Are we headed for a crack-up boom?

[boneyard bill]

There are only 2 solutions I can think of. And neither has anything to do with Austrian economics:

1. Some kind of robot technology that causes productivity to rise exponentially
or
2. Some kind of mass killing such as war or plague of a huge amount of people. Especially killing off the old ones like myself.

But I think I like option 1 a lot better than option 2.

You assume that boneyard bill's premises (that the dollar will collapse and that our debts will be unpayable) are true. But they are not.
There is no indication that the US dollar will collapse. Boneyard bill has been predicting this for years and we still are not observably closer to such an outcome.

Nor is the reason to believe that our debts are "unpayable" or that dealing with them will cause such an economic calamity. There is no indication that our economy will not continue to grow (albeit a slower rate) or that we will begin to deal with our finances in a more rational fashion. His forecasts are predicted on assuming utter stupidity and extremely low probability worst case scenarios.

Not at all. I showed the math. Show me where it is wrong. There is no plausible combination of economic growth, tax increases, and spending cuts that can make it work. If you can find the answer, put up the numbers right now. It isn't that our leaders are idiots. The problem is that they're cowards. That haven't wanted make the tough decisions so they've kicked the can down the road and just let it guess worse. But their successors will have to deal with terrible consequences.

 

[boneyard bill]

Printing money raises prices. That includes the price of gold.

I have repeatedly pointed out your error in this. Rising prices cause more money to be created. You are conflating an effect of inflation pressure, more money being created, as being the case of the inflation.

Money creation is endogenous to the economy. Money is created based on the demand in the economy for money.

I am saying that rising home prices means that I have to take out a larger loan to buy a house. You are saying that my desire to take out a larger loan and to have more debt is forcing home prices higher.

First of all, you explanation then fails to explain rising prices. If they are not caused by an increase in the money supply, what does cause them? I'm not talking, of course, about specific prices but about an increase in the general price level.

As I see it, your scenario merely alters the sequence of the process, not the fundamental cause and effect relationship. Does the government actually print money? Does it even create money? No. That isn't how it works. Banks create money when they lend. What causes people to want to borrow? It can be a lot of things but certainly lower interest rates, easier credit terms, and lower lending standards can be a big part of it. When the government creates conditions which make this easier, then you are going to get money creation. In the old days, the central bank had to intervene to increase reserves or to reduce the reserve requirement. What you pointed out is that that is unnecessary today because banks can simply borrow the additional reserves they need. So the Fed has less control over money creation than it once did, but it still has control over many factors involved in money creation and so to other parts of the federal government.

 

[boneyard bill]

No shit, Sherlock.

That doesn't change the fact that the massive oversupply of refined gold in the world today, that cannot conceivably be used in thousands of years, should (if markets were sane) render that particular commodity almost valueless. That it is not selling for pennies a tonne is purely an artefact of human cognitive impairment - literally, insanity.

Sure, if there is inflation, the price of all commodities - including those that are practically valueless - should, all else being equal, rise; but any number multiplied by almost nothing is almost nothing.

If the world had thousands of years supply of refined steel ingots in storage, doing nothing, what do you think that would do to the price of steel, iron, and iron ore? For sure, nobody would be interested in mining more iron ore. But gold mines worldwide are producing over 3,000 tonnes of the stuff each year - to be refined, cast into ingots, and placed into storage, along with the other over 180,000 tonnes that is already there. The owners of the stuff never even go to look at it. That's fucking insane.

People are crazy about gold. It is a very useful commodity. It never oxidizes under standard conditions. It conducts electricity well. It is very malleable. It is pretty.

But it is consistently overvalued as a commodity because of the confusion surrounding its relationship with money. It is a widespread belief that gold is what gave money value for thousands of years because our barter based economy depends on a money that has "real value." That we foolishly severed the connection between gold and our money. That this is what started our inevitable slide to economic Armageddon which will commence any day now and that the only winners will be those smart enough to have a hoard of gold in their safe.

But as Bill proves with nearly every post, widespread beliefs about money and the economy in general are wrong. Gold didn't give money its value through history, backing money with gold gave gold its inflated value because economies invariably needed more money than the gold that they had.

That economies throughout history weren't based on barter. Like today's economy they were were virtually all based on debt and credit. Even the most basic tribal economies were based on a form of credit called "gifting," not on barter. If you gave me something that I needed it came with the implicit obligation that sometime in the future I would give you something of value. Credit and debt, not barter requiring a third commodity like gold to satisfy the "double coincidence of wants" problem. (Except, of course, for foreign trade, with traders who weren't in the trusted circle of the members of your own tribe.)

