Growth of negative-yield bonds

All over the world now you can enjoy the privilege of buying government debt that pays you a negative yield. In effect, you are paying a small premium to the issuing government for the privilege of carrying their debt. This is, let’s just say, an unusual condition.

In Switzerland your bank will charge you money for holding large deposits. Chase is trying to start doing the same in the US.

Why is this happening? There are lots of theories, but as is so often the case in economics no one really knows with confidence. Why would people buy bonds that pay a negative yield? A couple of potential reasons stand out.

First of all, a lot of investors are effectively forced to purchase treasury bonds because of the low risk. Even at a small loss, they may be more desirable than placing a billion dollars of employee pension money in relatively risky stocks. Second, and more worrying, is the possibility that these bonds are still a good deal. The negative yield is only negative if inflation hits certain targets. Many investors are betting on deflation, which would increase the value of those bonds. Which brings us to the final concern.

What the hell has happened to inflation? The standard explanations related to government austerity and the overhang from the financial collapse are growing a bit thin. We’ve been carrying an effective zero-interest rate in the US for six years now without reversing the trend. All the while economic growth has returned to near-90’s levels.

There’s another possibility – that an innovation economy carries with it inherent deflationary tendencies. It’s the same dynamic that capitalism has produced for almost three hundred years, but on a steeply accelerating curve. It replaces productive work with automation at radically lower overall costs while delivering much more concentrated profits. One way to create an apparent deflationary scenario is to suddenly take half of a state’s money and give to a handful of people. If that’s what’s happening, then setting central bank interest rates at or below zero will actually make it worse.

We don’t really have an established program for coping with such a scenario. Our generation’s Keynes has not yet emerged and if he does show up, he probably won’t be an economist. In the meantime we’ll keep treating this new condition with the old medicines and hoping for the best.

Chris Ladd is a Texan living in the Chicago area. He has been involved in grassroots Republican politics for most of his life. He was a Republican precinct committeeman in suburban Chicago until he resigned from the party and his position after the 2016 Republican Convention. He can be reached at gopliferchicago at gmail dot com.

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134 comments on “Growth of negative-yield bonds
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  2. lomamonster says:

    Hey Chris, Is this a Word Press site blog?
    If so, here is a “heads up” on the situation…
    Just so you know, eh?

    • bubbabobcat says:

      Sadly our online friend lomamonster and a friend I have had the pleasure and honor of meeting in person, passed away yesterday from cancer. Rest in peace Larry.

      • 1mime says:

        Oh, no, Bubba! He had a recent post and I always enjoyed reading his thoughts. How very sad but at least he is no longer suffering. Cancer is an awful thing. Thank you for letting us know.

      • fiftyohm says:

        Wow. I’m known him online for years now. Very, very sad. RIP, pal.

        Thanks for the info, Bubba. Appreciate it.

    • bubbabobcat says:

      Sorry for the egregious mistake but I was just informed by a fellow original smeep that lomamonster is the online ID of another smeep and NOT Larry B. Sorry dude for the mistake. I had been thinking you were Larry for the past 8 years. In case you weren’t aware loma, Larry also attended the first smeeping with his wife and he did pass away and his online avatar I am told was actually stuxcat.

  3. texan5142 says:

    Completely off topic, but Huntsman, the best candidate the GOP could hope to have, will not run, and for good reason. I would vote for this man over Hillary.

    • johngalt says:

      And so would a lot of people, but he does not possess sufficient ideological purity to be nominated.

      • 1mime says:

        Huntsman – The ultimate irony…..a candidate moderate Democrats and Republicans both like and he doesn’t stand a chance of being nominated by anyone.

        I wish he could run on an independent platform. I would also give him serious consideration.

      • Turtles Run says:

        A friend of mine was college roommates with Huntsman at BYU. My friend told me that he ran into Huntsman at an airport in Dubai and they got to talking. Huntsman was very descriptive of the 2012 GOP field. Basically what he said is that when people say anyone can run for President they meant it (take what meaning you wish).

      • Turtles Run says:

        Sorry, I just did a little background checking and they were not college roommates as Huntsman went to a different school. I will have to follow up with him.

  4. EnonZ says:


    There are any number of ecologists, farmers, fishermen and others who would be astonished to find out that sustainability is ‘little more than a buzzword’. Even former Senator Tom Coburn, not exactly a friend to environmentalists, would talk about sustainability with reference to the depletion of the Ogallala aquifer, a matter of importance to many of his constituents.

    “That an actual journal would be devoted to ‘it’ [sustainability] would be surprising were it not for the fact that there are plenty of useless journals.”

    You shouldn’t be surprised that an actual journal is devoted to sustainability, there are a number of them. And yes, there are plenty of useless journals, which is why I check citation rankings and a list of known bogus (pay for play) journals. What did you do?

    “The first thing they do is tout this important-sounding thing called EROI. Well, that sounds way more important than ‘net yield’, now doesn’t it?”

    This is analogous to writing, in a financial context, “The first thing they do is tout this important-sounding thing called ROI. Well, that sounds way more important than ‘net profit’, now doesn’t it?”

    The former is a ratio, the latter an amount. They are related by a simple equation and both are useful.

    “The general thrust of the paper is to warn us of the alarming trend in decreasing net yields. Figure 1. shows this by the EROI metric, with that measure falling from 60 in the mid fifties, to around 8 today. Scary, huh? Not until it dawns on you that all this means is that production costs are up by ~12% as a result. EROI is nothing more than production amortized exploration, transportation, and drilling costs. In 1955 they were 1/60 of the price of the commodity. By about 1962 they were around 10%. So the drop in the EROI today has added perhaps an additional 5%. So what.”

    You are quite correct when you stop at an EROI of 8. When you graph percent net yield against EROI, the decline from 60 to 8 is gentle. So what, new discoveries and improved technologies can easily make up the difference. So far, so good. But the graph has an inflection point around an EROI of 8. It has to because net yield plunges down to zero as EROI declines from 8:1 to 1:1. It’s not linear. I’ll leave the construction of the graph as an exercise for the readers.

    I guess the only things we agree on is that available net energy is a primary driver of economic activity and this is where we came in.

    • 1mime says:

      That was a great response, Enon!

