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3 4 5 6 7 1966 1970s growth 1986 2000 2013 revision 400k smoothing a call for better argument a little r n r accelerated repayment of debt accidental discoveries adjusting debt for inflation artish b is greater than a b h finte behavioral ec best put downs bullard s earthquake c d of wealth calculating labor share civ civilization coinage coping cost and productivity cost push cost push inflation credit efficiency crisis chronicles cycle of civilization debasement debt debt and context debt and inflation debt and recovery debt bulge debt good and bad debt is not credit debt productivity debt to gdp debt to gdp in comments def credit def debt def economic activity def financial cost def gdp def general equilibrium def inflation def inside money def investment def issue and reissue def laffer limit def outside money deflation demand pull inflation disarray dpd echoes economic forces economics v the economy eroc erosion of debt evolution of the excuse expectations factors failure s embrace fallacy of composition fcm fed policy federal spending feedback loops final spending financial cost financialization five words five digit years forget about debt fpi fred free banking era full disclosure fun with the mpc gang8 gds gold shortage gresham s law gross domestic spending growth rate calc growth phase growth historical revisionism hoarding hodrick prescott household debt hover craft how to pay for it humor because you might not know if i didn t say i couldn t sleep iceberg inflation introduction is it ego captain jerry says krugman laffer curve limits long and variable loops malaise matched set fekete math problems medium of account military spending milton friedman mmt money multiplier more debt than money is policy motives moving average new tools of policy non linear not only household debt oil parameters for debt pfi policy predicting recession price controls printing vs spending problem x productivity questions r reading and writing red and green reduction reviews scott sumner sequence 2 serfdom simulacron simulated evidence slack special report spreadsheeting stagflation standard deviation star trek stimulus sumner symmetry in deception taxes taylor rule the difference between debt and credit the economy is transaction the k r shift the long decline the supply side the tint knob they don t know timeline tongue in cheek tot ulc umic unsustainable urgency verdoorn waste fraud abuse withering shoots zoho the new arthurian economics copyright 2010 2018 arthur shipman friday december 31 2010 suggested remedies my approach always is to try to understand the economic problem so it was out of character for me to jump to the end and look for solutions in my posts ten are listed here you can grade my efforts on the relevance of the selected items debt does not exist provides a definition of debt and shows what s missing from policy gresham s law redux asks an important question i think when it finally gets around to it the business income tax offers a suggestion that is more conceptual than practical perhaps cut wut is a short one makes the distinction between old and new debt creating slack is an attempt to show what happens when policy incentives turn as i want to turn them the example policy is punitive which is unfortunate but that is a different matter financial reform ties together my ideas on taxes and accelerated repayment of debt four views contrasts my policy recommendations to three others parsing the question part 2 is an attempt to show how real world numbers could change if our policy shifts appropriately the great indebtedness ends with a clear policy recommendation i think the blind leading the blind offers a clear objection to existing policy clarity there are two different strategies that need to be developed one to deal with recovery from the crisis and recession the other to correct the policies that allowed the crisis to develop i know i don t pay enough attention to the distinction sounds like a new year s resolution in the works symmetry i would like our policies to be symmetrical symmetry is the template i use to design solutions i want to match the solution to the problem better than existing policy does for example in a world of excessive credit use the only productive solution is to accelerate the repayment of debt posted by the arthurian at 4 13 pm 0 comments market pipeline the dark side of financial innovation when i keep going back to a particular post eventually i have to talk about it link to the market pipeline post cormick grimshaw of the pipeline posts an abstract of a paper by brian j henderson and neil d pearson i reduced the abstract until it made sense to me the offering prices of a popular structured equity product were almost 8 greater than the products fair market values under reasonable assumptions the mean expected return is slightly below zero the products do not provide tax liquidity or other benefits and it is difficult to rationalize their purchase by informed rational investors so somebody s getting ripped off i think a lot of people get a lot more upset about that kind of thing than i do don t get upset about it bear with me the last part of the abstract is presented complete below our findings are however consistent with the recent hypothesis that issuing firms might shroud some aspects of innovative securities or introduce complexity to exploit uninformed investors in other words the issuing firms are putting extra nicotine in their cigarettes to get you to keep smoking them the best way to get back at those companies is to make people want to stop buying their product and you know what people already want to stop buying their product at least people want to reduce their debt when people succeed finance will become a smaller business in this country lenders will have less raw material to work with from which to create structured products and other derivatives the best way to get back at those finance companies is to depend less on finance just remember the necessary step is to change economic policy related links the ssrn page identifies the structured equity product as sparqs what is sparqs an interest paying note built on equity stocks a derivative posted by the arthurian at 6 00 am 0 comments oh look at the date happy new year posted by the arthurian at 4 29 am 4 comments wealth and income the golden goose is wealth the eggs are income wealth creates income posted by the arthurian at 4 00 am 0 comments thursday december 30 2010 1973 the interesting and well written nima provides this graph and the following remark it is notable that in post world war 2 america the poverty rate was declining constantly every year until in 1973 it hit a level of just below 8 8 from where it has since then bounced back to now around 11 and rising how can this be explained nima goes on to say that major welfare programs keep the recipients in poverty rather than motivating them to lift themselves out but it isn t nima s conclusion that interests me what interests me is the turning point 1973 the same year noted by ross perot and others the last year before the 1974 recession my conclusion would be that the golden age growth 1947 1973 gets the credit for driving down the poverty rate and that the economic recession which hit like a ton of bricks in 1974 explains the end of that decline the fact that poverty has not continued to decline as the graph shows would then be evidence that the economy never really recovered from that 1974 recession