The creditors don't seem to mind it either, happily buying hundred-year bonds with near-zero interest rates.
Also remember that every "saving" is also a "debt" on the other side of somebody's ledger. Quite a lot of that corporate and government debt is "savings"; $270 billion of it is owed to Apple alone. http://thewire.fiig.com.au/article/2018/04/24/how-apple-inve...
> The economy is brutal. It is a fabricated social concept built on trust right up until the moment it breaks out into the physical world and things that desperately need to happen stop happening because it doesn't make any economic sense.
This was one of the questions that Keynes explored - how it is possible to have productive capacity idle because there isn't enough credit for people to buy the products.
It's also the idea behind a lot of the "green new deal" schemes; do things that need to be done but don't offer a specific return, but benefit society and the planet as a whole.
> The persistent bailouts are making losers of people who make good long term decisions
How, exactly? What "long term decisions" would not have been worse off if the 2008 bailouts hadn't been made and a large chunk of Western retail banking had gone insolvent, tying up accounts until it could have been resolved? There is an important difference between "this business is no longer viable", and "this business is perfectly viable in the future but is experiencing a temporary shock which its cashflow and trade credit cannot cover".
I think that OP is referring to people who have decisions that would help them weather a bad storm such as 2008 or the pandemic. Let’s say I’m a small bank that is extra extra conservative with my balance sheet and only makes responsible loans, etc. In theory, 2008 or 2020 comes along and my business is hurt but I’m still fine because of my caution. And long term I am in a great position because my competitors are soon going out of business... except they aren’t because the government props them up.
This is essentially what’s happening to Warren Buffett right now who has a war chest is billions of dollars saved up during the good times that he’s ready to invest now. But it’s not as viable a strategy because the government props everyone up.
Yes, a lot of these are viable businesses in the long term if they can just be helped now. But if the government protects them on the downside many would argue that they should get more of a share of the upside as well.
In all fairness, Berkshire Hathaway stepped in to bailout Bank of America. It obviously paid out handsomely for Buffett and Co. long term, just find it interesting to use as an example.
Private capital does not "bail out" companies. That's called an investment.
Instead should have mentioned his investment in Goldman--not BoA--during the financial crisis, which he did counting on the bailout that was passed shortly after.
I don't believe it's too much of a leap to conclude that back in 2008 it was as close as possible to a joint effort between BRK/Goldman/the-financial-powers-that-be to minimize the total obligation GS would have to the Treasury from TARP funds.
Read somewhere the TARP investment was repaid 8 months later by GS with 23% interest, whereas they repurchased BRK's preferred stock for a 10% premium in 2011. BRK's warrant redemption in 2013 is another story, but easier for GS to account for long term.
[0] Uber, an 11 year old company, IPO-ed in 2019, losses were >1/3 of their $14 billion revenue that year.
There is a level of crazy afoot there. The shares being worth money to anyone is alarming, and indicative that something is very broken. Large amounts of debt is an obvious answer to 'where did the money to fuel this bonfire ultimately come from'
> Also remember that every "saving" is also a "debt" on the other side of somebody's ledger.
And if the money on the debt side isn't used prudently, both the debtor and saver end up with nothing at the end of a sad story. The saver loses out more, because they could have been living it up with more resources, rather than directing them to the debtor. What the loan is used for in real terms (useful infrastructure, vanity projects, wasted, etc) matters.
I don't mind what the accounting identities do if I get a nice place to live, cheap electricity and lots of food. But the loans at the moment aren't going towards big construction in desirable areas, nuclear power plants and securing food supplies.
Uber appear to have $7.6bn debt, reading off the balance sheet. Quite a lot for a company which shouldn't need much to cover operating cashflow.
But who are the investors? It's bloody Softbank again.
> The saver loses out more, because they could have been living it up with more resources, rather than directing them to the debtor.
Softbank also managed to lose a lot of money on WeWork. Given that one of their main backers for this is the Saudi government and royal family, whose capacity to "live it up" is already pretty high, I'm going to make an alternative argument: the rise of global inequality and lack of wealth taxes means that the only way left to channel money back to the general public is through Potemkin investments.
> nuclear power plants
If we want to talk long-term prudence, something with a massive decommissioning liability that's uninsurable is probably not it.
