Six years ago today, Robert E. Rubin, Allen Sinai, and Peter R. Orszag embraced Ka-Poom Theory. Then what happened?

[Chris Coles]

Re: Six years ago today, Robert E. Rubin, Allen Sinai, and Peter R. Orszag embraced Ka-Poom Theory. Then what happened?

Do you think a war with Iran would be another bubble with a concomitant rightward phase shift, or total chaotic reset? Which unfortunately not the same question as, do you think they will try it? Because even if it ends up looking like a chaotic reset, it still might be attempted.

With regard to Iran, my worry is they are dropping out of Iraq to be able to afford the manpower and costs of an attack on Iran.

Just a thought.

[charliebrown]

Re: Six years ago today, Robert E. Rubin, Allen Sinai, and Peter R. Orszag embraced Ka-Poom Theory. Then what happened?

Can the economy stand 24% interest rates? I thought that about half the outstanding treasury debt was under 5 years. Therefore it will adjust up from 2% to 24% very quickly assuming it is rolled over at maturity. Then roughly 100B of interest payments balloons to 1.2T of interest payments. Tips would adjust big time, SS checks would go through the roof too as they are tied to CPI.

Game over?

[karim0028]

Re: Six years ago today, Robert E. Rubin, Allen Sinai, and Peter R. Orszag embraced Ka-Poom Theory. Then what happened?

The same questions occured to me. It would seem to mean consumer prices going up 30%/year, the same for gold. Real rates about -5%.
Since house prices are capped
by interest payments, real house prices would be lower than now, though in $ terms they would be higher.

What makes you think that real-estate prices would even be nominally higher in dollar terms? Unless nominal income rises along with 30% inflation houses will barely be able to rise, bc with inflation that high the majority of people's saving would be wiped out pretty quickly and with that i would think house prices would stay right around where they are.... Kind of similar to the scenario in 3d world countries...

I am looking for other folks opinions here as well, bc i dont think with 24% interest rates you can finance a 100K house @2400/month unless your income sky rockets and the thing with inflation is that income doesnt usually go up along with it, as the unprepared keep getting poorer and poorer... income increases rarely keep up with inflation.... If im not mistaken thats kind of the whole point, its a wealth transfer.

[charliebrown]

Re: Six years ago today, Robert E. Rubin, Allen Sinai, and Peter R. Orszag embraced Ka-Poom Theory. Then what happened?

just trying to refresh ka-poom theory in my head. Its been a while since I read this. 2012 hmm. does another major economy go ka-poom before us? Spain, Italy, France? That might show us how the game goes.

Does the 10yr treasury cycle indicate ka-poom?
2000-2003 6% - 4%,
2003 - 2006 4% - 5%,
2006 - 2009 5 - 2%,
2009 - 2011 2% - 4% - 1.9%

Is this the last Ka??

We have also gone from stock market crisis, to banking crisis, now is it sovereign debt crisis?

[jk]

Re: Six years ago today, Robert E. Rubin, Allen Sinai, and Peter R. Orszag embraced Ka-Poom Theory. Then what happened?

just trying to refresh ka-poom theory in my head. Its been a while since I read this. 2012 hmm. does another major economy go ka-poom before us? Spain, Italy, France? That might show us how the game goes.

Does the 10yr treasury cycle indicate ka-poom?
2000-2003 6% - 4%,
2003 - 2006 4% - 5%,
2006 - 2009 5 - 2%,
2009 - 2011 2% - 4% - 1.9%

Is this the last Ka??

We have also gone from stock market crisis, to banking crisis, now is it sovereign debt crisis?

spain, italy, france, etc cannot print their own money. unless a country leaves the euro, it will instead have a deflationary depression, unless the ecb gives up its inflation focus and prints.

[charliebrown]

Re: Six years ago today, Robert E. Rubin, Allen Sinai, and Peter R. Orszag embraced Ka-Poom Theory. Then what happened?

I think it is generally agreed upon that the debt in Europe cannot be repaid. Therefore, I think it was
Reinhart and Rogoff?? who said a country will choose the method of non-payment. The country will choose that which is in its best interests. If a lot of the debt is held by foreign creditors, default will be chosen. If held by the citizens, inflation will be chosen. I don't know the percentage of EU debt that is held outside the zone. Will this drive the decision of the ECB to print?

