TLT looking really bad right now

[Bean]

Something I feel like I've never gotten a satisfactory answer about is how there's going to be sustained or sharp inflation if people don't have the money to pay the higher prices.

Let's say the government keeps printing, and the doo-doo heads inflationistas are right and prices begin to skyrocket.

But as we know, only the people who receive the devalued printed money are going to be able to afford the higher prices since other people won't be able to keep up as fast as the prices are rising, unless this money printing literally takes the form of universal welfare or helicopter drops or a citizen's dividend type thing.

Assuming those don't happen, and wages for most people don't keep up with the rising prices, how are the prices going to continue rising? Won't businesses who have raised their prices and can't get more sales from the beneficiaries of the printing be eventually faced with extremely low sales, and have to either lower their prices or go out of business? Once this happens, won't that stop the inflationary cycle--at least in the part of the economy patronized by the people who didn't get the printed money?

Scarcity of goods can do the same thing as an increase in overall income.  If foreign powers drop the dollar due to lack of trust, goods will dry up fast and incomes don't have to move at all.

[moda0306]

I think it's worth asking ourselves whether swapping reserves for short-term treasury bills (or even long-term ones) is really, truly an increase in the money supply?

It's certainly changing the type of money circulating, bu are T-Bills really that much different?  They're super liquid.  Even though we may not go use them to shop at the grocery store, the fact that we use such an odd example begs the question...

If the government made T-Bills/Bonds legal tender, would that silence Austrians about QE an "monetizing the debt?"

Now they could still argue that the government is manipulating the interest rates they have to pay (not necessarily interest rates in general... the private sector can charge other private players what it wants), but isn't it a bit silly that we expect the currency issuer of our country to not only go into debt, but the only way we allow them to issue "base" currency is to buy debt from the market?

I'm all for the debate as to whether we should have a fiat currency, and if so, what type of operational realities should be applied to it.  But requiring a currency issuer to play around in the debt markets by issuing bonds when it spends is just silly.

[Kshartle]

Wait, now I'm confused. Is the price level a function of supply and demand in the marketplace? You said:

Combo. The general price of a good or service is a function of the supply and demand for it. Since we price most everything in dollars you have to factor in the supply of dollars. If we used something else we'd have to factor that in instead.

This is why the dollar price of something can go up while the Euro price can go down. There are essentially three factors because we have such volitile money supplys.

If sounds like we might actually be in agreement. If you're telling me that monetary expansion will tend to raise prices, but the maximum level of those prices is dependent on people's ability to afford them, then I think I'm with you.

An equation might be appropriate:

Price of something in whatever terms (dollars/gold)=      Supply of the exchange medium/ (Supply of something / demand for something)

Thereby, if everything else stays equal, an increase in demand, or reduction in supply, or increase in the supply of the medium will raise the price in terms of the medium of exchange. For us it's almost always dollars.

an increase in demand or reduction in supply makes the denominator smaller which creates a larger number or price.


This equation should clear it up and should be intuitive.

Everything else being equal:

If people want more widgets then price goes up.
If there are fewer widgets then price goes up.
If more dollars appear the price goes up.


Where MT is making an error is he's assuming as supply goes down demand goes down. We are talking about the price level of all goods and service. Now come on man, when the supply goes down because we're less productive that doesn't mean we want less!!!!!! Humans want it all. We want things we can't even make yet!!!! I want a flying car!!! Well...I live in FL so that would be scary.

When you talk about changes in supply and demand affecting price you have to keep some things constant to understand the effect of a variable changing. Otherwise you'll never figure anything out.

[Gumby]

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%?

Sarcasm probably isn't a a great way to analyze hypothetical interest rates. It's been argued that the natural interest rate of free-floating fiat money is zero. And trends over the past few decades suggest that the theory may be valid...

Under a state currency system with floating exchange rates, the natural, nominal, risk free rate of interest is zero. As many other key rates of interest in the economy continue to follow the Fed funds rate very closely, this will serve as the base rate in the economy, with markets determining the credit spreads through risk assessment.

