Gyroscopic Investing

http://tinyurl.com/ajdpwxc

Their title not mine. I am not endorsing the views in it, but it does make for interesting reading.

TennPaGa wrote: I wouldn't necessarily say Krugman won.  As someone in the MR camp, I would disagree with Krugman's overall view, because he thinks government deficits are bad on their own; he simply favors addressing them once the economy improves.

Anybody want to lay odds on a column by Krugman saying that the economy has now improved enough and it's time to reign in government spending to reduce the deficit?

notsheigetz wrote:

TennPaGa wrote: I wouldn't necessarily say Krugman won.  As someone in the MR camp, I would disagree with Krugman's overall view, because he thinks government deficits are bad on their own; he simply favors addressing them once the economy improves.

Anybody want to lay odds on a column by Krugman saying that the economy has now improved enough and it's time to reign in government spending to reduce the deficit?

Not likely. I just saw him on TV maybe a week ago and he was still beating the same drum.

TennPaGa wrote: Stephen Colbert on the pro-austerity economists who fudged their data:

http://www.colbertnation.com/the-colber ... heet-error

Whenever I see a Colbert link and click on it I end up watching like 5 or 6 more Colbert videos after that. Funny stuff.

Niall Ferguson to Paul Krugman: You’re Still Wrong About Government Spending

http://finance.yahoo.com/blogs/daily-ti ... 00183.html

“Once a government gets to a very very high level of debt, the risk is very small increases in borrowing costs which create a vast ocean of red ink. So that risk is not negligible. Very large debts do not simply disappear by magic.”?

Facepalm.

I know we talk about production and all, and I obviously believe that this is what underlies our entire syste, but just on a logical nominal basis this fails.

Inflation may not be "magic," but it does make debt disappear in terms of its relation to GDP.  Imagine having 1970's style stagflation over the next decade caused by "artificially low interest rates."  if we have 7.2% inflation on average, the inflation alone will cut our debt/gdp ratio in half.

Add real economic gains to that and we're even more fine.

Our constraint is inflation, inflation, and inflation, NOT a self-fulfilling default-risk/interest-rate spiral. 

All the "liabilities" of the government (whether it be money or bonds) does is give us a paper asset on our balance sheet with which to save or shop (the latter of which will simply put it on someone else's balance sheet).  The bonds also dictate whether we'll be inclined to spend, because they not only pay us income for keeping them on our balance sheets, but help dictate what banks will pay us to keep our money with them.  If we have "too much" paper at "too low" a rate to have us keep it on our balance sheets in relation to the productive capacity of our economy, we'll likely see inflation.  If those rates rise, people will be more likely to hold the paper, unless the interest alone by having that much paper adds enough paper to (gasp) create more inflation.

In the end it's all about productive capacity, and equilibrium.  Right now, I'm a bit of a "spending Laffer Curvist."  Any slashing of spending is likely to almost offset itself in the total effect of lost revenue by the government.  Our "underlying problem" in the short-to-medium term is a demand-defficiency caused by the natural results of a monetized economy.  None of our long-term problems are going to be solved by causing misery in the short term, IMO.

Government "accounting" largely doesn't matter in my view.  First of all, bonds are "liabilities" of the treasury, while reserves are "liabilities" of the fed.  There's an implication here that they have something they have to do pay those liabilities off like a corporation would, or more likely have to have "assets" to back them.  Well government "assets" are very ambigiuous.  The productive economy is essentially what is supporting the "liabilities" of the government... or more specifically, that those same things, as assets on our balance sheet, don't essentially turn into confetti.

What does matter is productive capacity, the state of supply/demand equilibrium (or lack thereof caused by a monetized economy), risk-free interest rates adjusted for expected inflation, whether our government supports production (via supply AND demand supports) or hinders it, etc.

Now if the fed is essentiall committing fraud w/ banks and not "accounting" for it correctly, there's something I'm concerned about.

This isn't what Ferge is talking about, though.  He's likely talking about how he hates that the SS trust fund is invested in (gasp) government bonds.  Because investing trillions in government money in private business, or holding it in cash, is so much better.

It doesn't help that Krugman barely gets MR either.  His calls for 70% tax brackets on the rich is ridiculous.

Krugman is a useful village idiot.  Right only twice a day.

MachineGhost wrote: Krugman is a useful village idiot.  Right only twice a day.

I think of him as a left-wing equivalent of Peter Schiff. The two often make some good points, but it's usually buried in an awful lot of noise and narrow-minded negativity.

MachineGhost wrote: Krugman is a useful village idiot.  Right only twice a day.

I thought only broken watches were right twice a day? 

TennPaGa wrote: Reinhart and Rogoff are back with more nonsense.

http://www.ft.com/intl/cms/s/0/cca28c2e ... abdc0.html

Like here:

Unfortunately, ultra-Keynesians are too dismissive of the risk of a rise in real interest rates. No one fully understands why rates have fallen so far so fast, and therefore no one can be sure for how long their current low level will be sustained. John Maynard Keynes himself wrote How to Pay for the War in 1940 precisely because he was not blasé about large deficits – even in support of a cause as noble as a war of survival. Debt is a slow-moving variable that cannot – and in general should not – be brought down too quickly. But interest rates can change rapidly.

(snip)

Economists simply have little idea how long it will be until rates begin to rise. If one accepts that maybe, just maybe, a significant rise in interest rates in the next decade might be a possibility, then plans for an unlimited open-ended surge in debt should give one pause.

Interest rates in the U.S. are low because that's where the Federal Reserve wants them to be.  How hard can this be?

"Nobody know" why rates are low?  Sorry but who the f*ck are these people?  Nobody? 

What a complete lack of critical thinking or acknowledgement of conversations that have been going on in droves for years, and SHOULD have been going on for decades before (and were in some circles).

TennPaGa wrote:

rocketdog wrote: Niall Ferguson to Paul Krugman: You’re Still Wrong About Government Spending

http://finance.yahoo.com/blogs/daily-ti ... 00183.html

World to Niall Ferguson: You're Kind of a Douchebag...
...

Hah. I said almost the exact same thing on a different forum the other day. How did Harvard ever let this guy in?