patrick.net

gsr says

You are comparing against GDP, which is inflated too.

Of course, Japan and Greece are in much worse shape.
http://www.forbes.com/sites/jeffreydorfman/2014/07/12/forget-debt-as-a-percent-of-gdp-its-really-much-worse/

gsr says

You are comparing against GDP, which is inflated too

thus a wash

gsr says

The Fed will NOT be able unload their balance sheet.

And?

gsr says

Japan and Greece are in much worse shape.

Greece, sure, since they're on the gold standard.

Japan, not so much. They just gave their citizenry tax cuts 1992-now and the resulting savings got pushed into their quadrillion yen debt.

It's just money they owe themselves. Pay it back, don't pay it back, no diff on the macro level.

Same thing with our debt. My thesis is that debt extension is substituting for our previous more redistributionary regime of the 1930s-1970s. Like Japan, substituting bond sales to the rich what was previously tax exaction on the rich. (good deal for them!)

pay it back, don't pay it back, no diff.

Best solution of course would be to raise taxes on the rich and then use that money to pay the debt we owe them off.

Bellingham Bill says

gsr says

You are comparing against GDP, which is inflated too

thus a wash

No, the problem is that this inflation won't be perpetual. The expansion of credit will not be able generate the inflation continuously. It will eventually result in contraction, and hence deflation. Look at oil prices today. It will eventually happen to every inflated assets.

Bellingham Bill says

Greece, sure, since they're on the gold standard.

Why spreading lies???

Bellingham Bill says

Japan, not so much. They just gave their citizenry tax cuts 1992-now and the resulting savings got pushed into their quadrillion yen debt.

You have not read news about Japan lately.

gsr says

the problem is that this inflation won't be perpetual.

http://research.stlouisfed.org/fred2/series/CPIAUCNS

Bellingham Bill says

And?

At least the Fed pretends that. The same way they pretend they can raise interest rate next year without affecting the growth. At this moment, it is a game of perception. It can change any time.

gsr says

Why spreading lies???

humor, actually. They can't issue their own currency, same thing as a gold standard, yes

Bellingham Bill says

gsr says

Why spreading lies???

humor, actually. They can't issue their own currency, same thing as a gold standard, yes

Again, that's nonsense. Euro is NOT same as Gold. It is like any fiat currency. It is like saying USD is also Gold for every state here and every country in the rest of the world.

gsr says

You have not read news about Japan lately.

Japan has yet to "eat their rich", yes.

Bellingham Bill says

gsr says

the problem is that this inflation won't be perpetual.

http://research.stlouisfed.org/fred2/series/CPIAUCNS

Note the change in slope at 1970.
There is a limit to credit based expansion. There is a reason why Japan cannot have credit-based growth any more.

This limit can be reached rather quickly if we expand the credit rapidly. A slow expansion of credit can delay the eventual reckoning over a very long time.

gsr says

Again, that's nonsense

Not to the Greeks. They borrow in a currency they can't print. Thus THEY are on effectively a gold standard, subject to the Euro money gods making more money for them.

"If the peripheral nations still had their own currencies, they could and would use devaluation to quickly restore competitiveness. "

http://www.nytimes.com/2012/02/27/opinion/krugman-what-ails-europe.html

gsr says

There is a limit to credit based expansion.

Not with ZIRP, LOL.

There is a reason why Japan cannot have credit-based growth any more.

Having to compete with IP-thieving, shit-wage economies like ROK and the Chinese SEZs, yes.

A billion Chinese suddenly integrating into the global economy was bad news for the Japanese "Joe Sixpack", yes.

Plus demographically Japan has nowhere to go but down:

gsr says

It is like saying USD is also Gold for every state here and every country in the rest of the world

yes, like what you said above:

"The states did shrink their sizes due to budget shortfalls, and they can't print money"

gsr says

Note the change in slope at 1970.

is the more interesting analysis. Permanent plateau or will we get another leg up?

