Bill Gross on fiscal profligacy and dumping the negative real yields of treasuries

There are four ways to reduce real debt burdens:

  1. by paying down debts via accumulated savings.
  2. by inflating away the value of money.
  3. by reneging in part or full on the promise to repay by defaulting
  4. by reneging in part on the promise to repay through debt forgiveness

Right now, everyone is fixated on the first path to reducing (both public and private sector) debt. I do not believe this private sector balance sheet recession can be successfully tackled via collective public sector deficit spending balanced by a private sector deleveraging. The sovereign debt crisis in Greece tells you that.  More likely, the western world’s collective public sectors will attempt to pull this off. But, at some point debt revulsion will force a public sector deleveraging as well.

The origins of the next crisis

When I read Bill Gross’ latest monthly letter to investors, this quote from a post last year came to mind. I was talking about the sovereign debt crisis and how to get rid of all the debt developed economy governments have been accumulating. Regardless of whether you believe sovereign currency nations like the U.S. or the U.K. can finance huge deficits indefinitely while users of currency like Portugal and Ireland are facing the music, you have to think that these debt burdens will reduce long-term growth.

So how do you deal with that as a government?  Option #1 is an excruciating slow-growth semi-depressionary path. No politician wants that. Options 3 and 4, default, will also be avoided because that’s the last refuge of banana republics and failed states. Look at how the euro zone countries resist this outcome. So that leaves one with option #2, inflation and currency depreciation. In America that has meant negative real yields on T-bills. You are paying government to borrow from you.

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Gross is so concerned with the negative real yields of Treasury debt that he has dumped treasuries entirely from his portfolio. He is now running with the bulls and chasing yield in emerging markets, where he believes fiscal discipline is superior. Gross’ view is that Central Banks are robbing bond holders and fuelling Inflation. Last month:

His contention is that government has four ways to rob bondholders of return:

  1. Outright default, something he says unlikely in the U.S.
  2. Currency depreciation: Gross contends this is a problem for the U.S. currency
  3. Unanticipated inflation: Gross believes the core vs. headline inflation numbers highlight this issue
  4. Negative real interest rates: His newsletter was very much about this point.

But, Gross has specific targets in mind here: entitlement spending. This month, he writes:

if the USA were a corporation, then it would probably have a negative net worth of $35-40 trillion once our “assets” were properly accounted for, as pointed out by Mary Meeker and endorsed by luminaries such as Paul Volcker and Michael Bloomberg in a recent piece titled “USA Inc”. However approximate and subjective that number is, no lender would lend to such a corporation. Because if that company had a printing press much like the US with an official “reserve currency” seal of approval affixed to every dollar bill, that lender/saver would have to know that the only way out of the dilemma, absent very large entitlement cuts, is to default in one (or a combination) of four ways: 1) outright via contractual abrogation – surely unthinkable, 2) surreptitiously via accelerating and unexpectedly higher inflation – likely but not significant in its impact, 3) deceptively via a declining dollar– currently taking place right in front of our noses, and 4) stealthily via policy rates and Treasury yields far below historical levels – paying savers less on their money and hoping they won’t complain.

Now, progressives see this as part of the right wing agenda to finally strip people of their last social safety nets after disenfranchising them in a number of other ways over the past thirty years.

My take: this is a political, a philosophical question about the use of real resources in the economy and the size and purpose of government. That’s how Stephanie Kelton who is against these kinds of cuts puts it as well.

As followers of the UMKC economics blog have discovered, we work within a framework that has been dubbed Modern Money Theory (MMT). The approach itself is fundamentally descriptive, although there are logical ways to apply the principles of the approach to any number of policy-oriented (i.e. prescriptive) economic problems. Above all, we are committed to describing the way government spending works in a modern money system. Once that is understood, it becomes apparent that a government with flexible exchange rates and a sovereign currency (US dollar, British pound, Mexican peso, etc.) can afford to purchase anything that is for sale in its own sovereign currency.

