Another question I have is about the debt ceiling. What exactly is the point in even having a limit, if it is invariably raised whenever it is reached? The debt ceiling either needs to be absolute, or we shouldn’t have one at all.
China could theoretically just hang onto the dollars they have but they wouldn’t be getting any interest payments. So they buy T-Bills which are essentially the same as holding dollars except they get interest payments.
Core inflation is under 2% now. In 1990 it was 4.4% and nobody was complaining about inflation.
In the 2% era, we’ve had 2 big deflation scares. With inflation this low, the economy is susceptible to bad economic shocks, as the Fed is limited in its ability to reduce inflation adjusted interest rates. They are targeting too low, recklessly so.
Here’s Peter Schiff’s view on F.R.B. policy
(Schiff may be of the “Austrian school,” but I’ve no useful opinion on the validity of his view.)
Peter Schiff has been predicting hyperinflation since 2008. I think it’s fair to say that his underlying view of the world is unreliable. Here’s a partial transcript of his 2009 appearance on Glenn Beck.
We’ve tripled the monetary base and according to their version of folk economics, we should be seeing high inflation now. We’re not. Now a serious person would re-evaluate their views in the face of such a test. But by and large serious people don’t rotate on the Glenn Beck clown circuit.
Just because you can grumble about bankers, doesn’t mean you’re right. (I see he thinks deflation is never a problem. The last spell of deflation occurred during the Great Depression and was linked to the same. I’m gonna have to disagree with him there.)
ETA: For those keeping score at home, Schiff is advocating tighter Fed policy. Fed watchers think they will tighten this year. With core inflation below 2%, it’s difficult to see what Schiff’s point is.
China and other countries are buying up US wealth. China alone owns 73 of the fortune 500 companies.
Cite? While the trade deficit leads inevitably to U.S. asset accumulation by Japan, China, etc. I strongly suspect the quoted fact is confused, possibly via the “Global” Fortune-500.
In addition to the famous Fortune-500 List of largest U.S. companies, there is a Global Fortune 500 List, of which only one quarter are U.S. companies. Ninety-five of the companies on that list are Chinese, mostly government-owned.
The debt has generally been sustainable for a long time, and is sustainable even now.
Growing the debt has been politically attractive. Lower taxes, more government pork and hiring, and lots of very secure bonds to help [del]gamblers[/del] “investors” hedge their bets? More, please! More, more, more!
The problem is that knowing the debt was sustainable, and that deficit spending would lead to more political support than fiscal responsibility, led to deficit spending in years of economic growth, when the smart play was to run surpluses. And contrary to their whinging that it’s the Democrats who do this, the Reagan Republicans have done this a lot.
So long as the debt grows slower than the economy, it’s sustainable. It’s those freak years like 2008-2009 that cause it to explode.
The deficit has gone down in the last few years, so it’s not really a worry right now. Granted, it was largely by cutting expenditures like turning government workers into part-timers; that’s not ideal in a depression, to put it mildly.
Ideally, we’d raise upper marginal income taxes, pay most of it off over a couple of decades, and maybe even build a sovereign wealth fund. I’m not holding my breath.
Apart from the fact that he absolutely nailed the housing bubble and financial crisis of 2008, often in the face of very mean spirited attacks. The thing about inflaction is that it is very difficult to pinpoint until it’s upon us. We dont know for sure which assest(if any) are in a bubble right now only time will tell.
I lean pretty much towards the free market Austrian school. If my reading has taught me anything it is that it’s impossible to tell when the economic shit will hit the fan. That bad policies(policies which look good at the time) can go on for quite some time before being proven to be disastrous.
The CBO this week predicted deficits of over $1 trillion by 2025, and this is without a recession occuring. How do you ever expect to eradicate this deficit and even add a sovereign wealth fund? Marginal income tax increases will hardly touch this level of deficit. The sustainability of economic/fiscal policy is best judged over the entire economic cycle not simply on the up swing. What’s most worrying is the distinct posibility that these are the good years. That the best economic years still resulted in a deficit of 3% or so of GDP.
I don’t think we’re really disagreeing that much.
I am a pretty serious Keynesian.
