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Lawrence J. Kramer  

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  • Why The Fed May Increase QE Asset Purchases Before Pursuing Exit Strategies [View article]
    "It will take a little while for me to digest your answers. "

    Unfortunately, it's not a very well written treatise. If you have any questions, please ask, on-line or off.

    Volatility can come from so many places that I would not rule it out. You would be right to surmise, however, that I am not planning on it.
    May 21, 2013. 02:29 PM | Likes Like |Link to Comment
  • Many Conservatives Don't See A Reason To Celebrate The Shrinking Deficit: Here's Why [View article]
    "Didn't Krugman also say..."

    If he said it, you should be able to quote it. Can you?

    Well?
    May 21, 2013. 02:24 PM | 3 Likes Like |Link to Comment
  • Many Conservatives Don't See A Reason To Celebrate The Shrinking Deficit: Here's Why [View article]
    "These 'informed' conservatives are worried about the absolute size of a Big Number, not its relevance to other numbers like the size of the economy itself."

    CR wrote : "It's the absolute size of government spending relative to the economy that worries conservatives."

    What part of "relative to the economy" do you people not understand? "Absolute" is the wrong word for CR to use (no adjective was necessary), but his intention was clear. (You usually do better than this, EK.)
    May 21, 2013. 10:46 AM | 1 Like Like |Link to Comment
  • The Bernanke Agenda - It Isn't What You Think It Is [View article]
    "The fact is that unless money flows expand at least at the rate goods & services are offered, output can't be sold & hence the work force will be cut back."

    Interest rates tell us that there was PLENTY of money to buy HOUSING on offer. There just weren't any more creditworthy borrowers. I can't make you pay attention to signals you find meaningless.

    "Do you understand the theoretical basis for 2% core inflation (as opposed to 0%), mandate."

    Yes.
    May 21, 2013. 10:27 AM | Likes Like |Link to Comment
  • Why The Fed May Increase QE Asset Purchases Before Pursuing Exit Strategies [View article]
    "China hoards dollars like no other."

    Yes, they do. That's why we need to discourage Americans from hoarding. Too much of our money "goes" to China to buy things and "comes back" as Chinese Sovereign wealth invested in aaa-rated paper, or, in the absence thereof, Treasury bonds, which is still the best game in town for someone with hundreds of billions to stash. Where do you think the money for liars' loans came from if not foreign holders of dollars looking for high-rated paper? We ran out of real creditworthiness to sell, so we invented some.

    "Could China sacrifice that giant hoard to derail the US dollar as the world's reserve currency in some instance?"

    What would that look like? They already hold dollars, which are federal obligations. If they don't buy bonds, that's just interest we don't pay. The problem arises if China decides either to reject dollars in payment (and sell their toys to whom?) or if they start buying other assets - real estate, corporation, etc., - causing inflation and strategic access to property. That is where the military industrial complex comes in, sadly.

    "Is a treasury auction failure possible?"

    A treasury auction is a service to hoarders, not a way of raising money for the government. If we look past its mechanical form, the treasury auction can be analyzed as the Fed "lending" money to the Government and then selling in the secondary market however much of the securities it gets as the public will buy at the Fed's price. The process has the primary dealers buying first, but they know what the Fed and their customers are willing to pay, so they will price their bids at what the bonds will bring, a number that the Fed can control by announcing its open market intentions to the dealers.

    Thus, the Fed will not "cut off" the money, ever. It will set the interest rate where it wants the interest to be, and the chances of the Fed raising rates absent inflation is nil. If that means not buying Treasuries, then so be it; but calling it "cutting off the money" misses the point. The Fed ALWAYS supplies ALL the money that the Treasury cannot borrow at rates the Fed thinks hoarders should get. If that amount of money is zero, or negative, then it is, but the Fed's decision to raise rates may represent no change in "policy" at all, but just implementation of a constant policy under changed conditions.

    A demand by dollar-holders for US outputs would be good for our businesses, but not so much for labor. We need to understand that American workers no longer compete with foreign workers. They compete with the robots that will be invented when Chinese labor is no longer underpricing their invention. If you want to worry about something, don't worry about China denying us inexpensive goods; worry about how we are going to distribute them among ourselves.
    May 21, 2013. 10:05 AM | Likes Like |Link to Comment
  • Book Review: Aging And The Macroeconomy [View article]
    Annuities pose a very thorny actuarial problem: life expectancies are changing DURING the term of the annuity. If a man turning age 85 now has a life expectancy of five years (I'm pulling numbers out of the air for example's sake), a man turning 85 in 2033 may have a life expectancy of twice that. So how do you price an annuity today for a person who is 65 today? Whether that annuity starts now or starts at age 85, the seller is at risk for technological breakthroughs occurring in the next twenty years. How is that risk to be hedged or syndicated?