    • fiftyohm says:

      EnonZ- For you and anyone else with the time:

      Ariel was a sensitive girl. She wanted to ‘make a difference’ in the world. She loved wilderness hiking in Central Park. She was shocked on reading as a teen, that that a sewage line running from Central Park West over to Fifth Avenue had leaked some wastewater into the Lake. Resolved then and there to devote her life to preventing such catastrophes, she began her search for a career. Sadly though, she was a bit math-challenged. But no matter – she found an interesting program at Arizona State offering graduate degrees in NDRSiL, (Not Dumping Raw Sewage into Lakes). It was perfect! A short chat with her parents, a three-day pout when they initially refused given their intentions to send her to Wellesley, and Ariel was on her way west!

      The years at ASU flew by. Within 7 years, Ariel graduated with her BS in NDRSiL. (She was also able to pick up two minors in Art History and Native American Studies in the interests of future employment.) Now this was all at a time when the word NDRSiL wasn’t exactly popping off the tips of the public’s and politician’s tongues. Ariel’s employment opportunities were limited, so she decided to go to grad school, and complete her PhD. That decade flew by too, and with her adviser, Ariel published two papers in the prestigious journal “JNDRSiL”. Ariel was hooded, and her career now stretched out before her. She stayed on at the College of NDRSiL at ASU as an assistant professor.

      One spring day Professor Ariel, (the college eschewed surnames), had assembled her seminar group on the banks of the campus storm water detention pond. Ariel considered it to be the perfect place to invigorate the spirit and open the minds of her charges to the wonders of nature around them. The group was deep in serious discussion and nibbling gluten-free rice crisps, pouring over ancient copies of Engineering News Record and Walden when a pair of civil engineers in hard hats appeared seemingly out of nowhere. Working for a local consulting firm, they had been hired to survey for replacement wastewater feeder from the new Rachael Carson Memorial Dorm and Crash Pad to the city’s collection system.

      With the-split second coordination of a prairie dog colony, the group instantly assumed ‘downward dog’ poses, buttocks aimed menacingly at the interlopers. With quiet dignity, Dr. Ariel rose, faced the intruders and shook her tambourine. “What”, she demanded, “do you think you’re doing here? WE are trying to save the planet!”

      Startled by the tableau, the two looked at each other, shrugged, and mumbled, “Uh, nothing ma’am. Sorry to disturb you.”

      • 1mime says:

        Rachel Carson, The Silent Spring, was way ahead of her time. Not sure about Ariel…..

      • johngalt says:

        Your parable is amusing and I assume you are trying to mock do-gooders who invent useless self-fulfilling and self-sustaining (pun somewhat intended) movements. I share your scorn for some of this, but “sustainability” as a general concept is a sound one. Improving the efficiency with which inputs are used (either energy or raw materials), understanding that there are finite limits to water supplies, and that being a good neighbor in the communities in which you operate can have beneficial effects on the bottom line. Plus, they may help define the tradeoffs we make in resource utilization, such as whether cornering the world’s almond market is worth making 35 million people resort to “Navy showers.”

        That said, there are way too many self-absorbed advocates with preposterous notions about how to answer these questions.

      • fiftyohm says:

        Of course, JG. To not support the ‘concept’ of sustainability is like advocating the dumping of sewage into lakes. It was primarily in response to a link to a journal called “Sustainability”. The part about being able to get advanced degrees in it however, was no exaggeration.

      • 1mime says:

        Tell me more, Fifty, about your opinion on advanced degrees in sustainability.

      • fiftyohm says:

        1mime – Sometimes I can’t tell when you’re joking and when you aren’t. Please, please tell me you are right now.

        Oh, and BTW, it’s not THE Silent Spring, for future reference.

      • 1mime says:

        I stand corrected. “Silent Spring” is the correct title- no “the”.

        No, I am not kidding with my question about your opinion on advanced degrees in Sustainability. If you don’t want to answer the question, don’t.

      • fiftyohm says:

        Degrees of any kind in a thing so nebulous as “sustainability” are the very definition of stupid. The referenced article was pure economics. Keeping sewage out of lakes is pure civil engineering. Everything else you can possibly think of regarding sustainability, including those which JG mentioned are completely covered by other ‘real’ disciplines. It’s a major for the dilettante and the math-challenged. The real work in the area will be accomplished by real scientists, real engineers, and (maybe) economists, and not by spoiled little Ariel’s with useless, though round-sounding degrees in what is really nothing at all.


      • 1mime says:

        Fifty, I deeply believe sustainability is an important concept and one that not only should be universally taught, but practiced in all life’s endeavors – from home to the workplace. Sustainability principles should be an integral part of every academic degree, and it is not at present. This would mean that your majors in engineering, business, technology, math, science, economy, agriculture, etc. would be taught how they could apply sustainable solutions to real world problems they face in the marketplace and communities. This might or might not require a degree, advanced or otherwise, in sustainability but would improve each discipline by exposing them in practice and curricula to sustainable methods that assist individuals and businesses in their jobs. It is a creative collaboration, visionary and solution-oriented. It is practical. Advanced degrees in Sustainability would focus on a more intensive, scientific approach to teach students how to utilize sustainability theory and practices to enhance their undergraduate field.

        There are a wealth of job offerings in the field as a cursory examination illustrates and demand is growing in the field across the world. To offer just two quick links: (, and It offers new opportunities for employment just as renewable energy does – and, that’s a good thing. It’s part of Lifer’s lesson about the world needing to adapt to a changing marketplace.

        Sustainability training offers a partnership with those involved in linear fields, like engineering, to incorporate innovation and practical change that addresses current problems and anticipates future needs. If there was no need or market for Sustainability, you wouldn’t see major colleges offering programs and degrees in the field. Thus, sustainability can be both a “soft” science and a “linear”science depending upon what the situation requires.

        These professionals are trained to look at problems and solutions in different ways and in doing so, offer ideas for new processes and systems that improve current practices.
        An example that is easy to relate to is sustainable agriculture. Organic coffee growers are assisted in everything from developing various soil microbes to planting and harvesting techniques. (Starbucks is a major partner in this process with their growers.) Aquaculture is another example and there are scores of others.

