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Tuesday, December 18, 2012

A diatribe of dismalities

Paul Krugman somehow forgets to take $44 trillion into account:
Menzie Chinn is having a dialogue, or something, with the Heritage Foundation. He pointed out that their arguments against stimulus, aside from being primitive and wrong, would also imply that the fiscal cliff is harmless. They respond in part by claiming that all they’re worried about is the incentive effects — yeah, right — and also by claiming that famous economists made the same arguments.

The latter claim, unfortunately, is completely true. But it doesn’t absolve Heritage; all it shows is that much of macroeconomics, especially but not only at Chicago, has retrogressed intellectually, to such an extent that famous economists repeat 1930-vintage fallacies in perfect ignorance of the hard intellectual work that showed, three generations ago, that they are indeed fallacies.

By the way, Heritage — after totally misrepresenting Keynesian economics (Keynesians never think about investment? Really?) — asks,

    When the government borrows a trillion dollars on global financial markets for a stimulus package, does Chinn believe that zero dollars of that is diverted from investment?

I don’t know for sure what Menzie’s answer would be, but mine is, no, I don’t believe that zero dollars are diverted; under current conditions, negative dollars are diverted. That is, stimulus spending would lead to more, not less, private investment. Why? Because we are in a liquidity trap — interest rates won’t rise — and higher sales would induce businesses to invest more, not less.

Oh, and if you go back to what Heritage analysts were writing back in 2009, they were predicting that government borrowing would lead to soaring interest rates. How’s that going, guys?
There is a very easy explanation for why increased goverment borrowing has not led to soaring interest rates.  Like every good Neo-Keynesian, Krugman gets himself in trouble by completely ignoring the credit market, which is a little ironic considering that he's talking about the price of credit.

Government borrowing has soared since 2009.  It has exploded from $6.8 trillion to $11.3 trillion.  So, with that obvious increase in the demand for credit, why hasn't the price increased?  Because government borrowing was only 12.9 percent of the total credit market back in 2009.  It is now 20.4 percent of the market.  The price of credit hasn't gone up because the OVERALL demand for it has slumped, as I pointed out last week.

This is like asking why the Warcraft servers aren't being overloaded because you're playing twice as much now, even though two other players who used to play a lot more than you did are playing quite a bit less than before.

The Heritage analysts assumed, improperly, that the Household and Finance sectors would continue to expand at their 60-year rates of increase.  Instead, both sectors have shrunk, by $1 trillion and $3.3 trillion respectively.  Debt disinflation is why interest rates are not soaring.

Labels:

103 Comments:

Anonymous Athor Pel December 18, 2012 9:33 AM  

Ok, where does the prime rate come from? Does it come from market signals or does it come from the Federal Reserve Bank Board of Governors?

Anonymous Josh December 18, 2012 9:45 AM  

It's based off the Fed funds rate.

Anonymous DonReynolds December 18, 2012 10:08 AM  

Athor Pel..."Ok, where does the prime rate come from? Does it come from market signals or does it come from the Federal Reserve Bank Board of Governors?"

The prime rate of interest is what the largest commercial banks charge their most favored (best) customers (borrowers). As such, it would be considered a market signal and definitely is not determined by the Fed.

Of course, the prime is a meaningless figure for everyone else, since very damned few will ever qualify for the prime. But I am sure the Fed glances at this figure anytime they meet to decide what to charge at the discount window....which is only open to member banks. And this figure is studied carefully when banks loan funds to each other (for various reasons and purposes). I find the overnight Treasury rate to be even more important, since any bank can just stay liquid with overnight investments.

But none of this comes close to describing how banks actually make their money....which is making risky loans to marginal customers at relatively high rates of interest. It is not the good safe customers (or government securities) who make money for the banks.






Blogger Peter Garstig December 18, 2012 10:13 AM  

The reason for their neglect is simple: in their heads, the economy is federal.

Blogger Nate December 18, 2012 10:13 AM  

No. market controls and keynesian stupidity are the explanations for why interest rates are not up. The fact is... Banks are still not lending money. Because with all of the risk in the housing market... there is no money to be made there. With the increased risk, we should be seeing higher interest rates.

You are falsely assuming there is no market for credit. You have it exactly backwards. People still want to borrow money... Banks don't want to lend it.

Blogger Nate December 18, 2012 10:18 AM  

To give an anecdote to support my claim... I know a chick with a credit score in the 700s... who makes 100k a year.

She couldn't get a loan for a $55,000 house.

Anonymous Roundtine December 18, 2012 10:31 AM  

They respond in part by claiming that all they’re worried about is the incentive effects — yeah, right — and also by claiming that famous economists made the same arguments.

Republicans should propose a one-time wealth tax on assets over $1 billion. University endowments, trusts, foundations, no tax shelter will offer protection. Taxes are going up; Republicans best strategy is to limit the total damage, win the political debate, and carpet bomb the left-wing financial infrastructure.

Anonymous Stilicho December 18, 2012 10:34 AM  

Nate: you support Vox's point more than you think. 1) No market for credit...see Keen...it takes two to tango: banks willing to lend to what they consider to be good credit risks. 2) The credit market has stop growing (debt dis-inflation) and would have shrunk if not for the Fed and federal gov't interventions.

In this situation where the Fed is manipulating interest rates to historic lows, housing still weak at best, and the danger of the fiscal cliff, debt limit breach, euro collapse, derivative market collapse etc. hanging over the market, banks are not willing to take on much borrower risk when they're getting low returns and there's already a lot of market risk that isn't priced into the interest rate.

Blogger Nate December 18, 2012 10:39 AM  

"1) No market for credit...see Keen...it takes two to tango: banks willing to lend to what they consider to be good credit risks."

Except there are no good credit risks. It make take two... but its not a 50 - 50 split. By far, the largest issue is the fact that the banks cannot make money by lending money because of many factors, one of which is, the rates being to low to take the risk.

Anonymous Stilicho December 18, 2012 10:43 AM  

Except there are no good credit risks. It make take two... but its not a 50 - 50 split. By far, the largest issue is the fact that the banks cannot make money by lending money because of many factors, one of which is, the rates being to low to take the risk.

Agreed.

Blogger Nate December 18, 2012 10:45 AM  

Look... this whole debt deflation non sense is a bunch of hooey. See... before something can be deflationary... it must have the ability to also be inflationary.

Take rainbow unicorns. Are they inflationary? I know its bloody daft.. follow along.

If I have two rainbow unicorns... that are worth... umm... 50 trillion each... Is that inflation? No. No its not. Its insanity is what it is. There are no rainbow colored unicorns.

WHAT?

