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kertch

kertch
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  • Pray For Graccident - It Will Trigger The Demise Of The ECB And The World's Toxic Regime Of Keynesian Central Banking [View article]
    "The game plan is to eliminate the debt with printed money, then tell the people there is no inflation."

    You cannot eliminate debt by adding more debt. There is no "printed money". It's all just more loans made by banks and central banks with the understanding that they will be repaid. If we get a Grexit, it will be the first installment of the reality that most of it can't be paid back. It's only a matter of time then before the rest of us figure out just how little is backing most of the so-called risk-free debt.
    May 27, 2015. 01:23 AM | 3 Likes Like |Link to Comment
  • Chop, Chop, Choppin' At The Fed's Front Door [View article]
    "I think stockman is referring to average middle income breadwinning jobs of the past that might just require a high school diploma. This is where stockman is wrong and in my opinion living in the 1960's-70's."

    This may be true but it's the outcome that matters. Whatever Stockman defines as "breadwinner jobs" is not as important as the fact that part time employment is on the rise, full time employment is on the decline, the labor participation rate is at a 30+ year low, and wages have been stagnant or dropping.
    May 21, 2015. 01:29 PM | 4 Likes Like |Link to Comment
  • Some BLS Doesn't Match The Other BLS [View article]
    "DDLA does have a very valid point in the "outsourcing" of capital to overseas labor at the margin which has had a dampening effect on domestic capital formation and creation of new domestic business."

    Perhaps, but global fixed capital formation is down as well as domestic fixed capital formation. This coincides with total global debt reaching new highs just as our domestic debt has. DDLA and I have an ongoing disagreement about the outsourcing of capital driven by lower labor costs in developing nations. I believe it has more to due with return on investment than labor costs per say. The high-labor cost developed nations still maintain the vast bulk of the worlds manufacturing capacity. In other words, the risk/return ratio of financial investments, especially leveraged investments, is currently far more attractive than that of business investments. That being the case, money will be invested accordingly.
    May 15, 2015. 11:52 AM | 3 Likes Like |Link to Comment
  • Some BLS Doesn't Match The Other BLS [View article]
    "Capitalism is driven by the investment of capital with the goal of generating a profit."

    Of course, no one disagrees with this. However, it is the profitability of one investment vs. another that determines where money goes. Interest rates determine the comparative returns of different investments. Change interest rates and you change the comparative returns.

    "Economic growth, the price of credit, inflation, and employment are all driven principally by the expansion of capital."

    Only partially. This is overly simplistic. It's like saying that profits are created from investments. Unfortunately not all investments create profits. All Economic growth, inflation, and employment are driven principally by the expansion of capital, however not all expansion of capital leads to economic growth, inflation, and growth of employment. Mainstream economists think that by expanding capital, sustainable growth will follow. Sorry, reality doesn't work that way. If there is no shortage of credit then increasing capital formation is not the answer. It all depends on how that capital is invested. Highly leveraged money in financial markets might prove the most profitable investment at any given, but it probably won't create real economic growth.
    May 14, 2015. 07:11 PM | 2 Likes Like |Link to Comment
  • Some BLS Doesn't Match The Other BLS [View article]
    Yes, Naybob, you've outlined the problem that I've pointed out and that DDLA keeps circling around.

    The total amount of debt and demand for debt has exploded since 1970, this includes household debt, private debt, and government debt. Yet during that time interest rates have trended down from 18% to less than 1%. So even though the demand for credit and the accumulation of new debt grew exponentially, the supply of new credit had to grow even faster. This can only occur either by an increase in the supply of money needed to create new credit (monetization) or the leveraging of financial credit, or a combination of both. The excessive leveraging of credit through financialization of existing capital stock leads to the expected "lower returns for each additional dollar invested".
    May 14, 2015. 06:21 PM | 2 Likes Like |Link to Comment
  • Some BLS Doesn't Match The Other BLS [View article]
    "Capital formation rates are what drive the interest rates for credit and debt."

    Not necessarily. The two are codependent variables. What you say would hold true for a free credit market who's pricing follows supply and demand. But in the last three decades the Fed has strongly interfered in the credit markets.
    May 14, 2015. 05:56 PM | 1 Like Like |Link to Comment
  • Some BLS Doesn't Match The Other BLS [View article]
    "The rate of growth of capital formation has been declining for 30 years."

