Seems like generational luck related to returns on assets will start to matter a lot more, we can legitimately say "you were luckier to have been born back then" as opposed to now.
sort of.
End of Golden Era for Investors Spells Troubles
151–160 of 164 posts
Re: End of Golden Era for Investors Spells Troubles
#152Earlier quoted context omitted.
Do you know what makes people poorer? Closing public services, not investing in infrastructure, reducing spending in science and technology, reducing spending in public education and public health. Those are real things. Why not we worry about this?
Do you know what else makes people poorer? Having fixed expenses (housing) and roughly fixed income (salary) and growing expenses (food, clothing, energy, entertainment, etc). As your income grows slower than inflation -- and for many people it does -- your variable expenses grow and you have to start giving things up. You can't give up housing and you can't give up food so you have to buy cheaper food, cheaper cloth…
Maybe you can explain what is the mechanism in what salaries are fixed but inflation grow.
"Cut the military budget by half "
You will not hear me complain about that.
Re: End of Golden Era for Investors Spells Troubles
#153Earlier quoted context omitted.
The US federal debt was even higher in the wake of World War II. The US government did not run surpluses and deleverage in the following decades. The economy grew, without hyperinflation, and the debt became irrelevant. The solution to high levels of debt is sustainable economic growth, not deleveraging. Mass deleveraging would be an economic catastrophe.
US still has a significant chunk of WWII debt after one of the greatest sustained economic booms of all time. Growth really is not the answer. Inflation sounds great, just default without technically defaulting, until you actually see what it does to the economy. The real solution is to simply spend vastly less money accepting that pain now is better than letting the US become a failed state.
It sounds like you're suggesting austerity, which comes with its own set of problems. Between inflation and austerity, I don't think there's a clear absolute choice.
Re: End of Golden Era for Investors Spells Troubles
#154Earlier quoted context omitted.
Argentina currency was pegged to the Dollar, so not so sovereign. Also, a lot of their public and private debt was denominated in foreign currency. Again, not so sovereign.
The constant inflation made it only possible to issue bonds in a foreign currency. Sustained inflation does not solve public debt, because it also devalues the taxes the government gets back, creating a negative feedback loop of deficit and inflation (argentina's path in the last 10 years)
"The constant inflation made it only possible to issue bonds in a foreign currency."
Why is that?
I think the problem in this discussions is that every side come from a different conception about what is and where money comes from.
A sovereign govern with a floating currency don't need financing from private sources in its own money. That's a simple fact about how money is really created. If we don't agree in this first, all posterior discussion is pointless.
Re: End of Golden Era for Investors Spells Troubles
#155Earlier quoted context omitted.
Do you know what else makes people poorer? Having fixed expenses (housing) and roughly fixed income (salary) and growing expenses (food, clothing, energy, entertainment, etc). As your income grows slower than inflation -- and for many people it does -- your variable expenses grow and you have to start giving things up. You can't give up housing and you can't give up food so you have to buy cheaper food, cheaper cloth…
Maybe you can explain what is the mechanism in what salaries are fixed but inflation grow. "Cut the military budget by half " You will not hear me complain about that.
Maybe you can explain the mechanism by which salaries (or hourly wages) absolutely 100% keep up with actual inflation and purchasing power. I know plenty of folks that suffer from prices that rise faster than their 2-3% COLA.
Re: End of Golden Era for Investors Spells Troubles
#156Earlier quoted context omitted.
I recognize that, and yes, this is a very important note to consider. The true reason we want to pay off our debt, is because we citizens of the US Government rely upon the debt to be repaid. (Pension funds, Social Security, Investors, and the Federal Reserve are the top lenders to the US Government. NOT China as some people have noted). Indeed, if China became the chief banker, we'd just default and stick our middle…
Deliberately defaulting on debts is probably the worst thing for a sovereign nation to do. The governments of other countries may still be do that risking higher interest rates as you mention. However, if the USG ever does that, there will be consequences far more dire than China or SSA or the Fed losing money. And there are many reason for the low rate of interest, but historically, USG securities have been the safe…
It just means people will stop trusting the US Dollar.
Pretty bad for the US, but I don't think it'd be a catastrophic worldwide event. Interest rates will go up, and it will become even harder for the US to pay back the debts, and it will become much more difficult for the US to borrow money in the future.
Bad all around of course, not something to be trifled with. But its a relatively simple prediction to make.
Re: End of Golden Era for Investors Spells Troubles
#157Earlier quoted context omitted.
US still has a significant chunk of WWII debt after one of the greatest sustained economic booms of all time. Growth really is not the answer. Inflation sounds great, just default without technically defaulting, until you actually see what it does to the economy. The real solution is to simply spend vastly less money accepting that pain now is better than letting the US become a failed state.
> US still has a significant chunk of WWII debt after one of the greatest sustained economic booms of all time. Let's pretend this is true. (I doubt it.) Let's keep in mind that US debt is owed in bonds, redeemable in US dollars. If I get a 30 year mortgage in 1945 and simply rollover the debt whenever it comes due, but my wealth has increased dramatically, my mortgage does not matter. If I take out a 100k mortgage a…
I think the story is popular because it resonates with how we need to manage our personal finances.
See http://mobile.nytimes.com/blogs/krugman/2014/04/21/the-econo...
I don't agree with everything Krugman writes, but it's pretty clear to me that treating an economy like a household is short sighted.
Re: End of Golden Era for Investors Spells Troubles
#158Earlier quoted context omitted.
I think you are discounting the Zimbabwe and Weimar Republic experiences a bit too quickly. The equation I print money = I create inflation does hold. Right now we see a very concentrated inflation in real estate and stocks which are not counted in the CPI indices, because the money printing is done through bank balance sheets and asset managers (by buying treasury and ABS securities) but as soon as the gvt starts pa…
I've always wondered what the reasoning for not including housing in the CPI is.
Because the culturally normative lifestyle in the USA is to own your housing, not rent it. You're thus supposed to count housing inflation as a rise in your asset portfolio, not a rise in costs.
Re: End of Golden Era for Investors Spells Troubles
#159Earlier quoted context omitted.
I think you are discounting the Zimbabwe and Weimar Republic experiences a bit too quickly. The equation I print money = I create inflation does hold. Right now we see a very concentrated inflation in real estate and stocks which are not counted in the CPI indices, because the money printing is done through bank balance sheets and asset managers (by buying treasury and ABS securities) but as soon as the gvt starts pa…
I've always wondered what the reasoning for not including housing in the CPI is.
Housing prices used to be factored into the CPI but were removed in 1983. The CPI is supposed to measure only consumption but housing is both consumption and an investment. It was replaced with owner equivalent rent which is represents just the consumption component of housing.
In 1983 the Federal Reserve chairman at the time (Volker) also likely found the change convenient because it gave him more room to raise rates in the face of crushing asset deflation while reigning in inflation from the 70's.
Re: End of Golden Era for Investors Spells Troubles
#160I think it can get much worse than that. I don't know why people think the current levels of accumulation of debt are sustainable but there is a limit to what even the US can roll in term of debt. All developped nations are at around 100% debt to GDP, more than 200% if you include private debt, and growing at 3-5% per annum. Now does anyone really think that sometime soon any developped country will start making publ…
all you need is gdp growth + inflation to be larger than debt service payment. So, back of the envelope, current debt service is about 1.3% of gdp. We are growing at 1.8% and inflation is 2%. So, we are easily going to be able to service our debts at current levels. So, there is no problem
Except spending is included in GDP which I think makes GDP about as useful as BMI calculations.