Things I Got Wrong

I don’t spend enough time here talking about the things I get wrong.  Which is a big problem because one of the best ways to become smarter and more well-rounded is to look at your past mistakes and try to figure out why they were mistakes.  I like the quote that goes something like “there are no mistakes, only lessons”.  I think that’s true if you approach your mistakes and treat them as lessons.  And as I like to say, it’s only in being wrong that we can learn to be right.

Anyhow, here are some whoppers for me:

1)  I’ve been way too hard on Ben Bernanke over the years.   I haven’t agreed with a lot of what Ben Bernanke has done over the years, but I think I failed to understand how hamstrung the guy has been.  The Fed’s been pretty limited in what it could do to help the economy and Bernanke deserves credit for working with Treasury and Congress to get things done where he could.  Now, he doesn’t deserve an ounce of credit for totally whiffing on the credit crisis and saying that it was “contained” in 2008, but I don’t realistically think he could have stopped the crisis either.  So I have probably been a bit hard on him.  Unfortunately, I’d still be shocked if history treats him much differently than his predecessor.   The big lesson for me here is that I need to be a bit more fair in my criticism of other people and try to better understand the situation someone else is in before harshly judging.

2)  I stayed way too bearish through all of 2009.  I was pretty bearish in 2008, but I stayed bearish for all of 2009.  I was convinced that the crisis hadn’t run its course and I didn’t really alter my views until the macro data really started to improve in 2010.   The big lesson for me was that I needed to create an approach to the world that didn’t rely on me being “all in” on a particular view of the world and left more of my perspective up to a less biased and far less emotional approach.

3)  I was way too skeptical of Abenomics.  I’ve been a big critic of Abenomics.  And it looks like it’s working at least to some degree.  So far so good.  I know this has a long way to play out, but I’ve definitely been wrong on it so far.  The big lesson to me is that I need to approach alternative policies with a bit more of an open-mind.  Abenomics is a pretty well-rounded and sophisticated approach to policy that has a lot of things that a lot of different theorists could like (it’s part fiscal, part monetary, etc).  Just because they’re implementing a piece that I am skeptical of doesn’t mean I should say the whole thing’s bad.  I threw the baby out with the bath water.

4)  I went way overboard promoting MMT for about an 18 month stretch during the middle of 2010 and 2011.  I don’t regret learning MMT for one second.  In fact, it was crucial in helping me form my understanding of the monetary system and it should be required learning for everyone who is trying to understand the monetary system.  But I probably went a bit overboard in my belief that it was totally accurate before fully understanding the complexity of certain components of it.  I have a tendency to really throw myself into something when I put my mind to it and this was a case of getting in a bit too deep.  I think I fell for my natural biases and became a bit too zealous about the theory before eventually realizing that parts of it might not be entirely accurate.  The big lesson for me is to be careful about labelling yourself or feeling the need to run with a crowd.  It’s okay to be an independent thinker.

Sorry for the me, me, me post, but the point is that we should all reflect on our mistakes at times and really try to figure out why they were mistakes.  You’ll be glad you did when the next time you confront a difficult situation you navigate it with a much more pragmatic approach.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.
Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  • DanH

    I’ll bet you feel cleansed. Thanks for not running with the crowd who tries to portray themselves as never being wrong. It’s refreshing to see someone who can be critical of their own thinking.

  • giuseppe

    it’s way too early to judge results of Abenomics…

  • GreenAB

    well said Cullen. much respect!

    it´s rare in finance to get people to admit being wrong. but acknowleding mistakes is a strenght, not a weakness.

  • InvestorX


    And Cullen, what are you getting wrong currently (let’s move one step further from the rear view mirror)?

    Regarding 3 – the lesson has always been that it always “works”. The second lesson is that it always “works” only over the short time (can be 5 years or more).

  • J Natsinas

    You’ve no doubt covered this on your very interesting blog which I’m only beginning to discover, but could you be so kind and point me to a few posts explaining your reserves about MMT? I’d really like to know what they are. TIA

  • Cullen Roche

    I wrote a lengthy critique of MMT, but I’d recommend learning it yourself. It’s quite a useful view of things and will really force you to open your mind about some things. Not totally accurate in my opinion, but better than most other “schools” of economic thought.

