tag:blogger.com,1999:blog-8702840202604739302.post8709213476066173995..comments2024-03-12T22:00:25.991-07:00Comments on MacroMania: Not enough U.S. debt?David Andolfattohttp://www.blogger.com/profile/12138572028306561024noreply@blogger.comBlogger41125tag:blogger.com,1999:blog-8702840202604739302.post-15675132908818130942013-04-18T19:28:39.917-07:002013-04-18T19:28:39.917-07:00Thanks. I always enjoy reading your posts - they a...Thanks. I always enjoy reading your posts - they are always humorous and intelligent. You can learn more: <a href="http://www.chinatour.com/china-tour-package.htm" title="China tour packages" rel="nofollow"><strong>China tour packages</strong></a> | <a href="http://www.chinatour.com/china-tour-package.htm" title="China travel packages" rel="nofollow"><strong>China travel packages</strong></a> | <a href="http://www.chinatour.com/travel-agent.htm" title="China Travel Agency" rel="nofollow"><strong>China Travel Agency</strong></a>china tourshttp://www.chinatour.com/noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-64038944788107351042012-12-14T05:17:36.673-08:002012-12-14T05:17:36.673-08:00And what sort of credit card company starts to red...And what sort of credit card company starts to reduce the interest it charges on your debt as you become progressively more indebted. <a href="http://www.china-direct.net/" rel="nofollow">China Direct</a><br />Anonymoushttps://www.blogger.com/profile/00181753070857437581noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-16259092871541102332011-11-29T11:56:17.287-08:002011-11-29T11:56:17.287-08:00«What if net real global growth is from now on imp...«<i>What if net real global growth is from now on impossible, due to the fact of Peak Oil making the world economy energy constrained. [ ... ] mad scramble for assets that provide a decent return OF capital (forget about a return on capital).</i>»<br /><br />What if governments worldwide are well aware of this and they are deliberately keeping their economies in stagnation in order to avoid putting pressure on oil prices? Reckoning that if supply is limiting growth, owners of oil stocks will capture nearly all growth that does occur through higher oil prices?<br /><br />What if some big interests have foreseen this for 2-3 decades and have pushed a policy which amounts to a highly leveraged buyout of the USA economy for the purpose of asset stripping? Blowing up debt levels as much as possible to pay themselves huge returns and using serial asset bubbles to pump up asset prices and dump them on the public?Blissexnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-29271383424680199572011-11-26T09:34:38.777-08:002011-11-26T09:34:38.777-08:00No argument here on that but I'm not sure that...No argument here on that but I'm not sure that it informs the issue of dynamic efficiency as we are currently so far from the steady-state growth path. That said, I'd suggest that along that path we do overinvest in housing due to the home mortgage interest deduction so I'm open to the idea that we have too much residential capital for that reason.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-65924324380427477632011-11-26T09:04:41.654-08:002011-11-26T09:04:41.654-08:00One could make the case, I think, that given the d...One could make the case, I think, that given the downward revision in the expected rental income from residential property, and given the massive build up in residential capital prior to the crisis, that we now have too much residential capital. MPK is low, and is expected to remain low until inventory is worked off.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-24754325776035769202011-11-26T08:54:23.749-08:002011-11-26T08:54:23.749-08:00Glad to hear it! To continue the discussion, the r...Glad to hear it! To continue the discussion, the r > growth rate condition for dynamic efficiency is a steady-state condition. I don't know that it is of much use for an economy like the US that is currently so far from its long-run growth path. I find it difficult to see how the US could have too much physical capital which is what dynamic inefficiency would imply. "Too much", of course, that we could make everyone (current and future generations) better by consuming some of the existing capital stock.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-30521057581864239192011-11-26T07:14:49.964-08:002011-11-26T07:14:49.964-08:00Anon@9.27PM: Ah yes, the Solow model. Sheesh, I do...Anon@9.27PM: Ah yes, the Solow model. Sheesh, I do have a vague recollection...lol.