Looks like you all wanted to make it personal this week. That’s fine. But don’t complain when you end up hating me after this is all said and done. I’m big on personal responsibility and I will fully blame you for asking the personal questions.
I was only able to get through half of the questions this time. I’ll do part 2 tomorrow.
CCV - What’s your current opinion on bonds? I haven’t seen you offer an outlook in a while. Thanks.
CR – Depends on your time frame here. I’ve long been warning about the exaggerated claims about the “bond bubble”. So I’ve been a long-term bull for a pretty long time. But I think you have to be careful trading the market at these extremes. Long T-bonds are up 35% on a year over year basis. That’s a gigantic move. I’m a near-term bear on bonds, but that doesn’t mean you have to worry about yields surging over 4% on the 10 year any time soon. As I’ve explained before, the end of the bond bull likely won’t come until Bernanke signals rate increases and he’s been pretty clear about his “extended period” language. So, near-term bear, longer-term bull.
Bond Vigilante - 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””)
CR – BV, you know I don’t follow the MMT framework any more so I am not sure what MMT has to do with any of this. Our debates and dissension from MMT were very public and based on what many of us believed were operational misunderstandings in the MMT framework. We’ve done a huge amount of work to try to clarify the differences between MMT and Monetary Realism so I would recommend readers hunker down and dive into the details a bit more if they’re really interested in understanding our position on all of this. My quest has always been to offer readers the most precise operational understanding of the way the modern monetary system works. MMT is good here, but incomplete in my opinion. I am not going to twist anyone’s arms into following our positions and understandings on this, but I would highly encourage readers take a look at the MR material.
Bernie - 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?
CR – Good question Bernie. I am not sure I have a great answer for you. I doubt that these automatic increases amount to such a substantial part of overall spending that it would actually result in the positive feedback loop that you mention. But I can’t be certain. Maybe you have some more details here?
Ville - What kind of music do you like and which are your favorite bands?
CR – I love most music. If you looked at my music library (which is now on Google Music and not Itunes!) you’d find classical, country, hip-hop, alternative, reggae, etc). These southern California beach towns tend to veer you towards the alternative/reggae style music so I’ve probably veered in that direction over the years as I fight the urge to become a lazy beach bum. But it all depends on my mood/activity.
Conventional Wisdumb - How about your favorite books as well?
CR – Tough one. I am embarrassed to say that I haven’t read a fiction book in 10 years. I read a lot, but I guess I just don’t spend my free time reading fiction. The best book I’ve read in the last few months was probably Meditations by Marcus Aurelius. I’ve always had a secret love affair with the classics since my days as a latin student and Aurelius was one of the master philosophers/leaders of his time. I’m big on self improvement related stuff and since I view myself as a work in progress I love these sorts of views from people who have “been there, done that”. Aurelius has been there, done that. He was a huge thinker and though I wouldn’t say I approve of all his positions I do think the book is important in helping offer perspective and guidance to anyone and everyone.
JK - might as well throw in movies too.
CR – Tough one here as well. I don’t have a sexy answer here. I think it’s really hard to beat Forrest Gump and Shawshank Redemption.
Mercator - 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?
CR – I think guidance is going to be the key here and it’s going to be weak. Companies are likely to report another decent set of figures because the estimates have been slashed so much in recent weeks, but the guidance is going to be very tepid given the uncertainty out into the end of the year. No CEO wants to put his neck on the line by being overly optimistic so expect a lot of under promising.
Bob Barker - 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?
CR – Really putting me on the hot seat here, huh? What a fascinating ruling. The way Roberts phrased his decision was interesting. I don’t think he was being as political as many have accused him of being. Rather, I think he was playing this one by the book. If the government expropriates funds from citizens that they might not have otherwise been required to part with, then the government is taxing them. That’s potentially what this bill does. But here’s where I don’t have the answer for you and maybe someone out there does. I think you’d have to run a cost benefit analysis on all of this and find out what the real cost of not having national healthcare is? How many people essentially free load off the current system and end up increasing costs for the rest of the country in the end no matter what. And does a nationalized health system actually reduce that burden? I don’t know. I am inclined to believe that even if the government can save us a few bucks by making the system “more fair” then it still won’t result in large tax cuts in the future. Instead, they’ll find some other way to spend the revenue or they’ll convince us they need the revenue because we’re going bankrupt. So either way it’s likely to be a tax in the end. But honestly, I haven’t followed all of this closely enough to give you a good enough answer. I probably should be following it more closely….
freemarketeer - 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.
CR – These are great questions! So many good Arnold movies. It’s hard to choose between Predator, T-2, and many others. I’ll go with Predator. Any movie that combines Mr Universe, Apollo Creed and a former Navy Seal/Congressman in an alien film that actually works, is hard to beat.
I prefer the tax cut because it doesn’t involve bureaucrats deciding to allocate funds on silly things like cash for clunkers, bank bailouts or home buyers tax credits. Given the BSR and consumer credit woes, I think it’s better to let people keep more of their income and use it how they prefer. I do wish there was a bigger spending push on some initiatives, but this government hasn’t proven itself capable of making very competent decisions so the stalemate on spending isn’t surprising.
Calvin - 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?
CR – I’m a rookie here so you’re talking to the wrong guy. I’ve only been fishing out here for a few years. But I like using a double dropper loop rigged with a weight and live bait. The halibuts and lingcods are more likely to go after the live stuff. Here in San Diego the water is quite cold most of the year so bottom fishing is the only game in town since the pelagics just aren’t around when the water’s cold. I’m hoping for warm water this summer and it looks like we might just get it. If so, that changes the whole game to a surface fishing and a totally different approach as you know. I’ll have to learn how to do that when and if it happens.
Me - Long time listener first time caller. Most overlooked topic in the world, high cost of dating.
CR – Here’s some advice. Don’t take your date to an expensive restaurant the first time around. This accomplishes two things. It avoids spending a lot of money on someone you probably won’t end up with. And it will also tell you more about their personality. If you can’t go to a mediocre restaurant and have a great time with someone then you’re wasting your time to begin with. Better yet, think outside the box and don’t go out to dinner. Do something that normal boring people do. After all, that’s what you’ll spend most of your time doing with this person anyhow.
Steve W - 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?
CR – I could be misinterpreting his position on this, but I don’t see how global saving is a bad thing if he thinks current account deficits are a good thing. But this disagreement is much deeper than just that. I take the Wynne Godley position on current account deficits. I just think MMT has this flat out wrong. And they basically need to have it wrong otherwise their argument for perpetual budget deficits starts to weaken. And in the end, MMT is really just a progressive policy approach towards their Job Guarantee. So supporting current account surpluses and claiming that current account deficits are bad thing would be inconsistent. But enough about that. I shouldn’t be talking bad about MMT since I think it’s a better framework than most of mainstream economics.