Comments for Greg Ip Gets the Basics Wrong in Analysis of Downturn (with response) at http://www.cepr.net , comment 1 to 47 out of 20 comments http://www.cepr.net Sat, 25 May 2013 15:01:58 +0100 FeedCreator 1.7.3 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19462 Greg said, "Last year, for example, non financial corporate cash flow exceeded gross investment by about $200bn." What is non-financial corporate cash flow? What's the significance of it exceeding gross investment by about 200 billion? - Jay Wed, 10 Oct 2012 01:19:56 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19453 This really isn't the way to do it, though, by force. . BTW here's a short opinion in Salon that covers the CDS issue pretty well: [url]http://www.salon.com/2010/04/20/naked_credit_default_swaps/[/url] [quote]Let’s say General Motors issues a bond and I purchase it. But I’m worried that General Motors may collapse, so I buy a credit default swap on my bond from A.I.G. In return for regular premium payments, A.I.G. promises to reimburse me in full in the event for the value of my bond in the event of a GM bankruptcy. In the parlance of Wall Street, by purchasing the credit default swap I am “hedging” against the chance that my bond will suddenly become worthless.[/quote] Those who don't own the bonds but do own the CDSs issued against it are engaging in pure speculation, and that can be dealt with. But having CDSs available, in the example, increases sales of the bonds and helps increase GMs cash flow if they have a good plan behind the bond. - David Tue, 09 Oct 2012 09:31:41 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19429 Good debate, but I think Dean takes the prize. That Ip keeps suggesting that housing and consumption could have come roaring back in the aftermath of the largest asset bubble and bust the world has ever seen is completely bizarre. - JSeydl Mon, 08 Oct 2012 20:44:23 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19428 I'm very confused. The negative balance of trade was growing rapidly at least until the recession, and yet the dollar has been weakening a lot since 2002 (when,supposedly, Rubin's strong dollar jawboning started losing its effect in the face of struggling U.S. manufacturers). Some say the dollar is weaker now (on a secular basis) than it's ever been. If it's already dropped by a third or more against competitive currencies, how are we going to be able to get further weakening to improve the price competitiveness of our exports? And even if we could -- requires inaction by our trading partners, doesn't it? -- doesn't this history suggest it will not do a whole lot, if anything, to improve the balance? Does that mean we are just screwed? - urban legend Mon, 08 Oct 2012 18:51:37 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19427 "Fed Up Is Right, we could reduce labor supply written by Dean" Finally! Someone sees that! The next step is the "land of medium of exchange". Is all that private debt AND gov't debt mostly about tricking people into working longer so that an economy won't be running out of workers so that the 1970's don't happen all over again? What are the chances of an entity retiring if it has accumulated too much debt in the past? Lastly, does: current account deficit = gov't deficit plus private deficit actually have a +0 (zero) after private deficit the way the system is set up now? - Fed Up Mon, 08 Oct 2012 17:53:54 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19426 "liberal" says CDSs are evil and uses some colorful language that says nothing, for emphasis. That's the type of losing mentality that has to be lost. Calling reality names isn't going to make it go away. CDSs were not the problem so much as the way the investment banks inflated the so-called shadow banking system so that it is now, in the US and worldwide, 150% the size of commercial banking. Euthanizing CDSs won't shrink that puppy one bit; if you think so, you need to lay off the grass, man. It's not all a gambling hall, that's just your brain trying to make something real and complicated into a cartoon character. What is needed is regulation of the shadow banking system (aka market-based credit system). And just remember, your sample of the CDS market is biased, try to remain fact-based rather than making wild generalizations no matter how good it feels to do so. It's the only way you'll beat these guys. Remember, Romney will repeal Dodd-Frank and get rid of Bernanke, to be replaced by ... ? Another Paulson? - David Mon, 08 Oct 2012 17:14:25 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19425 if you're not going to let me post, let me know why. I'd at least like a chance to defend against being called 100% wrong, which I am not. - David Mon, 08 Oct 2012 16:51:42 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19422 my preferred route is work sharing to early retirement - Dean Mon, 08 Oct 2012 15:56:09 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19421 Yes, it would be great if we could have more discussions that focused on the evidence. - Dean Mon, 08 Oct 2012 15:42:28 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19420 Hope I'm not commenting too late for you to see this, Dean. But your exchange with Ip was deeply illuminating and proves how valuable honest economists having an honest, data-driven, nonpartisan conversation can be. If MSNBC were to turn over just one "Hardball" hour to the two of you and permit both of you to bring charts and graphs, it would contribute more to public-policy education than "Hardball" has and will cumulatively contribute. Thanks, Dean. - Fred Brack Mon, 08 Oct 2012 13:22:08 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19418 "the vast majority of consumers get the vast majority of their income from working. Wages have generally kept pace with inflation and in tight labor markets (caused by increased demand), they have outpaced inflation." What if price inflation of a lower/middle class person's budget is higher than the CPI? - Fed Up Mon, 08 Oct 2012 11:56:26 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19417 "This leaves X-M as the only plausible path for maintaining sustainable full employment. It is not a logical necessity, it's just the only route left after the others can be dismissed as implausible." Incorrect! More people could be put into retirement. - Fed Up Mon, 08 Oct 2012 11:51:07 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19411 [b]John Wright[/b] wrote, [quote]A recent article mentioned it is the site of a Indian Gam(bl)ing, casino that is doing quite well. This seems to be similar to the financial industry's unproductive restructuring of the USA economy. [/quote] Well, at least someone here gets it. - liberal Mon, 08 Oct 2012 08:00:24 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19409 [b]David[/b] wrote, [quote]...you'll see that it will be quite a battle to get rid of CDSs and it would be limiting to the economy to do so...