Cafe Hayek - Latest Comments in What's working

Re: What's working

EX-GMU-Student — Wed, 03 Jun 2009 10:47:15 -0000

>>Nu-uh! On an Internet message board? Damned disclaimer! I was considering moving all my funds to commodities and seeing how it played out -- thinking that if it didn't, I'd have a legal suit to bring against you. But your disclaimer spoiled all that wishful thinking.<<

LoL. I know it is silly, but can you blame me? There is always a lawyer who takes that case and by the time I defend myself I am ruined by the legal fees.

Re: What's working

Martin Brock — Wed, 03 Jun 2009 10:46:27 -0000

Clinton robbed Social Security replacing the "Trust" Fund with IOUs, and called the budget balanced.

The "trust fund" has always been "invested" solely in special Treasuries (promises to raise more taxes later). Clinton isn't responsible for that.

Intergovernmental debt is still debt.

It's more a like a political promise.

Re: What's working

Martin Brock — Wed, 03 Jun 2009 10:43:01 -0000

37 billion in stimulus spent in a 14 trillion dollar economy equates to around one quarter of one hundreth of one percent.

It's one quarter of one percent.

Re: What's working

Guest — Wed, 03 Jun 2009 10:41:14 -0000

Nu-uh! On an Internet message board? Damned disclaimer! I was considering moving all my funds to commodities and seeing how it played out -- thinking that if it didn't, I'd have a legal suit to bring against you. But your disclaimer spoiled all that wishful thinking.

I smiled. :o)

Re: What's working

Larry Sheldon — Wed, 03 Jun 2009 10:34:14 -0000

Thinks looking up? Really?

Don't worry, the Dems will fix it as soon as they catch on.

Right now they are sorta tied up surrendering to the Arabs, and trying to work out how to surrender to the Germans.

Re: What's working

Daniel Kuehn — Wed, 03 Jun 2009 10:31:20 -0000

Jack of Spades -

That does sound somewhat contradictory - I'd credit Bernanke more than Obama. But perhaps he's refering to the administration of the TARP program. As this post by Russ has highlighted, the stimulus obviously hasn't done much of anything to bring us to the point where we are today.

Re: What's working

Jack of Spades — Wed, 03 Jun 2009 10:22:07 -0000

Daniel Kuehn,

It was Krugman's op-ed "Falling Wage Syndrome", his exact comment was: "Credit where credit is due: President Obama and his economic advisers seem to have steered the economy away from the abyss."

(I'd link it, but I'm fantastically computer inept. Hopefully I'll start figuring these things out as time goes on.)

I agree that he has been critical of President Obama in general, although the general thrust of his of his critisism is that the Presidents economic policies have not been activist enough.

From Krugman's Rolling Stone piece, "You probably have to spend $800 billion a year to achieve a full economic recovery. Anything less than $500 billion a year will be much too little to produce an economic turnaround."

So my question is, given what Krugman has said in the past, how on earth can he seriously argue that Obama's actions are responsible for pulling the economy from the abyss?

Re: What's working

John — Wed, 03 Jun 2009 10:10:50 -0000

Poor people don't save, they spend. If they saved, they wouldn't be called poor.

You don't get rich by spending all your money.

Re: What's working

John — Wed, 03 Jun 2009 10:08:38 -0000

Clinton handed off a surplus, and the surplus should have gone toward paying down the debt.

Clinton robbed Social Security replacing the "Trust" Fund with IOUs, and called the budget balanced.

Intergovernmental debt is still debt.

Re: What's working

LowcountryJoe — Wed, 03 Jun 2009 10:05:44 -0000

>>DISCLAIMER: THIS IS NOT AN INVESTMENT ADVICE<<

Nu-uh! On an Internet message board? Damned disclaimer! I was considering moving all my funds to commodities and seeing how it played out -- thinking that if it didn't, I'd have a legal suit to bring against you. But your disclaimer spoiled all that wishful thinking.

Re: What's working

LowcountryJoe — Wed, 03 Jun 2009 10:01:21 -0000

>>It's not peculiar at all - it's used a lot. The GDP shortfall is just the deviation from trend. The stimulus is very large, but not compared to the total shortfall was my point.<<

Hmm. I had never heard that term before. The link you provided does not work for me but I found the document through a search engine. The document only has the words "shortfall" and "shortfalls" in it twice apiece without giving it the concept of GDP shortfall any kind of context that i can find. Tell me what it means to you because I still do not understand what GDP shortfall is.

But look at the stimulus relative to the shortfall in GDP. It's not a small stimulus, but it barely makes a dent in the shortfall.