        Sustainability is really the art of applied science. It helps us find solutions that work with the environment. It could be desalination projects, or renewable energy, or re-furbishing cellular devices (a major business that was started a decade ago out of the Seattle sustainable program), and so many other efforts to re-think, “re-imagine” solutions that support a long-term environmentally sustainable view.

        Sustainability is a cooperative science and Sustainability programs have rigorous academic prerequisites. (

        I am responding to you not because I want to change your mind but because of my deep interest and belief in Sustainability. If nothing else, I want to help others who may be interested in the subject to be exposed to a positive view. Let me stipulate for the record that I am an English major, not a scientist nor an engineer. My passion is to help make our world a better place through sustainable practices.

        I apologize to all for the length of this post.

      • fiftyohm says:

        “Ariels”. Sorry. Autocorrect…

      • johngalt says:

        It is worth noting that the actual journal “Sustainability” is published by the “Multidisciplinary Digital Publishing Institute” (MDPI), a group ostensibly based in Switzerland but, in fact, actually owned by a Chinese group. MDPI is on a list of “Predatory Publishers.” I can explain what that means if anyone cares, but the bottom line is that I wouldn’t trust much of anything published there.

      • 1mime says:

        Good to know. What journals do you recommend on the subject of Sustainability?

      • fiftyohm says:

        Well, that pretty much sticks a fork in that one, now doesn’t it?

        Thanks for the research, JG.

      • johngalt says:

        Sorry, no idea, 1mime. I’m a molecular biologist/microbiologist, so it’s not really my field. I am sure that there are reputable journals that publish research related to sustainability but, like 50 said, the authors will be scientists and engineers (and perhaps some economists) rather than Ariels.

      • Crogged says:

        The hardest thing is to find trustworthy sources (well, understanding the subject here is also sometimes ‘hardest’).

        In essence, will a ‘predatory’ publisher print for pay and the published article isn’t subject to peer review?

      • johngalt says:

        So-called “predatory publishers” generally operate on an author-pays system, where the author covers the cost of publication and then the papers are available online without a subscription charge. On the surface, there is nothing wrong with that – reputable publishers like the Public Library of Science (PLoS) also use this model. But the predatory ones are usually for profit (PLoS is non-profit and NIH-supported) and based almost always in China or India. Their peer-review is somewhere between non-existent and incompetent: when you hear stories in which groups have completely fabricated manuscripts with preposterous data but had them accepted by x% of journals to which they submitted them, the lax ones are almost all these predatory publishers. It’s junk, and it’s damaging legitimate science. One person maintains a list of the predatory publishers:

        There are now predatory conference organizers too. I get at least one invitation per day to speak at a conference on anything: translational medicine, geriatrics, immunology, neurology, ob-gyn, etc. (I’m a microbiologist). Delete, delete, delete.

      • Crogged says:

        Thank you for the now bookmarked page (holy cow-the list went on and on……). Appealing to authority is a logical mistake, as is ignoring scholarship.

      • fiftyohm says:

        1mime – Let me tell you a story, but this time it’s real…

        About 1988 or there about, I was the VP of engineering for a satellite TV company. Satellite receivers of that era were power hogs. They ran hot. I decided to put a switching power supply in a new model. Not to get into details, but that technology had never been used in an AV product due to noise. It was risky. But it would improve reliability. I calculated it would also save customers about $20 a year on their power bills. The power angle sold it. That company is today, one of the worlds leading satellite TV providers.

        Today, you might call that “sustainability”. Labels change, but reasonable engineering practice suggested it made sense. Reasonable economics suggested the same. All this carping about sustainability is nothing new, or different, or separately teachable, or unique to our times. Its a damn buzzword to those of us who have actually done something about it.

      • 1mime says:

        Fifty, you are to be commended for being in the forefront of using innovative solutions to achieve better outcomes in the satellite industry – one that benefited your industry and the consumer. The best in their field will always be creative but they may not always develop sustainable solutions. It’s not “carping” to espouse a process and a science that offers sustainable solutions. It’s smart to replicate ideas and processes that offer new and creative ways of doing things. I don’t think it is innate to all disciplines nor do all professionals utilize sustainable practices. For that reason, and because the world is a better place for embracing this approach, I maintain that sustainability is valuable – as a practice and as a curricula. I respect how you feel but I don’t agree with your conclusion.

      • fiftyohm says:

        1mime – Let me ask you a question, if you will. Were you to have your 71 years to do over again, starting about 20 years ago, would you be amongst Dr. Ariel’s seminar, knowing what you know today?

      • 1mime says:

        We were living in FL at the time and were fortunate to purchase a home in an area that abutted an environmental preserve. I loved the experience of “living with nature” and out of that love grew a deeper appreciation for the environment. I spent a lot of happy hours on our large, elevated screened porch overlooking a marsh adjacent to the bay and watching colorful sunsets. It was the best of times. I didn’t have specific exposure to the concept of sustainability then but I participated in what environmental programs were available in our area. If I had known then what I know now, I would have been more actively involved in promoting sustainability where I could.

      • fiftyohm says:

        And BTW, thanks, but it deserves no “commendation”. I was doing my job. Appreciate the sentiment through.

      • 1mime says:

        I disagree. Your actions were right in line with best sustainable practices. You must be proud of that achievement. Each of us has a few things we’ve achieved in our lives that we are very proud of. This was a big one and you should take a bow, Fifty.

        Now, if you could just figure out how to keep pixels from freezing when bad weather messes up my husband’s televised sports programs, you would really go to the head of the class!

      • fiftyohm says:

        Do read Hiaasen? If you don’t, you should. “Skin Tight” is my favorite. If you’re not familiar, google him. Well worth the time, I guarantee it.

      • 1mime says:

        Oh, yeah, he’s good. My favorite S. FL author is Randy White. Many of his Doc Ford books are set in the Captiva area. Check him out. He writes taut mysteries and has quite a large non-fiction body of work. He is a very interesting person in his own right and has been compared to Hiaasen.

      • 1mime says:

        Just ordered a copy of Skin Tight on your recommendatin. We’re reading Bad Monkey now.

      • fiftyohm says:

        Illy take your recommendation. BTW: and this is not a spoiler – Dreggs never met Johnny Depp…

    • fiftyohm says:

      Reading ” Skink, Never Surrender” now. We love Skink!

  5. EnonZ says:


    “I absolutely do believe available net energy is a primary economic driver.”

