False, invalid, hidden economic assumptions
A major problem with the reporting on the economy is the non-reporting of faulty or invalid or hidden assumptions in the economic analysis.
Here are some examples of that.
Why the U.S. Can Never Be Weimar
By Matthew O'Brien
The Atlantic, March 2012
U.S. government finances might look Zimbabwe-esque,
but a look back at some of history's worst hyperinflation episodes show why
goldbugs' fears are completely unfounded now.
...
How are the United States’
historic budget deficits, money-printing and depressed economy
any different from the country’s that have experienced hyper-inflation?
The three-part answer is:
(1) we don’t have any problems selling our debt;
(2) we aren’t actually printing money; and
(3) the United States is a highly productive economy
that is nothing like bombed-out Budapest.
Let me unpack these one by one.
Right now getting the markets to buy our debt isn’t the problem.
Getting enough debt for the markets to buy is the problem.
Investors are so crazy to load up on Treasuries that
they’re actually paying us to borrow, taking inflation into account.
But while we’re currently getting free money from investors,
Hungary circa 1945 was getting no money.
It was an investment pariah.
If Hungary wanted to rebuild its economy,
its only recourse was the printing press.
[Practically the first thing an amateur investor hears from the experts
is some variant on the following statement:
“Past Performance is No Guarantee of Future Results”.
Unable to respect that advice,
the “experts” who advised us during the 2000-2008 housing bubble,
including Fed Chairman Allan Greenspan,
gave no warning that it could end,
that what goes up in the economy must come down,
that trees don’t grow to the sky,
or any number of folk aphorisms that would have bred
a healthy degree of skepticism about the boom
(in particular, that home buyers would keep pouring their money into housing)
continuing forever.
In a similar fashion, the assumption is made here that
the investors who are buying Treasuries
will not find a better investment to make in the future.
I will assert: That assumption is surely wrong.]
Second, the United States isn’t really printing money.
At least not like post-war Hungary.
Quantitative easing is usually described as “money-printing”
but it’s not really.
QE involves the Fed buying longer-term bonds from banks.
It simply swaps one asset for another --
in this case, cash for longer-term bonds.
Unlike Hungary, the Fed isn’t directly paying the Treasury’s bills.
This is a hugely important distinction.
Whatever money the Fed “prints” is stuck in the banks.
That money isn’t inflationary as long as the banks don’t lend it out.
What if the banks do start lending at a faster clip?
The Fed can still effectively pay the banks not lend by, for example,
raising the interest on excess reserves
or require the banks to set aside more money.
It would be shocking for the Fed not to pursue one of these options.
[“The United States isn’t really printing money.”
Oh yeah?
According to Bryan R. Lawrence,
the Federal Reserve bought 60 percent of Treasurys issued last year.
Just where did the Fed get the money to buy those Treasurys?
They created it out of thin air, what the author just described as "printing money."
They did not load it to banks, as he describes.
They gave it to the government, and all they got in return was Treasury notes.
This is what is called "monetizing the debt",
a concept he did not bring to the attention of his readers.
How the "elite" media deceives!]
Third,
the most important difference between us and post-war Hungary or Weimar
is that
our roads haven’t been razed to the ground
and half the country isn’t striking.
It’s very difficult to have hyperinflation
when you still have a functioning economy.
Almost all examples of hyperinflation result from
huge economic shocks that devastate an economy so much that
leaders think printing money is the only solution to growth.
As bad as the Great Recession has been,
our GDP is already back to and above its all-time pre-recession high.
As bad as unemployment is,
more than 80 percent of the labor force is working.
In Zimbabwe,
80 percent of the population was unemployed.
By Brad Plumer
Washington Post, 2012-08-21
[Here the Washington Post blogger
repeats the summary paragraph from the work above:]
Back in March [2012], The Atlantic’s Matthew O’Brien
offered a more detailed explanation of
why the United States isn’t likely to suffer the same fate as the Weimar Republic
or any other country on the list [of countries that have suffered from hyperinflation] above.
Here’s the short version:
“How are the United States’
historic budget deficits, money-printing and depressed economy
any different from the country’s that have experienced hyper-inflation?
The three-part answer is:
(1) we don’t have any problems selling our debt;
(2) we aren’t actually printing money; and
(3) the United States is a highly productive economy
that is nothing like bombed-out Budapest.”
Here are some examples of that.
