Interest Rates: The Darkest Black Swan Ahead? [View article]
I have no disagreement with your observations about comparative dissimilarities 1980s vs. 2010s 1980 represents a watershed era where return to labor peaked and return to capital started rising sharply. See http://bit.ly/RkyN5X
In the current era such a transformation seems unlikely, as does a reversal of the 30-year trend. The title of the article is "Private Investment: Between a Rock and a Hard Place", which, as the title infers, has the conclusion that the trend since 1980 of ever increasing returns to capital are probably over and there is no indication that returns to labor have any improvement prospects either.
Likewise, I agree that the question you raise about under utilization is very valid, although I would change your word "need" to "need or want". The question cannot be answered until you have a resolution of the economic policy argument between austerity and stimulus. I think such resolution is unlikely - that's my view of where our politics are, gridlocked.
Finally, the partisans I refer to are any people who see overt political intent in the actions of the Fed. That was prompted by the comment I replied to that suggested the Fed had punished the country under Reagan. The history of the Fed rate policy simply did not support that statement. I think the Fed was then and still is today quite bipartisan with its "punishments".
Interest Rates: The Darkest Black Swan Ahead? [View article]
star98 - - -
"Borrow short and lend long."
That has been the carry trade play for five years of ZIRP. Last night we posted a story about a bank that has made moves in the opposite direction. It it's not a big bank, $13 billion in assets, but it is not your small community bank either: http://bit.ly/QnfghV
Of course, your comment about loan demand is spot on. Very low.
Interest Rates: The Darkest Black Swan Ahead? [View article]
wdjax0n - - -
Go back and look at the 10-year chart in the article.
It appears to me the Fed was obviously non-partisan. Under Carter the 10-year went from about 8% to a high of 12%. That continued to a high around 15% during Reagan's first year and back to about 12% by the end of his first term and down to 9% at the end of his second term.
If there was a partisan bias it was against the Carter and in favor of the Reagan, but I don't see that either.
I recall in 1981 there was a lot of punditry saying that the very high interest rates that year and the resulting serious recession were setting the stage for a great economic boom to come. Political types were saying that if there was economic difficulty it was good politics to get it out of the way in the first year of a presidency rather than later.
I conclude it is not advisable to view monetary policy through a partisan political lens, just as it is not profitable much of the time to manage your investments with input from how you see politics personally.
Election Deficits And Unemployment Solutions [View article]
Green River - - -
Your excellent personal story makes me happy I neglected to mention deflation via defaulting debt for the 1930s. If I had you might not have written the comment.
Election Deficits And Unemployment Solutions [View article]
Green River - - -
Someone once said that confidence is not what grows the economy, consumption does.
That is a statement which emphasizes demand as the economic driver, as opposed to supply.
Actually, both viewpoints are talking about symptoms. The underlying disease is monetary and until debt and money are healthy both symptoms will suffer.
I saw an interesting Tweet from Steve Randy Waldman which asked the question: Will the current debt bubble be removed by deflation (1930-34) or by inflation (1946-52)?
Thinking about it I realized that the two bubbles Steve refers to were two different beasts. The 1930s were deflating a private debt bubble and the late 1940s were inflating away a government debt bubble.
What we have today is a private debt bubble which the oligarchy is transforming as much as they can into a public debt bubble.
Does this give support to John Mauldin's opinion that we will have deflation first, followed by inflation? History certainly doesn't refute that hypothesis.
Yes there is government intelligence. I have known some great people who worked in government and done outstanding work. Unfortunately it might be hard to make the case that this type is in the majority. It is certainly true that they are mostly "behind the scenes."
"You'd think some PhD's would be able to figure that out and warn the world before the politicians created all this mess."
Some did. Those in power and dancing the dance both ignored and quashed the warnings. See http://bit.ly/RHBpMj
The common characteristic of those who did forecast both the timing and magnitude of the GFC was the inclusion of money and debt in their economic modeling.
The neoclasical mainstream did not include money and debt as a variable.
Read the line above again. It is the most important reason that the economic establishment "couldn't see it coming."
One of those on the short list of those who did see it coming and is still doing great research on modeling economics with the inclusion of money and credit as a dynamic variable is Steve Keen. His analysis of the problems with the economic profession has been published twice, First Edition (written in 1999-2000) published in 2001 and the Second Edition published in 2011 in a book entitled "Debunking Economics".
I have read the book and need to organize my notes and write a book review. This is one of the most important books for any student of economics, either in formal education programs or self-learning. It reviews centuries of economic history with a focus on the amazing failure of economics in the second half of the twentieth century. This is not an emotional rant. It is a scholarly dismemberment of the dominant neoclassical school using their own words and publications.
And most of it is eminently readable. (There are a couple of chapters that the "armchair economist" can skip.)