It is the debt and credit base of money that allowed things like grain, temple goods, cattle, etc. to be the underlying support for money. The Greeks didn't walk a cow to buy something and then to the butcher to make change. Cattle were the bases of a complex price setting system were one cow was worth say three goats or ten sheaves of wheat. Shoes were worth a sheaf of grain. The temple issued credit notes for whatever someone made, say shoes, based on the fixed value that was established. These credit notes were exchanged for whatever was needed, backed by the trust in the temple, not because everyone had cows to exchange. An early form of banking, paper money and a trusted third party guaranteeing it all.

Bill's simplistic Austrian economics can't accept this explanation of the way that money operated in antiquity because their entire economic theory is based on proving that the government isn't required to be involved in the economy. They are not interested in explaining how the economy works, only in spinning a fantasy of how the economy could work without government.

That the ancient economies worked using credit and fixed values for everything, not barter, completely destroys their carefully constructed house of cards fantasy of operating the economy without a trusted third party, that is government. A third party that regulates the economy to guarantee some degree of fairness in the economy.

Show

This is why the Austrians and the Libertarians can't accept but one of the uses of money, as the medium of exchange. They can't admit that modern so-called fiat money has its own value, that it stores value or that it is an unit of account, the measure of value in the economy. Instead they argue that everything has a natural value, one independent of the item's monetary value. That all things that are bad in the economy happens when the government interferes to distort monetary prices that deviate from the so-called natural price. That these distorted prices cause investors to misappropriate their investments. This is of course ridiculous. On every count. It pretty much ignores everything thing that we now know about the economy that we have and the economies of the past. It is an economics that ignores the realities of today's economy and the knowledge we have gained of past economies.

The important investment decisions that are made today aren't made by stock market investors, they have become a small, unimportant sideshow in the economy. The important investment decisions today are made by corporate executives. And they are not dependent only on the prices of their goods to decide whether or not to invest, they have an entire range of tools available to help them, marketing surveys, consumer preference, economic projections, all of which the Austrians and the Libertarians have to deny are useful. Their fantasy depends on the price alone carrying all of the useful information about the investment decision.

I've already dealt with this nonsense in a previous post. I am not an Austrian, and Austrians do not believe what you claim they believe. You are classifying ALL Austrians as followers of Murray Rothbard's political theories when very few are.

 

[laughing dog]

You assume that boneyard bill's premises (that the dollar will collapse and that our debts will be unpayable) are true. But they are not.
There is no indication that the US dollar will collapse. Boneyard bill has been predicting this for years and we still are not observably closer to such an outcome.

Nor is the reason to believe that our debts are "unpayable" or that dealing with them will cause such an economic calamity. There is no indication that our economy will not continue to grow (albeit a slower rate) or that we will begin to deal with our finances in a more rational fashion. His forecasts are predicted on assuming utter stupidity and extremely low probability worst case scenarios.

Not at all. I showed the math. Show me where it is wrong.

First, your "math" (which is really just assertions) confuses real with nominal growth. Your assumption of 2% GDP growth is for real GDP not nominal GDP, but the rest of your analysis (which includes interest rates) is in nominal terms. Nominal GDP typically grows 2% or more than real GDP.

There is no plausible combination of economic growth, tax increases, and spending cuts that can make it work. If you can find the answer, put up the numbers right now. It isn't that our leaders are idiots. The problem is that they're cowards. That haven't wanted make the tough decisions so they've kicked the can down the road and just let it guess worse. But their successors will have to deal with terrible consequences.

Their successors may have to deal with consequences - whether they are terrible or not is a matter of conjecture. You assume complete rigidity in responses and worst case outcomes in order to generate your "doom and gloom" forecasts. Up to now, they have been wrong for years.

 

[boneyard bill]

If it's insane, why are they doing it? China is mining gold at a loss and refusing to sell any of it. Meanwhile, they're buying all the gold they can get their hands on. Russia is also buying gold and so is India.

You left out one important function for gold. It is very useful as a medium of exchange. We have paper dollars! You might exclaim. But paper dollars are very cheap to produce and accounting entries (which is most of what our money is) are even cheaper.

Consider this, when we were on a gold standard, the gold actually served an immediate, practical purpose. It served as a medium of exchange. Even though it mostly never left the vaults, it served as security for the bank notes that people actually used in their transactions.

Fiat money has no security. Consequently people seeking security will turn to gold and silver in direct proportion to their lack of confidence in the prevailing fiat currencies. The high price of gold is a symptom of the declining confidence in the major fiat currencies of world and of the dollar in particular.

And by the way, if you think the price of gold on the COMEX is ridiculously high, keep in mind that you can't actually buy gold at that price. The COMEX price is the price for gold contracts not real, physical gold. Real, physical gold is selling at a 30-50% premium over the COMEX price.

So the price of gold has been dropping, that must mean that confidence in the dollar is increasing?