Furthermore, there are a number of reasons why allowing the rate of interest to settle at its natural rate of zero makes good economic sense. The conventional wisdom of a fixed exchange rate system does not apply to floating rates, and this may be the source of much of the confusion today.

Source: http://moslereconomics.com/wp-content/g ... s-zero.PDF

So, it may not be as far fetched as you imagine it to be.

And frankly, it would be pretty easy for the government to bring it's own interest rate to zero. All it would need to do is stop issuing long-term debt and let those LTTs all gradually become vert short term debt (< 90 days) over a 30-year period. After 30 years, all that would be left is a lot of short term 0% T-Bills that are rolled-over indefinitely.

And, to be honest, most of the Treasury's debt is not long term debt anyway, so even today we aren't even that far away from that situation. The government just keeps issuing some percentage of debt, as LTTs, to have an effect on that part of the yield curve.

[Kshartle]

1. However, this isn't some kind of hyperinflationary endgame

2. the government that is issuing this currency has been nice enough to give us interest that quite often eats up that inflation at no default risk.

3.  Inflation is just simply not that big of a deal, and is mostly avoidable

God bless America, let me handle these.

1. This is a strawman you're creating. Please tell me when I've said this HAS to end in hyperinflation. You can create and knock down strawmen all day long like it's your job.

2. They are not being nice. This is the required price for their borrowing. They can't afford the market price anymore so they need the central bank to print and accomdate which is just theft from savers. They can't tax and legitmately borrow enough so they have to apply the stealth inflation theft/tax. This is basic basic basic and goes back to the Romans and berfore. Debasement of currency comes from the parctice of adding base metals to the real (gold/silver) money supply.

3. An individual can minimize it's impact and profit from it. But the ENTIRE population can't. You're changing the subject to how an idividual can deal with inflation. You can change the subject all day like it's you job but God it's irritating.

[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%?

super far behind in this thread, but this comment is amazing

Brawndo the Thirst Mutilator, it is what plants crave! 

This thermometor goes in your mouth and this one in your butt....ohh wait I think it's the other way around.....

[Kshartle]

Sarcasm probably isn't a a great way to analyze hypothetical interest rates. It's been argued that the natural interest rate of free-floating fiat money is zero. And trends over the past few decades suggest that the theory may be valid...

He wasn't trying to analyze anything. He was throwing something against a wall to see if it would stick while everyone else is doing the heavy lifting. It's rude. I probably should have just ignored it but he quoted me.

Excuse me what was his theory? At best it was a hypothesis but I wouldn't even go that far.

[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%?

Sarcasm probably isn't a a great way to analyze hypothetical interest rates. It's been argued that the natural interest rate of free-floating fiat money is zero. And trends over the past few decades suggest that the theory may be valid...

Under a state currency system with floating exchange rates, the natural, nominal, risk free rate of interest is zero. As many other key rates of interest in the economy continue to follow the Fed funds rate very closely, this will serve as the base rate in the economy, with markets determining the credit spreads through risk assessment.

Furthermore, there are a number of reasons why allowing the rate of interest to settle at its natural rate of zero makes good economic sense. The conventional wisdom of a fixed exchange rate system does not apply to floating rates, and this may be the source of much of the confusion today.

Source: http://moslereconomics.com/wp-content/g ... s-zero.PDF

Stop holding these guys up like they know what they're talking about. From the first sentance you can see they are either clueless or lying. I hope they're lying because otherwise they are really really dumb. They are claiming the time value of money, regardless of inflation expectations is zero. I mean.....even if money is expected to INCREASE in value over time, the time value of it might still require an interest rate higher than zero.

They don't know squat about anything. I have read Mosler he is either dumb dumb dumb or lying. I think he's lying. I think he looked at the obvious stupidity of Keynseanism and tried to complicate it to fool people. He's hoping people with no basic economic understanding will get bamboozled by jargon and caught up in mechancis and miss how hoplessly nonsensical his ideas are.

