Sunday, March 31, 2013

He is Risen

Where O Death is now thy sting?

I sincerely hope you have the honour to sing such joyous words with those you love.

Friday, March 29, 2013

ATF: Black

A: Guinness Black Lager.  You had this?  Freakin' amazing.  All the Guinness character...  but somehow...  refreshing?  Dare I say it?  This may in fact be what Shiner Bock wants to be when it grows up.

T: Sosa.  Smoked another one of these last night.  Fantastic guys.  Look them up.  Bang for the buck just can't be beat.

F:  You wanna know how expensive .223 is?  I saw a stray tom cat on my property through the night vision rig and decided not to shoot it... because I didn't want to waste a round.  Folks there was a time when killing a cat would've been amongst the finest ways to spend a round .223.  Not anymore.  I guess this means I need another rig for one of the .22mags.  Now that I would spend on ending a cat.

Its just a quicky tonight.  I spend to much time on the phone tonight with Vidad... talking like teenaged girls.  Started out as business called... ended up covering everything from survival gardening to the moral obligation one has for killing a trespasser to They Might Be Giants.

On a related note... I am working on a project.  Friday nights could be in for a big change around here.

That's all I'm prepared to say at this point.

You know the rules.

Wednesday, March 27, 2013

The Great Debate: The Doom that Came to Cyprus

It is with no small amount of sadness that I must now face the fact that I am not going to get out of this debate without having to explain mal-investment.  It appears in order to counter Vox's deflation via credit reduction claim... it is absolutely necessary.

Ok so M1... TSM2... Z1...  what is it?

As I stated before...  you've already answered that question for yourself.  Vox can write poetic and convincing lines about the esoteric nature of credit money... and he can explain how the paper just represents a claim on this or that...  and none of it will change the fact that when you hear about what's going on in Cyprus... you have a primal urge to run to the bank and get all of your cash out.  You want the cash.

That's because the cash you want is money.  For now.

The debit card is very convenient.  No question.  But by now you are probably looking at it with much more cynical eye than you were a month or so ago.  Good.

Now that is one way we know Vox's Z1 claim is... not the best option available.  There is another way to demonstrate it as well.  We'll start with Vox's own words.

"The creation of credit money always has an immediate effect on prices because it increases the applicable demand.  I shouldn't need to draw any SD curves, as we can see the effect that expanded home loans had in the housing market, that increased student loans have on the price of tuition, and even in the health care market, where governments borrow the money that is used to pay for the "free" health care delivered to indigent patients.  No cash is being printed, and yet credit money is being created, transactions are taking place, and prices are rising. While these effects are localized to the relevant markets I suspect the reason why economists historically failed to connect them to the broad increase in price levels that is usually described as inflation is because until relatively recently, it was not possible to obtain general, pre-approved credit for even the smallest transactions."

Ha ha!  Credit creation is inflationary says Vox... we know this because price is effected.  Sure... if one only looks at one side of the coin its inflationary.  Vox neglects to consider all the money that is sitting in savings accounts rather than being spent.  That money reduces demand and thus... offsets the inflationary effect.  The Government has to take some action to eliminate the savings link before the inflationary effect is really going to be obvious .. and that is exactly what they have done... as I explained in my previous post in this debate. And I hate to haggle about every little thing but Vox is blatantly wrong about this statement about small purchase general credit claim.  Historically speaking we've had credit based small purchases as long as we've had stores.  The stores provided the credit... not the banks.  Regardless... it was still credit being used for purchases.

But lets take Vox's standard for demonstrating inflation... price... and apply it to his Z1 claims.  Shall we?  Lets review the claims.  Vox says Z1 is the best measure of the money supply.  I say its TSM2.

In 2008 we saw Z1 begin to decline in July of 2008 and didn't start to climb again until October of 2010... and at the same time...we saw m1 and TSM2 begin to spike... and that spike has continued through today.  So lets look at prices between July of 2008 and October of 2010.  What were they doing?

In literally every single area...  Gold... Silver... literally everything... prices went up.  What ever it was you were buying... you were going to pay more for it.  There is only one exception to this... and that is real estate.

What's important to note... is that this is exactly what Austrian economics says should happen.  Through government interference and general banking shenanigans... we created artificially cheap credit... which lead to a bubble in real estate.  It lead to a massive influx of capital that was poured into new home construction... and the fact is... people didn't actually want the new homes.  We call this mal-investment.

Look this is damned important so pay attention.  Its not just important to my case in this debate.  Its an economic concept that is largely ignored in modern economics and if you don't understand it... you are going to get hurt.  I'm not just trying to score points here.  This is a big deal.

Mal-investment is what happens when a company produces something no one wants.  It is the single most malignant economic force there is.  It is a force multiplier for pain and misery. It not only eats up the resources to create the items no one wants... it eats up the resources required to unmake all the means of production... the opportunity costs of those working for and with the company that created the things no one wanted... and the cost of unmaking all the things no one wanted so the resources can be then applied to something people do want.

Lets say I start a company and my company is going to make busts. We're going to make busts of human buttocks out of the feces those buttocks eject.  I want to make sure you understand... that according to John Maynard Keynes... this would be positive economic activity.  I am after all going to employ a lot of people... obviously.  And there will be production facilities... and packaging... and marketing...all of these things are job creators.  John Maynard Keynes says my company is helping.

That's because John Maynard Keynes was a moron.

No one... exactly no one... is going to buy my rude product.  Somewhere a whole factory... that could've been producing cool motorcycles... or personal jet packs... or something awesome like that... was occupied making poo products and dysentery   My company is going out of business.  All the money that was dumped into it to capitalize it was dispersed hither and yon.  The factory has to be... ok well... realistically it probably has to be burned down and rebuilt completely... which takes up more resources.  All of the employees have to be retrained to work in new factories.  Its a nightmare.

Now lets look at how mal-investment applies to the US housing market.  Jump on Google Earth and look around Florida.  You'll see whole unfinished neighborhoods... where there are streets and sidewalks poured and laid... but no houses built.   You can see that in places from Tennessee to Arizona.  Many of the houses that got built during the boom... are now sitting empty... and slowly collapsing on themselves.

Before any of that land can be used for something people want...  those empty streets or those collapsing houses have to be un-built.  So not only did we spend the money to build something no one wants... before we can build something someone does want... we have to spend the money and resources to undo what was previously done.  The key here though... is you have a bunch of things for sale that no one wants.  You have things that are literally worth zero.

Now Inflation is like division.  It cuts up purchase power into smaller pieces.  But something that has no value to anyone has no price to divide.  0 divided by 100 is?  Well in monetary terms... its zero.  In 1900 something no one wanted cost 0.  In 1950 something no one wanted cost 0.  In 2013... something no one wants... still costs 0.  Clear?


So... Z1 is going down... and TSM2 is going up... and prices are going up... except in the one massive area where the mal-investment bubble popped.  By Vox's own metric... he is wrong.

Its really time to move along now... but before we do I really need to answer Vox's questions.  Sadly some of these are less impactful now than they were over the weekend when the events were actually unfolding.  I apologize for not being able to respond quickly enough to make predictions that could be reasonably judged.  I simply did not have time to produce a quality response.

Vox asked:

1) if the expected outcome is, as he suggests, inflationary, due to the central bank printing presses why has the European Central Bank not simply used the bank holiday to print the required 13.5 billion euros and allowed its customers to withdraw as much of it happens to suit them?  