So-called fiat money* is valuable because of what it can buy. The absolute best argument against the simplistic fantasy economics of Austrians and Libertarians is that our economy is the way that it is because of thousands of years of collective choices made by the various actors in the economy. Our economy is the way that it is because of the very thing that the Austrians say that they want to give the economy, the freedom of choice.

The economy doesn't have a gold standard for money not because the government decided to abandon it. We don't have a gold standard because the market freely chose to get rid of it. Not only wasn't it needed, the value of money is based on what it can buy, nothing else, but because the gold standard was seriously hampering growth in the economy. The only way that you could go back to the gold standard would be to have the government force everyone to use it, ironically, and to live with the constraint on growth that it causes.

The market wants the medium term growth in the money supply to equal the growth in the economy and the net effect of the foreign trade. A trade deficit is money that is effectively leaving the economy, so that the growth in the money supply has to be greater than the growth in the economy to allow for that.

For a gold standard to succeed the economy must be able to accept deflation, money becoming more valuable. But the economy that we have has freely chosen to not accept deflation. To have sticky prices and to have sticky wages. The government didn't force the economy to have sticky anything. It was the free choice of the market, rooted in basic human nature.

Deflation is very, very bad for a capitalistic economy. It means that money becomes more valuable, that holding money can generate greater returns than investing it. This is very bad for the economy. That debtors have to pay back loans with money that is more valuable than the money that they borrowed. This is very, very bad for the economy.

Show

Among the many things that you chose to ignore about the economy is that the macroeconomy has to behave differently than the microeconomy times 330 million or however many individuals and companies we have in the US. And that one of the reasons that this true is that at the macroeconomic level all of these things that we are talking about, money, debt, investments, interest rates, stocks, bonds, derivatives, commodity markets, etc. are all part of the overheads of capitalism. And they all burden the real economy of making products for consumption. And a wise capitalistic economy minimizes their drag on the economy. They are needed as an important part of the mechanism of capitalism but they are not the reason that the economy exists, they don't have to be catered to, to be over rewarded to be forced into doing their small part in the economy. In 1970 the FIRE sector, financial insurance and real estate, claimed 2% of the corporate profits in the US. In 2007, just before the deregulation delusion financial crisis and recession that they largely caused, fully 40% of the corporate profits in the US went to the FIRE sector.

The burden that they impose on the productive economy is more than twice as great as it was in 1911. They have become that much more inefficient than than they were in the times of quill pens and ledger books, productivity losses when the entire rest of the economy posted tremendous gains in productivity.

* governments don't have to force its use, they only have to require that it is used to pay taxes to give it value.

Has the price of gold been dropping? I don't think so. The COMEX is a market for gold contracts, not physical gold. It is a bit like gambling on a football game. You bet on the price going up or down and then you cash in when you win. Most participants do not ask for physical gold and the COMEX is not required to deliver physical gold. It can force you to take a cash settlement. In fact, right now the COMEX owns very little physical gold.

There is no market place for physical gold although the Chinese are creating one in Shanghai which is scheduled to begin operation, I believe, in September. This could have a serious effect on the COMEX because people will want to arbitrage gold. Buy on the COMEX for $1200 an ounce and sell in Shanghai for $1600 an ounce. But COMEX doesn't have the gold so we'll have to see what happens to value of their "paper gold" contracts.

The free market did not decide to get rid of the gold standard. It was political decision by FDR. The economic circumstances did not force the decision. He did it because he wanted to create inflation as a way of getting out of the depression. It didn't work. But he was of the same belief that you express here, a belief unsupported by evidence, that deflation is a bad thing and to be avoided at all costs. In fact, of course, it is deflation that drives economic growth. Price reduction is the way small enterprises become big ones. Just ask Henry Ford or Steve Jobs, or countless other successful entrepreneurs.

 

[boneyard bill]

SimpleDon writes:

Because it works as long as everyone else is equally crazy.

China is mining gold at a loss and refusing to sell any of it. Meanwhile, they're buying all the gold they can get their hands on. Russia is also buying gold and so is India.

So what? Lots of people do insane things.

You left out one important function for gold. It is very useful as a medium of exchange.

No it isn't.

We have paper dollars! You might exclaim. But paper dollars are very cheap to produce and accounting entries (which is most of what our money is) are even cheaper.

Exactly. Cheaper things are good. Expensive things cost more. If you have two ways to do something, the non-insane option is to go with the cheaper.

Consider this, when we were on a gold standard, the gold actually served an immediate, practical purpose.

Indeed it did. And in the neolithic, good quality flints were hugely prized, for good reasons. But we are no longer in the neolithic, nor are we on the gold standard.

It served as a medium of exchange. Even though it mostly never left the vaults, it served as security for the bank notes that people actually used in their transactions.

