Q&A….
Another week, another Q&A. You know the process by now. Anything goes. I’ll get around to the answers by Monday hopefully….
I’ll start it off with Jason’s questions:
1. Is a government surplus (monopoly supplier) ALWAYS bad, i.e. lead to an imminent recession? I think this is the MMT thought process, but not sure if MMR feels the same.
2. Is Japan FUBAR? Sure their debts are high, but they are a monopoly supplier. Is their aging population and need to seek outside lenders going to kill them? Can the BOJ just make up some new rules and buy all the bonds and keep rates low forever?
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.
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18 Comments
Hi,
Regarding your “ALEXI TSIPRAS GETS IT….” story.
Can you explain to me why Germany should want to sell products to a country (Greece) that can’t pay for them?
What do you believe is more beneficial to the economy – higher interest rates to benefit savers or low interest rates to benefit refinancing and borrowing? Also, has their been a case historically of a country returning to normal rates after they are near 0?
Thanks!
“Also, has their been a case historically of a country returning to normal rates after they are near 0?”
+1 (especially with sovereign rates below 1%)
And my question: Do you own a boat or do you use charters when you go ocean fishing? (figured you deserved a softball)
In an earlier comment, I posted some take-aways from hearing Steve Coll discuss Exxon-Mobil (his recent book: “Private Empire”)- which has also just retaken the top spot in corporate revenues and profits. Yet the company seems to come up infrequently at this site.
The company has a reputation of being exceptionally well-run, has immense financial resources, and one of the greatest concentrations of scientific and technical expertise on the planet. In addition, the nature of their business demands long-range thinking.
Under Rex Tillerson, the company has shifted on ‘climate change’, including proposing a significant tax on carbon ($20/ton) – a measure many environmentalists agree would be more effective than ‘cap & trade’. They are in as good a position (and have as much incentive) to evaluate the real and probable future effects of this as anyone (and are already pursuing the opportunities opening up, eg due to shrinking of polar ice).
Coll also notes they would not be crippled by major political pressure to address this issue (effects on coal would be much more severe). Rather this could motivate them to move definitively into the development of alternative energy – which could make them the dominant player in this field. Coll also addresses the company’s unique ‘culture’.
What are your thoughts on this company, and the position it will occupy in the US and global economy in the next decade or two?
A few dozen more question
1. I hear media talk about the fact that the size of the Fed’s balance sheet is growing is a bad thing. Do we need to worry about the size Fed’s balance sheet?
b. If some assets on the Fed’s balance sheet are not recouped fully due to default (MBS) does the Fed (and not the US government) become technically insolvent? And assuming the MBS were defaulted on, who bares that cost (I assume it would show up as simply the debasement of the currency as approved by Congress).
What bubble do you think the current low rates are fueling?
Should I be concerned about the Shadow banking systems and why?
What do you or MMR/MMT say about the long term weakeness of dollar?
And a few tin foil hat questions if I may
- How can we be sure that the Fed is not secretly “printing money” and not reporting it?
- I guess related to that how do we know Base money or other statistics are accurate?
- Also what are the limitations on the Fed regarding buying assets such as equities etc? Do they need permission to do this?
What are your thoughts on the most recent white paper & article by Singh and Stella, “Central Bank reserve creation in the era of negative money multipliers”?
Article via vox: http://www.voxeu.org/index.php?q=node/7955
Whitepaper: “Money and Collateral” http://www.imf.org/external/pubs/ft/wp/2012/wp1295.pdf
As always, many thanks.
_TPR
Any thoughts on the growing desire to find a replacement for GDP as a measure of our economic well-being? I’ve been seeing more support for measures that would better account for pollution, crime, sustainability, and the overall hard to define “happiness”. I was skeptical at first, but I’ve been coming around to the need to find a better measure than GDP for the things we actually care about, and one that doesn’t assume we can use the earth as our wastebasket.
Any particular books that really changed the way you view the world or how you think about investing? Like Atlas Shrugged or Security Analysis, etc.? Thanks.
Hi Cullen, love the blog.
I recall you saying you think a budget deficit of 8% of GDP or so (I can’t find the link) is what is needed to prevent recession in 2013, can you explain how you arrived at that number? Could international problems and possible further devaluations increase this both through lower exports and the feedback into our private sector? And when do you see the budget deficit be reduced assuming a decrease in our trade deficit and/or a more robust private sector?
Thanks,
Zach
I just had a call with my team.
Bearish-
Talked to a big player in New York- Bearish
Talked to a friend- generally bearish-
My gold guy- bearish-
Everywhere I look caution.
The Bulls have cash because they want the market to go lower to buy.
The bears want it to go lower so they can be right.
MY QUESTION:- Can the TPC create it’s own sentiment survey. All Members who sign in or log in as a member get a code- We all answer it honestly. Can you do something like this Cullen?
Hi VII, First off, I appreciate your honest assesments of the market. I am belief system challenged which limits my money making ability (although, I am getting way better).
Definitely second the survey idea along the AAII motif. Cullen, you know that you can ask for volunteers to help with some things; right?
Can there be a orderly Greece exit?
