Hope and Fear – Part I: Year of Promise - Eric Janszen

[charliebrown]

Re: Stable credit and money supply vs 12%/year

I see we are off by a few pct points. Am I double counting some people? I do see there is a number for people with more than one job.

[Polish_Silver]

Ferguson's numbers

It shows the number rising from 26 Million to 28 million over 2009-2013. This about 1/2 the rate that Ferguson mentioned. I don't know what his data source was.

Ferguson's statement (august 2012):

Meanwhile, since 2008, a staggering 3.6 million Americans have been added to Social Security’s disability insurance program. This is one of many ways unemployment is being concealed.

[ProdigyofZen]

Re: Hope and Fear – Part I: Year of Promise - Eric Janszen

This implies that there is no real market for Treasuries, which is pretty obvious when you look at the continuing central control of the bond market for the last half decade or so, and also implies that if there is enough confidence in "the system" that the Fed can monetize most anything; i.e. the bond vigilantes are truly dead. If that is so, why would the Fed let rates rise in the first place? Why not use their almost unlimited powers to nip any market turmoil in the bud well before a 100 basis point rise hits the board? Especially in an output gap situation?

To me, if they truly have that power, which up to this point has been the case, and they might have it for a long while yet, they won't let rates rise beyond some marginal amount. If they do it could be kaplewy.

Yet, reading EJ's post, it looks like the Fed may let rates rise gradually or, the rise may be out of their their control but will be a gradual rise anyway. Either way, I'm having trouble seeing how a gradual rise could be in the cards with the economy on fumes. That just seems like the end of the game to me. And the rollover issues don't even get into derivative market risk that sits in the shadows behind this whole thing.

Unless, of course, there is real growth in the cards and Peak Cheap Oil ends up being a Malthusian proposition.

The Fed has the power to control the bond market until it doesnt. This is evidenced by the period of 1979 to 1982 when the price-wage spiral got out of hand forcing Vockler to raise interest rates hundreds of bps higher than the rate of inflation which resulted in them almost blewing up the bond market in the process.

The key difference between then and now is going from a net creditor position as a Sovereign to a net debtor position as a Sovereign plus the addition of the already weakenedd financial position of the US private and public economies.

Not to mention the continued strains on the IMS and ability now of players who can operate outside said IMS to form their own trading blocks.

We still have the very very large sword of damocles hanging over the US of 34% of GDP of federal debt being held by external (foreign) investors.

In 1983 only 5% of GDP of federal debt was held by foreigners making the monetary sledgehammer possible in the first place.

At 34% of GDP a run on the dollar might not be stopped by the Fed. With the upcoming mid-gap recession that 34% should rise to well over 40% making it much less likely a run on the dollar can be stopped by the Fed.

(On a side note a commentator just asked Jamie Dimon at the Miami investment conference being broadcast on Bloomberg "does the Fed have the ability to control the bond market and interest rates" which he artfully completely side stepped with his answer)

[Polish_Silver]

Re: Hope and Fear – Part I: Year of Promise - Eric Janszen

The Fed has the power to control the bond market until it doesnt.
. . .
At 34% of GDP a run on the dollar might not be stopped by the Fed. With the upcoming mid-gap recession that 34% should rise to well over 40% making it much less likely a run on the dollar can be stopped by the Fed.

. . .

Very logical. The fact that the US is a net debtor now makes doing a Volcker much more problematic.

I think the FED will suppress rates until the inflation gets unacceptable. I am not sure what "unacceptable" is though.

[aaron]

Re: Hope and Fear – Part I: Year of Promise - Eric Janszen

The FED can continue to buy treasuries, via their purchases or indirectly via the commercial banks. The banks do not have to lend at 3% to corporations. They can lend at whatever rate they want, no?

I can imagine a world where the banks and government can borrow money at a much lower rate than we can. That world would be like something we already have.

[c1ue]

Re: Hope and Fear – Part I: Year of Promise - Eric Janszen

This implies that there is no real market for Treasuries, which is pretty obvious when you look at the continuing central control of the bond market for the last half decade or so, and also implies that if there is enough confidence in "the system" that the Fed can monetize most anything; i.e. the bond vigilantes are truly dead. If that is so, why would the Fed let rates rise in the first place? Why not use their almost unlimited powers to nip any market turmoil in the bud well before a 100 basis point rise hits the board? Especially in an output gap situation?

If I understand correctly, EJ/iTulip's view is not that the Fed doesn't have the will or power - they do. The EJ/iTulip's view on the Fed is that the Fed is operating under an incorrect series of assumptions, that much of their behavior is due to sub-conscious biases rather than some Bismarckian realpolitik.

In this case, there are plenty of ways by which the Fed might embark on 'austerity' a la 1936 - believing that they are doing the right thing even as this action is 100% the wrong thing. In a similar sense, the view that FIRE is an important and primary driver of the American economy also is more understandable.

[Polish_Silver]

Vigilantes: bond vs Currency

; i.e. the bond vigilantes are truly dead. If that is so, why would the Fed let rates rise in the first place? .

The fed can keep rates as low as they want by printing money and buying the bonds. However, they cannot control the value of the dollar on For ex markets.

That is discussed a little in Bernholz, where he says that hyper-inflation happens when only the CB buys the debt issued.

[bart]

Re: Vigilantes: bond vs Currency

The fed can keep rates as low as they want by printing money and buying the bonds. However, they cannot control the value of the dollar on For ex markets.
...

I urge caution, the Fed via the E S F can and does very much affect the dollar value. There's an old thread from around 2008(?) that I started and that has more than a few charts and links showing the evidence.

Additionally, my tracking shows that the E S F has intervened a bit during seven out of the last seven reporting weeks, and in both directions.

