Pepper sprayed for public safety.

[sebastian_dangerfield]

Originally Posted by Tyrone Slothrop

I don't understand why you think that only private economic activity "counts." If you run a sandwich shop, you are happy to sell sandwiches to construction workers, regardless of whether they are building a highway or an office building.

What is this Big Correction? We don't have enough demand.

I don't. And you know that, so don't try to shift the debate. My point was that to spend more govt money necessarily involves a decrease in what's available in the private sector in terms of disposable income. That's undeniable.

The big correction is a 20% decrease in most asset values that've been propped since 2009.

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

I don't. And you know that, so don't try to shift the debate. My point was that to spend more govt money necessarily involves a decrease in what's available in the private sector in terms of disposable income. That's undeniable.

Originally Posted by LessinSF

Because the seller paid the construction worker via her taxes, i.e. she has sold herself a sandwich.

LessinFrankfurt

No. The government can borrow. Bonds will have to be repaid, but not today.

[sebastian_dangerfield]

Originally Posted by Tyrone Slothrop

No. The government can borrow. Bonds will have to be repaid, but not today.

Your gripe is with state austerity, yes? Explain how, say, CA, or IL, or FL, or any of the other states that desperately need capital, and are shit risks, can borrow cheaply.

If you're suggesting Uncle Sam can borrow cheap and give the money to them, explain who pays off the bonds down the road?

Here's your plan in a formula:

Borrow Cheap long term + [Something magical happens to the economy w/in 20 years] = Win/Win

This plan has already been used and abused to the point global long term debt obligations owed by most of the developed world are impossible to ever pay down. The next step is them becoming impossible to roll over at reasonable terms.

You can not indefinitely borrow your way to prosperity any more than you can tax yourself there. Read Stiglitz and Krugman closely and you'll see neither is a true, hard core advocate of more borrowing and stimulus. The bigger reason they're arguing for it now it is because we're at a point where we either buy time or run into a slowdown, which will put serious teeth on this depression. They're not intellectual advocates of increased govt spending so much as voices of dissent, saying, "If we keep on this road - this failed 'muddling through' - we're going to economically find ourselves, at least for at time, on something like Cormac McCarthy's Road." It's fear of the Austrian reckoning more than anything else, and truly, I understand it, and sympathize with it. But what is unsustainable will not be sustained. And your math, your academic somersaults, offered to suggest we can indebt ourselves out of debt, fall flat.

We either have upheaval, or a long, slow decline trying to prop up the status quo. I think the latter, but the former's looking more and more like a possibility.

ETA: The asset prices need to fall. Wealth needs to change hands. The disequilibrium between capital and labor has to correct. None of this happens without face-ripping creative destruction - the exact thing we've fought to avoid.

[Adder]

Originally Posted by sebastian_dangerfield

If you're suggesting Uncle Sam can borrow cheap and give the money to them, explain who pays off the bonds down the road?

This is the fundamental disconnect. No one replays the bonds down that road. Instead, the bond shrink relative to a growing economy over the long term as we run balanced or close to balanced budgets when the economy is closer to full employment (Bush administration not withstanding).

Here's your plan in a formula:

Borrow Cheap long term + [Something magical happens to the economy w/in 20 years] = Win/Win

The something magical is people (and entities) moving back closer to historical saving rate (i.e., less hoarding of cash) and the economy getting closer to potential.

Read Stiglitz and Krugman closely and you'll see neither is a true, hard core advocate of more borrowing and stimulus.

This is true, but Stiglitz has also been embarrassingly wrong lately.

It's fear of the Austrian reckoning more than anything else

No, it really isn't. These gentlemen to not believe there is anything credible about Austrian business cycle theory, not least because Austrian predictions over the last four years have proved demonstrably wrong (gee, where's that hyper inflation?).

And your math, your academic somersaults, offered to suggest we can indebt ourselves out of debt, fall flat.

I've got to run to a call, but there was a recent excellent blog post on this "how can more debt solve a debt problem" nonsense. I'll find it for you later.

But a key point is that not all debt is created equal, and we, in the U.S., do not have a public debt problem (nor does Spain, nor did Ireland before it took on a ton of private bank debt).

