Few will argue against the fact that the U.S. economy is sputtering.  For several years now I have been arguing that the government misdiagnosed our problems and subsequently applied the incorrect cure.   If we take a look under the hood at the growth drivers of our economy we can reveal convincing evidence showing that this was in fact the case.

The following chart shows 30 years of US GDP along with potential output.  The blue line represents actual GDP while the red line shows potential GDP.  This represents what economists call the output gap.

(Figure 1)

At the current levels we are running an output gap of just over $1.2T.  This merely means that the U.S. economy would be producing $1.2T more in total GDP if we did not have so much idle capacity.

The math behind the U.S. economic growth of the last 100 years is fairly straight forward.  Economists describe GDP in mathematical format as follows:



C = Personal Consumption Expenditures

I = Fixed Private Investment

E = Net Exports/Imports

G = Government Consumption Expenditures

While all four components matter to the economy the C component (at roughly 71%) is the coaching staff, offense and defense of this football team.   Let’s just call the other three components “special teams” – important, but far less so in the grand scheme of things.   What’s happened to this crucial component of the U.S. economy in the last three years has been remarkable to say the least.  There has been a dramatic stagnation in personal consumption expenditures (PCE).  If we take a look at the historical data it’s truly incredible.  PCE grew at an average rate of 7.5% for almost 50 straight years.  Even more incredible is that this growth has been almost entirely uninterrupted.

(Figure 2)

(Figure 3)

When the Nasdaq bubble imploded, American balance sheets were cracked, but not shattered.  Slowly, they began to come back.  But as we all know now a far more nefarious bubble was brewing.  One based on pure debt and speculation.   When the housing bubble imploded in 2008, it shattered consumer balance sheets.  Make no mistake – this is not a government debt crisis in the United States (as the hyperinflationists and defaultistas have tried to convince us).  It is not a banking crisis (as Ben Bernanke has told us).  It is a private sector debt crisis – primarily a household debt crisis.

If we look at the recent PCE data we see some signs of stability, but even this is nowhere near enough to sustain economic growth.  By my estimates we would need to see 5.5%+ annual growth in PCE to fill the output gap in the coming 3 years.  In the last 3 years we have seen a grand total of 5% growth in PCE.  That is an astonishingly low rate compared to the average annual rate.  Even if we cherry pick the absolute bottom in December of 2009 the annualized growth rate is just 2.9% – still well below trend growth and that includes an incredible equity market wealth effect and stable housing.   This is the primary reason why we are seeing such an anemic recovery and tepid hiring.  The balance sheet recession is strangling the household sector.

(Figure 4)

As I’ve previously mentioned, this current environment is easier to comprehend than most would like to admit.  What is basically occurring here is a massive decline in consumer spending power which subsequently weakened corporate revenues.   The lack of revenue  strength leads to tepid hiring because visibility is poor.  Margin expansion has helped companies maintain their balance sheets in recent years, but margin expansion alone can only sustain bottom line growth for so long before the market realizes that there is no organic growth.  At some point, the household must heal to the extent that they contribute to corporate revenues and sustain recovery.  So what we’re seeing now is this frustrating positive feedback loop where corporations are waiting for revenues to rebound so they can expand their operations and hire, but the problem is that consumers are more focused on paying down debt as opposed to spending and accumulating debt.  The problems are now being compounded by the fact that the government is no longer aiding growth.

Although I’ve believed this issue has been clear for the past two years, it has not been so obvious to those making decisions.  Ben Bernanke misdiagnosed this as a banking crisis.  Timothy Geithner agreed with him.  Hank Paulson certainly agreed with him.  So they went on their bank rescue mission while almost entirely ignoring the root cause of the problem.  Meanwhile, the defaultistas and inflationistas have been on an austerity campaign attempting to convince everyone that the USA is bankrupt and on the cusp of becoming the next Greece – they have been and will continue to be wrong, yet their fear mongering campaigns continue to this day.  This has not only exacerbated the level of fear and uncertainly and has largely contributed to the political gridlock we are beginning to see.  So now we find ourselves in quite a bind.

As I expected, the initial stimulus plan helped give the appearance of recovery, but it did not solve the actual problem.  It merely papered over the problems and injected some short-term relief.  The problem of debt was still (and still is) brewing under the surface.  Now as the stimulus effect wears off we are realizing that the household sector remains incredibly weak, but there is no political will to attempt to solve the problems at hand.  Ultimately, these problems will persist until the problem of debt has been reduced to a point that can sustain higher levels of expenditures.  By my estimates, the current trajectory of debt repayment and economic growth leads me to believe this cannot occur until 2012 at the earliest.

What this all likely means is that growth will remain well below trend as the consumer continues to de-leverage.  This creates a particularly uncertain environment for corporations and leaves the economy highly susceptible to exogenous risks (China, European debt crisis, housing double dip, etc).  Political gridlock and continued misdiagnosis in government will certainly not help.  Welcome to the balance sheet recession boys and girls.  Enjoy your stay.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

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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  • Paul

    Hi TPC,

    Again a real interesting thread.

    Based on the equation written above can we then consider that the stimulus plan proposed by Obama (200B$ + 50B$) will replace the “C” to maintain the GDP?
    But I nevertheless agree with your conclusion that C+I > G
    As far as private consumption does not take off the growth prospects are threathened.


  • Paul

    As I can’t edit – additional remarks: it looks like the tentative done after WWII to boost the economy – massive spending by the government to re-launch the economy.

  • TPC

    Probably way too small considering the extraordinary size of the output gap. Could paper over the problems for a few more quarters, but ultimately it will fail also. And that all assumes that it gets passed and is targeted efficiently. Not likely in my opinion. This means exogenous risk impact remains enormous.

  • Amakudari


    Well, C is itself a function of things like income (GDP), taxes, propensity to consume, etc. In other words, there’s some argument that by increasing G, you can also increase people’s future tax expectations, inducing saving, and in so doing the increase might even be counterproductive (especially long-term, if the expenditures are wasteful by nature). I’m not going to suggest Ricardian equivalence, just that there’s a point beyond which government spending doesn’t help (Japan’s somewhat like this). Government spending can also crowd out private investment. The traditional argument is that government spending pushes up interest rates, which may be unlikely considering nominal yields are near zero, but I’m sure we can find examples of government propping up certain sectors in a way that suppresses private investment. Or, as I think TPC is arguing, if it doesn’t address the fundamental causes of the decline in consumption, it’s window-dressing that just makes GDP look nice for a few quarters.

    In case it’s not evident, I have an association with Japan. If the intermittent fiscal extravagance in the 90s and 00s here were an exercise in short-term GDP targeting, they probably worked, but in the longer term they amounted to a bunch of terrible “investments” with no ostensible effect on boosting consumption. Companies were still addicted to cheap credit, banks were still saddled with bad loans, and real estate prices were still plummeting, but we now had bridges connecting farming villages to uninhabited islands. The actions “helped” stabilize GDP, but the money was not pushed into anything that would increase GDP down the road. The debt load’s affordable (I’m no deflationista), but it’s definitely a drag on growth.

    I’m a little hesitant with graphs like these for a few reasons. The first is that it’s already an exercise in curve-fitting, and the second is that beyond the inherent curve-fitting, the time period we’re looking at shows the most moderated trend growth in US history. We’re missing out on some real nastiness in the Great Depression, the WWII boom and drop-off, the 70s stagnation, and we’re ignoring the effect that the bubble had on consumption. Going back over a few business cycles, without knowing the future, we could select a time period and chart the trend, then see the next few years deviate radically:

    I agree with the fundamental argument, that we have idle capacity, I just suppose I’m saying that people look at these charts and say, “Well, we can increase C (consumption) by lowering T (taxes). We can increase I (investment) by lowering i (nominal interest rates). We can increase G (government spending) through fiscal stimulus. Let’s go!” Add a few more paragraphs and you have a Krugman op-ed. But what’s been suppressing GDP growth recently is neither high taxes nor low government nor high interest rates; it’s uncertainty, debt levels, wealth perception, etc., none of which seem to be aided by the above policies.

