- My Forums
- Tiger Rant
- LSU Recruiting
- SEC Rant
- Saints Talk
- Pelicans Talk
- More Sports Board
- Fantasy Sports
- Golf Board
- Soccer Board
- O-T Lounge
- Tech Board
- Home/Garden Board
- Outdoor Board
- Health/Fitness Board
- Movie/TV Board
- Book Board
- Music Board
- Political Talk
- Money Talk
- Fark Board
- Gaming Board
- Travel Board
- Food/Drink Board
- Ticket Exchange
- TD Help Board
Customize My Forums- View All Forums
- Show Left Links
- Topic Sort Options
- Trending Topics
- Recent Topics
- Active Topics
Started By
Message
re: What is your outlook on the economy?
Posted on 9/11/14 at 6:47 pm to BennyAndTheInkJets
Posted on 9/11/14 at 6:47 pm to BennyAndTheInkJets
quote:
I know this is a message board, but you're going to have to trust me here, I understand interest rate risk better than you do.
0
Posted on 9/11/14 at 6:51 pm to BennyAndTheInkJets
The quoting is becoming excessive, so I'll just respond without them. I said yields would be higher without QE, and they would. Our government deficits would have spiralled to a massive number. Interest rates are a function of both supply and demand. Supply, at the government level alone, including the rest of the world, would have swamped lending capacity into oblivion. You can call that an assumption if you like, but from my viewpoint the onus is on you to explain why investors would invest in the debt of a country running serial multi-trillion dollar deficits as the economy imploded. And where would investors get that money to lend, if not divert it from other purposes, which would in turn reduce productive investment elsewhere?
US is still in the best shape? Not a ringing endorsement. They're mostly bankrupt, dependent on central bank funding. Europe, Japan, Britain, probably China, and the ones that are still solvent are resource based economies that sell to the other bankrupts. When this ends, nobody will be impressed with our resilient economy.
Sorry if you're offended. You may understand duration and convexity down to the nth derivative, but if you don't think default risk was at play sans QE, you have a fundamental flaw in your understanding of what drives our economy and government borrowing capacity. The global banking system was on the verge of collapse under excessive debt. Unemployment would have exploded, Revenues would have evaporated, and then the government would have needed to borrow a huge percentage of the budget, which would still have to increase to created fiscal stimulus. Or government spending collapses, including transfer payments, and consumers go into anaphylactic shock and the stock market tanks further. This is not a purely hypothetical exercise. It's how actual governments go bankrupt.
As you point out, the US has been the beneficiary of reserve currency status since Breton Woods in 1944. How else could we have run a simultaneous trade deficit and budget deficit for 40 years running? But nothing lasts forever and monopoly dollars for oil is a limited game. We're approaching the end of that and having a "deep" debt market won't be a positive attribute.
"The deficit has drastically shrunk recently"
Of course it did, just like it did during the 90's and 2000 asset bubbles. Capital gains taxes on inflated assets. Lower interest costs, mortgage costs, etc due to central bank manipulation of the bond market. Higher corporate profits due to free money sloshing out to consumers, government spending, low corporate borrowing cost. The federal reserve even remits excess interest on the debt it holds to the Treasury, which further destroys the fed's balance sheet, while making it seem as if the US government can borrow for free. We've seen all this monetary stimulus repeatedly for decades. The stimulus ends and it implodes, and it will this time too unless they print to the bitter end.
US is still in the best shape? Not a ringing endorsement. They're mostly bankrupt, dependent on central bank funding. Europe, Japan, Britain, probably China, and the ones that are still solvent are resource based economies that sell to the other bankrupts. When this ends, nobody will be impressed with our resilient economy.
Sorry if you're offended. You may understand duration and convexity down to the nth derivative, but if you don't think default risk was at play sans QE, you have a fundamental flaw in your understanding of what drives our economy and government borrowing capacity. The global banking system was on the verge of collapse under excessive debt. Unemployment would have exploded, Revenues would have evaporated, and then the government would have needed to borrow a huge percentage of the budget, which would still have to increase to created fiscal stimulus. Or government spending collapses, including transfer payments, and consumers go into anaphylactic shock and the stock market tanks further. This is not a purely hypothetical exercise. It's how actual governments go bankrupt.
As you point out, the US has been the beneficiary of reserve currency status since Breton Woods in 1944. How else could we have run a simultaneous trade deficit and budget deficit for 40 years running? But nothing lasts forever and monopoly dollars for oil is a limited game. We're approaching the end of that and having a "deep" debt market won't be a positive attribute.
"The deficit has drastically shrunk recently"
Of course it did, just like it did during the 90's and 2000 asset bubbles. Capital gains taxes on inflated assets. Lower interest costs, mortgage costs, etc due to central bank manipulation of the bond market. Higher corporate profits due to free money sloshing out to consumers, government spending, low corporate borrowing cost. The federal reserve even remits excess interest on the debt it holds to the Treasury, which further destroys the fed's balance sheet, while making it seem as if the US government can borrow for free. We've seen all this monetary stimulus repeatedly for decades. The stimulus ends and it implodes, and it will this time too unless they print to the bitter end.
