BoJ Asset Purchases: Is Japan Sowing Seeds Of Next Asset Bubble? [View article]
I believe the NY Fed did an event study last year that showed the performance of the S&P before and after Fed announcements. For many years, the cb's have greatly influenced the stock markets. BOJ and others are also now actively purchasing stocks trying to enhance the wealth effect. The irony of printing money to create a wealth effect is typically lost on central bankers. This was partly because it appears to "work" in small doses over shorter time frames. Now, we have massive doses with no clear end in sight forcing the short term to abruptly meet the long term at some point.
BoJ Asset Purchases: Is Japan Sowing Seeds Of Next Asset Bubble? [View article]
There is nothing to stop the BOJ from doing just that - but it won't mean the Nikkei reaches that level due to real growth - just inflation. And eventually, there is a tipping point where the economy can not successfully sustain the instability created by such massive money printing. Nobody can say for certain where that tipping point is, but we can say that this new move by the BOJ brings them a whole lot closer.
That's not an easy question to answer. As citizens leave their local currency, they exacerbate the existing debt repayment, inflation and taxation problems thereby ensuring that a greater and greater burden is born by fewer and fewer people. Just because the transition is slow at first does not mean that it does not happen. Surely there is some range within which the percentage of money on Bitcoin does not matter. However, all the interesting stuff in economics happens on the margin, so it does not need 51% of population to switch currencies to broach the tipping point. It might be as low as 5%...but probably more like 10% or 15%. That's when you start to get the burden of those leaving impacting those remaining in the local currency.
Is Japan The Canary In The Keynesian Coal Mine? [View article]
You are right. A shrinking economy need not be a problem. Yet it is. At present, despite a shrinking population, Japan is growing total debt. This only happens due to massive socialized costs. The degree of socialization is the problem, not the shrinking, per se.
Is Japan The Canary In The Keynesian Coal Mine? [View article]
Because governments lack the feedback mechanism of a market (competition, price discovery, p&L, etc.), it is difficult for them to gauge the wisdom and efficacy of investments. That said, it is much easier in the early development of a country to get it right, then in the later years (this is true for all governments, btw). So, it had been a bit easier in China to get the infrastructure investments "right" as their economy was immature throughout the 1980's and 1990's. Now, however, they are grossly misallocating capital and ramping up massive amounts of debt (which are hidden from view). They also have a substantial bad debt problem which has not been addressed. Every system works just fine...until it doesn't. Don't be fooled by the relative ease with which they have emerged from the financial crisis...they too will have a day of reckoning.
Why The Current Account Deficit Helps Explain The Economics Of QE3 [View article]
Sure, the current account deficit country takes on more debt by lowering rates and thereby stimulating credit expansion. The current account surplus country directly benefits from a stronger economy which leads to more credit creation than otherwise would be the case. One of the reasons I wrote the article is to take it away from the abstract discussion of savings and capital flows to the pragmatic reality of what happens with the money in question (it is circulated into bonds, etc.). Hope this helps.
Government Debt: A Gentleman's Wager [View article]
Jerry, with all due respect, you are mistaken. You need look no further than the difference between the monetary base and the money supply M1 (or M2 or M3).
Government Debt: A Gentleman's Wager [View article]
Hi Packerw,
Long run growth is a by-product of healthy investment. Returns on investment compound and growth is a natural outcome. In the short run, growth can be engineered by credit creation and/or money supply expansion. However, too much of either has a real limit, which is roughly where we are today.
Government Debt: A Gentleman's Wager [View article]
You bring up excellent points (and I liked your recent post on deleveraging). However, this article is not intended to describe how the debt flows through the economy (which you articulate very well), but rather to demonstrate simply that it does. While the shadow banking segment is deleveraging, I believe the same argument holds - that credit ultimately makes it to an end borrower somewhere, just like loans from banks, and these end borrowers either pay it down, let it run off, or lever up. But just to be clear, I don't take issue with your perspective at all, just two slightly different topics. Thanks for the input!
