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  • Wolfgang M√ľnchau: Germany's Weak Point Is Its Reliance On Exports [View article]

    Once upon a time, long long ago a U.S. President understood economics, or almost as miraculous, someone understood it for him, thus:

    "In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now. The experience of a number of European countries and Japan have borne this out. This country's own experience with tax reduction in 1954 has borne this out. And the reason is that only full employment can balance the budget, and tax reduction can pave the way to that employment. The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.

    I repeat: our practical choice is not between a tax-cut deficit and a budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy, or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and achieve, I believe -- and I believe this can be done -- a budget surplus. The first type of deficit is a sign of waste and weakness; the second reflects an investment in the future."

    John F. Kennedy, speech to the Economic Club of New York, 1962

    One can quibble about the future surplus driving economic improvement rather than improvement for its own sake (improving economies don't need surpluses and nonimproving ones can't tolerate 'em is my slogan). That aside, the big thing to notice is how affirmative this approach is, how the taint of defeatism is completely absent. JFK is saying WWII demand suppression must end for a society free to produce for its own consumption and it will be stronger, not weaker as a result. He was right, and would be right today.

    "only full employment can balance the budget, and tax reduction can pave the way to that employment."

    I'm in that's not Mosler, that's the President of the U.S. in 1962!
    Oct 14, 2014. 11:47 AM | 2 Likes Like |Link to Comment
  • Risk Starts To Look Risky [View article]
    There's nothing new in the U.S. economic picture defying the world trend, as it often has before. Isn't that what "engine of growth" means? We're semi-autarkic, more of our wealth comes from producing and selling to ourselves than is the case with other big economies. We have the incomparable advantage of a trade deficit. Since no one rescues us, we don't expect it, or factor it in. There's effectively nothing to factor.

    No model says Germany must thrive for us the way we must thrive for them, and so it goes for Japan and China. In order for them to thrive we must. But the key is this: In order for us to thrive, WE must. Instead of stimulating exports we must internally expand. We help the world best by helping ourselves, not by demand suppression like an exporter. Demand suppression is wage suppression, and job suppression. It's also the fiscal and monetary policy of the U.S. and has been for years. How are we supposed to get higher wages with policy geared to prevent wage raising inflation, and fiscal policy subtracting from demand?

    Incidentally, if I'm a country that gets rich by exporting what do I want to be when I grow up? I want to be the U.S. is what, getting richer largely on its own, pulling its exporters up with it. :-)

    Policy weakness in the U.S. affects the world outlook, not just the real position of economies around the world, and that weakness then doubles back on us, but attenuated by our relative insulation. That's my understanding of the curious phenomenon of our ability to get by as well as we do with so much trouble elsewhere. Our weakness (and strength) is self generated.
    Oct 14, 2014. 08:54 AM | Likes Like |Link to Comment
  • Weighing The Week Ahead: Can Earnings Season Reverse The Stock Market Decline? [View article]
    The deficit plunge is good news budgetwise and bad news economically (fiscal drag)?

    Of course you can have it both ways, isn't that what econo-pundits and editorial writers liberal and conservative alike have been doing ever since the deficit began to fall? By golly, if the deficit is falling it must be good, must! And if it's bad then bad is good, so be bad for goodness sake. :-)
    Oct 12, 2014. 11:23 AM | 2 Likes Like |Link to Comment
  • The Real Reason Why Unemployment Is Falling [View article]
    "For now there is much disagreement as to HOW money should be aquired -do something about tax inversion or not? and spent "roads and bridges" or "boots on the ground"?

    Danlar66, I appreciate the excellent link, which supports my thesis. But I have to puzzle a little about how money is acquired. The federal government doesn't acquire money, it spends it, or taxes (extinguishes) it. You and I acquire money, Vermont aquires money. The U.S.A. doesn't aquire money. Why would it?

    Our real concern is how high taxes take too much and low (now flat) spending provide too little to the private sector. My view is the public sector exists to support the private sector, budgeteers think the private sector should be suppressed to support the public budget. They hate the government but luuuv the government budget with a passion beyond reason. I'm way prudish, budget porn offends me deeply. :-)

    Here's one chart to rule them all, of the contribution of fiscal policy to real GDP growth, courtesy of Brookings:

    The thing I don't get is why people aren't more interested in how real factors, the big ones, condition results while they wander around worrying about Syria and Obamacare and Gross Domestic Laziness. Getting a grasp on what counts most means less waste of brain cells on ephemera.
    Oct 10, 2014. 09:40 AM | 1 Like Like |Link to Comment
  • Dive set to continue at open [View news story]
    "Sure it's going to dive with debt load,decrease in productivity,higher taxes,health care burden,Global's o.k though."

