[Rich Toscano]

[quote=analyst]

The mortgage is $600K. While the mortgage owner sits idle, due to the suspension of mark-to-market rules, the mortgage owner is allowed to maintain the fiction that an asset worth $600K is owned.
[/quote]

Analyst, according to a longtime pigg who is very knowledgeable about the banking industry, that isn’t how it works… see this comment for his explanation:

http://piggington.com/shadow_inventory_the_flood_that_may_never_come#comment-117626

Rich

[Rich Toscano]

[quote=analyst]

The mortgage is $600K. While the mortgage owner sits idle, due to the suspension of mark-to-market rules, the mortgage owner is allowed to maintain the fiction that an asset worth $600K is owned.
[/quote]

Analyst, according to a longtime pigg who is very knowledgeable about the banking industry, that isn’t how it works… see this comment for his explanation:

http://piggington.com/shadow_inventory_the_flood_that_may_never_come#comment-117626

Rich

[Rich Toscano]

[quote=analyst]

The mortgage is $600K. While the mortgage owner sits idle, due to the suspension of mark-to-market rules, the mortgage owner is allowed to maintain the fiction that an asset worth $600K is owned.
[/quote]

Analyst, according to a longtime pigg who is very knowledgeable about the banking industry, that isn’t how it works… see this comment for his explanation:

http://piggington.com/shadow_inventory_the_flood_that_may_never_come#comment-117626

Rich

[Rich Toscano]

[quote=analyst]

The mortgage is $600K. While the mortgage owner sits idle, due to the suspension of mark-to-market rules, the mortgage owner is allowed to maintain the fiction that an asset worth $600K is owned.
[/quote]

Analyst, according to a longtime pigg who is very knowledgeable about the banking industry, that isn’t how it works… see this comment for his explanation:

http://piggington.com/shadow_inventory_the_flood_that_may_never_come#comment-117626

Rich

[Rich Toscano]

[quote=briansd1]
I’m also getting mixed signals from Rich’s writing.

I get it that the “Krugman-esque policy will eventually be looked at as a giant, tragic mistake.”

But then again, all the Krugman-esque policy is so far successful in improving real estate prices. [/quote]

That’s not a mixed signal… these reflationary policies can work at first to improve things, until the huge debt and monetary stimulus causes further distortions and/or a currency decline… those concepts aren’t in conflict at all.

Rich

[Rich Toscano]

[quote=briansd1]
I’m also getting mixed signals from Rich’s writing.

I get it that the “Krugman-esque policy will eventually be looked at as a giant, tragic mistake.”

But then again, all the Krugman-esque policy is so far successful in improving real estate prices. [/quote]

That’s not a mixed signal… these reflationary policies can work at first to improve things, until the huge debt and monetary stimulus causes further distortions and/or a currency decline… those concepts aren’t in conflict at all.

Rich

[Rich Toscano]

[quote=briansd1]
I’m also getting mixed signals from Rich’s writing.

I get it that the “Krugman-esque policy will eventually be looked at as a giant, tragic mistake.”

But then again, all the Krugman-esque policy is so far successful in improving real estate prices. [/quote]

That’s not a mixed signal… these reflationary policies can work at first to improve things, until the huge debt and monetary stimulus causes further distortions and/or a currency decline… those concepts aren’t in conflict at all.

Rich

[Rich Toscano]

[quote=briansd1]
I’m also getting mixed signals from Rich’s writing.

I get it that the “Krugman-esque policy will eventually be looked at as a giant, tragic mistake.”

But then again, all the Krugman-esque policy is so far successful in improving real estate prices. [/quote]

That’s not a mixed signal… these reflationary policies can work at first to improve things, until the huge debt and monetary stimulus causes further distortions and/or a currency decline… those concepts aren’t in conflict at all.

Rich

[Rich Toscano]

[quote=briansd1]
I’m also getting mixed signals from Rich’s writing.

I get it that the “Krugman-esque policy will eventually be looked at as a giant, tragic mistake.”

But then again, all the Krugman-esque policy is so far successful in improving real estate prices. [/quote]

That’s not a mixed signal… these reflationary policies can work at first to improve things, until the huge debt and monetary stimulus causes further distortions and/or a currency decline… those concepts aren’t in conflict at all.

Rich

[Rich Toscano]

Dan (I called you UR so people would know which post I was responding to) —

Basically, I think the Krugmans of the world are looking at things like low capacity utilization, low velocity, etc, and assuming that purchasing power cannot decline. This conclusion rests on the assumption that foreigners will continue to lend us simply vast amounts of money, despite the fact that we are so deeply in debt that there really isn’t a credible and politically feasible way to pay it off in real terms. I just disagree with this conclusion because the math doesn’t add up. Neither the USD nor Treasuries are a viable store of value; I just think it’s a matter of time before the world realizes that.

I think there is a US funding crisis in the offing (not necessarily imminent, just to be clear about that). The results of a funding crisis would be a weaker dollar (higher import and commodity prices in US$ terms) and higher rates. There is already precedent for the Fed monetizing debt to bring down rates and fill the gap where foreign inflows have not been sufficient to finance our deficit; I think this will increase into any funding crisis, especially if it happens against the backdrop of weak employment. If that were the case, rates might not rise as much, but it would result in an even weaker dollar.

