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John Slater

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  • 2014 Predictions - Strengthening Economy? [View article]
    Global price stability/deflation has depended on the continued expansion of manufacturing into new low wage markets to offset inflationary forces elsewhere in the western economies (healthcare, education). That string is about to run out with even Bangladesh increasing its minimum wage. What will be the deflationary offset going forward? I suspect the answer is the accelerating replacement of white collar workers with intelligent systems, but that has the potential to add to the sociopolitical pressures that are now being reflected in pushes for higher minimum wages. Systems don't remain balanced on a knife edge forever, but the consensus seems to be "more of the same because we can't figure out what's coming next".
    Jan 5 11:56 AM | Likes Like |Link to Comment
  • Community Banking In Period Of Rapid Consolidation [View article]
    See Mr. Bates comment Above.
    Feb 25 09:08 AM | Likes Like |Link to Comment
  • Balanced Budgets, Seigniorage And The Strange Case Of The Trillion Dollar Coin [View article]
    I strongly recommend that anyone interested in this subject read both When Money Dies and This Time is Different. While inflation is certainly a concern, the reader will readily see differences between the current situation and that of Wiemar Germany. The Unites States still has a substantial amount of underutilized productive capacity. Productive capacity in Germany had been severely depleted by the effects of WWI and the war reparations imposed by the Allies. One similarity is that there was a coterie of speculators in Germany acting to take advantage of the situation at the expense of the government.
    Dec 18 07:08 PM | Likes Like |Link to Comment
  • The Long View On U.S. Government Bonds [View article]
    History is interesting, but not always relevant. During most of this period the U. S. and much of Europe was on some form of a gold standard that limited new money creation (silver and gold strikes and the invention of the Fed being duly noted). Thus is can be argued that we have been in uncharted territory since 1971 when the Gold Standard was finally buried. That doesn't necessarily disprove your point and it certainly doesn't indicate that we should return to a precious metals standard. After all the roots of the inflation started in the 1960's when the dollar was still ostensibly convertible into gold. The Great Inflation was caused in part by politicians' unwillingness to fund government expenditures and the pressure built up for many years before inflation really broke loose in the mid-1970s. History is certainly rhyming in that regard. I will stand by my thesis presented at that rates are artificially low at this point and will revert to mean at some point. With leverage at historically high levels we depend on low interest to keep debt affordable. Even a reversion to mean has very serious consequences.
    Nov 23 10:31 AM | 6 Likes Like |Link to Comment
  • Interest Rates: The Darkest Black Swan Ahead? [View article]
    George you may have hit on the trigger. I work a lot in alternative business financing. The banks have abandoned many of their traditional borrowers and forced them into much higher rate markets to obtain financing. For now for larger corporate borrowers that is not a problem because the high yield market has become very issuer friendly. No one will argue the volatility of that market, so higher rates there are just a matter of time. For more information on some of the innovations in small business financing, see my Instablog post at
    Aug 20 01:08 PM | 2 Likes Like |Link to Comment
  • Interest Rates: The Darkest Black Swan Ahead? [View article]
    Excellent observations Lawrence. I second the call for more data on who is taking the long term risk on the mortgages. In the current market, where residential mobility has collapsed, the durations of the instruments should be increasing, which affects the ultimate impact of the refinancings/restructures in the event of an interest rate move. HARP restructures are being termed out at rates as low as 2%, but I would assume they stay on the books at par. Fixed rates on performing loans are a bit higher, but still very low by historical standards.

    The pony, if there is one, is that markets eventually revert to a mean and often overshoot, the power of the Fed notwithstanding. That will almost certainly apply to interest rates at some point and the fixed income markets have done so many times in the past.

    Frankly Mr. Bernanke was handed a hot potato in 2008 and has done a phenomenal job so far keeping it from burning through. I have certainly asked myself the question of whether he can continue to do so forever. My guess is that he cannot, but I don't have a clear picture of the event that will take long term rates out of the Fed's hands. My guess is inflation somewhere in the world at some point in time, but that's based more on my faith in the venality of politicians than on economic analysis.

    As to the derivatives market I did use the big number as an attention grabber and I understand that netted exposure is what ultimately matters. You can see my previous analysis of this subject of derivatives at, at and at
    Aug 20 11:52 AM | 1 Like Like |Link to Comment
  • Interest Rates: The Darkest Black Swan Ahead? [View article]
    At the turns of most markets, including the subprime mortgage market, lots of people see that the party can't go on forever. But human nature being what it is most of the revelers don't want to miss out on the excitement yet to come and decide to have just one more drink. In the institutional finance world, many participants believe that cannot afford not to be where all their competitors are making money. This was a commonly reported behavior among the big players in the mortgage market, many of which are not around a independent institutions any longer. Call it what you want, but in practice a Black Swan event in the financial market comes not because plenty of smart people didn't know better, but because they didn't have the courage or prudence to act on that knowledge. I am not suggesting that i know when to call the turn, just that there always is one in every bull market and it usually comes at a time when the market participants are unprepared.
    Aug 20 08:35 AM | 10 Likes Like |Link to Comment
  • Election Deficits And Unemployment Solutions [View article]
    While I'm not in Larry Kudlow's damn the consequences, drill baby, drill camp, this is an excellent argument for encouragement of domestic energy alternatives of whatever ilk. Most likely the manufacturing deficit is going to right itself due to a combination of robotics and the economics of logistics in a high energy cost world. That leaves energy imports. Your logic implies that fixing the energy deficit would provide a mathematical solution for much of the fiscal deficit problem.
    Aug 13 04:21 PM | 1 Like Like |Link to Comment
  • Election Deficits And Unemployment Solutions [View article]
    I agree that Allstreets has provided a good analysis of the challenges, but what policy choices, if any, could change these factors?

