U.S. Politics

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jayakris
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Re: Politics

Post by jayakris »

Thank you, thank you, thank you, PKB. Exactly what I thought, but was afraid to say. A lot of people have gone just plain crazy here in the US, listening to the Ron Paul type doom merchants out there. At least Ron Paul himself has been rather consistent on his message all along. But hearing all these tea-party guys and Republicans mouth off on cutting spending, just drives me crazy. When they shouldn't have spent on stupid wars, they did. When there needs to be spending, both to move the economy and to position USA to lead the future, they ask for exactly what should NOT be done. The silliness has been just driving me crazy. Thank God that the unemployment has been falling and the economy has indeed been getting better - to the utter despair of most of these guys, I am sure! May be these doomsday idiots would just shut up a bit. Not that they necessarily will.

I am not objecting to Peter's problems with the bank bailout, TBTF etc. They seem to be real issues. It does seem like the Wall street issues haven't been solved well (or even partially), to the extent I understand - though that is not much of an extent :) ) ...

The complaint about big government is not a big issue for me. Call me a democrat on that, I guess. If the private sector sits there and does nothing, well, let us "waste" some money, because there is no other choice. To say that all government spending is a waste, when a lot of that money is spent on US manufactured goods, and not on imports, doesn't seem correct in my novice economic mind, anyway. Also, I don't understand what the big deal is, when the largest lender to the US government is to nobody but the US people. It is not like China is the lender for all that money (which is another round of BS that is fed to the white racists to rise up against a black president who is supposedly bankrupting the country and putting it under Chinese control or something. Utter BS).

Jay
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Re: Politics

Post by kujo »

Equally dismal was the performance of Congress, which sought to make big strides with spirited campaign by Rahul Gandhi, winning only 24 seats and leading in four. The party had won 22 seats in the last elections.
So much for the campaigning from Rahul over the last 2 years!! I would be interested in the overall percentage of votes cast for Congress compared to last election though. Seat numbers do not correlate well with the percentage of votes received....
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Re: Politics

Post by sameerph »

kujo wrote:
Equally dismal was the performance of Congress, which sought to make big strides with spirited campaign by Rahul Gandhi, winning only 24 seats and leading in four. The party had won 22 seats in the last elections.
So much for the campaigning from Rahul over the last 2 years!! I would be interested in the overall percentage of votes cast for Congress compared to last election though. Seat numbers do not correlate well with the percentage of votes received....

I do not think vote percentage has gone up much although we will know soon. This was big failure for Rahul although congress leaders are now saying that he was not projected as a chief minister in state & therefore, it is not his failure.

It is a fact that 2 major national parties , Congress & BJP have been reduced to fight for third place in biggest state in the country & as a result neither of them can hope to get a majority of their own in the general election .
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Re: Politics

Post by Peter »

jayakris wrote: Also, I don't understand what the big deal is, when the largest lender to the US government is to nobody but the US people. It is not like China is the lender for all that money (which is another round of BS that is fed to the white racists to rise up against a black president who is supposedly bankrupting the country and putting it under Chinese control or something. Utter BS).
Jay
Jay, AFAIK, the only buyer for the Treasuries is the Fed. Funny money, IOW. Nobody else in their right minds would buy the 10-yr US treasury at 1.99%. This is a ponzi, counterfeiting scheme of biblical proportions. i can clearly sense fear in BB's recent body language. He is like a rat that is now cornered. Note that he has proclaimed that interest rates will not rise until the end of 2014. If interest rates EVER rise even 1% (and it will when the market dislocates) the 2008 GFC will seem like a walk in the park. For now, the Fed is the ONLY reason why the bond market and the deficit is being perpetuated. The first rule a bond trader is taught is not to fight the Fed.

Am trying to remain optimistic personally, but our country has completely lost its moral compass under the current president. And btw, racism has nothing to do with this.
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Re: Politics

Post by Peter »

PKBasu wrote:In what way, pray, have they destroyed America? While Europe under Trichet was flailing about, the US is leading the world out of recession. The US manufacturing sector is in the most robust health it has been in for the past decade, regional banks are cautiously expanding credit again, and the labour market is beginning to revive -- after the catastrophic damage to the economy by George W Bush (and his insane tax cutting that turned a fiscal surplus -- and the likelihood of steadily declining public debt -- after the Clinton years into an ever-rising deficit and spiraling public debt overhand) and Greenspan. Fortunately, a sensible successor to Trichet at the ECB (Mario Draghi) is pursuing more sensible monetary policies in Europe too, so the danger to the world economy from there is beginning to ebb (although the politicians could yet mess it up).