  • Anonymous

    in the ’87 savings and loan debacle(S&L presidents figured out they could write a 20 million$ loan to their brother-in-laws, he defaults and both retire to the carribbean….oh,well) the feds made the resulotion trust company and took them apart and sold all the foreclosed residences from the ensuing collapse.

    this time the big boys gamed the system by repackaging and camofluaging mortgages(given(mandated by law) to people who were supposedly to use the rapid increase in their equity to make up for the fact the monthly payment was WAYYY out of their budget–a balloon payment- OR to flippers who sold them to the mandated poor or other flippers) and reselling the repackaged mortgages.

    so it seems we have a bank credit fiasco every 20 years……..the main street recession in ’87 lasted til ’95….i was in business on main street.

    this time we’re deeper in sh*t, with bailed out swept under the rug zombie banks instead of resolved.

    why won’t it take at least 8 years this time?

  • boatman

    oops, forgot my name in above message.

  • http://pragmaticcaptilist GLH

    I would like to know how large of a budget deficit TPC thinks it would take to get the economy started again and for how long the US would have to run such a deficit. I really think obama is playing politics with this so called jobs package he is talking about. I suspect he and his economic advisers believe that the economy is doing well and we are just in a slow patch on the way to recovery. But, even if he does get the package through Congress, is forty billion enough?

  • Of the People

    “Now as the stimulus effect wears off we are realizing that the household sector remains incredibly weak, but there is no political will to attempt to solve the problems at hand.”

    No political will? Political will is the answer?

    Political will is the problem. Those who got us here, can’t get us there.


  • non_economist_fortunately

    Don’t quite understand what you are saying, so you say the economy will recover in 2012, and the policy is a failure? I figure if it recovers in 2012, all what the government has been doing should be viewed a great success, no?
    So the impact of additional stimulus from the president can last a few quarters, which will lead us into 2012, and that’s when you believe things will turn around, but you say these measures are inadequate? I really have no idea what you are trying to say in this post, TPC. You are hoping for something I guess, that’s why you lost your logic.

  • ES

    I am not clear though how we can increase the disposable income on the consumers. One way is to decrease taxes, I guess.
    But in the end, disposable income is usually is a factor of one’s labor contribution and US labor is losing its competetiveness in the global world and erfuses to acknowledge it.
    I work with people all over the world ( due to outsourcing) and I tell you – americans are the worst workers out there. Most of them are lazy, badly educated, don’t have much imagination/ outside of the box thinking , all in all -spoiled. The best workers are in Singapore and China.
    The bottom line is US labor doesn’t deserve the good life it has and this is now being corrected by global market forces. This is why US economy is staganating, because its human capital is not up to par.

  • non_economist_fortunately

    I think you are definitely right, people in China work 10 times harder than people here in US, and the quality of the workers are higher. Imagine they are still typing emails to ask me questions 11AM EST on how to address customers’ needs!!!

  • eludog

    ES – This is the root of our problem as I see it. We can talk about stimulus, debt, and housing all we want. The main issue I see is our lack of competitiveness in the global jobs market. My worry is that we have hit our peak economy as more and more jobs are lost overseas which leads to less and less consumption here. Add to that increasing costs of everything we need (food and energy) and I don’t know how any GDP output gap can be closed.

  • Michael Covel

    “It is a private sector debt crisis – primarily a household debt crisis.”

    True, but so few want to publicly admit this. It’s always some other guy’s fault.

  • Bruce

    The PCE of figures 3, and 4 (above) exhibit the exponentially increasing “J” curve behavior of UNSUSTAINABLE systems, until, of course it doesn’t (Summer 2008). The J curve is a warning sign, whether it be biological, or financial/economic processes, or systems.

    Just as trees do not grow to the sky, something that cannot continue forever, will not. There is a point where adding more debt results in NO GDP growth (and adding more yields negative growth).

    Bernanke is pushing on a string, and is once again demonstrating that the US central bank is a useless appendage. They are fools and deleveraging rules.

  • mutant_dog

    A highly credible analysis. It does beg the question, “what can be done to end the output gap, in a pragmatic, capitalist manner ?”

  • scone

    By the time the mass de-leveraging runs its course, a larger share of the Boomer cohort will have moved past its peak spending years, and will be frantically saving for “retirement.” The generation after them will soon be facing the same “consume or save” dilemma. Our birth rate isn’t high, and if the jobs aren’t here, our net in-migration may not be sufficient to top up the tank, either. So I’m not seeing where the demand will come from to completely heal the output gap. The only other option I can see is to destroy excess capacity, one way or another.

  • CF

    Has no productive capacity been destroyed over the last 2 years? While I understand population has grown and worker productivity has increased, my guess would be that the investment in productive capacity has declined and is not doing much more than keeping up with depreciation. This should mean that GDP potential should grow at a slower rate, making the output gap smaller than is represented above?

  • hbl

    Great commentary! But I think looking at nominal rather than real (inflation adjusted) values exaggerates the recent slowdown in PCE growth somewhat. However I agree with your description of the trend and how it relates to current outlook.

    If you are interested in seeing the real (inflation-adjusted) historical growth rates for C, I, E, and G, I recently graphed them for the US and Japan:

  • AWF

    This first and third charts show Exp.Growth since 1990 which is/was probably unsustainable.

    What was the catalyst for change in 2007 going forward?

    Change in “The Minimun Wage Law” in May 2007 raising the wage rate to $7.25 per hr and also allowing states in increase that rate on a state by state basis.

    Consider the cost difference per employee: $7.25 vs $5.00
    $2.25 per hr
    $90.00 per week
    $4680 per year
    Lets say you need another 100 employees
    Cost increase= $468,000 + benfits + new regulations/taxes

    Does this business realy need those 100 employees????

    TPC says that “E” is a special teams player–true.
    But going forward “little E” will become the “Big E”

    July was a good month for “Big E”

    Going forward:
    Suspending the minimum wage law pasted in 2007 is the way to restore PCE
    Plus restoring business confidence vis a vis regulation and taxes will lead to more hiring.

    A linear path for GDP growth is preferable to the Exp.growth boom and bust/misery trac.

  • TPC

    Good thoughts Amakudari,

    I am not anti govt stimulus, but I think we’ve proven in the last few years that we shouldn’t allow govt to decide where the money goes. I’ve been a proponent of infrastructure and tax cuts, however, ultimately, the only thing that is going to fix this problem is debt reduction at the household level and that will just take time….

  • TPC

    We’ve made a lot of headway in terms of paying down the debt. It’s been a record setting environment in many ways. Americans have actually reduced spending to pay off debts. That’s almost unheard of….

  • TPC

    It entirely depends on how it’s spent. If we spend $2T on bolstering the housing market then I would prefer to see the govt spend no money.

  • TPC

    Ultimately, I am saying the private sector must heal. That’s my main point. We can paper it over with stimulus and other govt programs, but ultimately, the debt reduction process has to play out.

  • TPC

    Yes, we have certainly lost our way a bit. Hard to imagine that the US economy isn’t at an extremely mature low growth stage. We’re like the Microsoft of the world that just can’t help but lose market share from here….

  • TPC

    Better to blame the banks than to blame your constituents I guess….

  • TPC

    Ultimately, the private sector must take care of itself. But I think the govt can do things to alleviate pressures. I’ve been a big proponent of tax cuts….

  • TPC

    Probably right, as I mentioned above….

  • TPC

    I am certainly guilty of oversimplifying the problem in an attempt to make it easier to understand….

  • quark

    The wealth affect due to the stock market is more like an anchor on consumers/investor wallets. I believe consumers not only spent based on the increase in their home equity but on the optimistic view that the stock market would continue to provide historical returns well into the baby boomers retirement years. Alas the present.

