Archive for Headline – Page 2

Barrons Doesn’t Do Monetary Realism

Just when you think the word might be spreading….It was interesting that Barrons ran this great quote from a regular reader here at Pragcap last week:

 We must be careful comparing the federal government with a household (or state or business) because Washington has no solvency constraint. The federal government can’t run out of money (unless Congress decides it should), as it can always call on the banks and the Federal Reserve to serve as agents of the government.

The constraint is inflation, not solvency. But given the weakness in our economy, along with high unemployment, I don’t see much risk of inflation anytime soon.”

And then just a week later runs a cover piece about how the USA is becoming Greece.   Of course, the problem within Europe is that their central bank is entirely independent of the sovereigns rendering none of the European countries pure currency issuers.  They are all strategic users of the Euro because of this lack of political and monetary union between Treasury, Central Bank and government.  The USA, of course, doesn’t have this problem so it is virtually impossible (aside from political choice) for the USA to run out of money.  The comparison Barrons makes is patently wrong.  For a full discussion on this arrangement with a comparison of Greece and the USA please see the section called “Contingencies – The USA versus Europe” in the Contingent Institutional Approach.

Anyhow, the Barrons piece could be right about some things.  Yes, government spending could cause big problems down the road and it might even cause high inflation.  But what it isn’t going to causes is a Greek-like crisis where market participants literally worry that we are running out of money.  It won’t happen in the USA where the true constraint is inflation, not solvency.  

Japan Does the Full Ponzi

I saw this headline over at Calculated Risk regarding the new “monetary policy” in Japan:

And from the Japan Times: Japan’s economic minister wants Nikkei to surge 17% to 13,000 by March

Economic and fiscal policy minister Akira Amari said Saturday the government will step up economic recovery efforts so that the benchmark Nikkei index jumps an additional 17 percent to 13,000 points by the end of March.

“It will be important to show our mettle and see the Nikkei reach the 13,000 mark by the end of the fiscal year (March 31),” Amari said in a speech.

The Nikkei 225 stock average, which last week climbed to its highest level since September 2008, finished at 11,153.16 on Friday.

“We want to continue taking (new) steps to help stock prices rise” further, Amari stressed …

I think this is remarkably silly policy.  It’s the worst abuse of central bank powers and based largely on a misunderstanding of secondary market dynamics.   I wish wealth creation was as easy manipulating stock prices.  Then every country in the world could just have their central bank target a market price and presto-changeo – we’re all rich!  Nevermind if the underlying corporations don’t actually justify the valuation!  After all, the central bank says the cash flows justify THIS price.  They said so!

Of course, this isn’t how reality works.  The stock market is made up of companies selling at a nominal price on exchanges and all shares outstanding are always held by someone looking to find someone else to sell to so the current holder can realize gains (which subsequently leaves the new holder with the exact same problem searching for the next person in line).  Those prices are determined primarily based on the eagerness of the participants in those markets to buy or own shares based on the expected future performance of the actual underlying corporations.

We can implement policy that causes these prices to deviate from where the market would have otherwise set them (largely by making participants more or less eager to own shares).  But what is the point of this?  What does this do other than cause disequilibrium if it does not cause an equal change in the underlying business?  If the market believes the Nikkei is worth 11,000 based on expected future fundamentals then pinning the price at 13,000 only causes a short-term disequilibrium that will result in the same amount of eventual wealth lost that is presently being gained.

Again, stock markets are nominal wealth.  Someone must always hold shares of stock outstanding so someone will always be concerned that they’re left holding the ponzi scheme at the peak if that’s in fact what the central bank explicitly targets.   And that leaves the same underlying downside reversal risks present at all times.  Yes, the Bank of Japan might create some real wealth (for some market participants) in the near-term and might thereby make Japan appear better off than they really are, but there’s absolutely no underlying fundamental change in the corporations that make up this index that should lead one to believe that these price changes are justified.  And when the Ponzi scheme is exposed the market collapses thereby destroying wealth for all the current participants leaving us right back where we started.

This is ponzi based monetary policy.  It’s based on a false understanding of market dynamics, a false understanding of real wealth, and it’s very likely to cause disequilibrium in the long-term.

