The $100 trillion question
Posted: Thu Jan 20, 2011 2:20 pmWe need to call a meeting of the brain trust.
So we have a problem with debt. So far, hardly anybody has taken a really hard look at what happened, how did we get here, what should we have done differently, etc. So I'm going to take a crack at it.
Too much overall debt in the last 30 some years.
This is a Reagan blame maneuver, and for the purposes of this discussion I'm not going to get into parts of it I normally would, but we have to establish this first.
1) The Reagan/Cold War debt was not anywhere close to the historical highs viz debt/gdp, I think everybody has seen the graph.
2) The graph the CS shows, which is public + private debt is far more interesting.
Much has been made of Reagan levels of USG debt, and no matter how you come down on it, it doesn't have the impact on our current situation as overall private debt. The Reagan blame that I will take issue with here is that "free enterprise" failed because we began taking on too much debt 30 years ago. Debt is not necessarily an ideologically driven thing, you can be a communist and borrow too much, you can be a capitalist an borrow too much. It just is.
But what we are NOT TALKING ABOUT is far more important, and that is some significant aspects of how that much debt can be created. The Reagan swipe is "deregulation", and I won't really get into that now because there are other things more important such as:
WHO WOULD BE DUMB ENOUGH TO LOAN US THAT MUCH MONEY?
I credit CS again for consistently pointing this out to people, when someone defaults on you how mad can you be at the defaulter? You were the dumb@$$ that loaned him the money for a dumb@$$ venture.
So nobody is asking WHY dumb@$$es around the world were loaning us that much money. But there is a simple answer: The world was betting on America, and betting big.
In the last 30 years (not counting 5-10 here and there in Japan or China), the USA was the best thing going. You put your money where the action is. The action was in the US. Everybody was betting on us. Not because of deregulation. We were going places.
http://www.amazon.com/Roaring-2000s-Bui ... 0684838184" onclick="window.open(this.href);return false;" onclick="window.open(this.href);return false;" onclick="window.open(this.href);return false;
Now is that our fault? Is that the fault of "deregulation"? The answer is probably not, one does not start investing stupidly just because one now is allowed to by law. One can invest quite stupidly even when it is against the law, numerous communist countries can attest to that. I have seen no laws that produce smart investing.
And this is not an exoneration of Reagan capitalism, we'll see in a moment, but there is a real issue going on here. I don't know in recent world history where a leader put a stop to massive foreign investments coming into the home country (but I also find foreign countries to be not very interesting, so I may have missed something), so there is quite a bit more going on here than ideology. Further, there has been no shortage in central planning chicanery viz subprime mortgages, Freddie/Fannie, and of course various Federal Reserve activities (why were rates so low when credit was gushing into this country?)
To review at this point, though, before I submit the question for discussion, I want to establish the following.
1) Enormous levels of foreign capital flowed into the USA over the last 30 some years
2) It appears to have been too much
3) It isn't really working out for anybody involved
http://blogs.cfr.org/setser/2009/06/28/ ... ade-wonky/" onclick="window.open(this.href);return false;" onclick="window.open(this.href);return false;" onclick="window.open(this.href);return false;
So the question I put forward is simply:
WHAT SHOULD HAVE BEEN DONE.
I'm not putting up any rules. Let your inner central planner out, or your inner dog eat dog arbitrager. I don't really care. I'm not really into communism vs. capitalism on this question. The reason I ask the question is I don't have the foggiest idea what the answer is, despite thinking about it every day for over 3 years.
Eg, my father was a child of the depression. I'm quite a bit younger than the average child of a child of the depression, but growing up in the 70's all I heard about from him and his buddies is that the whole thing was going to crash down again, the whole system. I eventually stopped believing them but the stories were written into my DNA. I knew all about how Joe Kennedy made a fortune shorting stocks. When I started trading stocks and options in the early 90's, that was in my head. When the internet bubble was at it's peak, I was the only one I knew who would even entertain a correction as being possible. Same thing with the housing crash. And like Joe K I scored some big fat profits. Thanks Joe, for showing me the way.
The point of that though is that while I cashed in big time (the reason you guys hear from me so much is the wife chained me to the computer (she knows about Joe too) when things started falling apart. She knew I always wanted to outdo that old Democrat. She knew.), but I missed the big one.
