Open Thread – Anything Goes

What’s on everyone’s mind?  Do you have a question for me?  Do you have an insult for me?  Do you have insults for each other?  Do you have a suggested post?  Do you want to talk about how perfect Ben Bernanke’s beard is?  Do you have any site suggestions?  Do you have anything great you’ve read lately that you’d like to share with the group?  Seriously – anything goes….Have at it.

Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  1. Don’t know how it’s in America but in many countries when banks go bankrupt the controling shareholders (the ones that signs the books and are statutary) have to use their own capital and assets to pay for losses of depositors.

    So if a depositor loses it’s savings the government uses all the banks assets to the limit and then goes to the private capital and assets the CEOs, CIO CFO have on their own to pay them back..

    How about that incentive for American Bankers and why no one even discuss the possibility???

  2. The kind of market action in the stock market reminds me of 1999. I think the Fed will stick to zero rates till mid-late 2015. Two plus more years of zero rates will take SPX well north of 2000 as long as the economy does not go into recession. I smell a bubble forming. what say you?

    • Bubbles always rise the fastest right before they blow up. I don’t see why the Bernanke Bubble couldn’t push the SPX to 4000, or even to 10000. Every central bank except the ECB is joining the party, and the ECB can’t be far behind. Yen devaluation alone will force Germany to call for ECB QE and perhaps even an outright currency devaluation war.

  3. I have the Ducks in our playoff pool. If they make it to the finals I’ll have a great shot at winning the pool. Will they make it to the finals?

  4. Anyone has a good explanation those broker houses such as JPM, BAC, MS have perfect trading days in a quarter? These are the market makers in any market. It proves the casinos don’t lose, the players do.

    • That’s just Zero Hedge garbage. The banks charge commissions on their “trading” books so they’re just scraping fees for making markets. They’re real traders in the same sense that you or I trade. ZH sensationalizes this data to make it look like they’re rigging the game or something. I can’t believe anyone still reads ZH. Has any website been more discredited in the last 5 years?

  5. Cullen (or anyone),

    Is there somewhere to observe data/graphs depicting the trend in private sector credit expansion and contraction? Also, is the disaggreated into sectors (housing, students loans, credit cards, fixed capital, etc. etc.). If there isn’t somewhere specific that already offers this, how would one go about putting it together? (is this information even publicly available?).


  6. I understand the intent of MR to be descriptive. I’ve recommended your abstract/research paper “Monetary Realism” to many, including some of my elected representatives (and am still waiting for feedback — glad I’m not holding my breath. :) )

    Because federal spending is part of this whole puzzle, I struggle with understanding how we will get reduced deficit spending when needed. By that I mean how will politicians agree to spend less? In a perfect scenario, I understand that if the private sector grows enough (with its “prudent” and productive credit expansion — we hope), then perhaps federal spending doesn’t have to be reduced. I also understand that taxes can take some of that private sector “new” money out of the system and if not merely redistributed, achieve some spending reductions.

    Perhaps, given the realities of politics, we have to resign ourselves to eventual painful inflation due to the ineptitude of Congress and the White House (no matter who is president), and/or painful recessions and deflation. Perhaps as long as we don’t experience hyper-inflation, then we’ll generally be okay through these cycles. I know there’s no magic debt to GDP ratio and I know it’s mostly a matter of debt service and living standards. It’s just hard for me not be cynical about the behavior of politicians, and hard for me not to worry about their actions making the cycles more volatile. There’s only so much the Fed can do.

    • Yes, politicians are truly the problem sometimes… not necessarily the unelected part of the government. For example did anyone catch that news story about the Army saying that it definitely DIDN’T need any more M1 tanks… but congress then told the Army that they’d be getting new M1 tanks anyway!!! All a political “jobs in my state/district” kind of ploy. Especially obscene given some of the other cuts that are being made. (I think the state in question here is Ohio).

