Say Goodbye to Your Retirement and 401K

[loweyecue]

Re: Say Goodbye to Your Retirement and 401K

You are right that repayment of the debt would destroy the money which was created by issuing the loan. However, when the debt is defaulted upon, it subtracts from the bank's capitalization. This is deflationary, because leverage also works in reverse: a hit to capital decreases the amount of credit that the bank can extend in proportion to its effective reserve fraction ratio. Repayment of the loan only destroys an amount of money equal to the value of the loan; default on the loan will force the bank to withdraw several times the value of the loan in credit, assuming that the bank is pressing up against the reserve fraction limit.

An ancillary point is that credit created by one bank and spent by a borrower becomes a deposit at another bank... which can subsequently leverage loans against that deposit. Neither default nor repayment of the original loan directly affect the deposit at the other bank, nor do they recall the "daughter loans" made against that deposit. In this sense, once the money created by issuance of credit is spent, it is indeed loose in the economy and cannot be recalled.

However, this does not mean that default is inflationary. The money that was spent is out there running loose anyway, regardless of whether the original loan is repaid or defaulted upon. However, the amount that can be lent in 'daughter' loans is limited by a converging series. Iteration of reserve fraction lending results in a larger ratio of credit money to reserves than the simple reserve fraction, but it is not limitless. The point as regards inflation or deflation is that this extra lending happens whether or not the original loan is repaid or defaulted upon... the inflationary part of this has already occured at the point where the original loan defaults or is repaid. The impact of default upon the original lender's capital is such that the net result is deflationary, notwithstanding the fact that the money spent from that loan is still in the economy.

So the money being printed is only compensating for the inflation in the past and not creating new inflation? Meaning the money is printed by the fed and equal amounts are lost from the system when loans are defaulted on?

On the 401K takeover front I have the following to share. I work for a large mutual fund/brokerage firm. Based on various meetings I have attended reviewing their 5 year plans it seems to me their focus is to push their 401K customers more and more into annuities. To me that is just a variation of the original suggestion by BCASSILL. Here instead of the govt the fund company is taking your money and speculating with it and all you have is promise to pay you some fixed rate in the future. I dont trust the fund companies to do this any more than I trust the Govt, if anything I trust them far less.

So my argument is why is a govt run SS program any worse than a pvt company run annuity? At least the govt has to pretend to care for me, the pvt company exists only for profit.

People who make their own investment decisions are very much a minority so when either the govt or the fund Company makes a sales pitch of taking care of your retirement for you its a pretty easy sell. :mad:

[jtabeb]

Re: Say Goodbye to Your Retirement and 401K

Thanks JT. I'll do as you suggest, read the article, and get back to you.

I'm re-reading it myself.

I'm posting the relevant parts as I go.

Here is my FAVORITE so far.

"To show how practical the system was he insisted
that just as soon as paper money should become too abundant
it would be absorbed in rapid purchases of national
lands; and he made a very striking comparison between this
self-adjusting, self-converting system and the rains descending
in showers upon the earth, then in swelling rivers discharged
into the sea, then drawn up in vapor and finally
scattered over the earth again in rapidly fertilizing showers."

Umm, Excess reserves, anyone?

"It is, then, evident that all paper which cannot,
at the will of the bearer, be converted into specie cannot
discharge the functions of money."

Force for FIAT, market FORCE for specie

Boislandry answered vigorously and foretold evil results.
Pamphlets continued to be issued,—among them, one so
pungent that it was brought into the Assembly and read
there,—the truth which it presented with great clearness
being simply that doubling the quantity of money or substitutes
for money in a nation simply increases prices,
disturbs values, alarms capital, diminishes legitimate enterprise,
and so decreases the demand both for products and
for labor; that the only persons to be helped by it are the
rich who have large debts to pay. This pamphlet was signed
"A Friend of the People,"

Dr. Paul?

"You can, indeed, arrange
it so that the people shall be forced to take a thousand
livres in paper for a thousand livres in specie; but you can
never arrange it so that a man shall be obliged to give a
thousand livres in specie for a thousand livres in paper,—
in that fact is embedded the entire question; and on account
of that fact the whole system fails."