    OK, then we have a major agreement about the nature of reality. (There’s a commenter on this blog who shows up sometimes to proclaim that ‘wealth is infinite’ – I don’t even engage; an excellent example of ‘not even wrong’.)

    “I interpreted that to mean some sort of sensitivity of the economy to the first or second derivative of the supply in the absence of shortages.”

    Yes, exactly. We need a certain amount of economic growth in order to pay interest on our debts, maintain our built infrastructure and keep up with population growth. For several centuries industrial economies have been able to depend on a long term trend of ever increasing amounts of net energy to drive this economic growth. If the growth in net energy becomes constrained, then this should show up as constraints on our ability to do the above. Isn’t that exactly what we’re seeing?

    • fiftyohm says:

      No I don’t think it is. Please see below. There is no evidence that energy supply is constraining economic growth at this point.

      • RobA says:

        I tend to agree.

        Enonz makes some good points, and I definitely think the “net energy” is a valid metric with regards to overall economic growth.

        But i dont think that at this time it is limiting growth.

        Sure, fracking uses more energy then simply pumping.light sweet crude. But unless one of us is a and knows exactly HOW MUCH more energy, it’s just not applicable to say that it uses so much more that it’s constraining growth.

        The most obvious indicator is price. Simple supply and demand would suggest this is not what’s going on. If energy were becoming more scarce (either because of depletion if reserves, or less net energy, or any other reason) price should be going up.

        I cannot imagine a scenario where less energy is available for sale and yet energy prices across the board are going down.

      • johngalt says:

        Plus, the energy intensity of our economy (energy used per dollar of GDP) has been dropping for decades, so economic growth is generally less sensitive to energy prices than at times in the past.

  6. johngalt says:

    The nominal interest rate or yield on bonds is not the right metric, it is the real (inflation adjusted) yield, and this has been negative frequently. In fact, the real yield on US securities has been negative about one-third of the time since the 1920, so it is not at all unusual. This is essentially how the US got out of debt after WWII – negative real returns allowing us to inflate away the debt – and it is what will happen now. Suggesting that there is an entirely new economic reality should be a last recourse when no other explanations seem to fit, and we’re a long way from that.

    • goplifer says:

      There’s a difference between a bond that becomes negative yield, like when we inflate our way to cheaper debt after issuing a bond, and a situation in which bond yield are negative at issuance.

      • johngalt says:

        A semantic one, yes. Maybe a mental one. There’s no real difference between the two – in either case you have a less valuable asset after the term of the bond.

  7. Turtles Run says:

    “What the hell has happened to inflation? ”

    Exactly, negative yield bonds (GYB) could be an attempt to drive investors into more riskier plays versus safe government bonds. Austerity in Europe is a failure (I hope you are paying attention tea party) with inflation rates at less than 1% the European Central Banks are trying to spur a private sector stimulus package hopefully spurring higher inflation.

    Unfortunately real life means there are multiple drivers for the growth in NYBs such as, these bonds would become profitable if deflation rates drop below the yield rate. They would become hedges against deflation limiting losses.

    • fiftyohm says:

      Have you checked the Euro lately, Turtles? Do you reckon profligate printing of euros is gonna help that situation?

      • johngalt says:

        Modest deflation is a far worse problem for an economy than modest inflation. Inflation is near zero in the Euro zone. Fiscal stimulus makes sense for them, as it did for the U.S. where it has not caused rampant inflation, despite dire predictions to the contrary.

      • fiftyohm says:

        True – see below. In fact, the Eurozone is actually experiencing slight (~-0.1%) deflation at this time. But a quick look at the exchange rate tells a different story regarding global confidence in the euro itself. My point was printing more euros is not going to solve that problem, and more than likely make it worse.

      • Turtles Run says:

        Yes, the Eurozone is experiencing deflation and as JG pointed out that is extremely harmful to the economy. The ECB is trying to combat this deflationary status and this is one of the tools they are using.

        The reallocation of private dollars to private industry versus government bonds is not in anyway “printing money”. Some investors are seeking to invest in corporate bonds versus negative yield bonds which is a good thing.

      • Turtles Run says:

        Also from Mark Kiesel, chief investment officer for global credit at Pacific Investment Management Co. (PIMCO):

        Policy makers from Europe to Japan are trying to ignite inflation by spurring investors to buy riskier debt to avoid losses on money deposited in banks or safer government securities. If they’re successful in their efforts, they’ll eventually back away from their easy-money policies, allowing yields to rise and bonds to lose value.

        “Monetary policy around the world, their mission is to reflate,” said Kiesel of the Newport Beach, California-based company with $1.59 trillion in assets under management. “Inflation risk is underpriced.”

        He recommended investing in corporate debt, some equities and the U.S. dollar, while staying away from shorter-term government debt.

        Emphasis mine

      • RobA says:

        The same printing went on for 5 years here in the US with no inflation.

        Not saying it’s necessarily a good idea to do QE. I don’t think it is. But it’s pretty clear that the worst fears of QE (ruNawaz inflation from money printing ) are unfounded.

  8. Hi Chris
    Does Krugman “understand the economy” – not completely but he does understand the basics
    If you syphon most of the money into a vanishingly low number of pockets the economy slows
    It’s like your body – it your big toe swallowed 50% of your blood the rest of the body would have difficulty operating on the remaining 50%

    • fiftyohm says:

      Krugman couldn’t find his ass with both hands and a periscope.

      • Bobo Amerigo says:


        What, specifically, do you mean? Can you provide an example?

      • fiftyohm says:

        Bobo – Thanks for asking!

        About 20 minutes ago I was browsing some opinion pieces on Krugman, and came across this:

        It’s a couple of years old, but it makes the point perfectly. It also references precisely, (and coincidentally), my comments below related to the greenback vis-a-vis the euro, yen, and renminbi. (yuan). Additional examples of Krugman’s disconnect with reality are legion.

      • 1mime says:

        So, Fifty, what would you have done differently to address the 2008 economic crisis in America? Which economic model, which economists do you believe have better ideas?

      • fiftyohm says:

        I am in general a Chicago/Austrian. Furthermore, it’s not entirely fair to suggest a solution to a problem that was largely a result of Keynesians. To the point, there is zero empirical evidence that excessive spending since 2008 has helped much, and plenty that it’s going to hurt a lot down the road. The disconnect of the players from the consequence of failure has been unconscionable. I refer here to the socialization of losses.

