The Truth About QE, The Deficit, And GDP Growth [View article]
Money being fungible is not relevant to debt as debt is creation of new money. We have a choice: to either consume or save/invest. If we choose to go into debt, that is creation on new money with a significant service charge (interest). The creation of the the debt only makes sense if there is future value that exceeds the future debt service.
I suppose there are a few people who weight immediate debt-based consumption over debt-based investment because they discount the future so heavily (maybe terminally ill?). But, what creditor would provide debt to someone for consumption purposes knowing the person will not pay them back? And, if the consumer can snooker the creditor, that doesn't mean that this was a cost-less or desirable act. The debt will be eaten by someone . . . Perhaps the consumer wins from the bad debt consuming Big Macs, but the rest of us lose . . .
The Truth About QE, The Deficit, And GDP Growth [View article]
Debt certainly can be good if it generates greater future returns than the debt burden. But, that is not the case for the vast bulk of government spending which is focused on generationally selfish consumption. The Deficit-fueled Big Mac's we are eating sure may taste good, but the only thing lasting is the debt we feed to our children and our growth outlook. Structural GDP per capita would take this into account. Sure, we can deficit spend today and nominal GDP might look good today (from an accounting perspective) from that spend, but it is reducing our true growth rates and impoverishing us and our children's future . . .
The U.S. Doesn't Have A Debt Crisis: Don't Let It Scare You Out Of Stocks [View article]
An example of past performance being used to predict future results. The NPV of unfunded govt obligations is well over 200 trillion. That will convert to real debt whose burden will swamp growth rates (which will be crushed further by ever increasing debt, taxes and inflation). Meanwhile, our big rapid market growth in last 30 years (that author uses to demonstrate why to invest more) was driven by the very debt that we now cannot get out of. We are an economy addicted to credit growth (current total credit in economy is over $50 trillion now and has been growing exponentially for last 30 years in order to sustain a meager 3% growth rate). This debt addiction must hit a wall simply due to forced deleveraging and laws of diminishing returns. Think of our economy and growth, now wholly distorted by abundant, cheap credit, when we actually change the trajectory of credit growth. And, let us not forget the occasional black swans that can excite and impact weakened economies like our own . . .
The Truth About QE, The Deficit, And GDP Growth [View article]
Rob Arnott says it best:
Gross Domestic Product is used to measure a country’s economic growth and standard of living. It measures neither. Unfortunately, the finance community and global centers of power are wedded to a measure that bears little relation to reality, because it confuses prosperity with debt-fueled spending.
From this perspective, real GDP seems unreal, at best. GDP that stems from new debt—mainly deficit spending—is phony: it is debt-financed consumption, not prosperity. Isn’t GDP, after excluding net new debt obligations, a more relevant measure? Deficit spending is supposed to trigger growth in the remainder of the economy, net of deficit-financed spending, which we can call our “Structural GDP.”
If Structural GDP fails to grow as a consequence of our deficits, then deficit spending has failed in its sole and singular purpose. Of course, even Structural GDP offers a misleading picture. Our Structural GDP has grown nearly 100-fold in the last 70 years. Most of that growth is due to inflation and population growth; a truer measure of the prosperity of the average citizen must adjust for these effects. Accordingly, let’s compare real per capita GDP with real per capita Structural GDP.
The Truth About QE, The Deficit, And GDP Growth [View article]
Interesting dialogue. I think the article clarifies the impact of deficit spending -- as it relates to GDP snapshot.
I think the critique by others misses the point (and the article also doesn't delve into): GDP is merely an accounting tool. What we cannot tell from GDP spending is whether or not it is "good spending" or not. Keynes didn't care much about this question. And the implicit critique of Keynesianism by the author doesn't touch upon. And there is NO way to tell if good, or bad, spending by looking at GDP with or without deficit spending.
I would suggest that, we're it possible to show GDP "growth per capita", over an extended period of time (longer than the time frames shown), and be able to compare growth with and without deficit spending, we might be able to make conclusions about the value of deficit spending.
But, you cannot determine value of deficit spending based on data provided here.
My view: We are spending our money badly. We are borrowing today on selfish consumption, not investments that will increase future standards of living. The crushing debt is the only lasting result. This will crush growth for a very long time. So, Keynes and deficit spending get it wrong. Because we are spending badly. But, none of this argument can be explained using the aggregate macro snapshot data in this article.