I’m sure we could dig our way out of a debt of 2x GDP if we had to do it, between inflation and higher taxes. The UK did a couple of generations ago. It wasn’t fun, but it wasn’t total economic collapse, either.
But we don’t have to get into that boat if we’d just tax above-mean-wealth households, and especially the finance classes and the billionaires, highly enough to pay back Social Security and run a small surplus. We may need to tax savings more and consumption less. Push come to shove, a tiny tax on net worths over 10 million dollars could raise enough money to wipe out the debt faster than the bonds would come due.
But I think, in general, the trick is to run slight surpluses most years, so you can pay off old debts and maybe even build a sovereign wealth fund. Unfortunately, we did the opposite.
Well, since the sequester, spending is more under control and the deficits are lower.
That said it is long past time to acknowledge that “cutting spending” doesn’t help if tax revenues also go down. And tax revenues can go down if taxes are cut by politicians who think a spending cut should also have a tax cut ( :rolleyes: ) or if the economy falters.
So, it’s not really “too much spending” that’s the issue. It’s, “not levying enough in tax to fund your obligations,” and, “letting consumer demand drop as median incomes decrease relative to cost of living.”
To be honest if that was the case European GDP growth should have outstripped US GDP growth in the recent past. This has not been the case. French GDP has grown something like 2% for the past three decades. In theory French consumer demand out to have outstripped that in the US, or at least been more stable. All this has resulted in is economic malaise in France and much of Europe(though im willing to admit Europe has a barrel load of other economic problems to contend with). France is also in a position of having huge debts. “Adequate” taxing usually ends in even more spending and borrowing. It takes vast amounts of political self restraint not to always spend that litle bit more than a state takes in. In France even roughly 50% government receipts of GDP have still not been enough to balance the government’s books.
Any circumstances *whatsoever? *Has it occurred to you that our level of ideal spending is merely a bit higher than yours? And no, depressions are not a reason to cut spending in a depression. They’re a reason to cut spending (&/or raise taxes) when we’re not in depression.
Granted, “good” Keynesians believe in counter-cyclical policy, while there are “steroid addict” post-Keynesians who just don’t care…
Well, if Congress doesn’t like the debt, what’s a ceiling going to do about it? It’s their own fault for not either raising the money or revising the outlays downward. The debt ceiling votes seem to be a farce.
Anyone who says deflation is not a threat to the economy twigs my nonsense meter. Of course it’s a threat to the economy we know, to the economy we have, to the economy we expect. When we had a money supply that grew more slowly than the economy, we had a natural deflationary tendency in conflict with the processes and demands of economic growth–and thus a quick “shock” or “depression” every few years. That paradigm was abandoned when a couple of terrible worldwide depressions were seen as having been clearly too deep and too long (one following the USA’s Civil War, and another in the 1930’s).
First, let me thank you for your recent posts in this thread, which I find very intelligent and correct.
I did NOT intend to endorse hyper-Austrian rubbish, but I thought that
was very funny, and (without suggesting any better monetary policy) a very apt description of certain mischief and errors by the financial-government complex in recent decades.
France is weathering the present economic difficulties rather well, though.
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Look, I grew up poor in a right-wing corner of the USA. This isn’t *purely *academic for me. I live in a neighborhood with a worrying number of empty houses even as homeless people sleep under bridged and in shelters. Laissez-faire, Austrian economics, free market monetarism, Reaganism, whatever you want to call it–right-wing economic policy doesn’t really lift up the poor, manage infrastructure efficiently, or even pay its debts. Nor is it designed to do those things, except *in some versions *pay its debts, maybe. And yet certain people (not you) will insist that “capitalism” makes almost everyone richer (which I, as a former right-winger, know isn’t remotely true nor even the point) so we should run away from any “socialism” even if it’s been working.
After years of seeing right-wing ideas not so much fail as just refuse to deal with problems, I developed a cynicism about them even stronger than your cynicism about France. What passes for right-wing economic talk from politicians and pundits is a bunch of strutting ignorant self-righteousness more often than not. I gave up on it and became something more like a Christian socialist.
So, to bring things back to the point:
I don’t think too much spending is really the problem. We spend a little more than 20% of GDP? Tax a little bit less? That’s half the typical rate for a First World country, isn’t it? I think constant tax cuts, for the superrich, from the GOP, are the problem.