Not being a European Central Banker... they didn't think to inform me of their decisions... so I can't actually say.  I can think of a number of reasons... but its all speculation.  These reasons range from simply hating Cyprus and wanting to punish it... to hating paper money.  I lean towards the notion that Cyprus was an experiment.  Printing the money was not part of the experiment.  I believe we had some statements to support this point of view.

2) Why is the ECB risking the Cypriot banking system, the wrath of the Russian depositors, and the fate of the European Union itself on these various schemes rather than simply printing the cash and permitting its withdrawal? 

Again... the proper answer here is... I don't know.  The motivations of Eurotrash Central Bankers are beyond the kin of decent moral economically non-suicidal people.  I think I can reasonably say though... They just didn't think it was as big a deal as you do.  They even thought to leave the Russians a nice way out.  Which suggests they were well aware of the dirt nap potential before hand.  I do feel it necessary to point out that there is a very important distinction between "won't" and "can't".   And one can get into quite a quagmire when the two are confused.  They certainly have the ability to print the money... or create the money from thin air as they see fit.  To put the magnitude of the Cypriot Crisis in perspective...  Remember we're talking about 16 billion euro.  Now that sounds like a lot of money.  Until... one considers that the current public debt for the EU which is 14.9 trillion euro. So... I'm not quite certain the Central Bank is terrified of that .11%  increase in public debt.  I just thought it would be nice to demonstrate just how small these numbers are to central bankers.  Do you realize we're at a stage where 16 billion euro is nothing?  Again... this supports the claim that Cyprus was an experiment.  For more perspective... the FED monetized 204 billion dollars in the last 2 months alone.  So see... 16 billion just isn't a big deal.

3) Imagine an American analog, where a bank with billions in deposits but already emptied of all its cash was simply shut down without the usual FDIC shell game of "transferring its deposits" to another bank.  Would this be a deflationary action?


Moving on...

The question of can't vs won't is a big one.  Because the answer to that question is critical to Vox's case.  The deflationist position... at the risk of over stepping Vox here... is that the Central Bankers have their hands full just keeping things at par and while they would like to inflate... they are doing everything they can and they just can't get it done.  Vox has elaborate and well reasoned explanations for why they can't.  I concede that.  Vox asks... Can they break the credit link?

Sadly... The most well reasoned explanations must bow to observable reality.

 I must quote Vox here...

"The narrower sense of fiat money is clearly the sense Mises was using the term when he declared "most of those kinds of money that are not commodity money must be classified as credit money" and questioned whether fiat money had ever existed."

and previously...

"So, we recognize that while fiat money can potentially exist in theory, the question of its actual existence, in the United States or anywhere else, is not settled."

So... According to Vox and Mises... fiat money has likely never actually existed.

Given that...  we must conclude therefore that both Zimbabwe and Wiemar were credit money systems.  So hyper-inflation is not only possible in a credit money system... it has happened.  In fact... it has happened 56 times.

And thus the question of "won't" vs "can't" is answered... and Vox is reduced to a physics professor standing on an airport runway explaining why something must be lighter than air to fly.  Boeing be damned.

In the next installment... I will be explaining how hyper-inflation works... and why it is inevitable.  

*** The title is a reference to a short story.  Bonus points to anyone that spots it. ***

Tuesday, March 26, 2013

The Value of a Global Business and Econ Degree

You just have to see this...

The following picture was shared on a libertarian friend's facebook wall.

Setting aside the veracity of the above receipt .. the comment section got a little rowdy... as someone referred to the person who presumably made this transaction... as "human garbage".  Enter our heroine...  Whom I shall call... "kristin"...  well...because her first name is kristin.

Here are a few of Kristin's comments:

Kristin:  God damn you are the most Republican person I know. I understand not giving people who don't deserve it food stamps. But why in the fuck would you want to see good people starve? Of course its the government's job, aka our jobs, to help keep others from starving. Unless you want to live in a heartless, disgusting country. How can you demand a better standard of living within our country without wanting to help others or pay taxes? Sigh.

I particularly enjoyed this comment... as she complained that an officer in the Libertarian Party of Alabama was somehow Republican.

Kristin:  So you know everyone that is on food stamps? YOU ignorant fucks are the trash. Have a heart and understand that not everyone was born into the environment or family you were.

Kristin: There are plenty of people who have multiple jobs and still can't support themselves. Especially places like CA where I live. It's expensive.

We are all shocked to learn Kristin lives in California.  She continues...

Kristin: I'm done with the debate. I'm going to go about my educated lifestyle. Have fun living youre terribly close-minded life. Fuckin hicks man.

The poor dear is getting so angry her grammar is suffering...  this isn't good.

At this point... and Evil Libertarian jumps in...

Evil Libertarian:  Kristin, sweetie, consumption is the driving force of capitalism, which, capitalism not corporatism, is the greatest economic system this planet has ever seen...over consumption is a right of the people, to buy and spend as much as they only strengthens our economy.

Kristin: First of all, do NOT be condescending with me. Second of all, consumption is of course great for our economy, but its not great when people eat too much and get fat and die. It also doesn't mean that I don't value a meaningful life more than the economy. People worry too much about how big their flat screen TV is or how super sized they can get their Big Mac when there are children dying of AIDs and genocide in the world. People need to get their shit together. And that's coming from a Global Business and Econ major.

Now this is important.  Kristin is a Global Business and Econ major.  I want to make sure everyone understands that.

After someone else brings up Austrian Economics...  Kristin blows them away.. with this amazingly awesome retort...

Kristin:  And what does Austrian economics have to do with anything? But yes, in fact I do know some considering I was just there last year. I know a lot of the basics of the economies within the EU.

And there you have it.

Kristin the Global Business and Econ major knows all about Austrian Economics... because she was in Europe just last year.

See friends?   Put down that Milton Friedman.  You don't need to read all that.  You just need to do some sight seeing in Chicago.

Obviously Kristin should seriously reconsider her choice of educational institutions...  unless of course she has already graduated.  If that is the case... she should sue them for fraud.

Stormtroopers' 9/11

Why your aim so bad?

Because Stormtrooper!

Friday, March 22, 2013

ATF... as such...

Gah... well here we are... running late.  Thank God for Shiner Bock.  Have you had Shiner Bock?  Glorious.  Just glorious.  I prefer Shiner Black... but... we takes what we can get.  Tonight... they had Shiner Bock... so ...  that's what we got.

On with it...

A:  Obviously.. I'm drinking Shiner.  That said... I have a question.  What do you think ranks as the finest mass production beer made in the South?  By South I mean... Confederacy here.  For the record.  I don't want to hear about some shit from New Mexico.  So... Shiner...  Sweetwater...  Abita... Red Brick probably has the finest label...  Consider this example...

Suspect college football indeed.  Try to give at least a top 3 here boys...  no need to limit it to the ones I listed.  Just your top 3 or top 5 beers from the South.

T: You people do not smoke enough.  I don't know what can be done with ya... bunch of no account slack jawed so-and-so's.  Get off your ass and start smoking.  At least a couple cigars a month.  Its a manly art.  Its a responsibility.  Dammit.  Oh... Ghurka.  As usual.

F:  Ruger Vaquero... .44 mag.

Ain't she pretty?  Love the thing.  Love it.  Its heavy... its impractical... it actually kind of hurts to shoot... and I love it to death.  I have a Winchester 94 also in .44 mag.  If I wasn't gonna do the matched pair obviously I'd rather have the Vaquero in 45lc... but.. come on.  .44 mag cowboy guns.  There is some serious cool factor there.