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-28725579432264047462011-11-25T21:27:27.054-08:002011-11-25T21:27:27.054-08:00Anon@8.10PM here. Yes, it is a theorem. Recall the...Anon@8.10PM here. Yes, it is a theorem. Recall the Solow growth model. A closed, competitive economy that saves what would be capital's share of output in the golden rule steady state will attain that steady state. This follows from the fact that in the steady state the saving rate (I/Y) is equal to depreciation/Y = δK/Y which is equal to capital's share of output under the premise above. Thus δK/Y=MPk*K/Y or MPk=δ which is the condition for the golden rule capital stock. As the steady state capital stock is increasing in the saving rate, any economy with a lower saving rate will attain a steady state with a lower capital stock and hence be dynamically efficient (providing you'll grant me the luxury of thinking about efficiency in an economy without optimizing agents).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-20734363295545853662011-11-25T21:00:46.746-08:002011-11-25T21:00:46.746-08:00Tom Hickey:
Well, I read over Bill Mitchell's...Tom Hickey:<br /><br />Well, I read over Bill Mitchell's piece. (How do you embed the link in a comment?) <br /><br />I'm not sure what to make of the list of propositions he lists; for example:<br /><br /><i>1. The sovereign government, which is not revenue-constrained because it issues the currency, has a responsibility for seeing that the workforce is fully employed.<br /><br />2. Full employment means less than 2 per cent unemployment, zero underemployment and zero hidden unemployment.</i><br /><br />Are these logical conclusions to some theory? And if so, where might I find a succinct (mathematical) exposition of this theory? <br /><br />I'm still not sure what this has to do with my reference to Zimbabwe. Are you suggesting that that government did not appeal excessively to the printing press to finance its expenditure needs? I simply meant to point out that there are constraints to raising seigniorage revenue, even for a monopoly issuer of currency.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-87380483474661997822011-11-25T20:52:23.485-08:002011-11-25T20:52:23.485-08:00Mario: I'm afraid I don't have the numbers...<b>Mario:</b> I'm afraid I don't have the numbers handy. But if one was to include state and local government debt, together with Fannie, Freddie, Social Security...I would not be surprised to see debt-GDP equal to 200.<br /><br /><b>Anon@8.10PM</b> Dynamic inefficiency may or may not exist in economies without capital (so capital share is 0%). Are you reporting the result of a theorem? (I'm not aware of this result.)David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-5114276532961995732011-11-25T20:10:11.010-08:002011-11-25T20:10:11.010-08:00In a competitive economy, at least, dynamic effici...In a competitive economy, at least, dynamic efficiency can also be evaluated by comparing capital's share of output to the fraction of GDP used for capital formation. For the US, in the case of physical capital the numbers are roughly 30% and 15% respectively, implying dynamic efficiency. Given that much of what we call labor's share is really the share of human capital I'd guess that this condition also holds for human capital. I'm not sure how the failure of the competitive economy assumption would change things.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-70885364794025940472011-11-25T11:25:16.787-08:002011-11-25T11:25:16.787-08:00How big is the US public debt? 100 or 120 or 140 o...How big is the US public debt? 100 or 120 or 140 or more, taking into account State debt and Fannie and Agencies?<br /><br />thank you<br /><br />MarioAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-75472545270372985222011-11-25T09:28:13.337-08:002011-11-25T09:28:13.337-08:00Just to be clear, I am agreeing with the suggested...Just to be clear, I am agreeing with the suggested policy to fund public infrastructure investment through deficit expenditure, which would under current rules involves issuance of Treasuries in offset, which seems in line with bond market appetite. What I am saying is that the operative reason has to do with fiscal policy, and neither "affordability" nor appetite for Tsys is the real issue. <br /><br />Emphasizing affordability simply plays into the hands of the deficit-debt hawks by giving credence to the mistaken notion that the US is financially constrained when it is not. Accommodating the desire of the bond market is serving the wrong master.<br /><br />The operative constraint, as David noted in his comment to me above, is potential inflation. With present level of idle resources that is not a problem and won't be for some time. But as the economy recovers tax revenue will increase, the automatic stabilization will decrease, and stimulus can be wound down as determined by the sectoral balances and iaw functional finance.