I've suddenly realized the behind-the-scenes situation making "tea party" Republicans in Congress so ardent to do-everything-now, why we hear "we can't wait any longer." It really is crunch time for the Tea Party.
You see, the problem is They've Got No Time Left.
Every economic belief they are based on is becoming like sinking ground.
And it's not about the Affordable Care Act (Obamacare).
One very uncomfortable bit of information slowly seeping into national awareness (and around the world) is that the U.S. stimulus worked much better than the experience of nations going the route of austerity. As time passes, years now, we are doing better, and big inflation is nowhere in sight, and.... And there is something even worse for the Tea Party...(just keep reading).
But first, look at the real effect of the Stimulus.
Want to know what the U.S. would look like now without the Stimulus of 2009-2011?
To see a nation with many parallels to the U.S. consider Spain: housing boom, housing bust, rising deficits due to falling tax revenues and unemployment supports....but then an interesting difference.
What Spain did next was not a sustained Stimulus like the U.S., with support of central bank Quantitative Easing (QE). No.
Too soon Spain chose austerity. And Spain also wilted under the austere (and foolish) European Central Bank which acted as the U.S. Fed did in the early 1930s. Result? Spanish unemployment topped out around 27%, recently.....
So, little stimulus, no QE....and plenty of cutting spending results in.... A Spanish Great Depression (II).
But that's not the worst of it for the Tea Party....
The Tea Party has been a message.
They've relied on a story that our "debt is unsustainable" and that we "can't continue like this."
More than anything, this is their story, their message, their crucial one leg to stand on.
And it turns out this proposition is demonstrating itself false, and this new fact is just now becoming visible to careful observers:
As China and other nations have been selling US Treasuries on net for months this year, and interest rates have stayed low, low, low.....
Let me summarize that: massive deficit spending, years of QE, and.....very little inflation, and finally China and the world were selling U.S. debt for months (instead of buying it), and the result is....continuing low interest rates!
The tea party story is just false.
Full stop.
So, perhaps unconsciously, perhaps with some internal party alarm already send through the trenches, the tea party "conservatives" rightly know they have little time until the public begins to become aware of the complete falsehood of their main idea.
Whether it is conscious or unconscious, they feel they need to Act Now, so that they will be able to pretend or believe, later, that the amazingly low interest rates on U.S. Treasuries (our national debt) are due (after the fact) to tea party resolve to improve the budget of the U.S.
That this will be completely false will be beside the point. (Unless an articulate someone can wake up independent voters to this fact.)
And that such a fast rate of reduction in federal expenditures actually slows economic growth is also beside the point. Everything is beside the point.
They need to move quick, and then take credit. It is about public perception, and keeping up appearances.
They need to keep fooling some of the people all of the time.
October 13, 2013
September 30, 2013
Debt Doomsday: The Wrongest Prediction of Our Time?
Well, it's happened. The oft-trumpeted Day of Doom, when China sells US Treasury Bonds, has arrived.
Actually....
So...where's the panic? Weren't we supposed to see people jumping from buildings?
Or at least weren't we suppose to see a debt interest catastrophe, with the interest rate climbing and climbing, and the nation's finances in trouble?
Do you realize how low 2.6% is? It is still far below normal levels. Normal would be more like 4% to 5%.
Interest rates will go up and down. They could be up or down this week, or month. It tells us nothing, unless they rise above normal levels of about 5%.
If 10-yr rates are 3%, that is low. If they are 3.5%, that is low. If they are 2.6%, they are very low.
Now, as this endlessly predicted time of doom hasn't amounted to much, we will now hear acknowledgement of the complete falsehood of the popular hypothesis that we are profoundly dependent on China to finance our debt....?
But the non-crisis of debt is no surprise for those that read this blog a couple of years back.
As I wrote in June 2011:
Will that happen?
Perhaps not. But in the meantime, we live in the world I described.
The world where there are a lot more big savers than big spenders.