Ok kids...  you know the rules.

308 recipe

168 gr hpbt
42 gr imr 3031

2700 fps.

This is my standard for mass production. 

Wednesday, March 20, 2013

Bourbon vs Scotch

I thought it would be useful to settle this debate by simply taking the words straight out of the horse's mouth. See tasting notes are widely available all over the web.  What I've done here is compile a comparison for you.  One is a list or words used to describe the various tastes and smells of scotch.  The other list is the same.. except for bourbon.

I think you'll see a distinct difference.

First the Scotch:

Sea Sand
Dry Seaweed
Sea Grass
Linseed Oil
Bog Myrtle
Seaside Salt
green sticks
clean hospital
pine resin

And now...The Bourbon

Caramel Apple
Vanilla taffy
brown sugar
burnt sugar
Maple sugar
Maple syrup
sweet corn
toasted nuts
pancake batter
fireball candy
big red chewing gum

Now what did we learn?  If you notice... the bourbon list is actually made up of things that people want to eat.  The scotch list?  mmm... acetone... mmmm...  creosote...

I know I know... you're going to say I cherry picked.  But I didn't.  I picked tasting notes from scotches that all received rave reviews and high ratings... and the bourbon list comes from everything from Makers Mark to plain ol' Evan Williams... to Rare Breed and Bookers.  So in reality I threw in the junk bourbon and only used the "good" scotches.

Listen folks... just because you can recognize a flavor in something... doesn't mean its a good flavor.  Well... I don't know... maybe you're the type that likes to lick the inside of your chimney... or paint your tongue with nail polish remover.  Me?  Hell I'd rather have vanilla caramel toasted pancake batter.

Saturday, March 16, 2013


A couple folks have been asking about reloading due to the obvious ammo shortages.  Guys...  I've got some bad news for you.  Reloading isn't an option right now either.  Components are harder to find than actual ammo is.  Its easy to rationalize... "oh I'll just reload".  No.  You won't.

Luke and I talk about this almost every day... who has powder? who has primers? Sure we've all got brass saved up and that's all good and well but it doesn't do ya a damned bit a of good without the other stuff.  Freaking Bass Pro can't keep powder on the shelves.... even at their jacked up prices.  Bullet selection is garbage... and primers are simply gone.  Totally... gone.

The fact is...  right now...  stocking up ain't an option.  You should've stocked up 2 years ago.  Hell... you should've been stocking up for the last 10 years.

Your best bet now is to wait... or to focus on some less hip cartridges   .223 and .308 are impossible to find...and when you do find .223... is a dollar a round... which is nuts.  The hunting rounds are still out there.  35 whelen?  You can find that.  .270... .280...  the short magnums... or plain old 30/30... those are all still out there.  Your  best bet may be to get rifles chambered in something like that.... at least until this idiotic panic blows over.  I lean to the 30/06 myself or .243 myself for rifles... Shotgun ammo is still out there and easy to get... for handguns..  forget 9mm.  Its worse than .223. You can occasionally still find .45acp and .40S&W and such but 9mm is just gone.  This crap about 9's being cheaper to shoot?  yeah those days are long gone.  

And yes.

I said the panic is idiotic.

So... This is what I would do... if I had spent the last ten years with my head up my ass... ignoring all the warning signs... ignoring all the people screaming at me to stock up on guns and ammo and gold and silver... and instead... I just kept putting it off till tomorrow...

Focus on shotguns... which you can still get ammo for... and get a 30/30 or a .270 or a 30/06.  Something you can get ammo for.  A .22mag is a very good option as well... as is 17hmr.  They are cheap to shoot, and will put food on the table... they're also hell on wheels for predators.  You can still get that ammo at walmart.

Tomorrow has come and gone people.  Its to late now.  Now you are in the damned weeds and will have to make the best of your situation.

I warned you dammit.  For 10 years I've been warning you.

Friday, March 15, 2013

ATF: Sangria and a Springfield

Howdy boys!  Come on' in y'all...  Its that time again.

Shit hell what a day.  Dadgummed women folk hosting some kind pampered chef party... ol' lady talked me into makin' sangria...

speaking of which...

A:  Sangria.  For now least ways.  Say what ya want.. a bunch of oranges, limes, lemons, nectarines and pineapple thrown in a big ol' batch of Tempranillo...  maybe some brandy and ginger ale...  tough to beat.  Tough to beat.  Don't worry.  It'll be Kentucky Spirit in a few minutes.

T: Everyday smokes.  Obviously I am a dick... because my every day smoke is a Gurkha spec ops.  That said previously I have had others that weren't as extravegant...  there was a spectacular little smoke called Tabantillas.  Holy cow was that a great smoke for the money.  Other favored every day options have included Calos Torano... Arturo Fuente...  and... in desperate times... believe it or not... backwoods smokes.

F: Holy crap.  The Springfield V10 is freaking amazing.  First... it gouts flames.  Literally.  This particular one has a crimson trace laser grip... which... is generally not my thing... but I am seriously enjoying this so far.  Its loud... but its not as loud as folks seem to claim.  The trigger is just amazing.  It eats everything... and...  well... its a 1911.  I don't know much else to say.  if you get a chance to play with one... I highly highly recommend it.  I find double taps are extremely fast with this little weapon. So I am thinking the ports are more effective than folks would have you believe.

Ok...  your turn.  You know the rules.

Nate Mail: The End of Slavery

 Leatherwing asks:

A blogger asked the question of when the Southern states would have ended slavery if not for Lincoln. I remember you saying (but can't find it) that there were plans to end slavery by a certain date. I've been unable to find anything online and wonder if you can point me toward a source.

Sorry it took so long to get this post up.  Lots going on.

There was not a certain date that the South was ending slavery by.  Rather it is more accurate to say that Slavery was dying a slow death of economic causes.  The fact is... Slavery was simply no longer economically viable as a business model.  Slaves were to expensive... and in addition... their care... was far far to expensive.  The problem wasn't whether or not to end it.  It was ending.  The problem was... how to end it?

First let me back up my claims about how expensive slaves were.  There is a book called The Kith and Kin of the Dark Clan.  It traces legal documents of the Dark family all the way back to the 1600s or so in America.  Several sales receipts .. wills... and other documents mention slaves.  For example one will shows two slaves... each valued at $5000.  This was in 1790.  To put that in perspective... in 1790.. an ounce of gold cost $19.  These slaves would've cost 263 ounces of gold in 1790.  See where we are going here? In today's dollars... those slaves were worth $420,000.   Each.

Now tell me...  how well do you care for something that is worth that kind of money?

Do you send your $400,000 horse to the cheapest vet you can find?   Do you put it in the cheapest barn you can build and give it the cheapest food you can find?

In addition to the upfront purchase cost... slaves had to be fed, housed, and cared for.  In the south for a long time the owners were obligated to teach the slaves to read so they could read the Bible and be saved.  All of this...was very very expensive.

In fact... just before the War for Southern Independence... and during it... many Southrons moved to Brazil to start large plantations there.  Slavery was legal in Brazil at the time... but they didn't use slaves in their new operations.  Why?  Because it was not economical to do so.  That should tell you everything you need to know.  By the way... to this day there is a city called Americana in brazil... because so many southrons moved to that area back then.

Contrast this with the industrial revolution in the North.  You didn't have to house your employees or feed them.  You paid them less than what they could live on... and then you open up a company store and lend them the difference so they can survive.  And then... they owe the company... so they cannot quit until they settle their bill... which grows each month because they are not paid enough to live on.

