lithgowk

What Will We Do with All That Debt?

Isn't there a big difference between sovereign and private debt? The article seems to lump the two together.
Private debt has credit risk; sovereign debt has the risk of currency debasement via the printing press. Private debt is subject to the dangers described in alt 2. Private debt is more often paid; public debt is more often not paid, it's simply refinanced. Private debt is is seldom perpetual; public debt is mostly perpetual. If we required all public debt to have sinking funds in the same manner as some municipal debt and all old fashinoned self liquidating mortgages, then our debt problem would be of a different magnitude. Since sinking funds would have to be funded from current income, the amount of debt would be seriously curtailed. Even our elected legislators might see the light: It would make no sense to issue debt to pay current expenses. Our present system banks on our inflating away the cost of amortizing the debt: at a 3% annual inflation rate, which has been the Fed target for many years, the perpetual debt of the government eventually gets reduced to a smaller fraction of GDP (GDP expands with inflation while the old debt remains fixed). Our problem is we continue to borrow at increasing rates of GDP and so are headed into the abyss.
The propensity of the Asian economies to fund our debt is seriously erroding by the shrinkage in trade, a trend accelerated by the shrinkage of trade finance as well as the disappearance of the demand in the US for imports. I think there is a real question as to who is going to buy the additional US debt and at what price. If interest rates move to where long term treasuries become interesting, the drain on our resources will diminish our ability to spend on domestic programs, meaning less stimulus. Instead of getting cheap goods in exchange for our dollars, we will get our current debt carried. Argentina, not Japan, may be our model.




On Feb 20 10:37 AM Consider_this wrote:

> I agree that if long term trade doesn't resume, then there's no way
> for export economies to continue the funding, since they'll be running
> down their own ability to prop things up. I agree that there's still
> a point of exhaustion.
>
> But my point is that, if you take that as the end point of Fed's
> power, suddenly you can see that we're quite a ways from that. The
> Fed's debt binge exhaustion limit is much, much further than "imminent"
> which everyone's betting on. In this new picture, suddenly the Fed/Govt
> not only have all the resource of their own, but also the collective
> will and resource of all the export oriented central banks and govt.
>
>
> It all comes back to faith in future recovery, or in a way, faith
> in Fed to eventually able to unjam the frozen economy.
>
> In your counter example, where there's no "current" demand for ink.
> It doesn't mean the factories shut down immediately, or you stop
> selling printers right away. Doing so equals immediate shutdown and
> instant defeat with no hope.
>
> You continue to operate, at a loss, hoping that your excess printer
> supply will eventually prop up enough demand to make ink sales go
> up.
>
> You do that until your will runs out, or your reserve ability to
> produce said printer runs out.
>
> Like I said, we're quite a ways away from chewing through a significant
> fraction of the 30 to 50 years of Asian Economic growth as backstop.
>
>
> Now the question to ask is, is it enough? I don't know. In isolation
> scenario #1 and #2, it would seem Fed if fighting a losing war. In
> scenario #3, losing is NOT guaranteed, and there's a chance to come
> out a winner.
>
> On Feb 20 10:23 AM morph366 wrote:

Humility of Realism II: Seven Thoughts about Our Whole System

It is certainly true that the demi-gods in charge of our economy lack humility. They have analyzed the Great Depression and decided that if the government had acted quicker and with ample size, the Great Depression could have been avoided. This dubious line of thinking is producing our present spending spree that has all conservatives frowning or in tears. The problem may be that leadership is following two lines: one they are attempting to prevent deflation (construed as keeping housing prices from eroding more than they have) and two, to stimulate through keeping interest rates low and banks solvent. While these goals seem consistent, both may be beyond the power of government. Is it arrogance or ignorance to think government can control or even influence housing prices? Recognizing the losses for what they are, recapitalizing the banks that can survive such write-downs and let housing sort itself out would seem the more modest and perhaps wiser approach.