The article is valuable for showing the differing impacts of GDP with and without deficit spending. I would suggest combining the arguments of this article with the good work that demonstrates how our economy is addicted to exponential credit growth (which reveals how the continuing exponential credit growth is impossible and subject to diminishing returns and implosion/reversal when the credit growth trend reverses) . . .
Do Interest Payments On Government Debt Matter? [View article]
How about reducing spending today--in order to reduce the debt burden tomorrow. Would avoid the "distortionary" tax increases today (as alluded to in article) while actually reducing the distortionary govt spending that is causing the gross debt burden in the first place.
Even better, how about strategic restructuring that reduces govt spending only a little bit today but a whole lot tomorrow . . .
Keynesians never provide these as options . . . Always defining "austerity" as raising taxes . . . That just enables growing and feeding the growth-killing govt beast . . .
Daily State Of The Markets: It's Just Silliness, Right? [View article]
What good is it to see 10% rise in a month or two only to get wiped out when the market does turn--and it will soon. There is no doubt the market is blown up by artificial money and rates. We know it is unsustainable. Shiller PE confirms the market is overbought. Yes, I have missed the last 10%. I may miss the next 10%. But, I prefer to not be one of the pigs led to slaughter. This is based on a fact based view of the environment. I guess I'll have to miss the next incremental gain . . .oh well . . . .
Sharing this article because it defines THE problem. The ideological Keynesian belief that abundant cheap fiat money, credit expansion, and deficit spending are good for GDP growth depends on this one critical point: that the increase in debt is relatively cost-less. Crazy. But, Krugman gets away with it every day of the week. It is amazing to me that he can claim this all the time despite our common sense daily life experience that tells us that money spent badly is simply money spent badly--and is bad for the economy . . .
Agree with the comments. Crazy. The principle problem with Krugman, et al, arguments is that there is never a distinction between good and bad spending. If you take on debt and consume (rather than invest) or enable casino gambling in markets, that is bad debt and bad for the economy. It contributes to negative impacts on GDP growth. Additionally, even the minuscule government spending that could actually be legitimately labeled "investment" (rather than consumption) is usually investment with poor ROI compared to alternative uses of that capital.
Plus, the artificially cheap and abundant fiat money that drives the so-called benign credit expansion leads to massive malinvestments, massive mis pricing of risk, and credit-induced bubbles that pop and make most of us poorer. It takes decades to unwind out of some of these malinvestments. . . .
When the bubbles pop, the so-called good (becasue they balance debt) assets deflate, but the debt remains, for us and our children.
Of course, the government will be right behind that bubble to inflate credit and assets again for another go round of insanity . . .
We are reaching the end of a great credit expansion epoch. To see why, take a look at the diminishing returns of credit growth on GDP growth. The problem with diminishing returns is, it is like gravity: you cannot fight it. The Krugmans of the world may allow us the illusion of cost-free credit expansion a little longer, but this will end badly.
Current Stock Market Valuation And The Implications For Investment [View article]
I want to share this great article on my FB, but too many proof reading errors. Can you proof and repost? Love your clear arguments. PE ratio is the ONLY thin reed that the market cheerleaders have to support our not being in a credit bubble/crisis . . . .
The Fed Has Not Been Printing Boatloads Of Money [View article]
Just because money is sitting largely in increased bank reserves doesn't mean that good assets aren't being exchanged for bad as they are offloaded to the Fed. And then the banks use the new money to gamble in the markets. So, while we aren't seeing the money flow into the goods and services markets as much as they might otherwise have, the money is flowing into risky assets creating new asste bubbles (read asset inflation). Asset inflation (divorced from fundamentals) is bad too . . .
Is Austerity The Solution To USA's Problems? [View article]
Problem lies in one's definition of austerity. Pump priming, particularly that by monetary policy can be useful for a limited time. And fiscal spending, if actually spent on investments with high long term ROI would be useful. Raising taxes in the name of austerity makes no sense, particularly as it takes away money from those who need it most to pay for govt bureaucrats and govt supported pet projects.
But, sustained "temporary" govt spending on mostly consumption is doing nothing to spur growth. In fact, the growing debt and related market uncertainty from these unstable policies are hampering private sector animal spirits and investments. The economy and markets are held back by the required higher taxes for the spending and the future taxes and inflation to pay off this wasteful spending.
My view is, selective deficit pump priming policies can potentially make sense if they are not only inline with short term pump priming but also long term sustainable growth. If these 2 criteria are not met, then it is wasteful deficit spending that is hurting both near term aggregate demand and long term growth.