    This country needs a few good men and women to lead. Until the citizens see an end to the cowardice action of hoarding displayed through actions of self preservation among our countries business and political leaders, this countries citizens will continue to cling to despair and their dwindling cash reserves.

  • quark

    AWF are you serious??? So it’s the minimum wage law holding back hiring. Do you really think that paying someones minimum wage does anything but allow someone to pay their rent and maybe buy the necessary staples to survive.

    It’s nice to see you include the cost side of the equation vs a more balance cost and revenue side. After all, people receive a wage because they are contributing to production.

  • Angry MBA

    Terrific job of exaggerating. Now, time for some data.

    As of 2009, the US had a work force of 154.1 million.

    Of that number, fewer than 3.6 million had incomes at or below the minimum wage:

    In other words, about 98% of the work force isn’t impacted by the minimum wage; they already earn more than that. The US minimum wage is far too low to have much effect on most industries. In the scheme of things, it’s nearly meaningless.

  • Anonymous

    I clearly presented article.

    I kept hoping for a prescription for the cure from TPC. Apparently it’s the “get plenty of fluids, bed rest and aspirin” prescription that you get for a cold virus.

    Gotta disagree with AWF. Cannot see how cutting the minimum wage will increase PCE. Only thing that will help is corporate profits, which are quite healthy at the moment, small business owners, and I suppose, the stock portfolios of investors. Since most publicly traded companies have few employees at the minimum wage level, the effect would be small. Additionally, it would represent less money for the wage earners to add to PCE.

    A better solution would be the suspension of employment tax for a fixed period. That would provide a jolt to PCE.

    A question for TPC comes to mind: What do the GLOBAL graphs look like for the above? Is this just a macro shift in where the money gets spent?

    And another: How could that graph continue it’s relentless increase (#3)? Consumption has to come FROM something…mining, farming, timber, manufacturing, and a long list of etcs, and those somethings are not limitlessly expanding.

  • Roger Ingalls

    Sorry, did not mean to post Anon…something must have changed here…

  • TPC

    Yes, we’ve squandered a great opportunity. Unfortunately, all of my solutions to the crisis were passed on several years ago. I was in favor of allowing the banks to take their losses (Swedish response), allowing housing prices to fall further, and stimulating main street as opposed to Wall Street. Enact real regulatory reform, etc.

    The time to act on these measures has long passed. And now the political will is not there to enact real helpful tax cuts or spending programs that could remotely help.

    I am not entirely anti govt intervention, but ultimately we must bite the bullet on housing debt. That’s where the heavy lifting has to come from.

  • Nico

    TPC: thanks for another great post. Did you ever publish a chart of private debt that shows target healthy levels vs. where they are at today? Would be quite interesting.

  • TPC


    Have you seen this chart I posted recently?

    My guess is we trend towards 15% before reaching healthy (ier) levels….

  • AndyC


    Your entire Macro view is predicated on MMT as a proven fact.

    Its not a fact, its just an opinion and its an opinion shared by very very few economists, in fact its a total backwater in economics.

    There is very little following for MMT, maybe Galbraith and a handful of bloggers.

    You say “MMT turns economics on its head!”……I say HUBRIS from a handful of economic wonks.

    Even if you could prove it mathematically it wouldn’t matter because no central bankers or governments are or ever will implement it, they don’t even know what it is.

    They will default, inflate or devalue the currency

    The inflationists have been wrong when both the commodities markets and equity markets have appreciated substantially over the last 2 years, (shouldn’t those markets have, you know, DEFLATED?) but you are right because the bond market has rallied?

    What, do you make all assumptions by exclusively following bond yields?

    That sounds kind of peculiar to me

  • vol-trader

    Here is the problem with Obama’s proposal. It doesn’t eliminate the expiration of the Bush tax cuts. Net-net, he is not really doing anything. He is replacing one tax cut with another.

  • boatman

    F. BEARD….u missed it…..basically your economic solution at:


    i too can admit i was wrong….i agree with everything TPC says here…..print n spent wisely…..we need it….there will be bond vigilantes and inflation down the road(FED ineptitude and social and political pressure on FED)

    but we have to drain the swamp first…..printing, inflation later and vigilantes will be our penance to get out of this hole….

    wayyyy better than staying here…..then invariably it all repeats itself……as long as you have to raise 10 billion to get elected we will not have leaders.

  • AWF

    Angry said:
    In other words, about 98% of the work force isn’t impacted by the minimum wage; they already earn more than that. The US minimum wage is far too low to have much effect on most industries. In the scheme of things, it’s nearly meaningless.nry

    Agree–for those that have jobs the minimum wage is meaningless.

    But for Business– Labor Cost is the primary factor for hiring.

    Where do you think the last few quarters of earnings came from?

  • AWF

    Quark said:

    So it’s the minimum wage law holding back hiring. Do you really think that paying someones minimum wage does anything but allow someone to pay their rent and maybe buy the necessary staples to survive.

    This is not about whats Right/Fair/ moral its about Jobs.

    Basically : Job vs No Job

    Jobs create the “Business Multiplier” which create more Business and more Jobs and the potential for Higher Wages tru competition.

    You have to start somewhere–
    Give people a Job and Hope
    Rather than Unemployment Comp and Food Stamps and Distress.

  • AWF

    Anonymous Said

    Gotta disagree with AWF. Cannot see how cutting the minimum wage will increase PCE. Only thing that will help is corporate profits, which are quite healthy at the moment, small business owners, and I suppose, the stock portfolios of investors. Since most publicly traded companies have few employees at the minimum wage level, the effect would be small. Additionally, it would represent less money for the wage earners to add to PCE.

    LET ME BE CLEAR: I am AGAINST cutting anyone’s (currently working) pay based on the Min-Wage.

    Temporary Suspension on the law back to 2007 levels for NEW HIRES only.

    And NO Corporate funny business–If I was “In Charge” and found out about layoffs and other that types of wage reduction practices-
    Can you say Sherman Anti Trust,IRS audits,SEC audits,Dept of Labor,Justice–the full force of government.

    I am anti Government– but I would not let business take advantage of a temporary situation.

  • Angry MBA

    But for Business– Labor Cost is the primary factor for hiring.

    No, it isn’t. The primary driver for hiring is demand for the product or service offered by the employer to the consumer.

    During a recession, companies need fewer workers, so they cut bodies. Many minimum wage and sub-minimum wage workers are working in service sectors that are particularly hard hit by downturns.

    As the data shows, most businesses have to pay far more than minimum wage to most of their work force. An increase in minimum wage has minimal impact, given how low the minimum is compared to the norm.

    SSA compiles wage data. In 2008, the national average was about $41,000 per year. Based upon a 40-hour week, that works out to be just under $20 per hour. That’s well above the minimum wage, obviously.

    Again, 98% of the work force makes more than minimum wage; the vast majority of workers make substantially more. I’m pretty sure that you didn’t know that prior to posting your earlier comment; you formed an opinion based upon your gut instincts, rather than on facts. Start with the facts, then form an opinion; don’t form an opinion that requires ignoring basic facts.

  • duc


    Too long a post to fit in your comments box

    jog on

  • Anonymous

    No country has ever paid its sovereign debts and no fiat currency has ever survived.

    Thats a historical fact

    You have no mathematical proof that MMT is correct, all you have are abstract theories involving endless circular money shuffling and impenetrably complex central bank machinations that are designed to obscure the fact that MMT doesn’t work, it cant work because if it did then just as man discovered the earth is flat so would they have discovered that a FREE LUNCH exists and they would have don so hundreds of years ago.

    MMT doesnt just turn economics on its head, it turns the world and all of its economic history on its head…….good luck with that.

    Money and banking have existed for thousands of years but you guys have just discovered that a government can run up deficit spending practically without consequence?



  • TPC


    I guess I should be flattered that your website has become one huge refutation of my work. Unfortunately, (as always) you make a huge number of unsubstantiated claims.