And instability, deflationary spirals, recessions and all kinds of needless economic harm resulted. Fortunately, we have moved on since then; fractional reserve banking allows money supply to automatically match to demand - when people want to borrow, money is created, instead of having to be diverted from other economic purposes; and when they pay back the loan, that money disappears again, instead of hanging around causing inflation.

There is no way to match the supply of gold to the demand for money. That makes commodity money a truly bad idea.

Fiat money has no security.

Nor does gold. Did you miss the part where I pointed out that there are 180,000 tonnes of refined gold sitting idle around the world? It is worthless as soon as people decide it is - just like fiat money.

Consequently people seeking security will turn to gold and silver in direct proportion to their lack of confidence in the prevailing fiat currencies.

But they don't - they turn to other fiat currencies. The Zimbabweans dropped their dollar for the greenback, not for golden krugerands. There is a reason for this.

The high price of gold is a symptom of the declining confidence in the major fiat currencies of world and of the dollar in particular.

It is a symptom of people's faith in each other's insanity.

And by the way, if you think the price of gold on the COMEX is ridiculously high, keep in mind that you can't actually buy gold at that price. The COMEX price is the price for gold contracts not real, physical gold. Real, physical gold is selling at a 30-50% premium over the COMEX price.

So what? More insanity.

The key difference between gold and fiat money is the fiat money is backed by real nation states, with real economies. Gold is backed by the crazy idea that it is valuable in and of itself, despite being practically useless and in massive oversupply.

I'm not going to respond to each individual point because I don't want to descend into a de-rail. I would only point out that fractional reserve lending was invented when a gold standard prevailed and is not incompatible with a gold standard. But I would also suggest that equating a medium of exchange with supply and demand is rather wrong-headed. You seem to have fallen into that modern neo-Keynesian trap of equating "demand" with money. That makes no sense. Money is a medium of exchange through with supply and demand are expressed.

Of course, if there is a shortage of money, prices will fall. It isn't the money balances the two. It is the price mechanism.

Meanwhile, you are left with the choice of believing that the entire world is insane or that you are wrong.

It is a very small part of the world that believes in Austrian economics. Their sole reason that they exist now is because they provide academic cover for the idea that the government isn't needed in the economy. A wholly ridiculous idea since at no time in history has an economy existed without government, since the first tribal chief was asked to vouch for the trustworthiness of a member of his tribe.

Totally wrong as I have pointed out many times before. You are totally confusing Austrian economic theory with Rothbardian political theory. Even within libertarian circles the issue of the role of government is debated. Can a free market economy function efficiently without private property laws. What about enforcement of contracts? What about bankruptcy laws? Most of these conditions are presupposed by Austrian economics and most other free market theories. I would call these kinds of things "ground rules." And Milton Friedman even thought that money creation should be one of the ground rules.

One of the two basic reasons for the development of government is to define and to regulate the economy, the other reason being to provide security from both internal and external threats. It makes no more sense to say that we don't need government regulation of the economy because you just know in your heart that a free market can regulate itself, than it would to say that we don't really need criminal laws because God won't let bad people into heaven and therefore no one will kill or steal. Both a belief in the existence of the self-regulating free market and in a God that will judge everyone on their death depend on an almost childlike faith in something that doesn't and can't exist.

What does Austrian theory REALLY say about this? Do they say there should be no laws against fraud? Do they say there should be no laws against selling poisonous food? Of course they don't. And why not? Because it is outside the realm of Austrian economic analysis. The Austrian analysis doesn't deal with health and safety regulations or the welfare state or the advisability of public education or any of those things because you cannot derive such claims from the subjective theory or value or from the law of supply and demand.

Value is subjective. A product or service is worth what someone else is willing to exchange for it. A banana may be worth a coconut. Then again, maybe not. Maybe it would take two bananas to acquire a coconut. You don't need gold to do this. You don't need any medium of exchange. A medium exchange is useful, however, because you make an exchange over time and with multiple participants. Historically, gold and silver have been the preferred media of exchange because they are the most marketable commodities. They are the most marketable commodities for reasons you have given in one of your posts above.

So, value is subjective. Therefore, we know the value of product or service because of its market price. That is the ONLY way we can know the value of a product or service in a money economy. The market price, therefore, is the essential information that people need to have to make rational decisions regarding production, distribution, and sale of the product. If you interfere with the market price, you are creating disinformation. Consequently you give rise to malinvestment. This leads to investments that cannot be sustained and as a result, instead of creating growth, you destroy resources.

To sum up, Austrian economics says MARKET PRICE = INFORMATION. If you distort the price, you distort essential information.

Does this mean the government shouldn't build dams or roads or bridges? No. There is nothing in the Austrian analysis that says you shouldn't do these things. Government spending may, in fact, be inefficient, and it may be inherently so due to the nature of government. But that is an entirely different argument that cannot be derived from Austrian theory.