    Debt load is positive, productivity is positive, plunging deficit is negative, higher taxes is negative, fiscal support is neutral atm but check back, health care is tough to read, productivity increases from cost savings but demand drops too and we super don't need that now, global dissension is as always, just news, near term sqiggles, not much else.
    Oct 10, 2014. 08:35 AM | 2 Likes Like |Link to Comment
  • Wal-Mart cuts health benefits for some part-time workers [View news story]
    "When a good/service is free, the end result is "overutilization" and eventually higher prices."

    Regarding overutilization it would be good to pay people to use health care. If you immunize your children, get them checkups, braces, glasses you get paid. Then we could get as much overutilization as we need for a population that isn't using enough health care now. Free isn't good enough, the cost to users should go negative.

    The name usually given to this kind of fiscal operation is "tax cut" when delivered one way, "subsidy" when structured another way. Tax cutting is preferred by many, and if that's the path of least resistance that's fine, if the tax is allowed to go negative at very low incomes it'll work.

    There's not much hullabaloo about overutilization in systems with universal utilization, that's mostly a concern in systems with false scarcities like ours. Overconsumption of health care by poor people, an interesting concept, is usually due to underconsumption. Sicker people are expensive, not going to doctors because you can't afford it makes you sicker, which the poor always are. That makes them in the end "overutilizers", doesn't it? Can you say "false economy...."?

    Why, this looks like another example of making ourselves poorer to save dollars! Remember, poor people can't just get less sick when we skimp on their health care. They can't "tighten their belts", can they? I suppose dying sooner is a form of belt-tightening, though. If only they would die in a less expensive way....but they won't! And since they won't go away and die cheaply we need to subsidize their overutilization. It's cheaper, and a by product is healthier, more productive poor people, a little less poor as a consequence. Holy cow, we'd all benefit from that!
    Oct 8, 2014. 10:20 AM | 1 Like Like |Link to Comment
  • Bonds Hawkish After Recent FOMC Meeting, Equities Follow The 'Smart Money' [View article]
    "How can one conclude that to tamp down inflation, the Fed needs to raise rates? This is folly when at certain levels of unemployment, consumer spending will not be robust enough to drive inflation."

    I put it this way. The Fed would like to see the economy grow and produce jobs and income at satisfactory levels consistent with inflation higher than 2%, more like 4% IMO, but it wants to do this while hewing to a 2% inflation target which, it's clear, means the recovery will stay weak.

    I'd like to see the Fed use the means to match the ends, and I don't understand the labyrinthine reasoning by which I'm supposed to want what I can have, while nothing I really want is permitted. I want a strong recovery, the Fed says it does, too, while it acts to insure we can't have it, by balancing between optimal employment and the opposite of that. A balance between sickness and health is not why I go to the doctor.

    Why is the "best result" inflation level wrong while the dismal 2% figure is right? I never saw the reason. What is it?

    "A 2% inflation target is the optimal balance point for employment and wages because...."

    From my perspective 2% inflation is a "nothing good is allowed to happen" level. Chronic low inflation tends to resemble deflation in that the missing inflation component is wage growth, meaning what inflation is left hits cost of living very hard.

    No wonder so many people think the numbers lie. They don't, but I can see why people think they do. Still, I cut no slack for the dumbth-inclined. Figure it out, people, it's not THAT hard. A 2% inflation target isn't a solution, it's a part of the problem. It's not enough to grow wages, only other prices. This simple fact clears up more confusion than Alan Simpson can create in a month of folksy idiocy.
    Oct 6, 2014. 09:25 AM | 1 Like Like |Link to Comment
  • Is The 5.9% Unemployment Rate Real Progress? [View article]
    "there is no argument that we have a "bad, though real, recovery"."