[sebastian_dangerfield]

This is the fundamental disconnect. No one replays the bonds down that road. Instead, the bond shrink relative to a growing economy over the long term as we run balanced or close to balanced budgets when the economy is closer to full employment (Bush administration not withstanding).

This assumes substantial growth. That's the disconnect. The evidence supporting a future of such growth is between non-existent and weak.

The something magical is people (and entities) moving back closer to historical saving rate (i.e., less hoarding of cash) and the economy getting closer to potential.

The only hoarding going on is at the corporate level, and among the wealthy who can afford to save substantial amounts. And the recent historical savings rate of zero to -10% is not a desired end for obvious reasons.

No, it really isn't. These gentlemen to not believe there is anything credible about Austrian business cycle theory, not least because Austrian predictions over the last four years have proved demonstrably wrong (gee, where's that hyper inflation?).

Patience. If you print, it will come. Recall, economic crises like hyperinflation always appear more suddenly than expected, and then accelerate at breathtaking speed.

But a key point is that not all debt is created equal, and we, in the U.S., do not have a public debt problem (nor does Spain, nor did Ireland before it took on a ton of private bank debt).

Yes we do. If the growth needed to shrink the debt relatively over time fails to materialize, we have a disaster on our hands. Again - that's the disconnect. You say we'll get the growth. I don't see it happening (in part because of our public overspending, which has created a situation where we are going to have to substantially raise taxes, rendering us less advantageous for investment).

I explained why Spain had a problem with public debt last week. I'm not going to repeat it. Regarding Ireland, I agree with you. That bank bailout was a crime against the Irish people. The politicians should be hanged for it (and the people slapped collectively across the face, for allowing themselves to be screwed like that). However, Ireland is floating debt once again, and I think the ECB is buying it, so perhaps the Irish politicians have found their brains, and balls, and started blackmailing the central bank into transferring the debt onto its balance sheets, where it belongs.*

_____
* Where it really belongs is cancelled. The Irish should've stuck their creditors as Iceland did, but that's water under the bridge.

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

Your gripe is with state austerity, yes? Explain how, say, CA, or IL, or FL, or any of the other states that desperately need capital, and are shit risks, can borrow cheaply.

If you're suggesting Uncle Sam can borrow cheap and give the money to them, explain who pays off the bonds down the road?

Here's your plan in a formula:

Borrow Cheap long term + [Something magical happens to the economy w/in 20 years] = Win/Win

This plan has already been used and abused to the point global long term debt obligations owed by most of the developed world are impossible to ever pay down. The next step is them becoming impossible to roll over at reasonable terms.

You can not indefinitely borrow your way to prosperity any more than you can tax yourself there. Read Stiglitz and Krugman closely and you'll see neither is a true, hard core advocate of more borrowing and stimulus. The bigger reason they're arguing for it now it is because we're at a point where we either buy time or run into a slowdown, which will put serious teeth on this depression. They're not intellectual advocates of increased govt spending so much as voices of dissent, saying, "If we keep on this road - this failed 'muddling through' - we're going to economically find ourselves, at least for at time, on something like Cormac McCarthy's Road." It's fear of the Austrian reckoning more than anything else, and truly, I understand it, and sympathize with it. But what is unsustainable will not be sustained. And your math, your academic somersaults, offered to suggest we can indebt ourselves out of debt, fall flat.

We either have upheaval, or a long, slow decline trying to prop up the status quo. I think the latter, but the former's looking more and more like a possibility.

ETA: The asset prices need to fall. Wealth needs to change hands. The disequilibrium between capital and labor has to correct. None of this happens without face-ripping creative destruction - the exact thing we've fought to avoid.

Everything you say would make sense in normal times. These are not normal times. Have you noticed how cheap Treasuries are? The federal government can borrow right now at essentially no cost. (This is because things are so unattractive for investors that they are willing to park assets with the federal government even for no return.) In these circumstances, anything the federal government does with the money that has some economic return -- building roads, railroads, airports; teaching students, etc. -- will pay for itself. This is not propping up the status quo.

What assets do you think need to fall? Why aren't they falling? Why is having everyone -- public and private -- deleverage going to help? How do we make up the huge social loss caused by people who are not working?