So much for being free.

The fact is working conditions in the North were far... far worse than slavery in the South... and even though they were called "free" in the North... they were arguably less free than they were in the South.  They worked more, for less, had worse living conditions, and often dealt with the same kind of punishments at work that they got from the cruelest slave masters in the South.

This is the part of American history that gets swept under the rug.

Monday, March 11, 2013

The Great Debate: Half-Truism

"There are those who say that he cure for inflation is deflation.  And... there are those, though they are few, who say that the cure for the man who has been run over by a motorcar, is to have the same motorcar run over him in the opposite direction." - Ludwig Von Mises, Lecture on Inflation, 1968

Broad definition…  narrow definition…  it is readily apparent the broader definition is what I am referring to here. But one must remember that I am actually no longer using Mises’ definitions at all. I am defining money as it relates to the commodity competition… not its nature.  I call it fiat money not because it has government force behind it, but because it is that government force that makes the commodity win the commodity competition and therefore become the money.  Credit money doesn’t exist at all in physical form and thus doesn’t compete in the competition and is not actually money. 
As you have noticed by now these responses are coming slower and slower.  That’s because, by the very nature of the problem, as we drill down, more and more remedial teaching is required.   There is a knowledge base that is required to understand these points… and we must first make sure the reader has it.

So as is my way… I will begin by explaining some concepts.  Oh I know you know what borrowing is superficially but nothing about money is superficial.  When one takes out a loan, he has time-shifted purchasing power.  He has taken purchasing power from his own future, and moved it to the present.  This creates a corresponding reduction of his purchasing power in the future, which is larger than the amount he moved.  The difference is the interest.

The mechanism for this is a promise to pay.  Is this clear?  You don’t have the money now, but in the future you will and you promise to pay it then. 

Mises and Vox point out that that time-shift isn’t actually the miracle here.  The miracle is that the credit money created by the time shift is accepted exactly like actual money .   No flux capacitor required.

What is important to note… and what Vox is missing… is that it when the credit money is created by time-shifting like this is not considered inflationary.  The interest is rewarding those who have saved, and it all washes out in the end.  The interest rate, which is the price of time-shifting money, fluctuates as demand for time-shifting increases and decreases… and that.. all by itself… mitigates the boom and bust cycle created by the lending.  As more people borrow, the price of borrowing goes up… bringing that number back down.  As fewer people borrow the price is lowered so more will borrow… bringing the number of borrowers back up.  We find a happy medium where the interest rate is moving around, but the purchasing power is relatively stable.  The risk banks take when leveraging money also influence that price… which we call the interest rate. All of this works together nicely.  Which is why when Mises talks about inflation he always talks about government. 

That is how it is supposed to work.  And when its working like that… we can look at the amount of money in a given account that exists above and beyond the deposits in that account and we call it credit money.  Because it exists above and beyond the deposits in the account, it has no physical representation.  The coins, or dollar bills, do not exist.  I need you to be clear on this.  I have a checking account with say…$45,000 in it.  If I go to the bank and ask them for $45,000 in cash… they will laugh in my face.   However, debit cards are swiped, and the credit money is accepted exactly like cash is accepted.  That is the miracle.  And it is a miracle… of faith. 

But what about the business cycle you ask?  Well things are always going to move around a little because price is a reactive force.  But in order to create the large fluctuations that really do damage, well, you need the government for that.  And when you have government interference, you have what Vox calls, the broad definition of fiat money.

So now that we understand borrowing and lending we can discuss what is wrong.  And what is wrong… is the central bank.   Central banks break the link between savers and lenders.  Rather than the deposits being the source that creates the leverage, you now have a central bank that is merely using the deposits to rationalize its decisions to expand credit.  The deposits of savers are reduced to mere justification.    

The central bank sits on high, and manipulates the interest rate… which eliminates its ability to mitigate the booms and busts of the business cycle.  Then on top of that… the evil bastards then set themselves up as the Credit Gods… passing out credit as they see fit… attempting to manage an economy every bit as much as the communists ever did, and failing just as spectacularly.

If you get nothing else… I hope and pray you grasp that. 

I also need you to understand that you cannot have a central bank if you don’t have a government interfering to create one.   That interference in the market alone is enough to meet Mises standard of the broad definition of Fiat Money… which… if Vox had bothered to ask… I would’ve explained.

So if you have made it this far you now realize that the money in your checking account doesn’t actually exist.  its not that the banks just don't keep that much cash stored.  There isn't that much cash in existence.  Not even close.  

So now that the terror has sunk in… what is the urge that you’re squelching down right now?

Is it the urge to go borrow more money?  Or is it the urge… to go get your cash and stick it under your bed?

Exactly.  And now you see why Vox’s measure of the money supply is incorrect.   M1 is the real money.  M2 and TSM2 are close approximations of the purchasing power currently available… though obfuscated through shenanigans.  Z1… well Z1..  Is just a measure of claims on money.  It doesn’t reflect a limit on new future claims.  At best it can serve as an indicator of how much new credit money is being created.  Z1 will never be able to show deflation.  That’s because Z1 doesn’t show a credit limit… it shows a credit balance.  See if I have a $5000 credit limit on my credit card… and I owe $5000… then my credit card is showing up as $5000 on the Z1 report.  If I pay my credit card down to a balance of $2000, then my credit card is showing up as $2000 on Z1 which Vox would then say is a reduction in purchasing power of $3000.  This is incorrect.  My high credit is still $5000.  I can go spend that $3000 in credit money any time I want to.  Z1 is certainly a valuable tool, but it is a limited one.  Now… as has been said… one cannot print borrowers… so if the rate of credit growth is slowing, or going down instead of up it can mean bad things…for example the delivery system for new credit can be interrupted.  That said, if one considers the nature of the financial abomination that we have before us, I can certainly not fault Vox for going that way.  However, It is not where I go.

So… Cash is what you want.  The whole reason credit money works, is because there is a faith-based link from that credit money directly to cash.  Thus, the money, right now, is cash.  What you’re seeing is precisely what happened in the Great Depression.  People wanted their cash.  They hid it inside walls and buried it in jars.  Banks collapsed destroying massive amounts of credit money, but folks still wanted their cash.  But Vox fails to recognize a critical underlying difference between then, and today.  He looks at those in control… the government and the central bankers… and he sees them expanding credit.  He understands the system better than almost everyone, including the central bankers, and thus he uses that understanding to predict how the system will behave.  He expects it to behave the way it behaved in the 1930s. 
But there is something happening further down on a deeper… more basic level that Vox is failing to recognize, that is different.  It was only in recognizing that difference that I retro-actively understood Mises' error in categorizing money.  
Before we go there though… we need to back up one more time to Subjective Value Theory.  Remember last time I reminded you that subjective reasons are still reasons right?  Well that’s one aspect of SVT but there is another more basic aspect… and that is… we measure value comparatively.  We compare the value of this to the value of that. 

Let’s look at a standard ruler.  How long is it?  Its twelve inches.

Excellent.  Now what if we redefined the length of an inch so each inch was actually smaller?  Bloody hell now the ruler is 20 inches long!  But the ruler hasn’t grown.  The subjective way we measure the ruler has changed. 

Are we clear on that?  The ruler’s physical characteristics did not change.  How we measure it changed.

So Nate.. now are we ready to move forward?