So, Europe is doing austerity all the wrong way. If they focused on structural reforms and reducing long term unfunded obligations, rather than raising taxes for bloated inefficient governments, then they would be doing austerity the right way, allowing for pump priming and laying foundation for long term, sustainable growth . . .
Why Hyperinflation Is No Myth: The Shadow Banking Component [View article]
Your comments are always breaking new ground and causing old assumptions to be questioned. One area I think worth digging into is the possibility of inflation happening in a deflationary wage environment, where inflation takes off in other areas such as commodities . . .
I'm always frustrated by the continuing mistake of those who equate correlation with causality. We will never be able to replicate the post-WWII economy or circumstances. But to equate that booming economy then to being caused by high government taxes and spending is ridiculous and failed logic. We will never know how the 1950's economy would have grown with lower taxes and fed spending In the 1950's. Probably even better. We almost certainly would have better growth today if we didn't have our governments (under both parties) wasting our precious resources on wasteful malinvestments and current consumption (with no value to future generations or to generating robust, sustainable growth).
Where I would agree with your criticism is that, at least in the 50's, the fed govt devoted a lot more to true investments--that actually lead to future streams of value (such as interstate highway system).
Instead of ideological flame throwing, I would suggest keeping the focus on good investments versus bad investments (or worse, pure consumption with no long term value). In this regard, whether govt was better at investing in the 50's is a relevant point. But, clearly, governments at all levels have been failing for decades in allocating capital to best, productive uses. Government out of control, wasteful, ever-expanding, growth-killing spending is finally coming home to roost.
Latest Debt, GDP Figures Indicate U.S. Economy Is Still Unwell [View article]
Layer upon this analysis the sum of the total NPV of unfunded obligations across local, state and federal governments and the true debt is well over $100 trillion.
Treat the ever-increasing total credit (now $55 trillion) as the new life blood of the economy. Our growth has become addicted to it (and distorted by it). If you assume that this ever increasing "flow" is unsustainable and the aggregate debt (over 100 trillion) will never be paid back, then the consequences of this multiyear bubble in the making are frightening. Not only must the economy contract when the unsustainable flow decreases but it also must contract from the deleveraging required to tackle the aggregate debt.
Now, here is the third scary number. Layer on top of this $1.5 quadrillion of nominal value of derivatives market. This is the factor that turns the next major downturn into a massive global bank run . . .
The Truth About QE, The Deficit, And GDP Growth [View article]
I suppose there are a few people who weight immediate debt-based consumption over debt-based investment because they discount the future so heavily (maybe terminally ill?). But, what creditor would provide debt to someone for consumption purposes knowing the person will not pay them back? And, if the consumer can snooker the creditor, that doesn't mean that this was a cost-less or desirable act. The debt will be eaten by someone . . . Perhaps the consumer wins from the bad debt consuming Big Macs, but the rest of us lose . . .
The Truth About QE, The Deficit, And GDP Growth [View article]
The U.S. Doesn't Have A Debt Crisis: Don't Let It Scare You Out Of Stocks [View article]
The Truth About QE, The Deficit, And GDP Growth [View article]
Gross Domestic Product is used to measure a country’s economic growth and standard of living. It measures neither. Unfortunately, the finance community and global centers of power are wedded to a measure that bears little relation to reality, because it confuses prosperity with debt-fueled spending.
From this perspective, real GDP seems unreal, at best. GDP that stems from new debt—mainly deficit spending—is phony: it is debt-financed consumption, not prosperity. Isn’t GDP, after excluding net new debt obligations, a more relevant measure? Deficit spending is supposed to trigger growth in the remainder of the economy, net of deficit-financed spending, which we can call our “Structural GDP.”
If Structural GDP fails to grow as a consequence of our deficits, then deficit spending has failed in its sole and singular purpose. Of course, even Structural GDP offers a misleading picture. Our Structural GDP has grown nearly 100-fold in the last 70 years. Most of that growth is due to inflation and population growth; a truer measure of the prosperity of the average citizen must adjust for these effects. Accordingly, let’s compare real per capita GDP with real per capita Structural GDP.
The Truth About QE, The Deficit, And GDP Growth [View article]
I think the critique by others misses the point (and the article also doesn't delve into): GDP is merely an accounting tool. What we cannot tell from GDP spending is whether or not it is "good spending" or not. Keynes didn't care much about this question. And the implicit critique of Keynesianism by the author doesn't touch upon. And there is NO way to tell if good, or bad, spending by looking at GDP with or without deficit spending.
