The Simpsons is like the house wine at Epsilon Theory. When we’re not sure where to go for inspiration or a good graphic, we pour ourselves a nice big glass of Matt Groening. Rusty is partial to Grandpa Simpson as the iconic representation of these Mailbag notes, but I’m a Ralph Wiggum guy through and through. Figured I’d include ’em both to start this series off.

And this IS a series. I used to publish Mailbag notes every quarter or so, then stopped as we got the new website off the ground. It’s high time to resurrect the Mailbag as a regular feature, and make it a lot more frequent than it was in the past. Why? Because we are flooded with high quality correspondence, both directly via email and indirectly via the comments section of the website.

I especially want to call attention to the latter in these Mailbag notes, because what’s happening in the Epsilon Theory commentariat is the best thing on the internet today – smart, engaged truth-seekers talking amongst themselves with respect and directness, with nary a troll to be found. I mean, just go take a look at the comments to the most recent MMT note. THIS is what we mean when we talk about an Epsilon Theory pack.

One of the best decisions Rusty and I made in the ET business model was to allow comments, but require people to pay for that privilege. Because it is a privilege. We’ve worked damned hard to create this platform and to bring together this audience, and we’re not going to let free-riders hijack it. This platform is reserved for our fellow pack members, and the surest way to prove that you’re in the pack is to pay actual money to support the pack with a Premium subscription.

Do you have to be a Premium subscriber to be a pack member? No, but if you do then I know you are. Rectangles are pack members. Squares are Premium subscribers. All squares are rectangles, even if not all rectangles are squares.

The point being … our Mailbag notes are going to emphasize the comments and emails from Premium subscribers, because they’ve signaled in a highly effective way that they’re one of us. Also, we will always treat a pack member’s comments with respect, here in the Mailbag and everywhere else, too. Even when we disagree with what they’re saying, we will never hold up a pack member for ridicule or use their comments for comic relief. Never.

All you trolls out there on ZH or LinkedIn, on the other hand …

So with that promise and that threat in hand, let’s get this party started.

We had tons of great reader comments on this note about maps, discovery, and the narrative ecosystems (zeitgeists) that rule our social worlds. You can hardly see or feel a zeitgeist while you’re in it, which is why I should have led this note with a fave David Foster Wallace story.

There are these two young fish swimming along and they happen to meet an older fish swimming the other way, who nods at them and says “Morning, boys. How’s the water?”

And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes “What the hell is water?

David Foster Wallace, This Is Water: Some Thoughts, Delivered on a Significant Occasion, about Living a Compassionate Life

And speaking of the meaning of water, there is no greater zeitgeist in which we swim than the geopolitical primacy of the United States. Let’s start the Mailbag with a pack member who sees the H20 …

Here’s a link to a “map of self-sovereign discovery” I stumbled across a few days ago.

My adult life coincides with the 7 decades it illustrates, so I have personal recall of most of the macro-economic relationships shown. For instance, I remember briefing senior military officers in the early 1990’s about how Japan was eating our (America’s) lunch in the field of microchips. Who knew how Japan’s relative ascendancy would fade! When I visited primitive, impoverished China in the 1970’s (a year after Kissinger helped pry open that particular Pandora’s box), my imagination utterly failed to recognize the amazing human potential waiting to be unleashed there. You are so, so right about the future trajectory of the American empire. We pack members gotta pay attention …

BTW, Ben, it’s reassuring to know that someone else in the Western world remembers the Jacob Bronowski book and series.

Jane VanFossen

There is nothing more important for your portfolio than the future trajectory of the American empire and the prospects of geopolitical conflict. Nothing. It’s time to wrestle with that.

(and yes, if you’re unfamiliar with Jacob Bronowski’s “Ascent of Man” series … do not pass Go, do not collect $200 until you read or watch this masterpiece.)

