Pragmatic Capitalism

> QE can cause inflation, but QE != inflation. A reasonable case can be made that QE may actually be deflationary to a certain extent. See Cullen Roche in 2010: * https://www.pragcap.com/quantitative-easing-the-greatest-monetary-non-… * https://www.pragcap.com/wait-qe-might-be-deflationary/

My favorite ShadowStats statistic is that their own annual subscription price has remained unchanged at $175 since at least 2006, during 14 years of supposedly rampant inflation: https://www.pragcap.com/update-theres-still-deflation-in-hyperinflatio…

Why Wealthfront over FZROX and FNILX? I switched from Wealthfront to these Fidelity index funds since they're free and seem to do basically the same thing (also convenient to just have everything in one place and Fidelity is where my 401k is anyway). Wealthfront also added a 'risk-parity' fund which was opt-out that does not follow the same low risk index funds idea (and caused me to trust them less) https://www.pragcap.com/wealthfronts-risk-parity-fund-raw-deal/.

The most important thing must be that most people and especially the poorest are getting a better way of life and all the numbers show that they do. The number of people who live on under 1.9$ a day have decreased a lot the last 30 years, https://utopiayouarestandinginit.com/tag/global-poverty/ 100% equality usually means most people have nothing. Inequality seems to follow The Pareto Principle, https://www.pragcap.com/the-pareto-principle-and-wealth-inequality/ I myself had trouble understanding it, but if one make the thought experiment that all wealth in the world would be distributed evenly. After 10-20 years most likely a Pareto distribution would occur one again but of course with some different winners and loosers.

For those who are just catching up, I found the following article enlightening on the Greece situation: http://www.pragcap.com/greece ..especially the following line: - The EMU is a single currency system just like the USA is. The reason the USA works and the EMU doesn’t is because the USA has a system of rebalancing whereby poor states get more federal funding than wealthy states.

Ok lets agree to disagree :). Just FYI, 10 Yr Aug UST low yield (best price for bank to buy) was 258bps. Highest rate for Aug was 278bps (highest point at which the fed could have bought). By doing the flip the bank could make a yield of 20bps. It has to front cash for capturing this yield. If it just kept the cash at the fed it would earn a risk-less 25 bps (IOER). The fed is sterilizing the purchase by IOER so it isn't monetizing the debt! This is the fundamental misunderstanding with QE, its just a tool to target the rate. If we were truly monetizing the debt, inflation would be soaring through the roof! I would strongly recommend reading this -> http://pragcap.com/understanding-quantitative-easing

Buffett makes a great deal of cash flow from writing options, so take what he says with a grain of salt. "The brilliance behind Buffett’s investment in Berkshire is astounding. He effectively used (and uses) Berkshire as the world’s largest option writing house. The premiums and cash flow from his insurance business created dividends that he could invest in other businesses. But Buffett wasn’t just buying Coca-Cola and Geico as many have been led to believe. Buffett was placing some (short-term AND long-term) complex bets in derivatives markets, options markets, and bond markets." http://pragcap.com/the-many-myths-of-warren-buffett

I asked Cullen Roche (http://pragcap.com/), and this is what he said: "China's USD reserves are a function of their trade surplus with the USA. If they don't want to accumulate USD then they should allow their currency to rise and start consuming more goods domestically while producing fewer goods for the USA. But they don't want to do that because they have a growth target to meet and their export growth to the USA plays a large role in that target. So, their accumulation of reserves and US tsys is a function of their desire to export goods and services to the USA. If they want lower growth then they can stop accumulating USD's. But that isn't going to happen unless they find growth elsewhere...Being the largest economy in the world means they will remain a huge exporter to the USA."

I lean towards Cullen Roche's take: > 1) ESG investing is more active investing that will increase the probability of lower future returns. […] I won’t regurgitate Larry Swedroe and Cliff Asness’s excellent work on this subject so I’ll just a [leave link here] and [here in case] you want to see the financial cost of this investing strategy. The short version is, these strategies underperform in theory and in reality, as expected. > 2) The secondary market is a bad place to enact change. The intelligent defense of ESG is “by reducing the demand for a stock we can increase its cost of capital and impact its operating performance.” This is true to some degree, but I think this is dramatically overstated. For instance, the firms in the S&P 500 are all large established firms that have more than enough capital to finance their operations. They aren’t using the secondary equity markets to fund their operations. In fact, most firms have so much capital that they’ve been net buyers of stock in the last 50 years. So, this puts the cart before the horse. The better way to think of public companies is to think of them like horse betting. We can bet on the horses, but secondary market purchases are just private exchanges, not cash issuance to firms. As a result, betting on the horses doesn’t change the outcome of the race. Similarly, our secondary market purchases and sales have a far smaller impact on the firm’s operations than we might think.¹ > 3) ESG investing puts more money in…