If you entertain the idea that a big bubble (3-5 years long) could ever happen, Uber being allowed to continue operations is an eyebrow raiser. There are risks that much of the effort that should be going in to securing a prosperous future is being misdirected.
> If we want to talk long-term prudence...
I would like, in my old age, to have twice as much electricity available as when I was young. I don't really care how. But it isn't going to happen because I wished hard. We need to invest in physical changes to the world that will make life better for people. Particularly in things that aren't oil.
Look at the amount of construction that is going on in China. That is what is physically possible. That sort of activity could be usefully replicated in the West.
OK: how?
The private sector isn't going to be doing it because it's not profitable enough. The public sector won't do it because people complain about the public debt.
This isn't true, though. The US consistently elects republican administrations that jack up deficits to cover tax cuts for billionaires and nobody bats an eye. The military can blow 700bn a year with barely a peep of outrage. And unlike with infrastructure investment that money is effectively a 700bn jobs program for 3 million people that produce nothing of value.
Complaining about debt is usually a cover for bigotry. People don't want social equity or fairness because leveling the playing field is deconstructing hierarchies people were born into and base their personality on. Its why attacking institutional racism in the police is taken as an attack on the culture, personhood, and lifestyles of cops and white suburbia.
> Complaining about debt is usually a cover for bigotry. People don't want social equity or fairness because leveling the playing field... This could be a paragraph out of the millenial reactionaries handbook..not only are the concepts of social equity and fairness highly subjective and controversial but debasing majority cultural bias to construct a level playing field is so historically unsuccessful as to make it a philosophical curiosity (aside from with a singularly unsuccessful foray into the real world which ended in despotism and pogroms for all).
> How, exactly?
Keeping interest rates very low is hurting people who are saving money. Not just in banks also via pension funds[-], retirement schemese, life insurance.
It pushes savers into taking risky bets with real estates or stocks or even direct consumption (spending money instead of saving them is very risky bet on the future of events).
[-] The pensions will be low because 1) compound interest on riskless part of one's pension assets is low 2) Other assets that one will be purchasing with retirement money will be grossly inflated with cheap money chasing yields, via consumption etc.
The banks were more than willing to sit on assets than actually sell foreclosed properties at market values. So while the housing prices went down slightly, your talking maybe a 10% after a decade of 10% a year increases. The "dip" didn't even last 2 years.
I myself made an offer on a forclosed/vacant house, and the bank counter offered above the listing price.
I had friends who tried to buy already forclosed houses and literally sat around for a year+ waiting for the banks to accept their offers. Eventually like me, actually buying other properties.
Same goes for professional money managers of all kinds who simply cannot provide decent returns to their customers by buying bonds like old school. So they are forced to chase yields in other risky assets.
Also with bank savings everyone has an equal chance. With risky assets - richer people are priviledged with better access to higher returns (via better access to information, scale of investment, credit etc.). So disparities grow.
Edit: spelling
I do agree that something is broken, but "debt is too high and interest is too low" is a bad problem statement.
Low interest rates is how governments can keep the pretense that they are not printing money out of thin air and they "service" their debt and that they will repay it at some point in the future.
> When the Federal Open Market Committee wishes to reduce interest rates they will increase the supply of money by buying government securities. When additional supply is added and everything else remains constant, the price of borrowed funds – the federal funds rate – falls.
https://en.wikipedia.org/wiki/Federal_funds_rate#Explanation...
There must be strict liability against those whose bad decisions lead to incalculable suffering for countless people. Hard stop.
We can debate the specific consequences (banned from positions of authority, fines, debt, prison, etc). But we must not allow those with demonstrable bad decision making abilities to continue to play roulette with the lives of others. Likewise, good decisions cannot be allowed to justify or excuse bad ones.
Isn’t that antithetical to evidence based policy making? How can we verify a project is successful without a desired outcome to look for?
I think it started in the 60s with the Vietnam War, the Space program and Johnson's great society programs. And then Nixon took us off the gold peg, and we were free to print as much as we wanted.
MMT is pretty scary to me. It's never really been tested long term at scale and mainly exists as a theory. But I know that's the end game for the Fed and that's the trajectory we're on.