  • Morgan Warstler

    You should start with #4. Put the meat in the window. Next to #4 and #3, #1 and #2 are nothing.

    This was mine:

    It was a 20 year kinda thing.

  • Mr. Market

    Other things PRAGCAP got wrong:

    1. Banks DO lend out their reserves. “A Loan creates a deposit” Right. Let’s assume a bank has a reserve of $ 10.000. When I take out a loan of $1000 my assets (deposits) increases by $ 1000 but the banks reserves decrease by $ 1000 down to $ 9.000. But total bank “assets” remain at $ 10.000 (= $ 9.000 + $ 1.000). What A LOT OF folks don’t understand is that then the liabilities of the bank increase as well (+$ 1000), because some day the bank has to cough up to the money when the borrower needs the money.

    To replenish their reserves banks regularly sell large chunks of their “assets” (e.g. mortgages, car loans) to third parties. And those things are called MBS, CLOs, CDOs etc. That means “assets” are sold and that increases the bank’s reserves.

    2. The “Wealth” of the US is NOT $ 70 trillion (~ $ 59 trillion in credit + ~ $ 20 trillion in stocks). The value of the credit is as good as the debtors ability to pay interest & principal on that credit. My calculation is that US “wealth” is $ 20 – $ 59 = – (minus) $ 39 trillion.
    Germany’s had at the end of WW I A LOT OF “wealth” (=government bonds). But Germany lost the war and couldn’t repay their debts and defaulted on its debts. And “Poof” all that wealth vanished into thin air.

  • jt26

    Having been reading along since early 2009 I think your journey has been very flexible … it’s not a question of being wrong or right but being flexible. E.g. to change from being a proponent of MMT to 180 degrees in a short time shows you’re flexible. Statistically, people are wrong 50% of the time … but the longer you hang on the longer you’re wrong!

    Interesting that in retrospect you thought you were too bearish in 2009, whereas i go the impression you were cautiously optimistic, even calling the bottom in Mar 2009. In fact I recommitted 25% weight to equities at the same time (perhaps maybe you could call me bearish for not commiting 100%, but heh, that;s what ‘cautiously’ means!)

    I don’t think Abenomics is the test case for monetarists. They’re trying to revive the Japanese model of the 80’s under the guise of Abenomics. Watch the trade balance; if they can get 4-5%/yr NGDP growth in the next 3 years without increasing the trade balance back to significant surplus, I’ll be surprised and wrong.

    What would have been an interesting monetarist expectation experiment is … why didn’t the Fed announce something like “we’ll target the Tsy 5 year at 0% with unexpected and unlimited purchases if needed; and we’ll do this without warning. We’ll also suspend securities lending for those same issues with no notice”? Sounds like what a trader that manipulates X, would do (think Buffet, Mitsui, Enron).

  • dctodd27


  • Mercator

    Or, you will find that you were wrong on these issues, before you were right.

  • Geoff

    “some day the bank has to cough up the money when the borrower needs the money.”

    You appear to have that backwards. It is the borrower is who pays the bank back the money.

    “Germany’s had at the end of WW I A LOT OF “wealth” (=government bonds).”

    Leaving aside the fact that the USA today is totally different than WW1 Germany, the $70tn number refers to household wealth. Households don’t hold many US Treasuries.

  • Mr. Market

    Nope. When I take out a loan (say $ 1000) then the bank first increases my deposit with $1000. Then when I want to spend that (borrowed) money to pay my e.g. fuel bill to someone else at another bank, then my bank has to cough up that money.

    Nope. The BASICs of EVERY credit based system (american or german) are ALWAYS the same. No matter how PRAGCAP tries spin it (“We (the US) are different”).

    Government bonds are only one type of assets/”Wealth”.

    I made a mistake in my calculation. But the fact remains that the US may be worth A LOT (I highly doubt the $ 70 trillion figure) but that are the “assets” on the debit side of the ledger. At the same time there’s still over $ 59 trillion of debt on the credit side of the ledger. And that doesn’t include all the “off balance” liabilities. All the guarantees e.g. the US gov’t made.