      One other thing to consider though: if the economy improves jobless benefits will decrease and hopefully more people will have health insurance (and thus stop using expensive emergency room services), and tax revenues will go up. Maybe there will even a few less expensive prison incarcerations/trials to pay for. I can see several plausible mechanisms by which deficit spending will naturally be reduced should the economy improve. I don’t have the facts and figures… so I emphasize “plausible” here.

    • I think if you work through the MR model and the core MMT model (different from what is commonly presented as MMT) from first principles you will see that the reason we have a combination of decreasing debt yield with increasing debt levels coupled with lower overall employment (lower real productivity) and deflation is not that hard to understand.

      One of the great ironies of the current situation is that many people who don’t think critically have irrational thoughts like ” how will politicians agree to spend less”. Of course to anyone who understands economics this is wacko. We have been spending far less! Transfer payments are not government spending! Because ignorant people equate these two disparate flows we have seen government spending dramatically decreased in the US over the past 30 years.

      Probably the greatest problem the US faces is huge reduction in government spending over the past 30 years which has likely resulted in lower real productivity, and probably lower real productivity going forward.

  7. If you could enact (or repeal) one policy to increase employment, what would it be?

  8. What policy changes or actions would you implement to give the US full employment, i.e., any one who wants to work will be able to find a job?

  9. I want to understand this chart.

    It looks like during the period 2003-2009 banks and non-bank institutions created, not all, but most of the assets that could be purchased (in the form of credit). Since 2009 most of the assets that could be purchased were created by governments. Net credit creation by the banks et al has been zero as the borrowers unwind their debts and the banks crack down on those that might want to borrow at these low rates,. However, they might have a teensy weensy chance of defaulting, so forget it, no loan for you. This means that “where our fiat currency (money) comes from” has dramatically changed. Do I have this right???

  10. Even though everything I have learned hear, including the key parts about inside and outside money, and how contrary to popular opinion, the government does not ‘print money’ but has outsourced money creation to the banks…I’m still having a hard time with this concept…

    If the government is running a deficit year after year after year… where is that money coming from? Is it mostly China’s accumulated dollars lent back to the US? Or, is it dollars created by the Fed to buy the bonds sold to cover the deficit?
    If it’s a zero sum game, with Peter lending money to the government to pay Paul, what about the interest cost?

  11. Is the Q ratio no longer relevant? If we assume it is then first, a reversion to the mean, then a significant drop below the mean implies a very significant drop the value of US stocks. Why should this time be any different? As suggest that we are likely to see valuations drop to levels attained in the other great bear markets. A better question is does it occur during this coming recession or the one after that.

  12. Economic laboratory in my back yard?

    I’m running a very simple economic experiment in my back yard… a simple supply and demand and starvation kind of thing.

    I live in California near a Monarch butterfly overwintering site. For those that don’t know, the Monarch migrates North to South across the country each year. In my neighborhood there’s a cluster of a dozen trees or so… right in the middle of a bunch of the same kind of tree, that they return to each fall… staying to about Feb. Perhaps 40,000 of them or so cluster in these trees.

    So, having no landscaping at my house, I decided to try something unique. The Monarchs ONLY lay their eggs on one kind of plant: Asclepias (milkweed). Having never seen a Milkweed (very very few grow naturally around here), I nevertheless thought it might be fun to plant a bunch to attract as many butterflies as possible… so I went WHOLE hog! I grew, from seed, literally 1000s of milkweed plants of all varieties in a greenhouse I build alongside my house this past winter. I had never actually seen an adult milkweed, but pictures like this made me think they weren’t bad looking:

    I knew the Monarch caterpillars would eat the plants… what I didn’t count on was the unceasing demand!

    Well I grew my plants, prepared the soil, and planted them outside this spring… long after the Monarchs had departed for Northern latitudes. I had visions of a huge vibrant garden of flowering milkweeds ready to greet next Fall’s migration of butterflies!

