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mpr
Joined: 06 Jun 2009
Posts: 344
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 Posted: Wed Jun 30, 2010 6:15 pm GMT Post subject: |
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| admin wrote: |
I've got to disagree with that. The onus should always be on those who want to redistribute other people's money to justify that. And I do think it can be justified in a lot of cases, Krugman's argument was just way too lacking in specifics for me.
- admin |
Well, I think that Krugman would say that he said from the beginning
that the current stimulus was too small, so of course it underperformed.
Anyway, absolving those who call it a failure of any responsibility to make
any kind of argument is a bit much for me. Presumably there are models
out there which try to quantify the effect, and one should at least take
something like this into account when making arguments.
However, there is an even more fundamental point: there is no money
being "redistributed" here. If the Fed creates 100 billion dollars and gives
it to the treasury to spend, who is it that pays for that ? Well, if spending
that money creates too much demand in the economy and causes inflation
then everyone pays for it by having their spending power reduced.
If the govt. decides to sterilize that demand by raising taxes by 100 billion $$,
then obviously those paying the taxes pay. But in the current situation
there is no sign of any inflation because there is plenty of slack in the
economy. So the govt. can print and spend for the moment. That is Krugman's point.
The paradigm that govt. debt (for a govt. with its own fiat currency) is
like usual debt is useful for encouraging responsible political behavior,
but its really a fallacy which can be harmful in extreme situations such
as this one. Instead of imagining that current or future tax revenue is
necessary to pay for spending, think of it this way: Whenever the govt.
wants to spend it creates the money. Tax revenues are a way of
sterilizing some of that spending so the economy doesn't over heat.
Actually, I suspect that if pushed Krugman might even retreat from his claim
that the budget should be balanced over an economic cycle; if demand
consistently and significantly falls short of economic capacity, the govt.
can and should soak it up indefinitely with extra spending.
Japan is a good example of this, as would be Germany if they weren't
able to run such a large trade surplus. |
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john p
Joined: 10 Mar 2006
Posts: 1820
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| Posted: Wed Jun 30, 2010 6:16 pm GMT Post subject: |
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I hate talking about morality and I am sure it sounds as if I am passing a kidney stone.
I'm just trying to understand the impressions that people have to rationalize this correction i.e. who is a winner and who is a loser.
MPR has me thinking about it as if they are just being as practical about the situtation as possible.
I get that the whole news media are like watching cartoons, but those politcal granstanding do make an impact and those impressions do create a political landscape that these leaders need to negotiate.
I guess it is unpleasant when I try to resolve my sense of what is fair with this context, but I think it is part of the process of distilling what I personally think from what I think the reality is.
When I was buying, man, that was an emotional roller coaster.
I guess I'm just really hopeful that a decent resolution will come from this G-20 Summit and it is a discussion of values: austerity verus priming the pump and stimulus. |
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admin
Site Admin
Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston
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| Posted: Wed Jun 30, 2010 7:03 pm GMT Post subject: |
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| mpr wrote: |
However, there is an even more fundamental point: there is no money
being "redistributed" here. If the Fed creates 100 billion dollars and gives
it to the treasury to spend, who is it that pays for that ? Well, if spending
that money creates too much demand in the economy and causes inflation
then everyone pays for it by having their spending power reduced.
If the govt. decides to sterilize that demand by raising taxes by 100 billion $$,
then obviously those paying the taxes pay. But in the current situation
there is no sign of any inflation because there is plenty of slack in the
economy. So the govt. can print and spend for the moment. That is Krugman's point.
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Yes, we may all pay in the long term via inflation or via a displacement of the dollar as the sole reserve currency, but I agree with you that this is not the case at the moment. For now, I get the sense that China, et al, are the ones paying for it directly in the near term as they are stuck buying US debt with yields that will brutalize their investment if/when inflation surfaces. All US citizens are also paying for it via an opportunity cost, if the money is spent in a suboptimal way, as I get the sense that it is. It could be spent on long term investment in our infrastructure, whose benefits would outlive the willingness of foreigners to pick up our tab, but instead it's being used for things with a meager short term effect.
- admin |
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Wed Jun 30, 2010 11:56 pm GMT Post subject: |
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| mpr wrote: |
Well thats a parody of Krugman's argument. No one is claiming you can print
money without limit, but how much you can print depends on circumstances,
and current circumstances say you should be able to print a lot more.