No rainbow unicorns??? OMG!! The money supply just shrank by 100 trillion dollars!!! We'll be in a depression for centuries!!!! OH NOOOOEEESS!!!

oh wait.

There never were rainbow unicorns. there was never an additional 100 trillion dollars. So we didn't lose anything.

Right.

Savvy?

Anonymous YIH December 18, 2012 10:46 AM  

@Nate:
To give an anecdote to support my claim... I know a chick with a credit score in the 700s... who makes 100k a year.

She couldn't get a loan for a $55,000 house.

As you say $100k/yr? And yet she couldn't afford to buy the property outright? Something is not passing the smell test here.

Anonymous Giraffe December 18, 2012 10:46 AM  

Except there are no good credit risks. It make take two... but its not a 50 - 50 split. By far, the largest issue is the fact that the banks cannot make money by lending money because of many factors, one of which is, the rates being to low to take the risk.

How do you keep rates low? If the banks don't want to lend money, but people do want to borrow, why don't the rates rise until they meet in the middle?

Anonymous Josh December 18, 2012 10:46 AM  

As such, it would be considered a market signal and definitely is not determined by the Fed.

That is incorrect. The prime rate follows the Fed funds rate. So...even thought the Fed doesn't directly set it, they effectively do...because the prime rate is simply the Fed funds rate plus a few hundred bps.

Of course, the prime is a meaningless figure for everyone else, since very damned few will ever qualify for the prime.

Also incorrect, because the vast majority of loans are priced using a prime plus model. So...if prime goes up, all those prime plus loans also go up.

Anonymous The Anti-Gnostic December 18, 2012 10:48 AM  

Well, it also helps when you can get together with your buddies and determine what the price should be for securitized government, mortgage and student loan debt, and then just print up the money and buy it.

If you're a banker, the safe play is obvious. You stuff your balance sheet full of low-yield, securitized debt, confident in the knowledge that the Fed will buy however much it takes to maintain the price of the asset. You get a big bonus, the regulators are happy, the shareholders are happy. The little schmucks with business plans can no more get credit than I could get Salma Hayek for a long weekend.

There is a huge crowding-out effect and the distortions are immense. NOBODY should be getting student loans for useless degrees any more. Government should be paying at least 5% interest on anything longer than 10 months. Clueless booboisie should be dumping their underwater McMansions and driving straight to their lawyer's office to file for bankruptcy (that is, this should be happening a lot more). Corporate America knows what's coming, and they are pulling up the ladders behind them.

The Fed is stoking the last remaining Bubble: the one in dollar-denominated debt. Mises's crack-up boom should have happened in 2008. For now, there's still enough productivity left in the economy to allow the Fed to keep papering things over.

Blogger Nate December 18, 2012 10:50 AM  

"As you say $100k/yr? And yet she couldn't afford to buy the property outright? Something is not passing the smell test here."

Why would you expect someone that makes 100k to keep 55k in cash laying around? It takes time to save that kind of money up... and there are lots better things to do with it than having it liquid. We make way north of 3 times that and we damned sure don't keep 50k laying around.

Blogger Nate December 18, 2012 10:55 AM  

"How do you keep rates low? If the banks don't want to lend money, but people do want to borrow, why don't the rates rise until they meet in the middle?"

Prime rate follows the Fed Funds rate. The Fed is forcing the rates down deliberately and its having the exact opposite effect they want it to have.

Anonymous Roundtine December 18, 2012 11:03 AM  

Banks know their balance sheets are impaired, even if they look good on paper. Look at the Japan experience, some of their banks have reserve ratios of 30 and 40 percent.

Anonymous YIH December 18, 2012 11:06 AM  

@Nate:
Why would you expect someone that makes 100k to keep 55k in cash laying around? It takes time to save that kind of money up... and there are lots better things to do with it than having it liquid. We make way north of 3 times that and we damned sure don't keep 50k laying around.
Who said anything about ''cash laying around''? It must be quite expensive where you live to need a ''100k/yr'' income just to barely 'keep your head above water'.
I live on less than 45k/yr, it can be done.

Anonymous Josh December 18, 2012 11:06 AM  

That's because the value of their assets are imaginary.

Blogger Nate December 18, 2012 11:14 AM  

"Who said anything about ''cash laying around''? It must be quite expensive where you live to need a ''100k/yr'' income just to barely 'keep your head above water'.
I live on less than 45k/yr, it can be done."

Who said anything about barely keeping your head above water? We're not talking about a lot of money here. Less than 10k a month. at most you're gonna save 7k a month. and again... there are lots better things to do than keep 50k in cash laying around.

The point is... its not much money... they assumed it would be nothing to borrow it and pay it off in 3 years or so. yes... they had cash on hand but they would need it for the upgrades on the house.

Blogger Nate December 18, 2012 11:14 AM  

"That's because the value of their assets are imaginary."

Like rainbow unicorns.

Anonymous The Anti-Gnostic December 18, 2012 11:17 AM  

How do you keep rates low? If the banks don't want to lend money, but people do want to borrow, why don't the rates rise until they meet in the middle?

Per the above, because it's easier to loan to the government and to the GSE's. Thus, interest rates for government debt, GSE-approved mortgages and student loans do not reflect reality. Out in the real world, try going to your banker with your modest business plan or try to buy non-FHA property. Interest rates will be high, or credit non-existent; that is reality, and should be happening across sectors.

I think there's a lot of venture capital/hedge fund investment and people borrowing from friends and family members.

Anonymous Roundtine December 18, 2012 11:17 AM  

Re: Japanese QE, lending. Look at the chart in this article.

Can Bernanke Force Banks to Lend by Halting Interest on Excess Reserves?

Anonymous Stilicho December 18, 2012 11:17 AM  

Oh, I savvy...I just disagree. The debt inflation that already occurred had an effect. It will also have an effect if it deflates. It maybe a bunch of rainbow farting unicorns, but there is a real, tangible effect when real people take actions, work, produce, save, sell, trade, etc. based upon the perceived value of unicorn farts. It may not be sensible and it will come crashing down and result in value no longer being attributed to unicorn flatulence, but in the meantime, the effects are real.

Anonymous YIH December 18, 2012 11:20 AM  

You know what Nate, you remind me of Patrick Ewing (the then-president of the NBAPL) who said and I quote: ''We make a lot of money but we spend a lot of money too!'' in regards to ending the NBA lockout.
Please Nate, don't tell me you are actually ''Tad''.

Blogger Nate December 18, 2012 11:30 AM  

"You know what Nate, you remind me of Patrick Ewing (the then-president of the NBAPL) who said and I quote: ''We make a lot of money but we spend a lot of money too!'' in regards to ending the NBA lockout."

Are you a little touched?