I, myself, am HAPPY to give $1100 for $50 in specie

"If it is necessary to create five thousand millions, and more,
of the paper, decree such a creation gladly." He, too, predicted,
as many others had done, a time when gold was to
lose all its value, since all exchanges would be made with
this admirable, guaranteed paper, and therefore that coin
would come out from the places where it was hoarded. He
foretold prosperous times to France in case these great
issues of paper were continued and declared these "the only,
means to insure happiness, glory and liberty to the French,
nation." Speeches like this gave courage to a new swarm,
of theorists,—it began to be especially noted that men who
had never shown any ability to make or increase fortunes I
for themselves abounded in brilliant plans for creating and I
increasing wealth for the country at large.

Umm Bernanke, Summers, Geithner, take your pick

a bill was passed
authorizing the issue of eight hundred millions of new assignats,
but solemnly declaring that in no case should the
entire amount put in circulation exceed twelve hundred
millions.

Debt Ceiling?

France was now fully committed to a policy of inflation;
and, if there had been any question of this before, all doubts
were removed now by various acts very significant as showing
the exceeding difficulty of stopping a nation once in the
full tide of a depreciating currency.

Deflation?

The National Assembly
had from the first shown an amazing liberality to all sorts
of enterprises, wise or foolish, which were urged "for the
good of the people." As a result of these, and other largesses
the old cry of the "lack of a circulating medium"

Wasteful and ineffectual stimulus?

Within a short time there had been received into
the treasury for lands one hundred and sixty million livres
in paper. By the terms of the previous acts this amount of
paper ought to have been retired. Instead of this, under the
plea of necessity, the greater part of it was reissued in the
form of small notes.

The Future of excess reserves?

Yet each of these issues, great or small, was but as a drop
of cold water to a parched throat. Although there was already
a rise in prices which showed that the amount needed
for circulation had been exceeded, the cry for "more circulating
medium" was continued. The pressure for new
issues became stronger and stronger.

Too little inflation?

a few months later, on June 19, 1791, with
few speeches, in a silence very ominous, a new issue was
made of six hundred millions more;—less than nine months
after the former great issue, with its solemn pledges to keep
down the amount in circulation.

QE2, Stimulus 2.0?

If a material body fall from a
height its velocity is accelerated, by a well-known law, in
a constantly increasing ratio: so in issues of irredeemable
currency, in obedience to the theories of a legislative body
or of the people at large, there is a natural law of rapidly
increasing emission and depreciation.

Irredeemable bonds? How about both bonds and currency, surely this would avert such a scenario, correct?

The great majority of Frenchmen now became desperate
optimists, declaring that inflation is prosperity.

Asset Prices?

The good feeling
was that of a drunkard just after his draught; and it is to
be noted as a simple historical fact, corresponding to a
physiological fact, that, as draughts of paper money came
faster the successive periods of good feeling grew shorter

Faster and Faster Debt issuance?

Attention was aroused by another menacing fact;—specie
disappeared more and more. The explanations of this fact
also displayed wonderful ingenuity in finding false reasons
and in evading the true one. A very common explanation
was indicated in Prudhomme's newspaper, "Les Revolutions
de Paris," of January 17, 1791, which declared that coin
"will keep rising until the people shall have hanged a
broker." Another popular theory was that the Bourbon
family were, in some mysterious way, drawing off all solid
money to the chief centers of their intrigues in Germany.
Comic and, at the same time, pathetic, were evidences of
the wide-spread idea that if only a goodly number of people
engaged in trade were hanged, the par value of the assig¤
ats would be restored.

Decoupling of physical and paper PM markets?

specie having been found in
the possession of a citizen, the money was seized and sent
to the Assembly. The people of that town treated this
hoarded gold as the result of unpatriotic wickedness or madness,
instead of seeing that it was but the sure result of a
law working in every land and time, when certain causes are
present.

I think I'll get hanged first ;)

Still another troublesome fact began now to appear.
Though paper money had increased in amount, prosperity
had steadily diminished. In spite of all the paper issues,
commercial activity grew more and more spasmodic. Enterprise
was chilled and business became more and more stagnant.

Inflation WITH a decline in economic activity? NO! Impossible!

The plenty of currency had at first stimulated
production and created a great activity in manufactures,
but soon the markets were glutted and the demand
was diminished. In spite of the wretched financial policy of
years gone by, and especially in spite of the Revocation of
the Edict of Nantes, by which religious bigotry had driven
out of the kingdom thousands of its most skillful Protestant
workmen, the manufactures of France had before the Revolution
come into full bloom. In the finer woolen goods, in silk and satin fabrics of all sorts, in choice pottery and porcelain,
in manufactures of iron, steel, and copper, they had
again taken their old leading place upon the Continent. All
the previous changes had, at the worst, done no more than
to inflict a momentary check on this highly developed system
of manufactures. But what the bigotry of Louis XIV and the
shiftlessness of Louis XV could not do in nearly a century,
was accomplished by this tampering with the currency in
a few months. One manufactory after another stopped

What? Boom, Bust, overcapacity, Naw, we have a DEBT based currency, not a FIAT ONLY one, couldn't happen here.