    I've been thinking for some time that a WPA type program could make some sense if it really targeted making America a more livable place, much as the CCC and WPA did in the 1930's. The problem with most infrastructure stimulus is that construction is now heavily capital and resource intensive, with far less impact on jobs.

    One simple change that would have a phenomenal impact on the over leverage of the financial economy would be to treat interest and equity returns in the same way. We have a system right now that encourages debt through treating interest, but not dividends as a business expense and, of course, through the mortgage interest deduction. Taken together these account for a great deal of overleverage.
    Aug 13 04:11 PM | 1 Like Like |Link to Comment
  • Election Deficits And Unemployment Solutions [View article]
    The video describes a political choice, not an economic problem per se. We are choosing to tax via deficits. If there is unused capacity in the system that is used because of the spending, in some sense the activity funded with the deficitis should pay for itself. Without the spending we would in theory be throwing away wealth in the form of resource utilization.

    I think about this conundrum often. Most likely the deficits to date have been funding use of excess capacity or we would have seen more inflation. Reinhardt and Rogoff seem to indicate that an inflationary component is more often than not present in the solution to these dilemmas. Surely that is the end game for the western economies, but we are not there yet.

    The MMT guys clearly have a point and a simplistic balance the budget solution is not going to assure optimal output.
    Aug 12 01:12 PM | 1 Like Like |Link to Comment
  • Sandy Weill's Call To Break Up The Big Banks: Let's Be Realistic [View article]
    Are the regulators applying a double standard that has made it impossible for the small banks to innovate?

    On the transaction side, the future is increasingly going to be owned by Silicon Valley. I can now use my Paypal account to make purchases at Home Depot. Why are we not able to make real time electronic funds transfers from our smart phones to third party accounts? The technology is certainly there. Is it because the banks want to collect their $12-20 wire transfer payments? Do they imagine that float is still part of the profit equation? Is it because the regulators continue to get in the way?

    We are seeing a great deal of innovation bubbling up in the non-bank ABL world. Banks have effectively abandoned the playing field for small businesses with cash flow based lending needs. Innovators are filling the gap with merchant cash advances and innovative lending products where the collateral is a business's proven revenue stream.

    Sure these products carry risk, but they could be enormously profitable at a bank's cost of capital and solve many of the profit issues now faced by the small banks. There are plenty of PE funds that would welcome the opportunity to acquire/invest in a clean bank charter and begin to offer some of these products for which there is a real need in the small business community. By hamstring the community banks, the regulators are forcing the banks to cede the ground to third party innovators, many of which will ultimately be funded by the big banks. This certainly seems to support your thesis about who the ultimate winners are going to be in the banking industry.
    Aug 1 10:16 AM | 1 Like Like |Link to Comment
  • Are Healthcare, Food, And Gas Killing Consumer Spending? [View article]
    In the American system regulation seems to have two primary purposes:

    1. Protect the jobs of the regulators.

    2. Provide competitive advantages to large corporations and established players in the regulated industries.

    Planet Money has some great coverage of the regulation of hair braiders. In numerous states hair braiding for hire has been subjected to regulation requiring a beautician's license to ply the trade, notwithstanding that beauticians courses teach nothing about hair braiding and 99% of beauticians know little or nothing about hair braiding.

    America has witnessed many battles between Jeffersonian and Hamiltonian principles. For now it certainly appears that Hamilton is winning. With the right actors it might be hard to tell the difference between many of the utterances of Mr. Geithner and Mr. Hamilton. Perhaps its time to consider raising a memorial to Mr. Burr.
    Jul 22 11:59 AM | 3 Likes Like |Link to Comment
  • Inequality Debate Is Based On Bad Data [View article]
    # of billionaires is a quite different question from the 1% question. I focused only on the U. S., not global inequality. My guess is that number of global billionaires is skewed by two major factors:

    1. Globalization and in particular the rise of China and India and the development of robust public stock markets in each company.

    2. The global commodities boom, which has provided the opportunity for domestic elites in a number of countries to take advantage of personal and family political power to profit from domestic oil and gas and mineral development.

    I would be interested in seeing comparable numbers for the U. S. and western Europe only.
    Jun 12 01:35 PM | Likes Like |Link to Comment
  • Are We Measuring The Wrong Money Supply... Again? [View article]
    Because none of them are a globally accepted medium of exchange. Gold is a speculative commodity. Whatever its faults I have a better idea of what a dollar will buy me tomorrow than what a Double Eagle will buy me.
    Jun 12 01:25 PM | Likes Like |Link to Comment
  • Are We Measuring The Wrong Money Supply... Again? [View article]
    If the global supply of liquidity declines, we risk deflation or in a worse case another financial panic. If it grows too fast we risk inflation. We've been living on that knife's edge for quite some time.

    While I did not go so far in my article, some of the insightful comments above come close to supporting the thesis that the dollar is not just the world's reserve currency, but is also on a fast track to becoming the defacto global currency. The second largest national economy in the world has tied the Yuan effectively to the dollar for quite some time and I don't see any likelihood of that tie being broken soon. Many smaller countries have similar ties.

    If I had to pick a candidate for the world's most stable transaction media today, it's pretty hard to imagine the Euro coming out on top. There's just no candidate other than the dollar. Despite Tao's comments to the contrary, in this environment, I don't think its chauvinistic to assume that the dollar is the proper measuring tool for global liquidity in the current era.

    Of course fiat money, unlike Mr. Bond's diamonds, is not forever. It would be pretty hard to buy dinner with a Denarius today, but it that was the world's dominant currency for at least a couple of hundred years until it was inflated out of existence.
    Jun 12 11:58 AM | Likes Like |Link to Comment