[sebastian_dangerfield]

Originally Posted by Tyrone Slothrop

Everything you say would make sense in normal times. These are not normal times. Have you noticed how cheap Treasuries are? The federal government can borrow right now at essentially no cost. (This is because things are so unattractive for investors that they are willing to park assets with the federal government even for no return.) In these circumstances, anything the federal government does with the money that has some economic return -- building roads, railroads, airports; teaching students, etc. -- will pay for itself. This is not propping up the status quo.

What assets do you think need to fall? Why aren't they falling? Why is having everyone -- public and private -- deleverage going to help? How do we make up the huge social loss caused by people who are not working?

These things do not pay for themselves unless we have growth, which we are not getting, and govt spending will not create. You seem to think that borrowing money only involves paying interest. Recall there's a thing called principal. That the interest is low doesn't mean jack if you can't pay the principal back. "We'll roll it over," you say? Oh, really? Infinitely? Because that's what we're talking. Summers' argument that while we can borrow cheap we must assumes decent to robust future growth. It's an all-in bet on a future most other economists don't see happening. If we borrow like mad, spend, and still lack the economic activity to create tax revenue to pay back debts, borrowing costs skyrocket.

Conversely, if we pull back, tell Wall Street to fuck off on its next whining demand for QE, and let the market give back 2500 (which would put it where it should be), and allow houses to fall another 10%, and have a few bank failures and break-ups, I think you'll see the money on the sidelines do what vultures do.

We're getting the reckoning either way, so why not now?

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

These things do not pay for themselves unless we have growth, which we are not getting, and govt spending will not create.

No. An investment which makes sense on its own terms will pay for itself. If you can borrow money at 0% and earn return on it, you have made money whether or not the larger market grows.

You seem to think that borrowing money only involves paying interest. Recall there's a thing called principal. That the interest is low doesn't mean jack if you can't pay the principal back. "We'll roll it over," you say? Oh, really? Infinitely? Because that's what we're talking. Summers' argument that while we can borrow cheap we must assumes decent to robust future growth. It's an all-in bet on a future most other economists don't see happening. If we borrow like mad, spend, and still lack the economic activity to create tax revenue to pay back debts, borrowing costs skyrocket.

You keep bouncing back and forth between the state of the entire economy and the effect of things done at the margin, and the result is absolute incoherence. Summers doesn't say that just any investment will work. Of course you have to repay the principal. But you're not even thinking about the marginal effect of the steps he's proposing.

Conversely, if we pull back, tell Wall Street to fuck off on its next whining demand for QE, and let the market give back 2500 (which would put it where it should be), and allow houses to fall another 10%, and have a few bank failures and break-ups, I think you'll see the money on the sidelines do what vultures do.

This makes absolutely no sense. None. Someone owns those stocks and houses right now. If their values drop, those people have less money. Transferring their assets to someone with money "on the sidelines" right now will not help those stocks and houses generate economic activity.

[Tyrone Slothrop]

No way I could vote for someone who doesn't understand Venn diagrams.

[sebastian_dangerfield]

You keep bouncing back and forth between the state of the entire economy and the effect of things done at the margin, and the result is absolute incoherence. Summers doesn't say that just any investment will work. Of course you have to repay the principal. But you're not even thinking about the marginal effect of the steps he's proposing.

What does this even mean? Borrowing and spending another $550bil is something done at the margins? You don't see the interplay between that kind of borrowing and the "entire economy." I'm incoherent?

This makes absolutely no sense. None. Someone owns those stocks and houses right now. If their values drop, those people have less money. Transferring their assets to someone with money "on the sidelines" right now will not help those stocks and houses generate economic activity.

Those people already have less money. Nobody save the wealthy is living like they have the money their portfolios, or their bloated home values, suggest. Everybody knows it's a lie - that it's all propped values. That's the essential weakness of the Fed's efforts. All they've done is create speculation at the margins because nobody thinks the current monetary fix will work. Nobody thinks another Stimulus will work. Everybody with a brain is simply trying to maximize returns and park as much as they can in safe havens in fear of the next imminent slump (wall of worry, etc.). All I'm advocating is a recognition of the truth that assets are really worth 75% of their current value. The sooner we recognize that, out loud, the sooner investors will say, "This is the bottom," and start investing in things that will help to bring back sustained economic growth.