    As for the 71% figure in the USA economy – we can agree to some extent there. You should deduct import spending from this number which takes us closer to 55%-60%. Semantic argument in my opinion. This is still a consumer driven economy whether you want to quibble over 55% or 70%.

    You claim this was a banking crisis. Well, how come the banks are making record profits again and there has been no sustainable recovery?

    You claim that unemployment is a function of wages. That’s sheer nonsense. Companies hire when they have the sustained revenue growth to leverage their operation via new workers. This is simple supply and demand. Not some inflation voodoo as you would have everyone believe.

    You keep making this circuitous argument based on the idea that you believe the US economy is a ponzi scheme built on inflation. Fine. But if you’re going to continue to make this argument you must first explain to everyone why the markets believe you have been so wrong. At some point, holding up a chart of the monetary base and saying “see, here’s the inflation” just doesn’t cut it any longer. The market has to actually agree with you and thus far the market says you have been incredibly wrong. So, before you continue to trot out this ridiculous “USA is insolvent, hyperinflation is coming down the line” argument you must first explain to us in detail why the markets have disagreed with you for so long. You can’t just keep saying “it is coming, just you wait TPC” and expect people to listen to you. At some point, being right counts and thus far you have been incredibly wrong.

  • F. Beard

    Better to blame the banks than to blame your constituents I guess…. TPC

    Oh yeah, like the constituents had a choice about borrowing from the counterfeiting cartel. Sure, they should have parked their money in savings accounts and watched the price of housing grow faster than their savings?!

    “When the music is playing one must dance to the music” someone said.

  • TPC

    Let me just add: I am open to debate this topic if you can bring facts to the table, but inflation has been a very bad macro thesis now for several years. In order to continue arguing that the risk is high inflation you must first show us why you have been wrong. Otherwise, you’re just trotting out the same incorrect argument that you’ve been making since 2008.

  • AWF

    ANGRY Says:

    No, it isn’t. The primary driver for hiring is demand for the product or service offered by the employer to the consumer.

    SSA compiles wage data. In 2008, the national average was about $41,000 per year. Based upon a 40-hour week, that works out to be just under $20 per hour. That’s well above the minimum wage, obviously.

    Again, 98% of the work force makes more than minimum wage; the vast majority of workers make substantially more. I’m pretty sure that you didn’t know that prior to posting your earlier comment; you formed an opinion based upon your gut instincts, rather than on facts. Start with the facts, then form an opinion; don’t form an opinion that requires ignoring basic facts.

    Ok Angry:
    Demand for product is the primary driver hiring–
    Remember that Business has a choice–
    Should we hire Temp works?
    Should we hire Full-Time works?
    Should we farm out production?
    Should we Buy labor saving devices?

    What are these choices based on–Labor Cost.

    Angry do you think that business ignores their Wage and Benefit Cost?

    And is the Trade-off–Waitng for my SSA National Average Wage Job or NO Job?

  • scharfy

    Hey good post and comments..

    I’d like to add the residual financial drag on the household sector is only ONE part of the aftermath of a credit bonanza, and its not even the most nefarious as far as I am concerned.

    Let me make my case.

    Nope, as bad as owing a 550k Mcmansion is, or looking at 15k in credit cards bills, or any of the hallmarks of over spending – the WORST part of credit-fueled bonanza is what is does to the labor market allocation.

    Labor flows to where the money is, and we have lots of homebuilders, real estate agents, mortgage brokers and all things housing. We built and sold 25 years of homes in 5 years, this didn’t happen without a significant workforce.

    (Overlay this misallocation on top of a steadily growing financial service sector and you have the structural issues that need to be remedied in my opinion.)

    Think if the people you know that “got money”.

    How did they get it? More than likely, if you drive through the A-list neighborhoods in America, you’ll see people tied to the real-estate sector, or money managers.

    Just like any 28 year old with a dream flowed to the internet in 1997, we just witnesses that in spades.

    This is what needs to change. The labor pool. And its a bitch. Particularly if you are older. But its gotta happen. And it will whether we want it to or not.

    So google “in demand jobs” and you probably won’t see anything you can do, if you are the average American. Thats the rub.

    And that’s our ticket outa this defunct economy – learning to do the things that people need…

  • AndyC

    “but inflation has been a very bad macro thesis now for several years.”


    Only by your strict interpetation of bond yields as proof at the exclusion of all other market instruments.

    Hows gold and silver doing by the way?

    or beef, or wheat or copper or equities or nearly every other inflationary trade?

    In the case of bond yields you are also following an EMT view of price movements as if bond yields dropping confirm their worth and bolster your macro views and that idea is totally invalidated under these worldwide QE conditions.

    Bond yields are totally a product of government intervention and not the market setting prices.

  • AndyC

    I may not understand MMT’s basics, I mean who could?

    I do understand its core though and that core is yet another economic FREE LUNCH

    Dont get me wrong I would like a free lunch and if we can do a free lunch would not free beer and cigarettes thus surely follow?

    I am emphatically in favor of free lunches, free beers and free cigarettes but they dont exist

  • TPC

    No, my analysis includes all assets that impact people’s lives and not just the world of gold and silver where the hyperinflationists permanently reside.

    The world of stocks, bonds and real estate all scream deflation. These account for, BY FAR, the largest amount of household wealth in America. You can continue to harp on commodities, but commodities are just 15% of a household’s total expenses. And gold and silver have absolutely positively zero impact on the average American family balance sheet so it’s nonsensical to base your entire argument on gold and silver. I am not saying that there isn’t higher inflation in some pockets of the total economy, but it’s sheer nonsense to continue trotting out charts of gold when assets like real estate have cratered.

  • SS


    Most of the inflation in commodities is due to growth in Asia. India and China have sizable inflation problems right now and some of that is being reflected in strong commodity prices. Anyone who argues that America is suffering from high inflation right now is nothing short of delusional. It might be happening abroad and we might be importing some small amount of it, but overall inflation is not a threat here.

  • Angry MBA

    do you think that business ignores their Wage and Benefit Cost?

    Funny, I don’t recall saying that. Please save the straw men arguments for somebody else.

    What I did say was that most companies don’t have a lot of minimum wage workers and they are indifferent to the minimum wage because they aren’t impacted by it. An increase in the minimum wage has no impact on the earnings of the $20 worker who is the norm in this country.

    One more time: basic data makes it clear that the vast majority of workers earn much more than minimum wage. That is simply a fact — there is nothing to debate in that point.

    Irrespective of all that, companies don’t hire when demand for their products is falling. Surely, this shouldn’t be a tough concept to grasp.

  • F. Beard

    But money is simple stuff. It comes from the ground and circulates as gold and silver through the economy. In an inflation there is more circulating money with more velocity. from

    Sheesh! Despite all the time I used to spend at that site, they are still gold-bugs which leads me to believe they are tools of the banking establishment. Common stock and modern day equivalents of tally sticks are superior to precious metals for quite a few reasons.

    Still, it is good to see them reveal the deceptions and evasions of central banking so I guess they are just unconscious tools.

  • Jack Sparrow

    Is it me or is this exact same article on Seeking Alpha, under another title, from a guy named Cullen Roche:


  • Jack Sparrow

    Oops… nevermind. Duh.

  • TPC

    I had them change my profile at SA. My identity wasn’t really a secret anymore.
    So, hello!


  • AWF

    According to Angry:

    It makes no difference what the minimum wage is because “the vast majority of workers earn much more than the Minimum Wage”

    Great-then you are OK with a repeal of all the Minimum Wage Laws in the US?

    Its just a question: Yes or No

    If NO: Why not?