    You don't have one? Jeez, they're all over the place. Me, I think it's all real, good and bad. Lower UE, lower participation, a real, and really weak, expansion. No fakery is involved, or lies about stats, a position I've always found to be astonishingly naive. How are lying stats supposed to work in a world where even paranoids have access to all the info they can use and (heh!) far more than they can use competently. :-)
    Oct 5, 2014. 05:48 PM | 2 Likes Like |Link to Comment
  • Weighing The Week Ahead: Will Global Weakness Drag Down The U.S. Economy? [View article]
    The market refuses to go all red or all green. We've got this indicator panel and it's almost always two thirds green, one third red and observers are waiting for it to go all the way and it won't, it hasn't. A popular interpretation is that this means the other guy is wrong. It looks more to me like bullish/bearishness can't handle an intermediate case, like it's unnatural for an economy not to "decide". But it's not that an intermediate case can't happen, it's that we don't usually have such a profound policy cleavage between the fiscal and monetary decision makers, with a fiscal brake in irreconcilable conflict with a monetary accelerator (weak as it is). The panel would go green if fiscal support arrived, or all red if the money guys got their way and removed the last vestige of support. But with opposing camps still in firm control of their redoubts this crazy split will leave us in a perfect state to provide contrary evidence for any pure case either way.
    Oct 5, 2014. 05:25 PM | 1 Like Like |Link to Comment
  • Is The 5.9% Unemployment Rate Real Progress? [View article]
    Is there a false dichotomy here? It looks like people who are committed to the idea that the recovery is inadequate think they have to explain away lower UE, while those committed to the idea that improvement is real are seen as arguing that the problem has been solved. It seems to me this creates needless argumentation since there's no contradiction in thinking progress is both real and inadequate, and that both together fit the facts better than if "lower UE" and "bad economy" are treated as a contradiction when they're not. Simply put we have a bad, though real, recovery.
    Oct 4, 2014. 03:52 PM | 4 Likes Like |Link to Comment
  • We Are All Charlatans! [View article]

    "there is no way anyone can precisely interpret those variables to correctly predict the markets"

    I certainly can't predict markets, but I'm not sure how that would be relevant unless I was trying some kind of get-rich-quick operation. But whether you're an indexer or a stock picker you aren't doing that, so don't worry about it. And if you give a chunk of what you have to the dripdripdrip of professional portfolio erosion your concern is get-unrich-slowly, and I don't think market forecasting is needed there either.
    Oct 4, 2014. 03:44 PM | Likes Like |Link to Comment
  • Why The Inaccurate Inflation Predictions Matter [View article]
    IOW the inflation prediction can only come true if the economy booms the way we've been trying to achieve. So the bad outcome comes at the price of the good outcome the inflationistas said couldn't happen. They've outsmarted themselves by arguing this way, since a booming economy producing boom level inflation answers the prayers of the inflationistas opponents and millions of working stiffs. I can handle that. We all can. What a bummer for the defeatists, though. :-)~
    Oct 4, 2014. 11:32 AM | Likes Like |Link to Comment
  • Exploiting Behavioral Finance [View article]
    Some profit taking in positions that have become oversized makes sense when it serves a purpose like reinvesting in a new position or adding to a small one you're building, or to fund a vacation or a Christmas bonus. There should be a reason to do any selling. It can be reinvestment or just things, sweetie, nice things, beautiful things! But to rebalance for its own sake, no, I'm against it.

    Buying OTOH don't need a reason. ;-) Always be adding, I say, even (especially) when you're subtracting. It's something I do, like I'll sell a stock to pay for something, open a new position with what's left, then when a big chunk of dividends comes in add more to the new position. You don't have to sell to rebalance, you can add to the littler ones. Selling needs a reason, buying doesn't is the rule I use. And rebalancing is the result of concrete goals, not an end in itself.
    Oct 1, 2014. 09:33 AM | Likes Like |Link to Comment
  • Retirees, Don't Count On Stocks To Deliver From Here [View article]
    "From January 1979 to end of 2006, the stock market provided average annual returns of 14.64% according to"

    So all the poor souls who listened to financial advisers and tried to avoid a few years of low returns by timing the market lost out.

    The thing to understand about 1979 to 2006 is:

    1) It's 27 years.

    2) It has all kinds of boom and bust in it, therefore all kinds of signals you'd be better off ignoring.

    If you want the returns long term investing gives you, long term invest and don't time the market.
    Sep 30, 2014. 09:00 AM | 15 Likes Like |Link to Comment
  • Major Stock Market Selloff Looms As The Fed's QE3 Ends [View article]
    As the economy continues to expand backward looking valuation estimates will become dated quickly. What we should be doing is trying to gauge how far we are from optimal as well as the chances of getting there. My view is we won't top out at all, just like we didn't in the '90s. The expansion will be cut short by a continued fall in the deficit as taxes take more out and spending doesn't adjust either. Good news is that we're in a "starving mice live longer" recovery, bad news is life sucks for us mice. :-(
    Sep 27, 2014. 02:27 PM | 5 Likes Like |Link to Comment