See also: The Destabilizing Force of Misguided Market Intervention

QE & Stock Prices – A Review of Recent Data

One of the primary goals of Quantitative Easing is the portfolio rebalancing effect and subsequent wealth effect that supposedly occurs as the Fed reduces outstanding private sector bond holdings and forces investors to chase returns up the risk spectrum into other asset classes to replace lost potential real returns.  I won’t discuss the aspects of “money printing” and “debt monetization” here (which I think the mainstream gets mostly wrong), but rather, I’d like to focus on the pure data between periods when reserves are increasing and stock returns.

We’ve now had over 4 years of varying forms of QE so the data is quite a bit more constructive than at times in the past when most of us were just speculating about QE’s impacts.  At first glance, the chart below might lead one to conclude that there is a very strong correlation between between QE and equity market returns, but the data is not so conclusive upon closer inspection.  This has been due to the way the programs were implemented in staggered steps over the years with periods of buying tending to be rather short.  Contrary to popular opinion, during the majority of the time in the last 4 years reserve balances have been stagnant or even declining.  On a weekly basis, reserve balances have been rising just 47% of the time and have actually been declining 53% of the time.

Since QE began in late 2008 there’s a correlation between reserve balances and stock returns of just 0.65.  But that’s not a completely fair look at the data.  There have been four distinct periods when reserve balances were surging or declining/stagnant over the last 4+ years.  I’ve broken this down more clearly below.

Periods when reserve balances were increasing includes (on a weekly basis):

9/10/2008 – 1/7/2009

2/11/2009 – 5/20/2009

6/24/2009 – 2/24/2010

11/17/2010 – 7/13/2011

Periods when reserve balances were declining substantially include:

1/7/2009 – 2/11/2009 (reserve balances fell by 31%)

5/20/2009 – 6/24/2009 (reserve balances fell by 12.5%)

2/24/2010 – 11/17/2010 (reserve balances fell by 20%)

7/13/2011 – 9/26/2012 (reserve balances fell by 15%)

What’s interesting here is that the correlation between stock returns and decreases or increases in reserve balances is not quite as clear cut as most presume.  See below for returns during reserve balance increases:

9/10/2008 – 1/7/2009 (S&P 500 DECLINED by 25%)

2/11/2009 – 5/20/2009 (S&P 500 INCREASED by 6%)

6/24/2009 – 2/24/2010 (S&P 500 INCREASED by 22%).  

11/17/2010 – 7/13/2011 (S&P 500 INCREASED by 11%).  

That looks pretty much as we might expect.  But things get more interesting when we look at periods when reserve balances were declining:

1/7/2009 – 2/11/2009 (S&P 500 DECREASED by -10%)

5/20/2009 – 6/24/2009 (S&P 500 INCREASED by 1%)

2/24/2010 – 11/17/2010 (S&P 500 INCREASED by 8%)

7/13/2011 – 9/26/2012 (S&P 500 INCREASED by 9%)

In other words, regardless of whether reserve balances were rising or falling, stock prices were mostly rising.  Even in the face of substantial declines in reserve balances over the last 4+ years the S&P 500 has risen.  Of course, there are a lot of moving parts in this data, but the correlation between stocks and reserve balances is not terribly clear when we get granular with the data.

( Chart via Orcam Investment Research)

Robert Shiller: Don’t Invest in Housing

Robert Shiller of Yale was on Bloomberg yesterday discussing housing and his general outlook. But the most interesting comments were with regards to his general view of housing as it pertains to your overall portfolio. Shiller said that investing in housing was a “fad” and not a great historical investment. Of course, if you’re familiar with his long-term real returns chart  (see the chart in #9 here) housing generally generates returns that are in-line with inflation. US residential real estate just isn’t a great investment in real terms. Shiller explains why:

“Housing is traditionally is not viewed as a great investment. It takes maintenance, it depreciates, it goes out of style. All of those are problems. And there’s technical progress in housing. So, the new ones are better….So, why was it considered an investment? That was a fad. That was an idea that took hold in the early 2000′s. And I don’t expect it to come back. Not with the same force. So people might just decide, ‘yeah, I’ll diversify my portfolio. I’ll live in a rental.’ That is a very sensible thing for many people to do.

…From 1890 to 1990 the appreciation in US housing was just about zero.  That amazes people, but it shouldn’t be so amazing because the cost of construction and labor has been going down.

…They’re not really an investment vehicle unless you want it for your personal reasons.”