If you want to have a discussion where you invoke the bond market, you
need to look at what the actual bond market (as opposed to some hypothetical one) is doing. !0 year treasury yields are below 3%. 30 year
below 4%. These are almost historic lows. All the guages are telling you
that deflation is more of a danger than inflation right now. |
30 year yields are below 4% until they're not. No one can predict how the bond market will respond to a specific amount of printing, over the short or long term. I think the difference comes to down to faith: he has faith that the bond market can tolerate a lot and that when it stops tolerating it will stop slowly. I don't know how much punishment the bond market can take but if you look at other countries the rates don't rise slowly - they blow up suddenly. To me, most of how the money is being spent isn't worthy of the risk of a sudden blowup. |
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mpr
Joined: 06 Jun 2009
Posts: 344
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| Posted: Thu Jul 01, 2010 12:56 am GMT Post subject: |
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| balor123 wrote: |
30 year yields are below 4% until they're not. No one can predict how the bond market will respond to a specific amount of printing, over the short or long term. I think the difference comes to down to faith: he has faith that the bond market can tolerate a lot and that when it stops tolerating it will stop slowly. I don't know how much punishment the bond market can take but if you look at other countries the rates don't rise slowly - they blow up suddenly. To me, most of how the money is being spent isn't worthy of the risk of a sudden blowup. |
Well its not just that there is no blow up the rates are at all time lows and
dropping. And this after the Fed printed 1.5 trillion last year.
So of course you can claim you see further than the bond market, and
invoke bond prices for your arguments even when they're telling you the
opposite. But you'll excuse me if I dont take this too seriously. |
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admin
Site Admin
Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston
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| Posted: Thu Jul 01, 2010 1:58 am GMT Post subject: |
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| mpr wrote: |
Well its not just that there is no blow up the rates are at all time lows and
dropping. And this after the Fed printed 1.5 trillion last year.
So of course you can claim you see further than the bond market, and
invoke bond prices for your arguments even when they're telling you the
opposite. But you'll excuse me if I dont take this too seriously. |
How do you know the bond markets are telling you the opposite of what balor123 suggested? If I had to take a guess at what the bond markets are saying, it would be that the Euro has become unattractive. The speed of the Fed's printing press could very well not be a major factor driving the bond market at the moment, in which case it would be a mistake to use current bond yields as an affirmation that the we aren't printing enough.
- admin |
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mpr
Joined: 06 Jun 2009
Posts: 344
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| Posted: Thu Jul 01, 2010 2:58 am GMT Post subject: |
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| admin wrote: | | mpr wrote: |
Well its not just that there is no blow up the rates are at all time lows and
dropping. And this after the Fed printed 1.5 trillion last year.
So of course you can claim you see further than the bond market, and
invoke bond prices for your arguments even when they're telling you the
opposite. But you'll excuse me if I dont take this too seriously. |
How do you know the bond markets are telling you the opposite of what balor123 suggested? If I had to take a guess at what the bond markets are saying, it would be that the Euro has become unattractive. The speed of the Fed's printing press could very well not be a major factor driving the bond market at the moment, in which case it would be a mistake to use current bond yields as an affirmation that the we aren't printing enough.
- admin |
I think the onus is more on those invoking the bond market to establish
it supports their arguments. I just pointed out that the most obvious
interpretation suggests the opposite.
Even your interpretation vis a vis the Euro points the same way: shouldn't
those austerity measures make the Euro more attractive ? |
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john p
Joined: 10 Mar 2006
Posts: 1820
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| Posted: Thu Jul 01, 2010 3:26 am GMT Post subject: |
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The austerity stuff is all talk at this point.
Does anyone think that the austerity talk at the G-20 has had an affect on the Equities Market (it dropped below 10,000)?
What should I be looking at right now to help determine if we get a longer deeper continuing recession, or is that most of your given expectations at this point?
Given that 2010 is an election year 0- b788888/.............................
cat walked across keyboard...
anyway, what is the political basis for whatever you think these guys will try? |
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admin
Site Admin
Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston
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| Posted: Thu Jul 01, 2010 4:00 am GMT Post subject: |
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| mpr wrote: |
I think the onus is more on those invoking the bond market to establish
it supports their arguments. I just pointed out that the most obvious
interpretation suggests the opposite.