I am aware of Simon Kuznets. > As a counterpoint to your one example re: money supply and inflation, I would present the following: https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperinflationary… People like to point out money supply/printing and inflation (cause of), but often fail to ask what caused the money printing in the first place: * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102 People don't 'run the printers' for funsies: there are usually extraneous reasons why it happens (including a good portion of what the US (and most other countries) recently experienced). > Now think about that – did 6 different governments [including Weimar Germany], all within a 4 year time period [in the 1920s], and all bordering each other and/or in the same post WWI region and intellectual/political climate (with the seeds of the some of the farthest right and farthest left regimes in all of history within them that would lead to WWII just ~18 years later)— > Did all of a sudden this little world region and precise time period and intellectual milieu decide to just start spending like crazy? At the same time? While the rest of the world did not? > Or did they share the same underlying, and preceding, set of problems discussed above? * https://clintballinger.com/2021/01/12/the-myth-of-hyperinflation/ * https://clintballinger.com/2019/05/24/the-autocorrelation-of-hyperinfl… Further, in modern financial systems money is…

You are very much right in thinking this. I lived through collapse and dissolution of one state, civil war, disintegration, and (belated) birth of a new state, with its own currency. The monetary aspect (hyperinflation in the old, change of currency in the new) is only a small part of that. You are correct - in that scenario, there are other things to tend to, more urgent. I also witnessed that gold did not replace the collapsing currency. Other, non-collapsing currencies took on that role. USD is safe and sound for as long US is safe and sound. The fiat currency is creation of the state. In collapse, I'd say causality goes 99% state->fiat. Only a small (2nd or 3rd order) effect in the opposite direction. For the parent - "Hyperinflation – It’s More Than Just a Monetary Phenomenon" by pragcap.com https://www.pragcap.com/hyperinflation-its-more-than-just-a-monetary-p… reads right for me. Even general inflation (= increase in P/y) does not necessarily follow from the exchange equation (M V = P y) and money growth (M). There are other possibilities too, examples discussed in https://www.forbes.com/sites/johntharvey/2011/05/14/money-growth-does-… To end on a more upbeat note: I also witnessed the hyperinflation tamed, the economy booming, without seemingly much effort and in short period of time. Looking back, I think the most important part is the right diagnosis: where is it coming from. Otherwise the cures end up worsening the disease.

This is a terrible article by somebody who obviously has no clue about the function of the treasury market and how it is managed in cooperation of the Fed and the Treasury. The best status quo descriptions of how this market works tend to come from the Modern Monetary Theory school in economics. For a popular explanation, see e.g. http://pragcap.com/understand-the-modern-monetary-system/understanding… and certain chapters of this: http://www.neweconomicperspectives.org/p/modern-money-primer.html As an additional benefit, the writing of the MMT people is enjoyably concrete and solid. When I read other sources on financial markets, I always feel as if the authors were describing some weird ununderstandable magic to me. Something that is not and should not be understood. MMT provides a refreshing alternative to that which seems to match up very well with all sorts of technical descriptions you can pick up from the Fed and Treasury itself.

Hyperinflation is not 6% inflation, it's not even "inflation but bigger." Hyperinflation is better thought of as the rejection of a currency by the people, and it has historically always been associated with extreme exogenous factors like foreign-currency denominated debt, with war, civil war or rampant corruption. The Weimar Republic had foreign-currency denominated debt, which famously you cannot satisfy with printing more domestic currency. [edit] Here's a good write-up that aligns with my take. [1] https://www.pragcap.com/hyperinflation-its-more-than-just-a-monetary-p…

> The problem is that the government keeps printing money […] Except that it doesn't. Money is created by private banks through credit (loan, mortgage) creation: * https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creat… * https://www.bankofengland.co.uk/explainers/how-is-money-created > […] so my bills under my mattress or buried in my backyard keep dropping in value. Yes, this is a feature: the discouragement of the non-productive uses of capital and hoarding à la Scrooge McDuck. > No, you can invest money. Most people actually save and do not invest: * https://www.pragcap.com/saving-is-not-the-key-to-financial-success/

Modern Monetary Theory covers some of the basics. I believe Monetary Realism (https://www.pragcap.com/monetary-realism/) is a much better attempt to explain the roles of government, banks, taxation and spending in the modern-day fiat currency environment (though it does contradict some of my simplifications above).