  • Market Eyewitness

    That was a pretty fair assessment of Ben Bernanke for the #1 reason.

  • Romeo Fayette

    I love mea culpas, so thanks Cullen.

    Personally, I think #1 & #3 are kind of like answering that classic interview question (“what do you need to improve about yourself?”) with “I really work too hard.” The Bernanke mea culpa is soft, and the Abenomics one isn’t a closed case yet.

    #4 is more legit, and #2 is pretty much a real mea culpa.

  • valueprax


    Maybe you’ll give Austrian economics another shot, maybe this time actually studying one of the major works such as Mises “Theory of Money and Credit” or even “Human Action” before haughtily dismissing an entire school as “dogmatic ideologues”?

    Imagine how your perspective could widen if you were to do so!

  • Geoff

    I very much enjoyed Rothbard’s “An Austrian Perspective on the History of Economic Thought”. Although one may disagree with his analysis, you can’t deny the massive amount of research and effort that went into it. The sheer amount of history that he covered, going all the way back to the Ancient Greeks, was amazing.

  • valueprax


    Ha, funny, because I enjoyed it too but I have seen various Austrian-ish bloggers try to distance themselves from it and other works by Rothbard because they claim it isn’t scholarly. Maybe that’s the case, though they never define their terms or explain what, precisely, isn’t scholarly about it.

    Anyway, Rothbard’s book is definitely valuable as a survey of differing schools of thought over time but still I would think if you’re going to dismiss the Austrians you would at least familiarize yourself with their primary theoretical works on the issues concerned, such as Theory of Money and Credit? It’s like passing off on Keynesianism while never having opened the General Theory nor taken so much as an intro university lecture on the topic where you can be sure you’ve gotten a reliable demonstration of the principle.

  • Mr. Market

    Abenomics is one big disaster. I like the analogy the austrians use. It’s like giving a drunk more alcohol. The private sector in Japan has been unwilling to take on more credit since 1991 and one more shot of credit won’t make the credit contraction go away. It prolongs the party and the ensueing hangover.

    It’s like Japan in the 1920s. Unlike the US after WW I (who let the deflation happen in 1920/1921), Japan fought “tooth and nail” to prevent the deflation but it resulted in the giant delfationary collapse of 1927. And that collapse led to the rise of the japanese military. And “the rest is history”.

  • Geoff

    Not scholarly? That’s rich coming from people who apparently reject the scientific method :)

    Maybe they didn’t like it because it covers Karl Marx.

  • valueprax


    Are you having fun with the current methodenstreit between Austrian and mainstream/PK methodology/epistemology or are you leveling a criticism at Austrians?

    No I don’t think it was because it covered Marx. I think there are some elements within the Austrian camp that have academic penis envy of a sort, and they’re looking to find ways to make their ideas more acceptable to the ruling intellectual elites by attacking or downplaying the contributions of the more controversial former luminaries like Rothbard.

  • Andrea Malagoli

    I second that 100%.

  • Andrea Malagoli

    It is way too early to call the jury on any of these points.

    These post-crisis recoveries are not uncommon and they are usually driven by an expansion of the government balance sheet (not the Fed’s! but with the Fed’s complicity).

    It is very easy to manufacture the the illusion of a recovery when Uncle Sam finances the majority of sub-prime car loans out there … and everything else.

    But the game is not over and it may not become clear for a few more years.

  • valueprax

    Did the Soviet Union ever have a recession?

    If a socialized economy had a recession, how would you know?

    A recession implies an ability to recognize a “normal” baseline as well as a divergence from that “trend”.

    The US mortgage market is almost completely backstopped by the Federal agencies (and behind them, the Fed). What is “normal” in this situation?

  • Dunce Cap Aficionado

    I found that one MMT’s most useful attributes (besides its description of the banking system) is that is a look from such a different angle that you are required to drop so much of what you already know to learn it, that the un-learning of incorrect ideas takes care of itself.

  • Andrea Malagoli

    My point exactly. A socialized “recovery” has a big chance to end like socialist countries did because it relies on ever growing government spending.