No.. I think not... I think like most people you simply don't understand that with money, comes expenses. Holding on to that wealth costs a lot.

For example... I bet you don't spend several thousand dollars a month on disability insurance do you? And I bet your life insurance isn't nearly as expensive as mine.

Anonymous David December 18, 2012 11:38 AM  

Krugman is an idiot. When the government borrows $1 trillion, that is $1 trillion dollars that has been diverted away from private investment. The US government is literally starving the private sector by taking away so much money. Even if that $1 trillion was just put in savings accounts at a pidly rate of interest it would be seeing better use than the payoffs to Obamafriends and subsidies to big businesses which turn out inferior product that we are seeing now.

We aren't seeing soaring interest rates because the guys behind the private money are scared to death of the next recession, so they foolishly buy government bonds knowing full well the US govt will default someday(most likely not soon)...but of course that won't happen until the day after they get out.

Anonymous Stilicho December 18, 2012 11:39 AM  

Roundtine: good point. Mish has addressed this in the past (and it's a point where he agrees with Keen). As he said, banks lend when:

They are not capital impaired
They have credit-worthy borrowers willing to borrow.

This also fits what Nate said above about lending and is consistent with Vox's point about debt dis-inflation since 2008.

Anonymous YIH December 18, 2012 11:41 AM  

@Nate:
The point is... its not much money... they assumed it would be nothing to borrow it and pay it off in 3 years or so. yes... they had cash on hand but they would need it for the upgrades on the house.
and
No.. I think not... I think like most people you simply don't understand that with money, comes expenses. Holding on to that wealth costs a lot.

For example... I bet you don't spend several thousand dollars a month on disability insurance do you? And I bet your life insurance isn't nearly as expensive as mine.

Did 0bama hire you as ''budget director'' Tad?

Blogger IM2L844 December 18, 2012 11:43 AM  

The prime rate of interest is what the largest commercial banks charge their most favored (best) customers (borrowers). As such, it would be considered a market signal and definitely is not determined by the Fed.

Wait a minute. To insinuate that the Fed has no influence over the PIR that it's member banks (the "largest commercial banks") charge is disingenuous at best. It's an incestuous relationship that needs to be broken up.

Blogger Nate December 18, 2012 11:44 AM  

" The debt inflation that already occurred had an effect. It will also have an effect if it deflates."

Its effect... was a massive swelling of the very real M2. Amusingly... the disappearance of debt cannot actually reduce M2... it can only theoretically hinder the future growth of M2. But deflation is not less growth. Deflation is shrinkage.

Blogger Nate December 18, 2012 11:47 AM  

YIH

I was mistaken. You clearly are touched.

Get back to me when you earn enough to actually pay some income tax.

Anonymous zen0 December 18, 2012 11:51 AM  

Historic Inversion In Shadow Banking Now Complete

Could one of you economic genii explain this to me in terms of unicorns? It looks like the Shadow Unicorn was eating all the magic grain but is now only eating as much as the manifest unicorn which will leave more magic grain for him/her to eat and the Manifest Unicorn will start to get really fat.

I might not be following it properly, but it does get me to thinkin' "Where is my friggin Magic Grain?"!

Anonymous Other Josh December 18, 2012 11:52 AM  

Deflation: Coming soon to an economy near you!

Anonymous YIH December 18, 2012 11:55 AM  

@Nate:
YIH

I was mistaken. You clearly are touched.

Get back to me when you earn enough to actually pay some income tax.

I'm 'touched'? I don't feed the beast, you do. You brag about how much you feed the beast? Why Tad?

Blogger Nate December 18, 2012 12:01 PM  

"I might not be following it properly, but it does get me to thinkin' "Where is my friggin Magic Grain?"!"

Its simple. Rainbow Unicorns are the imaginary assets that are used as a basis for this leveraging. So... you can think of all of this as the imaginary shadow cast by the imaginary unicorns. You have big banks making big bets about things that don't actually exist.

You know its not actually economically significant though when you realize that when the banks fail... it all just disappears and the economy doesn't even notice.

See Iceland for details.

Blogger Joshua_D December 18, 2012 12:05 PM  

Nate December 18, 2012 10:45 AM

Look... this whole debt deflation non sense is a bunch of hooey. See... before something can be deflationary... it must have the ability to also be inflationary.

Nate December 18, 2012 11:44 AM

" The debt inflation that already occurred had an effect. It will also have an effect if it deflates."

Its effect... was a massive swelling of the very real M2. Amusingly... the disappearance of debt cannot actually reduce M2... it can only theoretically hinder the future growth of M2. But deflation is not less growth. Deflation is shrinkage.


Credit has the very real ability to be and impact of being inflationary. That borrowed money was spent on real assets, thus driving up the price of real assets and increasing the money supply.

When credit shrinks, there is less money to chase and maintain those elevated price levels, and the future money supply will shrink as people divert income from spending to repaying debts.

Blogger Nate December 18, 2012 12:09 PM  

"When credit shrinks, there is less money to chase and maintain those elevated price levels, and the future money supply will shrink as people divert income from spending to repaying debts."

Cute.

The trouble of course is... repaying debts doesn't take money out of M2. Thus the money supply is not shrunk.

I've explained this before. Credit can create money and add it to M2... but credit cannot REMOVE money from M2. It cannot shrink the money supply at all. The only way to pull money out of M2 is to literally burn the cash and destroy the coins.

You can reduce the future growth of M2. But growing at 12% instead of 20% is still growth... its not shrinking. Unless you're a democrat.

Anonymous Jack Amok December 18, 2012 12:10 PM  

repeat 1930-vintage fallacies in perfect ignorance of the hard intellectual work that showed, three generations ago, that they are indeed fallacies

Wait, this is Krugman complaining about non-Keynesians? That's the cast iron pot calling the stainless steel kettle black.

Government borrowing has soared since 2009. It has exploded from $6.8 trillion to $11.3 trillion. So, with that obvious increase in the demand for credit, why hasn't the price increased? Because government borrowing was only 12.9 percent of the total credit market back in 2009. It is now 20.4 percent of the market. The price of credit hasn't gone up because the OVERALL demand for it has slumped

Additionally, isn't government borrowing increasingly essentially borrowing from itself (the Fed being, for practical purposes, a part of the government)? That's a situation that will suppress ordinary price mechanisms, so one-fifth of the credit market now operates in an environment where price is largely set to meet the PR needs of the players (which for Government spendocrats, is to keep interest rates low to minimize the visibility of their spending habits).

I think the answer to the debate between Nate and et al can be illustrated with an airplane analogy. Nate is saying the plane is flying along mostly level, but the altimeter is busted, so even if it says we're losing altitude fast, we are in fact still chugging along if we would just look out the window. Stilcho is saying sure, but the problem is the pilot is looking at the altimeter and yarding on the controls as if the altimeter is right, so we're going to crash anyway.