MMT is only a description of how the systems work. But if by "test it", you mean that the Central Bank is backing the public debt, Japan have been doing for, at least, twenty years.
I think you'll find it was precisely 1971.
The transparency SHOULD be good in that it should be able to show the electorate whether reps did what they said they would.
In reality it is, as mentioned above, instead used to appease a small but powerful body of the electorate.
The tradeoff they are pointing out isn't "transparency or lobbying" it's "transparency + rampant lobbying vs secrecy + less effective lobbying"
https://www.tylervigen.com/spurious-correlations
https://www.buzzfeednews.com/article/kjh2110/the-10-most-biz...
The end of super-cheap easy domestic oil has long been my go-to hypothesis for what happened around 1971. Monetary systems and policy are social constructs, but energy is physically fundamental.
Everything that has happened since then including reckless monetary policy and wage stagnation could be argued to be symptoms of the rising real cost of energy. By real cost of energy I mean physics, EROEI. Wage stagnation happens because without super cheap energy the actual physical cost of providing increasing living standards to a huge number of people become too high. Even if they live lavishly, a smaller number of rich people don't consume nearly as much energy as a huge number of middle class people. As a result the rich are not affected. Reckless financial and monetary policies can be explained by politicians who don't understand physics trying to get the magic unicorns to come back.
If either solar/wind + batteries or some form of nuclear power can be made to scale well enough, we may see a return to the post-war era. Otherwise we will not, and returning to the gold standard (or Bitcoin) won't make much difference.
I'm pretty optimistic about renewable power. I glance at this every once in a while:
http://www.caiso.com/TodaysOutlook/Pages/supply.aspx
During the day California often runs on >50% solar/wind. Two decades ago that was a small single digit percentage. It's pretty spectacular. If we can scale storage similarly and then if the costs of both continue to fall for a while due to industrial scaling of production, we could be back to the 50s but with a renewable instead of non-renewable basis.
A fusion breakthrough or finally figuring out how to safely and sustainably scale fission would have a similar outcome.
BTW: I also wonder if you can explain the Chinese miracle in energy terms. China just decided to chase growth and fuck the environment, so they went wild with cheap coal. The magic was not only using cheap coal but doing so with no scrubbers (which consume a surprising amount of power) and no other energetically costly environmental controls to speak of, maximizing physical EROEI. They lifted vast numbers of people to middle class status and became a superpower at the cost of accelerating climate change and air that burns your eyes.
I'm starting to wonder if good long term decisions aren't things like learning to grow food and stocking up on ammo at this point.
Could be used for the environment too. Unlike money, CO2 and temperature are real things, and rather than worrying about imaginary stuff like money, it would be prudent to be fiscally conservative regarding our carbon budget.
So is political means of acquiring wealth - this is known as intra-species aggression and is common to all social species; this is another, older, and less efficient, algorithm for resource allocation.
Basically, every time politicians and their enforcers barge in to "fix" things they break the efficient algorithm (aka "market economy") to replace it with the older one (aka "the biggest ape gets to boss others around"). And, yes, it doesn't make any economic sense. "Bailouts" are nothing more than taking from many people by force and giving to few politically-connected ones. It's just indirect form of force: instead of simply looting, they print more money - but everybody else is prevented by force by doing the same, so they have no choice but to see the value of their money to decline and be transferred to the recipients of new money.
Importantly, the idea that state intervention is bad for the economy as a universal rule is simply wrong. In the long run, history clearly teaches that mixed economy work (e.g. a la Keynes), while laissez-faire (e.g. a la Friedman) or centralized economies (e.g. a la Communist) don’t. Striking the right mix requires society input in the form of political debate.
We desperately need this to happen now in the West. While I have nothing about Jeff Bezos as a person, but billionaires simply should not be allowed to exist. They are the symptom of a « Laissez Faire » system in terminal state.
(Those guys at least built something. Why does no one complain about America’s grandpa Warren Buffett. He just shuffled around money, plays with warrants and options (while telling others not to) and makes a couple hundred million by going to Congress and talking his book. )
One could argue that Warren Buffet should pay higher taxes. And he would agree! But unless you find capitalism itself unethical there is nothing wrong or underhanded with searching for undervalued firms and investing in them.
