
In 2010, Demand For US Fixed Income Has To Increase Elevenfold... Or Else - chaostheory
http://www.zerohedge.com/article/brace-impact-2010-private-demand-us-fixed-income-has-increase-elevenfold-or-else
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anigbrowl
An interesting argument (as always from zerohedge) but one that seems to be
predicated on the idea that the government has no intention of reducing the
deficit. Opponents of Keynesian policies always argue as if fiscal stimulus is
meant to function as a new normal rather than a temporary corrective.

By analogy, this would be like alternative health folks pointing out the
downsides of permanent antibiotic consumption, although antibiotics are
usually only administered long enough to overcome the progress of disease. The
Fed will certainly put up interest rates, almost certainly during 2010; I just
think they're trying to hold off doing so to any substantial degree until
growth hits a steady 3% and unemployment falls below 10%.

~~~
dgordon
History indicates that running at a deficit did indeed become the new normal.

"There is nothing so normal as a temporary government program."

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sethg
Does your history include the Clinton Administration, which ran a surplus?

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anamax
> Does your history include the Clinton Administration, which ran a surplus?

Yes, it does.

Clinton benefitted from the end of the cold war and a repub congress. They
couldn't figure out how to spend the "savings" fast enough. (A Repub president
with a dem congress might have had the same problem.)

What "war" do you see ending that will produce comparable savings? (Obama is
winding down Iraq on Bush's schedule.)

~~~
patio11
Clinton benefited from the end of the Cold War and having a Republican
Congress, but he benefited a lot more from the surge in government tax
receipts caused by the contemporaneous economic boom. In constant 2000
dollars, in 1992, the US took in 1.2 trillion. In 2000, we took in 2 trillion.
You presumably didn't remember the 150 billion added in yearly expenditures
over the same interval because it got swallowed by the boom-fueled taxes.

Then, the boom ended, as boons are wont to do...

~~~
guelo
Clinton's deficit also benefited from passing in 1993 "the biggest tax
increase in American
history"([http://www.factcheck.org/treasury_tax_expert_to_bush_clinton...](http://www.factcheck.org/treasury_tax_expert_to_bush_clintons_increase.html))
The economy then proceeded to have the longest expansion in American history
thus disproving all Republican tax-cut theories, though no one seems to have
told them.

~~~
anamax
> The economy then proceeded to have the longest expansion in American history
> thus disproving all Republican tax-cut theories, though no one seems to have
> told them. reply

You use "disprove" in a very odd way.

No one has said that tax increases necessarily kill economic growth. The claim
is that tax increases hurt economic growth.

A dollar taxed (or borrowed) and spent by govt accomplishes something. A
dollar left in the private sector accomplishes something else. Do you really
think that the average govt spending is more valuable than the average private
spending?

~~~
guelo
"The claim is that tax increases hurt economic growth." You still have to
square that claim with the fact that the 1993 tax hike was followed by the
longest expansion in US history.

As far as the value of "average govt spending" vs "average private spending",
it obviously depends. When the markets decided that the best use of capital
was to build a massive oversupply of houses and condos that was not very
valuable, when the government decides to fund more college tuition that's a
pretty good investment in society's future. When private money decided to fund
Brin and Page that was very valuable, when the government decides to spend
billions on unneeded fighter jets that's not valuable at all.

~~~
anamax
> You still have to square that claim with the fact that the 1993 tax hike was
> followed by the longest expansion in US history.

There's no inconsistency.

We had the dot-boom, the cold war ended, and we'd thrown a lot of underpriced
real-estate onto the market. Any one of those three would have produced
significant economic growth. All three at once was a bonanza.

> As far as the value of "average govt spending" vs "average private
> spending", it obviously depends.

Yup, it does. However, you're asserting that it doesn't, that govt spending is
better. That's what it means to say that tax increases are good.

> When the markets decided that the best use of capital was to build a massive
> oversupply of houses and condos that was not very valuable

Not so fast. Fannie and Freddie and govt regulation etc had a huge role in
that. I mention regulation because banks that didn't play were punished. Also,
govt regulation was behind much of the securitization and "insurance". Fannie
and Freddie was a double-hit - regulations basically forced banks to hold
their stock, which pretty much guaranteed that they'd all have solvency
problems when Fannie and Freddie hit the skids.

> when the government decides to fund more college tuition that's a pretty
> good investment in society's future.

Oh really? Do we have a shortage of women's studies majors? A significant
fraction of college degrees are dead-weight.

