Pepper sprayed for public safety.

[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?

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

Were you not suggesting Fed policies are a primary driver of today's high unemployment?

No.

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

Since 2007, I've looked at the US consumer. I've seen portfolios of his debt in auctions - charged off debt sold by credit issuers. All lending is ultimately consumer lending, as he's the seed of all economic activity. And he's a deeply sick man.

You realize why credit card defaults have not jumped as much as anticipated in this downturn, right? You understand the American middle class is so fucked it's been forced to preserve lines of liquidity while it defaulted everywhere else? Why? Because it can't even afford most of its essentials. Every time you see analyses touting the strength of consumer debt, you should be scared. It is not a sign of strength, but a canary in the coal mine. Every time you see a jump in consumer debt, it should scare you, rather than cause you to think, stupidly, as most fools will, "Yay! The consumer's back! Banks are lending!" Look at what people are buying. Look at how essentials are being recharacterized as discretionary purchases.

I nearly gagged when I did a payment run once and discovered how much bad debt was paid off with other credit cards. (75%) The other 25%? Most of that was refis, when banks would still lend to the middle class on r/e.

No savings, no hope of wage increases, terrible cash flow, and one crisis from bankruptcy... That's the American middle and lower middle class. Pardon me if I don't share your optimism. I actually happen to have seen the subject we're discussing. You haven't, or you wouldn't argue the rosy assumptions you have.

Have you not considered possible selection bias?

[sebastian_dangerfield]

http://www.blackstone.com/news-views...s-a-firedancer

[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]

Young Scalia v. old Scalia.

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

http://www.blackstone.com/news-views...s-a-firedancer

"At some point, however, inflation will become a factor."

People have been saying this, wrongly, since 2008 -- sooner or later, they have to be right, but there's no sign of it yet.

[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.

[Greedy,Greedy,Greedy]

Originally Posted by Tyrone Slothrop

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

But that's how Bain used them!

[Tyrone Slothrop]

Originally Posted by Tyrone Slothrop

Young Scalia v. old Scalia.

April/May Roberts v. June Roberts.

[Greedy,Greedy,Greedy]

Originally Posted by Tyrone Slothrop

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

Thank god someone is here to show him how: Venn Diagrams for Dummies

[Hank Chinaski]

Originally Posted by Tyrone Slothrop

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

where does it say that is a Venn Diagram? There are any number of diagram types that use geometric shapes. Hasn't anyone else here taken calculus or any college level physics? [rhetorical]

[LessinSF]

Originally Posted by Tyrone Slothrop

Young Scalia v. old Scalia.

I suspect a valid point as Scalia appears to become more of an angry old man, but a weak-ass argument as presented.u

LessinFrankfurt