He is looking to make a splash and become the new goverment champion by dethroning the Keyensians but it's really a distinction without a difference. This is my opinion and I could be wrong about him. He might really be that dumb.

[Gumby]

They don't know squat about anything.

Says the guy who can't explain why they are wrong or why they have been right since they wrote the paper.

I have read Mosler he is either dumb dumb dumb or lying. I think he's lying.

Really... That's your comeback? You can't disprove what he says, so you insult him?

[MediumTex]

Where MT is making an error is he's assuming as supply goes down demand goes down. We are talking about the price level of all goods and service. Now come on man, when the supply goes down because we're less productive that doesn't mean we want less!!!!!! Humans want it all. We want things we can't even make yet!!!! I want a flying car!!! Well...I live in FL so that would be scary.

When you talk about changes in supply and demand affecting price you have to keep some things constant to understand the effect of a variable changing. Otherwise you'll never figure anything out.

That's not what I'm saying at all.  If there is suddenly only half as much beef on the market, I would expect beef prices to rise, but the rise in beef prices would be mitigated by people choosing to eat other meats, or not eat meat at all.

If there was only one steak left in the world, I wouldn't expect its price to be a zillion dollars.  In fact, I would say that such a steak's REAL value would be as a collectible, not a meal.  In other words, there would be NO buyers of steak to eat if there was only one steak in the world.

That's all I'm saying.

But to get us back to inflation, there is virtually no risk of Zimbabwe-style capital flight from the U.S., so that trigger for inflation won't be present (i.e., there won't be a sudden contraction in productive capacity due to capital leaving the country). 

There also won't be World War II style shortages of goods triggering inflation because I can't imagine the U.S. getting involved in a war of that type within our lifetimes. 

There won't be inflation due to labor shortages because there are so many cheaper labor markets around the world.

There won't be inflation due to the slack in the economy being rapidly absorbed by a favorable demographic shift.

The only option left for inflation would be if the government literally started printing money and dropping it from helicopters, but other than coinage, the government can't do that, so that won't be a trigger for inflation.

If you look at what really drives interest rates, it is usually perceptions of future economic growth, or more precisely future economic surpluses that can be used to pay back money that is borrowed today (currency issuers are, of course, under no such constraints).  If future economic growth looks murky, as ours does today, then one would expect there to be an extended period of low interest rates, which is exactly what we have seen.

[MediumTex]

They don't know squat about anything.

Says the guy who can't explain why they are wrong or why they have been right since they wrote the paper.

I have read Mosler he is either dumb dumb dumb or lying. I think he's lying.

Really... That's your comeback? You can't disprove what he says, so you insult him?

I'm sure that most people who read Mosler for the first time think that it sounds absurd.

For that matter, I think that most people who hear about the PP for the first time think that it sounds absurd.

[Gumby]

Sarcasm probably isn't a a great way to analyze hypothetical interest rates. It's been argued that the natural interest rate of free-floating fiat money is zero. And trends over the past few decades suggest that the theory may be valid...

He wasn't trying to analyze anything. He was throwing something against a wall to see if it would stick while everyone else is doing the heavy lifting. It's rude. I probably should have just ignored it but he quoted me.

Excuse me what was his theory? At best it was a hypothesis but I wouldn't even go that far.

It sounds like you saying that you won't allow other people to propose any hypothesis that you don't agree with. Somehow it's "rude" to postulate a possible outcome. But, due diligence in investing requires that you prepare for such hypotheses, since we cannot all be correct at the same time.

All I'm saying is that future is unknowable. So, you've convinced yourself that interest rates can only go up, but you can't bring yourself to acknowledge that they might go down. You just don't know.

It wasn't "rude" for stuper1 to ask a hypothetical that could actually happen. I mean, just because you can't conceive of it doesn't make it wrong.