The Keynesian concept of elective demand is that not only must a consumer have the desire to buy something, he must also have the money that is required to buy that thing. And that for about 99% of the population that money has to come from wages, either past wages from savings or future wages from a loan. Desire is only a small part of demand. I fail to see the trap in that.

Desire to buy is not the ability to buy. But money is not the ability to buy either. It may be true for the individual case, but it is not true for the aggregate. To purchase a product or service, one must ultimately offer another product or service. Money is not demand. Money represents a product or service, but ultimate demand is also product or service. You cannot purchase something that doesn't exist. For an exchange to take place, both parties must possess something of value to the other party. A medium of exchange can be something of value (such a gold), but it doesn't have to be. When the medium of exchange is not a commodity, it is value only insofar as it represents a commodity. In other words, there must be production behind the demand.

Raising workers wages simply by giving them dollars off a printing press might benefit the immediate workers because they get the money first, but others would suffer the price increases so the society doesn't benefit. In fact in loses because the disinformation provided by inflated prices.

Under Obama, however, (as under Bush) it is the bankers who get the new money and the workers who get the increased prices and the whole society which suffers from a misallocation of resources.

When there is a shortage of money under the gold standard, the result is deflation, prices going down. But under a so-called fiat money system the shortage of money will result in higher private debt to create the needed money. Too much private debt isn't good either. Google "Ivan Fisher debt deflation" to see why.

Yes, the same economist that was wrong about the quantity theory of money was right about debt deflation. We can't judge him too harshly, he was looking at the failed gold standard in the early 1930's when he worked on the quantity theory of money. Every country that recovered from the Great Depression did so by abandoning the gold standard and no country started to recover from it until they abandoned the gold standard.

I think you mean Irving Fisher. He is famous for claiming, in 1929, that the stock market had reached a "permanently high plateau." He lost $10 million on the stock market while praising Hoover's every move. Then he wrote a monograph on to cure a depression. I don't know why anyone would listen to him, but Milton Friedman did. It is said the Friedman is "Irving Fisher with footnotes." So in an indirect way, Fisher is a founder of Monetarist theory.

The people who can be judged harshly are those who are presented with the evidence of the failure of the gold standard and still try to impose it on the unwilling economy or who look at the disaster of 1980 increasing the interest rates to +20% because the monetarists thought that the quantity of money set prices instead of prices determining the quantity of the money. A person like you for example

.

I don't see where you've made the case that the gold standard failed. Yes, most countries abandoned it during the depression but that's because they were desperate. FDR was not forced off the domestic gold standard in the way that Nixon was forced off of it in 1971. His decision was based on theory, not circumstance. But, certainly, as soon as one major economy leaves gold, the others have to for fear of losing there export markets.

I'm still waiting, of course, for your response to the US financial situation and why we don't need to worry about it.

 

[boneyard bill]

That is not necessarily true. The deflationary experience of Japan is recent proof that your claim is not unilaterally true.

As we learned in 2008 and 2009 it is hardly never true. The problem as we found out was that the Fed could create all of the money that they wanted to, but if no one was loaning money and/or no one was borrowing money, both were true at that time, the money didn't go into the economy. It has to be loaned out. The only other choice was Bernanke's helicopter drop where the Fed would print a lot of money and drop it from a helicopter in order to get it into the economy.

Even the famous QEs didn't do much because they didn't put money into the real economy. The QEs did provide a boost to the stock market and the rest of the paper economy of stocks and bonds. But this money pretty much stayed in the money like paper investments that really don't impact the real economy of producing goods and services that the 99% by and large depend on to sustain them.

I find this to be a very strange interpretation of QE. What QE did, most famously, is to reduce bond yields which is the same a reducing interest rates. These lower bond yields mean higher bond prices. Hence it has created a bubble in the bond market as I have previously pointed out. But it has also created bubble in the stock market as investors leave bonds to seek higher yields in the stock market. Therefore, these higher stock prices do not reflect actual increases in productivity. So there's a bubble in stock market as well. And finally, against all odds the government through the Fed, the Treasury, and the Housing Department has actually managed to create yet another bubble in real estate. What happens when these bubbles collapse.

 

[fromderinside]

What happens when these bubbles collapse.

We'll look to you to repeat Friedman unsuccessfully once again? Chicago School is dead. Long live MIT!
The MIT Gang http://www.nytimes.com/2015/07/24/opinion/paul-krugman-the-mit-gang.html?_r=0

 

[boneyard bill]

What happens when these bubbles collapse.

We'll look to you to repeat Friedman unsuccessfully once again? Chicago School is dead. Long live MIT!
The MIT Gang http://www.nytimes.com/2015/07/24/opinion/paul-krugman-the-mit-gang.html?_r=0

I think we need look a bit deeper into these claims by Dr. Krugman. First of all, he notes the influence of the "Chicago boys" on economic policy in Latin America but fails to note that those policies were very successful in turning these economies around.