This means that debates about "affordability" become inapplicable. As this becomes more widely understood, we can begin to have a completely different — and vastly more important — debate about the size and role of government. What do we, as Americans, want? Medicare for all? A job guarantee? High-speed rail? Renewable energy?…

And, no, it does not follow that because the US government "can" do something that it "should" do it. It has the ability to purchase anything for sale in terms of its own currency. Let us accept that point and then debate whether, when, and to what extent it should exercise this power.

Can The US. Afford Its Present Deficit Spending?

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That’s the debate we should have, honestly and forthrightly. Economists like Dean Baker, Stephanie Kelton, James Galbraith and Randall Wray believe more real resources should be devoted to Medicare and Social Security and argue in favour of this as policy choice. In particular, they argue that Social Security is not an intractable problem at all. See New Deal 2.0’s recent post on Social Security as an example of the progressive view.

I agree that Social Security can be tweaked without draconian changes, especially given the regressive $106,800 payroll tax exclusion. But, I still want government’s role to be limited. And I certainly don’t want the outsized amount of real resources devoted to healthcare in the U.S. to continue. So my view is more in line with the so-called deficit terrorists like Bill Gross.

Here’s what Gross writes:

Unless entitlements are substantially reformed, I am confident that this country will default on its debt; not in conventional ways, but by picking the pocket of savers via a combination of less observable, yet historically verifiable policies – inflation, currency devaluation and low to negative real interest rates.

That’s my view as well. And let’s not forget military spending, where the U.S. spends as much on defense as the rest of the world combined. You can dress this debate up however you want – as a class war, an intergenerational struggle, or a creeping Latin American kleptocracy. But the reality is that there is only so many real resources available in any economy.  There is an opportunity cost to every human and capital investment. While I would like to focus most on getting back to full employment, I don’t believe putting off the debate of how America’s real resources are allocated is a good solution.

This is the same political debate that is happening in all across the developed world – particularly in Western Europe and Japan. The questions are:

  • Now that our populations are aging, how do we insure adequate social safety nets?
  • What is an adequate social safety net?
  • Can government help reduce the costs of healthcare or does it add to them?
  • What kind of burden shifting will shoring up the social safety net entail and what effect will these changes have on economic growth?

The answers to these questions are unknowable. Again, it’s a philosophical question that has a lot to do with one’s views about the correct distribution of taxes and with government’s size and role. These issues are the third rail of politics for a reason. You can dress the issue up in any number of ways with statistics and charts if you like. However, at the end of the day, the entitlements issue is political – and it is emotionally charged.

I don’t see the issue being tackled without some sort of currency or inflation crisis. Look at Japan; their debt to GDP is 200% and they haven’t resolved these issues either. I think that’s about all I can say. I’d love to see the MMT folks offer a rebuttal. If they do, I will post it.

In any event, if you are a fixed income investor, you should expect low to negative real interest rates in the U.S. for a long time to come.

Source: Skunked – Bill Gross, Investment Outlook, April 2011

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12 Comments
  1. Anonymous says

    Hi Ed,

    “Regardless of whether you believe sovereign currency nations like the U.S. or the U.K. can finance huge deficits indefinitely while users of currency like Portugal and Ireland are facing the music, you have to think that these debt burdens will reduce long-term growth.”

    MMTers don’t think that. A government deficit would only damage growth if the economy was pushing up against real resource limits and thus government spending was competing in an unhealthy way with the private sector. But when Bill Mitchell discusses the job guarantee, he advocates “hiring off the bottom” by bidding for workers with no other bid, as opposed to hiring off the top in a way that would compete more directly with the private sector (and trigger potentially valid fears of “malinvestment”). Other than reducing poverty and social ills and boosting aggregate demand, the benefit is that it builds job skills and adds to the longer term productive capacity of the economy if even some of those workers are later more employable by the private sector.

    But the rest of your post is correct that it’s about real resources and political decisions.

    I think the key from an MMT perspective is:

    1. Run the deficits NOW if they are needed, as maximizing use of resources now builds a bigger and more productive economy, better able to support the rising dependency ratio of the aging population in the future.

