Q&A is back this week for another instalment. As always, feel to ask whatever is on your mind…
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.
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What’s your current opinion on bonds? I haven’t seen you offer an outlook in a while. Thanks.
Question: How many people from the US and from abroad believe in MMT and/or MMR ? Seems to me that the majority (if not all) of the MMT and MMR believers seem to be from the US.
My personal opinion is that folks visiting this blog believe we’re in deflation but use MMT/MMR to deny some of the more petulent/nasty sides of deflation.
C.R. has said that he sees more webtraffic when he posts negative news. That’s precisely the confirmation the US and other countries are in deflation. (See Robert Prechter’s “”socionomics”")
I understand the basics of the concept that The US government is not going to “run out of money”.
I understand the basics of the concept that the true constraint is always inflation. However, a lot of contracts and laws are written with automatic increases based on inflation. Examples are the Government (federal, state and local) pensions, government employees pay, people covered under public employee union contracts, social security, PPACA subsidy amounts and eligibility levels. If the government cannot go bankrupt, then there is no mechanism to change these contracts since the government always has the ability to pay.
Is there a danger that this will cause inflation will rapidly rise uncontrollably? Where instead of reducing buying power and making the country more competitive, the automatic increases cause a positive feedback loop?
Thank you.
What kind of music do you like and which are your favorite bands?
How about your favorite books as well?
might as well throw in movies too
Are we likely to get big down side surprises from Q2 earnings? By surprises, I mean no earnings warnings, just surprise misses that global companies didn’t see coming because of how rapidly conditions are deteriorating?
Cullen:
What is your view on Obamacare in general and specifically now that the Supreme Court has construed that it is indeed a tax (to the dismay of Obama and his multitude of lies) given your view on implementing taxes during a balance sheet recession?
Bob Barker
1) What is your favorite Arnold movie?
2) Do you like the idea of tax cuts because they are faster to push and don’t allow for political direction? In a BSR, is it more important to push deleveraging or “growth”?
Generally speaking, I believe we should be using stimulus to fix infrastructure that is direly neglected, and also funding innovation. Tax rates anchor expectations (like dividend increases vs. share buybacks). The current tax structure matters more than the ideal tax structure. Money returned to the poor is also used much differently from the rich, and I think that complicates the tax cut effect.
Cullen I am also a devoted saltwater fisherman, especially bottom fishing using bait like surf clams and squid. There is just something about lowering your bait to the bottom of the ocean, wait for the strike and then respond ferociously. What type of bait do you use? Do you like bottom fishing more than say trolling or using lures like pencil poppers?
Long time listener first time caller.
Most overlooked topic in the world, high cost of dating.
Cullen,
You mentioned last week that you and Warren Mosler don’t quite see eye-to-eye on “demand leakage”. Would you expand on that a bit, or point me to one of your previous posts or scholarly papers on the subject?
I recently read “Currency Wars” by James Rickards which was a very provocative book and a good history lesson on international currency systems, however the conclusions did not flow from the premises in my opinion.
However there was a paragraph that stood out for me and I was curious about your opinion on it:
page 199, Behavioral economics possesses powerful tools and can offer superb insights..Exploration of the paradox of Keynesianism is one possibly fruitful area of BE research…Keynesianism was proposed in part to overcome the paradox of thrift…government spending was thought to replace this shortage of private spending..Today government spending has grown so large and sovereign debt burdens so great that citizens rightly expect that some combination of inflation, higher taxation, and default will be required to reconcile the debt burden with means available to pay for it. Government spending, far from stimulating more spending, actually makes the debt burden worse and may increase this private propensity to save…The result may be the discovery that short-term austerity brightens long run economic prospects by increasing confidence and the propensity to spend.”
I think this is quite a profound insight. I found myself thinking about Canada in the 90′s which was a basket case until some austerity was put in place and confidence was regained in the economy. I am sure there are other examples.
Perhaps at debt levels in excess of 100%, government spending actually retards growth prospects contrary to the conventional wisdom.
Also reading that book currently and was wondering if there was a “blow by blow” history of the monetary / economic activities from 1967-1981 from an MMR perspective that you could point me at.
To focus my previous question. What I am looking for is the MMR explanation of the phenomenon of “stagflation” during that period. on the surface it seems to invalidate some MMR tenets. If you have high inflation this implies too much money creation for the amount of goods produced. High unemployment implies insufficient money in the system. How do both exist at the same time?
Cullen,
2 questions:
1)Per MMT, a government does not need tax revenue to ‘fund’ its spending on social programs. So why does a socialist country such as Sweden or Denmark have such high taxes?
2)It seems like foreign denominated debt gets countries in trouble. They can no longer ‘print money’ to stimulate their economy, as this will devalue their currency and make foreign debt repayments more difficult. Why do countries borrow in foreign denominated debt?
Cullen stopped using the MMT framework a long time ago. You must have missed the whole MMT versus MMR debates.
http://monetaryrealism.com/sample-page/
Countries borrow in a foreign currency because their domestic credit market isn’t large enough.