ZIRP is no barrier to the latter, real rates CAN go negative, another, more polite, form of "eating the rich"

Bellingham Bill says

is the more interesting analysis. Permanent plateau or will we get another leg up?

ZIRP is no barrier to the latter, real rates CAN go negative, another, more polite, form of "eating the rich"

This also coincides with increased gap between the rich and the poor. In other words, low rates help rich more, as proven by this real life experiment.
Here is an article for that:
http://dealbook.nytimes.com/2014/10/22/how-quantitative-easing-contributed-to-the-nations-inequality-problem/?_r=0

Bellingham Bill says

yes, like what you said above:

"The states did shrink their sizes due to budget shortfalls, and they can't print money"

No, you still don't understand. Credits were still printed.
In other words, it happened because *EASY CREDIT" in the first place. Without fractional reserve landing and fiat money, credits would be a lot tighter to begin with. We would definitely not have easy credit under gold standard.

gsr says

We would definitely not have easy credit under gold standard.

yes we would, since the gold standard has nothing to do with fractional reserve lending, the true way economies over-leverage themselves.

The boom/bust cycles of the 1800s were thanks to fractional reserve lending.

The easy credit of the 1920s gave us the 1930s.

going off the gold standard just gives government the ability to equalize things without going through those nasty half-the-country is unemployed resets.

gsr says

This also coincides with increased gap between the rich and the poor. In other words, low rates help rich more, as proven by this real life experiment.

LOL, more conservative up-is-down bullshit.

The 1% own more than they owe. The 99% (well, lower quintiles at least) owe more than they own.

Lower interest rates reduce the wealth transfer from borrower to "saver".

That big-money finance is profiting immensely in ZIRP just raises the rationale for a wealth tax on them directly, not increasing interest rates on borrowers who already are fucked.

Bellingham Bill says

yes we would, since the gold standard has nothing to do with fractional reserve lending, the true way economies over-leverage themselves.

You are talking in circles. Are you in support of fractional reserve or not? A strict (non-fractional) gold standard is one way to stop fractional reserve.

Bellingham Bill says

LOL, more conservative up-is-down bullshit.

That is true in our universe. I am not sure where you are. But you can check the data.

Bellingham Bill says

Lower interest rates reduce the wealth transfer from borrower to "saver".

That big-money finance is profiting immensely in ZIRP just raises the rationale for a wealth tax on them directly, not increasing interest rates on borrowers who already are fucked.

That's a complete nonsense. The rich/well connected are a lot more leveraged than middle class. They just get bailed when time get tough.

I don't have much patience to educate you on this. Read that link that you did not quote.

But I think you are trying to play a left-vs-right game here. I am not interested. This is a futile exercise.

gsr says

strict (non-fractional) gold standard is one way to stop fractional reserve.

gold standards control how much M0 money is circulating.

they do not control how much is lent; that's orthogonal!

for that you need to control banking itself, require banks to fund loans out of their capital (retained earnings and paid-in capital) and not their liabilities (deposit accounts).

money is expanded in fractional reserve because the same dollar exists in two (or more...) places -- the saver's [savings] account and the borrower's [checking] account.

eliminating fractional reserve would require banks to identify where each dollar they lend comes from -- your savings account would decline as the balance was lent out.

This would essentially convert all loanable check-money accounts to CDs, the money one saved would be inaccessible until maturation.

gsr says

The rich/well connected are a lot more leveraged than middle class

wrong-o!

http://www2.ucsc.edu/whorulesamerica/power/wealth.html

asserts that the bottom 90% owe 72.5% of the debt in this country

Top 1% owns 35% of the stocks, 64.4% of the financial securities, and HALF the overall investment assets.

Bellingham Bill says

gold standards control how much M0 money is circulating.

This wasn't needed. No Austrian economist advocates a fractional gold standard.
From http://mises.org/library/gold-versus-fractional-reserves

"In short, the fractional gold standard tends almost inevitably to become more and more attenuated, and while it does so it permits and encourages progressive inflation."