    2. It’s fair to talk about future deficits but it should always be framed in terms of real resources, not what the government can afford (which is a false framing). So absolutely at the same time focus on policies that reduce the costs of those future services (reforming healthcare, etc). Jamie Galbraith’s reply to one of Krugman’s posts was enlightening too as he claimed (I hope I am summarizing correctly, but perhaps not) that most estimates of future deficits tend to be very wrong, so we can only plan so far in the future.

    I do think MMTers somethings shrug off the issue of “unfunded obligations” more quickly than they should, as sovereign debt fears are a sort of [falsely framed] rough proxy for future real resource demands. So you in my opinion wouldn’t want your government to over commit in a non-modifiable way to TOO large a future benefit “entitlement”. But again that’s no excuse not to run the right sized deficit in the present.

    I think your post highlights a lot of really good points. I’m not sure I share the same degree of concern about currency or inflation crisis (for the US or Japan)… but if a dependency ratio became too lopsided (Japan in 10-20 years?) I have wondered myself how inflationary the result would be, so I won’t claim to know you are wrong, either.

    1. DavidLazarusUK says

      There do need to be changes to US state pensions. People are simply not putting enough aside from their working life to maintain a long retirement, raising pension ages and contributions including an end to any caps will make a huge difference to the funding of social security. This is not a US only issue or even a social security issue. It affects private pensions as well. It is happening everywhere as a result of demographics and needs to be addressed. With retirement being linked to life expectancy, also anticipated returns and discounting needs to be realistic and not over optimistic. Expecting 8% returns when bonds are losing money in real terms is ridiculous.

      The real effect of the negative real returns is to deflate the value of liabilities which will make the US national debt much more manageable to achieve. The liabilities will fall in comparison to incomes so lowering the debt burden. Since the bond markets have avoided a haircut maybe this is the fairest way to make them share the pain?

      1. Anonymous says

        DavidLazarusUK,

        I agree that the evidence indicates that individuals are generally under-saving for retirement, and thus that current expectations may be misaligned with reality.

        However, you also touch on another issue that I’ve been meaning to append to my last comment when I had a chance…

        The core issue as it relates to potential inflation (in the context of this post) really is about changes in dependency ratios due to aging populations, not about government debt. It is the excess of demand over supply for real goods and services that would be inflationary. With a large enough ratio of retirees to workers, this could happen even in a country that had NO entitlement programs at all! (Where everyone had miraculously managed to save enough for their retirements in their private accounts).

        Government safety net programs like social security and medicare could only be to blame for an inflationary scenario if they raise demand for real goods and services or reduce supply more than is politically desirable. If they raise demand too high because the benefits are too generous, is the alternative to have more homeless and starving retirees? Maybe, and that’s a political choice. If social security somehow encourages people to retire “too early”, thus reducing the labor supply, that could also be more inflationary. So there might be good reason to encourage later retirement ages, which I know is consistent with many people’s positions. I haven’t studied the data and don’t have a personal opinion on this, but the entire debate is saturated by politics so it’s hard to know who really has good data behind their positions, if such a thing even exists.

        I think one of Bill Mitchell’s valuable points is to focus on maximizing productivity growth (in a sustainable way) by employing almost all available labor in the present rather than let skills and mental health deteriorate, so that by the time that future date of lopsided demographics arrives we will have learned to use less resources (labor and commodities) for a given level of demand.

        1. DavidLazarusUK says

          Social security and unemployment benefits are not inflationary. They are transfer payments from one part of the economy to another. Same for pensions. Even in a country where everyone has saved for their pensions it will still not be inflationary. You have forgotten that as pensioners spend their pensions they will be reducing their investments, and that even with a growing dependency ratio productivity has been ignored. The remaining workers will still be able to produce as much as before.

          Also they could not be inflationary as are more likely to sustain demand rather than expand it. They are hardly over generous. So their cutting is purely ideological and political. They are a safety net. If there were no such safety net then people would be seriously saving just in case of unemployment, especially those most likely to lose their jobs. This would cut demand domestically as people save to provide their own safety net in case of unemployment. This would lead to lower interest rates and every higher savings as people could not rely on interest to help them. This is the situation in China.