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I would suggest that the Euro explanation is the most obvious.
| mpr wrote: |
Even your interpretation vis a vis the Euro points the same way: shouldn't
those austerity measures make the Euro more attractive ? |
That depends on exactly how rates are a function of monetary expansion. If it's like a steep logistic curve, then no, the mere promise of austerity isn't necessarily going to make a practical difference. In this model the market either has confidence in your currency or it does not and the transition between the two states is abrupt. We would not have sufficient advance warning of the transition for the US dollar, if this were the actual model. Also, Europe's austerity promises may just not be enough to push it back down the hump - they are just promises, after all.
Note: I am not at all saying that this is what I believe the actual model to be, I'm just using it to illustrate that expansion of monetary supply might appear to be disconnected from the bond market when in fact it could product a seismic shift if a particular tipping point is reached. I do believe that there is a tipping point somewhere out there (though I have no idea where), given that we have a monopoly on the world's reserve currency and I cannot imagine the transition away from that being gradual or smooth. I will echo/paraphrase what balor123 said: to me, most of how the stimulus money is being spent isn't worth the risk of poking around with a tipping point hidden somewhere out there.
- admin |
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GenXer
Joined: 20 Feb 2009
Posts: 703
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| Posted: Thu Jul 01, 2010 11:49 am GMT Post subject: |
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| balor123 wrote: | | mpr wrote: |
Well thats a parody of Krugman's argument. No one is claiming you can print
money without limit, but how much you can print depends on circumstances,
and current circumstances say you should be able to print a lot more.
If you want to have a discussion where you invoke the bond market, you
need to look at what the actual bond market (as opposed to some hypothetical one) is doing. !0 year treasury yields are below 3%. 30 year
below 4%. These are almost historic lows. All the guages are telling you
that deflation is more of a danger than inflation right now. |
30 year yields are below 4% until they're not. No one can predict how the bond market will respond to a specific amount of printing, over the short or long term. I think the difference comes to down to faith: he has faith that the bond market can tolerate a lot and that when it stops tolerating it will stop slowly. I don't know how much punishment the bond market can take but if you look at other countries the rates don't rise slowly - they blow up suddenly. To me, most of how the money is being spent isn't worthy of the risk of a sudden blowup. |
What balor123 said. Not much to add, but more pain ahead. Philosophy aside, we have absolutely NO PROOF that printing money works. Some people want to believe it does. But just like using 100x leverage WORKS until it doesn't, same can be said of any monetary strategy that is not very natural (i.e. relies on printing, which is nothing but a form of massive leverage). The problem is, when it doesn't, we get hit with another complex crisis, which the government makes worse by trying to interfere with the forces it can neither understand nor control. Finance is not a science - its a liberal art with players who rely on dogma and propaganda more than on sound principles, especially the current government, hence I'm inclined not to trust anybody who says 'trust us, we know what we are doing'. |
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mpr
Joined: 06 Jun 2009
Posts: 344
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| Posted: Thu Jul 01, 2010 12:04 pm GMT Post subject: |
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| admin wrote: | . I do believe that there is a tipping point somewhere out there (though I have no idea where), given that we have a monopoly on the world's reserve currency and I cannot imagine the transition away from that being gradual or smooth.
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Ok, but dont you think you should provide *some* argument for this
"tipping point" model. I mean give me one example of when the debt
of a country controlling its own fiat currency, and with the debt denominated in that currency behaved this way.
Its hard to understand why this would happen - everyone knows what the
level of debt/deficit is. One could imagine interest rates beginning to rise
if there was some sign of inflation. Then we could reasonably have this discussion, and
that's what we have an independent Fed for, to instill some
discipline.
None of this is a risk free game, but there are no risk free alternatives.
I guess if you really believe that the stimulus isn't doing much what you
say makes some sense. I just think that you're making that assertion
and then discounting the risk of doing nothing in a rather cavalier manner.
(While of course demanding rigorous arguments from the proponents of
stimulus). |
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admin
Site Admin
Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston
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| Posted: Thu Jul 01, 2010 12:23 pm GMT Post subject: |
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| mpr wrote: |
Ok, but dont you think you should provide *some* argument for this
"tipping point" model. I mean give me one example of when the debt
of a country controlling its own fiat currency, and with the debt denominated in that currency behaved this way.
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It's more unique than that. You would have to look at a country that had both a fiat currency and the global reserve currency as both are important factors. Has that ever been the case?
| mpr wrote: |
None of this is a risk free game, but there are no risk free alternatives.