“The West won the world not by the superiority of its ideas or values or religion … but rather by its superiority in applying organized violence. Westerners often forget this fact; non-Westerners never do”. – Samuel P. Huntington (1927 – 2008)

Victor Davis Hanson has a vigorously (and well done, imho), written retort to this in, “Carnage and Culture” in case anyone is interested:

” …armies cannot be separated from the cultures that produce them and explains why an army produced by a free culture will always have the advantage.”

Michael Madonna

I get a lot of angry responses to that Huntington quote from Americans, as if it’s some sort of put-down, and a lot of “well, duh …” responses from non-Americans. Makes me think that Huntington was spot-on.

And here’s the thing – Victor Davis Hanson (who has forgotten more about military history than I will ever know) is making the same point! Both Huntington and Hanson are crystal clear about two things:

  • The West enjoys global hegemony today because of its military successes yesterday, its “superiority in applying organized violence”.
  • The source of that success is not so much “guns, germs, and steel” to use Jared Diamond’s competing explanation, but the lethal efficiency of rationalism, popular representation, and other small-l liberal virtues when applied to modern warfare.

Yes, Western civilization is special. It is particularly special in its ability to wage war against an Other.

I won’t speak for Ben, but I’m not so sure the argument is one of whether growth is desirable. I think that Tyler Cowen, for example, makes a case for many of the ideas we espouse, but in a growth-oriented framework that emphasizes an ethical system that explicitly values future humanity. His latest on this topic is below. I think it’s extraordinary.

I think that the argument is really about whether that economic reality will be overwhelmed by political realities. The gyre doesn’t widen because it ought to, or because it is good that it should do so, but because that’s what widening gyres do.

Rusty Guinn

This Rusty guy writes some pretty good comments.

Hey Ben, I enjoy your essays and insights. I am especially interested in your suggestion that we should be concerned about “whether the decades old spirit of modern investment will survive.

I am 72, having been born to depression ravaged parents and WW2 participants who were separated by war for five years after getting married.

Needless to say, the fifties and sixties were not their boldest moments, they were fearful all the time.

Somehow I survived all their insecurities and escaped to {} in 1964.  I discovered the “western” mentality of fierce individual independence and self sufficiency.

I flourished economically at a time when {} was still open to any intelligent and disciplined effort. 

Now , I am playing the back nine and am questioning the meaning of “value” in all traditional forms of investment.

Gold, real estate, art, stocks, fine firearms, watches, antiques of any kind, I have owned and traded and collected all of the above. They all have a huge spread between the bid and the ask and some have hardly a satisfactory bid. I can take you through the list if you are interested. I have also owned irrigated farm land in the Midwest and feed cattle. I’ve traded the soybean crush and traded water rights and taken them from ag use to municipal use. 

In general, I have tried almost all categories of investment. Fortunately, I didn’t lose all my money, because I started in my late 20s and am mostly flat the esoteric stuff but still long stocks bigly.

I question the long term viability of the above, assuming that the next three generations behind me are going to buy any of these investments. 

Pay check to pay check at Whole Foods and gluten free vegetarian meals with their student loan payments, will limit their investment in anything beyond stupid expensive hair care and weekly pedicures. Nobody does their own toes anymore, not even the Walmart customers. 

I have many friends paying over $1.5 million for gated community single family homes or condos. Most are also owning second homes in Vail or Breckinridge at $500-900K. I keep asking them “who is going to take you out”?  My kids are 32 and 34. They have no student debt or credit card debt or car payments, yet they have decided that $100 per day for a tow ticket is beyond their budget. Vail charged $205 per day this holiday season. When I started skiing there in 1965 it was $5. 

There is not the wealth nucleus being formed by these younger generations to take out the baby boomers’ investments. I have just returned from two weeks in Croatia and Italy. The young educated people are struggling to find challenging and fruitful employment. In Croatia, kids with advanced degrees are washing cars. 

This is not a underemployment situation only happening in Europe, this is happening in most large US cities.