    The rate of capital formation has declined but total capital formation still increased. The global rate of capital formation shot up on the 1970's when we abandoned the gold standard. There is a very strong correlation between interest rates and capital formation. History shows that lower interest rates DO NOT spur increased capital formation, as peak capital formation coincides with peak interest rates. Capital formation will increase under a scenario of either inflation, or increased interest rates. In fact, the periods of peak capital formation coincides with both peak interest rates AND peak inflation. Capital goes where it gets the best returns, which under low interest rates is financial assets not capital stock.
    May 13, 2015. 06:07 PM | Likes Like |Link to Comment
  • Some BLS Doesn't Match The Other BLS [View article]
    David,
    Demand has fallen relative to supply, but it has increased in absolute terms. The grow in the global economy over the last four decades has required tremendous amounts of capital. It's Central Bank policy that has caused the "oversupply".
    May 13, 2015. 02:12 PM | 1 Like Like |Link to Comment
  • Some BLS Doesn't Match The Other BLS [View article]
    "The decline in interest rates over the last 30 years shows the great excess of the supply of credit over demand for credit"

    And where did all this excess credit supply come from? Too many savers? No! Central bank policy.
    May 12, 2015. 03:41 PM | 1 Like Like |Link to Comment
  • Some BLS Doesn't Match The Other BLS [View article]
    I believe he is distinguishing between Commercial Banks which have accesses to the Fed window, and Savings Banks and Non Banks which do not. Salmo comments on this a lot, so it might be helpful for you too look over some of his older comments.
    May 12, 2015. 03:35 PM | 1 Like Like |Link to Comment
  • Japan Needs A Bigger Hole? [View article]
    QE policy in Japan has made things worse because the very low interest rates in Japan allow the government to continue to borrow and spend with little consequence. This has allowed Japan to avert any painful crises that might demand real and painful reform. Perhaps your life preserver analogy is on track - it might have saved the victim from drowning, but it has become a substitute for swimming, and the victim is drifting further and further from shore.
    Apr 30, 2015. 09:07 PM | 1 Like Like |Link to Comment
  • Japan Needs A Bigger Hole? [View article]
    Perhaps it has prevented things from getting worse, but it has also prevented things from getting better.
    Apr 29, 2015. 04:13 PM | 2 Likes Like |Link to Comment
  • Japan Needs A Bigger Hole? [View article]
    Hello David,

    "1) I do not see how higher interest rates provide more support for economic growth as compared to lower rates. The economy is sluggish and raising interest rates would not help solve that problem. "

    Here is where you can't seem to see the forest for the trees. It is not nominal interest rates that matter, it's real interest rates that matter. A prime rate of 7% fine if inflation is 5%. In order to spur the inflation necessary to reduce our massive debt over time, nominal interest rates will have to be higher.

    '2) I do not see how the market would support higher interest rates. There is an oversupply of credit as compared to demand. Interest rates have been falling for 30 years and not because of anything that the Federal Reserve Bank (FRB) have done. The Effective Federal Funds Rate were 0.38% in November of 2008, before the Quantitative Easing Policy went into effect. It is 0.11% now, hardly any decrease. So it is not at all clear that the credit market will support too much of an increase."

    The oversupply of credit is due to the oversupply of money that has been created over the last four decades. Had there not been and oversupply of money, we would not have had the highest forty-year level of inflation in the nation's history. This increase in the money supply has been created by the massive increase in credit made available by Fed policy, and banking policy over that time period.

    If you want to reverse the process we must allow the excessive debt to unwind. However this will be deflationary, so new money will have to be created and injected into the economy OUTSIDE of the banking system. The problem with an alternative policy to QE is that the Fed currently does not have the necessary policy tools. Still that is not a reason to implement QE. If I need to put in a screw and only have a hammer, I should ask for a screwdriver, not try to put the screw in with a hammer. That, like the current Fed policy, will only create more of a mess.
    Apr 29, 2015. 04:11 PM | Likes Like |Link to Comment
  • General Electric Resorts To Financial Engineering To Boost Stock Price [View article]
    Guest,
    GE was not the only company to gut its R&D. IBM and AT&T Bell Labs (now Lucent) come to mind. These companies also have experienced a long down-hill slide. If these giants are not going to innovate, they have to at least identify young innovate companies, buy them, and integrate them into their corporate structure. This is a much better use of funds than stock buy-backs.
    Apr 12, 2015. 10:44 PM | Likes Like |Link to Comment
  • Bernanke Supercycles [View article]
    "capital seeks its highest return and that is found were wages are lowest, capital will move to where wages are lowest. "

    Then Sub-Saharan Africa would be attracting all the world's capital, and money would be flowing out of Germany and into Eastern Europe. Low wages are one factor, but not the only factor, nor the most important factor. All other things being equal, capital will move to the lowest wage environment. But all things are not equal, and thus the US still remains the world's largest manufacturer.
    Apr 10, 2015. 02:17 PM | 1 Like Like |Link to Comment
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