Actually....
(Reuters) - China and Japan led an exodus from U.S. Treasuries in June after the first signals the U.S. central bank was preparing to wind back its stimulus, with data showing they accounted for almost all of a record $40.8 billion of net foreign selling of Treasuries.
The sales were part of $66.9 billion of net sales by foreigners of long-term U.S. securities in June, a fifth straight month of outflows and the largest since August 2007, U.S. Treasury Department data showed on Thursday.
China, the largest foreign creditor, reduced its Treasury holdings to $1.2758 trillion, and Japan trimmed its holdings for a third straight month to $1.0834 trillion. Combined, they accounted for about $40 billion in net Treasury outflows.As of now, after 5 months of foreign selling of US Treasuries, that 10-yr Treasury yield is....around 2.6% at the moment I'm writing this.
So...where's the panic? Weren't we supposed to see people jumping from buildings?
Or at least weren't we suppose to see a debt interest catastrophe, with the interest rate climbing and climbing, and the nation's finances in trouble?
Do you realize how low 2.6% is? It is still far below normal levels. Normal would be more like 4% to 5%.
Interest rates will go up and down. They could be up or down this week, or month. It tells us nothing, unless they rise above normal levels of about 5%.
If 10-yr rates are 3%, that is low. If they are 3.5%, that is low. If they are 2.6%, they are very low.
Now, as this endlessly predicted time of doom hasn't amounted to much, we will now hear acknowledgement of the complete falsehood of the popular hypothesis that we are profoundly dependent on China to finance our debt....?
But the non-crisis of debt is no surprise for those that read this blog a couple of years back.
As I wrote in June 2011:
But this [interest rate catastrophe theory] is wrong, illusory, for a pragmatic reason.
Why?
Because the worldwide savings glut, which makes US treasury interest rates on our national debt so low, isn't going away, not for decades.I'd love to see an objective process on the part of those making the interest-rate-disaster prediction, admitting the data is showing their assertion/hypothesis was wrong.
Will that happen?
Perhaps not. But in the meantime, we live in the world I described.
The world where there are a lot more big savers than big spenders.
September 13, 2013
The Realpolitik Error, Our Modern Bane
James Fallows, whom I've read since I was something like 16 yrs. old it seems (and that is a long time ago), follows an immigrant reader into an interesting mistake in yet another of too many bits in The Atlantic. (Does anyone still read David Brooks for interest alone? Even the best, hardest working columnist-for-life just wears on us when they don't go to the well deeply enough.)
Fallow's reader writes:
He [Putin in his NyTimes Op Ed] is making his case, a case that the world will not understand as Americans understand it. He has protected his interest in Syria under the banner of advancing an international interest. He has established, further, a precedent. That the United States does answer to the council, that it cannot act unilaterally and that our nation can be made to suffer a geopolitical consequence. If you were a country in the Middle East, whose protection would you want right now?
I brought up Khrushchev not incidentally. I currently view our recent impasse as very similar to the Vienna Summit. Americans are quick to hand-wave the foreign apparat, but slow to realize what just happened. We got duped into having a fight we didn't want to have. We wanted limits on Assad's power, and we now have significant limits of our own by way of this precedent.
This is all fine and clever and quite wrong. Fallows follows by implication this classic realpolitik error, so commonplace in modern times.
The idea that America must be free to act preemptively, without much constraint, and that such actions, like drone strikes, make us safer.
In reality, such actions degrade our security in a clear and definite way.
When we kill people who haven't directly attacked nor are directly attacking us or our contracted allies, everyone senses that we are in the wrong.
Putin, as a Russian controller, manipulator, whatever, is quite beside this point.
By becoming an Evil Empire, we are ensuring not only our eventual fall, but fallout, the very best case of which is losing our freedoms to a security/police state. The worse and more likely fallout is suffering retribution that kills not a few dozen or a few hundred, but 2 or 3, even 4 magnitudes higher in body count. Eventually.