[vinoveri]

Re: Vigilantes: bond vs Currency

I urge caution, the Fed via the E S F can and does very much affect the dollar value. There's an old thread from around 2008(?) that I started and that has more than a few charts and links showing the evidence.

Additionally, my tracking shows that the E S F has intervened a bit during seven out of the last seven reporting weeks, and in both directions.

Bingo again. The EFS and swap lines show that currencies can always be stabilized if other CB agree and play along. What folks seem to forget is that each CB can print unlimited amounts of its own currency and can always buy up the currency of others via the swap lines.

A true collapse/run on dollar will be tantamount to a financial attack and will be political decision not economic one (although the politics may be economically motivated).
Of course mistakes occur, and reactions can be slow, so temporary dislocations are not unlikely.

[jk]

Re: Vigilantes: bond vs Currency

faber's scenario is that the other currencies fail before the dollar does. the other cb's would then be in no position to support the dollar except as another piece of confetti.

[Polish_Silver]

CB's lack oil. ESF: short term only?

Central banks cannot print purchasing power. They can achieve any relative currency values they want by printing/devaluing the one that is "too strong."

However, they cannot maintain the value of those currencies relative to oil or gold, except by selling oil or gold.

Governments could institute price controls, like the US did in the 1970's. I'd love to watch that happen again!

The ESF may stabilize some short term volatility, but I don't see how they could make any large, sustained difference. How could they do that?

Like in the early 1970's, the US was trying all sorts of things to stabilize the dollar. The one thing that worked was high interest rates.

[c1ue]

Re: CB's lack oil. ESF: short term only?

Central banks cannot print purchasing power. They can achieve any relative currency values they want by printing/devaluing the one that is "too strong."

However, they cannot maintain the value of those currencies relative to oil or gold, except by selling oil or gold.

I have to disagree completely.

Were the government to reduce money supply by 50% - purchasing power would be increased immediately.

Similarly even when printing money, government is actually creating more purchasing power both in the short and long term. Short term, most is created by stealthily stealing purchasing power from existing currency holders (savers). Long term, most is created by enabling greater growth.

Price controls in turn are equally situation dependent. Government setting prices on products which it neither produces nor holds is problematic - the failures in the '70s were due to trying to set prices on fundamentally needed commodities imported from other nations. On the flip side, government supports to prop up ag prices have been notably successful.

[Mn_Mark]

Re: Income taxes, Opportunity, and Laffer

Taxes on things that do not benefit society...

FIRE: Tax the crap out of it and income from it.
Income Inequality: Tax the crap out of those at the top. Hudson's ideas are fine... a hefty property tax on ALL property, not just land. Tax on stocks, bonds, etc.
Sugar tax
Liquor Tax
Gas Tax
Junk food tax.
Inheritance tax
Luxury goods tax.
Drug taxes (marijuana, etc)
Beer tax.
HFC tax.
If you are going to address unemployment, you do not tax income. If you want to provide health care, you need to tax unhealthy things.

We have it ass-backwards. We tax people who work. We do not tax people who push FIRE paper around. Capital gains should be taxed at the highest rates, not the lowest. Interest expenses should never be tax-deductible. Interest income should be taxed high.

Do you want the population working to survive or borrowing to survive?

The system is corrupt to the bone. It cannot be tweaked. it must crash and burn.

Instead of putting more taxes on the few remaining enjoyments for the little people (beer/liquor, junk food, sugar) and instead of punishing people for successfully learning to play the financial game as the government has it set up, how about if we try something really radical and actually give free market competition a chance? It seems to work pretty damned well in the few areas where the government allows it, such as computers and electronics. The few places in the world that really give free markets a shot seem (Singapore and Hong Kong come to mind) seem to do pretty well.

Let's get the federal government entirely out of:

• mortgages
• banking ('too big to fail')
• student loans
• health care
• education
• agriculture
• automakers

Then you'll see some real standard of living improvements. Raising taxes even more, to feed the government beast an even larger share of the economy, is not going to fix anything.

[shiny!]

Re: Income taxes, Opportunity, and Laffer

Instead of putting more taxes on the few remaining enjoyments for the little people (beer/liquor, junk food, sugar) and instead of punishing people for successfully learning to play the financial game as the government has it set up, how about if we try something really radical and actually give free market competition a chance? It seems to work pretty damned well in the few areas where the government allows it, such as computers and electronics. The few places in the world that really give free markets a shot seem (Singapore and Hong Kong come to mind) seem to do pretty well.

Let's get the federal government entirely out of:

• mortgages
• banking ('too big to fail')
• student loans
• health care
• education
• agriculture
• automakers

Then you'll see some real standard of living improvements. Raising taxes even more, to feed the government beast an even larger share of the economy, is not going to fix anything.

Yes!

[lektrode]

Re: Income taxes, Opportunity, and Laffer

Originally Posted by Mn_Mark Instead of putting more taxes on the few remaining enjoyments for the little people (beer/liquor, junk food, sugar) and instead of punishing people for successfully learning to play the financial game as the government has it set up, how about if we try something really radical and actually give free market competition a chance? It seems to work pretty damned well in the few areas where the government allows it, such as computers and electronics. The few places in the world that really give free markets a shot seem (Singapore and Hong Kong come to mind) seem to do pretty well.

Let's get the federal government entirely out of:

• mortgages
• banking ('too big to fail')
• student loans
• health care
• education
• agriculture
• automakers

Then you'll see some real standard of living improvements. Raising taxes even more, to feed the government beast an even larger share of the economy, is not going to fix anything.

Yes!

+2
but then....

you'd remove most of the reasons why 'we' keep electing dems?