liabilities that can't be paid for. So, for example, Greek government employees were promised large pensions and retirement benefits. No money was set aside, as a currency user nation must do to fund future liabilities. And now, despite tax increases, there is not enough tax revenue to keep those promises, and those Greek government workers and retirees are rioting in the streets because of the higher taxes and because they believe they will not get their promised benefits. So, Greece is constrained by it's inability to tax the overspent future.

But, of course, Greece is a currency user — not a fiat currency issuer. A fiat currency issuer doesn't technically even need to tax to fund any of its "unfunded liabilities" (a debt-based fiat currency issuer just issues more and more debt). The Federal government taxing in a fiat country is like a stadium asking football teams to fund their own scoreboard points awarded to them.

[Mdraf]

Gumby, this is where we ended up last go around. So why don't we stop eh?

http://gyroscopicinvesting.com/forum/pe ... /#msg73273

[Gumby]

Gumby, this is where we ended up last go around. So why don't we stop eh?

http://gyroscopicinvesting.com/forum/pe ... /#msg73273

As you wish.

[moda0306]

Mdraf is viewing the contract of a treasury bond like he'd view any loan to a private player, while simultaneously lamenting that the government is cheating the contract.

We KNOW the government cheats the contract... in fact, it's not even cheating anymore.  We've figured their game out.  They have taken the role, along with banks, as CURRENCY ISSUER.  This is the big cheat.  The government has essentially designed a fiat currency and made us, more or less, use it as an asset on our balance sheets as legal tender.  It's a liability of the government and an asset to us.

There is arguably an immoral aspect of this, but you can't claim that this entity not "playing fair" in a market of borrowing the very currency they issue is any kind of real cheat.  It's a joke to think that a currency issuer should have to play in the debt market at all.  They issue currency, why the hell issue bonds to get that currency to spend?

Simply put, government can't "print away its debts," because the money itself is a debt of government.  A treasury bond is a debt of the Treasury (government) and an asset of the holder of the bond, and is a promise to pay a dollar, which is a liability of the fed (government) and an asset to the private sector.

I believe it was Mdraf who interestingly pointed out the US government as being a sort of "pass through entity."  I think that's an amazing visualization!!

So if we look at it this way, what do we have in terms of "debt."

- The government has trillions in debt paper (bonds, bills, reserves, and physical currency), which flows to American balance sheets, but most of which is an asset on the balance sheet of Americans, which cancels out most of the liability.

- The government also has a ton of assets, which also flow onto the balance sheets of Americans.


So if our debts pass through, mostly to us, and in a currency controlled by us anyway, and we own all the government assets, where's the big rub? 



There is nothing that swapping one government liability for another should accomplish in any major, fundamental way.  As long as the government continues to facilitate economic growth, the currency will remain sound.  Even if growth plateaus due to various limiting factors, those factors are present either way.  They're not a monetary issue. They're one of real resources.

[Kshartle]

What if yields drop to 1% over the next 10 years?  Is that long enough to be long-term?

What if it starts raining Gatorade? Will the elecrolytes make the crops grow better?

Why stop at 1%? How about negative 50%?

I thought you wanted specific examples. Or do you just think that stuper1's example is too far-fetched?

I would like at least one specific example. This isn't even in the galaxy of an example.

The thing is when someone has made 2 dozen posts on a thread, laying out a case for why they think a particular event is extremely unlikely to impossible, solicits honest reasoned differing opinions, and someone just jumps in and says "well what if it doesn't happen like you think?"...that is rude.

Imagine you laid a painstakingly well-reasoned case for why you don't think gold will experience real returns in the long run...over many posts. Then imagine I jump in and say "Well....what if the price doubles in ten years, what then"?

That is intellectual sloth, and it's rude.  If you think yields can go that low without inflation swallowing up the gains then make the case. Read everything that's already been posted regarding the situation and try to actually add something. Or just observe.

If people would drop the strawmen, own their arguments, and focus on having a point then the discussion won't descend into the same repeating over and over and maybe we can learn something.

[Kshartle]

I'll bet Japanese investors would LOVE to be able to buy some 30 year bonds at 3.8%.

During a deflationary period, a 3.8% return is great.

If you say that an extended deflationary period is impossible with the government running gigantic deficits, how would you explain what has been happening in Japan for over 20 years?

I'm not saying that I think that's what will happen here; rather, what I am saying is that if it can happen in Japan it could also happen here and I just want to be protected if it does.

The myth of Japanese deflation is a massive topic. I think it's just about the most misunderstood modern economic situation and forgive me if I need to take a breather before tackling it. It's relevant but it's a huge topic and I think we can learn a lot from it. I'm up for the discussion.

[Kshartle]

I started this thread with a technical chart. I'm interested more in discussing the technical chart of TLT.  Kshartle said he doesn't like moving averages.  I'd like to know what his view is about support levels of TLT. I'm looking at 102.13 as the next support level. Any comments?

I don't think TLT can reveal any support or resistance. It's what..a 2.3 billion dollar fund (I didn't check sorry)? The FED buys that in 2 days. It's like looking for technical level for gold by looking at the price of 130 call option on GLD for Sept of 2014. It's just such a tiny drop in the treasury bucket I don't think there's anything there.

I do think there are major psychological levels on the rate though. I think breaking 4% will be a big one and there will be high volume at that area and the immediate level around it.

I agree with MT that in the short it more likely moves down because the move up has been so far so fast. But long term.......4% will be left in the dust.