    There is a way out. Refinance every home mortgage (1st and 2nd) at the lowest possible rate of maybe 3%. Let the FED buy the bonds. Make the mortgages assumable. You free something near 10% of GDP to either quicken the household deleveraging process or get some additional spending or both. You also rid the world of toxic assets based on US housing. You restore existing home prices outside of areas that are simply too overbuilt to ever recover. The bonds can set on the shelf at the FED until they are retired. The ultimate loss will be small and a much smaller portion of the economy in 30 years. It would be one hell of a tax break.

  • KenM


    G’day mate
    You mention that “I’ve explained MMT in great detail” in your commment above – where can I find a detailed exposition of MMT?

  • TPC


    I’m on the road. Check back here in a few hours. Thanks.

  • Angry MBA

    Great-then you are OK with a repeal of all the Minimum Wage Laws in the US?

    Don’t try to change the subject. My opinions on the benefits and detriments minimum wage are off topic, so I won’t be offering them.

    Once again — you made a statement that clearly wasn’t accurate, given the data. I corrected you. You obviously still don’t understand why what you previously said doesn’t make any sense.

    The vast majority of job losses during the recession are due to overcapacity and lack of demand, not due to wage levels, per se. Companies hire based upon their need to produce output, not just for the hell of it. During times like these, when their sales decline, they cut jobs.

    The vast majority of the work force is not impacted by the minimum wage, as they earn amounts far above it. When an increase in minimum wage only impacts a couple of percent of the workforce, it is clear that its current level doesn’t do much to impact overall job numbers or real wages, either way. The minimum wage would have to be much higher than it is now in order to have the impacts that you are claiming that it does.

  • Andrew P

    If you ask why the public has taken on so much debt, the answer has to be that the 20 year decline in interest rates allowed the carrying costs to go down even as debt went up, until the crazy house bubble started in 1999-2000. Then interest only loans and other structured finance products allowed speculators to defer interest payments for several years, with the intention of selling the property before the full cost kicked in. People literally went nuts, and took on insane levels of debt. The very definition of mass insanity.

    Also, wages stagnated, so the public has to take on more debt to spend more. With cheaper labor in China and elsewhere, and virtually all manufacturing outsourced, wages have no choice but to stagnate. Another reason why it will take so long to grow out of this mess.

  • Ekim

    Citizens owe so much because the bank confiscated the goods they produced, and loaned the goods back to them. If they didn’t borrow the confiscated goods back, their standard of living would have gone down.

    Better to just stop the bank from confiscating goods by printing, then citizens will be able to buy what they produce without a net debt increase.

  • MG

    TPC – “Its a private sector debt crisis – predominantly a household debt crisis”

    The non-economist in me assumes that the private sector here includes the corporate sector. Can you comment a bit on the magnitude of their debt vis a vis the household debt.

    Thanks – MG

  • AWF

    Angry says:

    The vast majority of job losses during the recession are due to overcapacity and lack of demand, not due to wage levels, per se. Companies hire based upon their need to produce output, not just for the hell of it. During times like these, when their sales decline, they cut jobs.

    I am not disagreeing with you about job losses during the recession.

    What I am trying to point out(badly) is that the “Minimum Wage” is a price floor for labor cost.

    I believe this Price Floor is too high–short-term

    I believe that Labor Demand currently suffers from both the Substitution effect
    and the Scale effect.

    Current example of substitution:
    GE just closed a plant in VA making light blubs–moved it oversees to China–
    ONE of the reasons “Cheap Labor” this is very sad because the new CFL bulbs require more hand labor. American engineers invented the CFL in the 1970’s
    CFL=compact fluorescent light

    Until policy makers can address Substitution and Scale labor issues Unemployment will remain high.

  • Angry MBA

    I believe this Price Floor is too high–short-term

    I’m sure that you believe it. The problem is that you have no good factually-based reason to believe it.

    If the minimum wage had an impact at its current level, then there would be a lot more than just a couple of percent of the work force earning wages at or close to it. The fact that so few people are affected by it makes it clear that it is largely irrelevant at its current levels.

    Instead of relying upon your preconceived notions, look at the facts. The facts don’t back you up. You obviously want to believe it, but you’re wrong.

  • Nico

    Thanks TPC!

  • Roger Ingalls


    Interesting. I agree with your overall theme…we all need to get redirected to productive work. Not sure the jobs most in demand are all that productive (lower and mid level health care careers top most of the lists I googled), but they certainly provide as much productivity and usefulness as financial occupations.

    Shifting gears, you say

    “We built and sold 25 years of homes in 5 years, this didn’t happen without a significant workforce.”

    That’s in interesting statement…sounds sort of amazing, but faintly plausible. Wasn’t sure if it was factual or rhetorical. So I did a little research…

    The average number of new single family homes created in the US from 1978 to 2009 was roughly 1.1M. The peak year was 2005, with a bit over 1.7 new homes. The 5 largest consecutive years were from 2002 to 2006, for a total of 7.6M, and an average of 1.5M.

    Nope, not even close to 25 years of housing supply in five years. More like 7 years of housing supply in 5 years. We exceeded the average by about 2M units in those 5yrs (about 36% over the norm annually). While that’s still a lot of housing, the low numbers for 08, 09, and 2010 are cutting into that oversupply.

    In 2008 we built about .4M less than the average, and in 2009 we built about .7M less than the average! Don’t have the data at hand, but I suspect 2010 will look a lot like 09. (Side note, the percentage drop in multifamily construction for 2009 is shocking, from an average of 375K units to 109K…nothing comes close to that figure in the period reported!)

    Building a million homes in a year creates a lot of jobs. And a million homes not built and sold means a lot of families don’t have paychecks to pay for the homes sitting empty.

    And we can’t all become nurses overnight.


    Not looking to pick an argument…I just read stuff and go “hmmm, I wonder if that’s true?” I enjoy the comments here, and I’m glad folks contribute their efforts.

  • scharfy

    there i go with the hyperbole….

  • Awf

    1 SparkNotes Editors. “SparkNote on Labor Demand.” SparkNotes LLC. n.d.. (accessed September 9, 2010).

  • Angry MBA

    That’s hilarious. It’s as if you think your link was at meaningful.

    It isn’t, because the actual real-world numbers are applied to the actual real-world situation. A theoretical microeconomic model doesn’t mean much, when reality makes it clear that the current circumstance isn’t accurately described by that microeconomic model.

    One last time — if the US minimum wage was meaningful, then there would be a lot more than a couple of percent of the population who are earning something close to it. Most workers are capable of cutting a deal that gets them far more money.

    The level of the minimum wage makes no difference for the vast of majority of the work force. If the minimum wage was cut tomorrow, incomes across the country are not going to fall in sympathy with the cut. There are some service sector jobs where the minimum wage is quite important, but for most of the work force, it isn’t.

  • Angry MBA

    The most aggressive of the bears are, as usual, overshooting.

    The time to be bearish about housing was 2004-9, not now. Without a full blown Depression, those who are waiting for another 30% decline are just kidding themselves.

  • duc


    My response to your response:

    jog on

  • TPC


    Thanks for taking the time to respond. It’s great that people challenge my ideas. I don’t pretend to have all the answers and I assume you don’t do so either. We are so far apart on these issues that there is no agreeing with one another. You think it all comes down to personal liberties and this government conspiracy to take over our lives. You believe in some form of anarcho capitalism. I do not. I fully respect your beliefs and your ideas that the govt should stop meddling in our lives and just step to the side. I even agree with many of your ideals. But I do not believe in a world where the private sector can run everything on its own. If it were possible I am quite certain that someone would have done it by now….I simply don’t agree with your ideas or believe that they are realistic.

    We can have this back and forth until we both die and neither of us will ever agree on this stuff. Until then, I wish you a highly profitable future. Thanks.


  • duc


    Yes we are polar opposites on many issues, possibly all. However, fundamentally, the issue of the money system, and who controls it is central. When government control it, which they do, they always inflate it, history stands as mute testament to the fact, and inflation is theft.

    All the current economic problems that we are embroiled in today take their causation from government inflating the money supply. What is their answer? Why, inflate the money supply some more.