  • Geoff

    Haha, I like the way you say that M M T is “not totally accurate”, which to me means that they are mostly accurate :)

    I agree, but I would say that M M T (at least in the general case) is not totally “realistic” under current institutional arrangements in the USA.

  • Endest

    “Germany’s had at the end of WW I A LOT OF “wealth” (=government bonds). But Germany lost the war and couldn’t repay their debts and defaulted on its debts”

    And ten years later they built the most powerful military in the world and captured most of Europe and it took half the planet to stop them.

    Why? Did they find a magical pot of money to build that military with?

    No because money is not relevant to a sovereign nation. This is what all the gold bugs and Austerians and rest always fail to understand. Money is not macro. Macro is all about gross productivity and aggregate supply/demand. Sovereign states don’t need money as long as they have a productive and willing workforce. The hard constraints are inflation and foreign exchange. Money is just a transmission method. Until you figure that out you will constantly be waiting for the imaginary hyperinflation fairy….

  • J Natsinas

    Thanks, Cullen. I’d say I have a basic grasp of MMT, I’ve read about half of the primer in New Economic Perspectives (and would like to go back and read the other half at some point). I’ll work through your critique. I suppose I can count on you to discuss any points, if necessary.

  • Cullen Roche

    I am happy to help. I’d urge you to reach out to MMT people as well though. That way you’ll get both sides of the story. It’s really well worth learning and once you’re well versed in it I think you’ll be able to attack economic problems from multiple useful perspectives. Let me know if you have questions.

  • Hans

    I agree with number four…

    Thank you, Mr Roche, for coming out of the closet….

  • Gary-uk

    Can’t wait for his list in a few years time.

  • Cullen Roche

    That’s very kind of you Gary. Thanks.

  • JRHTrader

    Thanks, Cullen!
    A really great post!

  • Tom Brown

    Mr. Market, I don’t follow your point 1. First off, I guess you’re using the non-US style of a “.” rather than a “,” to set off the 1000s from the hundreds. So let’s draw out your balance sheets here, walking it through it step by step:

    “Let’s assume a bank has a reserve of $ 10.000.”

    A: $10k, L: $0, E: $10k

    Mr. Market:
    A: $0, L: $0, E: $0

    “When I take out a loan of $1000 my assets (deposits) increases by: $1000 but the banks reserves decrease by $ 1000 down to $ 9.000. But total bank “assets” remain at $ 10.000 (= $ 9.000 + $ 1.000)When I take out a loan of $1000 my assets (deposits) increases by $ 1000 but the banks reserves decrease by $ 1000 down to $ 9.000. But total bank “assets” remain at $ 10.000 (= $ 9.000 + $ 1.000). What A LOT OF folks don’t understand is that then the liabilities of the bank increase as well (+$ 1000)”

    No, actually reserves don’t go down at the bank at all and assets go up to $11k. The assets and liabilities of both you and the bank would look like this:

    A: $10k + $1k loan, L: $1k deposit, E: $10k

    Mr. Market:
    A: $1k deposit, L: $1k loan, E: $0

    “…because some day the bank has to cough up to the money when the borrower needs the money.”

    NOW the bank has $10k of assets. Equity is still unchanged from the start at $10k:

    A: $9k + $1k loan, L: $0, E: $10k

    Mr. Market:
    A: $1k cash, L: $1k loan, E: $0

  • Dennis

    I don’t understand why you were a bear in all of 2009. The day Uncle Sam bought a big chunk of GM, our economy was saved from total destruction. I told everyone I know, when action is taken to save GM, then you can start investing again. This was pure MR! Prior to that day my broker could have been named “chicken little”. After that day, I was looking at all those bargains, only because you had explained MMT (MR without the bank credit effects), and I said OK, we’re going to stop this crash and burn stuff, this is the bottom.

  • Cullen Roche

    I wasn’t really using the MR framework for my portfolio back then (obviously, since MR didn’t even exist!). I still generated a 6% return in 2009 (after a 15% return in 2008), but I underperformed the S&P 500 by 20% or something that year. I was caught off guard by the power of the stimulus relative to the deleveraging which I thought was much more negative than it turned out to be.