Virtually all work on the Internet from the time it was first proposed in the early 1960s was funded by the Defense Dept (DARPA - Defense Advanced Research Projects Agency) and starting in the 1970s by the National Science Foundation as well.
In my former corporate life I managed a corporate project to develop commercial means to connect computers (input-output channels) over telephone lines. That was 1988-1992. At that time there was no Internet as we know it today. It was still only a global communication system for the government (military).
A cross country backbone was that would be opened up for the start of a public Internet was being built in the late 80s and early 90s with NSF funding. That was very primitive (56 Kbps) but it was the template that commercial development followed as the Internet became a public and commercial reality, starting by the early to mid 1990s. That is when the commercial infrastructure that you describe was built out.
There was more than 30 years of government funded work that preceded the commercial Internet that you know today, which is only about 20 years old.
And the brilliant minds you mentioned . Yes they were brilliant but the government funded their work until they "went public."
Marc Andreesen did his browser development work while still a student at the University of Illinois in a government funded laboratory, National Center for Supercomputing Applications.
The U.S. government was not the only one supporting development of then Internet. Tin Berners-Lee was supported by CERN when he developed the http code structure and the world wide web protocols.
The Internet was not born in a garage like some of the early personal computer systems. It was born out of decades of government funded research and development.
Note: Please read the entire comment before you get ticked off at the first paragraph.
Tell that to the bug waiting for the windshield (Japan) whose debt keeps going up and the Forex value of their currency as well. While we wait for the splat we would be well advised to try to understand why it didn't happen 10 years ago. And we need to try to understand what it would mean if it still hadn't happened ten years from now.
Of course, the splat could happen tomorrow and then how many non-bug and windshield theorists would have to go back to the drawing board. As for me, I keep taking long positions in the yen - I just don't hold them for long. A few months is more than enough for a "long-term" trade and sometimes it is only a few weeks.
Please don't let my response bug you. -:)
Of course monetizing the debt is inflation of money supply. The impact of such inflation is highly dependent on the environment. Past inflation of the money supply has led to bubbles in stocks (late 1990s and 2009 to date), bubbles in bonds (1980s to date), repeated cycles in commodities and bubbles in housing (early 2000s).
The Fed doesn't include any of those things in their measurement of inflation so they say inflation is low because consumer prices remain low according to the model they use. Inflation has been high for people who get sick, drive to work or send themselves or their kids to college. Inflation has been very low for people who buy only computers.
The question now is how much of the new money is going to be available for further bubble inflation and how much is simply going to offset what would otherwise be principal losses as the debt bubble unwinds. How much is being poured into a deleveraging black hole? In that regard, isn't it something like printing money that has already been spent rather than adding to new spending now?
So, if you are still with me, then the problem is not what the Fed has done as much as will they know when to stop doing more because the black hole has stopped sucking in money.
I agree re: Reinhart/Rogoff. I am so familiar with their work that I didn't really spend much time on that chapter and did not try to critique it in the review.
I probably overdid the analysis of detail anyway and adding more might not have been helpful.
Thanks for commenting. With regard to your point about whose debt (liabilities) and whose assets are we dealing with, I would like to recommend an Op Ed we have today by a health care administration expert that frames the growing health care costs in an unusual way: How much of personal income will be consumed by health care in the coming decades?
Her conclusion is that health care will consume more than 100% of personal income by 2037 if current trends continue. See http://bit.ly/Scu7NT
Thus, back to your question: Whose liability is it? Ultimately it is yours (figuratively on an individual basis and literally collectively) and you (collectively and individually) will have to deal with this.
The problem if interest rates go up and interest on the debt requires $2 trillion or $3 trillion or more per year? If the Volcker era interest rate highs were in effect today the annual interest payments would be well over $2 trillion per year. With a national debt over $20 trillion the annual cost would be over $3 trillion.
Just remember though that the interest rates were not set in the teens by market forces, they were set by the Fed, just as the very low rates today are. The interest rate is primarily determined by monetary policy and market forces have only minor influence. The risks of inflation have been managed with interest rate policy (although success at times can be debated), but fiscal policy can also be used. Of course, fiscal policy requires an economically informed government and the existence of that can also be debated.
Steve Hansen talks about these deficit and debt problems from a broad overview perspective in his weekly article: http://bit.ly/Scu7NV
Interest Rates: The Darkest Black Swan Ahead? [View article]
In the current era such a transformation seems unlikely, as does a reversal of the 30-year trend. The title of the article is "Private Investment: Between a Rock and a Hard Place", which, as the title infers, has the conclusion that the trend since 1980 of ever increasing returns to capital are probably over and there is no indication that returns to labor have any improvement prospects either.