2012
2012-03-Atlantic-OBrien-the-hyperinflation-hype-why-the-us-can-never-be-weimar
The Hyperinflation Hype:Why the U.S. Can Never Be Weimar
By Matthew O'Brien
The Atlantic, March 2012
U.S. government finances might look Zimbabwe-esque,
but a look back at some of history's worst hyperinflation episodes show why
goldbugs' fears are completely unfounded now.
...
How are the United States’
historic budget deficits, money-printing and depressed economy
any different from the country’s that have experienced hyper-inflation?
The three-part answer is:
(1) we don’t have any problems selling our debt;
(2) we aren’t actually printing money; and
(3) the United States is a highly productive economy
that is nothing like bombed-out Budapest.
Let me unpack these one by one.
Right now getting the markets to buy our debt isn’t the problem.
Getting enough debt for the markets to buy is the problem.
Investors are so crazy to load up on Treasuries that
they’re actually paying us to borrow, taking inflation into account.
But while we’re currently getting free money from investors,
Hungary circa 1945 was getting no money.
It was an investment pariah.
If Hungary wanted to rebuild its economy,
its only recourse was the printing press.
[Practically the first thing an amateur investor hears from the experts
is some variant on the following statement:
“Past Performance is No Guarantee of Future Results”.
Unable to respect that advice,
the “experts” who advised us during the 2000-2008 housing bubble,
including Fed Chairman Allan Greenspan,
gave no warning that it could end,
that what goes up in the economy must come down,
that trees don’t grow to the sky,
or any number of folk aphorisms that would have bred
a healthy degree of skepticism about the boom
(in particular, that home buyers would keep pouring their money into housing)
continuing forever.
In a similar fashion, the assumption is made here that
the investors who are buying Treasuries
will not find a better investment to make in the future.
I will assert: That assumption is surely wrong.]
Second, the United States isn’t really printing money.
At least not like post-war Hungary.
Quantitative easing is usually described as “money-printing”
but it’s not really.
QE involves the Fed buying longer-term bonds from banks.
It simply swaps one asset for another --
in this case, cash for longer-term bonds.
Unlike Hungary, the Fed isn’t directly paying the Treasury’s bills.
This is a hugely important distinction.
Whatever money the Fed “prints” is stuck in the banks.
That money isn’t inflationary as long as the banks don’t lend it out.
What if the banks do start lending at a faster clip?
The Fed can still effectively pay the banks not lend by, for example,
raising the interest on excess reserves
or require the banks to set aside more money.
It would be shocking for the Fed not to pursue one of these options.
[“The United States isn’t really printing money.”
Oh yeah?
According to Bryan R. Lawrence,
the Federal Reserve bought 60 percent of Treasurys issued last year.
Just where did the Fed get the money to buy those Treasurys?
They created it out of thin air, what the author just described as "printing money."
They did not load it to banks, as he describes.
They gave it to the government, and all they got in return was Treasury notes.
This is what is called "monetizing the debt",
a concept he did not bring to the attention of his readers.
How the "elite" media deceives!]
Third,
the most important difference between us and post-war Hungary or Weimar
is that
our roads haven’t been razed to the ground
and half the country isn’t striking.
It’s very difficult to have hyperinflation
when you still have a functioning economy.
Almost all examples of hyperinflation result from
huge economic shocks that devastate an economy so much that
leaders think printing money is the only solution to growth.
As bad as the Great Recession has been,
our GDP is already back to and above its all-time pre-recession high.
As bad as unemployment is,
more than 80 percent of the labor force is working.
In Zimbabwe,
80 percent of the population was unemployed.
2012-08-21-WP-Plumer-great-hyperinflation-episodes-in-history
Great hyperinflation episodes in history — and what they tell us about the FedBy Brad Plumer
Washington Post, 2012-08-21
[Here the Washington Post blogger
repeats the summary paragraph from the work above:]
Back in March [2012], The Atlantic’s Matthew O’Brien
offered a more detailed explanation of
why the United States isn’t likely to suffer the same fate as the Weimar Republic
or any other country on the list [of countries that have suffered from hyperinflation] above.
Here’s the short version:
“How are the United States’
historic budget deficits, money-printing and depressed economy
any different from the country’s that have experienced hyper-inflation?
The three-part answer is:
(1) we don’t have any problems selling our debt;
(2) we aren’t actually printing money; and
(3) the United States is a highly productive economy
that is nothing like bombed-out Budapest.”
posted by KHarbaugh at 19:54
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