          As for early retirement it can have some benefits for the economy. Especially if there is high unemployment it can make sense for older unemployed, rather being chased back into work, to allow then to stay on benefits till retirement. This will reduce those actively looking for work and increase the chances of the rest getting a job. It will hardly be inflationary, as the economy will still be operating well below full employment. As unemployment falls it can stop being used as policy. Then allowing people to work until retirement. Also unemployment benefits are not so generous that people live the life of luxury, pushing up inflation.

          The inflation that we are all experiencing is not cost push inflation from excessive wages but demand pull from other nations, who are demanding more resources. This is also inflated with speculation for commodities, which eventually feed into consumer prices.

          Maintaining worker skills has a number of benefits. It creates employment for teachers and means that when any upturn comes it gives businesses a greater choice of worker to recruit.

          1. Anonymous says

            I agree with most of your last comment (though there are some things I would respond to directly in your first paragraph if I had more time). I think I must not have put my previous comments in the proper context, as I seem to have given you the wrong impression. I don’t think the safety nets are inherently inflationary in and of themselves, nor do I think they should be cut. And yes, without full employment, there may be some benefits to early retirement.

            Most of my comments have been a response to Bill Gross’s quote that Ed seemed to agree with, “Unless entitlements are substantially reformed, I am confident that this country will default on its debt… by… inflation… etc”

            I was just attempting to cover part of the MMT perspective on these future obligations and whether or not they are problematic. There is no way to “inflate away” the cost of those future obligations in the present. Perhaps it would be possible to “inflate away” the value of some current treasury obligations (i.e., private sector savings) to make space (in a total future economy-wide demand sense) for more of them in the future, but I’m not sure that’s what was being suggested (nor do I think that’s the core of the issue).

          2. DavidLazarusUK says

            You need to remember from what perspective Bill Gross speaks. As a bond trader he needs Treasury bonds to pay a positive return over and above inflation. Without which if he is boycotting the US treasury market then his job is a lot harder. Also with interest rates about to rise bonds and Treasury bills will rack up massive capital losses.

            Other US economists have shot down the claims that social security and medicare are destroying the nations finances. The tweaks I suggested would make it permanently secure.

            Many governments will try and inflate their way out of debts, but it is a risky manoeuvre and if discovered can result in loss of credibility, hence they deny it.

  2. Anonymous says

    Hi Ed,

    “Regardless of whether you believe sovereign currency nations like the U.S. or the U.K. can finance huge deficits indefinitely while users of currency like Portugal and Ireland are facing the music, you have to think that these debt burdens will reduce long-term growth.”

    MMTers don’t think that. A government deficit would only damage growth if the economy was pushing up against real resource limits and thus government spending was competing in an unhealthy way with the private sector. But when Bill Mitchell discusses the job guarantee, he advocates “hiring off the bottom” by bidding for workers with no other bid, as opposed to hiring off the top in a way that would compete more directly with the private sector (and trigger potentially valid fears of “malinvestment”). Other than reducing poverty and social ills and boosting aggregate demand, the benefit is that it builds job skills and adds to the longer term productive capacity of the economy if even some of those workers are later more employable by the private sector.

    But the rest of your post is correct that it’s about real resources and political decisions.

    I think the key from an MMT perspective is:

    1. Run the deficits NOW if they are needed, as maximizing use of resources now builds a bigger and more productive economy, better able to support the rising dependency ratio of the aging population in the future.

    2. It’s fair to talk about future deficits but it should always be framed in terms of real resources, not what the government can afford (which is a false framing). So absolutely at the same time focus on policies that reduce the costs of those future services (reforming healthcare, etc). Jamie Galbraith’s reply to one of Krugman’s posts was enlightening too as he claimed (I hope I am summarizing correctly, but perhaps not) that most estimates of future deficits tend to be very wrong, so we can only plan so far in the future.

    I do think MMTers somethings shrug off the issue of “unfunded obligations” more quickly than they should, as sovereign debt fears are a sort of [falsely framed] rough proxy for future real resource demands. So you in my opinion wouldn’t want your government to over commit in a non-modifiable way to TOO large a future benefit “entitlement”. But again that’s no excuse not to run the right sized deficit in the present.