Government Debt: A Gentleman's Wager [View article]
Fellas,
While I am still trying to get complete definitions of the two different data sets, I believe the difference is as JasonC suggests: my data in the article excludes debt of the financial sector, while the total debt mentioned by Jeremy Robson includes debt from the financial sector. I deliberately chose to exclude the financial sector so as to avoid double counting (as much as possible). When a bank lends, say $1 billion, they typically finance most of it, taking on say $950 mm in loans themselves in order to turn around an make the $1billion loan. From the standpoint of how much debt passes through GDP, I believe it is a better measure to capture the $1 billion. Otherwise, we would capture both the $950 mm at the bank level and the $1 billion at the end borrower level. To all, thanks for your insight!
Government Debt: A Gentleman's Wager [View article]
Really? If you borrow $100,000 from your father and blow it all on ipods for 300 of your closest friends, does that not increase Apple's sales this quarter? Does that not count as GDP? Alternatively, you could invest that in a start-up enterprise, spending money on product development, labor and marketing. Does that not count as GDP? Now instead of borrowing from your father, assume you borrow from your father's bank. He still has his $100,000 "in the bank," but the bank has levered that up and loaned out $90,000 of that to you (plus $10k from elsewhere in the bank). Due to the magic of fractional reserve banking, your father still has his $100,000 and you have your $100,000 to spend or invest as you see fit. What you do with this $100,000 can be productive and create a self-sustaining business or it could be simply a one-time expenditure. Alternatively, let's say your Uncle Sam borrows from your father and decides to spend it on health care for the elderly and to finance military operations. That too, flows through GDP. Any which way, we can capture the net impact of your choices by examining the data in the way I laid out in the article.
Government Debt: A Gentleman's Wager [View article]
If it so happens that the government is making productive investments then there will be ROI and in this case, GDP growth. If not, GDP won't grow. And, as an aside, wage and price controls don't control inflation, they create shortages (which typically lead to higher prices) and unintended consequences. In fact, one of the unintended consequences of wage controls during World War II is that companies moved to offer health insurance benefits to employees - and I will be publishing a totally different article about this perhaps today or tomorrow...called the Economics of Obamacare...
BoJ Asset Purchases: Is Japan Sowing Seeds Of Next Asset Bubble? [View article]
BoJ Asset Purchases: Is Japan Sowing Seeds Of Next Asset Bubble? [View article]
Bitcoins: New Gold Or Fool's Gold? [View article]
Is Japan The Canary In The Keynesian Coal Mine? [View article]
Is Japan The Canary In The Keynesian Coal Mine? [View article]
European Sovereign Debt Crisis: Up Next, German Real Estate Bubble? [View article]
Why The Current Account Deficit Helps Explain The Economics Of QE3 [View article]
Government Debt: A Gentleman's Wager [View article]
Government Debt: A Gentleman's Wager [View article]
Long run growth is a by-product of healthy investment. Returns on investment compound and growth is a natural outcome. In the short run, growth can be engineered by credit creation and/or money supply expansion. However, too much of either has a real limit, which is roughly where we are today.
Government Debt: A Gentleman's Wager [View article]
Government Debt: A Gentleman's Wager [View article]
While I am still trying to get complete definitions of the two different data sets, I believe the difference is as JasonC suggests: my data in the article excludes debt of the financial sector, while the total debt mentioned by Jeremy Robson includes debt from the financial sector. I deliberately chose to exclude the financial sector so as to avoid double counting (as much as possible). When a bank lends, say $1 billion, they typically finance most of it, taking on say $950 mm in loans themselves in order to turn around an make the $1billion loan. From the standpoint of how much debt passes through GDP, I believe it is a better measure to capture the $1 billion. Otherwise, we would capture both the $950 mm at the bank level and the $1 billion at the end borrower level. To all, thanks for your insight!
Government Debt: A Gentleman's Wager [View article]
Government Debt: A Gentleman's Wager [View article]
Government Debt: A Gentleman's Wager [View article]
Government Debt: A Gentleman's Wager [View article]