The recent elections seated social democrats like AOC of NYC next to Bernie Sanders and Kamala Harris of CA. These folks only are interested in redistribution of wealth, not incentives to create it. This is going to overwhelm capitalism as we have known it in the post WW2 period. 

Twenty years from now we won’t recognize what has become free economic “enterprise “. (IMO)


Love the “who’s going to take you out” perspective. It’s the perspective of a capitalist in the best sense of the word. And to your larger point/question, I completely agree that there’s a massive shift in the *meaning* of capital markets, in that they are being transformed into political utilities. Put more directly, it’s ALL of us, in the form of Universal Basic Income policies and government monetization of debt, that create the Greater Fool to keep the treadmill going. It’s the zombie-fication of economic life (with all the predictable politics that go along with it). And I really don’t think this is a grumpy grandpa view … it’s a very discernible reality.

What to do? I don’t think a top-down approach is the way to go. Third parties are structurally doomed in this country unless you get a billionaire to sponsor you, and that cure is worse than the disease. My game is to create a bottom-up social movement, a linkage of like-minded truth-seekers who are IN the world but not OF the world. It’s a movement of Make-Protect-Teach, and it starts with our families and our communities. Bird by bird.

Ben, since you wrote this, “[w]e have written little about the zeitgeist in Epsilon Theory,” my hope is that you’ll be writing a lot more about zeitgeist from an ET perspective going forward.

Also, way back in one of my favorite notes – “Cat’s Cradle,” as its summarized, so much, so concisely – you wrote this:

” …a recognition that the U.S. is well and truly stuck in the current macroeconomic regime of low growth + massive debt + insanely low interest rates, and there’s nothing the Fed can do in terms of jawboning or “communication policy” or forward guidance to get us out.”

Followed later by this:

“But don’t tell me that the Fed “has no choice” but to accept the current macroeconomic regime, because they DO have a choice. The Fed giveth. The Fed can taketh away. It’s just a very, very, very painful choice that the Fed would have to make in order to taketh away, full of loss assignment and bankruptcy and status quo shattering. It’s a very brave choice they would have to make, a Volcker-esque choice they would have to make. And that’s why I don’t think they will ever do it.”

At several other times, you have also referenced the current debt overhang as a growth dampener, but never specifically as an inflation dampener. So, do you see the zeitgeist shift from “deflationary expectations, now 40+ years old, are becoming inflationary expectations” happening despite the debt overhang not having been addressed?

Clearly, we had low growth and inflation in the ’70s – it actually feels more “normal” to me (a kid of the ’70s) than what we have now – but if inflation expectations break out and force higher rates, with this level of debt (several magnitudes higher than in the ’70s), won’t the economy break and either tamp inflation back down or give way to Weimar Republic style inflation?

Said another way, I’m of the belief that we “can’t” have higher interest rates without breaking the current economy and financial system. I’d love your and other pack members’ thoughts on this?

Mark Kahn

Thanks for the shout-out on Cat’s Cradle, Mark. It’s one of my favorite ET notes, too. Here’s a sample:

Emily Dickinson (1830 – 1886)

A great Hope fell
You heard no noise
The Ruin was within.

Admit it. You assume her poetry is soft because she’s a woman and writes about flowers. Read it again. Emily Dickinson is a total badass. You don’t even feel the slice of her work, but then you see the blood.

To Mark’s question about inflation and debt and the 1970s … I thought this graphic from Gavekal was pretty good. It encapsulates much of what I’ve been saying for the past year about inflation and debt, most directly in “Things Fall Apart (Pt. 3) – Markets“.

You can’t get directly to an Inflationary Bust from a Disinflationary Boom. Instead you have to go through a Disinflationary Bust and/or an Inflationary Boom first. My best guess is that this is an AND process where either a market-hostile Fed, a trade-warring China, or a euro-busting Italy creates a Disinflationary Bust before we have the inevitable QE Forever, Trillion Dollar Coin, MMT and all the rest. But I do think that the stagflation scenario (that’s Inflationary Bust) is coming our way in a 1970s-ish fashion one way or another. I say -ish because it’s always different in important ways. But you’ll recognize the feeling, Mark!