This post was edited on 9/11/14 at 7:24 pm
Posted on 9/11/14 at 7:37 pm to wdhalgren
I'm going to have to quote because you have different posts.
We agree that is was used to generate economic activity. My point was that government spending is far from a $1 for $1 trickle down to consumers, I just thought your point was simplification to the point of convolution. Don't want to get hung up here since we agree on the end point.
This is a pet peeve for me, the government =/= the Fed. I think it was ~6-8 Fed statements/minutes in a row where Bernanke basically kept saying that the Fed's tool kit was pretty stretched and that Congress needed to actually make fiscal reforms to correct structural issues the Fed had no power over. The Fed did not want to keep the moral hazard issue going, but my question to you is what is the alternative? Just sit back, let a crisis take place so Congress would actually get something done? I just cannot agree with that course of action.
Don't want to get too nit-picky here but most of this is true except the bolded. That's a spread trade, not a carry trade. Carry trades have FX/basis risk, spread trades do not. Enough of that, you missed my point on this. You said that banks could finance the rest of the deficit (implying the other part was the Fed). I was saying that's completely untrue since primary dealers are the ones selling to the Fed, so the dealers/Fed become (for a large part) the same portion of the Venn diagram here. You were ignoring Treasury purchases by other foreign banks as well as fund managers. Direct and indirect take-downs account for about half of Treasury auctions, and outside of a few large asset managers that are on direct/indirect wires neither of these can sell to the Fed.
You believe the US is bankrupt? I'm just going to ignore that because I think (hope) you weren't being serious. Regarding negative real yields, investors have been investing lower than break-even rates for years. Up until 2013 real yields were negative all the way to the 10-year, how do you explain all of the investors from 0-10 years then? Also you're assuming a parallel shift in the yield curve, which is absolutely not been priced into the forward curves. 30-year space has been stubbornly steady due to the preferred habitat of investors in this portion. The curve has flattened greatly this year, and forward curves imply even more flattening. Also regarding mark-to-market losses, yes that would happen given a shock in rates. However, time harvests the yield and roll-down to still give you a positive total return so its not like money disappears.
Your assumption that rates would rise (which I'll get even more to here in a few paragraphs).
.... you do know that the dollar index is higher than it was at the beginning of QE, right? Also you do know that the dollar has been by far the most stable currency over the past 30-50 years as well, right?
I agree here, and the truth is we won't really know the long-term affects of QE for the next 20 or 30 years. And even then attributing all these factors will be difficult.
OK this is true, however the "debasement" argument is just not true for the reasons I stated above. See: DXY Index.
quote:
Salaries, wages, benefits, pensions, medicare, compensation to corporations for weapons, who in turn used it to pay the salaries of their workers. Whatever. The end result is that the US government spent $8 trillion more than it raised in revenues. That money was used to generate economic activity. Approximately half of that amount came via "printing press". Not sure I understand your argument.
We agree that is was used to generate economic activity. My point was that government spending is far from a $1 for $1 trickle down to consumers, I just thought your point was simplification to the point of convolution. Don't want to get hung up here since we agree on the end point.
quote:
The fed's stated goal was irrelevant. Governments justify their actions using lots of excuses, but the federal reserve is monetizing government debt. The action supercedes the words used to explain it away.
This is a pet peeve for me, the government =/= the Fed. I think it was ~6-8 Fed statements/minutes in a row where Bernanke basically kept saying that the Fed's tool kit was pretty stretched and that Congress needed to actually make fiscal reforms to correct structural issues the Fed had no power over. The Fed did not want to keep the moral hazard issue going, but my question to you is what is the alternative? Just sit back, let a crisis take place so Congress would actually get something done? I just cannot agree with that course of action.
quote:
Go down to your bank and ask how much interest they'll pay you for a savings account. You will have to lend to your bank at something approaching zero, unless you buy a long term CD, etc. Now you may say that the banks can't use that money to buy government bonds, but a dollar is fungible. Banks, insurance companies, etc., are buying bonds with short term debt at a lower yield. It's a global carry trade being financed by multiple central banks simultaneously.
Don't want to get too nit-picky here but most of this is true except the bolded. That's a spread trade, not a carry trade. Carry trades have FX/basis risk, spread trades do not. Enough of that, you missed my point on this. You said that banks could finance the rest of the deficit (implying the other part was the Fed). I was saying that's completely untrue since primary dealers are the ones selling to the Fed, so the dealers/Fed become (for a large part) the same portion of the Venn diagram here. You were ignoring Treasury purchases by other foreign banks as well as fund managers. Direct and indirect take-downs account for about half of Treasury auctions, and outside of a few large asset managers that are on direct/indirect wires neither of these can sell to the Fed.
quote:
There's no way that investors of any stripe would be buying extended maturities of bankrupt government debt at or below the rate of inflation, unless they were being funded at a lower cost. If the federal reserve allows short term rates to rise, longer term rates will rise also and tens of trillions of outstanding debt will lose value.