      • unarmedandunafraid says:

        Fifty – Now you’ve done it. Talkin trash about Krugman. Putimup, putimup. Seriously, if you believe what Fitz-Gerald does in your link, I can see how you would think that. But, I’ve lived long enough to see what imposed austerity by the IMF did to various countries. I also have read about the US in the 30’s and how a period of austerity reversed the progress we had made.

        If you read Krugman when he compares the US and various other countries and are still an austerian, nothing in these comments will change your mind, I’m sure.

        In your link Fitz-Gerald is wrong or not quite right on several points, imho. This does not make him wrong about everything. And Krugman has made mistakes I’m sure.

        The question is who is “righter”.

      • fiftyohm says:

        Unarmed – Room in the world for all points of view, my friend. (BTW: is Austrian, and not austerian!)

      • unarmedandunafraid says:

        Fifty – The spelling wasn’t a mistake. I consider the two terms interchangeable. Sometimes it feels the call for austerity in economics is a need to punish, the same need to punish the poor for their bad choices and behavior. That is my take, not anyone else’s.

      • fiftyohm says:

        Ah, OK unarmed..Definitely a unique point of view ya got there, as you say!

      • Bobo Amergio says:

        50, you could have just said ‘chicago’ from the get-go, and everything would be clear.

        Yours in ‘the Keynesians have been right so far,’


      • moslerfan says:

        50, in the article you cite as refuting Krugman, the only claim the author actually makes about Krugman’s beliefs (Where Krugman Gets It Wrong) is “If Krugman’s ideas…were accurate, our economy would be screaming along at 6-8%” Krugman has never said anything of the sort. Further, in an effort to refute Krugman’s easy money recommendation, he astonishingly quotes Elihu Root in 1913 seeming to blame the newly created Federal Reserve Bank for panics in 1837, 1857, 1873, 1893, and 1907.

      • 1mime says:

        For all the criticism about America’s economic situation, many, very smart people in 2008 felt our country was on the verge of an economic cataclysm. None of us were privy to the information they were seeing or have the financial expertise to question their judgment. Fault the stimulus, fault the Fed Reserve, fault the President and Congress, banks or whoever and whatever you like, America is pulling itself out of the jaws of disaster. The price for saving America’s economy required borrowing and increasing the national debt and the budget deficit. That money will have to be repaid just like any loan. Is there anyone here who really would have endorsed letting America fall into another Great Depression? I don’t care how smart any of us thinks we are, we weren’t the ones having to make those calls. Investors can invest where they like. I’m investing in America.

    • RobA says:

      But that’d be one helluva big toe!

  9. EnonZ says:


    “So if energy prices are low, where is the money these people are supposed to be spending going? Not to energy, apparently – which seems to be your thesis.”

    We’re talking past each other. The average consumer is NOT spending because he doesn’t have the money to spend, not on consumer goods nor on energy.

    Chris, our host, proposes that “. . . an innovation economy carries with it inherent deflationary tendencies.” I’m proposing that an economy where the growth of the absolute amount of net energy has fallen below historic norms also carries with it inherent deflationary tendencies.

    • fiftyohm says:

      Have you data to support the claim that this “growth in the absolute net amount of energy”, is below historic norms? Why do you think this factor is the ultimate driver? If energy is cheap and abundant, as it currently is, how can a lack of growth in it be slowing general economic growth?

      • EnonZ says:

        I can’t say for sure as much of the necessary data is proprietary and things have to be estimated. I do think that there are strong indications this may be the case, which is why I raised it as a possibility. I hope our host returns soon and gives us his take on the matter.

        “A New Long Term Assessment of Energy Return on Investment (EROI) for U.S. Oil and Gas Discovery and Production”

        Also, take a look at this recent presentation from the CEO of Schlumberger, the largest oil services company in the world:

        The entire presentation is very interesting, but I’d like to bring your attention to the chart titled ‘Global Drilling Intensity Will Increase’. Look at the contrast in drilling intensity between Saudi Arabia and the U.S. – our drilling intensity is about a hundred times greater for about the same amount of gross production. That means the gross production figures are misleading and will become increasing so as we turn more and more to nonconventional sources of petroleum. If global oil production is relatively flat but drilling intensity is increasing, net energy growth will have to be constrained.

        It doesn’t matter if energy is cheap and abundant if people don’t have the money to spend. Besides, six months ago oil was expensive and abundant. Expensive enough to be a real drag on consumer spending, softening demand. Between the Saudis and the Russians producing all out, we now have a glut on the market. If they can keep this up, it will tend to drive out the higher cost producers.

        “Why do you think this factor [growth in net energy] is the ultimate driver?” That’s the most interesting question you’ve asked. Why wouldn’t you think available net energy is the ultimate driver of economic activity in any civilization?

      • fiftyohm says:

        EnonZ – let me look at the stuff you provided, and I’ll get back to you on that. Thanks.

        To answer your last question, I absolutely do believe available net energy is a primary economic driver. The question was, ” *growth* in the absolute net amount of energy”. I interpreted that to mean some sort of sensitivity of the economy to the first or second derivative of the supply in the absence of shortages. In other words, while the time may well come when energy is a limiting factor for growth, the current economy is not somehow ‘anticipating’ that.

      • Brent says:

        See “The Upside of Down” by Thomas Homer-Dixon. The entire book deals with the topic with specific calculations for today’s predicament… or tangentially Jospeh Tainer “Collpase of Complex Societies”.

      • fiftyohm says:

        OK – I reviewed the material.

        To begin, allow me an editorial comment on the first source. “Sustainability” is little more than a buzzword. That an actual journal would be devoted to ‘it’ would be surprising were it not for the fact that there are plenty of useless journals. The article was economics, pure and simple. The authors are involved in “environmental studies’, environmental science and forestry, and maybe one of them was a geologist. The first thing they do is tout this important-sounding thing called EROI. Well, that sounds way more important than ‘net yield’, now doesn’t it? And all that really is is production costs.