(Far too many in America have become blind adherents to the utter nonsense spouted by Ron Paul and his ilk. The "Austrians" have never had a solution to deflation, and never will).
The US is following in the footsteps of Greece. It is a mathematical certainty. The Americans are just better at accounting gimmicks. And extend and pretend.

Yes, GWB was a disaster as far as deficits and debt go. But what did Obama do? Doubled the debt in just 3 years. And how do you expect this will end?

Nothing has improved on the ground. Unless you believe the official statistics: GDP growth, Unemployment, CPI (they are all lies). You say that the Austrians have never conquered deflation. Aren't economic expansions and contractions cyclical? And i am firmly convinced that a little deflation is a good thing (you will never agree, but that's a separate discussion). i've certainly seen a resurgence in Austin, Texas for various unrelated reasons. But that is certainly not true for much of the country. And yes, i do have the Ron Paul bumper sticker on my car (a nice Nissan Leaf, the purchase of which could not have been timed better).

Why do you dislike Ron Paul so much? Ron Paul schools Bernanke Feb 29, 2012

(last post here because this appears the wrong thread. Please move these posts to the other thread where we have gone over this ad nauseam)
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Re: Politics

Post by jayakris »

Peter wrote:Am trying to remain optimistic personally, but our country has completely lost its moral compass under the current president. And btw, racism has nothing to do with this.
I don't understand the treasury details you said, Peter. Sorry, that is too difficult for my brain. Not saying it sarcastically. Just the truth. I can only think about economics in overall terms, and I cannot figure out how the government shold cut every penny of spending and sit tight to risk the country going down the tubes right now (or could have done that for the last 2 years). If you are saying that all our problems are from the bank bailout spending, I will have to buy your argument, as I know nothing better and that whole thing didn't look right to me as well, then.

Anyway, on the quote from you - the nation "lost moral compass" under Obama? How so? A bit more explanation, please. Unless you are calling deficit spending to be simply immoral, or saying that governments that do that should speak of potential calamities that can happen (which they obviously can't and none does, as it can end up being a self-fulfilling prophecy). Is that what you mean when you say "moral compass"? You speak in crisp riddles, tinged also with some sharp expressions of annoyance, if not anger, and I often can't parse it fully.

What you said in a financial sense surely has nothing to do with racism, but I fail to understand how so many people (the tea party) understand all of that, to be so mad at the president. That was my point. I refuse to admit that they are all so much smarter than me to understand your type of intricate arguments and be so concerned about the economic future. Their driving force is/was racism, which may be strengethened by some bible-thumpers' extremism too. I have no doubt on that.

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Re: Politics

Post by PKBasu »

Peter wrote:
PKBasu wrote:
(Far too many in America have become blind adherents to the utter nonsense spouted by Ron Paul and his ilk. The "Austrians" have never had a solution to deflation, and never will).
Why do you dislike Ron Paul so much?
I have no reason to dislike Ron Paul. I just feel pity for him, and the zeal of his followers.
Economics is not a religion. And economic policy is not a priesthood, but an art. (The only previous group who considered economics to be a religion were the Marxists, although Marx himself would have been horrified by some of the contortions that the nomenklatura went through to find "scientific" justifications for some of the flaws in the practice -- always "praxis" to Marxists -- of Marx's ideas).
The trouble with Ron Paul is that he is a medical doctor with a zealous belief in certain economic tenets that were largely discarded (because of their uselessness, and occasional destructive potential) between 1896 and 1936. Just as you shouldn't trust me as your physician, you shouldn't trust Ron Paul on economics and economic policy. He is economically illiterate -- so, much of what he spouts is trite nonsense.
Having a central bank or a paper currency is not "immoral". It is simply the practical thing to do. My dad and I had a flaming argument about this when I was 20, and tried to explain that the gold standard was no longer the basis of modern currencies. (Like my dad and many others, poor Ron Paul and his followers are tied to old theories -- but have converted their zeal into a religious calling -- which is what leads them to label all sensible economists and policy-makers as "immoral"). Tying currencies to gold forced economies into severe depressions, and caused periodic financial crises. After World War II, a modified form of the gold standard was adopted, and again proved unworkable (and was abandoned once and for all in 1971) by the US and the developed world. The Asian financial crisis (1997) and the Latin American crises of 1994 -- as well as the current crisis of the European periphery -- all resulted from fixing exchange rates (i.e., modified forms of the gold standard). The gold standard -- and other forms of "fiat currency" that limited the amount of currency that could circulate -- caused a financial crisis once every 10-15 years between 1650 and 1940, the worst of which was in the 1930s.