This is a contentious debate.  In strict economic terms housing is viewed as investment and not consumption.  That’s why the BLS doesn’t include house prices in the CPI.  Even though housing includes fixed investment, you’re really consuming your house over the course of many years so there’s elements of both consumption and investment in housing.  The reasoning Dr. Shiller uses here is a big part of the consumption.  A house is a depreciating asset even though the land might not be.

Obviously, there are a lot of moving parts here and I am not sure I completely agree with Dr. Shiller.  Well run rental properties and commercial properties can be good investments, but most of us are living in our homes.  We’re consuming our home one day at a time and hoping that the scarcity of housing and land will result in prices outperforming inflation.  But there’s a flaw in that thinking also.  Because housing is such a large portion of most people’s expenses it has a very close connection with wages which have a very close connection with inflation.  So it’s not surprising to see house prices revert to the mean when they diverge from the annual rate of inflation – in general, that’s a sign that prices aren’t supported by incomes.

Personally, I prefer to think of a house as a place that provides intangible benefits and not investment benefits.  You buy a house because it puts a roof over your head.  You buy a house to live in it, not to invest in it.  But, like commodities, housing has become its own “asset class” that Wall Street has packaged up and sold to the American public as an equivalent to buying 500 of the best companies in the world (the S&P 500).   Most people also don’t invest in the stock market, but that’s a different discussion….I wouldn’t go so far as to say that real estate can’t be a good investment for some people (mostly experts), but for most of us the odds are that “investing” in real estate is not the right way to think about things.

I’d love to hear reader thoughts on this topic….

 

Some Brief Thoughts on the CBO’s New Budget Projections

Understanding the importance of the Federal budget Deficit in recent years is really very simple.   In a healthy economic environment private investment is one of the primary drivers of economic growth and improvements in living standards.  But what happened in the Great Recession was highly unusual.  Private investment collapsed in an almost unprecedented fashion.  When GDP was contracting in the 2008/2009 period it was driven almost entirely by this collapse in gross private domestic investment.  So, getting the economy back on track was largely about replacing or healing this decline in the private sector driver of growth.

How was that done?  Simple, the government ran huge budget deficits.  So, spending as a percentage of GDP surged.  Government consumption expenditures surged in the same period as private investment collapsed.  As you can see, government expenditures have remained high though they’re trending down.  This has kept the economy moderately strong as the private sector healed.  But, as we can see above, private investment is still far below its historical average and below levels seen during any past recession.

At the end of the day, the economy is just a series of flows.  Consumers spend, businesses invest, government spends, all of this generates income, revenues, cash flows, and as long as the flow is steady and strong the economy expands and life appears all fine and dandy.  But when private investment collapsed the flow was weakened substantially.  Had we not kicked in the government spending to turn the flow back on we likely would have experienced an economic environment that would have resembled something closer to Spain or Greece as opposed to this muddle through we’re currently experiencing.

This is, in essence, the core to understanding the balance sheet recession theory (in addition to understanding WHY private investment collapsed the way it did – due to the debt bubble).  It’s not terribly complex.  So, you can understand why I am at least moderately concerned by the CBO’s latest projections:

“The federal budget deficit, which shrank as a percentage of GDP for the third year in a row in 2012, will fall again in 2013, if current laws remain the same. At an estimated $845 billion, the 2013 imbalance would be the first deficit in five years below $1 trillion; and at 5.3 percent of GDP, it would be only about half as large, relative to the size of the economy, as the deficit was in 2009. Nevertheless, if the laws that govern taxes and spending do not change, federal debt held by the public will reach 76 percent of GDP by the end of this fiscal year, the largest percentage since 1950.

With revenues expected to rise more rapidly than spending in the next few years under current law, the deficit is projected to dip as low as 2.4 percent of GDP by 2015. In later years, however, projected deficits rise steadily, reaching almost 4 percent of GDP in 2023. For the 2014–2023 period, deficits in CBO’s baseline projections total $7.0 trillion. With such deficits, federal debt would remain above 73 percent of GDP—far higher than the 39 percent average seen over the past four decades. (As recently as the end of 2007, federal debt equaled just 36 percent of GDP.) Moreover, debt would be increasing relative to the size of the economy in the second half of the decade.”

In order to get back to the normalcy of the pre-GFC days we need to see that first chart above get back to its historical average of about 0.16.  That’s a lot to ask given the time its taken just to improve back to current levels.