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-52977729291118221292011-11-25T09:00:34.730-08:002011-11-25T09:00:34.730-08:00David, have you read Warren Mosler's The Seven...David, have you read Warren Mosler's <a href="http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/" rel="nofollow">The Seven Deadly Innocent Fraud os Economic Policy</a>? It would assist you in understanding what I am driving at about the need for a fiscal approach and why a fiscal approach in such circumstances is not at all likely to become inflationary.<br /><br />BTW, the Fed creates bank reserves and distributes FRN to the banking system in exchange for reserves. As you know, reserves exist only no the FRS spreadsheet. Reserves created by the Fed do not directly affect the amount of non-government net financial assets and therefore do not directly affect NAD unless those reserves find their way into deposit accounts, either through bank loans or government expenditure. Only the Treasury acting on directives resulting from Congressional appropriations increases non-government NFA through deficit expenditure, since the deposits created by bank loans net to zero.<br /><br />I really surprised to that you cite Zimbabwe. Surely you realize that the situation in Zimbabwe was nothing like the situation in the US, or anything the US or any developed country will ever experience. Weimar, too, was a special case. Both Weimar and Zimbabwe resulted from political issues affecting the economy. If you want to cite examples of inflation that might be relevant to the US, various Latin American inflations are more to the point. Inflation is a complex issue and Modern Monetary Theorists like Scott Fulwiller, Bill Mitchell, and Randy Wray have discussed it in detail. Basically, the quantity theory doesn't hold water. You might want to check out their work before citing Zimbabwe. See Bill Mitchell, <a href="http://bilbo.economicoutlook.net/blog/?p=3773" rel="nofollow">Zimbabwe for hyperventilators 101</a>. I think that before you dismiss fiscalism as potentially inflationary, you would serve yourself by examining what they have written in addressing such objections. It appears to me that you are being overly dismissive here.<br /><br />However, I am happy to see that you seem to admit that the constraint in US policy is the availability of real resources and that inflation will occur if the US increases non-government NFA to the degree that effective demand grows beyond the ability of the economy to expand to meet it. Of course, supply constraints will produces a similar effect if they are broad and deep enough to result in a continuous rise in the price level.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-13772472136399514642011-11-25T08:21:42.777-08:002011-11-25T08:21:42.777-08:00Luis Arroyo: Good point. But still, the real borro...<b>Luis Arroyo:</b> Good point. But still, the real borrowing cost for the US federal government remains very low. As for the private sector, you raise an excellent point. Let me reflect on this.<br /><br /><b>Anon@12.20PM:</b> If you want, email me and I will send you a simple OLG model that I am currently working on. (And thanks for the compliment!) <br /><br /><b>Tom Hickey:</b> I'm not sure I fully absorbed your argument. But let me say a few things. First, the US government is not the provider of currency; the Federal Reserve is. Second, while the Treasury may not be revenue constrained in a nominal sense, it is in a real sense (if inflation gets out of hand, they can print all the debt they want without being able to purchase anything with it--see Zimbabwe). Finally, I'm not sure that having the Fed sell of Treasuries will matter. This is because in doing so, they will effectively be purchasing interest-bearing money (reserves currently yield 25 basis points). This is just a swap of one form of debt for another that is a close substitute. <br /><br /><b>James Gilley:</b> Push the USD and the Euro off a cliff...and where do investors turn to? Gold? <br /><br /><b>Anon@7.09AM:</b> I have a hard time believing your opening conditioning statement. But if it is true, then what you describe subsequently is a plausible scenario.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-71117075709050993912011-11-25T07:09:03.839-08:002011-11-25T07:09:03.839-08:00What if net real global growth is from now on impo...What if net real global growth is from now on impossible, due to the fact of Peak Oil making the world economy energy constrained. Lack of growth makes debts more onerous with time, and is highly deflationary. Real interest rates should get more negative as the energy crunch worsens, since there will be a mad scramble for assets that provide a decent return OF capital (forget about a return on capital). Energy and food should get increasingly expensive with wild oscillations in price while everything else deflates. And this is exactly what has been happening.