In short, the common delusion that we can make ourselves safer by killing punitively or preemptively.
That someone wiser said "He that lives by the sword shall die by the sword" should not only give us pause or make us add in another layer of checks and balances -- it should lead to deeper introspection, or something. Anything. Anything but this realpolitik.
In reality, billions of people know when a state is in the wrong, and like water building behind an obstruction, the opposition to the wrong grows. Everything seems fine to the self-fooling until the sudden and inevitable result.
This will come, unless we recant.
And yes, a religious term is the most appropriate.
Because such a belief in killing as the first or 2nd solution, endlessly supported in our media, our movies, books, language -- it is a mythos, or a religion. But not a good one.
This does seem a mythos. So we do have a battle of religions more or less.
Since this battle is in our hearts and minds, we could change in a day, and that change unfurl over a few years, like Gorbachev's Glasnost. A harmful Wall would fall.
And that could save a lot of American lives. After all, it is never too late for us to change.
We can renounce unprovoked attacks and killing, we can apologize, we can reform, and we can begin to listen more to the better angels of our nature, and less to the impartially, putatively objective realpolitik of the law-of-the-jungle crowd.
Not sure the law of the jungle isn't best?
Consider: Which nation is safer right now, in the big sense -- the U.S. or China?
Like the U.S., China has an initial level of safety (if it acts neutrally) that arises from its sheer size and weight. To the extent, extensive, that China has not taken on so many fights of the world, China is by far the safer.
The time to fight a Nazi Germany or an Al Qaeda, as always, as in all of time, is as it begins to attack.
We do always need to wisely prepare, we need to watch and be ready.
We should never preempt.
Fallow's reader writes:
He [Putin in his NyTimes Op Ed] is making his case, a case that the world will not understand as Americans understand it. He has protected his interest in Syria under the banner of advancing an international interest. He has established, further, a precedent. That the United States does answer to the council, that it cannot act unilaterally and that our nation can be made to suffer a geopolitical consequence. If you were a country in the Middle East, whose protection would you want right now?
I brought up Khrushchev not incidentally. I currently view our recent impasse as very similar to the Vienna Summit. Americans are quick to hand-wave the foreign apparat, but slow to realize what just happened. We got duped into having a fight we didn't want to have. We wanted limits on Assad's power, and we now have significant limits of our own by way of this precedent.
This is all fine and clever and quite wrong. Fallows follows by implication this classic realpolitik error, so commonplace in modern times.
The idea that America must be free to act preemptively, without much constraint, and that such actions, like drone strikes, make us safer.
In reality, such actions degrade our security in a clear and definite way.
When we kill people who haven't directly attacked nor are directly attacking us or our contracted allies, everyone senses that we are in the wrong.
Putin, as a Russian controller, manipulator, whatever, is quite beside this point.
By becoming an Evil Empire, we are ensuring not only our eventual fall, but fallout, the very best case of which is losing our freedoms to a security/police state. The worse and more likely fallout is suffering retribution that kills not a few dozen or a few hundred, but 2 or 3, even 4 magnitudes higher in body count. Eventually.
In short, the common delusion that we can make ourselves safer by killing punitively or preemptively.
That someone wiser said "He that lives by the sword shall die by the sword" should not only give us pause or make us add in another layer of checks and balances -- it should lead to deeper introspection, or something. Anything. Anything but this realpolitik.
In reality, billions of people know when a state is in the wrong, and like water building behind an obstruction, the opposition to the wrong grows. Everything seems fine to the self-fooling until the sudden and inevitable result.
This will come, unless we recant.
And yes, a religious term is the most appropriate.
Because such a belief in killing as the first or 2nd solution, endlessly supported in our media, our movies, books, language -- it is a mythos, or a religion. But not a good one.
This does seem a mythos. So we do have a battle of religions more or less.