[Mdraf]

You are right MT. That Mosler sentence is indeed absurd. Not only the time value element which Kshartle already explained but the "risk free" part too. No debt is totally risk free.

[Gumby]

You are right MT. That Mosler sentence is indeed absurd. Not only the time value element which Kshartle already explained but the "risk free" part too. No debt is totally risk free.

What exactly is the "risk" of a fiat country, with a free-floating exchange rate, not being able to generate its own currency? That would be like a stadium being at risk for not being able to award points to teams. It's nonsensical.

When people say that US debt is "risk free" they mean "virtually" risk free. Obviously there are exogenous risks for any currency. But, within that denomination (i.e. dollars) there is no other choice for holding that currency that is less risky than government debt.

All that you need to know is that the government could choose to hold 0% interest rates on its debt if it wanted to. All it would need to do is just stop issuing debt over 90 days and hold the Federal Funds Rate at zero. No big deal — particularly when you consider that most US debt isn't long term anyway.

[Kshartle]

They don't know squat about anything.

Says the guy who can't explain why they are wrong or why they have been right since they wrote the paper.

I have read Mosler he is either dumb dumb dumb or lying. I think he's lying.

Really... That's your comeback? You can't disprove what he says, so you insult him?

He disproves himself with the first sentence. I don't have to do anymore than he does. It's like saying do I really need to go through a book on how to make a marriage succeed written by a guy in prison for axe-murdering his wife? I have better things to do. I realize me saying Mosler is an idiot or liar is my opinion and not proof of anything. Anyone is free to read his stuff and make up their own mind. I really don't want to debate what I consider boring nonsense.

It's kind of like when rather than address my statements with reason you say...."so-and-so used to think that way but they grew up and now think different, I'm really proud of them".  That is such an obvious atempt to dismiss a disagreemnt in front of other people without actually using logic or reason.

[Gumby]

He disproves himself with the first sentence.

Obviously you didn't read the paper, because that was easily the worst rebuttal I've ever heard.

I don't have to do anymore than he does. It's like saying do I really need to go through a book on how to make a marriage succeed written by a guy in prison for axe-murdering his wife?

What a joke. That's the best you can do? It's beyond obvious you are literally unable to refute anything he says. But, hey, if it makes you feel good, keep burying your head in the sand. I'm sure the world will all work out exactly as you predict

Kshartle, if you can't even be open to the idea that you might be wrong, then you are taking a much bigger risk than you realize.

[Kshartle]

They don't know squat about anything.

Says the guy who can't explain why they are wrong or why they have been right since they wrote the paper.

I have read Mosler he is either dumb dumb dumb or lying. I think he's lying.

Really... That's your comeback? You can't disprove what he says, so you insult him?

He disproves himself with the first sentence. I don't have to do anymore than he does. It's like saying do I really need to go through a book on how to make a marriage succeed written by a guy in prison for axe-murdering his wife? I have better things to do. I realize me saying Mosler is an idiot or liar is my opinion and not proof of anything. Anyone is free to read his stuff and make up their own mind. I really don't want to debate what I consider boring nonsense.

It's kind of like when rather than address my statements with reason you say...."so-and-so used to think that way but they grew up and now think different, I'm really proud of them".  That is such an obvious atempt to dismiss a disagreemnt in front of other people without actually using logic or reason.

[Gumby]

It's kind of like when rather than address my statements with reason

We've all been addressing your statements with "reason". The problem is that every time we explain a different perspective you just dismiss it as hogwash, without any explanation as to why it's hogwash.

[Kshartle]

Where MT is making an error is he's assuming as supply goes down demand goes down. We are talking about the price level of all goods and service. Now come on man, when the supply goes down because we're less productive that doesn't mean we want less!!!!!! Humans want it all. We want things we can't even make yet!!!! I want a flying car!!! Well...I live in FL so that would be scary.