Heavy duties were put upon
foreign goods; everything that tariffs and custom-houses
could do was done. Still the great manufactories of Normandy
were closed, those of the rest of the kingdom speedily
followed, and vast numbers of workmen in all parts of the
country were thrown out of employment.Nor was this the
case with the home demand alone. The foreign demand
which at first had been stimulated, soon fell off

Trade war, tarrifs, but still JOB losses? And a collapse in global demand? How strange.

The great quantity of the
circulating medium sets in motion all the energies of commerce
and manufactures; capital for investment is more
easily found than usual and trade perpetually receives
fresh nutriment. If this paper represents real credit, founded
upon order and legal security, from which it can derive
a firm and lasting value, such a movement may be the starting
point of a great and widely-extended prosperity, as, for
instance, a splendid improvement in English agriculture was
undoubtedly owing to the emancipation of the country bankers.
If on the contrary, the new paper is of precarious value,
as was clearly seen to be the case with the French assig¤ats
as early as February, 1791, it can confer no lasting benefits.
For the moment, perhaps, business receives an impulse, all
the more violent because every one endeavors to invest his
doubtful paper in buildings, machines and goods, which,
under all circumstances, retain some intrinsic value. Such a
movement was witnessed in France in 1791, and from every
quarter there came satisfactory reports of the activity of
manufactures...
. . . When a further fall in the assignats took place this
prosperity would necessarily collapse, and be succeeded by
a crisis all the more destructive the more deeply men had
engaged in speculation under the influence of the first favorable
prospects." *
Thus came a collapse in manufacturing and commerce,
just as it had come previously in France: just as it came at
various periods in Austria, Russia, America, and in all
countries where men have tried to build up prosperity on
irredeemable paper.

FIAT MONEY first good, then bad

France dwindled into a mere living from hand to mouth.
This state of things, too, while it bore heavily upon the
moneyed classes, was still more ruinous to those in moderate
and, most of all, to those in straitened circumstances. With
the masses of the people, the purchase of every article of
supply became a speculation—a speculation in which the
professional speculator had an immense advantage over the
ordinary buyer. Says the most brilliant of apologists for
French revolutionary statesmanship, "Commerce was dead;
betting took its place."

Commerce was dead, betting took its place

while prices of products thus went
higher, the wages of labor, owing to the number of workmen
who were thrown out of employment, went lower

Awesome, increasing inflation with increasing unemployment just what the doctor ordered for a strong robust economic recovery

For at the great metropolitan centers
grew a luxurious, speculative, stock-gambling body, which,
like a malignant tumor, absorbed into itself the strength of
the nation and sent out its cancerous fibres to the remotest
hamlets. At these city centers abundant wealth seemed to
be piled up: in the country at large there grew a dislike
of steady labor and a contempt for moderate gains and simple
living...
"What shall I say of the stockjobbing,
as frightful as it is scandalous, which goes on in
Paris under the very eyes of our legislators,—a most terrible
evil, yet, under the present circumstances,—necessary?"
The author also speaks of these stock-gamblers as
using the most insidious means to influence public opinion
in favor of their measures; and then proposes, seriously, a
change in various matters of detail, thinking that this would
prove a sufficient remedy for an evil which had its roots
far down in the whole system of irredeemable currency

Why work when you can just get "bailed-out"?

Mirabeau himself, who, not many months
previous, had risked imprisonment and even death to establish
constitutional government, was now—at this very
time—secretly receiving heavy bribes. When, at the downfall
of the monarchy a few years later, the famous iron chest
of the Tuileries was opened, there were found evidences
that, in this carnival of inflation and corruption, he had been
a regularly paid servant of the Royal court.† The artful
plundering of the people at large was bad enough, but worse
still was this growing corruption in official and legislative
circles. Out of the speculating and gambling of the inflation
period grew luxury, and, out of this, corruption. It grew
as naturally as a fungus on a muck heap. It was first felt
in business operations, but soon began to be seen in the legislative
body and in journalism.

Even the most morale, eventually cave. The best fall.