Since this battle is in our hearts and minds, we could change in a day, and that change unfurl over a few years, like Gorbachev's Glasnost. A harmful Wall would fall.
And that could save a lot of American lives. After all, it is never too late for us to change.
We can renounce unprovoked attacks and killing, we can apologize, we can reform, and we can begin to listen more to the better angels of our nature, and less to the impartially, putatively objective realpolitik of the law-of-the-jungle crowd.
Not sure the law of the jungle isn't best?
Consider: Which nation is safer right now, in the big sense -- the U.S. or China?
Like the U.S., China has an initial level of safety (if it acts neutrally) that arises from its sheer size and weight. To the extent, extensive, that China has not taken on so many fights of the world, China is by far the safer.
The time to fight a Nazi Germany or an Al Qaeda, as always, as in all of time, is as it begins to attack.
We do always need to wisely prepare, we need to watch and be ready.
We should never preempt.
May 14, 2013
Europe Crumbles Due to Lack of Demand
Europe's economy is crashing in such a way that even the least objective ideologues in Germany now must begin to feel uneasy.
It is not only Greece, but now Spain also (the country that had budget surpluses before 2008) crashing into unambiguous economic depression. Domestic demand continues to crumble rapidly in Spain, so that one wonders if the entire economy there might sag into social chaos.
But the reality isn't that some countries are in serious straights while others nations are doing fine, so that the overall situation might be sanguine....
No.
Europe as a whole is in sharp decline.
Consider the straight dope -- even as The Economist scrambles to blame monetary policy (but not the Euro!) we see the starkness of the failure of austerity:
The reality remains that Europe is crashing due to the pan-European trade imbalances created by the monetary union (which prevents natural price adjustment and easy rebounds by sinking economies) -- this increases the job strength in Germany, and that increase specifically comes from taking most available jobs away from the weaker economies via the Euro lock on relative prices.
What is the soundest, best economy in the world right now? Clearly that of the U.S.
Why? Demand -- people wanting to buy goods and services in sufficient amounts for an economy to function. The U.S. has adequate domestic demand.
Economies depend on demand and production, equally. But production exists around the world in abundance.
Demand is in short supply.
Unlike skating-on-thinning-ice Germany, deeply dependent on exports, or China, deeply dependent on exports and on financial bubbles, the U.S. in contrast has adequate demand at home and little financial froth.
The U.S. is stronger than Europe largely as a result of the just-in-time demand in the U.S. economy created by the stimulus of 2009-2010, and since then, due to a more cautiously gradual reduction in deficit spending than that of misguided Europe.
The U.S. and Europe both have similar overhangs of excessive private household debt weighing us down. But Europe tried rapid deficit reduction by cutting spending -- which backfired and resulted in deficits as a % of GDP rising in many Europeans countries. Because of weak demand, cutting government spending simply started downward spirals in European economies. Not, of course, in the European country that has had an profound pricing advantage over the others for more than a decade, locked in by the common currency (the Euro).
At this moment, U.S. strength is the sole bright spot in the global economy.
While Germany has been like a fire burning down a house (Europe), the U.S. is like a massive motor humming along.
But will it keep humming?
As China and Germany continue to force unemployment on the rest of the globe by consuming so much less than they produce, their massive trade surpluses threaten to eventually sink us all, and only a radical change towards more domestic consumption in these two economies offers any long term hope of avoiding the specter of war.
It is not only Greece, but now Spain also (the country that had budget surpluses before 2008) crashing into unambiguous economic depression. Domestic demand continues to crumble rapidly in Spain, so that one wonders if the entire economy there might sag into social chaos.
But the reality isn't that some countries are in serious straights while others nations are doing fine, so that the overall situation might be sanguine....
No.
Europe as a whole is in sharp decline.