Likewise, I agree that the question you raise about under utilization is very valid, although I would change your word "need" to "need or want". The question cannot be answered until you have a resolution of the economic policy argument between austerity and stimulus. I think such resolution is unlikely - that's my view of where our politics are, gridlocked.
Finally, the partisans I refer to are any people who see overt political intent in the actions of the Fed. That was prompted by the comment I replied to that suggested the Fed had punished the country under Reagan. The history of the Fed rate policy simply did not support that statement. I think the Fed was then and still is today quite bipartisan with its "punishments".
Interest Rates: The Darkest Black Swan Ahead? [View article]
"Borrow short and lend long."
That has been the carry trade play for five years of ZIRP. Last night we posted a story about a bank that has made moves in the opposite direction. It it's not a big bank, $13 billion in assets, but it is not your small community bank either:
http://bit.ly/QnfghV
Of course, your comment about loan demand is spot on. Very low.
Interest Rates: The Darkest Black Swan Ahead? [View article]
Go back and look at the 10-year chart in the article.
It appears to me the Fed was obviously non-partisan. Under Carter the 10-year went from about 8% to a high of 12%. That continued to a high around 15% during Reagan's first year and back to about 12% by the end of his first term and down to 9% at the end of his second term.
If there was a partisan bias it was against the Carter and in favor of the Reagan, but I don't see that either.
I recall in 1981 there was a lot of punditry saying that the very high interest rates that year and the resulting serious recession were setting the stage for a great economic boom to come. Political types were saying that if there was economic difficulty it was good politics to get it out of the way in the first year of a presidency rather than later.
I conclude it is not advisable to view monetary policy through a partisan political lens, just as it is not profitable much of the time to manage your investments with input from how you see politics personally.
Election Deficits And Unemployment Solutions [View article]
Your excellent personal story makes me happy I neglected to mention deflation via defaulting debt for the 1930s. If I had you might not have written the comment.
Election Deficits And Unemployment Solutions [View article]
Excellent essay!
Election Deficits And Unemployment Solutions [View article]
Someone once said that confidence is not what grows the economy, consumption does.
That is a statement which emphasizes demand as the economic driver, as opposed to supply.
Actually, both viewpoints are talking about symptoms. The underlying disease is monetary and until debt and money are healthy both symptoms will suffer.
I saw an interesting Tweet from Steve Randy Waldman which asked the question: Will the current debt bubble be removed by deflation (1930-34) or by inflation (1946-52)?
Thinking about it I realized that the two bubbles Steve refers to were two different beasts. The 1930s were deflating a private debt bubble and the late 1940s were inflating away a government debt bubble.
What we have today is a private debt bubble which the oligarchy is transforming as much as they can into a public debt bubble.
Does this give support to John Mauldin's opinion that we will have deflation first, followed by inflation? History certainly doesn't refute that hypothesis.
All very interesting stuff.
Endgame: A Book Review [View article]
Yes there is government intelligence. I have known some great people who worked in government and done outstanding work. Unfortunately it might be hard to make the case that this type is in the majority. It is certainly true that they are mostly "behind the scenes."
Endgame: A Book Review [View article]
"You'd think some PhD's would be able to figure that out and warn the world before the politicians created all this mess."
Some did. Those in power and dancing the dance both ignored and quashed the warnings. See http://bit.ly/RHBpMj
The common characteristic of those who did forecast both the timing and magnitude of the GFC was the inclusion of money and debt in their economic modeling.
The neoclasical mainstream did not include money and debt as a variable.
Read the line above again. It is the most important reason that the economic establishment "couldn't see it coming."
One of those on the short list of those who did see it coming and is still doing great research on modeling economics with the inclusion of money and credit as a dynamic variable is Steve Keen. His analysis of the problems with the economic profession has been published twice, First Edition (written in 1999-2000) published in 2001 and the Second Edition published in 2011 in a book entitled "Debunking Economics".
I have read the book and need to organize my notes and write a book review. This is one of the most important books for any student of economics, either in formal education programs or self-learning. It reviews centuries of economic history with a focus on the amazing failure of economics in the second half of the twentieth century. This is not an emotional rant. It is a scholarly dismemberment of the dominant neoclassical school using their own words and publications.
And most of it is eminently readable. (There are a couple of chapters that the "armchair economist" can skip.)
Triple G, thanks for raising the point.
Endgame: A Book Review [View article]
Agree that wealth is not the problem.
Poverty and lack of economic growth below the top is.
Endgame: A Book Review [View article]
Virtually all work on the Internet from the time it was first proposed in the early 1960s was funded by the Defense Dept (DARPA - Defense Advanced Research Projects Agency) and starting in the 1970s by the National Science Foundation as well.