    I suspect that only the Government can provide annuities at a reasonable cost, especially if those annuities are means tested through the income tax. So, rather than the private sector selling "longevity annuities," or even life annuities, the Federal Government should sell them or provide them, or both. The "sale" function would be presented as reinsurance through a GSE, which would pay all annuity payments past age 85 in exchange for a premium based on life expectancy today. The Government would subsidize the program by bearing the risk of longevity being extended.

    In addition, Social Security could be increased automatically at age 85 - a perfectly reasonable form of social insurance - in a way that would allow retirees to tap their savings prior to that age without fear of running out of money.

    In short, I do not believe that the private sector can cost-effectively provide coverage against the longevity risk in a world of shifting life expectancies, and I do believe that the government can provide that protection in a way that does not produce undue inflation, even if some general revenues (including taxes on the enhanced benefits for people who don't need them) are applied to the purpose.
    May 20, 2013. 03:38 PM | Likes Like |Link to Comment
  • The Bernanke Agenda - It Isn't What You Think It Is [View article]
    "Why is it hard to accept that both conditions created the collapse, i.e., bad underwriting which is clearly the case and pulling liquidity by the Fed which also occured."

    1. At best, bad underwriting is the lightning to the Fed's thunder. If the thunder scares your dog, I think it's still fair to blame the lightning.

    2. I don't understand the relevance of liquidity per se. If the Fed removes liquidity, thereby pushing up interest rates, then the interest rates may depress homebuying. But mortgage rates fell during the period in question, so I don't see how the Fed's actions are transmitted to the housing market.

    3. As I mentioned, traffic began to fall in 2005. The lack of demand started prices falling, or merely kept them from rising enough to make the "refi" solution to the ARM reset problem viable. That alone would have caused a death spiral.

    I originally took ST to mean that the Fed raised rates in 2006, but I now see that the RMBS market did not seem to be affected (remember who was funding those loans back then). So how, exactly, do the dominoes fall from the Fed action?

    (I am always leery of correlations without narratives.)
    May 20, 2013. 11:39 AM | Likes Like |Link to Comment
  • The Bernanke Agenda - It Isn't What You Think It Is [View article]
    "You present no evidence. "

    Not every SA is a freakin' term paper.

    But the data show a marked slow-down in traffic in the summer of 2005 (presumably, when even the supply of liars was gone), and prices falling with traffic, after an appropriate lag for reality to register with sellers. There are lots of available narratives, but to blame the housing collapse on something other than bad underwriting seems to me to require more than a correlation between falling prices and contractionary monetary policy (whatever relevance that might have given that mortgage rates FELL during the period).

    http://bit.ly/12oXOkW (see Table 3.)
    http://bit.ly/MUx1bh
    May 20, 2013. 10:36 AM | Likes Like |Link to Comment
  • The Bernanke Agenda - It Isn't What You Think It Is [View article]
    "You’re saying that the number of foreclosures historically determines housing prices? "

    No, just that it can and, post-2008, it did. If you need evidence for that, then continue to believe it is not so. The facts will wait for you to catch up.
    May 20, 2013. 08:46 AM | 1 Like Like |Link to Comment
  • Has Krugman Really Won? [View article]
    "Ah, I see I'm dealing with a true believer."

    Nit-picking won't get it done. Are you denying that tax policy has dynamic effects on the economy and the financial well-being of taxpayers, that taxpayers may not be better off financially by virtue of paying taxes? Should taxes be zero? If not, why is it relevant that taxpayers have less money the day after they pay taxes? And if paying taxes can make us better off financially, and you want to argue a fortiori from taxes to borrowing, why can't borrowing make us better off?

    The point is that your "by definition" claims go nowhere. As to when and whether there actually is a fiscal multiplier, I'll leave that to a day when it actually matters whether that particular sequella of government spending, rather than the many of which I offered it as an example, is relevant to the conversation.
    May 19, 2013. 05:53 PM | 2 Likes Like |Link to Comment
  • Has Krugman Really Won? [View article]
    "... articles that provide evidence that stimulus has failed."

    Evidence? Not hardly. Claims are not evidence. If you've got an article with a persuasive argument as to where the economy would be absent the policies you oppose, maybe you could quote that language here?

    "By definition, tax payers have less in their pockets after paying tax."

    Only on the day they pay the tax. After that, there are multiplier effects, effects on the value of capital assets, and any number of things that can make one richer for having paid one's taxes along with everyone else. If you want to live in the world of definitions and not the world of processes, that's your privilege. Just don't expect to be taken seriously.