I think the answer is do everything you can to fly your own plane. Disconnect as best you can from the plane with the haywire instruments. Thing is, to do that, you can't be in one of the artificial industries created by social fiat. You've got to be doing something people would pay for out of their own free will.

Anonymous Porky? December 18, 2012 12:14 PM  

This is like asking why the Warcraft servers aren't being overloaded because you're playing twice as much now, even though two other players who used to play a lot more than you did are playing quite a bit less than before.

If Blizzard Entertainment has shut down 75% of it's servers is that a reduction in supply or demand?


Blogger Joshua_D December 18, 2012 12:21 PM  

Nate December 18, 2012 12:09 PM

I've explained this before. Credit can create money and add it to M2... but credit cannot REMOVE money from M2. It cannot shrink the money supply at all. The only way to pull money out of M2 is to literally burn the cash and destroy the coins.


I don't know why you keep saying this. I buy things every day without using cash or coins. My spending power varies every month as the numbers in my checking account increase or decrease. Shrinking the money supply is as easy as deleting 1s and 0s.

Hard cash and coin are a very small amount of the money supply.

Anonymous YIH December 18, 2012 12:41 PM  

Tad, excuse me, Nate:
You might remember Evander Holyfield he was a professional boxer. It was estimated he made $200 million over his boxing career (and got part of ear bitten off by Tyson). He recently filed bankruptcy and lost his house to foreclosure.
So explain how 1. "Sure we make a lot of money, but we spend a lot, too." - Patrick Ewing during the 1988-89 NBA lockout works will you?
Why are you so hostile to 'spend less' Tad?
Does 0bama keep telling you ''just tax more''?

Anonymous Tallen December 18, 2012 1:00 PM  

I'm confused about names here... is YIH Tad's new handle?

Anonymous zen0 December 18, 2012 1:05 PM  

@ Nate You know its not actually economically significant though when you realize that when the banks fail... it all just disappears and the economy doesn't even notice.

See Iceland for details.


I did look at Iceland. To say that the economy doesn't notice is a little bit of hyperbole.

Few countries blew up more spectacularly than Iceland in the 2008 financial crisis. The local stock market plunged 90 percent; unemployment rose ninefold; inflation shot to more than 18 percent; the country’s biggest banks all failed.
This was no post-Lehman Brothers recession: It was a depression.


You could say, however, that the economy did not go into a coma, because their response was correct.

Since then, Iceland has turned in a pretty impressive performance. It has repaid International Monetary Fund rescue loans ahead of schedule. Growth this year will be about 2.5 percent, better than most developed economies. Unemployment has fallen by half. In February, Fitch Ratings restored the country’s investment-grade status, approvingly citing its “unorthodox crisis policy response.”

Plus they prosecuted banksters, so that the banksters would notice, too.


Anonymous Stilicho December 18, 2012 1:18 PM  

Nate, if M2 is all that matters and Z1 debt is an illusion, what do you think will happen if/when the illusion shatters?

Anonymous YIH December 18, 2012 1:24 PM  

@Tallen:
NO. I am not Tad.
My point with Nate is it doesn't matter how much you earn, its how much you spend. Basic budgeting, keep outgo under income.
If you want to buy a $55,000 piece of real estate and you make $100,000 per year the answer is simple is it not?
One year, live on 45k, spend 55k on a piece of real estate you want to ''own'' doesn't seem too complicated to me.
Why is there a need for a loan? There is another reason that ''lending is tapped out'', the well is dry.
As I said in my first post to this thread, ''Makes 100k, can't afford a 55k piece of real estate, not passing the smell test''.
The numbers don't work. Care to explain?

Anonymous bw December 18, 2012 1:29 PM  

Shrinking the money supply is as easy as deleting 1s and 0s.
Hard cash and coin are a very small amount of the money supply.


Indeed. Thus "fractional reserve fiat banking".


but it does get me to thinkin' "Where is my friggin Magic Grain?"!

+1

The profane - that's you - get none.

Blogger Nate December 18, 2012 1:33 PM  

"Nate, if M2 is all that matters and Z1 debt is an illusion, what do you think will happen if/when the illusion shatters?"

Oh alot. I'm an inflationista remember? US creditors will dump dollars... flooding the market with what will amount to expensively printed toilet paper. Prices on everything will sky rocket. Banks will collapse... general chaos.

Then I expect we'll see a new US currency... but I use the term US loosely as I have no expectation that it will even exist as we know it today after about 2016 or so.

Blogger Nate December 18, 2012 1:45 PM  

"Tad, excuse me, Nate:
You might remember Evander Holyfield he was a professional boxer. It was estimated he made $200 million over his boxing career (and got part of ear bitten off by Tyson). He recently filed bankruptcy and lost his house to foreclosure.
So explain how 1. "Sure we make a lot of money, but we spend a lot, too." - Patrick Ewing during the 1988-89 NBA lockout works will you?
Why are you so hostile to 'spend less' Tad?
Does 0bama keep telling you ''just tax more''? "

No.

You have gone off topic to derail a discussion. You've jumped to erroneous conclusions about a situation you know almost nothing about. Then from those conclusions you've extrapolated even more idiotic notions. You've built a house of cards on your own stupidity.

But hey...

Its nice to know I have my own ankle biters.

Anonymous Stilicho December 18, 2012 1:55 PM  

Oh alot. I'm an inflationista remember? US creditors will dump dollars...

Wouldn't they run to the relative safety of M2 dollars instead of trusting in dollar denominated debt (be it Treasuries, commercial debt, etc.)? Or at least those who can convert to M2 money, those who can't will be bidding up the price of those M2 dollars.

Blogger Nate December 18, 2012 2:08 PM  

"Wouldn't they run to the relative safety of M2 dollars instead of trusting in dollar denominated debt"

Are you insane? No. They will dump dollars and go to gold (like china and russia are already doing by the way) or some other currency... most likely a new russian one.

Anonymous YIH December 18, 2012 2:11 PM  

I said ''the numbers don't work'' because I know they don't.
Let's say I loaned the ''55k'' to the woman who Tad err, Nate claimed to need the money to ''buy'' her condo.
Do you see the problem? Of course not, those are risks you are unaware of. And if the debtor does not make the payments?
What then? Seize the collateral? Do you know what that means?
A long court fight, that's what it means. And after you successfully win that court fight, you might have to negotiate with a condo co-op or a ''homeowners association'' that demands it's cut of likely unpaid ''dues'' (rent) and possibly a local government that is seeking likely unpaid ''property taxes'' (another form of rent).
Then you have to sell the piece of real estate to try to recoup what you put up for the loan. Good luck with that in the current market (flooded with foreclosures).
I'd rather go to a blackjack table, the ''investment'' is the same and at least its faster.