    I think your post highlights a lot of really good points. I’m not sure I share the same degree of concern about currency or inflation crisis (for the US or Japan)… but if a dependency ratio became too lopsided (Japan in 10-20 years?) I have wondered myself how inflationary the result would be, so I won’t claim to know you are wrong, either.

    1. Anonymous says

      There do need to be changes to US state pensions. People are simply not putting enough aside from their working life to maintain a long retirement, raising pension ages and contributions including an end to any caps will make a huge difference to the funding of social security. This is not a US only issue or even a social security issue. It affects private pensions as well. It is happening everywhere as a result of demographics and needs to be addressed. With retirement being linked to life expectancy, also anticipated returns and discounting needs to be realistic and not over optimistic. Expecting 8% returns when bonds are losing money in real terms is ridiculous.

      The real effect of the negative real returns is to deflate the value of liabilities which will make the US national debt much more manageable to achieve. The liabilities will fall in comparison to incomes so lowering the debt burden. Since the bond markets have avoided a haircut maybe this is the fairest way to make them share the pain?

      1. Anonymous says

        DavidLazarusUK,

        I agree that the evidence indicates that individuals are generally under-saving for retirement, and thus that current expectations may be misaligned with reality.

        However, you also touch on another issue that I’ve been meaning to append to my last comment when I had a chance…

        The core issue as it relates to potential inflation (in the context of this post) really is about changes in dependency ratios due to aging populations, not about government debt. It is the excess of demand over supply for real goods and services that would be inflationary. With a large enough ratio of retirees to workers, this could happen even in a country that had NO entitlement programs at all! (Where everyone had miraculously managed to save enough for their retirements in their private accounts).

        Government safety net programs like social security and medicare could only be to blame for an inflationary scenario if they raise demand for real goods and services or reduce supply more than is politically desirable. If they raise demand too high because the benefits are too generous, is the alternative to have more homeless and starving retirees? Maybe, and that’s a political choice. If social security somehow encourages people to retire “too early”, thus reducing the labor supply, that could also be more inflationary. So there might be good reason to encourage later retirement ages, which I know is consistent with many people’s positions. I haven’t studied the data and don’t have a personal opinion on this, but the entire debate is saturated by politics so it’s hard to know who really has good data behind their positions, if such a thing even exists.

        I think one of Bill Mitchell’s valuable points is to focus on maximizing productivity growth (in a sustainable way) by employing almost all available labor in the present rather than let skills and mental health deteriorate, so that by the time that future date of lopsided demographics arrives we will have learned to use less resources (labor and commodities) for a given level of demand.

        1. Anonymous says

          Social security and unemployment benefits are not inflationary. They are transfer payments from one part of the economy to another. Same for pensions. Even in a country where everyone has saved for their pensions it will still not be inflationary. You have forgotten that as pensioners spend their pensions they will be reducing their investments, and that even with a growing dependency ratio productivity has been ignored. The remaining workers will still be able to produce as much as before.

          Also they could not be inflationary as are more likely to sustain demand rather than expand it. They are hardly over generous. So their cutting is purely ideological and political. They are a safety net. If there were no such safety net then people would be seriously saving just in case of unemployment, especially those most likely to lose their jobs. This would cut demand domestically as people save to provide their own safety net in case of unemployment. This would lead to lower interest rates and every higher savings as people could not rely on interest to help them. This is the situation in China.

          As for early retirement it can have some benefits for the economy. Especially if there is high unemployment it can make sense for older unemployed, rather being chased back into work, to allow then to stay on benefits till retirement. This will reduce those actively looking for work and increase the chances of the rest getting a job. It will hardly be inflationary, as the economy will still be operating well below full employment. As unemployment falls it can stop being used as policy. Then allowing people to work until retirement. Also unemployment benefits are not so generous that people live the life of luxury, pushing up inflation.

          The inflation that we are all experiencing is not cost push inflation from excessive wages but demand pull from other nations, who are demanding more resources. This is also inflated with speculation for commodities, which eventually feed into consumer prices.