Bribery of legislators followed
as a matter of course, Delaunay, Jullien and Chabot
accepted a bribe of five hundred thousand livres for aiding
legislation calculated to promote the purposes of certain
stock-jobbers. It is some comfort to know that nearly all
concerned were guillotined for it.*
It is true that the number of these corrupt legislators was
small, far less than alarmists led the nation to suppose, but
there were enough to cause wide-spread distrust, cynicism
and want of faith in any patriotism or any virtue.

I hope I live to SEE THAT!

At the outset,
in the discussions preliminary to the first issue of paper
money, Mirabeau and others who had favored it had insisted
that patriotism as well as an enlightened self-interest,
would lead the people to keep up the value of paper money.
The very opposite of this was now revealed, for there appeared,
as another outgrowth of this disease, what has always
been seen under similar circumstances. It is a result of
previous, and a cause of future evils.This outgrowth was a
vast debtor class in the nation, directly interested in the
depreciation of the currency in which they were to pay their
debts. The nucleus of this class was formed by those who
had purchased the church lands from the government. Only
small payments down had been required and the remainder
was to be paid in deferred installments: an indebtedness of
a multitude of people had thus been created to the amount
of hundreds of millions. This body of debtors soon saw, of
course, that their interest was to depreciate the currency in
which their debts were to be paid; and these were speedily
joined by a far more influential class;—by that class whose
speculative tendencies had been stimulated by the abundance
of paper money, and who had gone largely into debt,
looking for a rise in nominal values. Soon demagogues of
the viler sort in the political clubs began to pander to it;
a little later important persons in this debtor class were to
be found intriguing in the Assembly—first in its seats and
later in more conspicuous places of public trust. Before long,
the debtor class became a powerful body extending through
all ranks of society

Sure, the FED is gonna stop, and we won't get an increase the debt ceiling either. I can have your word on that right? And they are going to take in all those excess reserves, right? We will stop, because otherwise, we be in the exact same place as these poor French bastards, right? We will control issuance of debt, we are serious (except for military spending, government programs to support the financial industry, and medicare) I got it.

This great debtor class, relying on the multitude who
could be approached by superficial arguments, soon gained
control. Strange as it might seem to those who have not
watched the same causes at work at a previous period in
France and at various times in other countries, while every
issue of paper money really made matters worse, a superstition
gained ground among the people at large that, if
only enough paper money were issued and were more cunningly
handled the poor would be made rich. Henceforth
all opposition was futile.

See, resistance is futile

"There is not enough money yet in circulation; if there were more
the sales of national lands would be more rapid."

Umm, more US debt = MO MONEY, oh, I get it now. We can sell our debt faster if we print more money (or is it the other way around, I'm easily confused) How about we just do BOTH!


Đorisy then went on to insist that the government lands
were worth at least thirty-five hundred million livres and
said: "Why should members ascend the tribunal and disquiet France?
Fear nothing; your currency reposes upon
a sound mortgage." Then followed a glorification of the
patriotism of the French people, which, he asserted, would
carry the nation through all its difficulties.

Silly me, see our GDP is going to be just HUGE as a result of this inflation, therefore the stock of US Debt that exists now is TOTALLY INSUFFICIENT to serve as a claim on our future productivity. We MUST issue more debt BECAUSE otherwise, we have this VAST under-capitalized debt market. We must fully capitalize our debt markets to reflect their future inflated value. Of COURSE! Now I understand! (man, am I a quick study, OR WHAT?)

What limitations of the currency
were worth may be judged from the fact that not
only had the declaration made hardly a year before, limiting
the amount in circulation to twelve hundred millions,
been violated, but the declaration, made hardly a month
previous, in which the Assembly had as solemnly limited
the amount of circulation to fourteen hundred millions, had
also been repudiated.

I think this means we are going to see the debt ceiling breached again after the election folks. (If past is prologue, that is)

but the most curious
thing evolved out of all this chaos was a new system of
political economy. In speeches, newspapers and pamphlets
about this time, we begin to find it declared that, after all,
a depreciated currency is a blessing; that gold and silver
form an unsatisfactory standard for measuring values: that
it is a good thing to have a currency that will not go out
of the kingdom and which separates France from other nations:
that thus shall manufacturers be encouraged; that
commerce with other nations may be a curse, and hindrance
thereto may be a blessing; that the laws of political economy
however applicable in other times, are not applicable
to this particular period, and, however operative in other
nations, are not now so in France; that the ordinary rules
of political economy are perhaps suited to the minions of
despotism but not to the free and enlightened inhabitants
of France at the close of the eighteenth century; that the
whole state of present things, so far from being an evil is a
blessing. All these ideas, and others quite as striking, were
brought to the surface in the debates on the various new
issues.*