When you talk about changes in supply and demand affecting price you have to keep some things constant to understand the effect of a variable changing. Otherwise you'll never figure anything out.

That's not what I'm saying at all.  If there is suddenly only half as much beef on the market, I would expect beef prices to rise, but the rise in beef prices would be mitigated by people choosing to eat other meats, or not eat meat at all.

Nice try.

"I'm not saying that if supply goes down demand will go down, I'm only saying if supply goes down, people will want less of it."

I swear some of you guys need to run for office.

'I'm not saying we need to raise taxes, I'm just saying the government needs to take more of people's income".

[MediumTex]

It's kind of like when rather than address my statements with reason you say...."so-and-so used to think that way but they grew up and now think different, I'm really proud of them".  That is such an obvious atempt to dismiss a disagreemnt in front of other people without actually using logic or reason.

That's not how I took it.  I took it as basically being completely sympathetic to your position since he held the identical beliefs not so long ago.

That's where I'm at as well.

If you believe that we are all participating in some kind of group delusion that just happens to sync up reasonably well with reality as it now exists in our monetary system, then just be gentle with us and try to help us overcome the delusion.

Seriously.  Only one of us can be right here--current policies either will or will not lead to rising interest rates (i.e., significantly above the 30 year downward trend) and sustained inflation (i.e., significantly above the 3-4% inflation that the Fed targets).

So far, the delusional group has been calling it correctly for years, or you might even say decades.  I remember back in the 1980s when people confidently predicted that Reagan's enormous budget deficits and spiking national debt would lead to economic calamity manifesting in the form of rising interest rates and inflation...but it never happened.  The bond market responded to increasingly reckless government spending, budget deficits, and rising national debt by pushing down yields year after year, and when the government seemed to be at the pinnacle of recklessness (2008-present), yields were lower than they had been in 50 years.  Weird, huh?

[MediumTex]

Where MT is making an error is he's assuming as supply goes down demand goes down. We are talking about the price level of all goods and service. Now come on man, when the supply goes down because we're less productive that doesn't mean we want less!!!!!! Humans want it all. We want things we can't even make yet!!!! I want a flying car!!! Well...I live in FL so that would be scary.

When you talk about changes in supply and demand affecting price you have to keep some things constant to understand the effect of a variable changing. Otherwise you'll never figure anything out.

That's not what I'm saying at all.  If there is suddenly only half as much beef on the market, I would expect beef prices to rise, but the rise in beef prices would be mitigated by people choosing to eat other meats, or not eat meat at all.

Nice try.

"I'm not saying that if supply goes down demand will go down, I'm only saying if supply goes down, people will want less of it."

I swear some of you guys need to run for office.

'I'm not saying we need to raise taxes, I'm just saying the government needs to take more of people's income".

You know as well as I do that if the price of beef rises, one of the effects will be that people will eat more chicken, fish and pork (assuming the prices of those items are not rising as well).

Don't economists call this the "substitution effect"?

In response to falling supply, prices will rise, which will reduce demand for that item.  That's not controversial, is it?  Isn't the whole demand curve a way of explaining why people will buy more of something at a lower price and less of it at a higher price?

As I recall from economics courses, the concepts of supply and demand are distinct from the concepts of "amount supplied" and "amount demanded."  Wouldn't it be true that if supply goes down, the amount demanded would also go down because the reduced supply would have triggered increased prices?

[moda0306]

1. However, this isn't some kind of hyperinflationary endgame

2. the government that is issuing this currency has been nice enough to give us interest that quite often eats up that inflation at no default risk.

3.  Inflation is just simply not that big of a deal, and is mostly avoidable

God bless America, let me handle these.

1. This is a strawman you're creating. Please tell me when I've said this HAS to end in hyperinflation. You can create and knock down strawmen all day long like it's your job.

