Economists-Say-Dumb-Things Chronicles: 'Debt Is Money We Owe To Ourselves'

Like so many sloppy discussions of economics to make an important policy point, but badly, this one diverges from common shared reality fairly quickly. 

Let me strike the key hypothesis in this, that prompts a leap of faith, over a cliff and into the abyss of fantasy.

"Debt is money we owe to ourselves."

Something on which Mr. Krugman can agree with Dick Cheney who said, 'Reagan proved that deficits don't matter.'   How is that for a twist?  

From an accounting standpoint and within the realm of theoretical identities this is true. Each debt is someone else's asset.

The key of course is how we define 'ourselves.'  

If 'we' are the entire planet, equally and without distinction of interests and property, then perhaps one might say, ok, although it loses all meaning and significance.   I would not mind pooling my household books with one of the Banking billionaires and to be able to step up to the Fed's free cash window anytime to do my business, with the assurance that I have a government guarantee underpinning my ledger, but alas.

And this is a problem because the paramount issue we are facing today is the historically extreme concentration of capital assets in a relatively few hands, and the burden of unpayable debts being imposed upon a large segment of the people by a system that has been hijacked by the moneyed interests.

If you take this pithless observation by Mr. Krugman down one level of detail in the States for example, one finds that the debt is an asset on the books of a increasingly small number of wealthy people, with much of it controlled for them by a handful of Banks.

This system is not sustainable, and I see no sign that it will even cohere, without substantial reform.

I wonder if the average American who is losing their car and house, and who is being hounded by debt collectors for whom those debts seems to matter a great deal, can use that argument with the Banks.

Putting aside private debts, let's just stay in the realm of sovereign debt, where the economic imagination can more easily take its flights of fancy.

Debt is just money we owe to ourselves is similar to the flat pronouncement that a sovereign that issues its own currency can never default. Money is just an accounting entry so why the fuss?  And from this comes a Pandora's Box of muddy thinking, a selective myopia towards history,  and Trillion Dollar Platinum coins. 

I wonder if Greece can use this argument, that debt is just money that we owe to 'ourselves,' when they meet with the Germans this week. 

But no, the US is different.  Every other country may fail, and many have including that insubstantial nation of Russia not all that long ago,  but not us. We are young and immortal.  Our benchmark for virtue is power, and we are virtuous enough to be able to say that when things are not working out as we planned, we are able to decree that 'money is whatever we say it is,' and God help anyone who does not agree.

And so we might presume that the mighty US is going to be able to make that case about debt forever to its creditors who are outside the direct thought control of its monetary system, a short list of which is contained below.

It is funny how the moneyed interests and their courtiers are always saying, 'debt doesn't matter,' especially when they want us to assume their gambling debts which they incurred by frauds using our own money.   Until, that is, they decide to call in the loans and the debts, and impose their will upon the people with foreclosures, garnishment, austerity, and debtors' prisons.

I agree wholeheartedly that the rhetoric around the discussion of spending priorities gets silly and overheated and quite frankly disgusting.  That has more to do with a society in the grip of a greedy few, corrupt public servants, sophistical theoreticians, and boisterous minions than it does with the need to expand our economic theories into existential irrelevance.  Madness is certainly attractive perhaps in a land going mad, but it is unlikely to be productive.

Arguments like those from the MMT crowd, both right and left, and economists like Paul do us no favors in concocting some fantastical solution to what is primarily a problem of governance, justice, transparency, and power gone horrible wrong.

The 'debt' and the 'budget' are not an economics argument but a policy argument.  What is important to us?  What do we continue to hold as these truths?   And how do we resolve those disagreements?  Avoiding that policy and priority discussion enables those who are caught in the credibility trap to continue to beg the question entirely, and the real task at hand, which is reform. 

We cannot discuss reform until we expose the corruption.  And therein lies the problem, because quite a few powerful hands have been dipping into the largesse, and quite a few courtiers have a vested interest in continuing to propagate the lies and myths of a failing system.

I am not a 'hard money' guy.  I am certainly not in favor of a domestic gold standard as a remedy for our current set of problems. 

 

What I am saying, and I think it has been consistently so, is that the system that we have now is so fundamentally broken that no matter what incidental things that we do, no matter how much stimulus is provided under whatever rationales, that all good will be turned to ill, the gap of inequality will keep widening, and that the situation will continue to worsen, lurching from crisis to crisis.