Grexit Would Be ‘Regrettable, But Not Fatal’
http://www.spiegel.de/international/europe/european-leaders-warn-greece-may-have-to-leave-euro-zone-a-832464.html
Greeks May Hold $510 Billion Trump Card in Renegotiation
http://www.bloomberg.com/news/2012-05-09/greeks-may-hold-510-billion-trump-card-in-renegotiation.html?cmpid=
You usually talk about US economics and markets and foreign stock indices (e.g. Shanghai) in your macro trading. Do you pay any attention to foreign economics, even in those countries that do put out reliable data (Korea,Japan,Singapore,Oz,Canada,Europe,UK), inc. inflation, sectoral balances etc.? If not, why not? If so, are there some that are your favs like US rail traffic, inflation, sectoral balances?
Two questions.
First, do you agree that you sometimes overlook the impact(albeit slowmoving) of ever-increasing Peak Oil and how it will constrain growth not just in America but globally? It’s a phenomenon which will increasingly become more obvious as the decade wears on, and in my mind, will hamper growth needed to get out of the balance recession because every time you accelerate at any pace, oil prices shoot up, gas prices increase and economic growth moderates again.
So, again, how is your view on this going forward on growth and do you plan to write more on this in the coming weeks and months?
Secondly, what’s your view on India/China and their slowdown. Europe-related or something else? In particular China has had a huge housing bubble even bigger than America’s. Are people underestimating what is happening here?
Is Q/A session still open?
Question: It is put forward by MMT specifically and Keynesians more generally that in a situation where there is a shortage of ag demand, the economy will fail to restore equilibrium between supply and demand through natural adjustments of debt, income, and prices, in the absence of govt intervention.
How far is this true? If the govt decided to fix NFA permanently, and allow a deflationary price bias due to productivity gains, and allow all market metrics to adjust to the fixed NFA, including govt budgets, household budgets, bank and business balance sheets, etc. – do MMT and Keynesians claim that the economy will NEVER adjust to a condition of aggregate demand and supply balance with near full capcitiy utilisation?
Or is the claim merely that such an adjustment will be more costly in forgone production than accommodating aggregate demand with an increase of NFA?
Or that its merely too costly on a human level to be politically feasible?
The risk of the latter course, accommodating ag demand, is in propping up malinvestment by a banking sector lacking market discipline, or an over sized public sector lacking mnarket discipline. Is the claim that the risk of the latter is smaller than the cost of the former course? Does MMT overlook the latter risk to a certain degree?
Let’s separate economic ‘luxuries’ from ‘necessities.’
Necessities are food, water, shelter, clothing, and some degree of medical care.
Income is a first derivative, because it is needed to obtain the necessities.
Second derivative is the physical capital goods employed as means to supply the necessities (and the income to obtain them).
Building materials, fuel, factories to produce materials, to produce means of transportation, utilities to supply electricity and fuel, water, and goods needed for necessities, durable goods like refrigeration…
Luxuries are things either not necessary or infinitely replicable (information, media, entertainment).
The one economy is finite — natural resources, energy, food, water, etc. It’s supply has to balance with demand (size and growth of population and its average consumption) in order for people to live at or beyond subsistence.
The other economy of information, ideas, culture, is technically finite but practically infinite because of its very low demand on real resources relative to total population and total energy/materials.
In any given economic structure, there is a population level sustainable by existing resources, capital and output. This output is distributed by the market price system. To consume you have to produce, or at least that’s the basic idea.
It is worth noting that an economy can be in a debt deflation, with deflating asset prices, as well as falling prices for non necessities, and still have inflation in necessities. This WON’T BE reflected as inflation in the CPI.
‘Poverty’ is the only natural, built in break on population growth and family formation.
For a thought experiment, consider the strain on present resources and the present capital structure if, via redistributive policies, every Chinese and Indian laborer had access to na upper middle class western standard of living.
It is easy to bemoan the 1%’s massive stock of asset wealth and luxuries, and contrast the hardship of unemployment and poverty. But that kind of asset wealth/income places a limited demand on the ‘necessities’ category.
If that wealth was distributed evenly across the globe the demand strain on the necessities and resource category would explode… prices for real resources would explode, etc.
Poverty is the only natural break on population growth and resource depletion, and I don’t think it can be realistically replaced by some government managed controls on family formation and/or resource depletion, nor is it desirable.
There are very real limits to growth, income equality, and gov’t schemes to perpetually alleviate poverty – up against real resource and capital constraints. If population grows faster than real output and depleting resources, degraded environmental systems, etc., as a result of diminishing the natural ‘poverty brake,’ we will catch up to subsistence/Malthusian conditions and the one thing that will be spread equally is universal poverty and misery.
Have we undervalued the utility of poverty and wealth inequality in a) matching population growth the real output growth, and b) allowing capital formation, which alone can potentially (but finitely) increase output and productivity?
Are the twin goals of alleviating poverty and infinite growth equally flawed?
You indicate that the USA does not NEED the rest of the world to save its future. Does this mean you believe that the US can survive without any external trade. To put this another way, you think the US can isolate itself from other countries and maintain a satisfactory standard of living for all Americans?
I’m curious what MMR suggests for US states (which aren’t currency issuers) looking to stimulate their economies and balance their books. Is there anything individual states or municipalities can do to help end their balance sheet recessions under the current legal framework? Public banking? Raising taxes on the wealthy? Private debt forgiveness legislation? Going into debt? Cutbacks at the state level have been really crippling the recovery, so this is a very serious issue. If MMR can provide a partial solution to this problem, that would be amazing.
By the way, great job on this blog! I’ve definitely learned a lot from it.