I’ve stated in the past that I though the balance sheet recession would end by 2013/2014.  And while debt trends have definitely improved we’re still seeing a very tepid private investment environment.  We could definitely see further improvement there, but I still think the downside in the deficit is the largest risk to economy at present.  I’ve probably been a bit overly optimistic about the improvement in the balance sheet recession as I see private investment remaining weak well into 2014.  And that means the private sector will need continued help as it heals.

Back in the Saddle….

Sorry for the slowdown at the site.  I got interrupted by the rare vacation.  Things will be back to normal once I decompress and wake up to the reality that is “work”.  But first, some travel thoughts:

  • Asia is an incredible place.  It was my first time there and I can’t say enough good things about it.
  • Chinese immigration and customs are a nightmare.  If you think the TSA is bad you’ve never seen a Chinese bag checker scan every piece of electronics you have – 1 by 1 multiple times.  You want thorough – these are your guys.
  • The Thais could possibly be the nicest people on the planet.  If you’ve never been to Thailand you’re missing out on one of the most beautiful places on earth and some of the most friendly people on the planet.   If I could begin to comprehend the language I wouldn’t have ever come back.
  • After a nightmare ordeal with Chinese airlines and immigration I couldn’t have been happier to see a US customs and immigration agent.  Then he started berating me like I was from Mars and I quickly realized how much I missed the Thai customs and immigration agents.  The berating for non-residents looked 10X worse.
  • It’s amazing to see the undeveloped portions of some nations in Asia.  Americans complain about how bad things are, but the standard of living is comparatively off the charts in so many ways.   I hate to downplay our problems, but many of the developed nations have so much to be thankful for.
  • As I complained about my flights I was constantly trying to keep things in perspective.  I was flying around the world in metal tubes at 500 MPH and staying in hotels in amazing parts of the world.  If you’re reading this you’ve likely experienced the same things that appear all too “normal” for many of us, but are in fact extraordinary normalcies compared to what much of the world has access to.  Odds are, if you spend your time worrying about the concerns expressed on this website you’re in a pretty good place to begin with.  I for one am extremely thankful and try to keep that in perspective.  It’s nice to get out of the US “bubble” every once in a while to help reinforce the point.
  • The mostly cash/coin centric undeveloped countries had my monetary mind constantly asking my fellow travellers annoying monetary theory questions.  As I see the developed countries moving towards electronic money economies I couldn’t help but think that the paper bugs are simply the next monetary evolution from hard money bugs.  And just as quickly going extinct….I guess you can call me an electronic money bug.  Money is fast moving away from being a “thing” and more towards a mere record of account.

My brain is fried.  I’ll be fully operational by some point this week.  And by “fully operational” I mean that I hope to have all 75 IQ points firing on all cylinders.

 

Weekend Reading: There’s More to Life than Happiness

A big part of my work has been influenced by the French philosopher Volney who stated that human beings strive to become happy through becoming better and more virtuous. In Empire of Ruins he wrote that the purpose of life was:

“To render you more happy…by rendering you better and more virtuous. It is to teach man to enjoy his benefits, and not injure his fellows…”

In other words, happiness is not merely about making yourself happy. It is, in large part, about giving something to the world that makes the world a better place. That could be goods or services or your time or something else. Who knows? But happiness is not merely the pursuit of personal happiness, but providing something to your surroundings that gives other people reason to value your contribution. That’s the path to true wealth. We could go off on tangents here about what’s “productive” and what’s not, but the value of your contribution to society is ultimately determined by other people and the demand for your contribution (whatever it might be). So, the true path to wealth is giving something back. In essence, true happiness is derived from giving something more to others than you give to yourself.

Anyhow, I am blathering, but I was excited to read this story in The Atlantic from January about the same issues. Give it a read, give it some thought and tell me where I am wrong if you think so….

 

 

GDP Declines -0.1% in Q4

I am kind of out of the loop here due to travel so my apologies on such a brief post.  

As you likely know by now, Q4 GDP fell by -0.1%.  A decline in the rate was expected, but worse than analyst expectations of 1% growth.  The decline was primarily driven by declines in government spending and private investment.  We can get a bit more granular by focusing on the specific components by contribution.  Remember, GDP = C + I + G + (X-M) where C is personal consumption, I is private Investment, G is government expenditure and (X-M) is net exports.  The math here is pretty simple.  The quarterly the breakdown was as follows:

GDP = C + I + G  + (X-M)

or

-0.1% = 1.52% + -0.08% + -1.33% + -0.25% 

See figure 1 below for the visual breakdown.   Obviously, the big drag is due to the fastest pace of decline in defense spending (oart of the G component) in 40 years which dragged down the government component to -1.33%.  In a balance sheet recession, the government component is crucial as it helps provide the income that the de-leveraging consumer can spend while paying down debt.