[moda0306]

Japan recently had LT bond yields of well-under 2% if I'm not mistaken.

[AgAuMoney]

Oh, good gravy. All our money (except coins) comes from debt — not taxes. In our monetary system, you can't pay taxes without debt/credit-based money existing in the first place. Period.

That's nonsense.  Repeating it does not make it any more real.

The gov't is not required to go into debt.  That's just the 20th century convention and congress could end it just as quickly as it began.

[moda0306]

Oh, good gravy. All our money (except coins) comes from debt — not taxes. In our monetary system, you can't pay taxes without debt/credit-based money existing in the first place. Period.

That's nonsense.  Repeating it does not make it any more real.

The gov't is not required to go into debt.  That's just the 20th century convention and congress could end it just as quickly as it began.

So why is our "national debt" a problem then?

[MediumTex]

I'll bet Japanese investors would LOVE to be able to buy some 30 year bonds at 3.8%.

During a deflationary period, a 3.8% return is great.

If you say that an extended deflationary period is impossible with the government running gigantic deficits, how would you explain what has been happening in Japan for over 20 years?

I'm not saying that I think that's what will happen here; rather, what I am saying is that if it can happen in Japan it could also happen here and I just want to be protected if it does.

The myth of Japanese deflation is a massive topic. I think it's just about the most misunderstood modern economic situation and forgive me if I need to take a breather before tackling it. It's relevant but it's a huge topic and I think we can learn a lot from it. I'm up for the discussion.

Understand that I don't mean deflation in the sense that prices are falling, I mean deflation as a set of structural economic forces (especially bad demographics coinciding with contracting credit) that make economic expansion very difficult.

[MediumTex]

What if it starts raining Gatorade? Will the elecrolytes make the crops grow better?

Why stop at 1%? How about negative 50%?

I thought you wanted specific examples. Or do you just think that stuper1's example is too far-fetched?

I would like at least one specific example. This isn't even in the galaxy of an example.

The thing is when someone has made 2 dozen posts on a thread, laying out a case for why they think a particular event is extremely unlikely to impossible, solicits honest reasoned differing opinions, and someone just jumps in and says "well what if it doesn't happen like you think?"...that is rude.

Imagine you laid a painstakingly well-reasoned case for why you don't think gold will experience real returns in the long run...over many posts. Then imagine I jump in and say "Well....what if the price doubles in ten years, what then"?

That is intellectual sloth, and it's rude.  If you think yields can go that low without inflation swallowing up the gains then make the case. Read everything that's already been posted regarding the situation and try to actually add something. Or just observe.

If people would drop the strawmen, own their arguments, and focus on having a point then the discussion won't descend into the same repeating over and over and maybe we can learn something.

LT treasuries have provided about 8-9% average returns over the last 40 years.  During this period inflation has averaged 4-5%, so haven't LT treasuries provided a real return over several decades?

Since 2008, LT treasuries have also provided positive real returns.

If you are asking for an argument for how LT treasuries could possibly provide a positive real return going forward, couldn't I just point to the last few years and basically say "that's how it would work"?

Do you agree that the U.S. economy is still very fragile?  If you do, I assume that you also agree that a sharp rise in interest rates would push the economy back into recession, right?  If the economy goes back into recession, why wouldn't interest rates fall?

If you say "stagflation", I would say consider the vast differences between the U.S. economy and U.S. population when you compare the 1970s to today, especially the almost complete absence of upward pressure on U.S. wages today.

I just don't get what the catalyst is going to be for a period of sustained high inflation going forward. 

It won't be a lack of productive capacity--the U.S. has more productive capacity right now than it knows what to do with. 

It won't be tightness in the labor markets--there are still LOTS of U.S. jobs that can be offshored. 

It won't be favorable demographics in the form of a large population band coming into its peak consumption and production years.  We're decades away from that kind of situation. 

It won't be the entire economy levering up.  We just had a financial crisis in 2008 that will involve many more years of private sector deleveraging.

It won't be the conversion of an industrial economy into a "FIRE" economy.  You can only do that once and 2008 illustrated some of the risks involved with this sort of transition.

It won't be a World War II style massive military mobilization.  The 1991 Gulf War is probably the last war of that type that will be fought in that way.

So what will the catalyst be for sustained inflation?  I fully anticipate that we will have episodes of inflation, but it will be like sparks falling on non-combustible material.  That's what has been happening for years now.

[Gumby]

Oh, good gravy. All our money (except coins) comes from debt — not taxes. In our monetary system, you can't pay taxes without debt/credit-based money existing in the first place. Period.

That's nonsense.  Repeating it does not make it any more real.

The gov't is not required to go into debt.  That's just the 20th century convention and congress could end it just as quickly as it began.

Nonsense? Debt is not a 20th century convention. The Bank of England invented the idea of a "National Debt" in 1694. Nations have been "in debt" ever since. The US has been "in debt" 99% of its existence. The concept of debt=money has been around for thousands of years. Hardly a 20th century convention by any means.

Debt is where all our fiat money comes from (except coins, which are "debt-free"). The overwhelming majority of fiat money comes from private credit. If fiat money doesn't come from debt, then by definition it is "debt free" fiat money (such as "Greenbacks").

If you are suggesting that Congress abolish the National Debt and issue "debt-free" fiat money (i.e. "Greenbacks") instead, then I would agree with you. Of course, Congress has already enabled the Treasury Secretary to mint a debt-free platinum coin of any denomination, but nobody seems to care. I guess the Treasury prefers debt instead. :/