Well, Duh
The Market Ticker - Commentary on The Capital Markets
2014-07-03 10:41 by Karl Denninger
in Editorial , 331 references Ignore this thread
Well, Duh

Gawd, the stupid burns....

Prominent macroeconomists of all stripes bemoan our slow growth. Stanford's Robert Hall calls the years since 2007 "a macroeconomic disaster for the United States of a magnitude unprecedented since the Great Depression." Describing our current situation, Harvard's Larry Summers (an Obama adviser) or Princeton's Paul Krugman sound a lot like Mr. Hall, Stanford's Ed Lazear and John Taylor (both of whom served in the George W. Bush administration) or Arizona State's Ed Prescott.

The problem is that their models all failed to predict this, and for this reason all their prescriptions for "fixing it" are at best throwing darts at a newspaper.

The reason their models fail to predict it is that they all intentionally discount debt accumulation as a permanent drag on "growth" -- an omission that I argue is intentional and therefore is inexcusable.

See, debt taken that is paid down and disappears can be disregarded in macro economic models because it is simply a time shift.  That is, you buy today what you would buy tomorrow.  Since the macro picture is concerned with intermediate and longer run outcomes, not those of the immediate present, it is entirely reasonable to take this position.

What's not reasonable is to take that position when there is no evidence that this has ever been the path taken by huge swaths of the economy -- most-particularly government and business, and on an economy-wide basis it hasn't happened at all.

And it's not like the data isn't right in front of everyone's face either:


Of course if you start addressing this then your policy prescriptions do two things:

1. They end debt accumulation, especially among the public sector.  That causes currency appreciation and it also makes impossible Fed dilution of buying power (since The Fed cannot buy anything other than federally-guaranteed debt.  If there is no net issue, well...)

2. They end the leverage-upon-leverage game and asset prices will immediately respond to that -- and not in a way that the Wall Street mavens will like.

But oh, by the way, after all that malinvestment and scam is cleared out the economy can begin innovating again as it will be freed from the drag of the debt service that is currently strangling it.

The problem with focusing on innovation and technological advancement is that it doesn't make a good, cheap bubble story.  It requires lots of sweat equity instead, and that's "the hard way" -- so we choose the other, easier (fraudulent) path instead.


View with responses (registration required to post)
Main Navigation
Full-Text Search & Archives
Archive Access
Get Adobe Flash player
Legal Disclaimer

The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.


The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.

The Market Ticker content may be reproduced or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media or for commercial use.

Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.