          Maintaining worker skills has a number of benefits. It creates employment for teachers and means that when any upturn comes it gives businesses a greater choice of worker to recruit.

          1. Anonymous says

            I agree with most of your last comment (though there are some things I would respond to directly in your first paragraph if I had more time). I think I must not have put my previous comments in the proper context, as I seem to have given you the wrong impression. I don’t think the safety nets are inherently inflationary in and of themselves, nor do I think they should be cut. And yes, without full employment, there may be some benefits to early retirement.

            Most of my comments have been a response to Bill Gross’s quote that Ed seemed to agree with, “Unless entitlements are substantially reformed, I am confident that this country will default on its debt… by… inflation… etc”

            I was just attempting to cover part of the MMT perspective on these future obligations and whether or not they are problematic. There is no way to “inflate away” the cost of those future obligations in the present. Perhaps it would be possible to “inflate away” the value of some current treasury obligations (i.e., private sector savings) to make space (in a total future economy-wide demand sense) for more of them in the future, but I’m not sure that’s what was being suggested (nor do I think that’s the core of the issue).

          2. Anonymous says

            You need to remember from what perspective Bill Gross speaks. As a bond trader he needs Treasury bonds to pay a positive return over and above inflation. Without which if he is boycotting the US treasury market then his job is a lot harder. Also with interest rates about to rise bonds and Treasury bills will rack up massive capital losses.

            Other US economists have shot down the claims that social security and medicare are destroying the nations finances. The tweaks I suggested would make it permanently secure.

            Many governments will try and inflate their way out of debts, but it is a risky manoeuvre and if discovered can result in loss of credibility, hence they deny it.

  3. Anonymous says

    The idea that the US has a negative net worth of $40 billion is entirely fatuous. I don’t care what “luminaries” from Silicon Valley or the New York Mayor’s office have given an offhand endorsement of this idea.

    The only way you can come up with such a number is to (as they in fact do) count all future expenditures of the society without counting future income. By the same methodology I am in a hopeless situation, as I will likely need housing and food for the next 30+ years yet have not saved anywhere near enough money to pay for it.

  4. Anonymous says

    The idea that the US has a negative net worth of $40 billion is entirely fatuous. I don’t care what “luminaries” from Silicon Valley or the New York Mayor’s office have given an offhand endorsement of this idea.

    The only way you can come up with such a number is to (as they in fact do) count all future expenditures of the society without counting future income. By the same methodology I am in a hopeless situation, as I will likely need housing and food for the next 30+ years yet have not saved anywhere near enough money to pay for it.

  5. Anonymous says

    Check out Bill Mitchell from down under, he is the MMT axe. No bs guy, wish he was in the US. bilbo blog…

  6. Anonymous says

    Check out Bill Mitchell from down under, he is the MMT axe. No bs guy, wish he was in the US. bilbo blog…

  7. Edward Harrison says

    hbl,

    here’s my interpretation of Gross’s quote:

    In a world in which people have great unease with budget deficits, the deficits that Social Security and Medicare/Medicaid will create in coming years will create unease. In all likelihood, the reaction will be to try and cut deficits. But these cuts will end of lowering aggregate demand in a way that will cause the Fed to keep rates low – lower than they should be. The result will be poor returns for fixed income investors.

    Gross clearly is saying something slightly different but that’s my interpretation and what I am concentrating on here.

    When I say “I don’t see the issue being tackled without some sort of currency or inflation crisis.” what I mean is that I imagine these issues will manifest themselves in a currency crisis that sees the U.S. relinquish its reserve currency status or via some sort of asset price or consumer price inflationary crisis. Right now, any sort of inflationary crisis, like the low level one in commodities that has led to food riots and unrest in the Mideast, will engender demand destruction and debt deflation. But that’s because we have a lot of slack capacity. If we ever get tightness, then we could see much higher unanticipated inflation. I think that would also cause people to look to SS/Medicare/Medicaid.