[sebastian_dangerfield]

Originally Posted by Tyrone Slothrop

Everything you say would make sense in normal times. These are not normal times. Have you noticed how cheap Treasuries are? The federal government can borrow right now at essentially no cost. (This is because things are so unattractive for investors that they are willing to park assets with the federal government even for no return.) In these circumstances, anything the federal government does with the money that has some economic return -- building roads, railroads, airports; teaching students, etc. -- will pay for itself. This is not propping up the status quo.

What assets do you think need to fall? Why aren't they falling? Why is having everyone -- public and private -- deleverage going to help? How do we make up the huge social loss caused by people who are not working?

1. Bullshit. The govt cannot spur sustained economic activity. Markets, investors, businesses - they all see right through it. Sure, there's a limited bump from govt infrastructure building, but no one but a fool assumes it will continue once the project is completed. Transient activity surrounds a project for a while, then it is completed, then that activity disappears. The notion building a highway magically creates tons of new, long term activity on the basis, "Build a paved road and they will come," is lunacy. It's the kind of idiot-think only a govt-planner or policy wonk, who never worked in an actual business, would advocate.

I'll say it again: Govt spending can only provide a bridge loan to the next economic uptick. It cannot create sustained economic growth. Why you can't understand the difference between a patch and cure I can't understand. (You probably think the New Deal brought us out of the Depression, as well.)

2. Homes need to drop 10-20% to bring more first time buyers into the market in non-FHA products. The Dow needs to drop 2000 points, to bring individual investors back into the game, rather than allowing the hedge fund high-speed trading quant gambling circus we currently have to persist. We need an acute drop that ends the discussion, "Is this the bottom?" with a resounding, "Yes." Which would then be followed with, "So get in now. Invest while it's cheap. Buy because you'll never see a better deal."

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

1. Bullshit. The govt cannot spur sustained economic activity.

Man in lifeboat: Look! Over there! A case of bottled water! If we paddle over there, we'll have water to drink!

Other man in lifeboat: Sure, there'd be a limited bump in our hydration, but that case of bottled water cannot keep us alive for ever. We're all doomed.

[sebastian_dangerfield]

Originally Posted by Tyrone Slothrop

Man in lifeboat: Look! Over there! A case of bottled water! If we paddle over there, we'll have water to drink!

Other man in lifeboat: Sure, there'd be a limited bump in our hydration, but that case of bottled water cannot keep us alive for ever. We're all doomed.

I congratulate you on the breakthrough. It only took years of argument, but you've finally realized Stimulus is nothing more than a short term palliative. A year or so ago I recall you still arguing about how it could spur a recovery.

By the way, I'm not arguing Stimulus is a flawed approach. I agree Stimulus is the best course early on, and it did save us from dire consequences at the outset of the crisis. But we're past that point now. We're at the point where need need something to trigger growth and employment. The evidence to date shows loose monetary policy and govt spending have not, and cannot, do either. It's now time to think, "Hey, maybe we should try the opposite and see if that works."

What's there to lose? If refusing Wall Street its demanded QE3, allowing rates to rise a bit and publicly ruling out Stimulus don't work, we can always run a Stimulus later. The damage can't be any worse than what's going on already.*
________
* Personally, I think mass break-ups of large telecomms, TBTF banks, media corps, energy companies, and numerous other benefactors of our corporatist system would do wonders for employment, innovation, and wage growth. But that's another debate entirely.

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

The notion building a highway magically creates tons of new, long term activity on the basis, "Build a paved road and they will come," is lunacy. It's the kind of idiot-think only a govt-planner or policy wonk, who never worked in an actual business, would advocate.

Actually, if you build highways, they will come. That doesn't mean that you should just build highways, but it does work that way.

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

2. Homes need to drop 10-20% to bring more first time buyers into the market in non-FHA products. The Dow needs to drop 2000 points, to bring individual investors back into the game, rather than allowing the hedge fund high-speed trading quant gambling circus we currently have to persist. We need an acute drop that ends the discussion, "Is this the bottom?" with a resounding, "Yes." Which would then be followed with, "So get in now. Invest while it's cheap. Buy because you'll never see a better deal."

If you think this is the solution, you're looking at the wrong problem.