I missed what was going on in the debt derivative markets. I turned down an opportunity to go to Wall Street over 10 years ago, and have always thought it was for the best. I am an overthinker like most people here, and I learned about KISS. KISS trading. I know loads of advanced stuff, but I have to talk myself down all the time. It's worked for me. Few people can keep up with the trading I do but I still keep it way simpler than it I could do it. Wall Street meant a boss, regulators, customers and possibly press to answer to. I didn't need it. What I was doing was making bread. Ya gotta know when not to upset a good thing.
But I screwed up. I don't know a lot but I knew there was a housing bubble. I didn't know about the subprime, or the size of it, the extent of it. Had I been over there, with a research staff and whatnot, I think my natural curiosity would've allowed me to figure it out, and I could have been one of the guys who made hundreds of millions or more off the bear trade. With old Joe talking to me, that old Democrat, I think that could have been me.
But water under the bridge. I'm not that materialistic of a person. Making dough in the market, however much I make or don't make is all about scoring points to me, just personal trophies. Michael Jordan scoring titles. But what a trophy that could have been.
The point thought isn't me. I had to explain all of that to illustrate the point, depending not on your point of view, this was was not only a failure of central planning, if you are so inclined but this was this a MASSIVE missed opportunity for people like me, the arbitragers, the contract writers, the people on the other side of the trade. To the point that if there had been enough of us essentially shorting the sucker we could have really deadened the blow.
So over the last little while only a couple of people have really touched on this. Fontinau and Endo have both pointed at trade deficits. I think aferim said something similar once.
But these are only starting points. When you have economic forces this powerful, sloshing trillions around the globe, a little law here or there probably isn't going to do anything much. So when you say "balance trade" tell me HOW.
I don't know the answers. But if you think you do, this is the place. What should we have done, either from a central planning perspective or a free market let's skin these bastards approach? Take some time to think about it. I would imagine if anybody hits on something it could probably be used by either side,
There are going to be people coming in from the "greed" crowd. And while there are a few points there, there are also some real limitations. I've know plenty of real greedy SOBs, real vain materialistic people who manage their money painfully well. So no easy answers.
The $100 trillion dollar question. How do you stop overinvesting from wiping out your country?
So we have a problem with debt. So far, hardly anybody has taken a really hard look at what happened, how did we get here, what should we have done differently, etc. So I'm going to take a crack at it.
Too much overall debt in the last 30 some years.
This is a Reagan blame maneuver, and for the purposes of this discussion I'm not going to get into parts of it I normally would, but we have to establish this first.
1) The Reagan/Cold War debt was not anywhere close to the historical highs viz debt/gdp, I think everybody has seen the graph.
2) The graph the CS shows, which is public + private debt is far more interesting.
Much has been made of Reagan levels of USG debt, and no matter how you come down on it, it doesn't have the impact on our current situation as overall private debt. The Reagan blame that I will take issue with here is that "free enterprise" failed because we began taking on too much debt 30 years ago. Debt is not necessarily an ideologically driven thing, you can be a communist and borrow too much, you can be a capitalist an borrow too much. It just is.
But what we are NOT TALKING ABOUT is far more important, and that is some significant aspects of how that much debt can be created. The Reagan swipe is "deregulation", and I won't really get into that now because there are other things more important such as:
WHO WOULD BE DUMB ENOUGH TO LOAN US THAT MUCH MONEY?
I credit CS again for consistently pointing this out to people, when someone defaults on you how mad can you be at the defaulter? You were the dumb@$$ that loaned him the money for a dumb@$$ venture.
So nobody is asking WHY dumb@$$es around the world were loaning us that much money. But there is a simple answer: The world was betting on America, and betting big.
In the last 30 years (not counting 5-10 here and there in Japan or China), the USA was the best thing going. You put your money where the action is. The action was in the US. Everybody was betting on us. Not because of deregulation. We were going places.
http://www.amazon.com/Roaring-2000s-Bui ... 0684838184" onclick="window.open(this.href);return false;" onclick="window.open(this.href);return false;" onclick="window.open(this.href);return false;
Now is that our fault? Is that the fault of "deregulation"? The answer is probably not, one does not start investing stupidly just because one now is allowed to by law. One can invest quite stupidly even when it is against the law, numerous communist countries can attest to that. I have seen no laws that produce smart investing.
And this is not an exoneration of Reagan capitalism, we'll see in a moment, but there is a real issue going on here. I don't know in recent world history where a leader put a stop to massive foreign investments coming into the home country (but I also find foreign countries to be not very interesting, so I may have missed something), so there is quite a bit more going on here than ideology. Further, there has been no shortage in central planning chicanery viz subprime mortgages, Freddie/Fannie, and of course various Federal Reserve activities (why were rates so low when credit was gushing into this country?)