I would suggest that, we're it possible to show GDP "growth per capita", over an extended period of time (longer than the time frames shown), and be able to compare growth with and without deficit spending, we might be able to make conclusions about the value of deficit spending.
But, you cannot determine value of deficit spending based on data provided here.
My view: We are spending our money badly. We are borrowing today on selfish consumption, not investments that will increase future standards of living. The crushing debt is the only lasting result. This will crush growth for a very long time. So, Keynes and deficit spending get it wrong. Because we are spending badly. But, none of this argument can be explained using the aggregate macro snapshot data in this article.
The article is valuable for showing the differing impacts of GDP with and without deficit spending. I would suggest combining the arguments of this article with the good work that demonstrates how our economy is addicted to exponential credit growth (which reveals how the continuing exponential credit growth is impossible and subject to diminishing returns and implosion/reversal when the credit growth trend reverses) . . .
Do Interest Payments On Government Debt Matter? [View article]
Even better, how about strategic restructuring that reduces govt spending only a little bit today but a whole lot tomorrow . . .
Keynesians never provide these as options . . . Always defining "austerity" as raising taxes . . . That just enables growing and feeding the growth-killing govt beast . . .
Daily State Of The Markets: It's Just Silliness, Right? [View article]
Gross Mistake [View article]
Gross Mistake [View article]
Plus, the artificially cheap and abundant fiat money that drives the so-called benign credit expansion leads to massive malinvestments, massive mis pricing of risk, and credit-induced bubbles that pop and make most of us poorer. It takes decades to unwind out of some of these malinvestments. . . .
When the bubbles pop, the so-called good (becasue they balance debt) assets deflate, but the debt remains, for us and our children.
Of course, the government will be right behind that bubble to inflate credit and assets again for another go round of insanity . . .
We are reaching the end of a great credit expansion epoch. To see why, take a look at the diminishing returns of credit growth on GDP growth. The problem with diminishing returns is, it is like gravity: you cannot fight it. The Krugmans of the world may allow us the illusion of cost-free credit expansion a little longer, but this will end badly.
Current Stock Market Valuation And The Implications For Investment [View article]
The Fed Has Not Been Printing Boatloads Of Money [View article]
Is Austerity The Solution To USA's Problems? [View article]
But, sustained "temporary" govt spending on mostly consumption is doing nothing to spur growth. In fact, the growing debt and related market uncertainty from these unstable policies are hampering private sector animal spirits and investments. The economy and markets are held back by the required higher taxes for the spending and the future taxes and inflation to pay off this wasteful spending.
My view is, selective deficit pump priming policies can potentially make sense if they are not only inline with short term pump priming but also long term sustainable growth. If these 2 criteria are not met, then it is wasteful deficit spending that is hurting both near term aggregate demand and long term growth.
So, Europe is doing austerity all the wrong way. If they focused on structural reforms and reducing long term unfunded obligations, rather than raising taxes for bloated inefficient governments, then they would be doing austerity the right way, allowing for pump priming and laying foundation for long term, sustainable growth . . .
Why Hyperinflation Is No Myth: The Shadow Banking Component [View article]
Debt Musings And Misconceptions [View article]
Where I would agree with your criticism is that, at least in the 50's, the fed govt devoted a lot more to true investments--that actually lead to future streams of value (such as interstate highway system).
Instead of ideological flame throwing, I would suggest keeping the focus on good investments versus bad investments (or worse, pure consumption with no long term value). In this regard, whether govt was better at investing in the 50's is a relevant point. But, clearly, governments at all levels have been failing for decades in allocating capital to best, productive uses. Government out of control, wasteful, ever-expanding, growth-killing spending is finally coming home to roost.
Latest Debt, GDP Figures Indicate U.S. Economy Is Still Unwell [View article]
Treat the ever-increasing total credit (now $55 trillion) as the new life blood of the economy. Our growth has become addicted to it (and distorted by it). If you assume that this ever increasing "flow" is unsustainable and the aggregate debt (over 100 trillion) will never be paid back, then the consequences of this multiyear bubble in the making are frightening. Not only must the economy contract when the unsustainable flow decreases but it also must contract from the deleveraging required to tackle the aggregate debt.
Now, here is the third scary number. Layer on top of this $1.5 quadrillion of nominal value of derivatives market. This is the factor that turns the next major downturn into a massive global bank run . . .