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Text of the page (random words):
t 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 sunday january 31 2010 something old something new something borrowed there s a commonly used phrase debt and deficits that is sometimes a source of confusion but there is a simple difference between debt and deficit a deficit represents new borrowing debt is the total amount of borrowing accumulated and not yet repaid debt is old debt deficit is new debt that s the significant difference but i don t care about the phrase debt and deficits everybody else has talked that to death i want to focus on the descriptive words new and old new debt is a use of credit that boosts economic activity in the current year old debt is a measure of the hangover from credit use it burdens economic activity every year thereafter until it is paid off if a new use of credit is yin then the resulting debt is yang if a new use of credit is a bonus for economic growth the resulting debt is a penalty new debt is not the problem failure to repay debt is the problem debt management is the problem the little graph shows the annual addition to credit market debt outstanding as a portion of the total the addition is almost never more than ten percent of total 90 of our debt is old debt if we want to cut debt there s plenty of old debt to cut if we want to reduce the size of the finance industry we can cut old debt every problem is an opportunity for any number of reasons we want to reduce debt well we are in luck there is plenty of debt to reduce plenty of opportunity we just need to abandon debt accumulation as a policy and adopt a policy of debt repayment in its place posted by the arthurian at 10 25 am 0 comments labels sequence 2 saturday january 30 2010 debt management i discovered debt management in december 1992 in the encyclopedia of economics according to that book debt management is a strategy used by national governments and others who wish to maintain a permanent total volume of debt to maintain a permanent total volume of debt let s put that in perspective in his 1996 book the truth about the national debt francis x cavanaugh the senior career executive responsible for debt management policy advice in the treasury department wrote we have never raised the taxes needed to pay off the world war ii debt and probably never will we just keep rolling it over refinancing with issues of new treasury securities to replace the old securities as they come due rolling it over not paying it off that s how debt accumulates it s why debt needs to be managed but debt accumulation and debt management didn t begin in the 1990s thirty years earlier time magazine observed that people no longer expect that government will ever fully pay off its debt any more than general motors or ibm find it advisable to pay off their long term obligations instead of demanding payment creditors would rather continue collecting interest creditors would rather continue collecting interest as oscar wilde said it is better to have a permanent income than to be fascinating permanent income perpetual debt the skeptical optimist summarizes the notion of debt management this is perfectly sound financial practice successful businesses roll over their long term debt all the time just as the federal government has been doing for generations everybody thinks accumulating debt is okay and well it is okay until it becomes a problem maintaining a permanent total volume of debt rolling it over refinancing providing a permanent income to our creditors debt management they call it an ironic term surely like methadone maintenance it keeps us on the stuff forever posted by the arthurian at 10 06 pm 0 comments labels sequence 2 i love my job i get to sit at a desk use autocad all day and draw and they call this work and i create little utility programs in vba hook them up to toolbar buttons and use those buttons to make my job faster and easier maybe not everybody would like this job but i sure do i don t work for a company that makes drawings i work for a company that makes stuff out of wood and metal parts my job is to find out what the boss wants or what the customer wants and translate that into something useful for the guys in the shop the guys who create the stuff we sell my job really is to make it faster and easier for the company to produce the stuff we produce i don t produce the stuff myself i facilitate production you have to know by now this post is some kind of analogy yep i m like the finance industry producing paper that helps the work get done in our economy we have the productive sector and the finance sector the finance sector is like me producing paper that facilitates production the productive sector is like our shop where the real work gets done my boss could decide to close the shop and produce drawings for other companies instead that would make our company like like the cayman islands say where the only industry is finance some companies do that but not every company can do it if nobody s making things then nobody needs the paper there has to be balance between production and facilitation production and finance if too many guys are making drawings in our economy some will go out of business that s the invisible hand at work but the invisible hand doesn t seem to work for finance when ford makes more money financing cars than it does making cars it s a sign that finance plays too big a role for some reason when we get too much finance finance becomes more profitable than production this draws more people and more money into finance and makes the imbalance bigger the imbalance grows until it is unsustainable and then you get a financial crisis if this is true if the imbalance between finance and production creates serious economic problems then there must be a laffer limit for finance there must be a point at which continuing to do the same thing begins to have the opposite effect there must be a best point or a best range where we have just the right balance between finance and production that is the point where finance facilitates the most production increase finance a little more and the cost of finance begins to add too much to the cost of doing business and then economic growth will be less than expected except in the finance industry i couldn t begin to guess what the perfect balance point would be but i know we have too much finance per unit of production so i say set a target shoot for cutting debt by half shoot for cutting finance in half simon johnson of the baseline scenario says the same he thinks finance should be about 4 of gdp not 8 as it is today posted by the arthurian at 12 37 pm 7 comments labels sequence 2 tuesday january 26 2010 the laffer limit i woke up at 4 30 this morning with the phrase laffer limit in my head so i googled it google turned up 38 hits but only listed 14 the rest were very similar of the 14 9 had the word tax or taxes or taxation in the text displayed along with the search results