Keynes and his theories had many flaws, but he devised a way for policy-makers to manage aggregate demand -- through creative use of fiscal and monetary policy. The result was that the western world had no serious financial crisis for 80 years, until a believer in "Austrian" economics (called Alan Greenspan) allowed crazy excesses to occur in the 2000 to 2008 period (he had correctly excoriated "irrational exuberance" in December 1996, but then proceeded to keep monetising greater excess -- including the irresponsible fiscal expansion under GWB -- until the system collapsed in September 2008).

When you have a financial crisis like that of 2008 or 1931, the banking system collapses. In the 1930s, the Hoover-ite response was to follow the Austrian way -- leading to unemployment rates of 25-30% and the Great Depression. In Japan (1990-99), the Hooverite (or Austrian) solution was pursued with great zeal, causing the onset of deflation, which has not yet been tamed.

Economists have learnt that, in the aftermath of a financial crisis, two types of response are essential: (a) sufficient provision of liquidity by the central bank to ensure that deflation does not set in (a famous right-wing economist, Milton Friedman, who was Ronald Reagan's ideological guru on economic policy, was responsible for providing us this vital insight); and (b) in the absence of sufficient private demand (either from consumers or businesses), the government needs to run a large fiscal deficit (either by cutting taxes or increasing spending, or a combination of the two) to fill the gap in aggregate demand.

Policy (b) above is slightly more controversial among economists, although the argument is primarily over whether one should use tax cuts or spending increases -- not whether deficits are essential in the immediate aftermath of a financial crisis, when banks have collapsed and are unable to lend. Famously, in 1937, the US had a severe double-dip recession, when the fiscal stimulus of FDR's first term was prematurely withdrawn; for a long time last year, it looked as if the US was about to repeat the mistake the huge policy error of 1937, but fortunately that danger seems to have now passed.

The US will NEVER be like Greece in this cycle. Instead, having fended off deflation, the US will have a decent economic recovery over the next couple of years (led by manufacturing), which will gradually start reducing the burden of the public debt. Once banks are in a position to lend (as many regional banks already are), the need for fiscal deficits will diminish, and I expect that the US's annual fiscal deficits will diminish to about 2-3% of GDP by the end of Obama's second term (from nearly 9% of GDP last year). President Hillary Clinton can then begin to restore the surpluses her husband left the US sometime in the middle of her first term (say, around 2018-19)...
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Re: Politics

Post by PKBasu »

Peter wrote:
jayakris wrote: Also, I don't understand what the big deal is, when the largest lender to the US government is to nobody but the US people. It is not like China is the lender for all that money (which is another round of BS that is fed to the white racists to rise up against a black president who is supposedly bankrupting the country and putting it under Chinese control or something. Utter BS).
Jay
Jay, AFAIK, the only buyer for the Treasuries is the Fed. Funny money, IOW. Nobody else in their right minds would buy the 10-yr US treasury at 1.99%. This is a ponzi, counterfeiting scheme of biblical proportions. i can clearly sense fear in BB's recent body language. He is like a rat that is now cornered.

Am trying to remain optimistic personally, but our country has completely lost its moral compass under the current president.
Such language is what makes Ron Paul's supporters laughable (they would also be dangerous, but fortunately -- as the GOP primaries keep demonstrating -- they remain a tiny minority, and so are no danger to anybody but their own sanity...).

There is nothing immoral about a central bank printing money. That is what central banks are for. How much they should print is a judgement call that they make -- in relation to their goal of keeping inflation in check. Currently, a lot of the money that the Fed has printed is staying in banks' vaults (in the form of bank reserves, the majority of which are actually parked with the Fed!) or being invested by banks in Treasury bills/bonds. Since very little of the money printed by the Fed (which is called "high-powered money" or "base money") is being re-lent out, the "money-multiplier" is depressed. Actual money-supply (M2) growth in the US at the height of QE2 reached only 6% YoY, and had hovered around 2% YoY in April-July 2010 (after the end of QE1).

(In February 2009, for instance, US base money growth was about 115%YoY, but M2 or money supply growth was less than 10% YoY; it is the latter that counts for the economy; if money is kept in banks' vaults, it cannot fuel demand -- and so cannot result in inflation or a boost to real output).