I apologize, I don’t have much time today so I can’t give the response it deserves… hopefully the above at least gives an inkling of where I am coming from.

Rich

[Rich Toscano]

Dan (I called you UR so people would know which post I was responding to) —

Basically, I think the Krugmans of the world are looking at things like low capacity utilization, low velocity, etc, and assuming that purchasing power cannot decline. This conclusion rests on the assumption that foreigners will continue to lend us simply vast amounts of money, despite the fact that we are so deeply in debt that there really isn’t a credible and politically feasible way to pay it off in real terms. I just disagree with this conclusion because the math doesn’t add up. Neither the USD nor Treasuries are a viable store of value; I just think it’s a matter of time before the world realizes that.

I think there is a US funding crisis in the offing (not necessarily imminent, just to be clear about that). The results of a funding crisis would be a weaker dollar (higher import and commodity prices in US$ terms) and higher rates. There is already precedent for the Fed monetizing debt to bring down rates and fill the gap where foreign inflows have not been sufficient to finance our deficit; I think this will increase into any funding crisis, especially if it happens against the backdrop of weak employment. If that were the case, rates might not rise as much, but it would result in an even weaker dollar.

I apologize, I don’t have much time today so I can’t give the response it deserves… hopefully the above at least gives an inkling of where I am coming from.

Rich

[Rich Toscano]

Dan (I called you UR so people would know which post I was responding to) —

Basically, I think the Krugmans of the world are looking at things like low capacity utilization, low velocity, etc, and assuming that purchasing power cannot decline. This conclusion rests on the assumption that foreigners will continue to lend us simply vast amounts of money, despite the fact that we are so deeply in debt that there really isn’t a credible and politically feasible way to pay it off in real terms. I just disagree with this conclusion because the math doesn’t add up. Neither the USD nor Treasuries are a viable store of value; I just think it’s a matter of time before the world realizes that.

I think there is a US funding crisis in the offing (not necessarily imminent, just to be clear about that). The results of a funding crisis would be a weaker dollar (higher import and commodity prices in US$ terms) and higher rates. There is already precedent for the Fed monetizing debt to bring down rates and fill the gap where foreign inflows have not been sufficient to finance our deficit; I think this will increase into any funding crisis, especially if it happens against the backdrop of weak employment. If that were the case, rates might not rise as much, but it would result in an even weaker dollar.

I apologize, I don’t have much time today so I can’t give the response it deserves… hopefully the above at least gives an inkling of where I am coming from.

Rich

[Rich Toscano]

Dan (I called you UR so people would know which post I was responding to) —

Basically, I think the Krugmans of the world are looking at things like low capacity utilization, low velocity, etc, and assuming that purchasing power cannot decline. This conclusion rests on the assumption that foreigners will continue to lend us simply vast amounts of money, despite the fact that we are so deeply in debt that there really isn’t a credible and politically feasible way to pay it off in real terms. I just disagree with this conclusion because the math doesn’t add up. Neither the USD nor Treasuries are a viable store of value; I just think it’s a matter of time before the world realizes that.

I think there is a US funding crisis in the offing (not necessarily imminent, just to be clear about that). The results of a funding crisis would be a weaker dollar (higher import and commodity prices in US$ terms) and higher rates. There is already precedent for the Fed monetizing debt to bring down rates and fill the gap where foreign inflows have not been sufficient to finance our deficit; I think this will increase into any funding crisis, especially if it happens against the backdrop of weak employment. If that were the case, rates might not rise as much, but it would result in an even weaker dollar.

I apologize, I don’t have much time today so I can’t give the response it deserves… hopefully the above at least gives an inkling of where I am coming from.

Rich

[Rich Toscano]

Dan (I called you UR so people would know which post I was responding to) —

Basically, I think the Krugmans of the world are looking at things like low capacity utilization, low velocity, etc, and assuming that purchasing power cannot decline. This conclusion rests on the assumption that foreigners will continue to lend us simply vast amounts of money, despite the fact that we are so deeply in debt that there really isn’t a credible and politically feasible way to pay it off in real terms. I just disagree with this conclusion because the math doesn’t add up. Neither the USD nor Treasuries are a viable store of value; I just think it’s a matter of time before the world realizes that.

I think there is a US funding crisis in the offing (not necessarily imminent, just to be clear about that). The results of a funding crisis would be a weaker dollar (higher import and commodity prices in US$ terms) and higher rates. There is already precedent for the Fed monetizing debt to bring down rates and fill the gap where foreign inflows have not been sufficient to finance our deficit; I think this will increase into any funding crisis, especially if it happens against the backdrop of weak employment. If that were the case, rates might not rise as much, but it would result in an even weaker dollar.

I apologize, I don’t have much time today so I can’t give the response it deserves… hopefully the above at least gives an inkling of where I am coming from.

Rich

[Rich Toscano]

UR – When Krugman was cheering on ultra-easy monetary policy after the dot com crash (and then bemoaning the slightly less ultra-easy policy in 2004), he was oblivious to the distortions all that money and credit creation were causing (the housing bubble was already raging in 04), and to the problems they’d eventually cause.

Now he’s doing it again. This time around, our own currency is at risk. I agree that no dramatic consequences have happened yet, but I believe they are baked into the cake and that Krugman-esque policy will eventually be looked at as a giant, tragic mistake.

Rich

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