All in all, the economy remains incredibly fragile.  The good news is that the deficit isn’t expected to decline to a large degree in 2013.  BUT, the debt ceiling debates linger and the risk is a large cuts that would drive this data deeper into the red and into a certain recessionary environment.  I don’t think the headline figure is worth panicking over, but it highlights the importance of the government component in this economic environment.  And it shows why the debt ceiling debates will likely steer the economy in 2013.

(Figure 1 – GDP by component contribution via Orcam Group)

On Using Technical Analysis

There’s been a broad discussion in recent weeks about the efficacy of technical analysis in investment strategy (see here & here).  I’ve touched on this briefly in the past (see here), but my position is rather simple and I think it’s a position most people should adopt, because, obviously, you should adopt my views of the world!  Just kidding of course.  You’re free to do with my thoughts as you wish and I am only here to provide one guy’s perspective and not pretend to offer some holy grail view of the world.

Anyhow, much of the confusion on this discussion starts with definitions. Technical analysis often gets a bad rap for being labelled as charting.  But they’re two different, but related things.  Charting is the use of chart reading in various ways to formulate strategies.  Technical analysis, on the other hand, is simply the use of past data to analyze future market direction.  Of course, a chart is merely a picture of past price action so charting is a subset of technical analysis, but does not comprise the universe of technical analysis – some of which can be extremely complex and sophisticated.

I find that understanding the past is an essential element in any good form of portfolio construction.  Perhaps you study the past to conclude that market timing is silly.  Or perhaps you study the past to conclude that buy and hold is silly.  But in the end, what most of us end up doing is essentially a branch of portfolio construction that begins with understanding past performance.  Of course, past performance is not indicative of future returns and while history rhymes, it rarely repeats perfectly.  So understanding past price performance and the history of price action is merely one building block in the development of a portfolio.  But that doesn’t mean it is a useless piece of the puzzle.  Whether you’re a trader or a buy and hold investor it’s useful to understand technical analysis and past price performance in order to better understand how one should go about attacking the future.

Of course, I am a very fundamentally driven analyst so I take the view that technical analysis is a good complement to good fundamental analysis, but to each his own.  In sum, keep an open mind.  There’s no holy grail to the world of portfolio construction and understanding and embedding many different approaches into your own will only make you a more well-rounded and informed investor/saver.

The Recession Calls Were Wrong

When I started this website I knew pretty quickly what would generate traffic and attention.  If you write about things that really scare people, conspiracy theories, Apple and gold you can drive enough traffic to a financial website to make a  decent living (until people realize you’re basically scamming them).  I told myself I’d choose quality over quantity and that I would TRY, above all else, to provide relevant, educational and ACCURATE information for people.  I knew it wouldn’t be enough to make the site sustain itself, but I truly felt that the alternative was a dishonest and low value way to write about finance, money and investing.  I don’t always succeed in this goal, but I always try.

One of the few things I’ve been right about is the “no recession” call since many notable investors and pundits began loudly declaring recession in late 2011.  I said none of the indicators were pointing to renewed recession and that the likelihood was for continued meager growth within the de-leveraging cycle.  In essence, misunderstanding the balance sheet recession was deadly for your portfolio and your general understanding of macro trends.

Now, I know I don’t make many friends writing happy things about the economy, but the bottom line is that the global economy could be much worse, policy makers could be wrecking the economy and American businesses could be far worse off than they are. We’re in this world where things are adequate enough to remain positive.  All things considered, that’s pretty positive since we’re coming out of the worst and most unusual economic crisis of the last 80 years.   This morning’s economic data was just further confirmation of this reality.   Here are three clear indications that the recession calls were completely wrong and are likely to remain wrong for the foreseeable future.

1.  Jobless claims are at a post-recession low:

2.  US PMI continues to show a clear expansionary trend:

3.  The Orcam Recession Index, which helps steer me to my main conclusion regarding growth, remains positive:

 

Keep Banks Out of Macro?