    1. DavidLazarusUK says

      I do think that interest rates will have to rise before then as low interest rates are not working. They are not stimulating as they should. Banks are not lending anyway. Their retail customers are overloaded with debt, so I cant see tightness developing in the US economy for more than a decade. Also by which point US manufacturing capacity will need replacing. I do anticipate inflation from commodities creating problems that will need to dealt with otherwise businesses will demand action.

  8. Edward Harrison says

    hbl,

    here’s my interpretation of Gross’s quote:

    In a world in which people have great unease with budget deficits, the deficits that Social Security and Medicare/Medicaid will create in coming years will create unease. In all likelihood, the reaction will be to try and cut deficits. But these cuts will end of lowering aggregate demand in a way that will cause the Fed to keep rates low – lower than they should be. The result will be poor returns for fixed income investors.

    Gross clearly is saying something slightly different but that’s my interpretation and what I am concentrating on here.

    When I say “I don’t see the issue being tackled without some sort of currency or inflation crisis.” what I mean is that I imagine these issues will manifest themselves in a currency crisis that sees the U.S. relinquish its reserve currency status or via some sort of asset price or consumer price inflationary crisis. Right now, any sort of inflationary crisis, like the low level one in commodities that has led to food riots and unrest in the Mideast, will engender demand destruction and debt deflation. But that’s because we have a lot of slack capacity. If we ever get tightness, then we could see much higher unanticipated inflation. I think that would also cause people to look to SS/Medicare/Medicaid.

    1. Anonymous says

      I do think that interest rates will have to rise before then as low interest rates are not working. They are not stimulating as they should. Banks are not lending anyway. Their retail customers are overloaded with debt, so I cant see tightness developing in the US economy for more than a decade. Also by which point US manufacturing capacity will need replacing. I do anticipate inflation from commodities creating problems that will need to dealt with otherwise businesses will demand action.

  9. Anonymous says

    Ha. Bill Gross is singing about Ecuadorean bonds because the Fed made him give up all his Treasuries. Just as soon as he can get some (July) he will be praising them again.

    I think your post is important but saying “I certainly don’t want the outsized amount of real resources devoted to healthcare in the US to continue” is clouding the point that spending is not “real resources.” Its only money, right?

    You may have a point if the Kleptocrats remain in charge but if we actually operated under an MMT framework I think we’d find it easy to care for our elders and allow them to have their share of what truly are the real resources without running up against any of the 4 default methods you listed.

    MMT gets a bad rap as poor fiscal stewards because of the nature of the argument but I don’t think any of them would argue that G doesn’t misallocate and horribly. Even given that, it is pretty clear it is 1000x worse with the private sector. I agree with Stephanie Kelton that we have to accept the premise 1st and then decide how G can best support the entire (bold) private sector. Your emphasis on employment is right on but suggesting we cut transfer payments without reapportioning the pie in other ways first strikes me as kind of crass. I don’t really see how cutting them is an effective method of limiting G. What benefit is to be gained? Higher returns for PIMCO clients can’t really be our goal.

  10. Anonymous says

    Ha. Bill Gross is singing about Ecuadorean bonds because the Fed made him give up all his Treasuries. Just as soon as he can get some (July) he will be praising them again.

    I think your post is important but saying “I certainly don’t want the outsized amount of real resources devoted to healthcare in the US to continue” is clouding the point that spending is not “real resources.” Its only money, right?

    You may have a point if the Kleptocrats remain in charge but if we actually operated under an MMT framework I think we’d find it easy to care for our elders and allow them to have their share of what truly are the real resources without running up against any of the 4 default methods you listed.

    MMT gets a bad rap as poor fiscal stewards because of the nature of the argument but I don’t think any of them would argue that G doesn’t misallocate and horribly. Even given that, it is pretty clear it is 1000x worse with the private sector. I agree with Stephanie Kelton that we have to accept the premise 1st and then decide how G can best support the entire (bold) private sector. Your emphasis on employment is right on but suggesting we cut transfer payments without reapportioning the pie in other ways first strikes me as kind of crass. I don’t really see how cutting them is an effective method of limiting G. What benefit is to be gained? Higher returns for PIMCO clients can’t really be our goal.

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