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-70963018074509553902011-11-25T05:51:44.428-08:002011-11-25T05:51:44.428-08:00Ok. What are the possibilities that all of this c...Ok. What are the possibilities that all of this changes if/when investors, fearing contagion, push the dollar over the cliff along with the Euro?<br /><br />Unlikely yes, but some level of contagion from the EU is absolutely possible. That's a game changer.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-56703190505423035002011-11-24T18:14:58.631-08:002011-11-24T18:14:58.631-08:00The real question to ask is not whether domestic p...The real question to ask is not whether domestic private borrowers are paying zero or near zero rates. (Actually some are, judging by the offers I receive.) Rather, it is whether they have a printing press in their basement that churns out dollars.<br /><br />The US federal government is the monopoly provider of a non-convertible floating rate currency and is therefore not operationally constrained in creating the unit of account (although existing political restraints require issuance of Treasury securities in offset of deficits).<br /><br />The federal government is the currency issuer and households, firms and US states are currency users. The federal government is not revenue constrained while all other users of dollars are revenue constrained. The relationship is inverse rather than direct. The government as big household analogy is just wrong.<br /><br />The government fiscal balance, the domestic private balance, and the external balance sum to zero as a national accounting identity. If the domestic private sector and the external sector desire to save, then the government must run a corresponding deficit to accomodate this or the desired level of saving cannot be achieved. If the deficit is too small to accomodate the desire to save, then the sectoral balances will adjust by either forcing less saving and more indebtedness at the present output and investment, or less consumption and less output and investment. With consumer borrowing tapped out, the alternative is less consumption and lagging nominal aggregate demand relative to the performance ability of the economy.<br /><br />Accordingly, the federal government therefore needs to run a larger deficit to offset saving desire by a mix of lowering taxes (extension of the payroll tax holiday) and increasing spending (infrastructure, extension of safety net) in order to stimulate NAD to close the output gap. <br /><br />Given current rules, this would also result in an increase in the issuance of Treasury securities to supply market demand. But in your scenario, which only considers increased availability of Tsys, the Fed could simply sell some of its assets and reduce bank reserves. There is no longer an acute liquidity crisis preventing this course of action. However, the present stage of the crisis involves lagging demand, and that requires a fiscal remedy through increasing non-government net financial assets by adding to the deficit.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-62550843168170353262011-11-24T12:20:57.700-08:002011-11-24T12:20:57.700-08:00Anonymous again. Really I'm asking how you ge...Anonymous again. Really I'm asking how you get to equilibrium negative real rates without expectations of policy action. When there is no demand for marginal bank reserves and a large output gap exists, markets would not produce this result on their own. They would only do so if the Fed had credibility in raising the price level (which the BOJ did not).<br /><br />BTW, I think you may be Canadian, but Happy Thanksgiving anyway, and thanks for a great blog.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-77400762699986685452011-11-24T11:08:28.211-08:002011-11-24T11:08:28.211-08:00David, I don´t wnow if we can talk of negative int...David, I don´t wnow if we can talk of negative interest rate using the Tb yields, because te private intereste rate show a huge gap compared to TB. <br />So, for example, in the graph below, where you can see that Baa private bonds yield is at 5%, at level more than 3 pp. above the 10 years TB, probably the higher gap since 1962. So the risk premia are in this case very much important that the level of TBy.<br />if Treasury rise the TBy, I suppose that private bonds yield will rise also. <br /> http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=DGS10,WBAA&scale=Left,Left&range=Max,Max&cosd=1962-01-02,1962-01-05&coed=2011-11-21,2011-11-18&line_color=%230000ff,%23ff0000&link_values=false,false&line_style=Solid,Solid&mark_type=NONE,NONE&mw=4,4&lw=1,1&ost=-99999,-99999&oet=99999,99999&mma=0,0&fml=a,a&fq=Daily,Weekly%2C+Ending+Friday&fam=avg,avg&fgst=lin,lin&transformation=lin,lin&vintage_date=2011-11-24,2011-11-24&revision_date=2011-11-24,2011-11-24www.MiguelNavascues.comhttps://www.blogger.com/profile/00880006105532291958noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-56716875167949750492011-11-24T10:10:47.842-08:002011-11-24T10:10:47.842-08:00Greg:
Sure, those are always going to be difficul...Greg:<br /><br />Sure, those are always going to be difficult questions to answer. But for practical purposes, I would be happy with "second best" solutions. So, for example, conditional on the government supplying UI benefits to construction workers, why not have them rebuild something instead? <br /><br />Jeff:<br /><br />Yes, happy thanksgiving! Happy thanksgiving to all. I appreciate all the comments!David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-23779082119787198032011-11-24T10:00:59.682-08:002011-11-24T10:00:59.682-08:00Hi David,
It's hard to argue against undertak...Hi David,<br /><br />It's hard to argue against undertaking projects with a positive NPV! But doing the C-BA gets us right back into current debates about macro. What discount rate should we use? Some of the textbooks say use the ROR of a project (with similar risk) that would be displaced. The question is: in the current circumstances, would any project be displaced? <br /><br />Second question: if the project is undertaken, and if it doesn't displace other spending (investment or otherwise), should we count the net benefits that arise when the newly employed workers buy goods at prices that exceed the MC of production?<br /><br />So, it seems that we're right back where we started: is there really any slack in the economy (I think there's a lot), and is there really a multiplier (I think there is)?Greg Hillhttps://www.blogger.com/profile/09422264577421199573noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-71399134404298376552011-11-24T09:45:58.623-08:002011-11-24T09:45:58.623-08:00David,
Enough economics for today - Happy Thanksg...David,<br /><br />Enough economics for today - Happy Thanksgiving!<br /><br />JeffProf Jhttps://www.blogger.com/profile/16539902592080231165noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-90410564865937675662011-11-24T09:23:58.060-08:002011-11-24T09:23:58.060-08:00Anonymous (why can't people adopt handles?) @ ...Anonymous (why can't people adopt handles?) @ 8.50AM:<br /><br /><i>Inflation expectations are a market outcome based on predictions of what the Fed will do.</i><br /><br />You mean, based on the predictions of what the Fed is <i>expected</i> to do. But the Fed has a policy function that reacts to the way the economy unfolds. And so people will have to forecast how things unfold in general, and how the Fed may react to these developments, etc. It's a little more complicated than what you are suggesting.<br /><br /><i>Low real interest rates can be a market outcome; negative real interest rates are an artifact of policy. This is because the condition that would result in a market outcome of zero rates are also ones that would naturally result in deflation in the absence of central bank intervention. Examples: Japan and the 1930's.</i><br /><br />OK, I think I know what you're saying (it is not a theoretical proposition, more like an empirical claim). But as for your example of Japan, I think you may have your facts wrong. Base money growth in Japan exploded in the 2000s, yet deflation persisted. See:<br /><br />http://1.bp.blogspot.com/-Bl4XQnrc2c0/TdHo3r-rx1I/AAAAAAAAEj0/S9TjhU7rQMY/s400/Japan%2Bmonetary%2Bbase.PNGDavid Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-59426258227795830502011-11-24T09:17:42.992-08:002011-11-24T09:17:42.992-08:00I'm not convinced that you can use the yield, ...I'm not convinced that you can use the yield, or own rate, on TIPS as an indication of what the economy-wide real rate of interest is.<br /><br />Yes, the TIPS own-rate is currently negative. But there are all sorts of other potentially pecuniary and non-pecuniary yields provided by holding TIPS, including a liquidity yield and a prospective rental yield. Add these to the observed TIPS own-rate, and the expected return on holding TIPS could very well be positive. So why are observed TIPS own-rates so low? Perhaps because the other returns provided by TIPS are so high. But these are unobservable, which means we can't determine what the economy wide real rate of return is.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.com