You believe the US is bankrupt? I'm just going to ignore that because I think (hope) you weren't being serious. Regarding negative real yields, investors have been investing lower than break-even rates for years. Up until 2013 real yields were negative all the way to the 10-year, how do you explain all of the investors from 0-10 years then? Also you're assuming a parallel shift in the yield curve, which is absolutely not been priced into the forward curves. 30-year space has been stubbornly steady due to the preferred habitat of investors in this portion. The curve has flattened greatly this year, and forward curves imply even more flattening. Also regarding mark-to-market losses, yes that would happen given a shock in rates. However, time harvests the yield and roll-down to still give you a positive total return so its not like money disappears.
quote:
What assumptions? That money would have been diverted otherwise? If the government hadn't borrowed from the fed, they'd have had to borrow from somewhere else, trillions of dollars. Or spend less. It has to come from somewhere. Why is that an assumption? Are you saying that raising taxes, or cutting government spending wouldn't have hampered this "recovery"? That's patently wrong. We had to do one or the other, borrow more, spend less, raise more, or print money. Where's the assumption?
Your assumption that rates would rise (which I'll get even more to here in a few paragraphs).
quote:
As for QE helping create a real recovery, it's the same as every other recovery of the last 30 years. We'll need more stimulus, more printing, more negative real interest rates when it wears off. Increasing the money supply is not a proxy for increasing wealth. If it was, there would be no need for the word "poverty" in the human language. We're in a long term vicious cycle of monetary debasement that always ends the same way.
.... you do know that the dollar index is higher than it was at the beginning of QE, right? Also you do know that the dollar has been by far the most stable currency over the past 30-50 years as well, right?
quote:
It's true in economics as in nature, there is no such thing as a free lunch. You can't hit a button on a computer in the NY Fed basement and fix a financial system on the verge of bankruptcy. All that does is transfer the pain a bit down the road.
I agree here, and the truth is we won't really know the long-term affects of QE for the next 20 or 30 years. And even then attributing all these factors will be difficult.
quote:
I was referring to stock index charts and their correlation with money supply growth. The four I listed earlier were Argentina, Zimbabwe, Venezuela, and Weimar Germany. Asset prices lose their value as an economic predictor when governments begin to debase their currency.
OK this is true, however the "debasement" argument is just not true for the reasons I stated above. See: DXY Index.
This post was edited on 9/11/14 at 7:58 pm
Posted on 9/11/14 at 7:55 pm to wdhalgren
quote:
I said yields would be higher without QE, and they would. Our government deficits would have spiralled to a massive number. Interest rates are a function of both supply and demand. Supply, at the government level alone, including the rest of the world, would have swamped lending capacity into oblivion. You can call that an assumption if you like, but from my viewpoint the onus is on you to explain why investors would invest in the debt of a country running serial multi-trillion dollar deficits as the economy imploded. And where would investors get that money to lend, if not divert it from other purposes, which would in turn reduce productive investment elsewhere?
Look at every single flight to quality and where the flight went. We were in the midst of a mult-trillion dollar easing program and guess where money still flocked everytime there was a global risk-off environment. Even when we got fricking downgraded and we could have technically defaulted, guess where the flight to quality went. There is a reason for that (next paragraph). In times of "crisis" you have to eat the best tasting shite sandwich.
quote:
US is still in the best shape? Not a ringing endorsement. They're mostly bankrupt, dependent on central bank funding. Europe, Japan, Britain, probably China, and the ones that are still solvent are resource based economies that sell to the other bankrupts. When this ends, nobody will be impressed with our resilient economy.
I use the same scenario when describing inflation and the US' strength. Picking up a girl at a bar has very little to do with how handsome and charming you are, but everything to do with how handsome and charming you are compared to every other guy in that bar. These resource based economies that you're implying are strong are some of the most volatile economies in the world. Finance and economics has gotten down the idea of making the same mistakes over and over. Everyone saw the Dutch in the 60's where they gutted their manufacturing sector and relied on commodities. They became extremely dependent on global demand and any slowdown in demand extrapolated their countries' issues. Now Australia is in the same boat, and has been called a CDO squared of China. Don't get me wrong, the US does have major structural issues, specifically with education and entitlements. However, there is still no country in the world with near the aggregate market liquidity, innovation, strength in property rights, diversified manufacturing sector, diversified agricultural sector, massive services sector, massive energy sources, and pure entrepreneurial firepower the US has. Those are some of the biggest factors that support long-term growth.
quote:
Sorry if you're offended. You may understand duration and convexity down to the nth derivative, but if you don't think default risk was at play sans QE, you have a fundamental flaw in your understanding of what drives our economy and government borrowing capacity. The global banking system was on the verge of collapse under excessive debt. Unemployment would have exploded, Revenues would have evaporated, and then the government would have needed to borrow a huge percentage of the budget, which would still have to increase to created fiscal stimulus. Or government spending collapses, including transfer payments, and consumers go into anaphylactic shock and the stock market tanks further. This is not a purely hypothetical exercise. It's how actual governments go bankrupt.