    BAD miscalculation! After planting the young healthy plants in neat rows and being pleased that some started to flower (some actually were as high as 4′, but most were about 1 to 1.5′ tall)… I was looking forward to growing a nice crop… there were a few Monarchs about… nothing like a swarm. Maybe you had a good chance of seeing one in the yard if you visited at noon. Two was not infrequent… these were the hangers on… the ones that don’t migrate North I guess.

    Well, in a few short weeks the caterpillars they produced have stripped every plant in my yard down to bare sticks!!! In an effort to save what I thought were the more healthy plants I’d collect the caterpillars off the these plants by hand (literally handfulls!) and relocate them… I’m down to my last stand of healthy plants but there’s nothing else left with which to satisfy the voracious appetites of these insatiable caterpillars! They have no concern for their environment! They will eat everything they can: leaves, flowers, even the stems when they get hungry! I have a caterpillar and stick garden! Not a butterfly garden! :(

    If it takes that FEW butterflies to cause that kind of devastation… I can’t imagine how in the world my poor plants will ever recover… I think they are goners!

    One good thing though… all over my yard on on my house I have Monarch chrysalises, which are rather striking in their own right:

    I must have several hundred of these things hanging literally everwhere! If I lean a shovel against a wall for a couple of days… I’ll have chrysalises hanging off of it next time I look! They’re on EVERTHING! So once they hatch, maybe I’ll get my “butterfly garden” after all… for a few days anyway!

    I’m positive that there will be a great starvation when all my plants are gone… you really don’t see any milkweeds in these parts… so I don’t know what those hungry masses will do!

    • Do you suppose in a misguided effort to do some “good” (Monarch populations have been suffering recently, I understand), I inadvertently created an “artificial” milkweed “bubble” in the market, and now the starving caterpillars will have to suffer the consequences! “central planning” ruins everything again!! ;)

      • Ha! Great story. I used to raise Monarchs back home in VA from start to finish. They’re the coolest animals. And I remember the appetite. Unbelievable how a little caterpillar could devour an entire leaf 10X its size in a day.

        • Interesting! Do you recall what species of Milkweed you fed them? Tuberosa? Curassavica? Syriaca? I found that the best growing plant in these parts is physocarpa (from S. Africa). That’s the one with the big inflated fuzzy light green seed pods (like tennis balls).

          I think the reason I don’t see any milkweeds around where I live now is that they must eat any plant that pops up! I saw a Monarch lay it’s egg on a sprout that was no more than 1″ high!

          Probably in VA the plants get a break for part of the year at least… but then they have to deal w/ a bit colder winter. Somehow it must work out… but not here!

  13. Milkweeds grow back from roots here in Forida. And they produce many seeds. I had monarch catapillarsfor a while, then they all disappeared.
    Apparrently something ate them.

    • You are welcome to take mine!… I’ve got too many!…but I did have five chrysalises open today with five healthy butterflies emerge. One yesterday too. Pretty cool.

      Regarding your caterpillars… there’s a protozoa disease called OE which infects them. The protozoa creates very tough “spores” which cannot be seen with the naked eye but which cover the butterfly or the caterpillar or the plants they are on. These spores can infect them with the protozoa. It’s very difficult to kill the spores, and nothing can be done for the Monarch (in whichever life stage it’s in) once it’s infected, however, milder infections allow it to continue to the next stage (and maybe go on and infect other Monarchs!).

      There are three populations of Monarchs in the US: West Coast, East Coast, and Florida. The Florida population stays in Florida. Unfortunately that population is the most heavily infected with OE, with a rate of infection of about 90%. The West Coast population (West of the Rockies) is infected at about 30%, and the East Coast population (the one that migrates to Mexico) has a very low infection rate… under 10%. There are a few other diseases and parasites which infect Monarchs too… like a kind of wasp which lays its eggs inside the caterpillar, and then eats it’s way outside the chrysalis. Also there’s a kind of lizard that can eat the caterpillars. As you probably know, the Milkweed diet of the caterpillars imparts the Monarch caterpillar, chrysalis, and butterfly with stored toxic chemicals which keep most predators from eating them.