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Rich ToscanoKeymaster[quote=Bob Lobbla]I’m pretty sure this guy went to my high school…
In other news, I love your law blog.
February 17, 2012 at 8:18 AM in reply to: Japan’s Central Bank Marks a Goal for Higher Inflation #738253Rich ToscanoKeymasterHaha, well pri, I did actually have some thoughts but was going to contemplate them a bit further before putting pen to paper, as it were. But who knows if I will get around to that so here goes:
I think the BOJ is playing with fire here. People (myself included) wonder how investors can buy JGBs at such low yields, given the likelihood of future debt servicing problems based on debt loads, demography, etc. The answer, I think, is that people aren’t thinking about that stuff — as long as yields are higher than (or not much lower than) inflation, they just lap up those JGB’s. This has worked out, and Japan inflation has stayed super low (or negative), for so long, that people don’t really question it. (This, as an aside, is why I think people who use Japan as a prologue for the US are making a mistake: our REAL yields are already far lower than Japan’s ever were on a sustained basis).
So it occurs to me that the long awaited tipping point for the Japanese bond market might come when Japanese inflation increases in a non-transitory way. Once the Japanese people internalize a higher rate of inflation, they will demand higher yields, and (depending on the size of the yield increase) that’s when the trouble could start.
Of course if the JGB can thread the needle perhaps that won’t happen, but as I said, I think they are playing with fire. And as you said, we do indeed live in interesting times.
Rich ToscanoKeymaster[quote=SK in CV][quote=Rich Toscano]The cost of living goes up every year (even in calendar years 2008 and 2009 the cost of living went up). So if you didn’t get a raise in a given year, your compensation has actually declined.[/quote]
Not exactly. If your pay stays the same, then your pay stays the same. The purchasing power of that compensation goes down. That’s not necessarily the same as a cut in pay. [/quote]
I strongly disagree.
You are trading your labor for the ability to buy stuff. Or specifically, an hour of labor allows you to buy a certain amount of stuff. Dollars are just a medium of exchange in this transaction. If you do the same amount of work, but are compensated with the ability to buy less stuff, then your compensation has declined. The fact that you got the same amount of (now less valuable) dollars doesn’t change that fact.
For the record, I am not arguing that anyone should get automated pay increases. I’m just pointing out the fact that if your nominal pay did not increase in a given year, your real compensation actually dropped.
Rich ToscanoKeymaster[quote=SK in CV]I have a question. Your question begs the question (in the classic sense), by presuming that everyone gets a raise every year. In the industry I’ve worked in for more than the last decade, nobody gets a raise every year. Almost everyone’s comp is based on very objective metrics. Bill more, get paid more. Increased technical skills lead to higher billing rate, leads to higher variable compensation.
So my question is, do you think that another year on the job is a good reason for an employer to pay more for the same services? Shouldn’t raises (and compensation in general) be based on more objective measurements, like merit, performance, absolute value, and capped by comparable rates and conditions within the market place?
This presumption that another year on the job is good cause for a raise, absent other measurements, bugs the hell out of me.[/quote]
The cost of living goes up every year (even in calendar years 2008 and 2009 the cost of living went up). So if you didn’t get a raise in a given year, your compensation has actually declined.
February 15, 2012 at 4:02 PM in reply to: OT: The Weekly Piggington User Forum Report, Issue #1. #738112Rich ToscanoKeymasterHaha, I love it… how do I subscribe to Piggington Weekly?
Rich ToscanoKeymaster[quote=pri_dk][quote=Rich Toscano]Again, people will find another option.[/quote]
Not if there are no other options.
And there really are no alternatives to the dollar. [/quote]
The alternative is to not use the dollar as the single reserve currency. Like I said, countries are setting up bilateral trade agreements to avoid the dollar and use their own currencies. Some regions could also migrate over to the yuan (maybe not ready yet, but eventually) or the euro (you may laugh now, but some day the problems will shake out and there could be a stable euro).
[quote=pri_dk]
Since the world cannot avoid currency altogether, investors will stay with least risky currency (by a long-shot): The US Dollar[/quote]I don’t see the dollar as being least risky. This is my whole psychology argument: the only reason it’s seen as safe is that the herd still thinks it’s safe. Once that’s questioned, the fundamental riskiness will become clear.
As Nassim Taleb said: ““The difference between Europe and the U.S. is the consciousness of the problem.”
Guys, this is a fun conversation (and I appreciate everyone except DomoArigato keeping it so civil). But, I am moving today so probably won’t have time to punch into this thread much after this… go on without me. 🙂
Rich ToscanoKeymaster[quote=SD Realtor]Yes, psychology plays a huge part. But if capital is going to flee America en masse, where is it going to go that is safer?
Brian you make it sound like there is some fixed amount of capital that is needed to keep us afloat when in reality we keep falling further and further behind. It is like a pyramid where there is not any tangible product but you need to keep roping more and more friends in just to keep the churn going. Sooner or later it falls apart. Trying to minimize the problem using justification of what alternatives are there for investment is ridiculous. Money is made by moving it from place to place and constantly seeking better and more solid returns. Those will be found and just because you or I cannot identify them now doesn’t mean they don’t exist or will not exist tomorrow. Also China is working very hard to internationalize the yuan, and you know that.
It doesn’t matter where it goes. Go study the history of the reserve currency. All for the reasons for the dollar as a reserve (including giving the US the ability to penetrate foreign markets) are so far gone it is ridiculous.
The world is waking up.
Raising taxes, cutting spending (draconian or not draconian) will help a little bit but when we have to face dealing with the unfunded entitlements those measures will be nominal at best.