Amen! Sounds GREAT! (This ain't going to happen of course, because it is CONFINED to the FIRE economy and we won't get inflation because the money that is put is just a replacement for bad debts). Wait a minute! Has not that credit already been SPENT? Are we not issuing further currency on those distressed assets ONLY AT THEIR FULL FACE value. Does this mean that we get hit with inflation NOT once, but TWICE? Once when the money was loaned into existence, and a second time, when the JUNK, err, I mean distressed assets were sold for full price to the FED. Ah, it's only in excess reserves you say (and bonuses and salaries, and political contributions and campaign ad spending) Okay, got it. FEAR NOT! There is NO LEAKAGE from these excess reserves into stock prices or commodity prices, nor in ANYWAY does it dilute the value of the currency already in existence. (Because it only is a replacement for existing bad debt). No NET money creation, got it! (Except for the part where the money was created twice, once in the loan from which it came, and again when it was sold to the FED). Okay, I lied. I don't get that part. Please explain it to ME very VERY SLOWLY.

Soon payment was suspended on dues to public
creditors for all amounts exceeding ten thousand
francs.
This was hailed by many as a measure in the interests of
the poorer classes of people, but the result was that it injured them most of all.

Well, in our Kleptocratic Plutocracy, at least WE DO IT RIGHT and take from public benefits (you know pensioners, retirees, social security recipients), THE SCUM of the EARTH! that paid into the system with payroll taxes and such, and GIVE IT to public creditors. At least WE, in our MODERN age, have our priorities STRAIGHT!



Henceforward, until the end of this
history, capital was quietly taken from labor and locked up
in all the ways that financial ingenuity could devise. All
that saved thousands of laborers in France from starvation
was that they were drafted off into the army and sent to be
killed on foreign battlefields.

AMEN! That's ME! (you get paid more, if you DIE, did you know that? My wife does, EEEK! ;))

A decree was now passed issuing
three hundred millions more. By this the prices of everything
were again enhanced save one thing, and that one
thing was labor. Strange as it may at first appear, while
the depreciation of the currency had raised all products
enormously in price, the stoppage of so many manufactories
and the withdrawal of capital caused wages in the summer
of 1792, after all the inflation, to be as small as they had
been four years before—viz., fifteen sous per day.

Ah, well, you get the idea. EVERYTHING INFLATES, EXCEPT WAGES. Nothing to see here, move along, move along...

I'll try to finish in the morning without quoting the whole book (although I may already be). I have 33 more pages to post and comment on.

[ASH]

Re: Say Goodbye to Your Retirement and 401K

ALL I am trying to point out is that I think you would have your answers if your read the doc

I read the document, and it does not appear to have any bearing upon my line of argument. I think the issue may be what you said about being a 'big picture guy'. Since you're not focussed on the mechanical details of how hyperinflation occurs, we seem to be talking past each other.

There is an important difference between the French assignats and what I'm talking about, and the distinction is what I said it was in my earlier posts.

[jtabeb]

Re: Say Goodbye to Your Retirement and 401K

I read the document, and it does not appear to have any bearing upon my line of argument. I think the issue may be what you said about being a 'big picture guy'. Since you're not focussed on the mechanical details of how hyperinflation occurs, we seem to be talking past each other.

There is an important difference between the French assignats and what I'm talking about, and the distinction is what I said it was in my earlier posts.

Okay, ignore my tirade then.

[ThePythonicCow]

Re: Say Goodbye to Your Retirement and 401K

Okay, ignore my tirade then.

Interesting debate, ASH and jtabeb. Thanks.

My take is (once again) a bit different.

I read ASH's comments as I might read a comparative analysis of open loop and closed loop controller's. ASH is saying that the French example had no or inadequate feedback loops. This allowed for undamped amplification of money printing and runaway hyperinflation. He's saying that our present example with the Fed buying toxic assets has a limiting feedback loop which will restrain inflation to moderate levels.

I read jtabeb's comments as saying that a careful circuit analysis doesn't matter much one millisecond after a monster lightning bolt hits. The feedback loops and circuit breakers and all that nice stuff get blown out. In the end, the dollar will blow up and there will be only two kinds of people. Those with gold (and the means and will to protect it) and those who are paupers.

My view is different. It seems to me that both of you are spending too much time counting money (dollars or gold), discussing if and how the dollar-based monetary engine will blow and where to be standing if it does blow.