Scott Sumner says we should keep banks out of macro.  I Think that’s a very strange comment coming from a monetarist or even any economist.  Whether he knows it or not, monetary policy works primarily through the banking system via the Fed’s ability to influence interest rates.  When the economy is too hot the Fed increases the cost of overnight borrowing thereby reducing the spread at which banks make money in an attempt to tighten the supply of loans.  Of course, there’s no such thing as easing the supply of loans because the idea of a “supply of loans” is a confused concept since banks are only capital constrained in their ability to make new loans.  So, it’s not like they have a big supply of loans on shelves that are waiting to fly off them.  Healthy banks make loans when creditworthy customers walk in their doors.

Anyhow, getting back on track – the Fed has some control over money.  After all, it has monopoly power over the overnight rate.  But this is merely one piece of the money supply puzzle.  The real control of the money supply rests with borrowers demanding loans and the rate at which banks set those loans (of which the overnight rate is an important influence).  But the Fed is not the omnipotent entity that most presume.  And this cuts right to the core of the problem with Sumner’s statement – modern macroeconomists don’t really know what money is.  Nor do they seem to care.  If more macroeconomists understood that money is credit they’d care more about banking.

To me, banks are like the circulatory system in the human body.  They’re the primary means through which money (most of which is issued by banks in a modern monetary system) is issued and circulated.  When the banks aren’t working or consumers aren’t borrowing the system seizes up.  If the human body doesn’t have a consistent flow the body dies.  The major organs can’t operate otherwise.  An economy is no different.  Banks are not just a crucial piece of the entire monetary puzzle.  They are, arguably, the most important piece.  To claim that they should be kept out of macro is patently absurd.

The Continual Failure to Understand the Balance Sheet Recession

Ezra Klein and Bill McBride are excited that the government is reducing spending in the next years because he says it’s “real progress on the debt”.  He says:

“Let’s do some quick math. Start the clock — and the deficit projections — on Jan. 1, 2011. Congress cut expected spending by $585 billion during the 2011 appropriations process. It cut another $860 billion as part of the resolution to the 2011 debt-ceiling standoff. And it added another $1 trillion in spending cuts as part of the sequester. Then it raised $600 billion in taxes in the fiscal cliff deal.

Together, that’s slightly more than $3 trillion in deficit reduction. After accounting for reduced interest payments — as there’s now less debt to pay interest on — it’s more like $3.6 trillion. That’s real money!

In fact, that’s about enough to stabilize the nation’s debt-to-GDP ratio over the next decade. If over the next few years, say, there’s another $800 billion in deficit reduction — imagine a new deal that cuts $400 billion from Medicare and other mandatory spending while raising $400 billion in taxes — then the country is put on a declining debt path.”

 Of course, he’s not alone.  This has been a perpetual concern by policymakers and pundits for years running.  And it’s completely wrong.  The saddest part is that this isn’t terribly hard to understand.  The balance sheet recession is a rather simple concept.  We know from Wynne Godley’s sectoral balances that the sum of the private (private), foreign (x-m) and government (t-g) sectors must add up to zero.  In wonk talk, that’s:

(S-I) + (T-G) + (M-X) = 0

If we get a bit more granular we can really break this down to understand how the economy grows.  Monetary Realists like to use this breakdown:

S = I + (G – T) + (X – M)

Which rearranges to:

S = I + (S – I)

This takes the private sector component and breaks it down to shows a clear distinction between households and businesses by showing a focus on private investment.  In other words, the (S-I) piece grows primarily through two pieces – household consumption AND private investment.  But what happened in the last recession?  Private investment and domestic consumption fell in unprecedented ways.  And while both are crawling back we’re still digging out of a deep hole.  So that left two sectors to bring us out of the hole.  The foreign sector in the USA is a current account deficit so it’s a drag  on growth.  That leaves the government sector to drive spending.

The most interesting part about this entire recession is that we’re seeing two real-time experiments play out.  In Europe, where the problems were largely the same, many of the economies are in depression because the government sector pulled back spending at a time when the foreign and private sectors couldn’t sustain growth.  So you ended up with depressionary economic environments in many countries.  But in the USA you’ve seen continued (meager) growth.  Why?  Because the government continued to run a large budget deficit.  This isn’t to imply that deficits are always good and that government spending can’t ever go wrong, but this environment was literally “different this time”.

But still, we hear endlessly about how this deficit has been bad.  We hear about how the debt in the USA, a nation that can’t “run out of money” is somehow going to drive us to bankruptcy.  It’s all wrong.  Yet we still read about the same myths on a daily basis.  It would be funny if it wasn’t so sad.