To review at this point, though, before I submit the question for discussion, I want to establish the following.
1) Enormous levels of foreign capital flowed into the USA over the last 30 some years
2) It appears to have been too much
3) It isn't really working out for anybody involved
http://blogs.cfr.org/setser/2009/06/28/ ... ade-wonky/" onclick="window.open(this.href);return false;" onclick="window.open(this.href);return false;" onclick="window.open(this.href);return false;
So the question I put forward is simply:
WHAT SHOULD HAVE BEEN DONE.
I'm not putting up any rules. Let your inner central planner out, or your inner dog eat dog arbitrager. I don't really care. I'm not really into communism vs. capitalism on this question. The reason I ask the question is I don't have the foggiest idea what the answer is, despite thinking about it every day for over 3 years.
Eg, my father was a child of the depression. I'm quite a bit younger than the average child of a child of the depression, but growing up in the 70's all I heard about from him and his buddies is that the whole thing was going to crash down again, the whole system. I eventually stopped believing them but the stories were written into my DNA. I knew all about how Joe Kennedy made a fortune shorting stocks. When I started trading stocks and options in the early 90's, that was in my head. When the internet bubble was at it's peak, I was the only one I knew who would even entertain a correction as being possible. Same thing with the housing crash. And like Joe K I scored some big fat profits. Thanks Joe, for showing me the way.
The point of that though is that while I cashed in big time (the reason you guys hear from me so much is the wife chained me to the computer (she knows about Joe too) when things started falling apart. She knew I always wanted to outdo that old Democrat. She knew.), but I missed the big one.
I missed what was going on in the debt derivative markets. I turned down an opportunity to go to Wall Street over 10 years ago, and have always thought it was for the best. I am an overthinker like most people here, and I learned about KISS. KISS trading. I know loads of advanced stuff, but I have to talk myself down all the time. It's worked for me. Few people can keep up with the trading I do but I still keep it way simpler than it I could do it. Wall Street meant a boss, regulators, customers and possibly press to answer to. I didn't need it. What I was doing was making bread. Ya gotta know when not to upset a good thing.
But I screwed up. I don't know a lot but I knew there was a housing bubble. I didn't know about the subprime, or the size of it, the extent of it. Had I been over there, with a research staff and whatnot, I think my natural curiosity would've allowed me to figure it out, and I could have been one of the guys who made hundreds of millions or more off the bear trade. With old Joe talking to me, that old Democrat, I think that could have been me.
But water under the bridge. I'm not that materialistic of a person. Making dough in the market, however much I make or don't make is all about scoring points to me, just personal trophies. Michael Jordan scoring titles. But what a trophy that could have been.
The point thought isn't me. I had to explain all of that to illustrate the point, depending not on your point of view, this was was not only a failure of central planning, if you are so inclined but this was this a MASSIVE missed opportunity for people like me, the arbitragers, the contract writers, the people on the other side of the trade. To the point that if there had been enough of us essentially shorting the sucker we could have really deadened the blow.
So over the last little while only a couple of people have really touched on this. Fontinau and Endo have both pointed at trade deficits. I think aferim said something similar once.
But these are only starting points. When you have economic forces this powerful, sloshing trillions around the globe, a little law here or there probably isn't going to do anything much. So when you say "balance trade" tell me HOW.
I don't know the answers. But if you think you do, this is the place. What should we have done, either from a central planning perspective or a free market let's skin these bastards approach? Take some time to think about it. I would imagine if anybody hits on something it could probably be used by either side,
There are going to be people coming in from the "greed" crowd. And while there are a few points there, there are also some real limitations. I've know plenty of real greedy SOBs, real vain materialistic people who manage their money painfully well. So no easy answers.
The $100 trillion dollar question. How do you stop overinvesting from wiping out your country?
Creating fictitious money out of thin air and then buy some real candy with it as if nothing happened! Of course bad regulations and lack of transparancy and controls caused all this. The deregulators just allowed for other rules and mechanisms to emerge as a consquence. To deregulate the financial industry just meant that the criminal mindset was invited via an open door. The best way to rob a bank was now to own one. Or start a Casino. Or both. Then create more risk and sell insurence to cover for those risks with more money... printed out of thin air. Or just put all that crap in one jar and make it a tropical milk shake for your primitive derivative needs.