No I have to take you back again to the competition which Vox , to his peril, ignores.   So we have these commodities battling it out in a competition of demand.  Not supply.  Demand.  The one most in demand wins and becomes the money.  The demand is the key.  People want that commodity.  They want it badly and everyone knows they want it badly.  So because everyone knows they want that commodity badly... everyone knows that they will be able to trade that commodity.  They have faith… faith friends… that they will be able to exchange that commodity in the future for other goods and services they require.

That’s all good and well if we’re talking about something like Gold or Platinum or Silver.  People want it because of what it is… and what it is will not change.  But fiat money?  Well… they want it because of all manner of government related enhancements.  If it weren’t for those enhancements… they wouldn’t want it at all.  But those enhancements exist…  so long as the people have faith in that government. And that is why I define it as fiat money.

There is much more to say… but I fear I’ve given you to much to digest already.   I will be addressing the key difference between today, and the American 1930s in my next post in this debate.

Friday, March 08, 2013

ATF yes?

oh man...  after wading through Vox's reply I need a drink.  And if you understood what he was saying... I bet you do to.  Oh I already knew...  hell best I can tell it appears I could write Vox's side of the debate for him.  Wouldn't be his style...  to many elipses and all... of course!

anyway...  on with it.  I'll deal with Vox tomorrow...

A: XX for now... I haven't gotten into the bourbon yet.  I think its a bookers night.  I could use it.

T:  Why is tobacco so neglected with you people?  Y'all better man the hell up.  Smoking is one of the manly arts.  Grow a pair.  They should hand out humidors the same time they hand out the testicles.  Look... I'm tired of this shit... if you have never smoked before... this is your official assignment.  Go buy a small arturo fuente and smoke it.  I will be expecting your thoughts next week.  Dammit.

F: Anyone ever shot a Springfield V10?  Tiny little thing... 1911 obviously... 10 ports to reduce the muzzle flip. A friend is bringing one by tomorrow.  I'm gonna shoot it... and maybe buy it.  I'll let ya know how it works out.

Ok boys..  belly up to the bar.  You know the rules.

Wednesday, March 06, 2013

The Great Debate: Fiat? or Shenanigans?

You.  Whimpering in the corner.  Suck it up and get back on your feet.  You knew the US money system was a wreck or you wouldn't be reading this debate in the first place.  So Vox and I conspire through competition to show you precisely how wrecked it is... and at the first glimpse you curl up in a little ball.

Man up.  Its not going up hill from here.

Setting aside the obvious difference of opinion that we have (he's wrong by the way which I will presently demonstrate with no little amusement), our view of where we stand in the grand scheme of things is profoundly similar.   If you look carefully... you'll see that I was the one that dropped the bomb... not Vox.  Vox just stepped back and said.. "did you see that bomb he dropped? Say boys... That's a big freaking bomb.  I doubt even he knows how big a bomb he just dropped."  Then, being the cruelty artist he is, he explained the bomb. Then you realized...  "Oh damn.  There's a bomb."

You see why this debate is important?  Its the format.  The format itself allows you to accept things that you would otherwise refuse to believe.  That's why... in spite of the enormous time investment it requires... I cannot simply quit.  That...  well...  and the fact that every once in a while I'll get to do this...

Remember I said our money was fiat money... with characteristics of credit money.  Right?  Vox says I am wrong about that.  And... while I considered rushing off to donate some money to an unrelated charity in his name and make a video about it...  instead... I just decided I would address his well made point like an adult...  mostly...

Vox said:

"Nate's first mistake is the identification of credit money as fiat money, even though he clearly has his suspicions concerning the problematic nature of the distinction as it applies to the US monetary system.  That this distinction is false can be demonstrated in two ways, first with a legitimate appeal to authority and history, and second by the money creation process."

He then provides a quote from Mises, that I agree, does indeed say that fiat money doesn't yet exist and probably hasn't existed.  Vox appeals to Mises who appeals to history.   And Nate points out... well shit...  this book was written in 1912...  it appears we have some more history to investigate before that holds water doesn't it?  Well lets look at this new history then... especially... recent history.

Say what does our buddy Murray have to say about fiat money?

"Under a fiat money standard, governments (or their central banks) may obligate themselves to bail out, with increased issues of standard money, any bank or any major bank in distress. In the late nineteenth century, the principle became accepted that the central bank must act as the "lender of last resort", which will lend money freely to banks threatened with failure. Another recent American device to abolish the confidence limitation on bank credit is "deposit insurance", whereby the government guar­antees to furnish paper money to redeem the banks’ demand li­abilities. These and similar devices remove the market brakes on rampant credit expansion."[4]

Are we done?

No... no no no... we're along way from done.   Remember.. Mises characterized fiat money by legal privilege.  Legal Privilege?   Consult the MisesWiki!

According to Hülsmann[5], there are four groups of legal privileges granted by the state (usually more than one is granted):
legalized counterfeiting - the promises of banks are allowed to be more "elastic". For example, a coin marked "an ounce of gold" will be allowed to have any amount of gold or none, and can have any meaning. Banknotes were named "promises to pay", but were obscure on the details.
monopoly - only some monetary products may be produced by law, like a specific metal; or only the banknotes or coins of a certain bank. This limits the freedom of choice of users of money and benefits the producers and first recipients at the detriment of others.
legal tender is a money, that must be accepted in exchanges under a predefined price. Some monies may be driven out of the market due to Gresham's Law.
legalized suspension of payments allows banks to avoid paying their obligations, while receiving payments from their debtors. If a bank is freed from contractual obligations to redeem its money and it is also legal tender, its banknotes become genuine paper money.
With legal privileges are the banks allowed to behave more irresponsibly, which increases moral hazard.

Now are we done?

Well... not really.  Because what I've done here isn't intellectually honest, in the sense that I have not represented the whole of Vox's point.

The reason I hated Chapter three is not because of confusing terms like fiduciary media.  Its because Credit Money itself is a category error.

Credit money is a description of leverage. But...  Leverage can be applied to all types of money....  Thus... Credit Money... is a subcategory.  Credit Money is what happens when you take money of any other type.. and then leverage it up for lending purposes.

I am going to be as clear as I can be...  you may need to go back and re-read my last post on this... but I will  try to explain again.

Leverage is something that happens to Money Types.  It isn't a money type itself.  Its like including cancer cells in a discussion of  human  cells because they form in the human body.  Cancer cells aren't human cells.

We must always go back to competition.

Money is money because of the constant commodity competition   Every day the competition is on going... and every day one commodity is winning.  that one commodity that is winning... is the money.   The money types... are explanations of WHY the competition is being won.  Fiat money is fiat money because the government helped it win artificially and it wouldn't have won otherwise.  Take away the government advantage... and its not the money anymore. Commodity money types?  Well they have no artificial government advantage.

That is the true definition of sound money.

Its money that wins the competition... every minute of every day...  the on going competition... not some past competition .. on its own without aid of the government.

All modern paper currencies are fiat money.

The bits that are loaned into creation from thin air?  Those are credit money too... but it is dishonest to ignore the fact that it is fiat money as well.  Loans may have created the individual dollar bills... but those dollar bills wouldn't be money... if it wasn't Fiat.

May God have Mercy on my soul...   Ludwig Von Mises... was wrong.  You cannot disregard the fiat nature of the original money... just because most of it was created through leverage.

So Fiat?  Shenanigans?

The answer is both.  Not one.  Not the other.   Both.  To fail to grasp that... will totally blind you to the inherit problems of our current economic system.  The money is fiat money and credit money.. because much of which was created via leverage... but also much of it was created through counterfeiting.   This is why I created the word "clusterfutastrophe" while attempting to parse the US money supply.

