Debt and the Deficit: Back to the Basics [View article]
Misleading because scarcity is typically used as an absolute term - things are either scarce or are not.
With respect to inflation, scarcity (of goods) is only relevant with respect to scarcity of money. In fact "scarcity" is the wrong word to use because in an environment where goods are not scarce inflation can still be induced by exploding money supply on a relative basis. Thus inflation is predominantly driven by fluctuations on the money supply side - which can be considerably more volatile and aggressive.
I would also modify the statement to: "the nation's deficit is not a financial burden to anyone... today".
In the same way that Greek insolvency is not a burden to German tax payers... today.
Debt and the Deficit: Back to the Basics [View article]
Agreed LJK,
Indeed I wrote a piece about 6 or 7 years ago called "Looks like Deflation but Feels like Inflation" which alludes directly to this dichotomy within the inflationary basket. To this extent even the headline inflation number only tells a small part of the story beneath the hood.
Debt and the Deficit: Back to the Basics [View article]
The price of nearly every primary substance denominated in Dollars (be it oil, food, electricity, coal, gold etc) has been rising very fast over the last 10-20 years. These substances actually have exchange and value properties of their own and can thus be considered as rudimentary currencies in their own right.
So it's not so much that the debasement is contributing to their rise. The debasement IS their rise.
What helps to muddy the water is the fact that all fiat currencies are being debased with respect to physical items with monetary properties.
The Horrifying AAA Debt-Issuance Chart [View article]
With respect to the ECB:
Agree with the sentiment but not the argument.
I feel that it is oft downplayed the difference between a central bank with a dual mandate (+ employment) to a central bank with a single mandate (price stability only). As you can imagine, in the political minefield that is the EU, the ECB needs to distance itself GREATLY from political influence on all matters not purely monetary (i.e. employment - which is a more politically-charged mandate). In doing so it ironically gains monetary dominance (over fiscal power of member states). I say ironic because by relentless pursuit of purist monetary mandate, the ECB almost becomes the apex vigilante.
Without this ultra independence the Euro is toast. This is why I believe the ECB constantly fights for independence (even when member states are flailing) and why Trichet continues to talk about "strong vigilance" in the face of member-state defaults. This is not a mark of the man, the ECB is the fiscal regulator of last resort - it's worth noting that his successor is reportedly MORE hawkish on inflation than he is.
The Horrifying AAA Debt-Issuance Chart [View article]
Well I was just para-phrasing Keynes (with whom I still fundamentally agree)... but in any case I'm not sure I understand your logic here...
For example, Even after inventories were working their way back to normal levels in the post-crisis aftermath, Bernanke - continued to engage in highly accommodative policy in a trajectory contrary to what you imply (I'm not saying he was incorrect to do so).
In this environment both productivity and product supply could not have been at the levels nor the trend they were policy was considerably tighter. This is surely part of the inherent structurally political leaning of a dual mandate.
Debt and the Deficit: Back to the Basics [View article]
Lawrence,
I believe Chinese Keynesian policy worked well because they actually ran Keynesian policy. That is they spent during downturns AS WELL AS running balanced or surpluses during stable or expansionary periods.
In this respect US policy has evolved to such a rhythm where I'm not sure one could even define it as Keynsian. That along with your globalization of fiscal and monetary effect may be why it lacks predicted impact domestically.
Those who say that Keynesian theory is defunct miss the picture, I think, but I'd even go one stage further by saying they are doing the (really rather good) late economist a dis-service by even calling this one-sided stimulus policy "Keynesian".
A Historical Perspective on U.S. Debt [View article]
There was a time and a place where people, on the whole, lived within their means and only sought debt solutions when they had a clear business strategy to repay that debt and when all other sensible options are exhausted. In this environment, debt was GOOD. Whether debtors were individuals taking out mortgages/loans or the Government itself issuing bonds, there was a culture on both sides of the transaction (borrower and lender) that when a loan was granted, it could and would be paid back in full. As such, assurances are made, not only for the interest to be serviced, but also a clear understanding that when the principal of the debt sum came due it would be redeemed by the debtor intrinsically and in its own right.
This admirable culture of responsibility ran right through society because government set the precedent. Debt and creditors alike were respected.
This may sound like a fairytale fictional utopia but it was a similar predicament many of today’s developed countries faced after WWII. While debt was regarded as an occasional necessary, it was treated with respect, an honorable promise, a burden of both capital and goodwill and not some self-righteous life-support claim. Debt, as an economic tool, is good only because it is as good as the intentions of both debtors and creditors were objective, honorable and pragmatic. The flexibility of capital immediately after WWII allowed us to front-run investment and service a long period of intense economic expansion.
Debt and the Deficit: Back to the Basics [View article]
Its a fair point but I wonder if its been a double-edged sword. Technology has certainly increased productivity but must have also influenced external contagiousness and internal policy impotence through globalization (in particular through information technology and communications).