  • Dennis

    My return in 2008 was a lot more than that because I bailed on everything during the summer when oil went to $150, and then got scared shitless when I realized that the Lehman crash was ultimately linked to the solvency of our money market funds (which I was about 99% into). Thanks to you I got more comfortable understanding where money comes from, and with that “comfort”, in 2009, when GM was bailed out, I got back in. I don’t trade much at all, so everything I got then I still have. What you explained in those days was MMT. I thought MMT was helpful. MR gives me a much better understanding.

    I agree with your point that you have gone overboard with BB bashing. He says “this or that being said” to get something very different going in the right direction. Do you hear the jerks he has to deal with! I hope he ends up staying.

  • Bik in Tokyo

    This is great news, we are all very happy for you…

  • Benjamin Cole

    Great post.

    No shame in blunders, mistakes.

    The same is in not learning.

    If only I could also make a mistake….

  • Gary-uk

    The day a government using money created from thin air to rescue many businesses that had failed was the day you signed your own economic death warrant.

    So enjoy the party for a little while longer, and watch in awe as it collapses in a hyperinflatinary heap.

    Communism rocks, until it doesn’t!

  • Notagain

    I am for one glad that you promoted MMT cos that’s how it got to learn about it .
    no need to apologies there . I appreciate MR too .

  • Dennis


    Except for AIG, Uncle Sam got all our money back already. GM and most of it’s suppliers seem to be alive and well. The AIG “investment”, sad as it was controversial, is working as well. To me that is awe inspiring. If Fanny and Freddie were allowed to go up in smoke, so would the world’s economy, along with the UKs. These days the Fed has decided to keep Fanny and Freddie’s bonds on it’s books and give the interest back to Uncle Sam. Uncle Sam’s job is the socialist side of my world. The private sector is pure capitalist. So what you are concerned about is that Uncle Sam is dabbling in capitalism. Go worry about something important, like fires, floods, wind and bugs.

  • Dennis
  • John Daschbach

    Government spending can be good for people economically as Kalecki showed in the most cogent treatise on economics in history. As he argued, with airtight logic, the drive for political power supersedes “good for people”. As he realized, political power and economic well being are mutually exclusive.

    A system with high levels of government spending has the potential to be a far better society than what we live with today and the data are supportive of this reality. All of the countries that rank above the US in measures of social and personal well being have far higher levels of government “spending”. The health care system in the US is clear proof that government “spending” works far better than the private sector in segments of the market where it is impossible to have a logical argument for the private sector.

    Ever growing government spending is the only path to a more fair and equitable society. It has perils, but it also has the potential for a better system.

  • James Kostohryz

    Great post, Cullen! Self-reflection is a good thing that we all should do often.

  • John Daschbach

    If find the MMT and MR frameworks somewhat complementary if you understand that wealth in the MMT framework is a (zero/low risk) NFA in the MR framework.

    As MR makes clear, the money supply is a function of debt (convoluted with interest rates, which MR does not discuss). It is trivial to get the MMT conclusion by taking the limit (standard Calculus 1) where bank assets go to zero and the Fed holds all the Tsy bond assets.

    That is the critical flaw in MMT. Banks are not going away, and in our current system they are primarily responsible for net real money creation/destruction. But MMT is based upon a logically solid framework, in the limit (calculus). MR accurately describes the mechanics of the system we have, but it doesn’t directly address the real macro economic system we live with.

    MMT get’s some things correct (fiat money has value because the Government requires payment in their fiat money; pure zero risk NFA (now called into question by the Tea Party) are only issued by the Government. MR mostly gets more things correct because it “Realistically” approaches the system we have. But it’s not macro economics. Pure macro economics is the study of real productivity, which while it generally involves money in common frameworks, does not have to. Money is a important in our system, but it’s not really a core factor in pure macro economics.

  • Adam2

    Cullen didn’t do a 180 from MMT.. He just veered slightly to the right.

  • SS

    I don’t know if I’d describe MR as a “slight” turn to the right. MR says state money just “facilitates” the use of inside money and that inside money is the dominant form of money in our economy. This is a very different perspective than the MMT view.

    MMT seems like post-keynesian economics for statists whereas MR is post-keynesian economics for capitalism. I don’t mean statists to sound rude, just people who prefer a much more involved government than we have.