My biggest complaint is that that instead of paying higher taxes Warren Buffet could maybe not jawbone Congress into bailing out AIG. AIG should have gone bankrupt and Goldman Sachs (and their other counterparties) should have borne that pain, and possibly gone bankrupt themselves. Instead Warren Buffet refuses to come to the rescue of AIG, comes to the rescue of GS, and then tells Congress that the economy will freeze up if AIG and other banks aren't bailed out. That is not efficient allocation, that's crony capitalism.
What is a problem is that congressional representatives are enormously influenced by donations to political campaigns. Even if they lose a reelection there's a whole industry in place to put them into cushy jobs if they've followed their party line. And the party line is to do what the campaign donors want, not necessarily what the constituents want. That is a problem.
History teaches no such thing. History teaches that governments messing with the money supply, which is the centerpiece of Keynesian economics, leads to civilizational collapse. The Roman empire being a prime example.
> centralized economies (e.g. a la Communist) don’t
Government messing with the economy by manipulating the money supply is just a different form of central planning, and doesn't work for the same basic reason that Communist central planning in the Soviet Union didn't work.
I always had an impression that all the money everywhere was always something issued by the government and its supply effectively controlled by the governments: even many centuries ago there were laws that forbade forging the money, even at the times when the money was made of gold. The way I understand it, the worth of money was seldom, even in old times, the weight of the metal. Otherwise nobody would have cared about the forgeries?
So the question is, is there any historical example of money long enough disconnected from the issuers "messing" to be even able to argue there is such thing?
If I understand the more modern thinking of economists, it's not that the money in older times functioned differently (that there wasn't a "trust" component), it's just that there were limits due to the dependence on metals availability. But the economy was never "just a sum of the issued money".
Of course not; the economy is all economic transactions, not just the quantity of money.
No. Government having a monopoly on the issuance of money is a relatively recent development.
> even many centuries ago there were laws that forbade forging the money
That forbade forging/counterfeiting money issued by the government, yes. But not issuing different money altogether.
Historically, government-issued money has not always been available everywhere people wanted money, so other forms of money would be created to fill the gap. It is only in recent history, with the advent of paper (and later electronic) fiat money, which removes all practical limits on how much of it governments can create, that government issued money has become available everywhere to the point where the incentive to create private forms of money to fill a gap is basically gone.
> The way I understand it, the worth of money was seldom, even in old times, the weight of the metal.
The worth of the money was always supposed to be based on the weight of the precious metal, such as gold, that it contained.
However, once you've gotten everybody to believe that, say, all your gold coins contain some standard quantity of gold, which determines their value, the temptation is irresistible, judging by the historical record, to then secretly debase the coins by substituting a much cheaper metal for gold for part of them, so the actual weight of gold in them is less than the standard amount, but still telling everybody that they're the standard gold coins so they will continue to be accepted at the same value, based on the standard weight of gold instead of the debased weight.
Of course, such a secret never actually keeps for very long, and once word gets out that you're debasing your coins, their actual value in the marketplace goes down. Or, to put it another way, prices in terms of your coins go up--it takes more of your coins to buy the same goods and services. This is why monetary debasement always leads to price inflation.
> Otherwise nobody would have cared about the forgeries?
Governments always care about forgeries because they don't like competition in the business of issuing money, since that business is a source of revenue (look up the term "seignorage").
> is there any historical example of money long enough disconnected from the issuers "messing" to be even able to argue there is such thing?
The incentive to debase the money you are issuing, once you've gotten everyone to accept it at a certain value, is certainly not limited to governments. Fractional reserve banking comes from the same incentive: if you've gotten everybody to believe that, say, every gold note your bank issues is backed by a standard quantity of gold in your bank's vault, the temptation is irresistible, judging by the historical record, to then start secretly issuing more notes than you have gold, but still telling everybody that your notes are all 100% backed by gold, so they will continue to be accepted at the same value. Of course this never works for too long either, and since it's easier to print paper notes than to mint debased coins, inflation with debased paper money tends to happen faster and be more of a problem than inflation with debased coins.