to complete the thought it is certainly true that the poverty rate could not have fallen much below the 8 8 bottom it did reach it could not fall below zero it would have had to start tapering off well before it hit zero nima s graph shows that the downtrend from 1967 1973 was less rapid than in the years before 1967 this likely was part of that tapering off but it was interrupted by the 1974 recession or by major welfare programs or something in my view the growing accumulation of private debt in the post wwii period reached a breaking point in 1974 it resulted in recession and the end of a golden age and the end of the keynesian consensus and among other things the end of the decline of the poverty rate in nima s view the end of the decline of the poverty rate was brought on by major welfare programs but i do not imagine that nima can attribute our myriad other problems to those same welfare programs i wish to point out that my argument i don t even know how to say this my one central causal factor is for me the cause of everything by contrast nima and others require an endless series of explanations to cover those myriad problems posted by the arthurian at 4 00 am 0 comments wednesday december 29 2010 supplyanddemand the troublesome economist has a good summary of the financial crisis as i read it the post lays out a good overview of what happened if you read it you may find a few things in the post that you disagree with good remember what those things are and then compare your reactions to mine below i start with two excerpts from allan schmid s post one from each end of it the too big to fail banks are blaming the financial crisis and the subsequent great recession on greedy home buyers when the big picture is grasped it is clear that the problem was not greedy home buyers but super greedy avaricious yes immoral brokers banks and bond raters yeah i want to leave out the word greedy for starters and if i can reduce the thought to a clear minimum we have banks blaming home buyers and schmid along with home buyers presumably blaming banks lenders blaming borrowers and borrowers blaming lenders supply blaming demand and demand blaming supply one of the key phrases in all of economics is the phrase supply and demand supply and demand without supply there is no demand without demand there is no supply this is one of the key concepts in all of economics and i think it s kinda sad that a hobbyist like me has to remind people of it there is no way we can ever solve the economic problem no less analyze it correctly if we insist on taking sides on things that are matters of supply and demand there compare that against your reactions to schmid s post i have a couple more points to make allan schmid writes profits on the difference between home mortgage rates and the lender s cost of money were too plebian for the high flyers of the financial sector so the commercial and investment banks packaged mortgages into bonds and resold them to other banks governments and pensions funds around the world the market for these derivative bonds was marked by use of absurd levels of leverage as high as 30 to one yeah idunno where the 30 to one comes from but i know i ve been looking at this graph for a long time long before that wiggle there in the early 90s and i know the line has been climbing for a long time and policymakers just let it climb and i know the financial crisis finally caused the trend line to start dropping in 2008 which created a peak in 2007 in 2007 there was 35 of debt for every dollar of money in circulation 30 to one 35 to one close enough and way way way too much debt but i guess everybody knows that already but that s not why i m showinya the graph i show the graph because i want you to look for some big burst of debt that would have made the trend line jump up suddenly there is no such big burst of debt visible on the graph there is only a continuous exponential increase in debt from 1947 to 2007 with some very inconsequential fluctuations in it there is one continuous increase in debt lasting 60 years this graph tells me that the debt of which allan schmid writes above the debt that created the financial crisis the debt that was created by the joint efforts of lenders and borrowers and policymakers this massive and troublesome debt was nothing but the continuation of a process begun at the end of the second world war there is nothing about now that you should focus on there is nothing about the last two or three years or the last 10 or 20 years for that matter in which you will discover the source of the economic problem for that matter you could go back to 1947 and look for the source of the problem and not find it the source of the problem is so deeply embedded in our thinking that we stand on it to look around for the source of the problem and that of course is why we cannot see the source of the problem we think we need credit for growth and the more troubled is our economy the more we do things to encourage and support access to credit well that was a good plan when our economy had little credit in use now that we have so much credit in use credit in use being measured as debt of course it is no longer such a good plan and yet we have policymakers continuing to do everything in their power to encourage greater use of credit to some people this looks like the government favoring the banks and maybe it is but i don t think their purpose is to favor the banks i think their purpose is to get the economy growing again but they think we need credit for growth and that is a plan which can no longer succeed at the other extreme we have people starting to say that increasing our output may not be such a good thing after all but i m with milton friedman on this one nothing is more important for the long run economic welfare of a country than to improve productivity the solution to the economic problem is to remember that while credit is good for growth debt is harmful to growth the one extreme excessive accumulation of debt kills the economy the other extreme rejection of credit use keeps it dead the solution is to avoid the extremes it s really not difficult to see final point in the 12 pages i wrote reliance on credit has driven the growth of the financial sector it has increased the cost of facilitation relative to the cost of production it has driven money out of productive work and into finance since 1990 ford has made more money from financial services principally automobile loans to consumers and dealers than from car and truck making operations the quote about ford was from a 1994 article in the new york times so already by 1994 already by 1990 we can see that finance was excessive debt was excessive credit use was excessive but the policies that promote credit use continued to be enforced and reinforced and so in reviewing the events of the last few years allan schmid would write everyone wanted in on the golden goose as firms like ge and gm who formerly made real goods switched to earning a big share of their profit on leveraged financial contracts we cannot solve the problems created by excessive reliance on credit by promoting policies that strengthen the reliance on credit we need to rely on non credit money to maintain economic activity in the existing economy and we need to use credit to expand the economy we need to use credit for growth not for everything it must be obvious by now and it must be policy when you put finance people in c...
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