Default risk would be at play, but the US wouldn't be the first one up on the docket to default. There would be plenty of others before us, then you get to the part of negotiating leverage between countries if everyone is trying to avoid going to hell in a handbasket. I do disagree fully, however, that this is a purely hypothetical exercise. Luckily, the application of neither of our scenarios played out and we don't have to see how those dominoes would have fallen.
quote:
As you point out, the US has been the beneficiary of reserve currency status since Breton Woods in 1944. How else could we have run a simultaneous trade deficit and budget deficit for 40 years running?
For all the reasons I laid out above regarding the strength of the US.
quote:
But nothing lasts forever and monopoly dollars for oil is a limited game. We're approaching the end of that and having a "deep" debt market won't be a positive attribute.
So what's your catalyst? I bet that means that the dollar has been losing ground as the primary source of trade and financial transactions, huh?
quote:
Of course it did, just like it did during the 90's and 2000 asset bubbles. Capital gains taxes on inflated assets
Very different, this part was initially a drop in government spending (although yes, it was aided by better than expected tax receipts).
quote:
Lower interest costs, mortgage costs, etc due to central bank manipulation of the bond market. Higher corporate profits due to free money sloshing out to consumers, government spending, low corporate borrowing cost.
You still seem to be implying these are bad things for economic advancement?
quote:
The federal reserve even remits excess interest on the debt it holds to the Treasury, which further destroys the fed's balance sheet, while making it seem as if the US government can borrow for free.
What do you mean "destroy" the Fed's balance sheet? You act as if the Fed's primary reason for existence is to be a profitable entity. It actually has been profitable, but you act as if the Fed's balance sheet is some garbage truck? The Maiden Lane portfolios actually ended up profitable, and those were by far the riskiest investments ever taken on.
quote:
We've seen all this monetary stimulus repeatedly for decades. The stimulus ends and it implodes, and it will this time too unless they print to the bitter end.
Ummm.... the Fed raises interest rates too? It also is stopping QE this year, and will likely raise rates next year? The Fed has had hawkish as well as dovish policy? You act as if they've continually eased more and more into oblivion? Am I missing something?
This post was edited on 9/11/14 at 7:59 pm
Posted on 9/11/14 at 7:56 pm to BennyAndTheInkJets
Yes, I believe the US government is bankrupt. When a government can't afford to borrow at market rates, without resorting to the printing press, it is functionally bankrupt. If we could have borrowed at market rates without the fed stepping in, why didn't we? We could have simply used fiscal stimulus, borrow those trillions from the market, maybe at even lower rates as you suggest. There wasn't enough lending capacity, and Ben Bernanke supplied the shortfall.
BTW, the bond markets are using a carry trade, because as I said, it's a global trade funded by multiple central bank liquidity actions. There is FX risk, but the central banks are manipulating that also, to make sure it is tolerable to the players.
As for what Ben Bernanke said, do you really think that's pertinent. Ben Bernanke said that the housing market was fine, long after it wasn't. Ben Bernanke said Fannie Mae and Freddie Mac were fine, right before they had to be bailed out and taken over by the government. Ben Bernanke said (paraphrased) "there's no such thing as a free lunch, monetizing government debt replaces a regular tax with an inflation tax." And then he later said that his debt monetization wouldn't cause inflation. Ben Bernanke was and is a serial liar.
I assume you're serious with this question, but obviously you're not following the gist of this debate. My point is that investors would not do that in the absence of quantitative easing or some assurance from central banks that those bond prices would be supported by even lower short term rates. Investors don't lose money voluntarily. Sure, banks are buying debt in Europe with negative NOMINAL yields. Why? Because Mario Draghi has assured them that he'll drive them even lower. Citing bond market conditions under a money printing regime is devoid of meaning if you take away the printing press.
The same can be said for citing FX rates, like the dollar index, or any other market price. If I control the money supply, I control the values. These are not market values and they don't tell you what would happen in a real market. So what if the dollar is stronger than the Euro, Europe is bankrupt too. Currencies are being debased simultaneously. This is not a stable solution, and it won't last 20 years.
As for the fed raising rates, they might...for a very brief time and then it will all collapse under the debt load, or they'll raise them slowly as inflation accelerates, i.e., keep real rates negative.
I'm assuming that the fed will do what they've done since 1982. Go pull up a long term chart of the fed funds rate, or the 10 year treasury, nominal or inflation adjusted (and remember, they've changed the inflation calculations repeatedly to lower the number). It's a jagged line with a negative 45 degree slope, both in real terms and nominal. That's a secular trend. Meanwhile total debt, public and private, is compounding several percentage points faster than the economy is growing, so the debt becomes more unaffordable with every passing year. This can't change, even now that real rates are negative. They may rise briefly, but unless real rates continue to decline, the end result will be the same as 2000, or 2008.
The difference here is that you're evaluating things in the context of a system that I think is failing. The fractional reserve, central bank fiat model is reverting to it's historical resting point, currency destruction due to excessive debt and subsequent monetization. In a world constrained by natural resources like oil, that can't be printed, with consumption dependent on future government payouts that have no chance of being paid, the outcome is practically guaranteed, only the timing is in doubt.
