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hudson notice also that in 1850 when bastiat wrote use of the phrase interest payments had not yet begun to percolate click image for a bigger view at december 29 2022 2 comments email this blogthis share to x share to facebook share to pinterest tuesday december 27 2022 arthurian debt policy our anti inflation policy is all wrong i understand the raising interest rates method of fighting inflation it reduces the money flowing into the economy from borrowing less money means less inflation i get it but it is not a good plan less money means less spending and less spending means less inflation but less spending also means less economic growth that is why inflation fighting often leads to recession but recessions are not the big problem they are only evidence of it the big problem is that this anti inflation policy applied consistently results in the consistent slowing of economic growth to maintain a policy where inflation is limited to two percent as we did for many years is to maintain a policy of low economic growth economists ask why is economic growth slow growth is slow because of our anti inflation policy demand pull inflation arises from too much demand too much spending too much money in the economy by definition in a slow economy there is not too much demand our inflation is not demand pull cost push inflation arises from too much cost our inflation is cost push some people say cost push inflation is rare but they are wrong cost push inflation is common because there is too much cost in our economy too much financial cost in response to the financial crisis of 2007 2008 policymakers pushed interest rates down as low as they could go that response was an admission that financial cost was too high the problem is not interest rates the problem is debt we have so much debt that reducing interest rates does not solve the cost problem even when interest rates are as low as they can go we think of finance as the solution to all our economic problems but that thinking has created another problem that thinking has created the high cost of finance we have many policies that make credit more available and we have many policies that encourage the use of credit therefore credit use grows rapidly but we have no policies designed to accelerate the repayment of debt therefore debt grows to extremely high levels the personal income tax provides a deduction for mortgage interest so we don t have to pay income tax on the money we use to pay the mortgage interest in effect this makes mortgage interest less costly for the taxpayer that makes it less costly to have a mortgage the policy makes it less costly for us to be in debt it encourages people to be in debt that policy also reduces the tax revenue the government receives but even if the cost to government was exactly the same it would be better to have policy that encourages taxpayers to get out of debt instead of getting a tax deduction for the interest we pay we should be getting a tax deduction for paying down our debt ahead of schedule this policy would help us get out of debt it would reduce debt it would reduce financial cost it would reduce cost push inflation it would reduce the need to raise interest rates it would reduce the policy induced slowing of economic growth and by reducing the cost of finance it would bring some vigor back to our economy it has been a long time since people talked about economic vigor at december 27 2022 no comments email this blogthis share to x share to facebook share to pinterest labels nobody says this stuff but me but that doesn t make it wrong sunday december 25 2022 friends and family happy holidays at december 25 2022 no comments email this blogthis share to x share to facebook share to pinterest friday december 23 2022 the nubs of finance this one didn t go where i thought it would see for yourself the persistent growth of finance graph 1 the persistence of memory finance the growth of finance doesn t plot out as straight as the trend line but the plot is not far off based on the graph we can say that financial corporate business has been growing by two percent of gdp every 25 years but don t forget gdp was growing over all that time finance was gaining on that gain finance was growing faster than the economy as if we didn t have enough finance already maybe you are thinking 2 in 25 years isn t much but well the change in gdp growth was half as much it was only 1 period to period for the first 25 year period the average of quarterly real gdp growth rates was 4 1 percent for the second 25 year period the average was 3 1 percent for the third 25 year period the average growth rate was 2 3 economic growth was great in the first period not so good in the second terrible in the third and finance was gaining twice as fast as economic growth was declining economists predict even slower growth in the future mckinsey says global economic growth will fall by half in the next fifty years that would put us in the neighborhood of 1 growth probably in half the time mckinsey says and right on schedule and finance will be 10 of gdp by then while we re waiting take a look at the history shown on the graph in the first 25 year period 1947 thru 1972 when rgdp growth was great the growth of finance was running on the high side of its trend line but around 1963 something changed the blue line shows the growth of finance running below the trend line until the early 1980s what happened between those low side dates the great inflation happened inflation is related to the quantity of money the q of m is related to the borrowing we do an increase in borrowing is related to an increase in the size of finance there is a connection between inflation and the size of finance in the second 25 year period 1972 1997 after 1975 or so the blue line shows finance creeping back up to trend the line runs above trend from the early 1980s to around 1987 the reagan years but then the line goes low again indicating a slowdown in the growth of finance from 1987 to around 1997 this slowdown was a consequence of the savings and loan crisis wikipedia puts that crisis between 1986 and 1995 and the graph does show the blue line creeping back up to trend again after 1995 in the third 25 year period 1997 2022 the growth of finance runs high from around 1998 thru 2006 the growth of finance this time is greater than in the previous above trend episodes the gap between red and blue lines is greater but then suddenly we had a financial crisis you can identify it by the sharp low between 2007 and 2011 on the graph coming out of the crisis finance grew below trend for five or six years and then things got back to normal for finance for the rest of us not so much here s an interesting bit just at the end of the 1998 2006 high in the growth of finance there is a little nub i don t know what else to call it nub a small lump or protruberance according to oxford languages immediately after the little nub finance fell into crisis that s not the interesting part the interesting part is the second nub the one we see in the last two years on the graph it is similar in shape to the first nub and similarly higher than the five or six years leading up to it but this second nub is bigger and more ominous plus the federal reserve is busy right now raising rates and creating the next recession just like they did before the 2008 crisis does this mean that after the new nub we get a new financial crisis oh i don t know i m no good at predicting