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Posts Tagged ‘Optimism’

Optimism, National Pride, and Karl Rove

February 8, 2012 3 comments

I happened to see Karl Rove on TV last night and was a bit astonished to find out he’s actually slamming the Chrysler/Clint Eastwood Superbowl ad, half time in America.

To me, the ad was pretty cool, and the other people at the party liked it too. But Karl Rove doesn’t like it. Here’s John Cohn saying what needs to be said (via Kevin Drum):

I have no idea whether Rove really believes Chrysler produced that ad in order to do President Obama a political favor. But the fact that he and other Republicans are so worked up could mean that they are scared—not of the advertisement itself, but of the themes it contains.

Those themes are optimism and national pride. As Salon’s Joan Walsh noted on the Ed Show Monday evening, Republicans have basically owned those themes since the 1980s, when Ronald Reagan won an election with them. But lately President Obama has been the one making the case that it’s morning in America or, at least, just before dawn. He did it in the State of the Union and he’s done it in a series of major speeches since.

The message wouldn’t resonate if it had no basis in reality. But the latest economic indicators suggest the economy really is starting to grow, albeit slowly and tentatively. And nowhere is that more obvious than in the Midwest and Michigan, where the auto industry’s rebound has helped reduce unemployment to levels not seen since before Obama took office.

This seems right to me. I’ve done a small amount of marketing in my life, and have been exposed to an industry which is heavily involved in marketing. If I think about Karl Rove as the worlds greatest political marketing person, he’s gotta be terrified by this development.

Marketing in politics is a zero sum game. You own an issue, or get owned by it. And if the dems start making progress on national pride and optimism, well that means the R’s are loosing ground on those same core values.

You can go to my word cloud and see how I do on issues like Optimism and Recovery. Someone pointed out these were prominent issues for me.  🙂  I guess I need to throw a bit more national pride in the mix, because I am proud of the U.S.

Mosler started calling for the Obama boom to begin last year, and unfortunately, it was sucked away by the spike in oil prices. We’re starting to see the benefits of higher spending plus lower oil prices over the last few months.

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Revision to GDP makes it clear Fiscal Multiplier was Gigantic

August 12, 2011 6 comments

Lots of conservative economists claim the stimulus didn’t amount to much.  Turns out – quelle surprise! (heh.) – that they were totally wrong.

Their claims were based on the initial measurement of the depth of recession – and these measurements turned out to be wildly optimistic.  The recession was far, far deeper than previously admitted.

The stimulus worked great.

It’s pretty clear if you use the exact same methodology used by prominent conservatives to show the stimulus didn’t work with the new, massive numbers on the depth of the recession, you’d get a multiplier for the fiscal stimulus that was totally huge.

 

I meant to write a TC post about it, but the Center for American progress did the work, and beat me to the post.

CAP’s Michael Linden via Kevin Drum:

“Using the most updated data, we can see that in 2009 there is actually about a $544 billion difference between what GDP would have been had it continued to contract as rapidly as it did during the fourth quarter of 2008 and what it actually was. As Holtz-Eakin points out, the total amount of fiscal stimulus during that year was $260 billion. This suggests the Recovery Act produced about $2.10 in economy activity for every $1.00 in spending or tax cuts. That’s a pretty good multiplier.

And if we apply the same methodology to the entire lifespan of the Recovery Act, not just to 2009, the multiplier becomes even more impressive. The total cost of the stimulus bill was about $800 billion, delivered over the course of two years. The difference between actual GDP through the first quarter of 2011 and what GDP would have been had it continued “falling off a cliff” is around $3.3 trillion—implying a multiplier of more than 4.”

A multiplier of more than 4.  This isn’t the Romer method, or the barro method.

But it is one method. and no matter what method you use, you need to use the new GDP data. Using that data will show that the stimulus was extremely effective, and was a 2 or 3 to 1 return on investment in a few short months.

This is more evidence that fiscal policy works great when monetary policy can’t get in the way.  A reminder: Monetary Policy sucks.

