"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister
"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."
- Daenerys Targaryen
"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"
- Tyrion Lannister
"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."
- Jorah Mormont
"These bad people are what I'm good at. Out talking them. Out thinking them."
- Tyrion Lannister
"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."
- Michael Barone
"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker
Saturday, August 23, 2014
Aya Cash played an unusually articulate Occupy Wall Streeter - in a Sorkin way - on The Newsroom. I don't know which episode, HBO was rerunning it but the menu said it was Veep.
Edit: Via IMDB she was in three episodes as Shelly Wexler during the second season.
Maybe, but expecting that inflation can rise and keep up with Fed rate hikes that starting from the ZLB late in 2015 will reach 4% in eight years placing 30-year conforming fixed interest loans at roughly 5.75% to 6% with full but likely somewhat under-employment along with proportionate nominal wages gains plus a tiny little for real is not radical. It may violate neoliberal tenets of rent collection, but not neoliberal instincts for self-preservation and survival.
Actually, I hope that I am wrong because if I am correct then the establishment survives with barely more than a scratch. If I am wrong then the deck gets reshuffled and there will be a whole new deal.This doesn't make sense to me. Seem teleological.
THe old bulls can have their run of the pasture for now because the young bulls of tomorrow are still calves. Some of them may become steers fattened for the slaughter, but there will still be plenty of millenial BS to spread around when the old bulls get slow and soft. There is a side to the generational conflict that the establishment is stewing up over boomer retirement and supporting their social security and Medicare that may backfire. Nothing lasts forever.
Friday, August 22, 2014
Triffin Dilemma for US treasuries:
Why the Global Shortage of Safe Assets Matters by David Beckworth
The structural dimension is that global economic growth over the past few decades has outpaced the capacity of the world economy to produce truly safe assets. Ricardo Caballero, the author of this view, argues that it probably started with the collapse of Japaneses assets in the early 1990s, was exacerbated by emerging market crises throughout the 1990s, and got heightened by the rapid economic growth of the Asia in the early-to-mid 2000s. These developments along with the fact that most of the fast growing countries have lacked the capability to produce safe assets made the assets shortage a structural problem.Misunderstanding (Totally!) Competitive Currency Devaluations by David Glasner
Inflation Erodes Assets: That’s Why Some People Fear It by Jared Bernstein
What are the long-term factors suppressing wage growth? In fact, Yellen cites a recent paper on the decline in labor’s share of national income, attributing that decline — though she omits this point — to “the offshoring of the labor-intensive component of the U.S. supply chain,” i.e., the loss of jobs due to imbalanced trade.Yellen links to The Decline of the U.S. Labor Share by Elsby, Hobijn, and Sahin
WEEKEND READING: JANET YELLEN: LABOR MARKET DYNAMICS AND MONETARY POLICY
A permanent/irreversible increase in the nominal stock of fiat base money rate which respects the intertemporal budget constraint of the consolidated Central Bank and Treasury.... Three conditions must be satisfied for helicopter money always to boost aggregate demand. First, there must be benefits from holding fiat base money other than its pecuniary rate of return. Second, fiat base money is irredeemable – viewed as an asset by the holder but not as a liability by the issuer. Third, the price of money is positive. Given these three conditions, there always exists – even in a permanent liquidity trap – a combined monetary and fiscal policy action that boosts private demand – in principle without limit. Deflation, ‘lowflation’ and secular stagnation are therefore unnecessary. They are policy choices."(via DeLong)
Depression is a choice as Steve Randy Waldman wrote.
Daniel Davies: No Riff-Raff: "Entering into the Brad DeLong Eat The Rich Controversy...
...I offer this observation:
If it is not the case "that the rich are spiteful--that they enjoy the envy of the poor", then why is the word "exclusive" so popular in the marketing material for hotels, nightclubs, holiday resorts and residential property developments. "Exclusive" is probably these days an advertising man's synonym for "nice", but it also has a clear and specific literal meaning. It means that the hotel, nightclub, resort etc is providing a bundled service; partly, the provision of a normal hotel or nightclub, and partly the service of excluding a segment of the population from that service. One pays extra to go to a health club whose swimming pool is not polluted by the greasy, hairy polloi.