things i m always wrong so that s good right it means we don t get another financial crisis in 2023 right oh i don t know i m no good at predicting things happy holidays anyway at december 23 2022 1 comment email this blogthis share to x share to facebook share to pinterest thursday december 22 2022 the words interest payments in google books 1800 1935 and the awakening to financialization it does go up more after 1935 at december 22 2022 no comments email this blogthis share to x share to facebook share to pinterest labels financialization in the 19th century wednesday december 21 2022 the importance of the interest item click for source at december 21 2022 no comments email this blogthis share to x share to facebook share to pinterest monday december 19 2022 surprise remember 2008 and the financial crisis remember how the economy was slow for several years after that they would show a graph of gdp rising on trend then suddenly falling below trend during the troubles and then resuming a trend of increase but at a lower level as you probably know gdp was briefly good in 2021 people thought covid was over and we felt pretty good about that the graph below shows gdi gross domestic income which is just another measure of gdp graph 1 gross domestic income at december 19 2022 4 comments email this blogthis share to x share to facebook share to pinterest sunday december 18 2022 family income by source 1988 from an article from 1995 should we ax the capital gains tax at the st louis fed the second column capital in the table shows the percentage of income from capital as opposed to income from wages as the note below the table says funny thing about that note right in the middle of it they change from explaining the table to making excuses for favorable treatment of the wealthy it s blatant you ll find a similar midstream change in the third paragraph of the article paragraph 1 introduces the topic the battle over whether to cut the u s capital gains tax is raging again this was from 1995 remember paragraph 2 argues in favor on the one side are those who argue in favor of the capital gains tax cut paragraph 3 starts out by saying on the other side however are critics but the next sentence takes the proponents side and it s all downhill from there such writing is for people who already have their vested interest and their opinion in favor it wouldn t matter except in the long run this is part of a battle over the continued existence of civilization at december 18 2022 no comments email this blogthis share to x share to facebook share to pinterest saturday december 17 2022 the true meaning of capital you might be interested in this page from cfi i was going to quote two paragraphs but the terms of use are um very corporate you still might find the page on capital interesting but don t quote from it their terms of use page says something like they have the right to castrate your heirs if you do at december 17 2022 1 comment email this blogthis share to x share to facebook share to pinterest wednesday december 14 2022 all that remains recently i said if debt was low again really low we would have money left over after paying the bills no one would have to be demanding wage increases or raising prices to continue that thought in the low debt low financial cost economy people would have more income available to spend and business would have more available for profits i know they say business profits are high already but they re talking about a few big businesses like apple and google i m talking about mom and pop shops the ones you see on the local news every so often going out of business where the proprietor is crying on camera in the low debt economy the mom and pops would be doing better moms and dads and families would be doing better big businesses would probably be doing better too but it s not magic we need low debt to get costs down for people and for businesses but we need something more as well we need something to make people feel that the economy is better to make people feel that things are good again we need something like winning the second world war or putting covid behind us but covid didn t work did it winning wwii gave people a jolt people had jobs people had money to spend the jolt got the economy going then things were good for 20 years or more the economy was good for 20 years or more putting covid behind us gave us just one good year graph 1 annual rate of real gdp growth 1980 2021 2021 was the best year for gdp growth since reagan s morning in america so maybe this leaves a lot to be desired gdp is not the most satisfactory measure and because of increasing inequality the people who most need a good economy get the least benefit from it and anyway 2022 sucks i know i know but what happened why didn t the jolt work well it tried to work but we still have too much debt too much financial cost so instead of getting great growth this time we got inflation we got cost push inflation prices went up because businesses were trying to cover their costs but we will never cover our costs as long as the cost of finance keeps rising these days people say there s no such thing as cost push inflation they say it because if the money isn t there if the spending isn t there then you won t get the inflation yeah but you won t get growth either if the spending isn t there the economy just slows more and there is still the cost push to deal with cost pressure arising from the cost of finance and since finance continues to grow the cost of finance continues to rise and the cost pressure is unrelenting and things get worse i don t like the term cost push the cost push inflation concept implies that you cannot have cost push pressures if you don t have inflation but that is wrong so i just talk about cost pressure cost pressure can be relieved by inflation but that is not the best plan because inflation does not solve the cost pressure problem inflation is only a way to cope with the cost pressure problem even as that problem continues to grow worse that s what the two percent target was a way to get a little growth by allowing a little inflation not the best solution to solve the cost pressure problem we must first discover what creates the cost pressure growing financial cost creates the cost pressure to solve the cost pressure problem caused by the growth of finance we must first discover what is causing the growth of finance economic policy promotes the growth of finance to solve the problem created by economic policy we must make sure policymakers understand that the chain of causality begins with them a lot of people think government is running the economy into the ground on purpose i don t see it that way i don t see how that could be i think they just don t know how to fix the problem but even if it is on purpose we can probably get them to see that the cost of finance is a problem not a solution economic policy promotes the growth of finance and has done so since the end of the second world war at some point along the way finance became too big and costly for our economy we could no longer afford it that s when things started to go wrong we could probably argue for the rest of our lives about when things started going wrong that wouldn t be productive we need to start replacing money that costs interest with money that does not cost interest we have to reduce the cost of interest but we still need enough money that the economy can function we can keep doing t...
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