In general, I like Jim Cramer. I find him to be educated, enlightened and very entertaining. However, the comment he made this morning on CNBC, where he said that he could not take a "Spain-like-outcome" off the table when it comes to the United States, highlights just how deeply misinformed even the most highly regarded mainstream media pundits are when it comes to basic concepts about our economy. It is really, truly, eye-opening and frightening at the same time.
That Cramer would even consider lumping the United States in the same boat as Spain, when the former is a currency issuer while the latter is not, is sheer lunacy. It's absurd. No, it's worse, it's horribly, inexcusably, ignorant.
I do not for one second pretend that any of these people would even try to comprehend MMT. Believe me, I know--I've been doing TV for 18 years, with the last 10 spent at Fox and I've tried. Oh, how I've tried to get them to see the light. But we're not talking about making some quantum leap from the current, mainstream neoliberal view to a full-blown acceptance of MMT. All we're asking is that they acknowledge a very simple distinction that should have become absolutely, crystal clear after the comical U.S. downgrade by S&P last summer. Remember that? Yes, rates went DOWN...big time! The United States is not credit sensitive as an issuer of its own currency. When will these jerks get this through their thick heads?
Look, Cramer is no Rick Santelli. If anyone could understand this, it's him. He's a Harvard educated law school grad who worked at Goldman Sachs. For him to make a straight-faced comparison between the U.S. and Spain, especially in light of what we saw after the S&P downgrade last summer, is mind-boggling to me. I am having a hard time questioning his intelligence given his pedigree education, but he's giving me every reason to do so.
When I hear things like this it makes me think that it should be easy to make tons of money as an investor betting against these fools. Their views are based on nothing more than superstition and irrationality. Hell, it would seem that under those circumstances making a fortune should be as easy as taking candy from a baby. But then I am reminded of what the great, John Maynard Keynes once said: "The market can stay irrational a lot longer than most people can remain solvent."
Truer words were never spoken.
Upton Sinclair has an even simpler explanation on why even principles level economics is impossible for that bunch: “It is difficult to get a man to understand something, when his salary depends on his not understanding it."
ReplyDeleteStiglitz, Greenspan, Buffett: Zero probability of U.S. default
ReplyDeleteStiglitz, Greenspan, Buffett: Zero probability of U.S. default http://www.youtube.com/watch?v=HYXASbjErx0
ReplyDeleteThe problem is that nutjobs in congress might opt for voluntary default rather than have the Fed 'print money' and thereby cause hyperinflation, which as we all know is what happened in the wake of QE.
ReplyDeleteSeriously though, if the debt gets too big then inflation could result from all the extra money getting paid out by the government couldn't it?
The only potential I can come up with is wait till "twist" ends, then bonds should continue the rally on the longer end.
ReplyDeleteTheory being that the Fed in reality is sitting on bond prices as they are the large "commercial" monopolist buyer.
resp,
"Seriously though, if the debt gets too big then inflation could result from all the extra money getting paid out by the government couldn't it?"
ReplyDeleteNot in itself. If the government runs a deficit in excess of a full employment budget, then yes. A "full employment" budget is when the fiscal deficit offsets non-govt saving desire.
In a profit seeking society higher gov't spending ordinarily equates to a greater output of goods and services so the added money is matched dollar for dollar with more "stuff," mitigating the likelihood for inflation.
ReplyDeleteHowever, as Tom points out, should the spending continue beyond the economy's capacity to produce more goods and services, prices will tend to rise broadly. In other words, you get inflation.
You rarely can convince someone of something he doesn't want to believe by reasoning alone, just as you can usually easily convince someone of something he wants to believe with even the flimsiest reasoning.
ReplyDeleteBut this is complicated when ever-increasing quantities of interest are being paid on govt debt, or alternatively in the form of interest on reserves.
ReplyDeleteThe additional money isn't going into employing JGers or anything like that, it's just interest on bonds or reserves, getting ever (exponentially?) greater over time (compound interest).
Inflationary?
Does MMT require a zero interest rate and no govt debt to 'work'?
"Does MMT require a zero interest rate and no govt debt to 'work'?"
ReplyDeleteNo. As I understand it, zero interest rate and no govt debt are policy options that are not core MMT macro.
Governments that are sovereign in their currency are never operational constrained in meeting interest payments and they can control for inflation by taxing a portion of them using a progressive tax rate.
I wouldn't bet against these guys. One thing they are good at is following. And they likely have good networks to tell them when to hold em and when to fold em. Herd mentality at work. It's when they step out on their own, they can get into trouble. Seems Cramer was steppin out here.
ReplyDeleteCramer has made so many bad calls I've lost count.
ReplyDeleteYeah, I've seen you on TV, and the last time I tuned in, you got your arse handed to you by Peter Schiff.
ReplyDelete"What artificial lending standards are you talking about? The housing market will grow by 10% this year."
I still laugh at that ridiculous call.
You might be right about how Cramer is wrong, but you have got your own asinine blurbs that serve as endless enjoyment.