Monetary currencies are the means by which we generalize value, thus enabling trade and investment on general terms.

But the essential characteristic of a healthy society is not measured in dollars. It is measured better in time scales. Over what period of time can one expect promises of future labor, production or reimbursement to hold?

In a healthy society, it pays to save, to invest, to take good care of ones tools and property, to honor commitments to ones neighbors, to invest in education and training to improve ones lot in life, to build a home one can pass on to ones children, and other such long term activities. A penny saved is still worth a penny earned, decades later.

In a sick society, you beg, borrow or steal what you can today, because nothing you have or know will be worth a damn tomorrow. Morality, ethics and maintaining a good reputation are scorned as the folly of idiots.

The France of the article jtabeb recommended became a sick society.

Over the last half century, America and all who fall within its influence (just about everyone) have become increasingly sick.

The detailed mechanisms that ASH analyzes are somewhat secondary in my view. For one thing, careful circuit analysis serves little purpose if the circuit diagram you have is fraudulent and deceptive. For another thing, we're entering a thunderstorm and some circuits are going to get blown out. Some already have.

However it might not end in hyperinflation either. My guess is it won't. EJ from what I recall is sure it won't. jtabeb apparently is sure it will. That doesn't really matter! If I go to the grocery store and cannot buy bread, I don't really care whether it is because the shelf is empty, or because the money I hold is no longer sufficient. Either way, I go home hungry.

What really matters is this. The time frames in which one can plan and invest ones time, money, reputation and efforts are shortening.

As I wrote at more length in another post earlier this evening (see Post #5 of My Inflation Nightmare), debt and other promises of future value (such as derivatives, swaps, pension plans, medical care promises, promises of a prosperous career in exchange for debt funded higher education, promises of ever increasing home equity valuations, and social security benefits) have been extended far past the ability of our future productivity to provide.

The economic fabric of our future is being ripped asunder. We would have noticed this sooner but for the greatest expansion of human productivity in history over the last half century, which has thus far soaked up the excess money produced by these excessive and now increasingly fraudulent promises.

We have a monetary system based not on gold or other species anymore, but on the extension of future promises. We have extended vastly more such promises than can be redeemed, thereby generating great sums of money which have powered enormous but transient prosperity. Those promises are now failing.

We might get the hyperinflation of jtabeb's French example (and numerous other examples) or we might get the bare shelves of (I believe) Russia at various times in the last several decades.

In any event, the false promises will become false money. But jtabeb might find that there is little more he can purchase with his gold than someone else can purchase with their worthless cash.

What matters is the time scale in which one should operate. One must stay inside the response loop of reality. This is not the same timing for the oil tanker captain as it is for the fighter pilot.

jtabeb might need his parachute, therefore I presume he always takes it with him. But he also might need to know how to do a wheels up landing, therefore I presume he's mentally ready for that circumstance as need be.

Similarly he might find his gold to be an exceedingly valuable possession. But then again he might not, depending on how this plays out. He is not (in my view) guaranteed great wealth from his gold holdings. (Perhaps he gets hung with a short rope from a tall tree by jealous neighbors instead.) But I'm sure he's not going to leave his gold behind anytime soon either.

I'm suggesting that it's high time we spent a little less time counting the dollars, and a little more time focusing on the things of value in life, such as the tools for sustaining life, the trust of our neighbors, our health and the love of those closest to us.

[ASH]

Re: Say Goodbye to Your Retirement and 401K

Interesting debate, ASH and jtabeb. Thanks.

My take is (once again) a bit different.

I read ASH's comments as I might read a comparative analysis of open loop and closed loop controller's. ASH is saying that the French example had no or inadequate feedback loops. This allowed for undamped amplification of money printing and runaway hyperinflation. He's saying that our present example with the Fed buying toxic assets has a limiting feedback loop which will restrain inflation to moderate levels.

I read jtabeb's comments as saying that a careful circuit analysis doesn't matter much one millisecond after a monster lightning bolt hits. The feedback loops and circuit breakers and all that nice stuff get blown out. In the end, the dollar will blow up and there will be only two kinds of people. Those with gold (and the means and will to protect it) and those who are paupers.

My view is different. It seems to me that both of you are spending too much time counting money (dollars or gold), discussing if and how the dollar-based monetary engine will blow and where to be standing if it does blow.

Oh, I don't know if it was a debate -- more like me trying to get out of a homework assignment.