Its not that there is no money.   I already explained that there is always money. like energy.  It cannot ever be destroyed.  It can change forms... its velocity can change.  But it cannot be destroyed.  The problem is... our system is so screwed up through fiat and leverage... that we can't even measure the money supply any more.

Come Vox... be sensible... you're absolutely right to point out that the leverage can't be ignored... but you were wrong to suggest that the fiat aspects can.

Now tell us Vox...

What IS the best way to measure the abomination posing as the US money supply?  He asked knowingly...

*** PUBLIC SERVICE ANNOUNCEMENT***  I want to apologize for using Credit Money as a type of money in my last post.  I knew full well I didn't believe it to be an actual money type while writing the post... but because the way Vox asked the question... and because we are debating on Mises' turf... I felt I had to.  I do not believe anyone would've taken me seriously if I didn't.  First I had to demonstrate that i did understand the Misean terminology... otherwise I wouldn't have any credibility on the matter.  Regardless it may cause confusion.   If Vox chooses to score some points by saying, "hey wait.. first you said credit money was a type of money then you didn't" I concede those points willingly.

Monday, March 04, 2013

Gross Incompetence

Today I've taken some guff from folks that are a bit upset about my skepticism about the Fed's estimates of the money supply.  Its not that big a deal some said... banks know what they have on deposit.. say others.

oh...  oh well that's comforting.  Well then I shouldn't be bothered by the fact... that the FED steals ideas on estimation... from freaking biologists.

What follows... comes directly from a fed white paper on currency over-seas.  The first crazy thing we learn when reading this paper... is that the Fed has no damned clue how much US currency is actually out there... or where it is.  Are you getting this?  They don't know where the damned money is... or how much is gone... and apparently... they think this is one good way to try to take a guess at it.  I give you... The Fish Method:

"The biometric method, also known as the “fish” method, applies a method developed by 
Petersen (1893) to estimate fish populations to cash processing data to obtain estimates of the 
“populations” of notes in the United States and the rest of the world. In the biological 
application, populations are estimated by capturing some animals, tagging them, releasing them, 
and then recapturing another sample of animals later. Assuming that both samples are 
representative, the share of tagged animals in the general population should be the same as the 
share of tagged animals in the second sample, and the population can thus be estimated. More 
formally, suppose M animals out of N total are captured and tagged. Next, suppose that in the 
second sample, m tagged animals are found out of n captured. Assuming that both samples were 
representative, the share of tagged animals in the second sample, m/n, should be equal to share of 
all tagged animals, M, in the general population, N, or m/n = M/N. Since M, m, and n are known, 
N can be estimated as N=(n/m)*M"




Seriously... these people are supposed to be traders.  They are supposed to have degrees in  economics... which... oh look... is a science.  That means... they should've gone to school... with other science majors... where they should've learned... that biologist suck at math.  People!  You're better off getting help with your differential equations assignment from hungover elementary ed majors.

But hey.. that's ok... they have another method... which they call the seasonal method... which apparently works great... as long as you assume there isn't much US currency in Canada.   No... no I am not making this up... and I did not rip it out of Python skit...  this is actually in the white paper... which from what I can tell is not actually a parody.

Modern economists are so bad at modeling... they are actually stealing ideas from biologists.

That should be the punchline of a nerd joke.  Not reality.

I want to close by quoting the paper directly again...  from the conclusions...

"In sum, much as in earlier work, the currently available data do not allow for precise 
estimates of foreign holdings of U.S. currency, and the available estimates are somewhat 

Sunday, March 03, 2013

The Great Debate: Mount Chapter 3

So...  a trap unsprung...   well...  if you recall there was another word in that title.  The word was mostly.  The fact is I knew that by choosing misean ground to fight on, I would be forced to deal with Chapter 3.   I hate Chapter 3.

Oh... I'm sorry.  I'm talking about Mises' Theory of Money and Credit.  Its in Chapter 3 of that epic work that he lays out four different types of money and describes them in detail.   Commodity money...  that's gold or silver or platinum coins.  Its money literally made out of a commercial commodity.  Its not paper money based on gold.  It is gold.  Fiat money is money that gets its subjective value from some legal standing or another.  In terms of descriptions... Credit money is where things get dicey.    You know they are going to get dicey... because apparently I have to start using terms like...fiduciary media.

Before things get dicey... I want to remind you of subjective value theory... and I want to clarify something.  Just because a given value is subjective... does not mean that there is no reason for it.   Subjective value can be manipulated via monopoly... marketing... shortage...  all kinds of things.  The point is... subjective... does not mean... "without cause".  We clear on that?  Subjective reasons are still reasons.

Well ok now lets get back to what Mises actually did say about Credit Money.  Page 61...  He writes...
" A third category may be called credit money, this being that sort of money which constitutes a claim against any physical or legal person. But these claims must not be both payable on demand and absolutely secure; if they were, there could be no difference between their value and that of the sum of money to which they referred, and they could not be subjected to an independent process of valuation on the part of those who dealt with them. In some way or other the maturity of these claims must be postponed to some future time."

Holy crap.  Looks like Mises just said debt is money. Hell... He created a whole category and set out specific terms and everything.

That's actually not true.  What  Mises is doing here is talking about money that is created through leverage.  In Human Action Mises calls money that is backed up by 100% reserves as a money certificate.  Here he deliberately makes the distinction that credit money is not a money certificate.  Money certificates are payable on demand... and secure.  Credit money is not backed up 100%... so if everyone wants to make their claims all at once... there will not be enough to go around.

Now...  pay attention because this is important.  Credit money... still being classified as money... must therefore meet all of the criteria for being money in the first place.

A dollar bill you have in your hand may have been created by leverage... but its still a dollar bill and it will still function as money and meet all of the qualifications Vox and I have hither to agreed on.

This is what I meant when, a few days ago, even an IOU can be money.  But a debt of IOUs... is not money.

Money is payment.  Money is not a promise to pay.

I am going to say that again.

Money is payment.  Money is NOT a promise to pay.

Money is defined by characteristics and behavior.  It is, first and foremost, a commodity.  Always money is a commodity   The question with the types of money is...  how did it become the dominant commodity in a given economic zone?  Because again...  that is a characteristic of money.

Are we gonna have to back up again?  y'all got that?   Jesus we're gonna have to back up again.

Ok where does money come from?  Government? Kings?  No.  Money comes from the market and exists either inside, or outside, any system created by men.  In any economic zone a group of commodities will compete... and the one that is the absolute dominant commodity... will be the money.  It will be the thing that everyone will accept to aid in exchanges and everyone wants.  Rather than letting the market pick its own money... governments monopolize the matter universally.  There is just to much power to be had.  They have to.  This is where we get into trouble.

OK so what is with the 4 categories?  I think the best way to explain it is to show that there are circumstances in each case that either aid their subjective value, or account for it almost entirely... and explain how they became the dominant commodity in a given economic zone.

Commodity Money: Coins made from commercial commodities.  Gold and Silver coins... platinum coins..  Their subjective value comes from the fact that they are freakin' gold and silver and people subjectively value the shit out of some gold and silver... because of that historically these two have battled it out for top spot on the commodity food chain.

Fiat Money: Useless paper that has subjective value only because some government said, "this is legal tender and you will use it as such."  This creates the monopoly that makes the fiat money the dominant commodity.  This is never a permanent solution.  Its a bad.. bad idea...