BTW, the bond markets are using a carry trade, because as I said, it's a global trade funded by multiple central bank liquidity actions. There is FX risk, but the central banks are manipulating that also, to make sure it is tolerable to the players.
As for what Ben Bernanke said, do you really think that's pertinent. Ben Bernanke said that the housing market was fine, long after it wasn't. Ben Bernanke said Fannie Mae and Freddie Mac were fine, right before they had to be bailed out and taken over by the government. Ben Bernanke said (paraphrased) "there's no such thing as a free lunch, monetizing government debt replaces a regular tax with an inflation tax." And then he later said that his debt monetization wouldn't cause inflation. Ben Bernanke was and is a serial liar.
quote:
Regarding negative real yields, investors have been investing lower than break-even rates for years.
I assume you're serious with this question, but obviously you're not following the gist of this debate. My point is that investors would not do that in the absence of quantitative easing or some assurance from central banks that those bond prices would be supported by even lower short term rates. Investors don't lose money voluntarily. Sure, banks are buying debt in Europe with negative NOMINAL yields. Why? Because Mario Draghi has assured them that he'll drive them even lower. Citing bond market conditions under a money printing regime is devoid of meaning if you take away the printing press.
The same can be said for citing FX rates, like the dollar index, or any other market price. If I control the money supply, I control the values. These are not market values and they don't tell you what would happen in a real market. So what if the dollar is stronger than the Euro, Europe is bankrupt too. Currencies are being debased simultaneously. This is not a stable solution, and it won't last 20 years.
As for the fed raising rates, they might...for a very brief time and then it will all collapse under the debt load, or they'll raise them slowly as inflation accelerates, i.e., keep real rates negative.
I'm assuming that the fed will do what they've done since 1982. Go pull up a long term chart of the fed funds rate, or the 10 year treasury, nominal or inflation adjusted (and remember, they've changed the inflation calculations repeatedly to lower the number). It's a jagged line with a negative 45 degree slope, both in real terms and nominal. That's a secular trend. Meanwhile total debt, public and private, is compounding several percentage points faster than the economy is growing, so the debt becomes more unaffordable with every passing year. This can't change, even now that real rates are negative. They may rise briefly, but unless real rates continue to decline, the end result will be the same as 2000, or 2008.
The difference here is that you're evaluating things in the context of a system that I think is failing. The fractional reserve, central bank fiat model is reverting to it's historical resting point, currency destruction due to excessive debt and subsequent monetization. In a world constrained by natural resources like oil, that can't be printed, with consumption dependent on future government payouts that have no chance of being paid, the outcome is practically guaranteed, only the timing is in doubt.
This post was edited on 9/11/14 at 8:15 pm
Posted on 9/11/14 at 8:13 pm to wdhalgren
quote:
Yes, I believe the US government is bankrupt. When a government can't afford to borrow at market rates, without resorting to the printing press, it is functionally bankrupt. If we could have borrowed at market rates without the fed stepping in, why didn't we? We could have simply used fiscal stimulus, borrow those trillions from the market, maybe at even lower rates as you suggest. There wasn't enough lending capacity, and Ben Bernanke supplied the shortfall.
Again, Fed =/= Government. The Fed didn't start QE to finance the deficit, they did this to jump start the economy. This had zero to do with lending capacity. I don't know how I can be any more clear here. The Fed did not start QE as a means to finance the deficit. Did they? Yes. But if financing the deficit was the Fed's main goal how do you explain the Volcker years?
quote:
BTW, the bond markets are using a carry trade, because as I said, it's a global trade funded by multiple central bank liquidity actions. There is FX risk, but the central banks are manipulating that also, to make sure it is tolerable to the players.
I'm very well aware they take part in carry trades. You didn't describe a carry trade, you described a spread trade.
quote:
As for what Ben Bernanke said, do you really think that's pertinent. Ben Bernanke said that the housing market was fine, long after it wasn't. Ben Bernanke said Fannie Mae and Freddie Mac were fine, right before they had to be bailed out and taken over by the government. Ben Bernanke said (paraphrased) "there's no such thing as a free lunch, monetizing government debt replaces a regular tax with an inflation tax." And then he later said that his debt monetization wouldn't cause inflation. Ben Bernanke was and is a serial liar.
...I think I'm starting to understand our actual disagreement here...
quote:
I assume you're serious with this question, but obviously you're not following the gist of this debate. My point is that investors would not do that in the absence of quantitative easing. Sure, banks are buying debt in Europe with negative NOMINAL yields. Why? Because Mario Draghi has assured them that he'll drive them even lower. Citing bond market conditions under a money printing regime is devoid of meaning if you take away the printing press.
I'm not sure you understand how portfolio management works on an applicable level. The majority of portfolios are tied to benchmarks with varying bands of discretion. Core fixed income is almost always in the 4-7 year duration range. Regardless if there is any easing or not, they are investing there. If you're saying that they wouldn't be investing in negative real rates there without easing, I guess my response is "no shite".
quote:
The same can be said for citing FX rates, like the dollar index, or any other market price. If I control the money supply, I control the values. These are not market values and they don't tell you what would happen in a real market. So what if the dollar is stronger than the Euro, Europe is bankrupt too. Currencies are being debased simultaneously. This is not a stable solution, and it won't last 20 years.