    You argue that the US cannot go bust due to the ability to create increased quantities of fiat currency.

    I say nonsense. Fiat currency only has value due to the exchange potential it holds for goods/services. If the willingness to exchange real goods/services for fiat is lost, then fiat is worthless.

    You lose the willingness to exchange when you constantly default on your promises, which is the very definition of inflation. Only through coercion can you continue to foist increasingly worthless paper onto people.

    If the US continues to inflate at the current rate, someone will call your bluff. China is already agitating in this direction.

    jog on

  • TPC

    See, we could go back and forth all day. You view the world from the perspective of someone who believes in the gold standard. I just don’t fundamentally agree with anything you say.

    So what’s the answer Duc? What should we do? Go back to the gold standard and dissolve the government?

  • duc


    In a word, yes.

    Not that gold has any special significance other than it cannot be inflated by government.

    The function of money is to facilitate the exchange of goods and services. Money does not need government to micro-manage its availability, quantity, or any other variable.

    Money can self-regulate on a free unhampered market. The quantity of money is NEVER a factor, money is scarce, prices adjust downwards, money is plentiful, prices adjust upwards. Thus there is no requirement for government to micro-manage the money supply based on the argument of quantity.

    Government need to control the money supply as it affords them the most powerful tool in retaining POWER. Power is ultimately what government seeks, as it allows government [and the individuals who compose it] the legal right to expropriate the masses, maintained via coercion [Police, Army]

    All government functions can be performed and supplied on the free unhampered market: Police, Army, etc.

    The Judicial system [what a joke] is supposed to provide a check on the government. How realistic is that when government pays your wage and selects who sits in judgement on the government?

    You should hand me the keys to your blog for 1 week, and I will post a series of posts that are the other side of the coin to your arguments, you did state that you believed in debate.

    jog on

  • TPC

    It’s a libertarian utopia. We’ve seen what happens when govt steps aside. Just look at the wild west or the mobs in the 1920’s. You have too much faith in the intelligence, organization, honesty and good in human beings.

    Personally, I think human beings are more primitive than most would like to admit. We will scratch, claw and kill our way to the top. Even if it means climbing over our own. We’ve seen your utopian dream in parts of our society throughout history. It doesn’t work.

    Now, I am not saying that govt should rule all things, but there must be an authority figure. Your world is a lot like saying that kids should be allowed to raise themselves. Good luck with that. It’s just not a realistic way to approach the world. Your world would experience mass corruption, crime and general mayhem. History has already proven as much.

    Is there a healthier medium than the current world and this libertarian utopia? Probably, but call the human race a work in progress.

  • duc


    Well first off there are two forms of Utopia:

    Economic utopias are based on economics. Most intentional communities attempting to create an economic utopia were formed in response to the harsh economic conditions of the 19th century.

    Particularly in the early nineteenth century, several utopian ideas arose, often in response to their belief that social disruption was created and caused by the development of commercialism and capitalism. These are often grouped in a greater “utopian socialist” movement, due to their shared characteristics: an egalitarian distribution of goods, frequently with the total abolition of money, and citizens only doing work which they enjoy and which is for the common good, leaving them with ample time for the cultivation of the arts and sciences.

    Which is about as far from what I advocate as is possible to get. The second type of Utopia is a Capitalistic one:

    Utopias have also been imagined by the opposite side of the political spectrum. For example, Robert A. Heinlein’s The Moon Is a Harsh Mistress portrays an individualistic and libertarian utopia. Capitalist utopias of this sort are generally based on free market economies, in which the presupposition is that private enterprise and personal initiative without an institution of coercion, government, provides the greatest opportunity for achievement and progress of both the individual and society as a whole.

    Another view that capitalist utopias do not address is the issue of market failure, any more than socialist utopias address the issue of planning failure. Thus a blend of socialism and capitalism is seen by some as the type of economy in a utopia.

    Market failure. The primary problem in any potential market failure, is the failure of the money system. Government, invariably, debases the money, driving the boom/bust cycle.

    I do not advocate an absence of laws. I advocate laws based on the Common Law, not Statutory Law, which is government created law that benefits who exactly? The parties that have lobbied for it.

    Statutory Law is very largely Rent Seeking, which again allows expropriation of the masses by the few.

    The Common Law, however allows for justice, or fairness, to be reintroduced to society. Police, Courts, all enforcement, can be provided on the free market. Insurance companies already are in this business, and could quickly and easily adapt to provide these services.

    jog on

  • TPC

    We probably agree on this more than you might think. If we lived in a world where we were all citizens of the same country then many of these problems would be non-issues. If the world was one huge United States your utopia might work. The single currency system would work, much of the civil disagreements would be alleviated, there would be generally no need for military, etc.

    But that is not the world we live in. We live in a primitive world where people fly planes into buildings because they read some 2,000 year old manuscript that told them they are supposed to hate someone else for what they believe in. We live in a dangerous world where the military is almost always the largest bureaucracy in a country (by necessity). We live in a world where resources are running out and people believe that power and prestige are all that matters. Morgan Freeman quoted Ernest Heminway in the movie se7en: he said “the world is a fine place and worth fighting for. the second part is true.” It’s sad and true. This is not a good world, but we will continue to fight for it.

    I wish we lived in your world. But we don’t. We live in this primitive place. We can fight for your world, but the reality is that we will likely all kill one another before we ever get there.

  • duc


    You subscribe to a few myths I see.

    Why is America unpopular [understatement] in the Middle East? Could it be that America has practiced Imperialism under the sobriquet “Open Door” since the 1900’s? In fact taking over from the British Empire after we pretty much collpased after WWI. That America has sought to expropriate all and sundry via the “Reserve Currency” instigated at Bretton Woods, and abrogated by Nixon in 1971

    Turning to your Hobbsian philosophy and the requirement for a military. There are of course two forms of military: the first is an offensive military, the second a defensive military.

    They have very different costs associated with the different models, as are their aims. A defensive model will cost less than the offensive model, even allowing for costs to be defrayed via expropriation of foreign resources through Imperialism.

    The supply of defensive military can be provided on the free market, the cost paid for by the massive savings made by the abolition of all taxes, currently required to support government.

    jog on

  • Roger Ingalls

    An excellent argument!

    TPC, I’m solidly in your corner on this. Keep writing (is there a book in the making?).

  • TPC

    Your utopia breaks down the second we require large scale offensive military operations. And no, it is a total pipe dream to believe that a military as large as the US military could be run by the private sector without corruption and potentially disruptive power shifts. There is a great irony in the libertarian perspective in that they are staunch supporters of the military yet it is really the primary reason why government even exists at all.

    There are no true libertarians in foxholes.

  • duc


    Several points: if the private sector could not run a military machine as large as it is currently, free of corruption, what makes you think the government can?

    The size of the military and hence its cost, is the issue. America is an aggressor, and hence needs a very large military. If America was not an aggressor, and instead traded for goods and services, then the military could be far smaller, and cost proportinally less.

    The smaller [significantly] military would reduce the amount of corruption within the system.

    I’m surprised that you did not voice the legitimate question: what about the potential for freeloaders, enjoying the benefit of the “commons”.

    jog on

  • TPC

    See, this is the problem with your thinking. You seem to think we live in this nice big pretty sandbox where no one ever gets sand kicked in their face. But the truth is, when Johnny wants to play with the Tonka Truck and Sam won’t trade it to him, Johnny gets upset because his personal needs aren’t being fulfilled. All hell breaks loose when Johnny kicks sand in Sam’s face and takes his truck.

    The global economy is the same thing on a much larger scale. We are divided whether you want to believe it or not. When the USA runs out of oil we’re not going to ask the Saudi’s if they’ll be a doll and send some our way. That’s just not in our DNA. If I have bigger guns than you and I need something from you then I am going to wield those weapons in a way that convinces you to meet my demands. I know you don’t like this reality, but that’s what it is – reality. The size of our military largely represents the growing needs of our citizenry and our attempt to prepare for and dominate this game of global chess.