"The Money Multiplier and the Myth that Just Won’t Die…" https://www.pragcap.com/the-money-multiplier-and-the-myth-that-just-wo… "Banking and the Laughable 'Money Multiplier' Myth" https://www.realclearmarkets.com/articles/2016/06/29/banking_and_the_l…

Doesn't seem to be that correlated: https://www.pragcap.com/wp-content/uploads/2013/12/stupid_chart1.png

>Anyone have a good source for that number? You can get close with a few ETFs: US market and bonds, Ex-US global market and bonds: http://www.pragcap.com/a-simple-four-fund-global-financial-asset-portf…

here's a good counter point: http://www.pragcap.com/passive-investing-isnt-hurting-the-economy/

This is a false understanding of how the supply and demand for money works. For example, news about QE was positively correlated with long term interest rates. The expectation of an increased future money supply tilted the balance towards the demand side in the present. Money is fundamentally an intertemporal thing, and we've known since the 1930s that the cute little supply-demand time-slice diagrams in textbooks don't work on the money supply. Here we see the prices of 10-year bonds falling (=> interest rates rising) with each QE cycle: http://www.pragcap.com/wp-content/uploads/2013/11/arp1.png

Yes, in sectoral balance, government deficits go towards net private saving: http://pragcap.com/understanding-the-modern-monetary-system-part-6-2

Russia had foreign denominated debts and a collapse of real output. Try again. http://pragcap.com/the-russian-default-what-happened

> Gold is a piss poor investment. Relative to what? The USD? http://pricedingold.com/us-dollar/ Real estate? http://pragcap.com/real-estate-gold-ratio-falls-to-30-year-low Gold is an asset that holds its purchasing power pretty well. It is what it is. It is not however a "piss poor" investment.

From the article: "Interest rates, already one of the fastest rising costs in the federal budget, will rise as the political crisis builds, because foreign borrowers will demand an additional risk premium." Wrong. Interest rates will rise if the Federal Reserve raises interest rates. They will not if it does not. The Fed controls 100% of overnight rates and virtually all of the rest of the yield curve[1]: "as we went out on the curve the correlations remained very tight (FFR at 100%, 3 month at 97%, 1 year at 96%, 5 year at 91%, 10 year at 86%, 30 year at 87%). Even at the longest duration there is an 87% correlation between the movements of the Fed Funds Rate and the 30 year bond. In other words, the bond market is the Fed’s whipping boy. Not the other way around." What the Fed does not control is the US dollar's foreign exchange rate. So it's entirely possible that debt ceiling worries will cause a weaker dollar. Paradoxically though, they might cause a stronger dollar since the government not issuing debt actually constrains the dollar supply. Sovereign finances are deeply weird, and global reserve currencies are too. [1] https://www.pragcap.com/i-want-to-come-back-as-the-federal-reserve-you…

If you believe Shadowstats' figures, the US economy has been in a recession since 1988.[1] Even more hilariously, the price for a subscription to Shadowstats hasn't increased in the last 8 years of 'hyperinflation'.[2] I wish people would realize they're a complete joke. Some other fun quotes from the brain trust behind Shadowstats; > (Feb 22, 2012) Gold to $8,890, Silver to $517 says John Williams of Shadowstats When this prediction was made, Gold was at $1,775/ounce and Silver was at $34/ounce. 2.5 years later, Gold is down to $1,286 and Sliver is at $19.50. While Williams was very, very long, the price declined between 30% and 40%. > (Oct 24, 2012) Economist John Williams says the latest round of “open-ended” QE has set the table for a global “dollar sell-off” and “hyperinflation” no later than 2014. Williams says, “There’s no way the consumer can fuel the economic recovery, and there is no way we’re going to see one in the near future.” Williams predicts, “The Treasury is going to have funding problems, and that means the deficit gets a lot worse.” [4] The dollar is up 15% since then, inflation is still nonexistent, and the 2014 deficit is over $500 billion smaller than the 2012 one. You'd be much better off taking financial advice from the Dogecoin guys. [1] - http://www.washingtonpost.com/blogs/wonkblog/wp/2014/07/17/the-intelle… [2] - http://pragcap.com/update-theres-still-deflation-in-hyperinflation-for… [3] -…

I think you're proposing Modern Monetary Theory (https://en.wikipedia.org/wiki/Modern_Monetary_Theory) or a variant of it. There have been numerous critiques written of MMT written over time - some examples: - https://www.pragcap.com/modern-monetary-theory-mmt-critique/ - https://www.investors.com/news/economy/modern-monetary-theory-mmt-infl… - https://fee.org/articles/modern-monetary-theory-is-a-recipe-for-hyperi… It has also been discussed on HN previously (https://news.ycombinator.com/item?id=19450959).