I wonder if you 'big picture' guys missed the fact that I was responding to a single sentence in bcassill's original post, and wasn't making a big picture statement. All I was saying is that fear of hyperinflation doesn't constrain the Fed's efforts to keep banks solvent. There was no broader statement that we needn't fear hyperinflation from other avenues. In fact, most every post recognized that monetization of Treasuries does lead us down the route to hyperinflation, like JT's example of revolutionary France. I even mentioned how policy overshoot and lag could result in inflation from the Fed's support of banks... just not hyperinflation.

Anyway, I'm not trying to make a big picture statement about where we're headed. I happen to share your perspective; and I agree with many of JT's comparisons between our current general situation and revolutionary France. But my posts to this thread are all narrowly focussed on the mechanics of a single aspect of the Fed's policy, not the big picture. The fact that I'm not addressing the big picture is by choice; not because I don't care about the big picture, but because I had something to say about the little picture. (I make plenty of 'big picture' posts, too. Just not this one.)

[ASH]

Re: Say Goodbye to Your Retirement and 401K

So the money being printed is only compensating for the inflation in the past and not creating new inflation? Meaning the money is printed by the fed and equal amounts are lost from the system when loans are defaulted on?

I think that would be true, in an ideal case, of the money printed to buy bad assets from banks. However, the Fed also monetizes Treasuries -- both as part of open market operations to keep the banking system flooded with reserves, and the $300B worth under the 'quantitative easing' program. Then there's the issue that bcassil raised, which is that a variable amount of money can be created from a fixed amount of reserves -- so even if printing reserves doesn't have an immediate inflationary impact because it balances losses from defaults, it might have an inflationary impact in the future. And on top of this, I don't see how the Fed could accurately calibrate this policy -- it's gotta be a matter of successive corrections.

That said, if you look at a general measure of the money stock like MZM, growth was pretty flat through most of 2009, during a lot of the money-printing. The point isn't that MZM is the best, or most complete, measure of the money stock. Rather, MZM is a decent indicator of what's happening to the money supply, and it is one that the Fed cares about. This, at least, is an illustration that the impact of the Fed's money-printing on MZM was balanced by something.

On the 401K takeover front I have the following to share. I work for a large mutual fund/brokerage firm. Based on various meetings I have attended reviewing their 5 year plans it seems to me their focus is to push their 401K customers more and more into annuities. To me that is just a variation of the original suggestion by BCASSILL. Here instead of the govt the fund company is taking your money and speculating with it and all you have is promise to pay you some fixed rate in the future. I dont trust the fund companies to do this any more than I trust the Govt, if anything I trust them far less.

So my argument is why is a govt run SS program any worse than a pvt company run annuity? At least the govt has to pretend to care for me, the pvt company exists only for profit.

People who make their own investment decisions are very much a minority so when either the govt or the fund Company makes a sales pitch of taking care of your retirement for you its a pretty easy sell. :mad:

That's really interesting -- thanks for sharing. It totally makes sense that the financial services industry is trying to offer retirement products with lower apparent volatility, in order to keep ahold of that market, and counter the government-led grab for the same funds.

I tend to agree that for individuals who give up responsibility for their financial well-being to others, there isn't much to recommend private fund companies over the government. The main things that I care about are (1) having the freedom to choose to do my own thing, and (2) not being asked to support other people in a way that is inefficient, or systemically dangerous. Paying people's current social security checks out of current payroll tax revenue is okay; "investing" in GAS bonds in vehicles like the Social Security Trust Fund and planning to fund future retirement expenses from such a vehicle is inefficient and systemically dangerous.

[johnnybill45]

Re: Say Goodbye to Your Retirement and 401K

Just more fear mongering and unlikely predictions that this site is famous for.

GUNS: More people have gun carry permits than anytime in the last 50 years. So who's taking our guns away exactly?

401K: Unlikely prediction. Some predictions from this site never came true, some did. It's fun to speculate, but speculation is what it is.

[jimmygu3]

Re: Say Goodbye to Your Retirement and 401K

Just more fear mongering and unlikely predictions that this site is famous for.

GUNS: More people have gun carry permits than anytime in the last 50 years. So who's taking our guns away exactly?

401K: Unlikely prediction. Some predictions from this site never came true, some did. It's fun to speculate, but speculation is what it is.

It's important to realize that iTulip is an open community where anyone can post. This is because EJ realizes that many members have their own unique perspective to contribute. But with that kind of open door policy, you get a lot of tinfoil hat conspiracy stuff too.

