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written by reader anyone with experience with dan amerman?

By sletteer, November 7, 2011

his ”turning inflation into wealth” series seems really smart to me. i have wracked my brain for his strategy but all i can think of is real estate and gold. i can’t afford him , or i would spring for it, does anyone know how his ideas are doing or even what they are?
sl

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John O'Connell
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John O'Connell
November 9, 2011 10:21 am

I’ve read lots of his free stuff, but haven’t signed up either. The gist of it is that inflation transfers wealth from creditors to debtors, so take out a big fixed-rate loan and pay it off later with depreciated dollars. Residential real estate more or less follows the general price level, so that’s as good a collateral as any for your loan. I don’t know if he thinks the bottom is in just yet, but he says the best time to do it is not at the bottom, but slightly after, in terms of your total real return.
However, I’m also reading up on MMT, Modern Monetary Theory. The gist if that is that there can be no real inflation unless the economy is at full employment, and that budget deficits are necessary to offset the desire of the world to save dollar-denominated assets; and in fact even the recent massive deficits have been too small, as evidenced by the persistent high unemployment. If MMT is right, then the massive inflation that Ammerman expects will not happen. I think the very good results of owning a house with a mortgage during my lifetime are due mostly to demographics, and won’t be repeated soon, maybe never. I’m in wait and see mode.

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John
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John
November 10, 2011 2:26 pm
Reply to  John O'Connell

You got me interested in MMT, I went and read a few things on it and an interview with Bill Mitchell. My degree is in Econ. From what little I have read on the new “Keynesian” type of model the reasoning seems to have some large holes that are explained away by saying that deficits can be good and bad. It seems to explain how an economy can operate in a surplus environment at full employment and that enough deficit spending can create full employment. So it works both ways seems a little convenient. MMT sees no downside to huge deficits becouse of they way MMT sees money, as something printed by the goverment that we are forced to use, with no value outside of what the govemernment tells us it is worth. Based upon this assumption the government can order a million cars, print the money to pay for them and the resulting jobs will generate enough economic activity so no worries. If you take the theory to the conclusion- the government needs no taxes. MMT’s position on taxes seems to be that this is to make sure progressives can decide who is profiting to much from the government spending, it is after all the governments money that creates wealth in the first place.

While a fiat currency is scary I disagree that the government can tell us what it is worth, that is decided by the market. In a bubble MMT theory would work just fine, but the world is not a bubble and if by printing money , which MMT advocates, people decide that the money is worthless, you get inflation. Just my initial thoughts.

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John O'Connell
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John O'Connell
November 20, 2011 8:52 am
Reply to  John

MMT does not advocate inflation. It says that excessive money creation would cause inflation, and that would be bad. MMT critics ignore this, and claim that MMT advocates unlimited money creation. That’s not true. However, with high unemployment the danger of inflation is not in our near future.

A large economy requires more money than a small one. Ergo, a growing economy requires a growing money supply. Since money is created by government deficits, a growing economy requires government deficits. Surpluses shrink the money supply, and are not consistent with growth.

It’s true, government needs no taxes in order to spend. Nor do they need to borrow. Taxes are for regulating aggregate demand, and to create value for the government’s fiat currency, which has no intrinsic value. Fiat money has value only because it is what the government demands in payment of taxes, so there must be some level of taxation in order to create demand for the fiat money, and give it value. MMT is based on floating exchange rates, so yes, the value of a fiat currency in relation to other currencies is determined in FX markets, not by government “price fixing”, as under a gold standard. Some MMTers think the way to deal with unemployment is for government to be the employer of last resort, and the wage they pay would set a basis for stable prices throughout the economy.

The amout of money “printed” responds to the desire of the world to save the currency. If people desire to save less, then less is created. If people globally dissave the currency (decide it is worthless, and spend it as fast as they can, until transaction taxes soak it all up), then the government would have a budget surplus, which “unprints” it. If the tax system has proper automatic stabilizers, such as progressive income tax rates, then as today it would be hard for the economy to overheat enough to cause inflation.

The government could order a million cars, and the effect on the economy would be the same as if they spent the same amount on any other product, or if they reduced taxes by that amount and allowed the spending decisions to be made by individual taxpayers. Pretty much. I believe that individuals making the spending decisions would make for better resource allocation, and higher wealth, but that is a second-order effect. MMTers believe that even wasteful spending helps, not hurts, the economy. At least at less than full employment. When there are shortages of resources, then I think even MMTers would say that poor government spending decisions could influence resource allocation in bad ways. They don’t like ethanol subsidies, for instance, because they reduce the food supply.

And I think they call themselves “post-Keynesian”.

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John O'Connell
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John O'Connell
November 20, 2011 8:55 am
Reply to  John

Check out http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf and the rest of that site for more MMT readings.

Mike
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Mike
June 6, 2015 4:54 pm
Reply to  John O'Connell

Hi John,

What are your current thoughts on this debate?

I think Amerman (and others predicting inflation in the long term) are going to be pretty accurate.

Personally, I’ve got the majority of my chips in cash flowing real estate attached to low, fixed rate debt.

My view is that nobody can know for certain what will happen because it depends on what course of action politicians & central bankers take. I.e., will there be a return to a commodity based currency (forced upon them by the market); or will there be a continuation of lots & lots of money printing.

I just think they will do the latter as long as they can, which can-kicking could go on for a long time.

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