 

Is this not what we have seen since all the programs were put in place since the crisis of 2008?  That the rich are getting richer, because all we have really done is prop up an unjust, broken, and unworkable system.  And I think that this is the point that is being made by Greece in Europe today.

You cannot keep a game running when the insiders that control it are making up the rules as they go along, hiding their assets, dictating the judges' decisions,  dipping into the other players money at will, and generally cheating and doing whatever they wish when they wish, because they can.

The system is too flawed to be sustainable, and must change in order to cohere.

NY Times

Debt Is Money We Owe To Ourselves

By Paul Krugman

February 6, 2015

Antonio Fatas, commenting on recent work on deleveraging or the lack thereof, emphasizes one of my favorite points: no, debt does not mean that we’re stealing from future generations. Globally, and for the most part even within countries, a rise in debt isn’t an indication that we’re living beyond our means, because as Fatas puts it, one person’s debt is another person’s asset; or as I equivalently put it, debt is money we owe to ourselves — an obviously true statement that, I have discovered, has the power to induce blinding rage in many people...

More than that, as Fatas points out, rising debt could be a good sign. Think of my little two-classes model of debt, where some people are less patient than others — perhaps (to step outside the model a bit) because they have better investment opportunities. Moving from a very limited financial system that doesn’t allow much debt to a somewhat more open-minded system should, in that case, be good for growth and welfare...

And the problems with public debt are also mainly about possible instability rather than “borrowing from our children”. The rhetoric of fiscal debates has been, for the most part, nonsense.

Read the entire piece here.

Life Imitates High School Chronicles

Maybe junior high school...

Is this the upper crust version of twerking?
 

Source: WSJ

h/t to ZH

Gold Daily and Silver Weekly Charts - Making the Equity Markets 'Look Better'

And in the financial commentary today, "gold is down because 'things look better' and it is 'a signal to buy equities.'"

Hey, that is what the man says, and since he is dressed nicely and on television it must be true.

Our major export is fraud, and everything else is a function of the perception management service sector.

Let's keep an eye on Greece and the Ukraine.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Sturm und Drang

"...it is the most alarming example of cheap demagoguery you are likely to have seen."

George Monbiot, on Rick Santelli

I watched CNBC today, which is unusual. 

When Adam Johnson left Bloomberg the quality declined markedly, wavering between screechy and vacuous, with lots of gossipy and giggly segways.  A few notable exceptions like Julie Hyman, Tom Keene, and Eric Schatzker, but not as many since Adam Johnson left.

CNBC is not much better, again with a few notable exceptions like Bill Griffeth and Kelly Evans.  It was pretty much the 'same old' as it was when I stopped watching it a few years ago. 

 

But Rick Santelli was quite the sight.

His eyes became very open and wild as he pressed his face to the camera, his nostrils were flaring, and you could see the spit flying out of his mouth.  Network for the one percent.  Maybe time for a teeth cleaning.

 

I have seen him good naturedly gooning it up with his pit trading cronies several times before, who seem to be a dying breed by the way,  and it was something you could just take in stride.  

 

But this was something different, chewing-the-scenery-wise.   Is there an inverse relationship between bombast and ratings?

 

It is 'financial television' after all.  Infomercials interspersed with country club crudité infotainment. But today he had the persona of a park bench lunatic, and it was decidedly unattractive, if not disturbing.  

 

And it was clearly an act. 

Is he supposed to be the bad guy or the good guy?  Or just the extreme guy, like George 'The Animal' Steele?   Is this some new twist in broadcast journalism?   Are they getting their production values from professional wrestling these days?  

 

Who is doing their casting, Vince McMahon?  And their directing, Ed Wood?  Are they just following the fashions of the day?  Are we all Bobby Heenan now?   

 

Do we even know what genuine human life is all about, anymore?  Do we even care?  Living life in stereotypes and spin is simpler and more pliantly digestible.   Is life imitating art, in caricature?

 

The saddest part is that this is becoming a tone for not just finance but 'the real news,' led by Fox and CNBC's sister, MSNBC.  And the very serious Sunday morning shows are going off-the-hook as well, as they grapple with a credibility gap that prevents the political and media elite from acknowledging the decline in the average person's reality.

 

Speaking of unattractive and disturbing,  the SP futures managed to rally solidly up to the top of  the big resistance around 2065 for the fifth time since mid January.

 

The big tickle is going to be Greece this week, with maybe a nod from the Ukraine.  If we get a surprise settlement on Greece by some miracle tomorrow, the markets will do a moonshot. 

