Krugman, debt, and growth

[werepossum]

I don't understand this incessant need of some people to blame the economy all on Obama. It went to hell under Bush and we're lucky it didn't tank worse then it did.

Most people think the President "runs the country" and is responsible for everything that happens. I suspect many people find it scary to think nobody (pun intended) is actually running the country.

 

[Darwin333]

They gain against a fixed mortgage payment. Housing is the biggest single expense for the vast majority of Americans.

You must have the loan for a very long time for that to have any sort of significance and frankly I think if you did the numbers they come out in a wash. Banks aren't in the industry of "losing" money. They price the inflation in so while yes they may get some help towards the end of the terms (which I bet most Americans don't keep their original loans for 30 years and pay off the house but I could be wrong) but they paid a higher interest rate because of it. Go to a loan calculator and see what a 1% difference in interest rate does to a home loan. IMO the gains you are claiming are paid on the front end.

The savings rate is up, with predictable consequences-

http://ftalphaville.ft.com/blog/2010/08/17/318101/take-that-niall-krugman-was-right-all-along/

http://krugman.blogs.nytimes.com/2012/02/06/zero-bounds-and-butter-mountains-wonkish/

I am talking about the average joe not the .01% and corporate America.

Supply & demand- the market demand for money is low, supply high, so therefore low returns. It's the result of a flight to liquidity & liquidity preference. Competition for "safe" investment is fierce.

BS. Its the Feds monetary policy that is causing the low and sometimes negative returns. There used to be tons of "safe" investment with no fierce competition, CDs and US bonds but the Feds have intentionally pushed the rates down on bonds which pushes everything else down.

You contradict yourself. First you offer that most are net debtors, then argue for hard money & high rates, which harm debtors.

[/quote]

There is currently disincentive to save and incentive to borrow and that is exactly what has happened and continues albeit slower. Most of the country being debtors isn't necessarily a good thing.

 

[Darwin333]

Most people think the President "runs the country" and is responsible for everything that happens. I suspect many people find it scary to think nobody (pun intended) is actually running the country.

This is so true. The President can have effects and set policies but the actual impact he has on the entire country isn't anywhere near what people think. I actually had to laugh at the thread about Obama not caring about high gas prices like he could actually do something about them if he wanted to.

 

[werepossum]

This is so true. The President can have effects and set policies but the actual impact he has on the entire country isn't anywhere near what people think. I actually had to laugh at the thread about Obama not caring about high gas prices like he could actually do something about them if he wanted to.

I think if Obama (or President Gingrich for that matter) decided to make a war on gas prices, he could lower them maybe 10% - 15% at the most, and even that would require the full cooperation of Congress. Most of our easily accessible oil is gone, and while we could fairly easily achieve energy independence, we'd be replacing cheap oil with expensive oil (assuming we keep our existing environmental policies largely intact) so if anything, I'd expect gas prices to go up. (In fact, I'd expect gas prices to WAY up if we really committed to energy independence, since we wouldn't be competing with cheap oil.) About the only thing a President can do to lower prices is to release oil from the SPR (with which I very much disagree) and liberally distribute leases and streamline permitting (thereby removing a bit of the uncertainty in oil futures.) If there was a Presidential switch to lower oil prices, we'd be paying a buck a gallon every fourth November.

A President can and does have a lot of influence over the federal government's bureaucracy, including how your rights are interpreted, what fees are levied, what you can and cannot do. And a President can and does have a lot of influence over the military, and accordingly (together with State) over foreign policy. (Although as we saw with Valery Plame, the bureaucracy exerts its own influence over foreign policy.) It's really kind of sad that instead of evaluating a President based on his policies and how effective he is at implementing them, we largely evaluate him on things largely beyond his control.

 

[Munky]

I really get tired of people using Germany as some example of "printing infinity" and somehow it's supposed to apply to the US. It's like you think that ALL printing is horrible and results in Germany.

If you can't, in a single sentence, describe how Germany's printing is wholly unrelated to any modern printing, then you don't even deserve a seat at this, or any, monetary debate.

Same with Zimbabwe.

Are you fucking kidding me? Do you not understand the idea of inflation adjusted purchasing power? It's adjusted for inflation in goods and services.

This is EXACTLY why anybody rational considers people like you as utterly uninformed. It's because you are and you are dangerously ignorant about it.

That's your fucking opinion, now you can shove it back up where it came from.

 

[the DRIZZLE]

Investors try to price it that way, but the effect on borrowers, long term, is quite beneficial. If you bought a house 20 years ago on a 30 year note, the payment today is very likely a much, much smaller % of income than it was back then... and you'd also have a store of value in equity. That's true if you didn't pay too much at the time, even if income lags inflation, because housing was easily the biggest single expense at the time of purchase. If housing was 30% of income at the time, it's less today under that scenario if other factors remain equal.

That's not true in a zero inflation scenario, and exactly the opposite holds in a deflationary scenario, where the more you pay the more you owe in terms of value.

Taking that from Macro to Micro economics explains why the housing bubble has been so destructive of middle class fortunes, and will continue to be so for a long time to come. It also explains why that bubble was so dangerous, and why the extraordinary actions of the FRB & Treasury prevented the whole economy from following housing right down the rathole of a deflationary spiral.

In the long term real estate appreciates at approximately the rate of inflation (or slightly above since land is scarce). You have a valid point in that real interest rates in a deflationary scenario must be greater than or equal to the rate of deflation, where as they are only bound by zero in an inflationary environment (unless the fed forces them to be negative as they are doing now). Your arguement boils down to the your view that keeping real interest rates low is a social good and an appropriate function of government.