Consider the straight dope -- even as The Economist scrambles to blame monetary policy (but not the Euro!) we see the starkness of the failure of austerity:
IT IS a car crash of a data release. One simply can't look away. Hard to know precisely which part of the euro area's latest unemployment report is the most grimly compelling. The overall rate, at 12.1%? In the spring of 2010 unemployment rates in America and the euro zone were effectively the same at about 10%. There is now a gap of 4.5 percentage points. Total unemployment? In the first three years of the downturn America did far worse than the euro area, adding some 7.5m workers to the unemployment rolls to Europe's 4.7m. Since then total unemployment in the euro area has risen by another 3.2m while America reduced the ranks of the jobless by 3.5m. The euro area now has some 19.2m unemployed workers.
The reality remains that Europe is crashing due to the pan-European trade imbalances created by the monetary union (which prevents natural price adjustment and easy rebounds by sinking economies) -- this increases the job strength in Germany, and that increase specifically comes from taking most available jobs away from the weaker economies via the Euro lock on relative prices.
What is the soundest, best economy in the world right now? Clearly that of the U.S.
Why? Demand -- people wanting to buy goods and services in sufficient amounts for an economy to function. The U.S. has adequate domestic demand.
Economies depend on demand and production, equally. But production exists around the world in abundance.
Demand is in short supply.
Unlike skating-on-thinning-ice Germany, deeply dependent on exports, or China, deeply dependent on exports and on financial bubbles, the U.S. in contrast has adequate demand at home and little financial froth.
The U.S. is stronger than Europe largely as a result of the just-in-time demand in the U.S. economy created by the stimulus of 2009-2010, and since then, due to a more cautiously gradual reduction in deficit spending than that of misguided Europe.
The U.S. and Europe both have similar overhangs of excessive private household debt weighing us down. But Europe tried rapid deficit reduction by cutting spending -- which backfired and resulted in deficits as a % of GDP rising in many Europeans countries. Because of weak demand, cutting government spending simply started downward spirals in European economies. Not, of course, in the European country that has had an profound pricing advantage over the others for more than a decade, locked in by the common currency (the Euro).
At this moment, U.S. strength is the sole bright spot in the global economy.
While Germany has been like a fire burning down a house (Europe), the U.S. is like a massive motor humming along.
But will it keep humming?
As China and Germany continue to force unemployment on the rest of the globe by consuming so much less than they produce, their massive trade surpluses threaten to eventually sink us all, and only a radical change towards more domestic consumption in these two economies offers any long term hope of avoiding the specter of war.
April 24, 2013
Cobert Reviews Banger and Mash, or "RR" as They Say
After the electric news of 4-5 days ago that basically the entire idea of Rogoff/Reinhart that national debt levels above 90% retard real growth is just...well, let's say quite a stretch, as in bending over backwards, I found Cobert's treatment of the fracas below quite funny and even satisfying finally.
James Hamilton suggests a more conventional worry -- interest rates will rise and that will cost a lot.
That they haven't for Japan should make one 2nd guess this, and if one does, the "global savings glut" springs instantly to mind. Now, since the global savings glut is cultural in origin (think Chinese one-child policy combined with falling birth rates across the globe....), well, guess what, US interest rates are going to under-perform expectations we might imagine, and likely be under the weight of massive quantities of money looking for a home for....well, for decades actually, regardless of any ups and downs.
At some point you just have to realize this was clear all the time, but....mass psychology is nothing to take lightly we all know. Here's some fun.
James Hamilton suggests a more conventional worry -- interest rates will rise and that will cost a lot.
That they haven't for Japan should make one 2nd guess this, and if one does, the "global savings glut" springs instantly to mind. Now, since the global savings glut is cultural in origin (think Chinese one-child policy combined with falling birth rates across the globe....), well, guess what, US interest rates are going to under-perform expectations we might imagine, and likely be under the weight of massive quantities of money looking for a home for....well, for decades actually, regardless of any ups and downs.
At some point you just have to realize this was clear all the time, but....mass psychology is nothing to take lightly we all know. Here's some fun.
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