 

It is hard to tell.  Most of the local (US) commentary is either hopelessly slanted or incredibly naïve.  It is sad when very good financial commentators decide to be political analysts too.  Or when financial commenters decide to embark on flights of fantasy.  I have enough actual experience to know what I do not know, and that is quite a bit.  At least I'll admit it.  But speculating about what is happening or what might happen is fun when you are unconstrained by facts.

 

One has to tune out the sturm und drang with which the players are filling the airwaves as they prepare to get serious.  This is the oh yeah, yeah! portion of the prototypical schoolyard encounter.

 

So let's keep an eye on the geopoliticals, because I do not think the stock markets will unleash the rally monkeys until they are more sure that something disruptive is not coming.    Even if the talks completely break down and Greek says they will exit, I suspect we *might* see a relief rally after an initial plunge.  Remember the mistaken optimism prior to the crushing reality of Lehman Brothers?

 

Have a pleasant evening.

 

 

 

Michael Greenberger: Setting the Stage For the Next Wall Street Crisis

Michael Greenberger has long been one of my favorite commenters on regulation, and in particular on futures price manipulation.

Within the context of the uphill battle against the status quo, Gary Gensler and Bart Chilton may have looked 'good' as regulators, but all in all they looked better only by comparison with some very horrible alternatives.  Chilton, as you may recall, did not waste much time going through the revolving door to put on the feedbag from the HFT crowd.

I think that as Greenberger points out, once we were able to see Obama's early financial appointments, we knew that we had been had, once again.  Despite his soaring rhetoric for change, he was a loyal member of the Wall Street wing.

Obama and the Wall Street wing of the Democratic party, founded by the Clintons, is a brand, cobbled together and groomed for office by the moneyed interests, designed to misdirect and diffuse the angry reaction for reform by the people in the aftermath of the financial crisis.  And it was a job well done.

No matter what she says, no matter what promises she may make, no matter what identity branding they may choose to spin for her, I strongly believe that Hillary has been and still remains a product of Wall Street money, and will continue to follow the money once in office no matter what rhetoric she may wear during any political campaign.  

Further, the only major difference between the parties now is that the Republicans have sold out wholesale to the moneyed interests, whereas the Dems have been doing it one despicable betrayal at a time.  They merely wear different masks.  Money conquers all with this venal brood of vipers.

Financial reform comes with political campaign money reform.  The two are inseparable.

US Seeks Felony Pleas From JPM, Barclays, RBS, and Citi For Criminally Rigging Currency Markets

Too bad a felony conviction will not remove the privilege of voting from criminal organizations, since despite their 'personhood' and many rights as granted by the Bill of Rights, as bizarrely distorted by the Supreme Court, corporations do not yet have the right to vote.  Not even the Banks.

But they will still possess the right to use huge quantities of publicly subsidized funds to maintain large stables of servile politicians on retainer, which is a much more direct and efficient way of obtaining your political and regulatory will than by merely casting a vote, in the conventional human manner.

 

Will they be banned from any markets?  Will they be subjected to more intense regulation?   I don't know.

 

But they will carry a 'symbolic stigma.'   This is quite the burden for our pampered princes. The horror!

 

I wonder why Eric Holder is unafraid now to pursue actual criminal charges this time, as opposed to the scores of other cases where banks, such as HSBC for example, have brazenly flouted the law, again and again and again, with deferred prosecution and wristslap fines?

 

Why now?  What has changed?  What line could they have possibly crossed, after so many other brazen and repeated offenses?  What does the government see coming that they need to do this?  No more bailouts for felons?

 

And what happens when they do it again?  And again. 

 

Do they get to keep the Presidential cuff links?

Dealbook

U.S. Is Seeking Felony Pleas by Big Banks in Foreign Currency Inquiry

By Ben Protess and Jessica Silver-Greenberg

February 9, 2015

The Justice Department is pushing some of the biggest banks on Wall Street — including, for the first time in decades, American institutions — to plead guilty to criminal charges that they manipulated the prices of foreign currencies.

In the final stages of a long-running investigation into corruption in the world’s largest financial market, federal prosecutors have recently informed Barclays, JPMorgan Chase, the Royal Bank of Scotland and Citigroup that they must enter guilty pleas to settle the cases, according to lawyers briefed on the matter.

The pleas would be likely to carry a symbolic stigma, if limited actual fallout, in handing felony convictions to some of the world’s biggest banks...

Read the entire article here.