Read EJ's posts on their own and you will see careful, independent analysis that has been spot on much more often than it has been wrong. When he's wrong, he admits it and tries to figure out why.

But I find it tough to recommend the site to friends because of the loonies. (I'm not saying you're loony, bcassill!)

-Jimmy

[radon]

Re: Say Goodbye to Your Retirement and 401K

It's important to realize that iTulip is an open community where anyone can post. This is because EJ realizes that many members have their own unique perspective to contribute. But with that kind of open door policy, you get a lot of tinfoil hat conspiracy stuff too.

Read EJ's posts on their own and you will see careful, independent analysis that has been spot on much more often than it has been wrong. When he's wrong, he admits it and tries to figure out why.

But I find it tough to recommend the site to friends because of the loonies. (I'm not saying you're loony, bcassill!)

-Jimmy

I'll go farther and say that is is impossible to find a board with a significant number of readers that that doesn't have a resident kook or two. If you think you've found one then there is a parallel to the old poker saying that probably applies. If you are reading a board and don't know who the kook is then you are it. I say read anyway, there is no sense in throwing the baby out with the bath water.

As for the other part of the debate I believe that ASH was discussing the backstopping of bank asset prices, not printing money and spending it. The former only legitimizes past inflation while the later can indeed cause inflation in the future, as the French and others found out to their dismay. They are two different things entirely.

[radon]

Re: Say Goodbye to Your Retirement and 401K

GUNS: More people have gun carry permits than anytime in the last 50 years. So who's taking our guns away exactly?

Maybe that is because 50 years ago you didn't need a permit to carry a gun in most places.

401K: Unlikely prediction. Some predictions from this site never came true, some did. It's fun to speculate, but speculation is what it is.

If you wish to plan for the future you need to have some contingencies. Maybe it doesn't make sense to have a plan for all the long tail stuff, but it can't hurt to be aware of what is out there. Especially after it has happed in other countries.

[dummass]

Re: Say Goodbye to Your Retirement and 401K

Okay, ignore my tirade then.

I'm disappointed in your response, JT. You were winning the debate, but missed the entire point of the book that you submitted for evidence.

The most powerful take away from the book is that you can not trust politicians with your money. They will promises all sorts of things, but at the end of the day, in spite of their best efforts, they just can't help themselves from spending more of your money than they already have.

In direct response to Ash and the specific circumstance for which he addresses, I would say that "stabilizing the capitalization of commercial banks" may be the Fed's official, stated objective, but history would suggest, that we can not trust them to do what they say they are going to do.

In other words, Ash argues the theory of the Fed's actions and what is suppose to happen according to said theory. JT responds by giving us a real life example of what actually transpires in the real world.

[ASH]

Re: Say Goodbye to Your Retirement and 401K

GUNS: More people have gun carry permits than anytime in the last 50 years. So who's taking our guns away exactly?

If I'm not mistaken, the only other reference to guns in this thread was Don's tongue-in-cheek post, poking fun at a certain type of "exaggerated concern".

[jtabeb]

Re: Say Goodbye to Your Retirement and 401K

In other words, Ash argues the theory of the Fed's actions and what is suppose to happen according to said theory. JT responds by giving us a real life example of what actually transpires in the real world.

Well I am sorry to disappoint you, but I will thank you.

For articulating WELL, what I could not.

So,

Thank you!

[ASH]

Re: Say Goodbye to Your Retirement and 401K

In direct response to Ash and the specific circumstance for which he addresses, I would say that "stabilizing the capitalization of commercial banks" may be the Fed's official stated objective, but history would suggest, that we can not trust them to do what they say they are going to do.

In other words, Ash argues the theory of the Fed's actions and what is suppose to happen according to said theory. JT responds by giving us a real life example of what actually transpires in the real world.

No -- I am arguing that if hyperinflation results from the Fed's actions, it will be because they are monetizing Treasury bonds to support government spending, and not because they are monetizing bad bank assets to keep banking institutions solvent.

I feel like I keep repeating myself, but the whole point of my posts is mechanism. It isn't kremlinology (what will the Fed do; will it do what it says it will do?). It isn't a statement about what will happen, or what is happening. It isn't a holistic meditation on money, or human nature, or our economic future. It is simply a statement that A results from B, but not C. B can still happen, and so A can still happen. Shit -- the authorities may say they're doing C but are really doing B. My only point is that A won't happen as a result of C.

This isn't a debate. This is people talking past each other, because they aren't talking about the same aspect of an issue.

:mad: