Thursday, November 17, 2016

Brendan Greeley — How Republicans Plan to Spend Like Crazy Without Running Up Debt


"John Maynard Trump."
Instead of "Milton Obama."

And perhaps "Hjalmar Trump" is more suited than "John Maynard Keynes Trump," considering that Trump's proposed tax credit financing of private investment is more akin to Mefo bills (ht beowulf) and Öffa bills than Keynesian public debt funding.

The Bloomberg article is actually a good analysis of conventional economic modeling as moronism based on restrictive assumptions that are absurd and ignorance of monetary operations.

Expect Donald Trump to see through that.

Bloomberg
How Republicans Plan to Spend Like Crazy Without Running Up Debt
Brendan Greeley

See also

More typical moronism.
As pressure on inflation mounts, interest rates will rise, bringing the surge in growth to an end. If the plan fails to add up even at the outset, it risks creating alarm in the financial markets, and any boost to growth will be brief.
Bloomberg View
Trump's Roads (and Bridges and Airports) to Recovery
Editorial Board

13 comments:

Matt Franko said...

"Expect Donald Trump to see through that."

idk Tom I dont see any evidence of this....

All we know that he knows is that "you never go bankrupt because you just print the money I hate to tell you..."

Which doesnt preclude he still thinks deficit spending could cause "inflation!" which monetarists think this is equivalent to a bankruptcy or default...

All we can count on is that he knows we dont have to go bankrupt... he may very easily still be caught up in monetarism ie Warren's "gold standard mentality..."...

Matt Franko said...

"As pressure on inflation mounts, interest rates will rise, bringing the surge in growth to an end."

This is where they will get it wrong... they dont understand the effects that the increasing interest income will have on fiscal ie it will be pro-cyclical...

Tom Hickey said...

idk Tom I dont see any evidence of this....

If he listens to Steven Bannon, Bannon is a deficit hawk and debt phobe.

We'll see.

beowulf said...

Yeah, I'm not optimistic when Team Bannon and Team Ryan disagree on everything except fiscal policy (though Bannon is probably smart enough to know to stay the hell away from cutting Medicare). Only Team Jared can save us!

Auburn Parks said...

Matt-

Why dont you consider the many sides and guess at the net impact?

IOW saying that interest rate increases are pro growth due to the interest income channel

is just as biased and blind to the whole as saying

Interest rate decreases are pro growth because of the impact on lending and investment.

Interest rate changes have many impacts, and the size and direction of the impact will depend on many factors.

Outstanding private debt and its maturity structure. The impact on the whole economy will be different for a 4% rate increase in an economy with 50% to GDP private debt level VS one with 150% to GDP private debt levels. The distribution of the private debt is important also, if all the private debt is in mortgages and people lose their homes (a traumatic experience) the result would be worse if all the debt is in the stock market and investment schemes like the tiny impact from the dot-com bubble recession.

On the income side. The impact on income from interest rate increases is (and I cant believe Im quoting him because of how annoying he can be) "welfare proportional to wealth" per AA. If the only people with any meaningful amount of interest bearing savings are the wealthy because of how unequal society is, then the impact of that increased income flow would have a smaller multiplier to a society with a more equal amount of savings and income distribution.

The relative amount, distribution, maturity and issuance structure of Govt FAs is a huge determinant of the net impact of interest rate changes. Japan's debt to GDP will provide alot more relative income for the economy compared to Canada (of course the Japan # is misleading because of how much the BOJ owns vs the public). And who owns the Govt FAs? If you've done a lot of QE like Japan, then the banks are by definition going to get a majority of those funds as IOR instead of being paid out to TSY CD accounts. And again, a more unequal society will always distribute an unequal amount of income to people who obvious have more wealth which pays interest.

I just never see much of a consideration from you or Mike about any of the many things I point out here and the many more we could all think up if we spent more than the last 5 min I spent making this comment. Its just 100%, Higher interest rates are good because people will get more interest from the Govt. Well, Govt doesnt pay out all the higher interest that people will receive, other private sector people pay the higher interest so that other people can earn higher interest. Whats the net effect of this? Should we really want a policy where poor and young people (groups with the highest debt to income, probably, I didnt look it up) give more of their meager earnings to elder and richer people (groups with the highest savings, probably, I didnt look it up)?



Auburn Parks said...

Should probably read Govt IOUs, as Govt FAs confuses the issue.

Matt Franko said...

I'm not agreeing with the policy ... I'm just pointing out what I think will happen with these people running the show...

All of your observations as far as the f-ed up distributional aspects are perfectly germane imo...

Auburn Parks said...

No but you are suggesting what will be the impact. Higher rates = Pro-growth.

Maybe they will be, I hope the economy gets hot and they raise rates and it gets even hotter as that will be just another nail in the coffin of the mainstream morons. Oh could you imagine the beauty of it? Missed the housing bubble, missed with QE and money printing, missed with inequality, missed the Trump phenomenon, and miss the impact of rate increases.

Sorry, got carried away there for a second. But in reality, I dont know what will happen if rates go up, surely not much will happen either way if they go up very slowly (like .25% or .5% per year up to like 2.5%).

Matt Franko said...

Auburn these are the same people who think lowering rates and doing QE in the face of a downturn was a good idea... they will just figure out a way to reverse field if we start going the other way due to Trumponomics...

Imo risk is they lose it to the upside after a while...

Ignacio said...

Yes I don't buy Matt argument completely, although household balance sheets are in much better shape now than 5 years ago, and corporate finances can be procrastinated easier in general, which is where the dirty has been translated to (specially on non large cap corps).

Total credit outstanding (excluding financial even) has increased more, not decreased, or not decreased the growth rate, during the last years (higher than the leading flows Matt points out often, which I don't deny, but they are not as big as the credit counterpart; and then there is the distributional issues with those savings).

IMO that's just what is really sustaining the system, which is unsustainable with the current growth and investment rates in the middle term (and higher growth rates like durign the XX century are unsustainable anyway, it was always a ponzi scam based on demographic explosion and carbon consumption). I don't think the system can stand higher rates for very long without collapsing, I mean meaningful higher rates. The propaganda policy changes, 0.25 down/up, to maintain the illusion of monetarism and "central bankism" is just bullshit, but say 2% rates (which is not even that high). But I could also be terrible wrong and the system may be more resilient than it's apparent (I doubt it, as is a poorly hyper-centralized system with no redundancies and too interdependent at all levels).

This also has to be looked at globally, which paints a much dire situation for the whole economy due to continued self-inflicted pain specially in Europe, but in general the terrible distributional issues we have and the awful 'recovery'.

Many factors could make the whole rate thing even moot/neutral in any case.

Matt Franko said...

System has been pretty stable over the last 8 years of ZIRP... stable at a too low rate of activity but stable none the less...

Watch when they raise its going to increase instability ie higher price volatility but the general up trend will still be in place...

imo the policy rate modulates the volatility too ... the higher the rate the more volatility...

Look we have leading flow at a bit over 4T right now and S&P earnings (globally) are at about $1T then if we go up by say 1T on leading flow by raising interest rates by 5% and the rest from Trumponomics, then leading flow will increase 25% or so from the 4T now up to 5T...

then if it is proportional action were studying (and btw may NOT be... may be non-linear we have to observe what happens...), SP earnings go to 1.25T.... ie up 25%...

So if you do a PV discount of the current 1T earnings off the 4T+ leading flow here at 0% then that is the same 1T.... but if you discount a future 1.25T in earnings at 5% then you get 1.19 so it is still higher than the present 1T PV at 0%... so the asset values go up.... real estate, stocks, everything...

Then all the acquirers start to get all lathered up when they see everything going up and we're off to the races, Fed raises, ECB raises, firms invest, yada yada... eventually it has usually blown up (Minsky has observed this but never really understood it...) ...



Tom Hickey said...

Sorry, got carried away there for a second. But in reality, I dont know what will happen if rates go up, surely not much will happen either way if they go up very slowly (like .25% or .5% per year up to like 2.5%).

Very small increases can result in much higher mortgage rates as the yield curve steepens as inflation expectations increase and the inflation risk premium affects the longer term maturities.

Even small increases in the mortgage rate affect housing, because of the sensitivity of the monthly nut. As a result, lenders reduce credit standards and the cycle begins again.

beowulf said...

Raising interest rates will tank real estate markets. People buy as much house as they can afford per month. The more of that goes to interest, the less of it will go to principal. Fed will raise interest rates and will then sheepishly lower them again within six months.