The reason that this service is valuable is that those who consume it get utility from a) dividing society into two groups, rich and poor, b) creating institutions which physically and socially segregate these two groups and c) them being in the "rich" group. Nobody would apply for membership of Bouji's or the Bucks if it was just a matter of waiting your turn and paying your fee. This would completely defeat the point of the exercise and destroy the value proposition. The point is that in order to attract a better class of customer, you have to keep the riff-raff out. Basil Fawlty understood this; why doesn't the blogosphere?
(See the Dorothy Parker quote at the top of the blog.)
Thursday, August 21, 2014
A commenter quotes John Maynard Keynes:
The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.
It is, of course, a perfect quote for our times, too. It comes from the last chapter of the General Theory — a chapter that definitely bears rereading in the light of current debates.
For what Keynes describes in this chapter is, pretty much, a condition of secular stagnation — of persistently low returns on investment, in which there is a chronic oversupply of saving. He believed, in 1936, that this would be the state of affairs in the decades ahead, and was of course wrong in that belief. But he wasn’t wrong about the possibility of such a state of affairs, and since Larry Summers came out as a secular stagnationist, the view that we may well be there now has gone mainstream.
What struck me, looking at what Keynes wrote, were his remarks on interest rates and the return to capital: low rates of interest, he suggested,
Actually, for now at least profits remain high — but bond yields are very low.
The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.
would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital.
What Keynes didn’t say, but now seems obvious, is that the rentiers are unlikely to accept their euthanasia gracefully. And therein, I’d argue, lies the ultimate explanation of the persistent clamor for monetary tightening despite weak economies and low inflation. I’ve described on a number of occasions how tight-money advocates are constantly shifting their arguments — it’s about inflation; no, it’s about sound market functioning; no, it’s about financial stability — but always with the same bottom line: rates must rise now now now.From Chapter 24:
Well, what I think we’re hearing is the sound of rentiers and those who, explicitly or implicitly, work for them, demanding their natural right to earn good returns even if the resource they control isn’t actually scarce anymore. They are not willing to go gently into their euthanasia.
Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest to-day rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital. An intrinsic reason for such scarcity, in the sense of a genuine sacrifice which could only be called forth by the offer of a reward in the shape of interest, would not exist, in the long run, except in the event of the individual propensity to consume proving to be of such a character that net saving in conditions of full employment comes to an end before capital has become sufficiently abundant. But even so, it will still be possible for communal saving through the agency of the State to be maintained at a level which will allow the growth of capital up to the point where it ceases to be scarce.
I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work. And with the disappearance of its rentier aspect much else in it besides will suffer a sea-change. It will be, moreover, a great advantage of the order of events which I am advocating, that the euthanasia of the rentier, of the functionless investor, will be nothing sudden, merely a gradual but prolonged continuance of what we have seen recently in Great Britain, and will need no revolution.
Wednesday, August 20, 2014
The symmetry test by Simon Wren-Lewis
Elsa the Ice Princess on Monetary Policy by Jared Bernstein
DeLong on the mother of all black swans by Scott Sumner
Secular Stagnation: Useful Ideas or Hot Air? by Stephen Williamson
Tuesday, August 19, 2014
In practice the zero lower bound has huge adverse effects on policy effectiveness… [and] drastically changes the rules… [as] virtue becomes vice and prudence is folly. We want less saving, higher expected inflation, and more…. Liquidity-trap analysis has been overwhelmingly successful in its predictions: massive deficits didn’t drive up interest rates, enormous increases in the monetary base didn’t cause inflation, and fiscal austerity was associated with large declines in output and employment….
Secular stagnation adds… the strong possibility that this Alice-through-the-looking-glass world is the new normal….
As is the euthanasia of the rentier. As J.W. Mason put it, If credit is so cheap why do we need liquidity specialists? Mason has a new post up.
Reviewing Lawrence Summers’s et al.’s VoxEU Ebook on “Secular Stagnation”: The Honest Broker for the Week of August 23, 2014 by DeLong
Instead, I see the root causes as the confluence of an unreasonably high premium return on equities and other risky assets with a deflation or a very low inflation price trend. And where Summers sees this as operating since the mid-1990s and the start of the dot-com boom, I see it as operating since 1895, if not 1865.