        The general thrust of the paper is to warn us of the alarming trend in decreasing net yields. Figure 1. shows this by the EROI metric, with that measure falling from 60 in the mid fifties, to around 8 today. Scary, huh? Not until it dawns on you that all this means is that production costs are up by ~12% as a result. EROI is nothing more than production amortized exploration, transportation, and drilling costs. In 1955 they were 1/60 of the price of the commodity. By about 1962 they were around 10%. So the drop in the EROI today has added perhaps an additional 5%. So what.

        I could mention transportation costs here, and how pipelines are by far superior to other methods from an EROI perspective, (as well as far safer), but every idiot knows that.

        On drilling intensity, again, this is a cost issue. US tight oil production will again be feasible when prices return to historical norms. Listen: I’m not suggesting that we will never ‘run out of oil’. Actually, I am. We will quit using it when it becomes too expensive. There are alternatives, as Chris has suggested. I do not think this will be a fundamental limit to growth anytime soon. Further, What is happening now doesn’t have anything to do with that potential. And that’s where we came in.

    • goplifer says:

      We seem to be a very long way from facing any constraints in our access to energy, and we are trending even farther away. Energy costs are declining and new forms of renewable energy are becoming more practical. Energy, like nearly every other product and resource in our economy, is growing cheaper – part of the broader deflationary trend.

      • EnonZ says:


        I find your take on things interesting, which is why I read this blog. You remind me of the Republican party back when I was a Republican (I worked on Nixon’s ’68 campaign before I was old enough to vote), before it became the largely Neo-Confederate party it is today.

        However, I don’t see how you can read Schlumberger’s CEO Paal Kibsgaard’s presentation that I linked to in replying to fiftyohm and maintain “We seem to be a very long way from facing any constraints in our access to energy . . .” He has to be one of the most informed men on the planet about energy and his presentation is full of constraints: increasing capex requirements and increasing drilling intensity yet relatively flat global production.

      • RobA says:

        Enonz – it’s a little too early to say, but it looks like the shale oil boom the US has undergone the past few years could be a global game changer.

        There are some caveats, of course (there is suspicion that fracked wells might, after an initial boost in production, fall.much quicker then expected). But those fears are receding every day.

        In the meantime, think abkut how much technology has changed the outlook for us oil production. And then extraplate that to the rest of the world. There is nothing unique about American oil formations that make only them appropriate for fracking. The fracking boom is centred on America for several reasons: one is that the technology is largely American and so it is largely confined to America right now. Another is that American oil production was mostly on its last legs. A country with a large amount of easy oil left to pump (Saudi Arabia, Russia etc) has no need or interest in fracking technologies. But there’s no reason to think that as these countries use up their traditional oil reserves over the next few decades that they won’t THEN be contracting out American companies with the know how to come in and start fracking THEIR wells.

        And of fracking can do this to depleted American oil wells, think what it would do to Saudi and Russian ones.

        Global oil production had been following a steady, predictable script for decades. There were no real surprises. Global reserves were getting depleted as predicted and Capex wqs increasing in a predictable manner. And then came.along the fracking boom, and everything we thought we knew might be wrong.

        And I’m not so sure thats a good thing. The best driver of renewable energy adoption and implementation is high carbon based energy costs.

        This fracking boom could conceivable depress prices for decades, if not more. And I’m not so sure the planet can hold out that long.

      • 1mime says:

        “Energy is becoming cheaper”

        Don’t forget the impact that competition with alternative energy sources is offering. These sources are also becoming more affordable and available and give people and businesses other energy choices. The question has been posed above about why people aren’t spending given that energy/fuel is less expensive and they have “more money in their pockets”. When you don’t have much money, whatever small amount you save in fuel costs is probably going directly to something necessary as opposed to “desirable”. I support alternative energy for many reasons and I also understand why people aren’t spending. Negative or negligible returns hardly stimulate investment demand, especially for the middle class.

        And, less we forget, the fossil fuel energy sector is a major employer. When rig count goes down, people get laid off. That may not fit the “net energy” model but it is a real consequence and definitely impacts the economy.

      • fiftyohm says:

        1mime – Alternative energy is not offering any competition to conventional fuels whatsoever. Without artificial pricing through tax credits and other dodges, no alternative energy comes close.

      • 1mime says:

        “Whatsoever” is a mighty broad term, Fifty. On that basis alone, you are incorrect. As for subsidies, fossil fuels have long enjoyed subsidies in many forms (See articles below.) Subsidies come in many forms and I think if they are judiciously applied, are important and desirable – even for fossil fuels. Alternative energy is in its infancy in the U.S. (other countries are waaay ahead of America in this arena) and it is and will be more and more competitive and will overtake fossil fuel because it’s cleaner, and will be cheaper in time. Here’s more on what is happening internationally and in the domestic U.S.

        I am not “against” fossil fuel but I am “for” alternative energy sources – big time. Until the alternative energy market becomes established, we need both energy sources.

      • RobA says:

        1mime – yes, AE is becoming cheaper…..but that does not happen in a vacuum. Resources must be spent on R&D to make those costs go down.

        In other words, RE costs do not come down because of time alone. It is time PLUS investment.

        The reason those billions of dollars have been pouted into RE development has been (IMO) almost solely related to high energy costs. with oil above $100 fo much of the last decade, THAT’S the driver of RE innovation.

        We may feel like declining costs are inevitable or just kind of happen. But if we’re in a new normal of sub $80 oil (and that could very well be the case. One of the top guys of Aramco, the Saudi oil company, recently said that we will likely never see $100 oil again 8n our lifetime) we may find that the overall trend of lowering RE costs could slow or even halt as companies are no longer nearly so inclined to pump dollars into R&D.

        Also, once the tech is developed that lowers costs, that’s only half of the equation. The other is consumer behavior, and again, the biggest factor is widespread adoption of clean techs tends to be high energy prices.

        I’m worried that depressed long term oil prices will hinder both discovery of new RE technologies and adoptions of existing ones.

      • 1mime says:

        You are correct in your concerns about cheap energy blunting investment in alternative energy, but the signs are there in favor of putting more R&D into sustainable energy sources (and other products as well). We will also be compelled for survival reasons….and, no, I’m not talking about the next “coming”, I’m talking about climate change/aka “global warming”. If nothing else, Americans are great at problem solving (not so much in Congress (-:) and industry and science will find a way to open minds and markets to sustainable energy.