    What is true of taxes is true of borrowing as well. Some government borrowing, even for transfer payments, results in higher taxes down the road, but some does not. It would be nice if life were so simple that we could deduce outcomes from definitions, but it isn't, so we can't.
    May 19, 2013. 02:52 PM | 3 Likes Like |Link to Comment
  • The Bernanke Agenda - It Isn't What You Think It Is [View article]
    "The drop in commercial & residential real-estate directly coincided with Bernanke draining required reserves for 29 consecutive months"

    As if those homes would have held their value in foreclosure when the liars failed to pay their loans. The issuance of credit to people who had none was a Ponzi scheme doomed to fail when the rates reset and everyone tried to refinance at values that were higher than the artificially inflated prices paid in the first place. BB was wrong about the system's ability to control the subprime mess, but he was not wrong to put an end to it. To blame Bernanke for the collapse is to imply that the homes were properly priced at the level from which they descended. NO ONE believes that. At least, I didn't believe that anyone believed it, although apparently, JS and ST do.
    May 19, 2013. 12:47 PM | 2 Likes Like |Link to Comment
  • Why The Fed May Increase QE Asset Purchases Before Pursuing Exit Strategies [View article]
    "The gold standard is simply your interpretation. The discussion of it has no relevance to this particular article and was not brought up for that very reason."

    You wrote:

    "Admittedly, there is not a large data set to draw upon throughout the history of monetary policy, yet this point only goes to illustrate how unconventional and truly undesirable undertaking such measures were to previous generations of central bankers. "

    You raised relevance of the lack of data, trying to turn it into evidence that central bankers DISLIKE QE. I argued back that one cannot draw that inference, because, under the gold standard, QE is harder to do. If your claim has relevance to this article, then my disagreement with it has as much relevance. I agree that the issue - not of the gold standard, but of what the paucity of earlier examples shows - is tangential. But YOU brought it up, not I.

    "The fact that you agreed with my comment shows that it didn't even have to be addressed in the article for that very reason."

    That's nonsense. All arguments are built of propositions that are LOGICALLY linked. Some of those propositions will be new, some will be well-known. It's the linkage that makes the case. To say that the commonly accepted propositions can be skipped is like doing a geometry proof without mentioning any axioms because everybody knows them to be true.

    "A "robust banking system" does not have to be compared only in the narrow context of one consisting of failed Lehman Brothers type banks. "

    Of course not, but now you are leaving the subject of your article. You were arguing that the "banks" were bailed out, as if that were a bad thing. I am saying that it was a good thing, because the banking infrastructure was not destroyed, only the fortunes of the bankers. TARP was a structured bankruptcy. One can argue about whether the banks' CREDITORS were given more than necessary, but you didn't whinge about that. You complained about the banks being saved as if we would be better off if the banking infrastructure itself had collapsed.

    "Bear, Lehman, Merrill Lynch, WaMu, and Wachovia were examples of poorly run banks. Since you are into forming straw man arguments, would you advocate that they should still be in business as ongoing stand-alone banking institutions?"

    Some of them, sure. Why not? That's why we have bankruptcy laws. The equity owners lose their investments, and the tellers keep their jobs. The computers keep computing, the rent keeps getting paid. To the extent that these banks represented excess capacity - processing bad loans because there were no good ones to be made - capacity needed to be reduced, and closing some of these banks posed no systemic risk. But to destroy a bank like GMAC, which financed cars for an ailing auto industry giant, which itself went through bankruptcy (again, with some CREDITORS bailed out), would make no sense at all when people still need to borrow to buy cars.

    "The word 'rescue' was a Hank Paulson euphemism for 'bail-out.' Whatever the semantics, the facts are the same."

    The word "bail-out" is a pejorative for 'rescue.' Whatever the semantics, the facts are the same. In other words, calling something a "bail-out" adds nothing but distaste, but that is all you did. You did not show that the bail-outs were bad, yet you listed them as part of the bad things QE did. By calling them "rescues," I am arguing exactly as powerfully as you did. Surely that's powerfully enough, right?

    "If you defined 'hoarding' as buying Treasuries and depositing money in banks that are not lending, then by definition the Federal Reserve would be creating every incentive to be a "hoarder" right now. They buy a massive amount of Treasuries and put a strong bid under the market. You actually are saying that QE is incentivizing a form of hoarding by what you described.

    YOU claimed that the Fed was punishing savers. Now you say it is providing them with an incentive to buy Treasuries by putting a floor under their price. Then how are they being punished? They are free to use that floor or to chase yield. Are you suggesting that ending QE would give people a DISINCENTIVE to buy Treasuries. Is there no knot that you won't tie yourself into?

    "Asset prices are hardly at screwy depths and there are few signs of PTSD in the current market environment. "

    No, but are they at screwy heights? You say they are mispriced. What should they be? What would they be without QE? Would those be screwy depths?