[/quote] Utter, insane bullshit. Yes, it will be quite a battle to get rid of CDS, and because of already-existing contracts it would have to be done carefully. But just because it would be difficult doesn't mean it's not the right thing to do. Fighting evil and stupidity is never easy. As for "limiting the economy," that's just crazy, insane garbage. The financial sector, measured as a fraction of GDP, has exploded in size since the early 1980s. [i]The only legitimate function of the financial sector is efficient allocation of capital[/i]. If all these so-called financial innovations did anything useful, and capital were more efficiently allocated, we'd see a "signal" in the long-term trend of an increase in the output of the non-financial sector. Yet no such signal exists. It's clear from the empirical record that the only function of all this complexity in the FIRE sector is parasitic rent collection. If you think otherwise, you'll either a paid shill, or you need to get your head examined. - liberal Mon, 08 Oct 2012 07:50:10 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19408 [b]pete[/b] wrote, [quote]The whole point of CDS is to complete the market, that is the inability to sell short.[/quote] Empirically, looking at the last crisis, this is simple, utter nonsense. - liberal Mon, 08 Oct 2012 07:45:11 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19407 [b]David[/b] wrote, [quote]They already do, most of the time, set aside sufficient capital. [/quote] Simply, utterly false. They post collateral, and when the position they're "insuring" worsens, [i]they have to post more collateral[/i]. In bad cases, the thing explodes, like AIG. Again, if they had to set aside collateral in the same manner that true insurance does, they'd never be issued. One could argue that there's some cases in which one could claim a social benefit. But things should always be viewed in terms of both costs and benefits. And as we saw from the last financial crisis, the costs are enormous. Given a situation of questionable, marginal benefits vs enormous potential costs, they clearly should not exist. - liberal Mon, 08 Oct 2012 07:41:03 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19405 Brian, the vast majority of consumers get the vast majority of their income from working. Wages have generally kept pace with inflation and in tight labor markets (caused by increased demand), they have outpaced inflation. And the largest source of income for retirees is Social Security is indexed to inflation. So, the story looks really good for "consumers" in my book. - Dean Mon, 08 Oct 2012 06:29:22 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19404 Brian, not sure if this is what you want, but according to a Commerce Dept. report from 2010: export-supported jobs rose from 7.6 million in 1993 to 10.3 million in 2008, an increase of 2.7 million jobs. This increase accounted for 40 percent of total job growth in the United States during this period. [url]http://www.google.com/url?sa=t&rct=j&q=exports support american jobs&source=web&cd=1&ved=0CC4QFjAA&url=http://trade.gov/publications/pdfs/exports-support-american-jobs.pdf&ei=Nv1yUI7DAYzg8ASbh4DQBQ&usg=AFQjCNEB3_e9jyVHnwVuCMSQ_0zhxv2zVg&sig2=jxgyvxRU0MCBLuxfBiP5VQ[/url] Here is real net exports (from FRED): [img]http://research.stlouisfed.org/fredgraph.png?g=bA9[/img] Looks positively correlated to me. Now, about those wages ... But right now, we just need people working. - David Mon, 08 Oct 2012 06:27:19 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19403 Policy aimed at increasing net exports is policy that generates higher revenues for "producers", ie business owners, while squeezing "consumers", e.g. pensioners surviving on Social Security etc. ORDINARY people are consumers, they go to WalMart and buy stuff and that stuff will become more expensive if there is a policy move to increase net exports. Increased US exports doesn't do anything for ordinary people directly, it only helps businesses. Dean should explain further why he has such confidence that there will be extensive "trickle-down" from the exporting corporation to the social-assistance-dependent consumer. - Brian Dell Mon, 08 Oct 2012 06:09:11 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/greg-ip-gets-the-basics-wrong-in-analysis-of-downturn#comment-19402 liberal writes: [quote]"Enforce capital requirements"---if issuers of CDS were required to set aside sufficient capital, the CDS market would no longer exist. [/quote] They already do, most of the time, set aside sufficient capital. JP Morgan/Dimon's fail this past Spring is a case in point where things begin to go wrong. When the risk valuation model is underestimating (and liquidity risk is very tricky to measure) then there is trouble. This fail helped retain a balance. If you look at Dimon's responses, you'll see that it will be quite a battle to get rid of CDSs and it would be limiting to the economy to do so; but losses like this also get the market players to enforce a tighter discipline themselves. But just like the Bank of England is preparing to do with their next governor (I'm rooting for Vicker) [url]http://www.bloomberg.com/news/2012-10-08/osborne-faces-small-world-of-boe-as-governor-choice-looms-1-.html[/url], the Fed can take on the role of central dealer and enforce conservative risk valuations on the market. Sure there's useless crap out there, just like there's a lot of music now, most of it not that good; but some of the new stuff is excellent and serves a societal role (here, I actually agree with pete (!)). There's no going back, the finance world already changed on us, and the Fed has to evolve with it. It is in that sense that I used the gold standard, analogically. - David Mon, 08 Oct 2012 05:50:46 +0100