        As Jim Cramer said this morning in a discussion about why Americans aren’t spending more given cheap fuel: “Since the Great Recession, America is a changed place. We are becoming a more frugal nation. People shop value, Dollar Stores….The major sector that has benefitted most from cheap fuel is the restaurant industry, not retail.”

        Interesting, no?

        I want the fossil fuel industry to be profitable but I also want America and the world to invest in the development and supply of alternative energy sources. Sustainability is here to stay, even if it has to compete. That is how supply and demand works, but we can encourage it as you said, by investing R&D funds into it to make it viable. This is not an area where you want to be late to the party.

    • 1mime says:

      Enon, just read the first part of a study on renewable energy sources that is being developed by TPM in 5 parts. Here’s part 1, for those interested in the subject.

      And, then there’s the fun, creative genius of those wacky proponents of renewable energy, the
      “Solowheel, which a Grist reporter describes as what you’d get if “a unicycle had sex with a Segway”” (Now that a description that gets one’s attention!)

      • EnonZ says:

        Thanks, 1mime

        Here’s a problem with this sort of reporting:

        “In the last two years alone, 4.3 GW of nuclear capacity has been retired.”

        “But in 2013, 1.1 GW and in 2014, 4.8 GW, of new wind capacity were also added in the US.”

        They are comparing apples and oranges. TPM does some good political reporting, but they are out of their area of expertise and make a common mistake. When they report “capacity” they mean “nameplate capacity” – the maximum amount of energy a facility can provide. That needs to be multiplied by the capacity factor, how much of the time that energy can actually be produced. That’s typically around 90% for a nuclear power plant but only about 20% to 40% for a wind farm.

        I see this sort of reporting as emphasizing the positive but glossing over some difficulties. Yes, wind and solar are growing rapidly but starting from a very small base and still dependent on systems that require large flows of fossil fuels. I find these energy flowcharts from Lawrence Livermore useful for visualizing the scale of the problem:

        I’ve done some back of the envelope calculations. Wind and solar are growing rapidly. Assuming we can keep the grid stable, they might be capable of generating half our electricity by the mid-2020s. But electricity generation is only about 40% of America’s energy flows so that’s only 20% of our needs. See the problem?

      • 1mime says:

        A valuable and constructive explanation, Enon. Thanks. I am not bothered by the small footprint of renewables. I am fine with a co-existence with fossil fuel as long as the environment isn’t indelibly harmed and as long as we continue to pursue alternative energy sources. We were in the oil field service sector for over 40 years so we appreciate the value of fossil fuel even as I have a particular interest in research and development in alternative sources. I hope you will follow the TPM study if it interests you and give us the benefit of your expertise and analysis of future parts. I want to learn more and I want the sources to be credible. Thanks for helping me in that regard. Keep the good info coming!

  10. fiftyohm says:

    I think it’s pretty fair to say that, whatever side of the spectrum you happen to be on, economics as has been practiced and tought, doesn’t work. ( In fact, it never has very well, as virtually all of the ‘soft sciences’ have so brilliantly demonstrated.)

    Certainly, the demand for zero or negative interest bonds is all about wealth *preservation* and nothing about growth. That is where I think the truth lies – fundamental lack of confidence in the future of the global economy.

    • unarmedandunafraid says:

      Fifty – “That is where I think the truth lies – fundamental lack of confidence in the future of the global economy.”

      That would mean an off or flat stock market because of the movement of capital out of the market? I’ll research that and get back to you.

    • fiftyohm says:

      It doesn’t mean that at all. Negative interest on what are perceived as ‘ safe’ harbors indicates that a substantial quantity of capital is unwilling to accept the risk in the stock market.

      I am, for example.

    • 1mime says:

      It’s hard for the average person to relate to those who invest in bonds with negative returns in order to preserve wealth. America used to pride itself on investing in its people so they would have opportunities to provide for their family and save for retirement. These people are struggling and they are afraid that Congress doesn’t have their backs. And, with good reason. The constant message from conservatives is “no new taxes”, more cuts to entitlement programs, slashing government program budgets and jobs, increasing defense at the expense of all else. All in the name of fiscal responsibility – until it’s their ox getting gored. The dichotomy of plutocrats focused on preserving wealth while being oblivious to the income disparity of America’s middle class and the working poor says it all.

      Corporations today are buying back stock (wealth preservation) rather than expanding their businesses (and thus creating jobs) or sharing profits with stock holders vis a vis dividends. Capitalism is becoming a rite of passage for the privileged few. It’s a closed loop.
      “Trickle Down Economics” has primarily benefited those at the top – the same people who insist on no new taxes to doubly assure their wealth preservation which they’re backing up with bond investments with negative returns. Ironic, isn’t it?

      • fiftyohm says:

        What is ironic is that I have no idea what you just said, other than a bunch of leftist word salad. Economics doesn’t give a damn about politics. Politics can sure reduce economic output, and dampen growth, but ideology is irrelevant. The economy *is*, and human motivations *are*, regardless of what you would wish them to be.

      • 1mime says:

        Well, hello fellow night owl. Economics may not give a damn about politics but politics is reel interested in economics. I’ll be sure to pass your thoughts along to old Grover…

      • RobA says:

        Excellent post 1mime

      • 1mime says:

        Thanks Rob, Glad it made sense to you….

      • RobA says:

        Seemed pretty clear to me.

        Almost all investment strategies can be broadly classified into two very large groups. I’ll call them (for lack of better terms): Return ON investment and return OF investment.

        Typically, risk and reward are high inversely correlated to each ither. The more risk we take on, the bigger the potential reward.

        A real world example of this would be an investment advisor advising a young, high earning client to overweight their portfolio in riskier assets, such as stocks/emerging markets etc. That’s an appropriate strategy as due to their age/length of time to retirement a return on investment strategy makes order to build up that nest egg. There’s more risk, but much high potential for profits. OTOH, that same.advisor would likely have much different advice for an elderly lady 3 years from retired with $1 million in a retirement fund.

        For her, since her earning days are almost behind her, a large drawdown of her portfolio would be cats tropic. She needs to love off of what she’s built up, and so she is much more worried with return OF her capital, and not return ON it. She’ll adopt a much more conservative/low risk strategy, such as AAA rated debt or money mart funds. Nothing that is going to increase the size of her portfolio, but she is almost certain not to lose it either.