It seems most classical economics and economic policy ignores both of these aspects.
Debt and the Deficit: Back to the Basics [View article]
A great point sir. I think we've forgotten that small businesses (that cannot be traded on any exchange) account for half of GDP and significantly more of GDP growth. Additionally they employ more than half of the workforce. Which is why the bastardization of Monetary Policy via the back-door stimulus of the economy through asset price inflation is all the more convoluted...
Debt and the Deficit: Back to the Basics [View article]
Great article John.
There's an interesting ratio which compares the supply(/demand) dynamics or productivity of a physical money like Gold or Silver or Oil with the supply (/demand) dynamics or productivity of Bernanke's printing press. It's called the "price".... wait... Gold his a new high today... Darn it!
... but its value as a modern currency is irrelevant ... perhaps. So we should compare the dynamics with other trash fiat currencies - the exchange rate with respect to currencies like the Pound, Yen, Aussie and Canadian Dollars... wait... Darn it! OK how about most structurally impaired currency on Earth, Euro... wait... Darn it!! Aren't people supposed to hold the World's Reserve Currency in times of high uncertainty?
Deficits DO matter and tackling them has never been more imperative. I had a car whose handling was so dangerous that BBC's "Top Gear" described it as being like a grizzly bear. "All warm and cuddly until one day it just rips your face off"... This is how I think of walking the deficit tightrope.
I must say I sympathize: yours is not an easy position to take John because every day that we survive in warm and cuddly comfort implicates that you are wrong... ... until the day you are right...and then even you will wish you were wrong.
The Horrifying AAA Debt-Issuance Chart [View article]
True. TIPS are just another function of mis-reported statistics.
Apart from the grand hoax of inflation-reporting there are plenty of non-price sensitive, non-inflation sensitive, non-domestic buyers of treasuries to explain why they yield so low at time when the USD is still the safe-haven of choice... for now.
The Horrifying AAA Debt-Issuance Chart [View article]
Apples and apples ultimately.
True Weimar had a structural aspect which made the process different to normal inflation defaults but the end result is the same.
You can't get away from it... if you borrow too much you default either by outright default or inflation default (whether that is inflation of choice or circumstantial)...
The Horrifying AAA Debt-Issuance Chart [View article]
Agreed GreenRiver,
Generally speaking, consumers in most developed countries are further in debt than their predecessors have ever been, most notably the US and UK. Generally speaking, governments of most developed countries no longer borrow within their means. They depend on the never-ending line of buttered up foreigners at the behest of a rigged credit market. By, in part, leveraging financially off the sweat and blood of bygone generations, developed nations enjoy the luxurious privilege of being able to borrow at interest rates much, much lower than their, less developed, counterparts.
Today these developed nations continually borrow so much that it is now taken for granted that they will basically never be able to pay back principal loan values from their (tax) revenues. It is assumed that the everlasting credit markets will always be there to help them refinance or “rollover” any old, maturing debt for brand spanking new debt at little or no extra cost.
What I’d like to underscore at this point is the importance of the perception of an eternally consistent credit market condition – it is integral to the economic survival of even the biggest, most developed nations in the World and always has been since the beginning of financial sovereignity.
Debt and the Deficit: Back to the Basics [View article]
With respect to inflation, scarcity (of goods) is only relevant with respect to scarcity of money. In fact "scarcity" is the wrong word to use because in an environment where goods are not scarce inflation can still be induced by exploding money supply on a relative basis. Thus inflation is predominantly driven by fluctuations on the money supply side - which can be considerably more volatile and aggressive.
I would also modify the statement to: "the nation's deficit is not a financial burden to anyone... today".
In the same way that Greek insolvency is not a burden to German tax payers... today.
Debt and the Deficit: Back to the Basics [View article]
Indeed I wrote a piece about 6 or 7 years ago called "Looks like Deflation but Feels like Inflation" which alludes directly to this dichotomy within the inflationary basket. To this extent even the headline inflation number only tells a small part of the story beneath the hood.
Debt and the Deficit: Back to the Basics [View article]
So it's not so much that the debasement is contributing to their rise. The debasement IS their rise.
What helps to muddy the water is the fact that all fiat currencies are being debased with respect to physical items with monetary properties.
The Horrifying AAA Debt-Issuance Chart [View article]
Agree with the sentiment but not the argument.
I feel that it is oft downplayed the difference between a central bank with a dual mandate (+ employment) to a central bank with a single mandate (price stability only). As you can imagine, in the political minefield that is the EU, the ECB needs to distance itself GREATLY from political influence on all matters not purely monetary (i.e. employment - which is a more politically-charged mandate). In doing so it ironically gains monetary dominance (over fiscal power of member states). I say ironic because by relentless pursuit of purist monetary mandate, the ECB almost becomes the apex vigilante.