So the difference between a private issuer of money and the government issuing money is not that the latter will debase money but the former won't. The difference is that if one private issuer's money gets debased, but there are multiple different private issuers, such as banks, people can simply stop using the money from the bank that debases it. So in a private, competitive situation, there is actually an incentive to not debase your money, which can counteract the incentive I described above towards debasement. In short, there is a limit to how bad things can get if private money issuance is allowed.
But if the government debases the money, while it's also enforcing a monopoly on money issuance (and also, most likely, requiring things like taxes to be paid in the money it issues), there is no other money people can choose, so an entire economy can be ruined.
The problem is, a big part of the value in the economy never gets to be an explicitly "issued" money, and that was so even many centuries ago. So your belief in the magic of the "hard" issued money appears to me to be just a wishful thinking, even without the historical support since the earliest times. Different forms of debts are older than any precisely defined issued money, and all the forms of debts are what actually drove the economies.
Most famously, the period of democracy in Athens started only after Solon abolished the accumulated debts, which speaks a lot about the dynamic of their economy during all the times before that point was reached.
It appears to me that sooner or later the current world will have to accept that we need a Solon-like act to end the period we're in.
For an appropriate definition of "value", yes, I'll agree with this.
However, I don't see how it conflicts with anything I said.
> Different forms of debts are older than any precisely defined issued money, and all the forms of debts are what actually drove the economies.
Debt certainly plays a role in how economies develop. However, again, I don't see how that conflicts with anything I said.
> the period of democracy in Athens started only after Solon abolished the accumulated debts
First, I don't think historians are in agreement about exactly what Solon did and whether it amounted to abolishing all accumulated debts.
Second, while many historians credit Solon with laying the foundations for Athenian democracy, it did not actually start until well after Solon's death, after a considerable period of autocratic rule following the seizure of power by Peisistratos. So even if we grant that Solon abolished all accumulated debts, I don't see any clear connection between that and democracy.
> sooner or later the current world will have to accept that we need a Solon-like act to end the period we're in
Meaning, abolish the accumulated debts? That's basically what the US government is doing to its debt by continuing to print money; since all of the US government's debt, and pretty much all of US private sector debt, is denominated in dollars, printing more dollars dilutes the impact of all that debt on the debtors. It's not clear to me that this is a good thing. Of course, it's also not clear to me that continuing to accumulate debt is a good thing. But while the current financial and economic system certainly has plenty of issues, I don't see how "abolish all accumulated debts" is a good way to fix them.
Ultra liberal economics lead to accumulation of wealth by few super riches. This happens to be one of the reason the Roman Empire fell because all this money could not be spent on keeping the army in working conditions. Super riches of the time hoarded the necessary gold for themselves.
But don’t put that on Keynes’ tab. It’s twistedly wrong.
Yes, it is. Keynes said at one point that the government printing dollar bills and burying them for people to dig up would be a valid form of economic stimulus.
> This extreme monetarism you describe is... Friedman’s!!!
Milton Friedman did not advocate anything like the arbitrary manipulation of the money supply by the government that is practiced by the Federal Reserve. (He was in fact a consistent opponent of the Federal Reserve; he thought it should be abolished.) He advocated tying the growth rate of the money supply to the growth rate in real productivity, with no discretionary element at all.
> Ultra liberal economics lead to accumulation of wealth by few super riches
No, the government printing money and giving it to a few favored parties, which is exactly what the Federal Reserve does and always has done (the favored parties have almost always been financial institutions, no surprise given the background of most Fed members), leads to accumulation of wealth by a few super riches.
> This happens to be one of the reason the Roman Empire fell because all this money could not be spent on keeping the army in working conditions.
I don't know where you're getting your history from, but it's wrong. The reason the empire had trouble paying for a competent army was that it had debased the coinage so much that people were refusing to take Roman coins as payment. It even got so bad that the Roman government itself, knowing that its coins were worthless, stopped accepting them in payment of taxes and insisted on payment in kind instead.
The emperor Constantine managed to get hold of a large supply of gold bullion and used it to mint new gold coins, which were accepted in payment of taxes. That helped for a while as the empire could use these to pay the army and the civil servants; but many people could not afford to buy the new gold coins and therefore could not pay their taxes, so the improvement didn't last too long.