Anonymous zen0 December 18, 2012 2:26 PM  

Just as a point of information, the IMF officially recognizes more than just the U.S. dollar as a "reserve currency".

Aussie, Canada dollars termed reserve currencies



LONDON (MarketWatch) — The Australian and Canadian dollars, the world’s leading commodity-rich currencies, are being formally classified as official reserve assets by the International Monetary Fund, marking the onset of a multi-currency reserve system and a new era in world money....Expanding by two the list of officially recognized reserve assets from the present five — the dollar, euro, sterling, yen and Swiss franc — signals a new phase in the development of reserve money.




Anonymous Stilicho December 18, 2012 2:29 PM  

Are you insane? No. They will dump dollars and go to gold (like china and russia are already doing by the way) or some other currency... most likely a new russian one.

Not unless M2 is increased to make up for the decline in credit. Then you'd likely be right and we'd be Weimar Germany. Otherwise, you wouldn't have those rainbow unicorn credits chasing the same goods and services as the M2 money. All things being equal, lower supply, level demand: price of those M2 dollars goes up.

Another question, why doesn't M2 = Z1?

Anonymous YIH December 18, 2012 2:49 PM  

No, Nate I used that as an example of how income does not matter. It's outgo.
On $200 million I could live like a king for the rest of my life, and yet Evander Holyfield could not. Why is that?
For what he got for that display (about $20 million) I could live quite comfortably even if Tyson bit off both of my ears.
And you did indeed say ''a friend has a 700 credit score (is that supposed to matter?) and can't get a loan for a $55k piece of real estate''
If she seems to be ''such a great investment'' why do you not do that yourself? You claim to have the cash flow to make that possible and you can have a lawyer draw up a mortgage note that will hold up in a court of law, why not?

Blogger James Dixon December 18, 2012 3:14 PM  

> If you want to buy a $55,000 piece of real estate and you make $100,000 per year the answer is simple is it not?

A $100K income doesn't mean you make $100K/year. For most people, it means at most $50K/year once you deduct taxes and necessary expenses (life insurance, health insurance, retirement account, et.al.)

Saving $55K witha $100K income would probably take at least 5 years.

> Let's say I loaned the ''55k'' to the woman who Tad err, Nate claimed to need the money to ''buy'' her condo.

Nate didn't say condo. He said house.

And Nate isn't Tad. Tad's comments have never been as well thought out as Nate's. And probably never will be.

Anonymous Redneck Joe December 18, 2012 3:25 PM  

"She couldn't get a loan for a $55,000 house.
As you say $100k/yr? And yet she couldn't afford to buy the property outright? Something is not passing the smell test here."

I am a consultant sitting in the RF engineering office of one of the major cellular carriers at this moment. Everyone in the room makes over $100k and all are over 35 years of age. Not one of them has $55k liquid. Trust me. I listen to their finnancial sob stories every day.


Blogger Nate December 18, 2012 3:27 PM  

"If she seems to be ''such a great investment'' why do you not do that yourself? You claim to have the cash flow to make that possible and you can have a lawyer draw up a mortgage note that will hold up in a court of law, why not?"

You're a blithering idiot.

They already purchased the house. They borrowed the money from a family member and in fact have already paid it back.

Blogger Nate December 18, 2012 3:29 PM  

"Another question, why doesn't M2 = Z1?"

Why on earth would you think M2 and Z1 should be equal?

Blogger James Dixon December 18, 2012 3:30 PM  

> Everyone in the room makes over $100k and all are over 35 years of age. Not one of them has $55k liquid.

Exactly. No one in their right mind keeps $55K liquid. At best, it's in a long term CD purchased back when the interest rates were somewhere north of zero. To keep $55k liquid and not care about it, your income would have to be well over $500K, probably closer to $1M.

Anonymous Athor Pel December 18, 2012 3:42 PM  

There are people that make less than $100k a year and have more than $50k liquid. They are frugal and don't blow it on hookers and blow. I mean they make more than they spend, it just keeps accumulating. They aren't trying to save money, they just do.

They also don't own a home, nor do they have a new car or more than one car. Neither do they have a bunch of bleeding edge tech in their house or a pool in the back yard of the house they don't own nor live in.

They aren't currently married and neither do they have any children from previous marriages.

And finally, none of their extended family know they have that kind of cash.






Anonymous Johnny Caustic December 18, 2012 3:52 PM  

Nate, can you please explain your statement that "the banks cannot make money by lending money because of many factors, one of which is, the rates being to low to take the risk"? Is there a law stopping the banks from raising their rates until they're sufficiently high to justify the risk? (The prime rate is not relevant here, just the rate for the little guy.)

Your well-paid friend who wanted to buy the $55k house but couldn't get a loan seems to directly contradict the notion that the risk is too high.

I agree with you that the banks don't want to lend, but that's because all the large banks have huge hidden losses on their books, like CDOs and derivatives that are listed at face value but are actually worth next to nothing, and they would be immediately bankrupt several times over if they were marked to market. So they're desperately holding on to their capital in case those losses are forced out into the open.

Anonymous Redneck Joe December 18, 2012 3:55 PM  

"There are people that make less than $100k a year and have more than $50k liquid."
No doubt. My example was a response to the guy who said that it was suspicious that someone with a 100k income did not have $55k in hand. That is a very common situation. In fact I would venture to say that people age 35-45 with incomes between 90k and 110k *generally* do not have $55k in cash.
That being said, I think the story is suspicious for another reason. I just bought a cabin and some land and had no trouble at all getting a loan for about the same amount from a small local bank. I could have paid for it by converting precious metals, but chose to borrow instead for obvious reasons. Perhaps I am older and have a longer work history than the person in Nate's story, and have more assets, but my salary and loan amount are similar, and again, the loan was approved without any fuss in August, and I already have a mortgage on my primary residence 60 miles away. That's my anecdote.

Blogger Nate December 18, 2012 3:58 PM  

"Nate, can you please explain your statement that "the banks cannot make money by lending money because of many factors, one of which is, the rates being to low to take the risk"? Is there a law stopping the banks from raising their rates until they're sufficiently high to justify the risk? (The prime rate is not relevant here, just the rate for the little guy.)"

But that is just it. Prime rate IS relevant. Almost all loans are made on the prime plus system.

Blogger Nate December 18, 2012 4:00 PM  

"Your well-paid friend who wanted to buy the $55k house but couldn't get a loan seems to directly contradict the notion that the risk is too high."