    We aren’t going to sit by idly as people fly planes into our buildings, fly planes into Pearl Harbor, manipulate their currency or hoard all the world’s oil reserves. This is basic human survival. The global economy is the ultimate game of human survival and we are not all on the same team. And we will try to survive at any cost.

    You want this small, low cost, friendly army. But when we run out of oil or China drops a nuke on NYC you’re going to wish we had a large organized military that can keep your children from being murdered by a “foreigner”.

    Your world works great in theory. We all get along, we play nice and share our goods, etc. But that’s not the world we live in. There will be more wars and there will be need for men with guns because we are a primitive “survival first” group of animals. I wish it was different, but it is not.

  • AWF

    The link is for simplicity for you and others that might read this post.

    Angry says:
    If the US minimum wage was meaningful, then there would be a lot more than a couple of percent of the population who are earning something close to it.

    Angry: Please Consider this data from BLS:

    Data by occupation and indusry give a more precise view of Minimum Wage employment.
    Maybe the overall avg % of the population is small but this is a large number of people by industry/occupation

    Angry says:
    The level of the minimum wage makes no difference for the vast of majority of the work force. If the minimum wage was cut tomorrow, incomes across the country are not going to fall in sympathy with the cut.

    This is not my point:

    My point is: Setting a lower price floor “Minimum Wage” would induce business to hire more unskilled workers.

    Labor/Wage Studies have shown:
    As a result of increases in the minimum wage business have made the choice to hire more skilled workers at the expense of the unskilled workers.

    Angry again I ask you: If the “Minimum Wage” is meaningless would you repeal it?

    If you can not answer: Repeal It–why do you argue the point?

    AWF would repeal the “Minimum Wage” law of 2007

  • Angry MBA

    My point is: Setting a lower price floor “Minimum Wage” would induce business to hire more unskilled workers.

    Sorry, but no. For the most part, workers in the US need to increase their skills. Low skilled work is often easily automated or offshored.

    The fact that US minimum wage jobs are dominated by the service sector should be a big hint to you that you are wrong; the work that remains at that low price point is the stuff that can’t be exported, such as waiting tables. Low-skill production work is easily exported, so it is.

    The US minimum wage couldn’t possibly be low enough to compete with the wage arbitrage offered by the third world — again, just look at the data and this becomes obvious. In order to get preference, US labor has to be worth the premium, and without skills attached, it often isn’t worth it.

    When the workers have those skills, then guess what? They get to make more than the minimum. Your point is obviously false, you just are in denial of some basic facts.

  • AWF

    Angry says:
    For the most part, workers in the US need to increase their skills. Low skilled work is often easily automated or offshored.
    The fact that US minimum wage jobs are dominated by the service sector should be a big hint to you that you are wrong; the work that remains at that low price point is the stuff that can’t be exported, such as waiting tables. Low-skill production work is easily exported, so it is.

    Angry–there will ALLWAYS be Low/Unskilled/Unproductive workers in the US for many different reasons. We can not FORCE these workers to improve themselves.

    We have a choice of paying for their care thru Govrnment Subsidies/Welfare or
    providing low skilled jobs at a Wage.

    Ultimately–find a place for them or take care of them.

  • TPC

    PS – What’s up with calling me a socialist and all that other garbage on your site? You’ve gone out of your way to try to demean and denigrate me personally. We both know that I am not an idiot or a socialist. I don’t care that we disagree, but where does the name calling get us? Are we on a playground?

    You don’t see me calling you a barbarian do you? You can’t honestly come here and request to write articles on my site while at the same time insulting me consistently on your site. I’m all for debate, I am open to the idea of you writing articles here and I am about as open minded a person as you’ll find, but I have zero tolerance for those kinds of playground tactics. What is the point?

  • duc


    I’ll answer the short post first.

    Surely you jest? If you actually read the post it refers to your Socialistic stance, which you have.

    jog on

  • duc


    Now the longer post.

    America’s large military, I agree, has been used since WWI, for exactly that purpose. America has moved from a country of non-aggression, to the aggressor, in much the same way Fascist & Communist Europe did prior to WWII.

    So no, when terrorists [if in fact that's what they where] flew into two buildings, President Bush [aided and abetted by Tony Blair] invade Iraq under the weapons of mass destruction nonsense.

    As to China, or anyone else, how dare they manipulate their currency, viz. inflate it, don’t they realise only America can inflate their currency, so as to steal from suppliers of goods/services, paid in worthless paper.

    As to the first strike rhetoric, isn’t this the same tripe that was sold to Americans to promote the Cold War and thus enable the State-Military-Industrial complex that dominated from 1950-1990 when the Soviet empire collapsed?

    There will be more wars etc agreed, but not for the reason you posit. There will be more because that’s what governments do. To keep a populace subdued, keep them stupid, keep them scared, and keep them under control. To do so, costs money, lots of money, hence, control the money supply so that you can continue to fund the paranoia through theft.

    jog on

  • TPC


    you can’t be serious when you say that wars are fought to suppress the populace and not for strategic economic or survival reasons. That’s just not a rational perspective. You keep making these dramatic arguments backed by little to no historical fact and when you run out of things to say you demean me or call me a socialist.

    You want to guest post on my site yet you feel that it’s okay to insult me and make unsubstantiated claims. Do you really expect me to trust a person who consistently resorts to these kinds of tactics?

  • duc


    I am entirely serious when I say that wars are fought in large part to suppress the populace. Government, formerly Kings & Queens, and before them the Church, maintained power in exactly this manner.

    Government: the Soviets/Islamic terrorists/ threaten us [Americans] thus we need to implement the Patriot Act and invade Iraq, as all the terrorists are being sheltered there, plus Saddam is a nasty brute.

    And so it has been throughout history. Power posits the enemy that threatens, the populace rally’s around Power, and increased control by Power is gained.

    Defensive wars, where an enemy invades you are somewhat different. I agree fully, someone comes to your house to steal, you resist with all the force you can muster.

    As to historical fact. Unlike financial data, of which I supply to back every financial statement that I make, historical data of human action is harder to present, thus I accept to a degree the argument.

    You seem to have a real issue with being called a Socialist. The policies that you support, viz. MMT, are unequivocably, socialist. That you support and advocate them, makes you what, a capitalist?

    Your financial posts are incredibly data lite. Unfounded assertions abound, which is why I love to use your posts as examples of economic fallacies.

    jog on

  • Angry MBA

    You seem to have a real issue with being called a Socialist.

    Being that TPC isn’t a socialist, it’s understandable that he would object.

    You frankly don’t know what you’re talking about. You type a lot, while saying very little.

    Let’s try to be a bit rational. We can begin by not abusing terminology, as you obviously do.

    Socialists believe that the state should operate and control major industries. It isn’t a monetary theory, it’s a political theory.

    MMT (a theory with which I happen to disagree with myself) is a monetary theory. It has nothing to do with the ownership of production. It isn’t even remotely socialist, as it doesn’t address the issues that socialism addresses, i.e. who should own the means of production.

    If you want to disagree with MMT, then that’s fine. I certainly don’t agree with it myself, and I haven’t been shy about saying it.

    But referring to TPC as a socialist says a lot more about your ignorance than it does about TPC’s positions on economic matters. You need to grow up, and realize that is quite possible for one to disagree with your (half-assed) analysis without being a pinko commie.

  • duc


    You raise so many points that I shall require both time and space to refute them with the data to evidence my arguments and refutations. I shall post the link here as I progress.

    jog on

  • duc

    Mr Angry,

    Our posts crossed, therefore I shall address briefly some of your points:

    I agree with your definition of Socialism, viz. the State, or government controls or owns the productive assets. I also agree that MMT is monetary theory. However, extend your analysis from one of simply definitions, to an analysis that includes an understanding that the definitions clarify for analysis separate variables, but that they operate in the economy together.