It also didn't help that the size of the army and civil service kept increasing, for no tangible reason, which just increased the tax burden.
This does not make it the center piece. The center piece of Keynesian economics is that state intervention is necessary to moderate the booms and busts in economic activity.
> Milton Friedman did not advocate anything like the arbitrary manipulation of the money supply by the government that is practiced by the Federal Reserve.
Sorry, but clamping the growth of money supply with a k-rule, irrespective of the market cycle, is the arbitrariest manipulation I can think of.
> No, the government printing money and giving it to a few favored parties (.../...)
We can agree there that governments giving money to the already super wealthy is a bad think. But why does it do that? Because same super wealthy have become so wealthy they can influence government.
Which brings me to your case on Rome. The reason why Roman emperors debased their coins was because they had emptied their coffers on other things yet /needed/ to keep the army strong for what was essentially a looting regime to survive. At the end of the day, Emperors are not governments, they are another form of super-rich protecting their short-term positions at the expense of longer term stability.
Ah, our old friend No True Scotsman. Sorry, not buying it.
Not just "state intervention", but state intervention of a particular kind, namely, manipulation of the money supply. Keynes' basic theory was that in a depression like the Great Depression, the problem was that there wasn't enough money in circulation, because people would not simply let both prices and wages fall in order to establish a new equilibrium between supply and demand. So, he said, the solution is to simply print more money.
> clamping the growth of money supply with a k-rule, irrespective of the market cycle, is the arbitrariest manipulation I can think of
I personally don't favor Friedman's solution either; I don't think the government should be manipulating the money supply at all. But to call determining the money supply by a known objective rule "more arbitrary" than determining it by the whim of regulators does not strike me as a sound use of language.
> We can agree there that governments giving money to the already super wealthy is a bad think. But why does it do that? Because same super wealthy have become so wealthy they can influence government.
No, you have it backwards. The super wealthy influencing government comes before the government giving money to the super wealthy, not after.
In the case of the Federal Reserve, it came into being because the super wealthy got tired of the government coming to them for loans to bail it out every time there was a financial panic. Why did the government come to the super wealthy for loans? Because the super wealthy had already gotten favors from the government through influence--for example, monopoly privileges over transcontinental railroad routes in order to outlaw free market competition. So naturally the government would come to the super wealthy expecting a quid pro quo.
Once this had happened a few times, the super wealthy figured out a better (from their perspective) solution: create a system of central banks that would allow them to transfer wealth to themselves directly, stealthily, by manipulating the money supply, instead of having to openly go to the government for favors. And sell this system to the public as a means of "preventing" future financial panics. The Panic of 1907 presented a perfect opportunity to put this system in place, and by 1913, the Federal Reserve system was law.
> The reason why Roman emperors debased their coins was because they had emptied their coffers on other things yet /needed/ to keep the army strong for what was essentially a looting regime to survive.
Governments always spend more money than they have, on white elephant schemes that do not benefit society. So of course governments are always looking for ways to avoid having to face the consequences.
But that is a very different claim from the claim you originally made, and I rebutted, that the Roman empire fell because the ultra rich were hoarding all the wealth. In fact the Roman emperors appropriated the wealth of the ultra rich pretty much the same way they appropriated the wealth of everybody else. The reason for the shortage of real wealth in the later Roman empire was not that it was being hoarded; it was that it was being squandered and destroyed by ruinous public policy.
This only means "socialism for the rich, brutal unregulated capitalism for everyone else, because it's their fault they aren't rich anyway".
> all under the auspices of a hard line Republican administration
> Washington under any administration will have no choice but to bail out all the state and local agencies and every insolvent pension scheme wholesale
There are underlying problems being forced to the surface by COVID that go deeper than political parties. Somewhere between the 1970s and 2000s American politicians as a class (and possibly a supermajority of voters too) have accepted that running up debt literally does not matter.
The economy is brutal. It is a fabricated social concept built on trust right up until the moment it breaks out into the physical world and things that desperately need to happen stop happening because it doesn't make any economic sense.
The persistent bailouts are making losers of people who make good long term decisions. Sooner or later, nobody will be left who makes good long term decisions. Such people have been exorcised from the financial industry.