Re: What's working

K Ackermann — Wed, 03 Jun 2009 09:55:46 -0000

The longer tax and spend Democrats retain control of the government, the longer we expect to see those higher inflation levels

I don't even know where to begin on that one. Clinton handed off a surplus, and the surplus should have gone toward paying down the debt. Instead, Bush took the short-sighted view and lowered taxes... and then spent like a sailor in a whore house.

Servicing debt costs money. It's a tax.

As far as recessions go, a recession that adjusts for slack is a good thing. It's a sign of a healthy economy, and a lot of stuff gets done then. People and companies regroup, refocus, and reinvest. It's an economic douche.

This is not a slack-induced recession. The slack is a byproduct of this bubble-induced recession with a side order of credit crisis. The bubble was not housing, the bubble was debt.

These kind of recessions are not at all healthy. They may sweep up some of the benefits of a slack recession, but working down debt does not happen by refocusing, and it sure as heck doesn't happen by loading up on more debt.

Efficiency in this recession takes the form of downsizing. We would like to produce more and better things, but until customers balance sheets allow them to buy, then we must improve our own balance sheet by selling assets or cutting costs, and that means not buying stuff.

Once the balance sheet is restored, then growth will be moderated by wages, and that is a highly dependent on the employment rate. Not until unemployment is low will wages rise in the aggregate.

The poor will always have their revenge by not buying things, and that is why it is important to raise the standard of living for the bottom earners. Their rise fuels the rise of everyone else. Poor people don't save, they spend. If they saved, they wouldn't be called poor.

Re: What's working

Daniel Kuehn — Wed, 03 Jun 2009 09:54:36 -0000

Jack of Spades -

RE: "Does anyone think Mr. Krugman just doesn't see the contradiction? Or has he become one of those policy entrepenures he so rightly deplored when he wrote "Peddling Prosperity"?"

If you want people to answer this question and don't mean it to be purely rhetorical, which blog post are you refering to? Krugman has been famously critical of Obama. I have a hard time he praised him without some serious caveats, but perhaps he did.

Re: What's working

Jack of Spades — Wed, 03 Jun 2009 09:52:51 -0000

I don't want to get too off topic, but...

I did a quick bit of math on how much of the stimulus has been spent as it relates to the curent economy. 37 billion in stimulus spent in a 14 trillion dollar economy equates to around one quarter of one hundreth of one percent.

A few weeks ago Paul Krugman made a comment in his NYT blog giving Obama credit for pulling the economy from the bring of unmitigated disaster. But only a few months before that, he wrote President Obama an open letter in Rolling Stone saying that in order to save the economy we would need 800 billion in spending PER YEAR.

Does anyone think Mr. Krugman just doesn't see the contradiction? Or has he become one of those policy entrepenures he so rightly deplored when he wrote "Peddling Prosperity"?

Re: What's working

John — Wed, 03 Jun 2009 09:43:58 -0000

Recession is when your neighbor loses his job.

Depression is when you lose your job.

Recovery is when Obama loses his job.

Re: What's working

Martin Brock — Wed, 03 Jun 2009 09:38:54 -0000

Why are we in a downturn right now? What makes it a downturn and not a shift in the composition of the economy?

Unemployed labor. If people are only producing less because they want to consume less, then people don't report difficulty finding employment.

I understand your point. Defining "recession" as "falling GDP" is less credible in the future. Japan's labor force is already shrinking, and the China's labor force isn't far behind. Even the U.S. labor force will hardly be growing a decade from now, though it probably won't decline in the near future.

Serious demographers expect global population to peak and start declining by mid-century (hopefully within my lifetime). If they're right, labor force size declines much sooner.

Do we really expect total output to rise even while the population falls? Is that a reasonable expectation? Never mind changing attitudes toward consumption. Will fewer and fewer people consume more and more?

Re: What's working

EX-GMU-Student — Wed, 03 Jun 2009 09:22:37 -0000

>>The major issue is not protecting the value of the dollars we now own. It's the effect stagflation will have on real equity returns over the next 30 years of our lives. As I explained earlier, we doubt that corporations will be able to grow revenues faster than inflation increases costs. <<

But if you believe in a future stagflation then you are even better off! You don't need the growth in equity returns or good corporate performance to maximize the real value of your money. Just put it in a commodity fund and watch it grow big as stagflation happens! You will even have better purchasing power and bang for the buck than you would if the economy grew at a modest rate.

DISCLAIMER: THIS IS NOT AN INVESTMENT ADVICE

Re: What's working

Daniel Kuehn — Wed, 03 Jun 2009 09:19:21 -0000

Bah - sorry. That was a bad link. put "_Elmendorf_Testimony.pdf" after the 2009.

