Zero Hedge: Two Points

From Here's A Chart You Won't See On CNBC at Zero Hedge:

Today, we are happy that more are starting to notice this simple math problem. Here is Deutsche Bank's Torsten Slok who is the latest to be struck by this "revelation".

If you look at cash levels relative to debt levels you find that corporate cash holdings are at the lowest level in 15 years...

Good point. Cash -- or let's say money -- relative to debt, is an important measure. Hmmm... Where have I seen it before?

Today, I am happy that ZH is starting to notice.

//

Zero Hedge makes a good follow-up point:

Of course, as long as rates are low and keep declining, this record debt hoard is not a big issue.

Once rates start going up, however, nobody would possibly have been able to foresee the absolute massacre that will take place at corporations, levered with publicly tradable debt to never before seen levels.

You hear that all the time, about government debt. "If rates go up, there'll be a problem". But it is just as true outside of government as in, as ZH notes.

"Non-Financial Sector" = Productive Sector

From 3 April:

The point is not that there's just as much financial income as there is financial cost. The point is that there's no production, nor any consumption, associated with either financial income or financial cost.

Every dollar of credit that was used for production or for consumption could instead have been spent out of income. There need be no loss of production or of consumption by this different economics. There is only less need for finance.

It all comes down to management of money. Government has to make its money such that people want to use and accumulate it. But government must prevent people from accumulating so much of it that they undermine the government's management of its money.

You'll often see people say the government must prevent people from spending so much money that the result is inflation. My focus is not so much on the using as on the accumulating -- on the failure to use.

The balance between use and accumulation is key.

// Related post: Disastrous, cumulative and far-reaching repercussions of saving

"Five Short Blasts" Forum

Pete Murphy writes:

Real sciences are rooted in data, and real scientists go unafraid wherever the data takes them... Scientists examine all possibilities.

I like that: go unafraid wherever the data takes you.

That's it, yeah.

An Important Ratio

Nick Edmonds:

The quantity that is determined by bank lending is not money, but total bank debt. Money, our purchasing power, is just a subset of that and is not fixed by the amount of lending.

That's right. And the relation between the two quantities is an important one. The debt-to-money ratio increased from 1916 to 1970, except during the FDR years:

Graph #1: Total (Public and Private) Debt per Circulating Dollar

After FDR, our economy saw a golden age, followed by the end of those good times. But the debt-to-money ratio continued increasing until the crisis, except for a few years just before the good economy of the latter 1990s:

Graph #2: Total (TCMDO) Debt per Circulating Dollar

When the ratio is low and increasing, the economy is good. When the ratio is high and increasing, the economy struggles. When the ratio falls, whether by policy or crisis, it creates conditions for the return of the good economy.

Keep the ratio permanently low by creating policies that accelerate the repayment of debt, and we create the monetary conditions for a permanent quasi-boom.

I said a little, and reduced it. Graeber said nothing, and expanded on it.

Here's what I wrote:

What is Debt?

Debt is a measure of credit that has been put to use, and a record of required repayment.

Debt is a cost.

Here are words that fill the box, repeated by the usually excellent Syll:

What is Debt?

What’s been happening since Nixon went off the gold standard in 1971 has just been another turn of the wheel – though of course it never happens the same way twice. However, in one sense, I think we’ve been going about things backwards. In the past, periods dominated by virtual credit money have also been periods where there have been social protections for debtors. Once you recognize that money is just a social construct, a credit, an IOU, then first of all what is to stop people from generating it endlessly?

Focus, now. The question was, "What is debt?"

A way in to Minsky

At Debtwatch, a 16-minute talk by Steve Keen -- Oh! the accent reminds me of our computer guy at work.

Keen uses his Minsky software to model the economy under austerity and stimulus. It wasn't awesome, but I don't wish I could have my 16 minutes back.

Anyway, you can download both Minsky and the model from the link. Excellent, if you've been thinking about experimenting with Minsky.

19+ meg, as a zip file. Wow.

I'll let you know how it works out.

Paying down debt is the right way to fight inflation

Why is paying down debt the right way to fight inflation?

In our time? You're kidding, right? Look at the damn graph:

Graph #1: GDP (red) and Total Credit Market Debt (blue)

"The best guarantee of full employment and price stability" is... full employment and price stability

Comparing unemployment and inflation rates to Federal Reserve targets, Ed Dolan writes:

First, as market monetarists point out, the best guarantee of full employment and price stability over the long run is steady growth of nominal GDP in the range of 4 to 5 percent per year.

Comparing Irving Fisher's Debt-Deflation Theory of Great Depressions to Frank Herbert's Dune story, Geerussell writes:

Market monetarists would be the Guild Navigators, huffing spice and folding space to move from point A to point B avoiding everything in between.

That sums it up perfectly.

... Author, Libertarian, and American Enterprise Institute Scholar.

Real Time
Bill Maher
Episode 315
25 April 2014

Bill Maher's guests included Charles Murray -- author, libertarian, and American Enterprise Institute scholar.

I transcribed some of the conversation from Episode 315, beginning at 42:50.

Charles Murray:

But if you're talking about taxes
here's the real problem.
If you want to jack up the rates on the really rich
the amounts of money that that'll bring in are trivial
compared to jacking up rates on the middle class.

The money, if you want to raise more money,
it's going to have to come from
tax rate increases on the middle class
and nobody's going to do that.

Maher: I agree.

Murray: Nobody's gonna do it.

Maher: Well, if they have to, they will.


I'm sure Murray's argument is *not* that rich people are poor. His argument must be that there just aren't enough rich people to make taxing them worthwhile.

Want to argue that point? Don't. You could rebut him with the story that the worlds richest 85 people have more money than the poorest three billion, whatever the numbers were, I don't remember. But don't get sucked in. You know their argument is bullshit, the "we have to balance the Federal budget" argument. Don't let them make an argument based on the need to balance the Federal budget. Don't let them choose the topic.

Murray presents a picture of our economy that is like a snapshot, a still life. It's a picture of a big hole in the ground -- the Federal debt -- and a big pile of dirt, which is the money that the rich people have, or the poor people or somebody. Murray wants us to buy this static image, discover that we're the ones with the big pile of dirt, and... and I don't know what. He wants us to decide NOT to want to fill the hole? That can't be right.

Maybe he wants us to throw our hands up in disgust, and give up our quest.


I want you to realize that the static image is the wrong image. The economy isn't static. The economy is dynamic. The economy is motion. The economy is activity. The economy is transaction. Income. Flow.

You don't fill the hole by shoveling this pile of dirt into that hole. You fill the hole gradually, a little at a time in a full length motion picture, by tweaking things every now and then when a pile seems to be getting too big or a hole too deep.

If you're talking about taxes
you're talking about tweaking things.

I don't want to jack up the rates on the really rich. I think we should have a standard deduction well above poverty level, and a flat tax on income over that, a flat percentage that would work out to be progressive because of the large standard deduction. And then we should have an upper limit to what a person can earn in a year -- a lower limit on the value of the dollar is what that is, and wealthy people should like that idea -- and on income above that upper limit the tax rate is 100%. Not 70% or 90% or any kind of equivocation like that. A one hundred percent tax on income above whatever, ten million dollars a year, maybe. Ten million is too high, from my perspective, but the dollar's not worth much any more.

Tweak it: set a limit.

You don't raise taxes "to raise more money". You tweak taxes to get money flowing in the directions you want. And then when people learn how to take advantage of the tax code -- that's the "Lucas critique" I think -- you change the tax code again.

Did you notice? I'm not talking about how high or low taxes should be. I'm talking about what kind of taxes we should have.