The risk is to high because of the collateral... not the borrower. Banks know full well that houses are almost literally worth nothing now.

Anonymous Johnny Caustic December 18, 2012 4:11 PM  

James Dixon: No one in their right mind keeps $55K liquid.

You've just described me. I am curious about your advice for a better use of my cash than keeping it liquid. I've gotten out of stocks and bonds because when the big global economic collapse happens, they could be worth zero overnight. (Munis have been good to me, but I got out recently because I don't expect that to continue.) I don't have faith that property will go up, especially in the earthquake-prone area where I live. Gold is somewhat appealing, but the US government took it all away less than a century ago, and will probably do so again. I am honestly at a loss to find an investment better than cash (maybe food, but it's perishable), and I presently think the cash in my mattress is less likely to be stolen than the cash in my bank account. If anyone here has suggestions for how I should invest my money, I'd love to hear them. I'm not worried much about appreciation--mainly, I'm worried about preserving what I've got when the global economic system collapses.

Anonymous Stilicho December 18, 2012 4:25 PM  

Why on earth would you think M2 and Z1 should be equal?

You know I don't. You, however, have previously stated that M2 gets double counted when accounting for credit (or something pretty close to that...correct me if this isn't accurate). Additionally, you have said the following re: the effect of debt inflation then deflation:

Its effect... was a massive swelling of the very real M2. Amusingly... the disappearance of debt cannot actually reduce M2... it can only theoretically hinder the future growth of M2.

This implies that you think credit inflation inflates M2. The Z1 total shows the amount of total credit (i.e. how much credit inflation has already occurred). Do you think that M2 inflates at some ratio less than 1 compared to credit inflation? If so, would you quantify it? The Z1/M2 ratio is about 6/1. I'm genuinely curious as to your thought process on this.

Anonymous Johnny Caustic December 18, 2012 4:29 PM  

But that is just it. Prime rate IS relevant. Almost all loans are made on the prime plus system.

This is begging the question. Is there a law that says they can't exceed the prime rate by a certain amount? Why didn't the bank offer your friend a loan at 200% interest? Please don't tell me that 200% interest isn't enough to cover the risk. Why would the banks just leave that kind of money on the table?

Blogger Nate December 18, 2012 4:30 PM  

"This implies that you think credit inflation inflates M2. The Z1 total shows the amount of total credit (i.e. how much credit inflation has already occurred). Do you think that M2 inflates at some ratio less than 1 compared to credit inflation? "

The trouble is that credit isn't the only means of inflation M2. Direct government spending for example... literally creating money out of thin air and spending it. This happens. We have fancy names for it... but its still just making new money and spending it.

So... while Z1 going up would indicate that M2 is going up... Z1 coming down does not mean that M2 will come down. Note... Z1 IS coming down.... and M2 isn't.

Anonymous Stilicho December 18, 2012 4:34 PM  

Note... Z1 IS coming down.... and M2 isn't.

Indeed. Can M2 increase fast enough to offset the effects of Z1 decline?

Blogger Nate December 18, 2012 4:36 PM  

" Is there a law that says they can't exceed the prime rate by a certain amount? Why didn't the bank offer your friend a loan at 200% interest? Please don't tell me that 200% interest isn't enough to cover the risk. Why would the banks just leave that kind of money on the table?"

The Ilk have a great understanding of many things...

except banking.

Blogger Nate December 18, 2012 4:37 PM  

"Indeed. Can M2 increase fast enough to offset the effects of Z1 decline?"

It doesn't have to. In terms of deflation z1 is irrelevant. its just accounts receivables.

Anonymous Josh December 18, 2012 4:39 PM  

This is begging the question. Is there a law that says they can't exceed the prime rate by a certain amount? Why didn't the bank offer your friend a loan at 200% interest? Please don't tell me that 200% interest isn't enough to cover the risk. Why would the banks just leave that kind of money on the table?

Usury laws, for one.

Also, if the interest rate is 200%, no one is going to borrow.

And...even if the rate was at the state allowed maximum (up to 30%, varies by state)...there is the issue of recourse and collateral...because the property might be worthless, the bank won't loan at any rate, because they might not collect enough payments before the borrower defaults...

This is really, really basic stuff

Blogger James Dixon December 18, 2012 7:17 PM  

> I am curious about your advice for a better use of my cash than keeping it liquid.

I'm not a financial advisor or analyst, so this is entirely worth what you paid for it.

First, you have to define liquid. Most people mean that as cash or checking/savings accounts. If you mean otherwise, then it makes a difference. Some people consider CD's to be liquid, others don't. For this type of discussion, I don't.

Second, you have to define your expectations. Do you expect a complete financial meltdown in the next 2-5 years? Do you consider a bank safe?

Assuming you're not keeping the money in cash in a safe at your home, it's undoubtedly in a bank somewhere. If so, then the very least $50K should be doing is setting in a CD with the best rate of return you can get that matches when you'll want. If it is in a safe in your home, then you're probably better off with at least a significant portion of it in precious metals.

> I've gotten out of stocks and bonds because when the big global economic collapse happens, they could be worth zero overnight.

Stocks will not be worth zero unless the entire system crashes and there's no way to sell them or have them honored. Yes, that's a possibility, but if that happens, the cash you have probably won't be honored either. See the precious metals comment above. They may very well lose as much as 90% of their value for a time, but that's not the same thing. And not all stocks are created equal in that regard. Low P/E dividend paying stocks will come out much better.

> Munis have been good to me, but I got out recently because I don't expect that to continue.

Again, not all Muni's are created equal, but as a general rule, I agree. Default at the federal level looks inevitable at this point. The only question is how long we have. It could take the 4 years Nate estimates, it could take the 20 Vox estimates, it could take more. I have no idea. And as I have no reasonable way to gauge the risks involved, I avoid the bond market.

> I don't have faith that property will go up, especially in the earthquake-prone area where I live.

It probably won't. But if it's at 25% of it's former value or less, it's unlikely to go down either.

> Gold is somewhat appealing, but the US government took it all away less than a century ago, and will probably do so again.

Long term, yes. Short term no. If you don't expect the total financial market crash any time soon, GLD is a good proxy and you should have plenty of time to sell before they try to take it away.

> I am honestly at a loss to find an investment better than cash (maybe food, but it's perishable), and I presently think the cash in my mattress is less likely to be stolen than the cash in my bank account. If anyone here has suggestions for how I should invest my money, I'd love to hear them. I'm not worried much about appreciation--mainly, I'm worried about preserving what I've got when the global economic system collapses.

Ah, if it's in your mattress, then you don't consider the bank safe. See my comments above in that regard.