    Are you saying that QE to pump asset prices was ok but has outlived its usefulness? If QE is removed, would prices not fall to screwy depths again? Are people no longer shell-shocked? Policy choices have to be measured against their counterfactuals, not against the status quo that they have achieved. Anyone who has taken antibiotics has been warned not to go off them just because the symptoms have passed. You have to kill the germs. People have to regain CONFIDENCE in the markets. Eventually, the training wheels have to come off, but the fact that the bike is upright is not evidence that the time is right.

    "The Fed is still firing up the engines with the idea that it will spark growth in the real economy when the headwinds are mostly structural and beyond their immediate ability to impact."

    The Fed can only do what it can do. I don't see its powers as much greater than you do, but I believe that what it is doing is far better than not doing it, and you offer only unsupported claims of asset mispricing. I think asset prices are about where they would be if people weren't frightened by the memory of a black swan event. I credit the Fed with having provided the necessary counterbalance. Whether that puts Joe Average back to work at the steel mill is a wholly different inquiry.

    I raise structural unemployment as evidence that the Fed is doing all that it can, not that the Fed is feckless or that its actions are counterproductive. Because the Fed cannot fix unemployment, I doubt that the 6.5% level gets reached anytime soon, or, if it does, it does so via withdrawals from the labor force, which will simply cause the Fed to switch to its inflation target, which will still be tame because there is no wage pressure. The unemployment horn of the Fed's mandate provides political cover for the Fed's accepting Janet Yellin's argument that 2% inflation is a better form of "price stability" than 0% inflation. If a lower unemployment rate does not translate into wage pressure (because the wings are full of would-be employees no longer calling themselves such), then the Fed will continue QE.

    I won't be surprised if QE expands or continues, because, LIKE YOU, I don't believe it will cure unemployment or fix the economy. But UNLIKE YOU, I don't consider it a dismal failure any more than applying the brakes to a car rolling backward is a dismal failure just because it doesn't make the car role forward.
    May 19, 2013. 10:53 AM | Likes Like |Link to Comment
  • Why The Fed May Increase QE Asset Purchases Before Pursuing Exit Strategies [View article]
    "nowhere in the article was a return to the gold standard advocated or even mentioned. Nowhere."

    So? You offered your interpretation of what the paucity of data shows, and I offered mine. It would be passing strange if you listed all of the interpretations that you didn't think applicable. Yet you seem to think it out of bounds for me to mention one.

    I mentioned structural unemployment to explain why your limited data set would be uninstructive even if it said something about QE in the past. If you cannot see the relevance of something you already knew, that's your problem. The rest of your paragraph on the subject seems to me exactly right. It's what you should have written in the article instead of what you wrote.

    " Bank were absolutely bailed out in the sense that many of them would have met a demise similar to Lehman Brothers."

    Yes, they were rescued in that irrelevant sense. The banking infrastructure was preserved, and the equity holders were punished. That's what capitalism requires. The question is why you would characterize that result as a bad thing, which I take the term "bail-out" to imply.

    "What is robust about our current banking system?"

    A lot, compared to Lehman Bros. The banks have a way to go, but there is no reason to believe that allowing the big banks to disappear would have left us with a robust system.

    " That is because 'savers' who invest are, by definition, called 'investors'."

    And savers who do not invest are hoarders. I have defined "hoarding" as buying Treasuries and depositing money in banks that are not lending. These are not evidentiary matters. I have no idea what you would expect data to show in this regard.

    In 2000, the NASDAQ was at 5,000, and liars were getting loans. Those were bubbles. If you can't see how today's asset prices are different from those in 2000 and 2008, then you cannot.

    If there is such a thing as irrational exuberance, why is there not PTSD? Why do you believe that psychological forces can drive prices to screwy heights but not drive them to screwy depths? If the Fed should have cooled the jets in the past, why should it not fire them up now?
    May 18, 2013. 05:46 PM | 1 Like Like |Link to Comment
  • Why The Fed May Increase QE Asset Purchases Before Pursuing Exit Strategies [View article]
    "Console yourself with the thought that Your 'Hoarders' are just 'the average Joe' who can only invest or save the way an 'average Joe can'."

    What you are saying, in your smug, snotty way, is that you think the average Joe's lack of investment skill should be subsidized, in your mind by the kind of interest rates that would starve his potential employer of capital to employ him. Leaving alone that your specific subsidy is counterproductive for Joe, the wisdom of a subsidy remains to be considered.

    Actually, I have no problem with such a subsidy, but it ought to be done right. Instead of making Joe deal with low interest rates (which are otherwise good for business), let's raise his Social Security benefit so he doesn't have to save as much. Let's lower the payroll tax and the income tax on all retirement distributions. (If he has a job and a 401(k), his money is professionally managed.)

    So, instead of getting all huffy, why not THINK about the problem? Self-righteousness is not a public policy. It's just narcissism on stilts.
    May 18, 2013. 11:55 AM | 2 Likes Like |Link to Comment
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