Mmmkay.. so... what exactly do you suggest should be used as a meaningful statistic? Also why do you think this isn't stable? What's the catalyst that changes everything?
I think this question gets to the heart of our debate here. Do you believe the existence of central banks is a bad thing for the world?
ETA: You answered it with the below. Just as an FYI, I used to believe a lot of the same things you do in college. I read ZH religiously and dug deep into Austrian economics for a long time. Then over time I learned the real question in all of this, "what's the alternative and does it create a better scenario"? If you believe fundamentally that (what I assume) your alternative is better, then we are fundamentally at odds and will not agree here. There are absolutely truths to both sides, as well as every side. But eventually you have to make an actual decision, and it's a lot easier to arm-chair QB central banks and the fiat system then it is to actually make decisions that will benefit the population the most. By the way, I've met the guy that started ZH and there is a reason the site context is the way it is.
quote:
The difference here is that you're evaluating things in the context of a system that I think is failing. The fractional reserve, central bank fiat model is reverting to it's historical resting point, currency destruction due to excessive debt and subsequent monetization. In a world constrained by natural resources like oil, that can't be printed, with consumption dependent on future government payouts that have no chance of being paid, the outcome is practically guaranteed, only the timing is in doubt.
This post was edited on 9/11/14 at 8:21 pm
Posted on 9/11/14 at 8:27 pm to BennyAndTheInkJets
quote:
The Fed didn't start QE to finance the deficit, they did this to jump start the economy. This had zero to do with lending capacity. I don't know how I can be any more clear here.
You can be as you like, you're wrong. The fed is monetizing debt because they had no choice. The banking system would have failed without QE, the government would have defaulted. "Stimulus" is an excuse to cover up something far more critical than buying iPhones. The Volcker years happened 30 years ago. We had a paltry trillion dollars in federal government debt, and still our deficits exploded at a phenomenal rate. That will never happen again even when inflation explodes.
quote:
You didn't describe a carry trade, you described a spread trade.
I said a global carry trades being financed by multiple central banks simultaneously. That's what is occurring. Low dollar rates are a contributor, but so are low yen rates, Euro etc. I may have shifted the debate a bit there, but that's what's happening and the cheap short term funding is ubiquitous, and it can never change.
quote:
I think I'm starting to understand our actual disagreement here.
I don't think so. I have no antipathy toward Bernanke or anyone else. This problem started long ago and these guys are just postponing the inevitable. Our disagreement is that you think this is a sustainable model, lowering interest rates to support unproductive debt fueled consumption, and I'm just as convinced it's not. A series of inflationary asset bubbles, followed by crashes, and ever rising debt levels that grow faster than the underlying real economic activity support my points.
Posted on 9/11/14 at 8:29 pm to BennyAndTheInkJets
quote:
If you believe fundamentally that (what I assume) your alternative is better, then we are fundamentally at odds and will not agree here.
I don't have an alternative. This can't be fixed without a collapse. As for ZH, I've read it, but I understood all this long before blogs came into fashion. Events are progressing along a course that only has one ending. I still have trouble believing that we have chosen a solution that doesn't fundamentally address the underlying problem of debt and real economic ability to service that debt.
This post was edited on 9/11/14 at 8:35 pm
Posted on 9/11/14 at 8:36 pm to wdhalgren
quote:
You can be as you like, you're wrong. The fed is monetizing debt because they had no choice. The banking system would have failed without QE, the government would have defaulted. "Stimulus" is an excuse to cover up something far more critical than buying iPhones. The Volcker years happened 30 years ago. We had a paltry trillion dollars in federal government debt, and still our deficits exploded at a phenomenal rate. That will never happen again even when inflation explodes.
The. Fed. Did. Not. Buy. Treasuries. In. 2008. With. QE1.
Let me say this again. The Fed did not buy Treasuries in 2008 with QE1. The banking system was not at a legitimate risk of failing in 2010 when the Fed started QE2 (when they bought Treasuries and monetized the debt). It was at risk of failing in 2008.. when the bought MORTGAGES.
ETA: Forgot about the add-on of Treasuries in late December of 2008 for $300B, but still paltry compared to the $1.35T program for mortgages. My point still stands, it had nothing to do with financing the debt and everything to do with saving the economy from collapse.
quote:
I said a global carry trades being financed by multiple central banks simultaneously. That's what is occurring. Low dollar rates are a contributor, but so are low yen rates, Euro etc. I may have shifted the debate a bit there, but that's what's happening and the cheap short term funding is ubiquitous, and it can never change.