Also thinking in regards to KaPoom that given that the average maturity of debt of the U.S. both public and private is around 7 years, and the average rate interest rates over this time has been around 3.5% for treasury debt and around 5.5% for investment grade debt. The trend has been down for 30 years, meaning that in general each time debt must be rolled, it could be rolled down to a lower interest rate. If T rates sustain 3.5+% and investment grade rates sustain 5.5+% then the debt rollover party is over. In general when the debt comes due it will have to be rolled over into a higher rate. Are these the interest rate levels the tip the U.S. into our Greek moment?

[jk]

Re: Six years ago today, Robert E. Rubin, Allen Sinai, and Peter R. Orszag embraced Ka-Poom Theory. Then what happened?

greece can't print euros.

[mmr]

Re: Six years ago today, Robert E. Rubin, Allen Sinai, and Peter R. Orszag embraced Ka-Poom Theory. Then what happened?

Agreed that they can't monetize debt in the way that the US can, but as a side note it's interesting that by delaying default, Greece has managed to:

- Continue to borrow and spend far beyond their means for an extended period (basically, extracting as much value as possible from the euro system before defaulting; if they're going to default anyway, might as well run up the biggest tab possible before doing so)

- Give citizens time to withdraw their savings from Greek bank accounts and either hold physical euros or move them to offshore accounts. Assuming that the euro continues in some form post-Greece, access to hard currency reserves could be quite helpful to at least some Greek citizens going forward

Technically, if Greece is forced out of the euro and wants to become a pariah state, they do have one means to print euros, assuming continued access to paper and ink.

The Banknote Printing Works of the Bank of Greece

The main task within this line of business is the production of euro banknotes issued following approval by the ECB [or lack thereof ] and according to the designs, specifications and security features established by the ECB.

[raja]

Re: Six years ago today, Robert E. Rubin, Allen Sinai, and Peter R. Orszag embraced Ka-Poom Theory. Then what happened?

Can the economy stand 24% interest rates? I thought that about half the outstanding treasury debt was under 5 years. Therefore it will adjust up from 2% to 24% very quickly assuming it is rolled over at maturity. Then roughly 100B of interest payments balloons to 1.2T of interest payments. Tips would adjust big time, SS checks would go through the roof too as they are tied to CPI.
Game over?

Yikes!!

That would be unsustainable, without printing tons more money, probably cycling up to hyperinflation.

How does the iTulip thesis account for this unsustainability factor? I guess what you're saying is that it doesn't.

Anyway . . . a 24% interest rate simplifies the investment strategy. Sell gold -- buy 30-year Treasuries at or near 24%. Sit back and live off the interest. (Now I don't have to buy the book )

[jk]

Re: Six years ago today, Robert E. Rubin, Allen Sinai, and Peter R. Orszag embraced Ka-Poom Theory. Then what happened?

as i understand it, the itulip forecast is that there will be a period of high, but not hyper, inflation- perhaps 20%/yr for 5 years.

[raja]

Re: Six years ago today, Robert E. Rubin, Allen Sinai, and Peter R. Orszag embraced Ka-Poom Theory. Then what happened?

as i understand it, the itulip forecast is that there will be a period of high, but not hyper, inflation- perhaps 20%/yr for 5 years.

Thanks.

But what I was wondering is how iTulip explains that problem that charliebrown brought up -- how could in the interest be paid on the national debt? Are you saying that the "high" inflation iTulip predicts would cover those payments?

By the way, at one point EJ's inflation predition for 5 years was 5%, 10%, 20%, 10%, 5%. Has that changed?

[jk]

Re: Six years ago today, Robert E. Rubin, Allen Sinai, and Peter R. Orszag embraced Ka-Poom Theory. Then what happened?

Thanks.

But what I was wondering is how iTulip explains that problem that charliebrown brought up -- how could in the interest be paid on the national debt? Are you saying that the "high" inflation iTulip predicts would cover those payments?

i assume that interest rates will lag.

By the way, at one point EJ's inflation predition for 5 years was 5%, 10%, 20%, 10%, 5%. Has that changed?

don't know

[charliebrown]

Re: Six years ago today, Robert E. Rubin, Allen Sinai, and Peter R. Orszag embraced Ka-Poom Theory. Then what happened?

I assume that European Sovereign Rescue Fund, is a conduit for inflation. It will buy Greek debt, then that debt will find its way onto the ECB balance sheet.