And that leads us nicely into the next note …

So a couple of prefatory comments about this note (which has been the most widely read ET note in its initial publication week ever … thank you!) before we get into the letters.

I’ve received a lot of Twitter and LinkedIn comments (and more than a few emails) saying that obviously I just don’t understand MMT because I talk about debt and borrowing in this note, while MMT explicitly has nothing to do with that. You see, Ben, these orthodox concepts of debt and borrowing are epiphenomenal to macroeconomic dynamics in the modern age of fiat-issuing sovereigns, and your failure to engage with Modern Monetary Theory ON ITS OWN TERMS is prima facie evidence that you just don’t get it.


When you accept the language and the structural vocabulary of an insurgent political narrative (and that’s what MMT is … an insurgent political narrative), then you’ve lost the debate before you’ve even begun. It’s like earnestly “debating” Arthur Laffer about supply-side economics in front of an audience of Young Republicans at the Hoover Institution in the mid-80s … the vocabulary and the structure of the conversation are INTENTIONALLY CONSTRUCTED to sound truth-y (to use Stephen Colbert’s wonderful word) and to create a hermetically sealed argumentation chamber where flaws in the theory do not exist because the words to express those flaws do not exist.

Like I said in the note: I get the joke.

This is what Socrates called sophistry. It was the bane of education and intellectual discourse 2,500 years ago, and it’s the bane of education and intellectual discourse today.

The key to successful engagement with a political narrative like MMT (or like supply-side Reagonomics back in the day) is the same key that Socrates identified in freakin’ 430 BC:


That’s all it takes. Seriously.

So yeah, I speak fluent MMT. But I refuse to play that game. Instead, I’m going to communicate the plain meaning of MMT to a lay audience using our Common Tongue. That’s our best shot at winning the long game here. That’s my metagame.

Most of the questions from pack-members are answered in that exposition, and my bad for not saying it more clearly in the note itself. For example …

From the recesses of my mind, I recall that the largest owner of U.S. governments debt is owned by our country and its citizens either directly or through financial intermediaries. This seems meaningfully different than the situation with Edward III’s stiffing the Italians.

What am I missing?


There was very little private capital in Northern Europe during Edward III’s time, so I’m sure if he could have stiffed his own citizens he would have. Just no opportunity. And where there was an opportunity to seize capital (from religious organizations like the Templars for example), neither Edward nor his contemporaries had any particular qualms about nationality, largely because the IDEA of nationality didn’t really exist in the 1300s.

The larger point, though, was one of running permanent deficits to fund permanent war … at some point the birds come home to roost, and in both Edward’s day and our own those birds always crap on the head of private citizens, never the sovereign.

You tweeted: “MMT is central bank paying for gov’t expenditures. QE is central bank buying fin’l assets. Both are inflationary wherever they pay/buy.”

Ben, wasn’t central banks buying financial asset an exchange program? I’ll buy your distressed mortgages and give you cash. Ultimately, each asset cancels each other out IF the Fed allows the mortgage to mature and roll off its balance sheet.


I think they only cancel each other out if both are risk-free assets (so US Treasuries, I suppose, but not mortgage-backed securities and definitely not the ECB’s purchases of corporate credit or the BOJ’s purchase of straight-up equity), and even with risk-free assets this is just an accounting identity. The avowed and explicit purpose of QE was to trigger a portfolio channel effect, where the Fed would push up the price of low-risk assets to force asset owners to buy higher-risk assets. That’s not a conspiracy theory. That was The Plan.

I’m no fan of Lysenko but I think you are going a bit too far in assigning blame to his theories for the Soviet famines.