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Prag Cap: Fed “Set the Table” for market Crash with QE II

August 9, 2011 Comments off

Cullen Roche knocks another one out of the park.   He goes through the crystal clear logic of how the Fed’s actions are directly responsible for the recent market action.

“A relatively harmless program (QE2 was nothing more than an asset swap with no true transmission mechanism that would alter either the private sector money supply, private sector net financial assets or the real economy) was incorrectly described as “debt monetization“, “money printing“, “stimulus” and other descriptions that implied QE2 was having a massive impact on the real economy through various channels. This couldn’t have been farther from the truth.

What QE2 definitively caused was a massive distortion in investor sentiment due to a general lack of understanding. Equities, commodities and other markets appeared almost entirely invulnerable as long as there was this belief that the Fed was backstopping the market. In other words, the Bernanke Put was in full effect. I have described the negative impact of the Bernanke Put on several occasions (see here and here) over the last year.”  [Bold mine]

The distortion was huge, and Cullen is right on the money with his analysis.  QE II didn’t do anything but change investor sentiment for investing in the inflation trade.

Now that it is clear we are nowhere near hyper-inflation and should fear the return of deflation, this trade is over.  The speculative bid in some asset classes disappeared.  Hence, the market tumbles.

One of the cool things about MMT is that it uses real world stocks and flows as the basis of the theory.   Trading is – in part – about knowing the flows.  MMT hugely helps to identify these flows.

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S&P Jumps the Shark: downgrades United States of America

August 5, 2011 2 comments

Just like Fonzi, S&P jumps the shark.  S&P downgrades the United States to AA+.  This is what happens when your thinking is all wrong.  You make stupid, obvious errors.

They missed the biggest bond blowout of our lifetime as much as they possibly could have missed it. S&P rated RMBS at AAA when it wasn’t even junk – it was worthless.  They were rating things that ended up losing 95% of their value within 18 months as AAA bonds.

Now, they are downgrading the U.S.A.  It’s probably to try and take the heat off their obvious criminality of their ratings in the mid 2000’s.

Let me say this – this is the top for the banking system.  The very top.  The financial system will become smaller from this point on.

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US debt deal: A middle finger to first commandment of economics

August 3, 2011 1 comment

Stay Classy!

I wish I had thought of this title.  It’s brilliant.

Kevin Bloom is my new hero.

Here is the whole article:

“It’s simple: if you’re a government and you want to steer your economy out of a recession, you spend more money. History provides many examples of this truth, from Roosevelt’s New Deal to the military spending in World War II. If signed into law, President Obama’s debt agreement could put an end to all that. And the Republicans will be to blame. By KEVIN BLOOM.”

[Update: Thanks to the always working Rodger Erickson for this article.]

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From the Comments: A Conversation with Ed

August 1, 2011 Comments off

PaulJ added this in the comments, and it’s too juicy to keep for myself.

[Update: Welcome Pragmatic Capitalists! For an indication on what the Traders Crucible is all about, click here and here.]

I think this should be turned into a video ala the video about the fed printing money:

A CONVERSATION WITH ED

me: Ed, how much money do you have in your wallet?
Ed: I dunno, probably about $50.00. Why?

me: Where did it come from?
Ed: I earned it.

me: That’s not what I mean. I mean where did the money come from originally?
Ed: I guess from the bank.

me: No, that would mean you borrowed it. You said you earned it.
Ed: OK. I guess it came from the government?

me: Right. Where did the government get it?
Ed. They issued it based on the amount of gold we have in Fort Knox.

me: No. We haven’t been on the Gold Standard since 1971. There is no gold backing the US dollar.
Ed: You mean the dollar isn’t backed by anything?

me: Not exactly. But let me ask you again. Where does the government get it’s money?
Ed: They print it?

me: Right. So if they print the money, how does it get to your wallet?
Ed: I don’t know…I guess through banks.

me: No. If you got your money through the bank you borrowed it. We already covered that.
Ed: Well, how then?