Without this ultra independence the Euro is toast. This is why I believe the ECB constantly fights for independence (even when member states are flailing) and why Trichet continues to talk about "strong vigilance" in the face of member-state defaults. This is not a mark of the man, the ECB is the fiscal regulator of last resort - it's worth noting that his successor is reportedly MORE hawkish on inflation than he is.
The Horrifying AAA Debt-Issuance Chart [View article]
For example,
Even after inventories were working their way back to normal levels in the post-crisis aftermath, Bernanke - continued to engage in highly accommodative policy in a trajectory contrary to what you imply (I'm not saying he was incorrect to do so).
In this environment both productivity and product supply could not have been at the levels nor the trend they were policy was considerably tighter. This is surely part of the inherent structurally political leaning of a dual mandate.
Debt and the Deficit: Back to the Basics [View article]
I believe Chinese Keynesian policy worked well because they actually ran Keynesian policy. That is they spent during downturns AS WELL AS running balanced or surpluses during stable or expansionary periods.
In this respect US policy has evolved to such a rhythm where I'm not sure one could even define it as Keynsian. That along with your globalization of fiscal and monetary effect may be why it lacks predicted impact domestically.
Those who say that Keynesian theory is defunct miss the picture, I think, but I'd even go one stage further by saying they are doing the (really rather good) late economist a dis-service by even calling this one-sided stimulus policy "Keynesian".
A Historical Perspective on U.S. Debt [View article]
This admirable culture of responsibility ran right through society because government set the precedent. Debt and creditors alike were respected.
This may sound like a fairytale fictional utopia but it was a similar predicament many of today’s developed countries faced after WWII. While debt was regarded as an occasional necessary, it was treated with respect, an honorable promise, a burden of both capital and goodwill and not some self-righteous life-support claim. Debt, as an economic tool, is good only because it is as good as the intentions of both debtors and creditors were objective, honorable and pragmatic. The flexibility of capital immediately after WWII allowed us to front-run investment and service a long period of intense economic expansion.
Debt and the Deficit: Back to the Basics [View article]
It seems most classical economics and economic policy ignores both of these aspects.
Debt and the Deficit: Back to the Basics [View article]
Debt and the Deficit: Back to the Basics [View article]
There's an interesting ratio which compares the supply(/demand) dynamics or productivity of a physical money like Gold or Silver or Oil with the supply (/demand) dynamics or productivity of Bernanke's printing press. It's called the "price".... wait... Gold his a new high today... Darn it!
... but its value as a modern currency is irrelevant ... perhaps. So we should compare the dynamics with other trash fiat currencies - the exchange rate with respect to currencies like the Pound, Yen, Aussie and Canadian Dollars... wait... Darn it! OK how about most structurally impaired currency on Earth, Euro... wait... Darn it!! Aren't people supposed to hold the World's Reserve Currency in times of high uncertainty?
Deficits DO matter and tackling them has never been more imperative. I had a car whose handling was so dangerous that BBC's "Top Gear" described it as being like a grizzly bear. "All warm and cuddly until one day it just rips your face off"... This is how I think of walking the deficit tightrope.
I must say I sympathize: yours is not an easy position to take John because every day that we survive in warm and cuddly comfort implicates that you are wrong... ... until the day you are right...and then even you will wish you were wrong.
The Horrifying AAA Debt-Issuance Chart [View article]
Apart from the grand hoax of inflation-reporting there are plenty of non-price sensitive, non-inflation sensitive, non-domestic buyers of treasuries to explain why they yield so low at time when the USD is still the safe-haven of choice... for now.
The Horrifying AAA Debt-Issuance Chart [View article]
The Horrifying AAA Debt-Issuance Chart [View article]
Inflation ultimately depends only one thing: on the supply of money (not goods).
The Horrifying AAA Debt-Issuance Chart [View article]
True Weimar had a structural aspect which made the process different to normal inflation defaults but the end result is the same.
You can't get away from it... if you borrow too much you default either by outright default or inflation default (whether that is inflation of choice or circumstantial)...
The Horrifying AAA Debt-Issuance Chart [View article]
Generally speaking, consumers in most developed countries are further in debt than their predecessors have ever been, most notably the US and UK. Generally speaking, governments of most developed countries no longer borrow within their means. They depend on the never-ending line of buttered up foreigners at the behest of a rigged credit market. By, in part, leveraging financially off the sweat and blood of bygone generations, developed nations enjoy the luxurious privilege of being able to borrow at interest rates much, much lower than their, less developed, counterparts.
Today these developed nations continually borrow so much that it is now taken for granted that they will basically never be able to pay back principal loan values from their (tax) revenues. It is assumed that the everlasting credit markets will always be there to help them refinance or “rollover” any old, maturing debt for brand spanking new debt at little or no extra cost.
What I’d like to underscore at this point is the importance of the perception of an eternally consistent credit market condition – it is integral to the economic survival of even the biggest, most developed nations in the World and always has been since the beginning of financial sovereignity.