..
"But what happens — as long as the fractional gold standard is being nominally maintained — is that the milder rate of inflation is less noticed, and even many monetary economists are inclined to view it with complacency. "

Bellingham Bill says

This would essentially convert all loanable check-money accounts to CDs, the money one saved would be inaccessible until maturation.

Well, money should accessible in checking account all the time, which also would not earn interest in that system.

gsr says

trying to play a left-vs-right game here

because the right is creating the tilted playing field!

globalism, deregulation of big finance, union-busting, less progressive taxation, the whole neoliberalism 9 yards.

for their part I can admit liberals are guilty about tolerating if not encouraging the flood of immigrants we've gotten since 1980 -- 20%+ of the population in CA, NY, and NJ is now immigrant, double or more what it was then

http://en.wikipedia.org/wiki/History_of_immigration_to_the_United_States#Historical_foreign-born_population_by_state

Bellingham Bill says

gsr says

The rich/well connected are a lot more leveraged than middle class

wrong-o!

http://www2.ucsc.edu/whorulesamerica/power/wealth.html

asserts that the bottom 90% owe 72.5% of the debt in this country

Top 1% owns 35% of the stocks, 64.4% of the financial securities, and HALF the overall investment assets.

Read this again: http://dealbook.nytimes.com/2014/10/22/how-quantitative-easing-contributed-to-the-nations-inequality-problem/?_r=0

NO, the so called "assets" are bought with leveraged money. They need to keep the assets at high value, by giving away easy loans. Then, they need the bailout when things go south.

Read more here: http://www.theguardian.com/commentisfree/cifamerica/2010/sep/20/tarp-bailout-banks-wall-street

We are also supposed to feel good that the vast majority of the Tarp money was repaid. This is another effort to prey on the public's ignorance. Had it not been for the bailout, most of the major centre banks would have been wiped out. This would have destroyed the fortunes of their shareholders, many of their creditors, and their top executives. This would have been a massive redistribution to the rest of society – their loss is our gain.

It is important to remember that the economy would be no less productive following the demise of these Wall Street giants. The only economic fact that would have been different is that the Wall Street crew would have lost claims to hundreds of billions of dollars of the economy's output each year and trillions of dollars of wealth. That money would, instead, be available for the rest of society. The fact that they have lost the claim to wealth from their stock and bond holdings makes all the rest of us richer, once the economy is again operating near normal levels of output.

gsr says

This wasn't needed.

yes it was since Austrianism is Kook-school, not the mainstream, contrary to appearances on the internet.

gsr says

The fact that they have lost the claim to wealth from their stock and bond holdings makes all the rest of us richer

Not really, since middle-class pensions were also fully vested in the scam.

Still are, but were then, too.

Read more:http://www.foxbusiness.com/personal-finance/2014/09/12/5-ways-to-think-like-rich-person/

This is the result of heavy financialization of economy.

Leverage Creates Wealth

“On one side of the spectrum is labor, and at the other (end) is leverage,” he says. “The rich employ money to make money. Labor doesn’t pay very well but leverage pays extremely well. We’re never taught to use leverage. Who teaches you that?”

The concept of leverage refers to using other people’s money to make money, he explains. And while that may sound good in theory, it’s a difficult concept to grasp if you don’t have a lot of money to begin with.

So go where the money is, he says. “The rich are always looking for alternative investments,” Seibold says. “They may be more risky but they can afford to take the risk. All you need is a good idea to start a business; there is so much money out there.” In other words, don’t just look to traditional sources to borrow money, look for private sources as well.

gsr says

NO, the so called "assets" are bought with leveraged money.

you can say that but it's not showing up in the data

gsr says

There is a reason why Japan cannot have credit-based growth any more.

peeps be drinking their milkshake!

