1a. The US was once a creditor nation. In fact we had a savings rate of +6% or so not that long ago. A negative savings rates is not sustainable and the US will once again have a positive savings rate. Book it.
List any sources of data that support the change in the US from debtor to creditor at this junction. If you cannot, this is no more than a pipe dream, and certainly not addressing a point.
2a. Government debt is not the biggest problem. Not by a long shot. Japan has a national debt of 150% of GDP. The US is about 70% of GDP. Japan is not in hyperinflation but deflation at that rate. This shows you just how out of whack things can get before a currency collapses. Consumer debt is the biggest problem we are facing now. The reasons should be obvious.
Nowhere did GST claim that Government debt was the biggest problem, this is your strawman. The huge government debt is one of many problems....one of many pieces of the mosaic. Japan is a creditor nation, not a debtor nation, Japan even in the worst of times was running at trade surpluses, so the comparison of the these two countries is not a valid refutation of the point regarding debt. It would be like comparing someone with a net surplus between income and debt load and a healthy savings account to someone with no savings and not making enough each month to meet the nut. Perhaps comparing the US to Argentina exorbitant debtor to exorbitant debtor would be more in order. As far as consumer debt being the biggest thing we face, it is big, but again, only one piece of the mosaic.
3a. If we stop spending like drunken sailors that will change. One of the ways to fix that is for the US to save more and spend less. Obviously a deflationary force when that happens.
Again, you do not address the argument. If the current account will go down, please explain how much it will go down in comparison to the debt service to foreigners going up and why there might be a net decline. That, if logically done, might address the point here, but certainly not just Mish's opinion that it will decline because....well because....it must!
4. The risk premium we pay on credit is very small.
4a. This is a new one but adds to my case. Yes it is small but increasing. Evidence is easy to find in the new credit lending guidelines for mortgages and recent widening of credit spreads to treasuries
You missed the point here, or just chose to address one aspect of the argument, I don't know which. The risk premium for US debt will go up. The debt service takes dollars out of the US economy which stagnates the potential of the economy which drives up the risk premia, etc. etc. That translates into higher interest rates. It also translates into higher prices for imported goods as fewer and fewer will want to sell to someone who is on the edge of being a deadbeat. Look at Argentina prior to their currency devaluation. I think they called it a death spiral. Which comes first to the overextended debtor: higher rates on the debt he's delinquent on; or lower rates because he's gone bankrupt and cleaned up his act?
5. The slower our economy the more we will pay for credit -- the risk premium is a function of how fast we grow. Less growth means more risk.
5a. I disagree. More importantly so does the bond market. You are simply wrong.
Again, you give an opinion and don't back it up with fact, that is not addressing the point. At least, I hope your readers would hold you to a higher standard than that, if you don't for yourself.
6. The slower we grow the more both fiscal and monetary stimulus is added.
6a. It is certainly a hypothesis on your part that is not proven. But I must note that it seems you are concerned only about the monetary stimulus (an Austrian credit issue) while conveniently ignoring a collapse in credit by bankruptcies and foreclosures, etc. Which way do you want it?
You claim his point is hypothesis. You consider that refutation? Again, it would seem his point would be that as the US economy slowed down, more money would be printed and credit terms amended. Since that seems to be the US pattern in the last decade or so, can you point to a reasonable rationale as to why that wouldn't be repeated?
7. Housing will slow our economy.
7a. Obviously. A point enormously in my favor
It may be, then again if it is not, then what would have to happen?
8. A slower economy will be persistent as our credit risk rises and the cost of debt incurred adds to our current account deficit.
8a. Again you are making unproven hypothesis with which the bond market disagrees.
Not unproven, our debt service costs are increasing as rates have risen. That is fact. What motivates the bond market may or may not be inflation outlook. Given derivatives and hedge funds and the carry trade, I would have to see an argument that effectively shows why the bond market movement has any relevance. Our debt service is going up both on a consumer level and on a national level.
11. Slow growth and rising interest rates will add an enormous burden to existing public debt. As the economy slows, the cost of foreign borrowing rises and the federal debt will soar due to lower tax receipts.
11a. Once again you overlook everything around you that suggests differently. Do you follow the bond market by any chance?
I guess since you asked first, let me then ask back: "Do you follow the bond market at all?" How much of current bond pricing is reflective of the transfer of interest rate risk to other parties? How much of current bond activity is borrowing Yen and buying US Treasuries and using the yield difference to pay the costs and make a profit? Wouldn't this strategy be more reflective of the ease of the trade rather than the outlook of the economies? Given the growth of hedge funds from 800-ish a few years ago to 8,000ish now, and given the amount of leverage they use, please elucidate for us their impact of the carry trade phenomenon and the risk transfer trades and how they collectively impact on the ability to rely on bond movement as predictor of economic direction. Since you use the bond trade twice in this "rebuttal" that should be easy enough for someone with your bond acumen, no?
11. We face stagflation -- no compelling case has ever been made for deflation -- and certainly not by Mish who has never addressed these issues.
11a. I have now addressed all of your issues as in fact I have many times before. You can keep on repeating nonsense or you can remember this post.
Is this really all you've got on your side of the argument? If so, it is really much weaker than I thought.
Timba |