How is this different from the past 25 year carry trade with Japan. Carry trades have happened for decades upon decades, it's not something new. Hell you can even make an argument its happened for centuries with the Dutch/British days of the 1500's and 1600's.
quote:
I don't think so. I have no antipathy toward Bernanke or anyone else. This problem started long ago and these guys are just postponing the inevitable. Our disagreement is that you think this is a sustainable model, lowering interest rates to support unproductive debt fueled consumption, and I'm just as convinced it's not. A series of inflationary asset bubbles, followed by crashes, and ever rising debt levels that grow faster than the underlying real economic activity support my points.
Look at recessions and economic cycles prior to the creation of the Fed/FOMC and look at them afterwards. Recessions happened much more frequently with a much higher hit to %GDP than post creation of the Fed/FOMC. If you want to use 1913 as the creation of the Fed and not 1934 as the FOMC, fine, the point still stands. There is no silver bullet, however, and the flip side is economies corrected themselves faster pre-Fed/FOMC. The real issue here is volatility, volatility erodes confidence and creates uncertainty. Central banks have suppressed volatility relative to pre-Fed years, which has caused greater economic expansion. We've seen both systems, albeit with different technological backgrounds. But the statistics still cannot be dismissed.
This post was edited on 9/11/14 at 8:44 pm
Posted on 9/11/14 at 8:59 pm to BennyAndTheInkJets
quote:
The. Fed. Did. Not. Buy. Treasuries. In. 2008. With. QE1.
Debt, like money, is fungible in a world where central banks buy it. Do you believe there is anything other than cosmetic differences between a mortgage backed security and 10 year treasury note? Once upon a time there was, but not now, because the fed has deemed them systemically important. So buying mortgages was equivalent to buying treasuries, and the fund received for those mortgages were immediately available to buy government bonds. No functional difference.
But, that argument aside, it doesn't change the argument that the banking system would have collapsed without QE1, and thereafter the US government would have defaulted.
quote:
How is this different from the past 25 year carry trade with Japan. Carry trades have happened for decades upon decades, it's not something new
I didn't say it was new. I've repeatedly said that this is a longstanding problem that is now reaching it's endpoint. Japan's central bank has been supporting global bond prices for a long time, absolutely. They got a bit of head start on monetizing debt when they loaded up with foreign debt, and caused a massive housing bubble in Japan. I'm not sure why that gives you comfort.
quote:
Look at recessions and economic cycles prior to the creation of the Fed/FOMC and look at them afterwards.
And what do we have to show for it? An economy that is so debt laden that they've finally driven interest rates to zero and begun to monetize. A hollowed out domestic economy running permanent trade deficits, dependent on the notion that the rest of the world will continue loaning us money to buy their stuff, even when we begin printing money to pay back their loans. Does this seem logical to you?
Even Keynes knew that monetary and fiscal stimulus had to be reversed eventually. We're trying something new. Perma-deficits and permanently suppressed interest rates to support that debt, and then proceed to printing when low rates are inadequate. This is not the world of yore, oil is not plentiful and populations are not self reliant. Debt is used for consumption, which always means future consumption must decline in real terms by that amount in order to repay the debt. Payback is at hand and the resulting instability will undo any notion of the federal reserve omnipotence. But is interesting that Ben Bernanke basically said the same as you said above, in 2004 I believe it was. Four years later he didn't sound so sanguine.
This post was edited on 9/11/14 at 9:07 pm
Posted on 9/11/14 at 9:00 pm to BennyAndTheInkJets
This is so much money board porn I just can't help myself...
So sorry for the levity but this might be one of the better discussions in a long time. Other then bitcoin, of course.
So sorry for the levity but this might be one of the better discussions in a long time. Other then bitcoin, of course.
Posted on 9/11/14 at 9:06 pm to wdhalgren
quote:
wdhalgren
Dude... I like you.
Great post
Posted on 9/11/14 at 9:15 pm to Mr.Perfect
I am a child compared to the conversation but I vote
Depression/collapse
Our government will ride the money train til it collapses.
Depression/collapse
Our government will ride the money train til it collapses.
Posted on 9/11/14 at 9:21 pm to wdhalgren
quote:
Do you believe there is anything other than cosmetic differences between a mortgage backed security and 10 year treasury note
...
...
...
uh...
I'm going to just ignore this.
quote:
But, that argument aside, it doesn't change the argument that the banking system would have collapsed without QE1, and thereafter the US government would have defaulted.
I will agree that without the actions by the Fed and Treasury throughout the crisis, including QE1, the banking system would have likely collapsed. I can not agree with the default portion, not because I don't think its a possibility, but because I think eventually some action would have to be taken and then we're way past the world of hypotheticals at that point.
quote:
I didn't way it was new. I've repeatedly said that this is a longstanding problem that is no reaching it's endpoint. Japan's central bank has been supporting global bond prices for a long time, absolutely. They got a bit of head start on monetizing debt when they loaded up with foreign debt and caused a massive housing bubble in Japan. I'm not sure why that gives you comfort.