There simply will not be enough to go around.[/quote]
Another great post on this topic, SDR… I am in complete agreement with your views on this issue.
I would just add a couple points in your response to Brian that I quoted above:
– Where will capital go? To where it is treated best. For instance, to somewhere where the Central Bank hasn’t just announced it will keep real (inflation adjusted) interest rates steeply negative through 2014, and quite possibly beyond. To a place that isn’t so indebted that a move into positive interest rates would crush the economy. Etc.
– Arguments like “where else will capital go” or “there’s no other option but the dollar” are similar to the housing bubble argument, “people need somewhere to live.” Yes, people do need somewhere to live, but that doesn’t mean it can remain prohibitively expensive to buy real estate — people will find a way around it (in this case renting). And yes, a single reserve currency makes things more efficient, and the US has the history of being a target for capital, but that doesn’t mean it can stay prohibitively expensive to do these things. Again, people will find another option.
Rich ToscanoKeymaster[quote=pri_dk][quote=SD Realtor]You also make it sound like the dollar as the reserved currency for the future is going to happen just because it was in the past. Do you really think that cannot change?[/quote]
Of course anything can change, but it comes down to a basic question that needs to be asked in any analysis:
What are the alternatives?
Yeah, someday there may be another currency that has the characteristics to challenge the dollar as a reserve, but today there is nothing even close. The only alternative that ever seemed likely, the Euro, is on the verge of extinction.
I like Rich’s article and generally agree that the magnitude of the debt will overwhelm all other factors in the long run.
However it is very hard to predict timing, and IMO the “long run” may be very long – long enough to invoke Keynes:
In the long run, we are all dead.[/quote]
The alternative is to not use the dollar as the single reserve currency. A single reserve currency makes things easier, but it’s not required… many countries have already started to set up bilateral agreements to trade in their own currencies.
As for timing, I should clarify that I do have some idea — that it won’t be in the “we’re all dead timeframe.” I’m talking about in the coming years. I simply don’t see it limping along for much longer than, say, 5 years.
Now, will the whole thing start to come undone next month, or will it be 5 years out, or somewhere in between? That’s the part I have no idea about, and despite Domo’s pathetic attempt to make an insult of the fact that nobody can time such things, it’s completely legit to not know, because again: it has to do with psychology, and you can no more predict when the investment herd will change direction than you can time when a shoal of fish will change direction. But you can know when things are reaching the point of inevitability, and I think we are very close (within years).
Hope that clears it up my thinking a bit on the timing question.
Rich ToscanoKeymaster[quote=DomoArigato]Rich’s article is retarded. If interest rates go up, the value of existing U.S. debt will go down and the Federal Reserve can actually buy that old debt back at a cheaper overall cost than if interest rates were to go down or stay the same. This is just a simple present value analysis.
[/quote]“This is just a simple present value analysis” = Using big words to pretend what you wrote wasn’t nonsensical.
I mean, come on, the value of the debt going down IS the problem I am talking about! And you’re throwing it back like it’s some solution I haven’t thought of, as if that fixes anything. Bizarre.
As for Krugman, he is the equivalent of the 2006-era housing bull, whose entire argument basically comes back to saying just because something hasn’t been a problem yet, it will never be a problem.
Rich ToscanoKeymasterI don’t put a timeframe on it because it’s impossible to put a timeframe on it. The reason it’s impossible to put a timeframe on it is that it comes down to psychology: when will the herd change direction and lose confidence? I just don’t think such things can be timed. They happen when they happen. i don’t agree with your premise (as I read it) that if you can’t put a timeframe on something it’s not worth talking about. It’s worth knowing something is likely to happen so that you can prepare for it, even if you don’t know exactly when it might happen.
January 7, 2012 at 9:49 PM in reply to: OT – Who will run for President on the Republican side? #735514Rich ToscanoKeymasterThat was a thoughtful, reasoned, and polite response, markmax… I can’t speak for other blogs, but knowing the folks here, you will get a lot more mileage with that style of discourse than with the more ranty/name calling style.
January 7, 2012 at 3:21 PM in reply to: OT – Who will run for President on the Republican side? #735508Rich ToscanoKeymaster[quote=markmax33][quote=zk]markmax, I was going to stop feeding your trollness, but I saw this and couldn’t help but think of you. There’s a lesson here.
One quote from the article that seems especially appropriate: “Stop doing this! You’ve crossed the line from self-parody into campaign liability.”[/quote]
Zk,
Obviously you can’t read facts. Some dude created a horrible youtube video, created a new account and put Ron Paul’s name on it and it makes news? You are even troll enough to repost a retarded story like that? Good job! Why don’t we talk about the real national threat, the national debt? I would bet you anything this was a Huntsman fan trying to make the news as a last ditch effort to get him in the spot light. It ain’t news, keep trying…[/quote]Markmax, please stop foaming at the mouth for just a minute and actually try to understand what other people are saying.
ZK very obviously wasn’t posting that story because of the specific Huntsman video. He was posting it because the article made the point that certain Ron Paul supporters, by acting obnoxious and irrational and overzealous, are actually hurting Paul’s chances of winning.
Can you think of anyone who might fall into that category?
There is no doubt in my mind whatsoever that your antics on this site have turned more people against Ron Paul than in favor of him. No doubt.
Rich ToscanoKeymasterBest of luck, flu, and happy new year to everyone.
Rich
Rich ToscanoKeymaster[quote=DomoArigato]
I was only proposing monetization of the debt to those that believe in invisible bond vigilantes.[/quote]That doesn’t make sense, because if there were such a thing as bond vigilantes, they would likely be more upset about debt monetization than they would about high debt levels.
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