Over at Equitable Growth: Comment on: Ayako Saiki and Jon Frost: "How Does Unconventional Monetary Policy Affect Inequality? Evidence from Japan"
I want to make three big points: READ MOAR
Figuring out what we expect QE to mean for income and wealth inequality is difficult because we are not sure what QE is supposed to do for the macroeconomy. Is it a way of credibly committing to lower nominal interest and higher inflation rates in the long run by goosing the monetary base at the zero lower bound? Is it a way of reducing the supply of assets subject to risk and thus reducing the risk premium? If the first, it is the government imposing--relative to the baseline--a transfer from those who are going to save, who are going to cut their spending below their income and shift purchasing power into the further future, and to those who are going to borrow and to those who have saved in the past. If the second, it is the government imposing--relative to the baseline--a transfer from those who are going to supply risk-bearing services to those who will lay off risks into the future and those who have already committed to bearing risk in the past. In either case, it is bound to be the rich today who have born risk in the past (and been lucky) or who have saved in the past. So today's inequality should, we think, rise. It is nice to see that it is true--and it is interesting that the effects look to be so large...I think it's helpful to distinguis DeLong as a "soft" neoliberal from Geithner who is a "strong" neoliberal. He even had the Treasury working at cross purposes with the Fed over QE. Was this in his book? I hope Bernanke will discuss it.
Looking forward, however, QE seems to be a piece of what Keynes called the euthanasia of the rentier--or of the risk-bearer. Wealthholders who are going to stay influential wealthholders must reinvest at rate n+g, so their true free cash is only r-n-g. What if they spend more? Keynes thought that there was a social compact: if the rich do not accumulate--if they spend more than r-n-g--then the political process will soon take their wealth away. Thus a world of QE is a world in which the rich have extremely high wealth levels, yet surprisingly little weight, given their wealth, on consumption patterns. There is high wealth inequality. And there is very high income inequality along the transition path as asset prices attain their new equilibrium levels. But less spending inequality.
The Geithner view of the world: monetary policy is unreliable witchcraft, fiscal policy is "sugar" that makes you feel really good for four hours before you drop into a diabetic coma, the only source of durable prosperity is to reinforce business and financial prosperity by giving them the returns they think they deserve--and then a little more. I parody. But this is the dominant view in the North Atlantic, at least. Basically, the bankers and investors and CEOs have us by the plums. If QE reinforces business confidence, it is worth doing in spite of its inequality effects. If, on the other hand, QE scares our upper class by (a) making them fear that asset prices are unsustainably high and will crash, and (b) making them fear that their future deals will have to squeeze returns out of an eyedropper, then the inequality effects are yet another reason to exit as fast as possible. Now I am not a believer in Geithnerism. But many people are. And it is certainly a live analytical position...
Monday, August 18, 2014
Daniel Davies has unlocked his weblog. Plus: Daniel–Crooked Timber: “I’ve had a life event recently. As of today (I’m posting this from the WiFi at Geneva airport) and for the next year, I am doing less of the stockbroking, and more of the travelling round the world with my family…” | And: “The single most sensible thing said in political philosophy in the twentieth century was JK Galbraith’s aphorism……that the quest of conservative thought throughout the ages has been ‘the search for a higher moral justification for selfishness’. Some rightwingers are not hypocrites because they admit that their basic moral principle is ‘what I have, I keep’. Some rightwingers are hypocrites because they pretend that ‘what I have, I keep’ is always and everywhere the best way to express a general unparticularised love for all sentient things. Then there are the tricky cases where the rightwingers happen to be on the right side because we haven’t yet discovered a better form of social organisation than private property for solving several important classes of optimisation problem….
Philosophies of economic policymaking - a comment which growed by Daniel DaviesHypocrisy doesn’t really enter into the equation with rightwing politics; you don’t (or shouldn’t) get any extra points for being sincere about being selfish. So where does that leave our students? Well, they’re young. They’re most likely insecure. They don’t actually have a lot, and it’s hardly surprising that they’re a bit precious about what they have…. People in general seem to be horribly uncomfortable with the idea that, by the standards they use to judge political situations, they themselves don’t come out as moral heroes. At base, this is a fairly childish and decidedly illiberal attitude; childish because it demands a sort of moral perfection which everyone intellectually knows can’t exist outside fairy stories (unless you count the way that parents appear to their children) and illiberal because it suggests that you’re only prepared to have normal social interactions with people who pass your own personal moral examination…
...And (I think I'm making my own position clear here) I think this is why Friedmanism fails. Because actually, the buck does have to stop somewhere, and pretending that you can manage a complex system via a simple rule is basically impossible (it falls foul of Stafford Beer's Principle Of Sufficient Variability). In practice, in a system based on a Taylor Rule, an Evans Rule or even an NGDP target, the buck stops with whoever it is that is responsible for maintaining the model which generates the forecasts of the control parameter. And this person is always going to deny that he's making activist policy and claim that he's a technocrat who simply goes where the data takes him. Friedmanism in economic policy, in the general sense I'm talking about here, is nothing more nor less than a distributed responsibility avoidance system.