At the time, the big issue was the combination of high unemployment with high inflation. The coming of stagflation was a big win for Milton Friedman, who had predicted exactly that outcome if the government tried to keep unemployment too low for too long; it was widely seen, rightly or (mostly) wrongly, as proof that markets get it right and the government should just stay out of the way. Or to put it another way, many economists responded to stagflation by turning their backs on Keynesian economics and its call for government action to fight recessions..

What is implicit here, although Krugman avoids stating it, is that the stagflation itself was the result of those Keynesian policies which Krugman continues to recommend. However, characterizing Friedman's position as "laissez-faire" is hardly accurate. Friedman definitely believed that government should regulate the money supply. Meanwhile, Jimmy Carter turned to a "Chicago boy," Paul Volcker, to straighten things out. Volcker clamped down on money creation which led to a recession, but the ensuing recovery was extremely robust with growth rates exceeding 7% annually.

This open-minded, pragmatic approach was overwhelmingly vindicated after crisis struck in 2008. Chicago-school types warned incessantly that responding to the crisis by printing money and running deficits would lead to 70s-type stagflation, with soaring inflation and interest rates. But M.I.T. types predicted, correctly, that inflation and interest rates would stay low in a depressed economy, and that attempts to slash deficits too soon would deepen the slump.

The "Chicago-school types" that Friedman is referring to included Ben Bernanke. He may have gotten his degree from M.I.T. but he was a follower of Milton Friedman. His PhD. dissertation was on the Great Depression and his interpretation of that period followed the Friedmanite analysis. But what vindication do we really have? Bernanke rescued the banks that needed to go under. Yes, it might have delayed a more serious problem but it didn't, and hasn't, dealt with the underlying fundamentals. The "recovery" from this fiasco has been "growth" rates of 1 to 2% annually and even those official numbers are suspect. We needed a deeper recession in 2008 to clear out the dead wood (i.e. insolvent Wall Street banks) and pave the way for a serious recovery.

Usually, the deeper the recession, the greater the recovery. But in this case we had an even deeper recession than in 1980-82, but the recovery is so anemic that it hardly deserves that name. Why Krugman wants to take credit for this is pretty amazing. If a proper measure of inflation were used, it would show that we've been in constant recession since 2008. Clearly, this is not a triumph for Keynesian theory.

And even if Krugman had been right at the economic level, he is still totally wrong at the financial level. Presently projected levels of spending cannot be sustained much less the higher levels that Krugman himself advocates.

 

[RVonse]

Not at all. I showed the math. Show me where it is wrong.

First, your "math" (which is really just assertions) confuses real with nominal growth. Your assumption of 2% GDP growth is for real GDP not nominal GDP, but the rest of your analysis (which includes interest rates) is in nominal terms. Nominal GDP typically grows 2% or more than real GDP.

Boneyard, what say you to this? Will you admit your math to this is incorrect?

Or is it better for you to quietly ignore something contrary to your argument. In a similar fashion we have seen SimpleDon has done for you.

 

[boneyard bill]

First, your "math" (which is really just assertions) confuses real with nominal growth. Your assumption of 2% GDP growth is for real GDP not nominal GDP, but the rest of your analysis (which includes interest rates) is in nominal terms. Nominal GDP typically grows 2% or more than real GDP.

Boneyard, what say you to this? Will you admit your math to this is incorrect?

Or is it better for you to quietly ignore something contrary to your argument. In a similar fashion we have seen SimpleDon has done for you.

I asked him to show me the math, and he hasn't done that and for good reason. He is correct. I should use nominal GDP rates of growth when calculating budgetary growth based on GDP. But the difference in results is trivial which is why he didn't show me any math that would solve the problem. If you add 2% to real GDP you still do not get revenue growth figures high enough to make a significant difference.

Of course, you still have the inflation option. If you push nominal GDP to 10%, nine percent of which is inflation, you will get much more rapid growth in revenue. But you will also get much more rapid growth in spending so it isn't clear that you would even reduce the growth in the rate of spending much less actually reduce the deficit. But the inflation option leads exactly to the "crack-up boom" that Von Mises was talking about.

 

[RVonse]

Of course, you still have the inflation option.

And there is still the option of never reducing the deficit or paying off the debt too.

One of my economics teachers in college said this to me back in the late 1970's and this has never has made sense to me either. But after all these years I will have to admit not ever reducing the deficit has indeed worked out well for the US. For some reason, the rest of the world remains confidence in our dollar anyway.

As long as everyone believes that poop is worth something it will continue to be worth something.

 

[boneyard bill]

Of course, you still have the inflation option.