The great famine of 1932-33, which may have killed as many as 10 million, was a consequence of a disastrous implementation of collectivization policies as well as a poor growing season.  Several years would pass before Lysenko and theories would be put into practice.  As bad as Lysenkoism was for Soviet agriculture, Stalinism was far worse.  Liquidation of the Kulaks was not a recipe for a productive agriculture.  Imagine what happen to US farm production if most of it’s farmers were shot or exiled to Alaska.  


You’re right, and I wasn’t trying to say that it was Lysenko’s theories that caused the famines (although I think his policies demonstrably made the famines worse). Lysenko himself (untrained, up from the proletariat) and his “theories” (plants don’t fight other plants from the same “class”) were so perfect for Stalin and friends, in that they were a justification for the farm collectivization policy. 

In the modern system, there are more tickets sold than seats in the house (more money/debt printed than products and services, at current prices.) The elites are good at playing for time, but eventually ticket holders will want to go in.

So you’re down to a choice among: denying entry to some tickets (default/deflation,) putting 4 people in every 3 seats (inflation/devaluation,) announcing everyone must wait indefinitely (financial repression,) and building more seats (economic growth.) If you’re the global empire, you can also make the neighboring theater honor some of your tickets, or make war to make that happen. There are no other ways out, and even if miracles come out of the labs, people may not spend money on them, so growth is really outside Team Elite’s control.

Historically, the Western elites have been pretty good at effecting a combination of the scenarios, to spread around the stress and keep their system alive.


So … it took me a couple of thousand words to say what Bob just did in a hundred or so. Spot-on.

Great article Ben, thank you. I’ve been struggling with positioning for inflation vs deflation for 20+ years now. I’ve come to believe that its a timing issue rather than a “who’s right” issue. The timing looks to me like a small to medium sized deflation event happens, and that triggers a massively inflationary reaction. Ultimately we all know that policy ends in tears, but these politicians don’t care about what happens down the road they only have a “need to do something now!” I’ve been trying to play this game with a strategy of increasingly “hedging my hedges” ad infinitum. That yields mixed results obviously. Its a strategy of minimizing maximum regret. It’s worked well to a point, but it sure as hell doesn’t feed the dopamine receptors.


Another spot-on assessment. Investing today is like playing poker when the cards are dead. You know that folding hand after hand is the smart play. You know that making a small bet and folding on the flop when you don’t hit is the smart play. But it’s absolutely no fun. At all. And unlike poker … and this is what makes the boredom a mind-killer … you really don’t know if the cards will ever heat up again. You THINK they will. But you don’t know for sure.

A couple of one-off letters to finish up this Mailbag …

Love “the Alembic” not just for the wise portfolio construction insights but also because we putting in a cider orchard.  

We’ve been brewing with purchased apples the last few years but some of our first trees are coming into production.  Will have to do a bottle swap once things are up and running.  By the way, the best cider I’ve ever made or tasted was 75% Kingston Black, 25% Wickson Crab, wild fermented and aged for a year in our cellar.  I’ve tasted commercial ciders with similar recipes but nothing came close.  Wild fermentation and don’t over filter!  


I’m totally stealing this line – “wild fermentation and don’t over filter” – as the hook for a note on portfolio construction. That’s brilliant.

I have been reading ET for a few years and love every “episode”. I have to tell you that the recent article by Rusty Guinn on Tanu Tuva is spot on. I graduated from Caltech (BS 1970) and was there when Richard Feynman and Murray Gell-Mann were at their peaks. I took freshman physics in 1966 with Feynman as the lecturer. Everything that Rusty says is completely true and accurate. Feynman was a magician. I had to laugh about the anecdote of Gell-Mann’s description of Feynman’s approach to physics:

You write down the problem.

You think very hard.

Then you write down the answer.

It is exactly how he structured The Feynman Lectures on Physics: you describe the problem; you think about it; and “the answer is intuitively obvious to the most casual observer”.  