In that case, you probably want to diversify into precious metals, guns, ammo, and arable land at a reasonable price. You'll also want seeds and relatively non-perishable food. But that's only if you really believe in that scenario.

Personally, we have the land we need. We have a few guns. We have a modest amount of cash on hand. We have a modest amount invested in gold and silver. The rest is in either specific dividend paying stocks that we got at good prices or highly diversified index funds. If there's a complete collapse, we'll have enough to get by on for a while, which is all we can reasonably ask. If there's not, our investments should do fine. The only thing I'm still looking at is getting some heritage seeds for farming.

Blogger James Dixon December 18, 2012 7:22 PM  

Oh, and I should add that most of our cash that isn't on hand is in checking, savings, and CD's at a local bank that is not part of any national chain. And yes, we've looked at it's ratings.

Blogger James Dixon December 18, 2012 7:23 PM  

Its. I know the difference, but sometimes my fingers don't.

Anonymous Snickers December 18, 2012 8:07 PM  

While we are taking a single case and conflating it to the entire US market, here in the northwest one of my recently married friends bought a 350k home with a mortgage and their combined income is 120k.

It must have been a really junky house for the bank to not lend.

Blogger Nate December 18, 2012 8:44 PM  

> Gold is somewhat appealing, but the US government took it all away less than a century ago, and will probably do so again.

Look... its not enough to say, "they took it away." You need to look at how the confiscation took place. It simply cannot be reproduced today. Last time, almost all gold owners used safety deposit boxes at banks. So the first thing the government did was make a law that required federal officers present when anyone opened a safety deposit box. As part of that law they declared that the contents of any deposit box that hadn't been opened in 2 years to be the confiscated... then... they outlawed private gold ownership.

So if you went to get your gold... they would get it. And if you didn't... they would get it.

Gold owners don't use deposit boxes much anymore.

Anonymous Kickass December 18, 2012 9:10 PM  

I guess you have never heard of tax YIH. The taxes are on what you make not what you choose to spend.
Your take home at 100 K is way less then 10 or even 7000 after taxes.
It is like going from owning a small house to a large house. The cost of expenses is multiplied it's not addition. While your suggestion is possible it is very unpractical and reality. This is like when I owned businesses and some of my workers assumed everything I made was profit. They had no concept of overhead in business. And seemed to completely forget that I paid them.

Anonymous Geoff-UK December 18, 2012 10:01 PM  

@Nate, re: Gold:

That's the crucial point for people hesitant to buy physical gold. FDR's gold grab didn't involve the FBI going house-to-house across America searching for gold Eagles. Just pay cash at coin shows and laugh if they offer a receipt.

Anonymous Boetain December 18, 2012 10:02 PM  

The $55K house did not appraise for that much and/or it was in a flood plain? Or, their debt/income ratio was too high (although the debt was current)

Do I win?

Point is, the TAD/YIH guy does have a point that something does not smell right with the meaningless anecdote that was presented.

Anonymous Geoff-UK December 18, 2012 10:04 PM  

also, www.fisch.co.za

I own two of everything and it's already paid for itself when a guy tried to sell me a fake Krugerrand at the Long Beach show. He seemed upset that he'd bought a fake, and truly apologetic that I'd almost bought it from him. But the Fisch is the only reason I didn't get taken.

Anonymous Johnny Caustic December 18, 2012 10:45 PM  

Nate: The Ilk have a great understanding of many things...except banking.

That would be why I asked the question. Which you have now dodged twice.

Josh: This is really, really basic stuff

I ask an honest question, and not one but two people shoot me veiled insults. Folks, please don't ever become teachers. It may give you pleasure to feel superior to your students, but they won't actually learn anything that way.

On that note, a big, big thank-you to James Dixon for his very thoughtful answer to my other question.

Anonymous Johnny Caustic December 18, 2012 11:03 PM  

BTW, Josh, here's why it is not "really, really basic stuff": really basic stuff is the law of supply and demand, which says that when supply goes down and demand goes up, suppliers raise their prices. But here we have a situation where supply goes down and demand goes up, then the supplier decides to get out of the market altogether, right when it would seem to be most profitable.

I accept with reservations your explanation that the bank might think the collateral itself is overvalued. But still, as an exception to the law of supply and demand, it is not "really, really basic". If houses really are selling for substantially more than what banks think they're worth, that seems like a big inefficiency in the market.

Anonymous Josh December 19, 2012 12:10 AM  

Demand is not going up.

Anonymous jack December 19, 2012 1:16 AM  

@ Nate: Look... its not enough to say, "they took it away." You need to look at how the confiscation took place. It simply cannot be reproduced today. Last time, almost all gold owners used safety deposit boxes at banks. So the first thing the government did was make a law that required federal officers present when anyone opened a safety deposit box. As part of that law they declared that the contents of any deposit box that hadn't been opened in 2 years to be the confiscated... then... they outlawed private gold ownership.

So if you went to get your gold... they would get it. And if you didn't... they would get it.

Gold owners don't use deposit boxes much anymore.

Thanks Nate: I should read up on stuff about what the dems did in those days. You get lazy with the Ilk around to explain it all. What you related is unbelievable; until you realize its dems doing it.

Anonymous jack December 19, 2012 1:25 AM  

@ Geoff: That's the crucial point for people hesitant to buy physical gold. FDR's gold grab didn't involve the FBI going house-to-house across America searching for gold Eagles. Just pay cash at coin shows and laugh if they offer a receipt.

I think the rub will come when you try to sell it back for whatever. Then, they, the official buyer types, will probably require ID and make those nice reports to the IRS. You then get hit with a really large tax bill since you don't have a basis receipt showing what you paid for the gold when you purchased it. Or even arrested for gold you cannot show the origin thereof.
Of course, if you sell in the 'unofficial' market no problem. The problem there will be what get for the metal. Worthless dollars? something of commodity value? I suspect we are all in for a rough ride no matter the good faith preparations of the past. So, you wheel and deal to whatever ability you have and make sure your back is covered when making 'unofficial' transactions. If this sounds like drug dealers and their market activities, yeah, thats about right. Ironic that those criminals may well come out smelling like roses since they would just be doing things the way they have always done.

I don't even know if the above makes any sense but will publish it anyway.

Anonymous Toby Temple December 19, 2012 1:36 AM  

Johnny Caustic...

Your question -

This is begging the question. Is there a law that says they can't exceed the prime rate by a certain amount? Why didn't the bank offer your friend a loan at 200% interest? Please don't tell me that 200% interest isn't enough to cover the risk. Why would the banks just leave that kind of money on the table?.

Josh's answers to it:

Usury laws, for one.

Also, if the interest rate is 200%, no one is going to borrow.


So what are you complaining about?