Once banks start to lend again -- as indeed they have started to do over the past 8-9 months -- the need for the central bank to "print money" (i.e., boost base money) is reduced. That is a delicate phase of central bank policy management; for now, inflation remains subdued (for every example of rising oil prices that Peter cites, I can cite an example of an iPad or iPhone that is a fraction of its price a year or two years ago, and homes in the US that are vastly cheaper than 5 or 7 years ago). But sometime in the next 15-21 months, the Fed will be in a position to start reducing base money (either by selling some of its stock of MBS or Treasury bonds); that process will be greatly aided if the process of house-price deflation has ended, and the value of the MBS portfolio begins to rise, generating demand for those assets that are currently on the Fed's books. When the Fed sells anything, it automatically reduces base money (because the buyer of the Fed's assets is paying with money that is currently in circulation, which will go out of circulation the moment it is paid to the Fed).
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Re: Politics

Post by dmehra »

Pretty insightful stuff PKB. Thanks for the post.
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Re: Politics

Post by jayakris »

PKBasu wrote:for now, inflation remains subdued (for every example of rising oil prices that Peter cites, I can cite an example of an iPad or iPhone that is a fraction of its price a year or two years ago, and homes in the US that are vastly cheaper than 5 or 7 years ago).
I can also point to airline ticket prices which is hardly 20% more, if not pretty much the same, as it was 20 years back. And they are even supposedly affected by oil prices. The airlines have achieved tremendous efficiency in avoiding wasted seats. Plus, of course, we don't even get peanuts in flights now. Even gas prices are only 3 times what it was 25 years back, which is what a 4% average increase per year? .... Jay
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Re: Politics

Post by dmehra »

http://www.economist.com/node/21549968

Ray Dalio runs the worlds largest hedge fund - Bridgewater Capital. Thought his views on "printing money" were relevant to what PKB says above.
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Re: Politics

Post by Peter »

PKBasu wrote:
Such language is what makes Ron Paul's supporters laughable (they would also be dangerous, but fortunately -- as the GOP primaries keep demonstrating -- they remain a tiny minority, and so are no danger to anybody but their own sanity...).
The Fed-primary dealer nexus is the ONLY reason why treasury yields are so low. Instead of trying to explain that, you change the subject. For someone who pontificates and justifies every action of the Fed, that type of mocking is normal. After all, all problems can be solved if one has the ability to print unlimited gobs of money. My sanity is just fine. The GOP primaries simply demonstrate how dysfunctional the Republican party and the voters are.

iPads to measure inflation. That is the ticket. And housing too. In spite of generational low interest rates and countless welfare programs to perpetuate the ponzi. The bottom line is this. Good jobs is what drives housing (as is clearly demonstrated in the strength here in Austin, Texas).

You can tell that things are about to go to hell when people are doing things that make no regular sense.
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Re: Politics

Post by PKBasu »

Treasury yields were low throughout the George W Bush years, despite the fact that the US went from a large fiscal surplus under Clinton (with the prospect of a steady decline in the public debt over time) to large, recurring annual deficits under Bush II. Normally, that should have caused a sharp rise in Treasury-bond yields during the Bush II years, but didn't.

The explanation is primarily the global savings glut -- particularly in China and the rest of Asia (where each of the 10 significant East Asian economies has had a current account surplus consistently for the past 12 years) and in the Gulf Cooperation Council (GCC) countries, where oil prices above $60/bbl ensure consistent current account surpluses (and oil above $100/bbl ensures current account surpluses of more than 20% of GDP for the GCC as a whole). Those current account surpluses get continually ploughed back into US Treasuries, helping to keep yields low. (Conspiracy theories make for great rants, but the reality is more prosaic...).
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Re: Politics

Post by jayakris »

If you haven't seen this one yesterday from Jon Stewart on Mitt Romney endorsements, check it out
http://www.thedailyshow.com/watch/mon-a ... on-edition

Damn... Can anybody be more humorous, or be able to extract more humor out of anything, than Jon Stewart? Absolute brilliance. I consider this clip to be some sort of a masterpiece in humor (though I guess much of Jon Stewart is like this). You just cannot find even a split second of what he says or expresses on his face, that is any less than absolute perfection in humor. Amazing. I just could not stop laughing for a long time...

Jay
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Re: Politics

Post by prasen9 »

I don't understand head or tails of these arguments but the use of the price of iPads or iPhones is somewhat disingenuous and I wish PKB was careful about that while writing about that. The price of electronics usually goes down over the years as better products come into the market. The same camera or computer is expected to be cheaper in three years let alone six or seven. The price of other things do not follow the same trend and maybe he should have chosen a different example. How about Scalia's favorite: broccoli. Has its price gone up or down?
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