How is it a problem? Carry trades happen and correct over time, some horizons longer than others. Japan will perpetually be a carry trade because their lack of natural resources force the country to export. They've done this since the end of the Tokugawa regime ended as Commodore Perry steamed into Tokyo harbor. How did foreign debt have any part of the asset bubble? Taxes, monetary policy, land laws, and Japanese banks being aggressive for the first time ever caused the asset bubble.
quote:
And what do we have to show for it? An economy that is so debt laden that they've finally driven interest rates to zero and begun to monetize. A hollowed out domestic economy running permanent trade deficits, dependent on the notion that the rest of the world will continue loaning us money to buy their stuff, even when we begin printing money to pay back their loans. Does this seem logical to you?
Wow you really have a skewed view of the US and its role in the global economy. How is the US "hallowed out"? Refer to my points on the US above. Also the US has the ability to be a net importer due to our overall economic strength which in turn benefits all of these other countries that are able to increase their wealth and advance their domestic economies.
quote:
Even Keynes knew that monetary and fiscal stimulus had to be reversed eventually. We're trying something new. Perma-deficits and permanently suppressed interest rates to support that debt, and then proceed to printing when low rates are inadequate. This is not the world of yore, oil is not plentiful and populations are not self reliant. Debt is used for consumption, which always means future consumption must decline in real terms by that amount in order to repay the debt. Payback is at hand.
Keyens said you had to tighten policy as things get better and loosen when things get worse. How is that not what we're doing this and next year?
quote:
Perma-deficits and permanently suppressed interest rates to support that debt, and then proceed to printing when low rates are inadequate. This is not the world of yore, oil is not plentiful and populations are not self reliant. Debt is used for consumption, which always means future consumption must decline in real terms by that amount in order to repay the debt. Payback is at hand.
Not nearly as bad as your first point on mortgages and treasuries, but... I think the Poli board would be more open to discussion of the above with you.
ETA: And why do you keep saying interest rates will stay at zero/depressed forever? The Fed has already hinted many times next year they will likely start raising rates. If you want to argue about the long term average of interest/terminal rates, then yea I absolutely agree that they will be lower than previously. I don't believe that is some indication of an imploding nation, but rather a continuing maturation of global financial markets. Do I think living standards will converge over the next 20-30 years between the US and developing nations? Absolutely. I hope they do, otherwise something went horribly wrong. Do I believe the US will collapse and become a 2nd tier country in the global landscape in the next 20-30 years? Absolutely not.
This post was edited on 9/11/14 at 9:30 pm
Posted on 9/11/14 at 9:40 pm to BennyAndTheInkJets
You're arguing with an interest rate desk trader. Or whatever they're called. You're not going to win the argument. At least not in this thread.
As always, time will tell.
As always, time will tell.
This post was edited on 9/11/14 at 9:42 pm
Posted on 9/11/14 at 9:43 pm to Shepherd88
quote:
The market is improving through earnings by these companies. They continue to surpass their estimates, that's why its continuing to grow.
Earnings are up primarily because Corporations have been issuing bonds and borrowing at record low interest rates. In general, Corporations have been using the money to buy back stocks, thus reducing the number of shares in circulation. Fewer shares means more profit per share. VOILA.
Not dissing it, just got to trade the tape that we are given. It is what it is.
To answer OP, the US economy muddles through. Of course, the stock market does not necessarily correlates to the economy.
This post was edited on 9/11/14 at 9:47 pm
Posted on 9/11/14 at 9:44 pm to Iowa Golfer
quote:
As always, time will tell.
Most accurate statement in this thread.
Did you mean to respond to me with that?
ETA: Actually forgot to answer the OP
quote:
Gradual economic recovery.
Muddle along for an extended period.
A mix of these two. A gradual muddle along (relative to history) economic recovery.
This post was edited on 9/11/14 at 9:46 pm
Posted on 9/11/14 at 9:48 pm to wdhalgren
Great thread and from the post I read, great info. I applaud you guys for making the money board the best on droppings for generally staying on topic and not acting like jackasses.
I will not pretend to know how to read what the near future holds, but this country is going through an energy boom like I'm not sure it has ever seen. The stuff I'm seeing with oil and gas projects in TX and LA is completely mind blowing. As long as the feds don't do something stupid to mess this up, our economy can probably coast by on this for several years even if nothing else big happens.
I will not pretend to know how to read what the near future holds, but this country is going through an energy boom like I'm not sure it has ever seen. The stuff I'm seeing with oil and gas projects in TX and LA is completely mind blowing. As long as the feds don't do something stupid to mess this up, our economy can probably coast by on this for several years even if nothing else big happens.
This post was edited on 9/11/14 at 10:30 pm
Posted on 9/11/14 at 9:59 pm to Iowa Golfer
quote:
In times of "crisis" you have to eat the best tasting shite sandwich.
Money Talk greatness.
Back to reading
This post was edited on 9/11/14 at 10:00 pm
Posted on 9/11/14 at 10:09 pm to BennyAndTheInkJets
One thing I have heard repeatedly is the those in the financial industry almost never foresee the great crash coming. It is always unforeseen.
Something to remember as you battle over the details of the situation.
Something to remember as you battle over the details of the situation.
Page 3 of 5
Popular
Back to top
Follow TigerDroppings for LSU Football News