And there is still the option of never reducing the deficit or paying off the debt too.

One of my economics teachers in college said this to me back in the late 1970's and this has never has made sense to me either. But after all these years I will have to admit not ever reducing the deficit has indeed worked out well for the US. For some reason, the rest of the world remains confidence in our dollar anyway.

As long as everyone believes that poop is worth something it will continue to be worth something.

I agree that we don't ever have to pay off the debt. As long as everyone who buys Treas. bonds is convinced that THEY will get paid, they will buy them even though it isn't possible for us to redeem ALL of the debt. So it's a matter confidence. But we're running into a little problem. No one is buying our debt. When someone seeks to redeem their bond, we pay it by selling more bonds. But what if no one buys the bonds? We could respond by raising interest rates. That would sink the US economy. The ultimate buyer of last resort is the Fed. But that would lead to inflation and could even give us a crack-up boom. We're between a rock and a hard place and the Obama Administration and the Fed are aware of this, but they won't say it. That would just provoke the kind of response we're hoping to avoid.

But there's no way out. If Obama had acted in his first year the way Clinton had acted in his first year, we might have a chance to save the situation. But he didn't. He did the exact opposite of what needed to be done. It's too late now.

 

[laughing dog]

Boneyard, what say you to this? Will you admit your math to this is incorrect?

Or is it better for you to quietly ignore something contrary to your argument. In a similar fashion we have seen SimpleDon has done for you.

I asked him to show me the math, and he hasn't done that and for good reason. He is correct. I should use nominal GDP rates of growth when calculating budgetary growth based on GDP. But the difference in results is trivial which is why he didn't show me any math that would solve the problem. If you add 2% to real GDP you still do not get revenue growth figures high enough to make a significant difference.

Using incorrect numbers is not "math". Using the correct numbers cannot generate trivial results. Using 2% more doubles the revenues and probably reduces spending a bit. But you have no calculations, just assertions based on many unstated assumptions about behavior.

Of course, you still have the inflation option. If you push nominal GDP to 10%, nine percent of which is inflation, you will get much more rapid growth in revenue. But you will also get much more rapid growth in spending so it isn't clear that you would even reduce the growth in the rate of spending much less actually reduce the deficit. But the inflation option leads exactly to the "crack-up boom" that Von Mises was talking about.

This is exactly what I am talking about. In order to for your handwaved analysis to make sense, you have to make a number of assumptions about the unchanging nature of gov't action and economic behavior. You assume the worst case scenario, regardless of its likelihood.

 

[boneyard bill]

I asked him to show me the math, and he hasn't done that and for good reason. He is correct. I should use nominal GDP rates of growth when calculating budgetary growth based on GDP. But the difference in results is trivial which is why he didn't show me any math that would solve the problem. If you add 2% to real GDP you still do not get revenue growth figures high enough to make a significant difference.

Using incorrect numbers is not "math". Using the correct numbers cannot generate trivial results. Using 2% more doubles the revenues and probably reduces spending a bit. But you have no calculations, just assertions based on many unstated assumptions about behavior.

Of course, you still have the inflation option. If you push nominal GDP to 10%, nine percent of which is inflation, you will get much more rapid growth in revenue. But you will also get much more rapid growth in spending so it isn't clear that you would even reduce the growth in the rate of spending much less actually reduce the deficit. But the inflation option leads exactly to the "crack-up boom" that Von Mises was talking about.

This is exactly what I am talking about. In order to for your handwaved analysis to make sense, you have to make a number of assumptions about the unchanging nature of gov't action and economic behavior. You assume the worst case scenario, regardless of its likelihood.

I'll confess that the numbers that I used are probably a year or two out of date, but that is insignificant insofar as it serves to illustrate the problem. Nonetheless, you still refuse to do the math so it is you, not I, who is trying handwave the problem away. As for the other actions policy-makers might take to get out of this dilemma, that is exactly what I am asking critics here to provide. What other options are there? I certainly haven't seen any, and we have not seen any provided by the policy makers. What does the Fed say about the future? They say we will raise interest rates when we feel that the recovery is strong enough. But the recovery hasn't been strong enough since the recession supposedly ended in 2011. So when WILL it be strong enough? What can the Fed do to make it stronger? If they have any ideas, they aren't saying.

 

[laughing dog]

I'll confess that the numbers that I used are probably a year or two out of date, but that is insignificant insofar as it serves to illustrate the problem. Nonetheless, you still refuse to do the math so it is you, not I, who is trying handwave the problem away.

Making assertions is not "doing math". I have no idea how you came up with your numbers. Since you have not explained or shown your "math", why should anyone accept your "math" as reasonable?
You have gone around with this "the economy is doomed" for years. And yet, the doom is no closer than when you first started. In this is not blunt enough, given the observed lack of accuracy and observable errors in your forecasts, why should anyone accept them as reasonable?