Sunday, August 17, 2014
WASHINGTON (MarketWatch) — The conventional wisdom says the Federal Reserve is keeping interest rates so low that it doesn’t pay to play it safe, and that it’s encouraging investors to do all sorts of crazy things to earn a higher yield.
Supposedly, the central bank is forcing investors pump up stocks, junk bonds, farm land and all the other bubbles you’ve been reading about.
It’s a nice story, but the data show that U.S. investors are still conservative about where they put their money.
Just how conservative are they?
Data from the little-noticed financial accounts report show the American people have $10.8 trillion parked in cash, bank accounts and money-market funds that pay little or no interest.
At the end of the first quarter, low-yielding assets totaled 84.5% of annual disposable personal income, the highest share in 23 years. Sure, people need to keep some money handy to pay their bills and some folks might have a few hundred or a few thousand in a rainy-day fund, but no one needs immediate access to the equivalent of 11 months of income.
In essence, there’s $10.8 trillion stuffed into mattresses.
That $10.8 trillion hoard represents a failure of Fed policy.
Since the Fed began quantitative easing in September 2012, U.S. households have socked away $1.17 trillion in their low-yield accounts. That means that 95% of the Fed’s $1.24 trillion QE3 ended up not in bubbly markets but in a safe and boring bank account.
Since the recession began more than six years ago, the Fed has been trying to encourage people to put their money to work in the economy. That’s why the Fed has kept interest rates low and has been buying up trillions of dollars worth of relatively safe securities, hoping to push us to take on a little more risk.
After all, an economy can’t really grow if no one’s willing to gamble on the future.
But many of us don’t want to. We are still afraid, so we prefer to put a large part of our savings in assets that are guaranteed, like FDIC-insured bank accounts, or into money-market funds whose sponsor guarantees the return of the principle.
The point of Fed policy has been to get people either to consume more or to lend their money to others who would invest it productively. Either way, aggregate demand would rise, boosting the economy and creating more jobs.
The Fed can point to some successes: Consumer spending and business investment have bounced back, but both are somewhat weaker than they usually are coming out of recessions.
The majority of Americans are doing their patriotic bit, spending nearly everything they earn. A recent report from the Fed showed that little more than a third of families are able to save any money at all after they pay their bills each month. More than 60% say they couldn’t come up with $400 in an emergency without borrowing or pawning something.
Most people are saving next to nothing, while just a few are saving a significant amount. Those who do save are saving a ton — more than $1.2 trillion a year.
According to the Fed’s financial accounts data and definitions, the personal savings rate has averaged about 10% of disposable income since the recession ended, up from around 7% before the recession. That means upper-middle class and wealthy Americans are saving nearly $400 billion more a year than they used to.
That extra $400 billion would be a boon to the economy if it were being consumed or invested.
But high-income Americans don’t want to consume any more than they already do. The upper-middle class is desperately saving for their kids’ college and for their own retirement. And the truly wealthy have everything they desire, so they are saving a lot, buying equities, bonds and real estate, and adding to their bank balance.
In theory, the money they deposit in the bank should flow into the economy when the bank makes a loan. But bank lending to businesses has been very soft, up just $160 billion in the past year.
Businesses haven’t been relying on bank loans anyway, because their internal cash flow has been more than adequate to finance their investments in new structures, equipment and intellectual property. Since the recession ended, internal funds have exceeded capital spending in every quarter.
When companies do borrow, they use the proceeds to buy back shares or to acquire whole companies, neither of which adds to the stock of our national wealth. Since the recession ended, corporations have spent about twice as much money on buying their own stock and the shares of acquired companies as they have borrowed from banks.
Corporations have been buying so many shares that they haven’t raised any money on net in the stock market from households in years. In fact, households have been raising money from corporations, to the tune of about $450 billion a year.
So, even though U.S. households are saving lots of money, very little of it is flowing through to the economy. There are 10.8 trillion reasons to think the Fed has failed to get the American people to take on more risk.