2. They are not being nice. This is the required price for their borrowing. They can't afford the market price anymore so they need the central bank to print and accomdate which is just theft from savers. They can't tax and legitmately borrow enough so they have to apply the stealth inflation theft/tax. This is basic basic basic and goes back to the Romans and berfore. Debasement of currency comes from the parctice of adding base metals to the real (gold/silver) money supply.

3. An individual can minimize it's impact and profit from it. But the ENTIRE population can't. You're changing the subject to how an idividual can deal with inflation. You can change the subject all day like it's you job but God it's irritating.

Kshartle,

1) I apologize for ascribing a hyperflationary endgame prediction to your assertions.  I have heard that a lot from many Austrians that bash MR, so I took it a step too far and made assumptions about your predictions.

2) Regarding borrowing, why would the entity that issues currency ever have to borrow it?  The "natural rate" of a currency issuer to borrow currency is obviously 0%.  Anything higher than that just sets an interest rate floor.

3) My apologies for changing the subject.  We can get back to macro-level pontificating now.


You assert that the government is engaging in gross manipulation of rates and money, but NONE of the expected indicators suggest this.  The government may control the money supply, but they can't control the velocity of money beyond what they spend.  The government can control interest rates on government debt, but the private sector sets its own rates in contracts on debt engaged in between its players. 

Both inflation and private borrowing indicate none of the terrible "manipulation" that you claim.  These are things one would expect to see huge indicators within when it comes to evidence of government-market manipulation.

[Kshartle]

Sarcasm probably isn't a a great way to analyze hypothetical interest rates. It's been argued that the natural interest rate of free-floating fiat money is zero. And trends over the past few decades suggest that the theory may be valid...

He wasn't trying to analyze anything. He was throwing something against a wall to see if it would stick while everyone else is doing the heavy lifting. It's rude. I probably should have just ignored it but he quoted me.

Excuse me what was his theory? At best it was a hypothesis but I wouldn't even go that far.

It sounds like you saying that you won't allow other people to propose any hypothesis that you don't agree with. Somehow it's "rude" to postulate a possible outcome.

Yeah.......like I said, imagine you lay out a case for gold staying flat or falling in the long-run, and ask the question "Does anyone have a theory as to how gold might provide a positive real return in the long-run?" and I respond with "What if it doubles in price in ten years".  FAIL....not a hypothesis or anything other than a blurt.

[Kshartle]

What a joke. That's the best you can do? It's beyond obvious you are literally unable to refute anything he says. But, hey, if it makes you feel good, keep burying your head in the sand. I'm sure the world will all work out exactly as you predict

Kshartle, if you can't even be open to the idea that you might be wrong, then you are taking a much bigger risk than you realize.

Ok I'm going see your condescending and raise you one....are you 12 years old and typing on your daddy's computer again?

This is how you think:

"I have no interest in going through and pointing out all the flaws in MMT"    =  "I am literlly unable to refute anything he has written, It makes feel good to bury my head in the sand and I am unable to be open to the idea I might be wrong and the world will turn out exactly as I've predicted".

You are so outmatched in any discussion that requires reason and evidence that you will try every pitiful verbal tactic you can imagine to provide the appearance of an argument. The slightest scratch at the surface exposes that there's nothing there.

[Gumby]

It sounds like you saying that you won't allow other people to propose any hypothesis that you don't agree with. Somehow it's "rude" to postulate a possible outcome.

Yeah.......like I said, imagine you lay out a case for gold staying flat or falling in the long-run, and ask the question "Does anyone have a theory as to how gold might provide a positive real return in the long-run?" and I respond with "What if it doubles in price in ten years".  FAIL....not a hypothesis or anything other than a blurt.

Umm... I just gave you a lengthy paper explaining, in detail, why the natural rate of interest for a free-floating currency issuer's debt might very well be zero and you just dismissed it, without even reading it, because you think it's too far-fetched. You can't even explain why it's supposedly false.

I just explained, in detail, how the government could easily send it's interest rate to zero. And you've shown no interest in analyzing it or responding with any meaningful discussion. Who's the troll now?