(though to be fair Japan does supply a lot of the capital equipment and intermediate goods to China apparently)

Bellingham Bill says

gsr says

NO, the so called "assets" are bought with leveraged money.

you can say that but it's not showing up in the data

It does if you look carefully. Who do you think benefited from the bloated balance sheet of federal reserve, A guy setting up a mom-and-pop store, or a well connected one?

Also remember, the financial industry is the most leveraged industry. But guys at the top may not have their own money at stake. They get the benefit of the borrowed money without the risks associated with it.

Here is an example. From http://www.rollingstone.com/politics/news/the-real-housewives-of-wall-street-look-whos-cashing-in-on-the-bailout-20110411?page=2

....
But upon closer inspection, Waterfall TALF Opportunity boasts a couple of interesting names among its chief investors: Christy Mack and Susan Karches.

Christy is the wife of John Mack, the chairman of Morgan Stanley. Susan is the widow of Peter Karches, a close friend of the Macks who served as president of Morgan Stanley's investment-banking division. Neither woman appears to have any serious history in business, apart from a few philanthropic experiences. Yet the Federal Reserve handed them both low-interest loans of nearly a quarter of a billion dollars through a complicated bailout program that virtually guaranteed them millions in risk-free income.

Bellingham Bill says

peeps be drinking their milkshake!

(though to be fair Japan does supply a lot of the capital equipment and intermediate goods to China apparently)

China is presumably in worse shape relative to us. I am expecting a China crash in 2015.

gsr says

I am expecting a China crash in 2015

Dunno man. Those people aren't made of marshmallow and sugar like us.

Yes, they're way more messed up and corrupt than us. But 1930-1980 was inconceivably brutal for that country (and the previous centuries no picnic either) and I think their national consciousness is a bit more resilient for that.

China's strengthened their currency by half:

http://research.stlouisfed.org/fred2/series/EXCHUS

in the past 10 years. They can undo that by accelerated printing, and will probably have to.

The story of China 1990 to now has been transferring the state of the art of mfg to them, letting their teeming millions be our workforce.

It's been a decent trade (I say as I stroke my shiny new iPad Air 2).

China's demographic inrush into 20-30 yo's is ending, and that will bring a consumption regime change too perhaps. It's easy predicting crashes, but the system has a lot of levers to throw to mitigate and reverse them.

gsr says

Who do you think benefited from the bloated balance sheet of federal reserve, A guy setting up a mom-and-pop store, or a well connected one?

That Fed QE buying kept more capital available in the system and also produced a boomlet in home prices, helping the overextended out a lot.

It's very populist to rail with pitchforks at the 1% I guess (as long as you don't propose any actual policy mitigations), but the bottom line is the 1% rich largely OWN the debt the 99% OWE.

This should be obvious actually. Interest Never Sleeps.

Banks with toxic MBS on their balance sheets and investors in MBS were bailed out often at face value by the Fed. As the Fed was at a time the market for MBS, it did prop up securitization of mortgages. The Fed refused to allow price discovery.

Wealth management accounts at the TBTF's would have been wiped out under bankruptcy. It ain't the poor folks or even the middle class who would have lost money.

Bellingham Bill says

gsr says

The fact that they have lost the claim to wealth from their stock and bond holdings makes all the rest of us richer

Not really, since middle-class pensions were also fully vested in the scam.

Still are, but were then, too.

And many weren't! A lot were smart enough to become more defensive with age and cashed out and went into very defensive, lower yield assets, some even respected the FDIC account insurance maxima and distributed accordingly. Quite a few grandmas just held bonds, one in the extended family had GM bonds and got shafted. WTF is this nonsense, just because some don't pull out from "chasing that yield" and stay all-in til old age or keep flipping shacks and/or using their homes as ATMs doesn't mean these habits should be supported in any way, esp. since that continued support keeps widening the wealth-gap and even more esp. because it is inherently unfair and criminal! The responsible ones are the ones getting screwed now because their savings are being eaten up by inflation and ZIRP so that the uber-wealthy can keep levitating their assets.