In my former corporate life I managed a corporate project to develop commercial means to connect computers (input-output channels) over telephone lines. That was 1988-1992. At that time there was no Internet as we know it today. It was still only a global communication system for the government (military).
A cross country backbone was that would be opened up for the start of a public Internet was being built in the late 80s and early 90s with NSF funding. That was very primitive (56 Kbps) but it was the template that commercial development followed as the Internet became a public and commercial reality, starting by the early to mid 1990s. That is when the commercial infrastructure that you describe was built out.
There was more than 30 years of government funded work that preceded the commercial Internet that you know today, which is only about 20 years old.
And the brilliant minds you mentioned . Yes they were brilliant but the government funded their work until they "went public."
Marc Andreesen did his browser development work while still a student at the University of Illinois in a government funded laboratory, National Center for Supercomputing Applications.
The U.S. government was not the only one supporting development of then Internet. Tin Berners-Lee was supported by CERN when he developed the http code structure and the world wide web protocols.
The Internet was not born in a garage like some of the early personal computer systems. It was born out of decades of government funded research and development.
One good brief history is http://bit.ly/RM69xi .
Endgame: A Book Review [View article]
Excellent point!
Endgame: A Book Review [View article]
Note: Please read the entire comment before you get ticked off at the first paragraph.
Tell that to the bug waiting for the windshield (Japan) whose debt keeps going up and the Forex value of their currency as well. While we wait for the splat we would be well advised to try to understand why it didn't happen 10 years ago. And we need to try to understand what it would mean if it still hadn't happened ten years from now.
Of course, the splat could happen tomorrow and then how many non-bug and windshield theorists would have to go back to the drawing board. As for me, I keep taking long positions in the yen - I just don't hold them for long. A few months is more than enough for a "long-term" trade and sometimes it is only a few weeks.
Please don't let my response bug you. -:)
Of course monetizing the debt is inflation of money supply. The impact of such inflation is highly dependent on the environment.
Past inflation of the money supply has led to bubbles in stocks (late 1990s and 2009 to date), bubbles in bonds (1980s to date), repeated cycles in commodities and bubbles in housing (early 2000s).
The Fed doesn't include any of those things in their measurement of inflation so they say inflation is low because consumer prices remain low according to the model they use. Inflation has been high for people who get sick, drive to work or send themselves or their kids to college. Inflation has been very low for people who buy only computers.
The question now is how much of the new money is going to be available for further bubble inflation and how much is simply going to offset what would otherwise be principal losses as the debt bubble unwinds. How much is being poured into a deleveraging black hole? In that regard, isn't it something like printing money that has already been spent rather than adding to new spending now?
So, if you are still with me, then the problem is not what the Fed has done as much as will they know when to stop doing more because the black hole has stopped sucking in money.
Endgame: A Book Review [View article]
I agree re: Reinhart/Rogoff. I am so familiar with their work that I didn't really spend much time on that chapter and did not try to critique it in the review.
I probably overdid the analysis of detail anyway and adding more might not have been helpful.
Endgame: A Book Review [View article]
Thanks for commenting. With regard to your point about whose debt (liabilities) and whose assets are we dealing with, I would like to recommend an Op Ed we have today by a health care administration expert that frames the growing health care costs in an unusual way: How much of personal income will be consumed by health care in the coming decades?
Her conclusion is that health care will consume more than 100% of personal income by 2037 if current trends continue. See http://bit.ly/Scu7NT
Thus, back to your question: Whose liability is it? Ultimately it is yours (figuratively on an individual basis and literally collectively) and you (collectively and individually) will have to deal with this.
The problem if interest rates go up and interest on the debt requires $2 trillion or $3 trillion or more per year? If the Volcker era interest rate highs were in effect today the annual interest payments would be well over $2 trillion per year. With a national debt over $20 trillion the annual cost would be over $3 trillion.
Just remember though that the interest rates were not set in the teens by market forces, they were set by the Fed, just as the very low rates today are. The interest rate is primarily determined by monetary policy and market forces have only minor influence. The risks of inflation have been managed with interest rate policy (although success at times can be debated), but fiscal policy can also be used. Of course, fiscal policy requires an economically informed government and the existence of that can also be debated.
Steve Hansen talks about these deficit and debt problems from a broad overview perspective in his weekly article: http://bit.ly/Scu7NV
(A shorter version of Steve's article is available on Seeking Alpha: http://seekingalpha.co...
Election Deficits And Unemployment Solutions [View article]
I had no problem wiping out the near-term and the long-term deficits with about a 50:50 mixture of spending cuts and tax increases.
So what is the problem? By rough estimate, an increase in unemployment by 1 million next year and by 3 million in the out-year in the example.
That is the second false assumption cited by Steve in the article (that there is a way to balance the budget via tax increases and spending cuts).