me: The government spends the money into the economy. Every time the government buys something from private businesses, or pays government worker’s salaries it is spending money into the economy.
Ed: Yeah but I earned the money in my wallet. It didn’t come from the government.

me: Where did it come from then?
Ed: From whoever I worked for.

me: Where did they get it?
Ed: From whoever they earned it from.

me: Now we’re going in circles. Money had to exist before anyone could earn it. Where did it come from?
Ed: From the government?

me: OK so you agree that before anyone had any money the government had to create and spend it first.
Ed: I guess so.

me: So every year the government spends into the economy a budgeted amount and at the end of the year it taxes all of the money it created that year back out. Otherwise we would have a budget deficit.
Ed: But we do have budget deficits. That’s what’s wrong with the economy now.

me: So budget deficits are bad?
Ed: Yes.

me: Why are they bad?
Ed: Because then we have to borrow money to pay for the deficit, and then the government has to raise taxes to pay the money back.

me: The government creates the money. Why would it borrow back money it previously created? Wouldn’t it make more sense to just print more money?
Ed: No. That would cause inflation.

me: Why would that cause inflation?
Ed: Because there would be too much money in the economy. That would make money worth less so we would have inflation.

me: Maybe. But if the government didn’t spend more money into the economy than it taxed out there would be no money in the economy. How would you get the money that’s in your wallet? And how would there be inflation in that circumstance?
Ed: Good question. This is making my head hurt. I don’t know.

me: Yeah learning simple things can be hard. So you can see why deficit spending is required for the economy to grow.
Ed: I guess so. But we have to borrow to pay for the deficit and the borrowing is killing the economy.

me: We’re going in circles again. The government doesn’t have to borrow, it is the creator of the money. It creates money at will out of thin air as needed. It does not necessarily lead to inflation. That depends on how the government spends the money.
Ed: Then why does the government borrow money to pay for the deficit?

me: That’s another discussion. We can talk about that some other time.
Ed: OK. But what about the National Debt?

me: What about it?
Ed: Don’t we have to pay it back?

me: If we paid it back, there would be no money left in the economy. How would you get money in your wallet then?
Ed: You’re making my head hurt again.

me: Thinking is hard. That’s why we rarely do it.
Ed: So what is the National Debt?

me: The National Debt is the amount of money to the penny that the federal government has created since it began creating dollars. It includes all of the dollars held by the public plus all of the dollars held by foreign companies that have done business with the U.S. There is no taking it back. Paying off the National Debt is impossible and it makes no logical sense to think of the National Debt in th way we have been taught.
Ed: You’re killing me. Theres no way anyone could understand this stuff.

me: I give up.

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Now that we’ve got a “deal”, Why not use the Trillion Dollar coin anyway?

August 1, 2011 24 comments

There is a deal, apparently.

The deal is horrible for the U.S. economy and almost certain to push it back into recession.  We’re cutting defense spending – a kinda good thing – but at the exact wrong time, and not replacing it with any other spending.

Spending Cuts are Tax Increases,” to paraphrase  Timothy Geithner.  It’s one of the few ideas he gets right.  We need more stimulus, not less.

Consumer spending is diving of a cliff. Corporations are laying off the equivalent of large towns everytime you turn around.  Brad Delong estimates -0.4% off GDP – I’d say more.  He was already asking “Where’s the demand?” before this stupid deal.

Now with this deal, the economy is doomed.  The spending cuts happen right away – and we’re at the brink of a recession.

Prior to this stupid debate, we were trying to cut taxes to stimulate demand. Of course, we haven’t felt any effects of that tax cut due to an increase in oil and gasoline prices.

These spending cuts – plus our current higher energy costs – will equal doom for the U.S. consumer and U.S. economy.

So why not just use the Trillion Dollar coin anyway?  Why not take the debt deal, and then use the Trillion Dollar Coin to makes lots of space under the debt ceiling?

We could use that extra space for huge payroll tax cuts to the U.S. consumer.  We could use it to stimulate demand where it will have the most impact.

Why not use it?  It’s widely regarded as legal.  Why not use the Trillion Dollar coin to get our economy moving again?

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