Oh Mish -- you engage in fantasy, not logic:
<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.>
There is nothing whatsoever to back up your fantasy that the US is on track to become a nation of savers.
<Government debt is not the biggest problem. Not by a long shot. Japan has a national debt of 150% of GDP.>
You again show your inability to grasp the basics -- Japan finances its government debt with domestic savings -- we don't.
<We have a huge current account deficit.
3a. If we stop spending like drunken sailors that will change.>
More unfounded fantasy. There is no reason at all to expect a smaller current account deficit, and plenty of reason to expect it to spiral out of control (as if it was not already there!)
<3. Our lack of savings and debts make us extremely dependent on foreign credit to service our debts.
3a. Yes. But you are repeating. I suggest the US savings rate will go up. But it hasn't yet. But shouldn't the dollar be collapsing then in your model? Note too that there is now less buying by FCBS of treasuries. Most here thought the US dollar would crash and interest rates soar when that happened. Instead the reverse has happened.>
Again, you just sidestep the dollar issue as if it does not exist and inject some fantasy about how we are destined to suddenly become a nation of savers.
<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?>
This is no mere conjecture -- government deficits soar as the economy slows -- Washington will do what all US governments have done since the great depression and open the fiscal pump to the max.
<7. Housing will slow our economy.
7a. Obviously. A point enormously in my favor.>
Only if you have no clue as to the damage this will do to the dollar and interest rates.
<9. Even as our long rates rise, our dollar will go down. This will add to the currency risk, adding to the cost of foreign credit.
9a. Long rates have been sinking or haven't you noticed. In spite of that the dollar has been rising or haven't you noticed. One of us predicted that and one of us predicted the opposite.>
The debate here is over the impact of a recession or at least a serious slowing of the economy -- I have never suggested that long rates will rise in a growing economy as we have seen in years past -- quite the contrary, I have argued that our low rates are a result of our recent growth.
<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.>
You have now ducked, avoided and fantasized your way around the issues without even addressing a single one -- only in your imagination have you addressed the issues I have raised.
An import oriented economy with a massive government deficit, a massive trade deficit, a massive current account deficit, a huge accumulated debt, and a zero savings rate does not slip into deflation when its economy slows -- and you have done absolutely zilch to lay to foundation of any logical argument that might suggest otherwise. Your idea that out of the blue and in the midst of a painful recession (brought on by a housing crunch and consumer debt crisis) we will suddenly have a high savings rate is pure unsubstantiated fantasy. Without this weird assumption, everything else just becomes hollow mumbo jumbo. We will have a recession -- or at least stagnation -- but the outcome is not going to be a sudden reversal of a fifty year inflationary trend. We are not on the verge of being rewarded with lower prices after a half century buying binge. The dollar is not about to soar in value and buy more goods for fewer dollars. On the contrary -- we debased our currency and we will receive our just reward -- economic stagnation, mounting debts, and a world less willing to subsidize our standard of living, our dollar and our prices. The future is inflation. |