one of the others had the phrase the top rate on earned income and one contained not a moral license for government to take as much as it can so eleven of 14 hits 78 6 are immediately identifiable as related to tax issues of the remaining three one is a url with no text one concerns the passing of robert novak and one links to a google book i m betting these three also associate the phrase laffer limit with taxes that would make all of the results tax related the laffer curve was all about taxes it was a sort of shared experience a simple profound analysis that we intuitively understood and it held out the promise of lower taxes the laffer curve was all about taxes but the laffer limit is a practical maximum in one of those google hits j h cochrane refers to the laffer limit of taxation that suggests there can be laffer limits on things other than taxes if you are a government trying to raise revenue increasing the tax rate brings in more revenue up to a point beyond the laffer limit it brings in less revenue if you are a gardener fertilizing your flowers adding more fertilizer improves the garden up to a point beyond the laffer limit it starts ruining the garden if you watch an economy using credit for growth using more credit increases growth up to a point beyond the laffer limit it starts ruining the economy the laffer limit refers to the notion of a practical maximum laffer limit the point at which continuing to do the same thing begins to have the opposite effect updated 30 jan 2010 posted by the arthurian at 8 34 pm 2 comments labels artish def laffer limit laffer curve sequence 2 saturday january 23 2010 simon says allow me to repeat part of simon johnson s statement from thursday s post the issue is not finance per se i e the process of intermediation between savings and investment this we obviously need to some degree but do we need a financial sector that now accounts 7 or 8 percent of gdp in other words we need finance but we don t need it to be such a big part of our economy as it is today i agree here from a year old post by contrahour on seeking alpha is a glance at how big finance has become the topmost trend line shows the accumulation of total debt at the right hand side the next one down from the top is domestic financial equivalent to simon johnson s modern finance at the right hand side the most recent numbers show domestic financial debt is the biggest component of the debt at the left hand side the oldest information shows domestic financial debt as the smallest component clearly domestic financial debt has been the fastest growing component of debt finance is the cancer posted by the arthurian at 2 02 pm 2 comments labels debt sequence 2 thursday january 21 2010 the larger problem this is a follow up to yesterday s post which took brief excerpts from a post by simon johnson of the baseline scenario here s the complete post by simon johnson and my thoughts along the way the nature of modern finance is modern finance more like electricity or junk food this is of course the big question of the day if most of finance as currently organized is a form of electricity then we obviously cannot run our globalized economy without it we may worry about adverse consequences and potential network disruptions from operating this technology but this is the cost of living in the modern world on the other hand there is growing evidence that the vast majority of what happens in and around modern financial markets is much more like junk food little nutritional value bad for your health and a hard habit to kick really we re talking about the roots of most serious economic problem in eight decades here and we re comparing finance to electricity and junk food simon johnson s big question of the day what a disappointment not to be rude but it s no wonder we can t solve our economic problems we can t even discuss those problems intelligently you would never never find adam smith or alexis de tocqueville or john maynard keynes using such dumbed down comparisons electricity is a necessity junk food is a problem neither necessity nor problem is a technical term neither requires that readers be coddled i don t mean to criticize mr johnson s writing style but ideas are expressed in words the better the words the better the expression is modern finance a necessity or a problem that s a better question but still not a good one unfortunately modern finance is both a necessity and a problem that is the larger problem the issue is not finance per se i e the process of intermediation between savings and investment this we obviously need to some degree but do we need a financial sector that now accounts 7 or 8 percent of gdp for numbers over time see slide 19 in my june presentation we obviously need some finance in our economy johnson says he is concerned about excessive finance as i am concerned about the excessive reliance on credit it s the same concern we should see eye to eye on this as far as we know finance was about 1 or at most 2 percent of gdp during the heyday of american economic innovation and expansion say from 1850 the financial system of the nineteenth century worked well in terms of mobilizing capital for new enterprises ah but modern finance does not exist solely for the purpose of mobilizing capital for new enterprises as i said on the 15th used to be we d use credit for growth and for special circumstances now we use credit for everything modern finance the mature economy excessive reliance on credit we use credit for everything and that creates problems for some reason mr johnson can only almost see this larger problem those banks had much higher capital asset ratios than we have today even the dominant players were smaller in absolute terms and relative to the economy jp morgan at his peak employed less than 100 people no one is suggesting we go back to the nineteenth century although abolishing our central bank would certainly have undesirable consequences in that direction but is it really healthy or even sustainable to have a finance sector as large as what we face today it is surely not a good idea for finance to account for 40 percent of total corporate profits see slide 16 such performance in an intermediate input sector suggests someone else in the economy is being severely squeezed someone else is being squeezed this is such an important point it ought to be emphasized not buried at the bottom of a paragraph that spans centuries with three dashes two sets of parentheses an unanswered question and one technical drizzle of syllables an intermediate input sector someone else is being squeezed in other words the profit flowing into finance is flowing out from somewhere profit is income by definition income elsewhere in the economy is less because profits are so great in the financial sector in the twelve pages i wrote the growing cost of interest in the economy as a whole left less to divide up as wages and profits wages and profits both suffer...
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