 

[ksen]

Using incorrect numbers is not "math". Using the correct numbers cannot generate trivial results. Using 2% more doubles the revenues and probably reduces spending a bit. But you have no calculations, just assertions based on many unstated assumptions about behavior.

Of course, you still have the inflation option. If you push nominal GDP to 10%, nine percent of which is inflation, you will get much more rapid growth in revenue. But you will also get much more rapid growth in spending so it isn't clear that you would even reduce the growth in the rate of spending much less actually reduce the deficit. But the inflation option leads exactly to the "crack-up boom" that Von Mises was talking about.

This is exactly what I am talking about. In order to for your handwaved analysis to make sense, you have to make a number of assumptions about the unchanging nature of gov't action and economic behavior. You assume the worst case scenario, regardless of its likelihood.

I'll confess that the numbers that I used are probably a year or two out of date, but that is insignificant insofar as it serves to illustrate the problem. Nonetheless, you still refuse to do the math so it is you, not I, who is trying handwave the problem away. As for the other actions policy-makers might take to get out of this dilemma, that is exactly what I am asking critics here to provide. What other options are there? I certainly haven't seen any, and we have not seen any provided by the policy makers. What does the Fed say about the future? They say we will raise interest rates when we feel that the recovery is strong enough. But the recovery hasn't been strong enough since the recession supposedly ended in 2011. So when WILL it be strong enough? What can the Fed do to make it stronger? If they have any ideas, they aren't saying.

You haven't proven there's actually a problem or dilemma.

 

[bilby]

If a nation state can afford to service its debts, then whether or not it will ever completely pay back its debts is completely irrelevant.

Nation states don't die of old age; they don't become unfit to work due to age; they don't get sick and die.

All of the reasons why it is vital for a person to pay back the capital on his debts, and not just the interest, simply do not apply to nation states.

The USA is at no risk whatsoever from a debt disaster. One might be engineered at some point in the future, by stupidity; but it won't arise spontaneously from the continuation of the status quo.

It is far more likely that gold will suffer a collapse of confidence, and become valueless than it is that the greenback will do the same; however neither is really likely, as both are self supporting - they have value because we all agree that they have value; and unilateral disagreement is expensive.

 

[boneyard bill]

I'll confess that the numbers that I used are probably a year or two out of date, but that is insignificant insofar as it serves to illustrate the problem. Nonetheless, you still refuse to do the math so it is you, not I, who is trying handwave the problem away.

Making assertions is not "doing math". I have no idea how you came up with your numbers. Since you have not explained or shown your "math", why should anyone accept your "math" as reasonable?
You have gone around with this "the economy is doomed" for years. And yet, the doom is no closer than when you first started. In this is not blunt enough, given the observed lack of accuracy and observable errors in your forecasts, why should anyone accept them as reasonable?

If you want to dispute the numbers, provide some evidence. The claim that I have been predicting doom for years is a misrepresentation of what I have said. What I said before Obama was re-elected is that we would have another downturn that would be worse than 2008, and that it would occur during the next presidential term which now means Obama's second term. So I suppose you could say I've been predicting doom for years, but that was time frame in which my prediction was cast. So far I have not been proven wrong. We still have over a year and half to go. But if it should happen two years from now, I would still have to say that my prediction was pretty close.

 

[boneyard bill]

If a nation state can afford to service its debts, then whether or not it will ever completely pay back its debts is completely irrelevant.

Nation states don't die of old age; they don't become unfit to work due to age; they don't get sick and die.

All of the reasons why it is vital for a person to pay back the capital on his debts, and not just the interest, simply do not apply to nation states.

The USA is at no risk whatsoever from a debt disaster. One might be engineered at some point in the future, by stupidity; but it won't arise spontaneously from the continuation of the status quo.

It is far more likely that gold will suffer a collapse of confidence, and become valueless than it is that the greenback will do the same; however neither is really likely, as both are self supporting - they have value because we all agree that they have value; and unilateral disagreement is expensive.

Who ever said we have to pay back our debts? The question is how long will the world agree that the dollar has value? Why are they no longer buying our debt. The last figure I heard was that the Fed was purchasing 70% of the new US debt. China is slowly selling off her US Treasuries. Does that suggest that she has confidence in the dollar? Does it really show that "we all agree" that the dollar has value? I don't think so.

China has also reached swap agreements with many other countries and so have other countries reached swap agreements with each other to avoid using the dollar in bi-lateral trade. China has also set up a CHIPS system for clearing currency to compete with the US SWIFT system. There are lots of things going on that are enabling many of our trading partners to conduct business without the dollar. Why are the doing this? Why are they doing it now? Why not 20 years ago? You don't suppose it could signal a loss of confidence in the dollar do you?