Money Certificates:  Mises covers this in Human Action... this is money that backed up by 100% reserve deposits.  So...  fiat money... exchangeable to some commodity with a direct 1 to 1 ratio... payable on demand.  So a government may have a bunch of paper certificates backed up by gold coins...  as long as the ratio is 1 to 1... and they are immediately exchangeable... this isn't to bad.

Credit Money:  Lets start with a quote from the man himself.  "If the money reserve kept by the debtor against the money-substitute issued is less than the total amount of such substitutes, we call the amount of substitutes which exceeds the reserve fiduciary media. As a rule it is not possible to ascertain whether a concrete specimen of money-substitutes is a money-certificate or a fiduciary medium."  Got that? Money that gets its subjective value from a promise to pay... but the ability to pay is extremely conditional.  That is to say... it may be redeemable for.. 1 gold coin... but they printed up 2 billion certificates and only have about 100 million gold coins.  For this I like to use the technical economic term "shenanigans".  They do things like.. move gold coins around from place to place to hide the fact that they don't actually have enough to redeem all the certificates.  But... people think they are redeemable.  That is what matters.

So... the point is the different categories can be described by the different sources of their subjective value, and or the mechanism that allowed them to become the dominant commodity in a given region... and therefore... the money of that economic region.

It is critical to keep in mind though... all four of these types of money... regardless of their type still function as money.  Gold coins? money.  dollar bills? money. Euros? money.  Because of their nature some are more subject to manipulation than others.  In fact... one may say they are outright insane.  Blame Law.  He had the bad idea first.

So... now here we sit happily atop Mount Chapter Three.  Ain't the view grand?  Now... with all of this as a basis of monetary understanding... we can address Vox's traps... I mean... questions.

1. Are gold and silver commodity money?  All gold and silver?  Money is a condition that can be deferentially diagnosed by behavior.  Are they functioning like money?  Then they are money.  Its the behavior that makes them money.  It is the commercial commodity that lends subjective value and thus allows us to categorize them in LVM's terms.

2. Are the Federal Reserve Notes, in both cash and deposit form, commodity money or fiat money?  The standard answer is fiat.  But in reality FRN's have characteristics of both credit money and fiat money.

3.Does TMS2 represent your definition of the money supply? No.  like M2  it is only a useful tool for estimation.  It is flawed... but it serves for watching trends.  I am agnostic on the claim that money supply can even be measured  accurately.  But I lean toward it being a pure impossibility.  Its like watching ants at a huge ant mound.  You have no idea how many ants are actually there...  guessing is pointless... but you can stand back and watch them and tell if the swarm is growing or shrinking.

4. What are the various components of TMS2, commodity money, fiat money, or some combination therein?  Given the nature of my explanation of Chapter 3's 4 types of money... its abundantly clear that all categories in TMS2 are fiat money.  Many are credit money as well... but its impossible to parse in our banking system due to the various banking shenanigans... AND...

 if you listen to Ludwig... well...

"As a rule it is not possible to ascertain whether a concrete specimen of money-substitutes is a money-certificate or a fiduciary medium" - Human Action( p. 433)

With apologies to Vox, he has taken a large list of money substitutes and asked me to literally do what Mises says cannot be done.

See what I am dealing with here?

 I will say that this is the reason I do not believe it is possible to get an accurate measure on the money supply... and instead why we must look at only broad picture trends.

But why am I bothering? Why does this all matter?

 I assert that the mechanism by which the money of an economic zone became the dominant commodity is critical to understanding how that money will behave...  and I want to make clear that money is not the product of any economic system.  The Fed may tell the Treasury how much money to print... but I stand here today telling you if that monopoly didn't exist... you would still have money to use in some form.  .22 long rifle ammo is a good option for example.  It could easily meet all of our criteria for money, and behave as money.  For the record... it would be commodity money.

And much sounder than what we have today.

 I know the tactically smart thing to do would be to pepper Vox with questions and put him on the defensive rather than allowing him to sit back and take shots at the monetary theory dump I just dropped.  I'm not going to do that though.  I am fairly fond of what I've just done and I want to see how Vox goes about dismantling it... assuming he decides its necessary to even do so.  Its entirely possible that I have just made his case significantly easier to explain.  Never the less...   I want to make it clear that I am not just regurgitating Mises.  Much of this is monetary theory according to Nate.  Or if you are less charitable... at the minimum... its Nate's take on Mises.   I am asking you to accept it, not on the authority of Mises... but on the merits of the argument itself.  This wasn't written to score points in the debate.  It was written to make some monetary theory more accessible.

Saturday, March 02, 2013

Our Finest President

Friends.  The United States known damned few good presidents.  The men that have held the position have uniformly been power hungry scoundrels or outright barbarians.  But... tonight I want to write about the Greatest of the US Presidents.

Grover Cleveland

To back up that claim... I'm going to offer you a quote from the man.

I can find no warrant for such an appropriation in the Constitution, and I do not believe that the power and duty of the general government ought to be extended to the relief of individual suffering which is in no manner properly related to the public service or benefit. A prevalent tendency to disregard the limited mission of this power and duty should, I think, be steadfastly resisted, to the end that the lesson should be constantly enforced that, though the people support the government, the government should not support the people. The friendliness and charity of our countrymen can always be relied upon to relieve their fellow-citizens in misfortune. This has been repeatedly and quite lately demonstrated. Federal aid in such cases encourages the expectation of paternal care on the part of the government and weakens the sturdiness of our national character, while it prevents the indulgence among our people of that kindly sentiment and conduct which strengthens the bonds of a common brotherhood.

Understand... the man that said this was elected twice... and won the popular vote 3 times.  He was the tip of the spear in a political group that actually called themselves Bourbon Democrats.  He is said to have vetoed more bills than any other president.

Now... if a politician said something like that today... how do you suppose the public would react?

Friends... we were born in the wrong century.

Friday, March 01, 2013

ATF... Well Earned

Well shit...  here we are.  Is it Friday?  I don't even know.  I have this clock that doesn't actually have numbers on it... it is divided into seven equal parts...  and each one has a different day of the week on it.  Outside of football season I don't have a damned clue what day it is.


I think it could be Friday...

Shit...  ok then.   I'd like to say that means I am drinking and smokin'..  fact is I drink and smoke on Tuesday to...  I really don't give a shit.

Oh look... I just checked..  Clock on the wall says Friday.  Ok then.

A:  Woodford Reserve.  I have no idea why.  Probably because it smells so damned good.  I have no idea what the deal is.  WR smells as good as any bourbon I have ever sniffed.  Taste doesn't quite live up to it..  but.. to carry a theme forward...  I don't give a shit.

T: Y'all ever seen a Sosa 60?  Fat little bastard...  all wood and cream and spice.  Smells like... shit it smells like tobacco.  No.. I don't mean tobacco...  I mean..  it smells like what you, in your head, imagine tobacco to smell like.  You have no idea what to expect when you sniff the thing.. then after you sniff you're like...  duh.  What else could it have smelled like?  Obviously its 4 X 60...  you know.. because its named.. 60.  Its a much better smoke than you would expect.  I highly recommend it.  If you're wondering.. its from Honduras.

G: Have I mentioned guns are never off topic here at the Bloggerblaster?  Hell... this place was founded on gun talk.  My first carry weapon was a Taurus PT-101.  Big full sized 40.  If ya didn't shoot someone with it you could hit 'em with the damned thing and it was so heavy they may have preferred the former.  Love that handgun to this day.  For purely sentimental reasons.. it sits on my desk before me this very night.  And you?