The percentage of our economy related to housing was excessive. It may now be time to realign our economy into more productive sectors. I would suggest ground transport via light rail. A huge investment in this sector would be a long term investment in transport, in energy efficiency an in reducing carbon emissions. If most of our spending was directed into long-term productivity it would not seem so irresponsible.

But it takes leadership to change direction. Congress, defenders of the status quo, and beholden to labor unions, will fight for funds for those industries that lead us into the present mess- autos and houses and the associated debt that over financed those sectors.

Our manufacturing sector should be recognized as being more important than housing. Housing is overbuilt.
It is time to concentrate energies on different sectors, sectors that can led us in new directions.

Fiscal Policy Under Obama: Dig Holes and Fill Them

You posed the right questions: Who ever heard of government by politicians doing the right or rational thing when the next campaign contribution is in a lobbyist's hand?


On Jan 16 10:41 AM hoover wrote:

> I would say that "digging holes and filling them" puts money in workers
> pockets and adds nothing of value. But, improving infrastructure,
> if done right, adds long term value by making commerce more efficient,
> allows people to be better trained and gives them improved transportation.
> So, money is put into workers pockets without directly producing
> more useless excess junk to be put on retail shelves. The key to
> success will be whether the infrastructure programs are decided by
> lobbyists, decided by corrupt politicians, decided by criminal financial
> minds, or are decided by rational minds trying to do the right thing.

Marc Faber on the Economy, Gold, WWIII

Faber isn't making social policy, he making investment insights. He says that when the social policy wonks try to influence the economy, they cause havoc. But they also crete opportunities for the shrewd and the swift.


On Jan 07 01:53 PM Skjellifetti wrote:

> Farber's world view admits no shades of grey. A mixed economy such
> as we have today and which has given the world one of the greatest
> economic growth stories in human history is not acknowledged as a
> legitimate choice.You are either capitalist or communist.
>
> Farber's world view allows but a single cause for our current mess.
> The fact that many shady mortgage lenders chose to make risky loans
> to underdocumented and poor risk borrowers or that many borrowers
> chose to leverage their homes to the maximum extent possible based
> on the hype that home prices would grow forever at a 20% rate is
> not possible in his world. Nope, it was all the governments fault.
>
>
> Farber's world view has no room for compassion. Does he think that
> those people in Detroit who have worked hard and saved all their
> lives but have now lost their jobs and are in danger of losing their
> homes and healthcare and everything else as a result of the poor
> choices made by others should be left to their own devices? Why not,
> he is still rich. Why should he care?
>
> Farber may be a great investor, but I would never let such a narrow
> minded ideologue make social policy for the rest of us.

The Lending Lunacy Continues as GMAC Gives Out More Bad Loans

NO ONE BUT THE GOVERNMENT WILL LOAN TO GM OR TO GMAC;
GM DEBT IS SELLING AT 50% OR LESS OF FACE VALUE; LOANING TO THE LOWEST RATED BUYERS WILL ASSURE CONTINUING DEFAULT STATUS TO THE VERY COMPANIES GOVT IS TRYING TO RESURRECT. THE EFFORT WILL BE DOOMED. IT SEEMS THE GOVT IS TAKING OVER THESE COMPANIES NOT TO SAVE THEM BUT IN AN EFFORT TO KEEP THE PLANTS OPEN AND THE FACTORIES RUNNING AND CUSTOMERS BUYING, REGARDLESS OF THE UNDERLYING FAULTS IN THE FINANCING. HOPEFULLY THE NEW ADMINISTRATION WILL HAVE A DIFFERENT AGENDA AND WISER CAPTAINS. THE PLANTS SHOULD RUN ONLY IF THERE IS A SOUND BUSINESS PLAN AND THE PLANTS SHOULD PRODUCE CARS AMERICA WANTS - EFFICIENT, AFFORDABLE AND WITH A LOW OR NO CARBON FOOTPRINT.

Coming Soon: The $600 Trillion Derivatives Emergency Meeting

Abrogating derivatives sounds good, but with what consequences?
It is an idea worth pursuing. The alternative may be to see the banks that are counterparties come crashing down and the billions of public money that has been plowed into those banks lost to credit speculators.