The bulk of financial aid goes to tuition increases that it causes.

~~~
guelo
I never said that tax increases are good in general, Republicans are the ones
that claim that every tax increase is going to result in the end of the
republic. My personal belief is that at the margins taxes have little effect
on overall economic growth, especially when they are targeted at the upper
income levels, and they are generally a better way of paying for government
than financing it with debt which seems to be Republican's preferred way of
paying based on the trickle down theory that tax cuts to the rich will pay for
themselves by stimulating the economy and thus increase tax receipts. When I
look at the economy that resulted from Bush's tax cuts (i.e. a slow jobless
recovery) vs Cliton's tax increase my conclusion is that there's very little
correlation between taxes and growth and that we are very far on the left side
of the Laffer curve.

On the housing issue, we disagree very much on the cause of the problem. I
believe the problem was the deregulation that allowed the creation of entities
like AIG Financial Products which was probably the major sink of risks that
drove the bubble, and also there was a catastrophic market failure that
allowed Wall Street to run their companies into the ground for short term
gain. But there's no way to deny that a LOT of private capital was directed at
the building of useless condos.

~~~
anamax
> I believe the problem was the deregulation that allowed the creation of
> entities like AIG Financial Products

AIG Financial Products sold products "encouraged" by regulators.

Regulators realized that there was some risk in securitized mortgage pools.
However, they really wanted to be able to call them "no risk" investments so
they could push them onto asset sheets and make them more popular among folks
who they couldn't bully. (They were pushing cheap housing.)

The regulator's solution was "insurance", which they defined (regulators
define what's acceptable for banks to hold as assets) and AIG (among others)
sold.

Since "everyone" believed that the securitized mortage pools were "no risk",
folks saw selling insurance as "free money". AIG did a lot of middleman work
in this area as well as writing its own contracts.

> But there's no way to deny that a LOT of private capital was directed at the
> building of useless condos.

"free money" pushed by govt policy (through loans and the like) isn't private
capital.

> My personal belief is that at the margins taxes have little effect on
> overall economic growth, especially when they are targeted at the upper
> income levels

The median worker in the US pays almost no federal income taxes. (They do pay
SS and medicare, but the former is an okay investment for such people and the
latter will be a train wreck for everyone.) As a result, they have no
incentive to get value for money.

Note that the income of "the rich" is somewhat voluntary and fairly portable -
that makes it quite volatile. That's why CA gets hammered every so often.

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Tichy
What is "issuance"? Printing money?

~~~
ghshephard
From: <http://en.wikipedia.org/wiki/United_States_Treasury_security>

"Treasury bills are sold by single price auctions held weekly. Offering
amounts for 13-week and 26-week bills are announced each Thursday for auction,
usually at 11:30 am, on the following Monday and settlement, or issuance, on
Thursday."

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mark_l_watson
Yeah, this article is probably much more accurate than what you see on the
corporate news media. Fortunately for our 'masters', there are always news
stories about terrorism, etc. that they can use to keep public consciousness
off of higher importance things like the economy. I got out of the stock
market 2 years ago, started easing back in about 9 months ago, and now I want
to get back out.

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nod
Is this guy a nutcase? He reads kind of like a doom-and-gloom nutcase, but I
am not an economist. Could one comment on his basic validity level?

~~~
ars
He's trying to say that america needs to issue lots more debt, but soon no one
will want to buy any debt.

He's also assuming america won't do anything about it.

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guelo
Huh?

I wonder if a CS article would ever receive any attention on a finance
website.

~~~
sp332
This isn't a CS website. "On-Topic: Anything that good hackers would find
interesting. That includes more than hacking and startups. If you had to
reduce it to a sentence, the answer might be: anything that gratifies one's
intellectual curiosity." <http://ycombinator.com/newsguidelines.html>

~~~
guelo
What I meant to imply is that the article is incomprehensible, at least to me,
and I was wondering if a technical CS article would be of interest to finance
people.

~~~
bh23ha
More the point, economics is just short of comprehensible to the vast majority
of non-economists. Which is why the ability to know that you DON'T know shit,
is so important. But few people have that kind of self awareness.

A long time ago the HN audience consisted mostly of people who knew at least
that much. That's no longer the case.

<http://mattmaroon.com/2009/05/01/hacker-news-disease/>

~~~
ubernostrum
_A long time ago the HN audience consisted mostly of people who knew at least
that much._

Every online community has this myth: that in the beginning all the members
were as intelligent as Einstein, as humble as Gandhi, etc., etc., and that
over time hordes of newcomers arrived and the quality fell drastically. But
having been in on the ground floor of quite a few of them I can say with
certainty that it's a myth.