Anonymous Jack Amok December 19, 2012 2:37 AM  

Johnny Caustic,

Supply and Demand are fundamental aspects of economics, but regulatory interference plays hell with how they work. Even in an industry making real, tangible products like oil, wheat or timber, regulations will cause significant distortions. When the industry is all about make-believe (which money is), it's even worse.

The other thing is, when it comes to lending money, the demand curve is sort of inverted. Normally it runs from upper left (high price, low volume) to lower right (low price, high volume). But for credit, it's sort of inverted. The farther right you go on the volume scale, the less reliable the creditors. The folks over on the left hand side of the graph are the ones with good credit, good revenue streams, low risk of default. The old addage is that a banker is a man who'll only lend you money when you don't need it. Those are the folks on the left-hand side of the graph - they're already in good financial position, so they don't really "need" the money all that badly and are not willing to pay a premium for it. If the price is too high, they'll just decline to buy.

As you go right, the need increases along with the risk, so the price the supplier has to charge goes up, as does the willingness of the "buyers" to pay more. At the left hand side of the graph you have Paul Allen getting a mortgage for a ranch in Montana that he's putting 50% down on. On the right hand side is LaDonnicha getting a payday loan at the local Money Store.

So the increased risk makes the supply curve bend sharply upwards as it moves right to account for the extra reserves a lender making risky loans has to keep (raising the cost of supplying money). And the demand curve slopes gradually upwards too. That makes banking a very wacky business - it follows the law of supply and demand (to the extend regulations allow), but it has decidely non-orthogonal S and D curves, and it's entirely possible that they don't intersect. Or else that they intersect very, very far to the left (low volume) where the reverse-sloped demand curve results in a low, low price as well. And if reserve requirement make the supply curve go highly vertical, the volume will be relatively inflexible and unresponsive to pricing changes.

A big part of the 2007-8 collapse was the result of a decade or so where regulations encouraged, and shady banksters indulged in, incorrect pricing of risk, insufficient reserves, which flattened the supply curve, shoving volumes way right. But the only way suppliers could sustain that was essentially selling at a loss (underpricing the risk in their loans to LaDonnicha and even to Biff and Becky of 231 McMansion Lane). Eventually the loss caught up with them, and the supply curve snapped back, going highly vertical.

Bottom line, banking follows the law of supply and demand, but it has wacky S and D curves that aren't like the ones in Econ 101 textbooks.




Blogger James Dixon December 19, 2012 5:26 AM  

> ...a big, big thank-you to James Dixon for his very thoughtful answer to my other question.

De nada. Like I said, I'm not a professional and it's worth what you paid for it.

Anonymous DonReynolds December 19, 2012 9:40 AM  

It is completely wrong to characterize the current debate over the fiscal cliff as a choice. THERE WILL BE A FISCAL CLIFF IN JANUARY. We do not have a choice whether to go off the fiscal cliff. Our only choice, if you want to call it that, is between a fall of 500 feet to the rocks below or 400 feet. Given the state of the "negotiations" between the White House and the Republicans in the House, I am not completely certain which is the higher fiscal cliff, the one we are trying to avoid or the one Mr. Obama is insisting upon. Either way, the effect on the economy will be negative and the differences may not be significant.

Anonymous Johnny Caustic December 19, 2012 11:23 AM  

Jack Amok: Lots of food for thought there. Thank you.

James Dixon: You gave me several directions for further investigation, which is all I could ask for.

Anonymous Porky? December 19, 2012 11:51 AM  

Don Reynolds: "THERE WILL BE A FISCAL CLIFF IN JANUARY."

I have yet to see evidence that there is even such a thing as "The Fiscal Cliff".

Blogger James Dixon December 19, 2012 12:58 PM  

> I have yet to see evidence that there is even such a thing as "The Fiscal Cliff".

You didn't see the 2% drop in Social Security taxes over the past few years? That will go away. As will the Bush tax cuts, minimal though they may be for most people. Then the taxes mandated by Obamacare will take effect. Most people will see a significant drop in take home income.

Anonymous Porky? December 19, 2012 1:10 PM  

Most people will see a significant drop in take home income.

Oooh, scary!

More like a fiscal hemorrhoid than a fiscal cliff. Try again.

Anonymous Jack Amok December 19, 2012 3:22 PM  

More like a fiscal hemorrhoid than a fiscal cliff. Try again.

Government dependants will see a huge drop in take home graft. That's the real "fiscal cliff." The only thing that scares me about the "cliff" is the lengths the parasites will go to avoid falling over it.

Blogger James Dixon December 19, 2012 3:29 PM  

> More like a fiscal hemorrhoid than a fiscal cliff. Try again.

You may consider a 5% or more drop in your income to be minor. Most people don't. Especially when they haven't seen any pay raises for 3 years or so now and prices have been steadily rising.

I haven't even mentioned the supposed negative effects of the mandated "cuts" in government spending, of course. Now if you want a place to unleash your scepticism, that's an appropriate one.

Anonymous Porky? December 19, 2012 3:30 PM  

Government dependants will see a huge drop in take home graft.

Lol! How so?

Anonymous Jack Amok December 19, 2012 3:32 PM  

Jack Amok: Lots of food for thought there. Thank you.

One more hors d'oeurve for you Johnny. The lending industry is a little screwy because it's "selling" money. But are they really selling you money, or are they buying a revenue stream from you? Consider, if you buy a laptop from Dell, you give them money and they give you the product (a laptop). But if you buy a loan from BofA, they give you money. You give them a revenue stream. The fact that they routinely resell what you gave them to someone else kind of hints that they're actually on the Demand side of the transaction with you.

Anonymous Jack Amok December 19, 2012 3:35 PM  

Lol! How so?

Lol. Noob. U R l33t haxor. T3bartV rocks u.

Anonymous Porky? December 19, 2012 3:39 PM  

You may consider a 5% or more drop in your income to be minor.

Certainly not worthy of a death metaphor.

I haven't even mentioned the supposed negative effects of the mandated "cuts" in government spending, of course.

Oooh, a whole quarter of a percent reduction in federal spending. We're all going to DIE and end up mangled corpses at the bottom of a huge fiscal cliff!!

Give me a break.




Blogger James Dixon December 20, 2012 7:04 AM  

> Certainly not worthy of a death metaphor.

For some people, it will be.

> Oooh, a whole quarter of a percent reduction in federal spending. We're all going to DIE and end up mangled corpses at the bottom of a huge fiscal cliff!!

I told you it was an appropriate target for your skepticism. I'm pleased to see that you agree. Krugman, of course, would argue that your sarcasm is actually correct. But then he believe in a multiplier effect and other things undreamt of in human experience.

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