Standard posting rules apply.  I don't wanna hear any money supply bullshit in this particular post dammit.  Figure out where that shit belongs and I'll respond.  Assuming I am moved to give a damn.

***UPDATE** I have an adendum here...  a question of all important protocol.  I submit it to the gallery...  if a man has a glass of bourbon... not empty... and he seeks to refill it prematurely...  can he opt to choose a different form of bourbon?  I mean if I have a sip of Makers in my glass... can I pour Wild Turkey on top of it and mix the two?  Is such behavior Profane?  Merely uncivilized?  Or acceptable?  I will provide my own answer later.

The Great Inflation Debate: The Trap Unsprung... Mostly

Money is the general medium of exchange, the thing that all other goods and services are traded for, the final payment for such goods and services on the market. – Rothbard

It becomes readily apparently that Vox has decided to very politely insult me.  Curious.. Cruelty artists are not often known for their subtlety.  Regardless... insult it is. That is what you call it when a skilled opponent opens up a chess match by going for a 3 move check mate.  The insinuation is you may fall for it. 

Well thanks mate... Why didn't ya just accuse me of licking the window of the short bus all the way to the Midvail Academy of the Mentally Challenged?

You may be wondering what all of this maneuvering is about.  If you’ve read Return of the Great Depression (and you should dammit) you know that Vox’s depressionist case is based on debt disappearing.   All is not totally lost for him if debt doesn’t count as money… but it complicates matters for him considerably.  If he can just show that debt is money and debt is disappearing… then he is in very good shape indeed.  If he can’t show debt is money… he can still make an effective case… it is just harder.

Ever the war gamer… Vox is trying to take the high ground.  He knows it doesn’t win him the battle… but this amounts to Getting There First with the Most.

I hope it does not surprise the reader when I wholly reject Vox’s proposed question… as he has deliberately chosen two descriptions of money, both of which allow him to demonstrate that debt can be money in those terms.   No matter which I choose… Vox can make a very logically sound case that debt meets all the qualifications…. And thus… is money.  Heads Vox wins.  Tails I lose. 

No thanks.

Now I’m going to tell you what Vox left out…  and I suspect he did so deliberately.  I mean… honestly we’re talking about Vox Day here.  The man has been known to walk around with a Mises Institute hat over his Mohawk.  I wouldn't be surprised to learn that Rothbard quotes occasionally appear in his stool.  Do you really believe he doesn’t know what everyone from Bastiat to Hayek said about money?  Vox knows damned well that the definition I used for money was straight from Mises.  I can throw Rothbard and Mises quotes at you all day that back up my insistence that money completes a transaction...  and so can Vox.

Making matters somewhat more frustrating… Vox quotes Salerno.   Let’s see what Mr Salerno said about credit that Vox has conveniently omitted.

Credit cards [should] not [be] counted as part of the [money supply] because use of a credit card in the purchase of a good does not fully discharge the debt created in the transaction. Instead, it gives rise to a second credit transaction that involves present and future monetary payments. Thus the issuer of the credit card or lender is now bound to pay the seller of the good immediately with money on behalf of the card-holder or borrower. The latter, in turn, is obliged to make a monetary repayment of the loan to the issuer at the end of the month or at a later date, at which time the transaction is finally completed.

I'm just gonna let that sink in for a bit here...

Ya got it?  I can wait...    read it again if you have to.

Note that no where in either of Vox’s proposed definitions do we find this critical factor.  Turgot omits it.  Law omits it.  Mises, Rothbard, Salerno.. and pretty much every other Austrian has agreed that the key factor of money is the fact that it completes a transaction.  Completing a transaction is the one thing that money does, that nothing else does.

In the interest of charity and goodwill… I will suggest that Turgot’s characteristics of money are all fine with me… provided that we remember that the value supposedly stored by the money is subjective, and, we add the requirement that I have hither-to beaten into the ground.  It must serve to complete the transaction.  Law on the other hand can pucker up and kiss my whole ass. 

So given my Austrian definition of money… what IS the bloody money supply?  Ludwig Von Mises said it was “Money + Money Substitutes”.    HA HA! Says you.  Vox has you!  Money Substitutes!  That’s credit!


Since we’re talking Austrian Economics we must look at what characteristics Austrians use to determine what is or is not a money substitute.  Here are the characteristics…  Per…  Well… Everyone that matters:

       Immediately Convertible.
       It must have recognizable par value claims with standard money

So… given those once again… I can see the wheels turning from here… you’re thinking Vox has me.  Credit Cards are money substitutes!  Right?  After all one could argue that they are even more readily convertible than money in checking and savings accounts.  They are certainly recognized as par value claims with standard money.

Mr Salerno already explained why we shouldn’t count them… and I would add a couple of points…  One… I don’t think Vox wants to go down this road given that average credit card debt is up 5% from November of 2011 to December of 2012. (credit to josh for pointing out that I left out the word "average" in the first post.  Total credit card debt is down due to default.) That doesn’t much help his case.  On top of that…The point is that credit card money didn’t exist before that purchase, or it only existed in some form that isn’t even remotely related to actual money and had to be converted into money in order to become available for use.  That is to say, some bank had to sell something to get the money.  Hell if we're going down that road we may as well call cars money, because you can sell them, get money, then use the money to buy something. If we do this... we've basically just mentally masturbated ourselves into oblivion. That's never good.  Ask Friedrich Nietzsche.

Now... Compare money available on the credit card to money in a savings account… which at some point… was either actual cash, or was in some checking account somewhere.  The depositor still owns the money and has effectively unlimited access to the money.  Legally there are things banks can do to limit the access but in practical terms it doesn't actually happen.  Still because of those limits at least one Austrian economist, Frank Shostakargues that even money in savings accounts isn't in the money supply.

Look...  Given that we can debate the merit of money in savings accounts don’t you suppose it’s a bit daft to ask us then if we think a derivative is money?  We can't agree that cash you stick in a savings account is money... but you want to ask us if the money someone may think your house may be worth if you maybe possibly sold it... is?  

So once the credit card is used… the money for the purchase price then goes into a checking account of some seller somewhere… and that money is now in the money supply.  Before that it was not.  I want to make sure we're clear on this.  The principle of loan...  the money the bank uses for the purchase... or the proceeds the bank gives the borrower...  that money counts in the money supply.  The corresponding debt does not.  That debt is nothing more than a banker's bet that he will get paid.  Its accounts receivable .. no different than the accounts receivable of any other business.

Beyond all of this I will attempt to take one tiny baby step forward.  What is in the money supply?  M2 is close but it negates some very important factors.  Instead I personally prefer Micheal Pollaro’s TMS1 and TMS2 metrics.

 Figure 1

These metrics can be tracked here.   I should note that none of these are perfect... and we can debate at length about what should or should not be included in them.  I prefer TMS2... but if you want to go with M2... that's fine with me.

M3 however... is right out.  After all... M3's additions are entirely credit transactions.  Its like a giant banker circle jerk at The Casino of the Damned.  No way.

I do believe when you view the various charts provided you will agree that deflation would look quite a bit different.  What we see here is a massive increase of supply across the board. 

As such… I suppose I will pose a question to Vox.

True of False:  Lots of things store value.  Lots of things can be used to estimate value. Lots of things can be employed to aid in an exchange.   Money does all of those things.  But money is the only thing that does all of those things, and completes an exchange without creating a need for another transaction.