I was at a topless bar on Colorado Boulevard one night when Feynman was there. In-between glances at the dancers  he would jot down equations on a paper napkin that he had been working on in his head. I went to his house one night when Gell-Mann was there discussing (arguing) the possibility of gravitons. Rusty describes their relationship perfectly.  

Please pass along my thanks to Rusty Guinn for an article well written and one that did justice to the genius that was Feynman.


Richard Feynman in a topless bar, finding inspiration to solve the mysteries of the universe. Netflix would greenlight this script in a nanosecond!

Yep, those are my readers. Bill Simmons uses that line as a joke to close his Sports Guy Mailbag. For Rusty and me it’s an inspiration.

Keep those cards and letters coming! – Ben


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Mark Kahn
Mark Kahn

Ben and Rusty, you guys might want to consider asking BobK71 to pen some guest pieces for you. I know his writing and insights are really good because I only understood about a quarter of his letter the first time through (like most ET pieces), but couldn’t wait to go back to read it again and again (like most ET pieces) and, after multiple reads, find I’m getting closer to understanding 75% of it (like… Read more »


Looks like we will go 3rd quadrant (disinflationary bust) AND THEN 1st duadrant (inflationary boom). If we bet where the puck is going…. The 3rd “disinflationary bust” says “sell everything else”. 1st wuandrant says “ buy gold and house, sell long bonds”. Should we do 80% 1 year treasury bills and 20% gold for liquid money (80% in 3rd and 20% in 1st) and switch 1 year treasury to buy houses when we are in… Read more »

Mark Kahn
Mark Kahn

⇧ Great color. Since you asked: I lean toward the view of disinflationary bust followed by inflationary something (it won’t look quite like the ’70s, but it will be ugly). I’ve been buying fixed income with 4-6 yr duration on each 50bps back up in rates so to have income through the coming disinflation period, but so as not to have meaningful capital loss when inflation hits. I also accumulate gold and real estate on… Read more »


I am just selling rips on S&P and I am NOT sophisticated to rebalance across secter. Other than that, i think we are on the same page. Stocks only sits in quadrant 4, and we are moving out of it. That’s my reasoning. The weird thing in that 4 quadrant plot is that quadrant 2 has only “stable currencies”. I thought houses, gold would work too. Since quandrant 2 is “bust”, commodities are hard to… Read more »


This is exactly what I meant by “hedging my hedges”… and that quadrant graphic is really helpful. I think we all have portfolios that would probably warrant a prescription for bi-polar medication. The problem is you’re forced to choose between an “Inflation!” vs “Deflation!” path. But you have zero conviction on that path. Cash vs gold, cash flow RE vs speculative RE, farmland vs DJIA, pipelines, vs short term USTs, uranium miners, and even cryptos.… Read more »

Mike S
Mike S

1. MMT Meme…its all a conversation… MMT answers “yes.” The key to this answer lies in seeing a flaw in the conventional “truth” of Treasury bonds, the reality of what Treasury bonds legally represent and, consequently, the value and usefulness they have in the operations of private commerce. * U.S. fiat dollars are promissory notes for federal tax credits—of which the federal government has an infinite supply (and for which there is infinite demand)—so long… Read more »


“Give me the printer of money and I do NOT care who makes the laws”. I think this is Rothschild or somebody like that. In the theories of MMT framework, it is NOT that there is gross logic failure or view point. If we argue about the logic and reasoning or the view point of how to look at concepts like “national debt” we are arguing about the unimportant things. What is important is that… Read more »


Regarding the ‘natural rate of interest:’ If I know John as a competent and prudent man, I’m willing to lend to his business at 5% a year, but if I know David is an alcoholic running his inherited business into the ground, the rate I’m willing to lend at is infinite. What is the ‘natural’ rate? This points to the inherent problems of central planning (as opposed to letting every BobK do their own investing… Read more »


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