I guess if you really believe that the stimulus isn't doing much what you
say makes some sense. I just think that you're making that assertion
and then discounting the risk of doing nothing in a rather cavalier manner.
(While of course demanding rigorous arguments from the proponents of
stimulus). |
I'm not suggesting doing nothing. I actually think it's not a bad idea to take advantage of China's generosity while it lasts, but since we don't know if there is a hidden tipping point or where it lies, we shouldn't be blowing the "free" money on a game of musical houses and the like. If we do hit a tipping point, I would feel much better about having ended up there as the result of trying to help the current economy if we at least had long term infrastructure improvements to show for it.
- admin |
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mpr
Joined: 06 Jun 2009
Posts: 344
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| Posted: Thu Jul 01, 2010 2:38 pm GMT Post subject: |
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| admin wrote: |
I'm not suggesting doing nothing. I actually think it's not a bad idea to take advantage of China's generosity while it lasts, but since we don't know if there is a hidden tipping point or where it lies, we shouldn't be blowing the "free" money on a game of musical houses and the like. I
- admin |
I would agree that we should spend stimulus on a mixture of infrastructure
spending as well as some interim support for state budgets. I actually
dont even think of the housing subsidies as "stimulus", although I guess
they were part of the stimulus bill (?). They were perhaps a means of
trying to get the housing market to stabilize and not to over correct, but
they're probably less useful at this point.
One point about China: their "generosity" is completely self serving. Were
they to stop buying US dollars (and therefore of necessity supporting the
US treasury market either directly or indirectly) the yuan would appreciate
and cause a shock to their export sector,
which is something they dont want to allow for political reasons. On the flip
side the US dollar would depreciate and make US exports more competitive.
So this is much of a problem for China than the US. |
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admin
Site Admin
Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston
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| Posted: Thu Jul 01, 2010 4:26 pm GMT Post subject: |
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| mpr wrote: |
One point about China: their "generosity" is completely self serving. Were
they to stop buying US dollars (and therefore of necessity supporting the
US treasury market either directly or indirectly) the yuan would appreciate
and cause a shock to their export sector,
which is something they dont want to allow for political reasons. On the flip
side the US dollar would depreciate and make US exports more competitive.
So this is much of a problem for China than the US. |
Sure, it's self serving in the sense that they consider it their least bad option for the time being, but the dollar is in that position out of historical inertia rather than because of any intrinsic value which would make it a good deal for China. My point is, we have history to thank too, not just China's self interest.
- admin |
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mpr
Joined: 06 Jun 2009
Posts: 344
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| Posted: Fri Jul 02, 2010 2:48 am GMT Post subject: |
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| john p wrote: | The austerity stuff is all talk at this point.
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Not really. One thing to keep in mind is that the European govts,
especially the ones with a purely parlimentary system like the the UK
and Germany are much more efficient at implementing policy than
in the US. The executive govt. also controls the legislative branch,
so once they decide to do it there wont be any congressional style
stalling. The UK govt has already announced the details of the cuts.
| john p wrote: |
Does anyone think that the austerity talk at the G-20 has had an affect on the Equities Market (it dropped below 10,000)?
What should I be looking at right now to help determine if we get a longer deeper continuing recession, or is that most of your given expectations at this point?
|
Wouldn't we all like to know ! I dont have much doubt that the Europeans
will have a double dip - when you pursue exactly the wrong policy
in an already fragile environment there isn't much hope.
Here in the US there wont be any austerity, but probably no knew stimulus
either. I think its going to be a close run thing which might, in the end,
depend on how much damage there is from the negative sentiment in Europe.
BTW, I wanted to mention, that while questions about values and fairness
can and should be important in formulating economic policy, you have
to watch out for two things:
First, economic dynamics are a priori amoral, in the same sense that a car
engine is amoral. So you don't want to cut off your nose despite your face
by doing something which satisfies some (legitimate) sense of morality
but results in a worse outcome for everybody. (Example: letting Lehmann
fail - morally correct and satisfying but unmitigated disaster for everyone.
Saving AIG - morally distasteful and unpleasant, but prevented
collapse of financial system).
Second, certain issues may appear to be enmeshed with value laden
questions, but really have nothing at all to do with them.
Sometimes excess govt spending can be a sign of lack of
political discipline (e.g when its causing inflation) but right now
its just good policy. In no sense (I would argue) is imposing
austerity morally meritorious. |
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