Re: What's working

Daniel Kuehn — Wed, 03 Jun 2009 09:18:10 -0000

Methinks -

Wow - you're really in a bad mood today aren't you? There is no doubt the Fed has been expansionary. That's exactly what I consistently praise them for. I know that. My concern was over your "tenfold" increase in the money supply. That's insane. There has been expansion, but it hasn't been anywhere near a tenfold increase.

Then I gave you the benefit of the doubt because clearly we have increased the money supply by more than tenfold since the Fed began... but I'm pretty sure you were refering to the current crisis.

LCJ -

RE: "Shortfall? That really is peculiar language used when discussing GDP. So, what did you mean to write there?"

It's not peculiar at all - it's used a lot. The GDP shortfall is just the deviation from trend. The stimulus is very large, but not compared to the total shortfall was my point.

http://www.budget.house.gov...

You see GDP shortfalls in monetary policy targeting discussion that use the Taylor rule too.

Figure 2 on page 3.

Re: What's working

Methinks — Wed, 03 Jun 2009 09:10:10 -0000

Compared to the Fed's actions, the piddly stimulus plan is just a drop in the bucket. It's just political show.

Re: What's working

LowcountryJoe — Wed, 03 Jun 2009 09:08:06 -0000

But you really oughta clarify exactly what you're implying.

And maybe you ought clarify what you meant by this sentence:

But look at the stimulus relative to the shortfall in GDP.

Shortfall? That really is peculiar language used when discussing GDP. So, what did you mean to write there?

Re: What's working

Methinks — Wed, 03 Jun 2009 09:07:59 -0000

Danny, you can dress it up in silk and call it your wife for all I care. The fact remains that the Fed hasn't stopped printing money at a furious pace since it began QE (a.k.a heavy money printing).

I'll spoon feed it to you. Since December 2007 the Fed has printed over one trillion fresh new dollars. The Fed's balance sheet exceeds $2.1 Trillion (compared to $874B in December 2007). The Fed has the authority and has stated an intent to buy an additional:

$1.25 Trillion of agency issued MBS

$200 Billion agency debentures

$300 Billion of Treasuries

$1 Trillion new TALF

How many trillions is that? Just counting the projected decline in the U.S. Fiscal balance and the actions the Fed has ALREADY taken, the intervention now stands at around 19% of GDP. If we add the authorized increase in the Fed's balance sheet over the next year, the intervention grows to 28-30% of GDP.

Then there are the Federal guarantees:

$1.8 Trillion to back stop the commercial paper market

$540 Billion for the Money Market Investor Funding Facility

$3 Trillion to guarantee Money Market mutual funds

$700 Billion to expand deposit guarantee

$1 Trillion to ensure the debt of assorted financial isnstitutions

$450 Billion in assorted other guarantees.

$400 Billion guarantee of Citigroup's and Bank of America's overstretched balance sheets

So, that's another 63% of GDP. So far, the response to this recession has been 12 times greater than the response to the Great Depression. And please please please don't come back with your usual "but the economy grew since then!". This is normalized by GDP, remember, so the expansion in the economy since the '30's is baked in.

Re: What's working

Daniel Kuehn — Wed, 03 Jun 2009 08:57:01 -0000

John Dewey -

RE: "Well, thanks for the clarification. After reading your 11:16:58 AM post, I certainly thought you were saying mild recessions are "a good thing"."

Ha - only if you completely ignore the two sentences that immediately follow the sentence you decided to selectively quote. I swear, sometimes I feel like no matter what I write you're going to read into it what's most convenient to read into it.

Re: What's working

John Dewey — Wed, 03 Jun 2009 08:53:08 -0000

daniel kuehn: "I'm not saying that recessions are a good thing"

Well, thanks for the clarification. After reading your 11:16:58 AM post, I certainly thought you were saying mild recessions are "a good thing".

Re: What's working

John Dewey — Wed, 03 Jun 2009 08:47:34 -0000

EX-GMU-Student: "John- If you are that sure of the coming inflation why not take a bear position on $ and make a lot of money? Or at least why not take a hedging position and undo the effect of inflation?"

First, I am not sure of the timing and size of coming inflation, and so I'm hesitant to short the dollar. Too risky a strategy for me.

The major issue is not protecting the value of the dollars we now own. It's the effect stagflation will have on real equity returns over the next 30 years of our lives. As I explained earlier, we doubt that corporations will be able to grow revenues faster than inflation increases costs.

Lower earnings growth => lower real equity returns.

Lower real equity returns => lower distributions from our 401K's/IRA's.