    Thus, the control of the money supply allows the State if it chooses, control of the productive assets. As it happens, it is actually Corporate America via the Morgan and Rockerfeller power groups that control government, and have done so since circa the 1896 Presidential election where William Jennings Bryan and the Silverites bid for power.

    Thus, the control of the money supply has directly provided the control of the productive assets, thus fulfills the definition of socialism.

    jog on

  • TPC

    Here you go again. You’ll change the topic no doubt and make some ridiculous circuitous argument that ignores how incredibly wrong you have been and instead focuses on name calling and misinformation.

    Just answer the question. You’ve maintained for many years that inflation, USA insolvency and a dollar crash would be the major themes of the last few years. Why have you been wrong? This childish back and forth has grown tiresome and I will not be roped into your trolling and persistent attacks just so you can fulfill some weird insecurity of yours. Answer the question or I will simply ignore all of your future work and comments.

    It does not require a new post on your site. It’s time for you to explain why you know so much more than the rest of the world yet the markets disagree. A single paragraph here should suffice. If you can’t do this, I will not be responding to any further trolling of yours. You claim to know to know so much more than everyone else. How come the markets disagree with you so vehemently?

  • TPC

    Lots of words, no conclusion. Let’s just go ahead and agree with everything you’ve said. I am a socialist, I know nothing, etc. Fine. But if you know so much then why have you been so fantastically wrong about the collapse of the dollar, hyperinflation and USA default? How come the markets disagree with your entire macro thesis of the last few years? Spare us with the wordy circuitous nonsense. A paragraph should suffice.

  • Angry MBA

    Thus, the control of the money supply allows the State if it chooses, control of the productive assets.

    Look, I already knew that you were a goldbug. The internet is a magnet for your folks, particularly during economic downturns.

    My apologies, I just can’t take people with your views seriously. Attempting to discuss economic matters with folks in your camp is frankly a waste of time.

  • MarkS

    Hey guys, sorry to butt in on your convo, but a little background might help you avoid wasting some time:

    Duc is a troll from the Ibankcoin website. He was booted from the site after losing a series of market bets with the website author.

    He has since gone on a campaign trying to discredit the author.

    He is a hardcore anarchist. He thinks the govt is destroying the world.

    But he is not a gold bug. That is just a recent trend that he uses as evidence to prove a point that has been wrong. See here for his bearish comments on gold at $800: He thought the cycle was over and that interest rates would rise and cause gold prices to drop.

    “Thus, in the longer timeframe, Gold has probably pretty much topped out in this cycle. However, there will be Gold bulls who refuse to buy this argument, thus there will be increased volatility, as there may well be at the bottom of the US$

    For my money, Gold as a LONG trade is finished, you missed the boat at $300oz. As a SHORT trade, you are looking at high volatility and the difficulty of staying in the trade.”

    In August of 2008 at the exact end of the inflation cycle he said we were on the verge of the beginning of a great inflation cycle:

    “In summary, it’s early days in the inflationary environment.”

    This guy is just a common website troll and a bad one at that. He has had the entire story wrong from the beginning. I would recommend you just steer clear and ignore him.

  • TPC


    Thanks for the background. This confirms much of my thinking though I assumed (like MBA) that Duc was a gold bug. It’s interesting to see him use gold as evidence of inflation now (convenient revisionist history). He also frequently cites stock price performance in 2009 without noting that he was an inflationist at S&P 1500. Another convenient bit of revisionist history.

    It’s the end it’s all standard neoliberal nonsense. Milton Friedman to the end. Duc thought easy money and low rates would cause interest rates to rise and he thought the inflation cycle was going to get worse. He couldn’t have possibly been more wrong.

    I am all for debate. If he can explain why he has been so wrong I am perfectly willing to entertain his ideas and writings. Otherwise, he just confirms that he is a troll, a very poor forecaster of macro trends, and generally unworthy of attention.

  • MarkS

    No worries. I’ve been following his site on occasion ever since The Fly at Ibankcoin tore him apart. Since then, he’s been pretty much wrong about everything and tends to target others in weird fits of rage and attempts to justify why his world outlook hasn’t worked out like he thought.

  • MarkS

    In case you are interested:

    The Fly already banned this guy from his site because he was trolling.

  • duc


    I have already indicated that I will address all your points. I will again include all the data that you simply ignored last time. Unfortunately I cannot do this in a single paragraph.

    jog on

  • duc

    Mr Angry,

    Classic response.

    jog on

  • duc


    Let’s examine a random series of your comments from my blog:

    Oh dear.

    jog on

  • duc


    Which is exactly why I offered to post on your blog as a temporary guest, then any traffic generated would stay at home so to speak. I sell nothing on my blog, therefore I could careless whether 50K show up or 50.

    MarkS being put forward as an authority on anything is the best yet, we have truly entered the twilight zone. You should have left the link, his abusive comments on my blog reveal the true nature of the chap.

    I’ll rebut your MMT on my blog over the next few days, obviously I’ll provide no link or further comments, it is clear you do not want a debate, therefore I shall respect your wishes.

    jog on

  • duc


    Just one last quick comment. Have you actually looked at the links provided by MarkS? When you have a moment, have a look, 2 lead nowhere, the third to flippe-floppe-flye, real highbrow stuff!

    Last comment – promise!

    jog on

  • xlr8head

    Couldn’t agree more.
    The question for investors, then, is where to find the next J-curve.
    Agriculture in Africa?
    Biotech in Brazil?
    Infrastructure in India?

  • KenM


    Many thanks for your detailed responce to my query on what MMT is.
    Certainly a very interesting theory and will be studying it in detail

    kind regards

  • duc


    You must have restored the links. Did you actually read them? They are pretty spot on. Remember these were written in March 2008. You mention that I said the gold bull was over. Look at a chart of gold and see what happened.

    Of course then after the banking crisis, Bernanke stepped up to inflate. This then in later posts modified my position.

    You have been duped by a cretin. MarkS.

    You state that I am an inflationist. That is correct. You asked for evidence. I provided from memory, about 8 charts, all generated by the government. You ignored, without comment every single one. Why was that?

    CPI data indicates, as do symptoms of medical issues, the inflationary pressures being generated by the expansion of the total money supply [currency + credit]

    This is the governments own data.

    jog on

  • TPC

    This has grown so incredibly tiresome. You thought Bernanke’s actions would cause hyperinflation. You thought it would create a solvency problem in the USA. You thought bonds would collapse and that the gold bull was over. These weren’t short-term calls. They were long-term calls and they have proven disastrously wrong in the last two years.

    I am tired of you ducking these FACTS. I have reviewed your charts. They prove nothing. They show an expansion of the money supply. Nothing more. The markets have already proven you wrong. I suggest you move on. I am not going to entertain your comments or rebuttals any longer. If you choose to continue making your life’s work a persistent rebuttal of my work then I am sad to inform you that I will not even read them.

  • Goin’Fawr

    Interesting exchange.
    Everybody is right about one thing and everyone is wrong about something else. (As far as Duc and a couple of other things go, anyway)

    Right: his calls are not 100%
    Wrong: his calls are wrong 100%
    Wrong: He is a troll
    Right: His blog provides useful information, verifiable information, and some entertaining, even interesting commentary by Duc himself.
    Right: He has an itchy trading trigger finger that gets him into trouble. Like with any other anonymous blogger: dispatch any/all posted plays at your peril.
    Wrong: world reserve currency status is granted in perpetuity even in the face of decades of the most egregious ongoing abuse, just because it’s American and you say so.


  • Goin’Fawr

    Er just one more thing.

    RE: “…They prove nothing. They show an expansion of the money supply. Nothing more.”

    That does illustrate something. And it begins with the letter ‘I’. Which has been followed by price ‘I’.

    Question: DXY 6 month chart. What does that look like to you? (Assuming TA means anything in such a marketplace, of course)