Cullen,
Which market outcome in the next 6 months will cause you the most pain?
Cheers!
This may seem like a silly question, but I’m curious why your recent post on money supply used M3, which doesn’t include treasuries. As I understand it, MMR holds that people treat treasuries an awful lot like money, so swapping them with dollars doesn’t really change anything, which is why QE isn’t really money printing. So should we really be using a monetary aggregate that includes treasuries? What am I missing here?
Why are women SO CRAZY?
They are probably wondering the same about you (us?).
Re David and soccer: as a continuing long time player, eliminating offsides would ruin the game. If Americans need more scoring, widen the goal (and I hate PK shootouts).
1. Do you think that soccer would be more popular in the USA if they did away with offsides and penalized players for faking injuries to the point of embarassing themselves along with everybody in the stadium for being so lame.
2. Not that Obamacare is declared a tax;does this, along with current tax breaks expiring, adversely affect 2013 economic growth?
It is confusing to me how they insist the money comes from taxes to pay for this when it doesn’t have to. I am so confused….
For someone who does not have any economics background,
What are bank reserves?
If someone opens a new bank, how that bank gets their initial reserves?
Is there any connection between bank capital and reserves they have?
Thank you in advance for clarifying these very very basic (stupid?) questions.
Sometimes last summer Cullen had a post where he recommend this site (http://wfhummel.cnchost.com/index.html#2) as a good place to strat learning about banking. I think he also said something like “it’s not everything, but it’s a good place to start.”
Check out it. Read through the material, in order. I think you’ll be pleasently surprised if you’re genuinely interested
Cullen,
Are there any “Conspiracy Theories” that you belieive to be legitimate? (9/11 being an inside job, aliens have been visiting and governments are hiding it, etc.)
Are there more concrete metrics to gauge whether the federal debt matters or not? There have been many points of view:
(a) TPC view (hope I’m paraphrasing correctly): as long as the debt is productive it doesn’t matter. Question: how do we quantify this? (For example, most of the recent investments have been in real estate which is hardly productivity enhancing; what America is really selling is citizenship, not houses, but I guess you need the houses to begin with!)
(b) Krugman et al: it’s debt we owe ourselves, it never matters. There is no intergenerational debt; it’s just debt our children owe themselves.
(c) Rowe: intergenerational debt matters
http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/12/debt-is-too-a-burden-on-our-children-unless-you-believe-in-ricardian-equivalence.html
(d) source??? federal debt doesn’t matter at all as long as private debt is productive. Federal debt is just grease for the wheels; the amount doesn’t matter as long as you have enough.
I’ve probably missed some as well. Thanks!
Why do banks purchase deposits from other banks in a deleveraging environment?
Cullen, thanks for the recommendation about Jack Schwager’s books:
http://pragcap.com/hedge-fund-market-wizards
I am going through all 4 of the wizards series (cherry picking the managers I know of, and also going thru the author’s concluding remarks) and they are fantastic.
You had specifically called out Ray Dalio’s chapter (HFMW, Ch.2) and his analysis is brilliant. However he does strike a pessimistic note for the US concluding that we are in a stage of decline that may stretch 20 years into 2030. How do you reconcile this with your long-term, optimistic view of the US?
Two questions regarding technical analysis:
1) Is technical analysis applicable when the market is
heavily driven by non-business news, or business news not
entirely relevant to U.S. business? Note: the market has
been heavily news-driven the past two months, but I would
argue that the direct relevance of most of that news
(i.e., regarding PIIGS sovereign debt and bank solvency)
to U.S. equities is questionable; nonetheless, several key
technical analysis support levels have been breached during
that time.
2) Technical analysis is really a set of statistical correlations,
but current market conditions, characterized by recovery from
a balance-sheet recession, are markedly different
from what would have prevailed when the preponderance of those
correlations were compiled. Would that not somehow mitigate the
effectiveness of technical analysis? Note: I’ve read many investors
complain on this and other investment websites that the market-
forecasting tools (technical and otherwise) they usually employ have
worked poorly since the balance-sheet recession started in 2007.
My questions are based on reading all previous questions.
I perceive that previous questions are very myopic. They seem oblivious to world events that will impact the America economy significantly. I conclude this from the questions being asked.
There appears to be an optimism that the American government “debt” can be corrected. I do not hold that view. The American government “debt” is here to stay as is the Eurozone “debt” and the UK government “debt” and the Japanese government “debt”. I keep asking myself “how will all this government “debt” get resolved”. Can it stay around for ever….?
Can the HH debt stay around forever?
Iluv, see
http://pragcap.com/misunderstanding-banking-is-helping-bankrupt-an-entire-society/comment-page-1#comment-113716
I think you’d get a kick out of it.
Ron Paul may be the only one who is exempt.
What do you think about this expedient option for Europe – a devaluation of the Euro?
http://www.businessinsider.com/new-euro-bailout-devalue-2012-7
I assume the ECB could do this by printing and would not need international coordination.