I find that unfortunate. I miss Milton Friedman and fear his influence is ebbing.
Pretty much, yeah. There’s nothing in textbook economics that says you can reliably predict recession.
I’ll buy that in general, but I also believe in Simon’s Law: “That which cannot go on forever will stop.”
But here’s where I have problems:
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I’m going to need a cite on an Austrian nailing the housing bubble. People say that of Ron Paul, then link to a 2002 YouTube speech. That’s wonderful, except the lowest ave housing prices of 2008-2014 were higher than they were in 2002. [Case Shiller Index] You need to call things closer to the peak to be given credit for a correct prediction.
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Lots of people called the housing bubble. Krugman did. I did at the Unaboard. So did other posters and pundits. Where I messed up was not realizing that the combination of over-leveraged banks and a housing bubble would prove toxic. I thought it would end badly as in, “Recession”, not as in, “Lost decade”.
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The guy who got it right was Nouriel Roubini.
Um, careful. Define inflation as the percentage change in the price of goods and services and it’s straightforward to measure. The BLS does a fine job.
After their inflation predictions fell apart, Austrians like to say that they’re including asset prices (i.e. the stock market) in the mix. Fine. Let’s see what your 50 year time series looks like: let’s see the chart. Because generally I think of inflation as a bad thing but rises in the stock market as a good thing. The BLS includes the cost of housing in their index, but I understand that’s tied to rents. If you want to include assets, then we are speaking at cross-purposes.
Yes, asset bubbles are a concern. But that’s a different phenomenon than inflation. For example I don’t worry about intel chip bubbles or even oil price bubbles. Assets are simply different beasts than annual output, just as wealth is different from annual income. Mainstream economists call these two categories stocks and flows. They need to be discussed separately.
Let’s go back to Schiff. Now I can understand when somebody makes the wrong call on exchange rates. He thought the dollar would decline, when in fact the dollar strengthened. But here’s the thing. Schiff went beyond that. He spoke of, “Currency debasement”. He also reportedly predicted “Hyperinflation” on Glenn Beck. This is crackpot stuff. Now he was totally wrong in terms of direction: the dollar strengthened while inflation declined. But even if he got the direction correct (which he didn’t), if he got his magnitudes wrong, he’s still a crackpot.
The data annihilates Schiff’s POV. Honest brokers mark their beliefs to market periodically. Hucksters, crackpots and ideologues are never wrong.
Also, inflation doesn’t really sneak up on you. It edges up over time, or maybe shoots up in times of war. At least that’s how it’s worked in the US during the 1970s and other eras.
The influence of Austrians on 21st century American conservatism is deeply unfortunate.
Hmm.
I don’t think inflation is necessarily a bad thing.
Mild inflation may reflect an upward correction in the relative price of some goods and the relative wages of some workers. That can be for the good; it depends on who benefits. The problem with the USA’s inflation (and economic growth, for that matter) since 1980 is that it’s mostly been increased real income for the “higher” classes, and increased disadvantage and debt for what ended up being a majority of households* in the lower income quintiles. *If the gain in comparative advantage were to the benefit of the poorer third or so of households, inflation wouldn’t quite be so irritating, or at least not to all the same constituencies.
Even across-the-board inflation can keep a highly leveraged business from going under.
So I think, given the amount of debt and insecurity in the USA, that creditors and bankers can suffer inflation or risk :cough: unrest if not revolution. Or maybe they think that forty years of right-wing media has inoculated the nation against all that New Deal, social democratic stuff.
Do you understand that US debts are payable in US dollars, not gold, silver, Euros or Yuan? China cannot “collect”, nor can any other US debtor, other than as payment on the bonds promises. They can sell the bonds to someone else or they can keep the bonds. Like the little old lady down the street who buys Treasuries, they can collect the interest. At the end of the term, they get paid dollars. Pieces of paper. US Treasury notes are the most secure investment in the world. US Bankers and US rich people control the Federal Reserve Bank, which decides how much to “print” to make a long story short. The Saudis sell oil to get rich. They are very rich. They sell oil for dollars. Not Euros or Yuans or Yen. Pieces of paper.