        If we extrapolate those individual concepts to the national level, what 1mime is saying (and correct me if I’m wrong here) is that for most of American history, it has bheaved like the first example. A young, high earning investor willing to take on risk in order to grow the nest egg. One could argue this strategy has paid off immensely and this culture of investing in the future is at least partly responsible for Americans building the wealthiest, most powerful society in the history of the world.

        It seems like much of whatwe see now is effectively the same strategy as the second example. No taxes, unprecedented company share buybacks,unprecedentedly low corporate Capex and r & spending are all wealth preservation strategies that will preserve the wealth for those who already have it, but is strangling America of the risk seeking investments that will propel growth for the next generation.

        It could be argued that these policies, if they take hold over the long term, could almost eliminate upward mobility and help strangle the American Dream.

        It’s almost like the 1% (using their henchmen The Republican Party) is saying to thw rest of us “ok, games over. We won. The gates closed and if you’re in, you’re in and if you’re out, you’re out. The times to MAKE your fortune are now done. We’re going to shift policies that will much favor those who already have theirs and aim to keep it”

        For a society to continue to grow, it must keep investing in itself. That means education (this is a universal truth. The more educated a society is, the wealthier it will be), health care (a sick and diseased population is not an innovative and dynamic one. contrary to GOP scare mongering, mentally and physically healthy individuals who are satisfied doing nothing and happy to abuse the welfare system are the very rare exception to human behavior, not the rule) and infrastructure.

        All of these things cost money. And governments only revenue stream is taxes. That’s an unfortunate fact, but a fact nonetheless.

        Brownbacks dystopian experiment shows on the state level what the GOP would do on the national level if given the chance: cut taxes to almost nil, and slash education and social programs to thw bone. this is great for those with wealth already. However it will destroy growth and future prospects for the 99% who are not wealthy yet.

        ironically, these fools will be killing their own golden goose. It was a healthy consumer economy that created the vast majority of these people’s wealth. And that economy was driven by the spending of the middle class. GOP policies will destroy the middle class, and eventually, the 1% along with it.

      • 1mime says:

        Rob, this is great! You said it so much better than I did. Of course we agree, hence my enthusiastic support (-:

        We keep dancing around the “demand” issue but that’s what it all boils down to. People who are barely making it, will spend only for necessities. They will not be consumers of other goods. They can’t afford to. Business is shooting itself in the foot by not recognizing that they are killing off their market. They may be able to preserve wealth for a generation, but their heirs might not do so well. And, that’s just the self-serving impetus. The more compelling reason (even if business doesn’t see it), is paying people a decent, livable wage is the right thing to do.

      • fiftyohm says:

        RobA – Alright, you seem to know more than nothing regarding economics. Heresy an assignment: Calculate the Present Value of Social Security and Medicare benefits to the entire population of the country. Then get back to me with your assessment of wealth redistribution as practiced in this country. If you can’t do that, or fail to see the point, you’re a pup.

        By the way, I was shocked to read today that fully half- 50% I tell you, of all people in Sweden fall below the median income there! What do you think about that, eh?

      • unarmedandunafraid says:

        Roba – I really like some of the auto correct sentences. ” a large drawdown of her portfolio would be cats tropic.” assuming she has cats that like it warm.

        Fifty – “Heresy an assignment:” and make it real blasphemy.

      • 1mime says:

        Yep, typing and auto spell check can provide some unintended humor…..and, all those glass houses…..need to be careful when we throw stones (-:

  11. BigWilly says:

    Is the correlation between employment and interest/inflation in error? Money supply is a basic Keynesian idea, you don’t need specialised education to see that in the Fed’s money policies.

    There’s no shortage of money.

    So I think that Keynes style policies might be in order, but not without consideration of other ideas and models like Hayak, and more recently Laffer.

    You can’t have Laffer without Keynes. You’re just shifting the curve with the supply side driving it. A libertarian model assumes that when given the choice people will do the right thing. It takes the G out of the equation. That could go anywhere.

    • fiftyohm says:

      Big G or little g, Big. I don’t think the Big G has anything to do with it. ( Unless you believe…awww, forget it…)

  12. Bobo Amerigo says:

    Mr. Lifer,

    Can you provide some examples of significant players in your innovation economy?



    More usable energy from wind and sun?

    Any company that markets 100% online?

    This inquiring mind would like to know.

    • 1mime says:

      Facebook? Twitter? Cloud computing? Tele-medicine?

    • goplifer says:

      VMware, Amazon, EMC, Google, Cloudera,, ServiceNow and hundreds others that run almost entirely on pushing the limits of technology.

      A few interesting characteristics of these places: None of them offer defined benefit pensions. They pay wages they are much higher than average, and include opportunities for a large percentage of their employees to earn wages in the top few percentiles with additional access to capital. You’d be surprised how few of their employees have STEM degrees. They don’t employee a lot of people in comparison to their revenue rates. And they make their living demolishing established business models that were profitable and successful until very recently.

      • Bobo Amergio says:

        Interesting list and characteristics. Thanks.

        Personally, I consider google’s dominance to be oppressive and would welcome an effective disruptor of their hold on the internet.

  13. Cpl. Cam says:

    ” All over theworld nowyoucanenjoy the privilegeof buying government debt that pays you a negative yield. In effect, you are paying a small premium to the issuing government for the privilege of carrying their debt. This is, let’s just say,anunusual condition.

    In Switzerland your bankwill charge you money for holding large deposits. Chaseis trying tostart doing the same inthe US.”

    Ian Welch talks about this a lot. Says it seems to be a product of a select few people having so much money it’s easier to pay a small storage type fee than invest it. Also says what ever inflation exists is showing up in Manhattan real estate and luxury yacht prices…

  14. unarmedandunafraid says:

    Is this another early symptom of the singularity?

    Will our political system keep up?

  15. EnonZ says:

    Is it a possibility that, as we turn to more difficult to extract oil and oil-like sources of petroleum, the growth in the absolute amount of net energy available to society is slowing? This would be a brake on economic growth.

    • fiftyohm says:

      Um – no. Oil and gas are at historic lows in constant dollars. How does your suggestion follow?

      • EnonZ says:

        It follows from the nature of net energy. Much of the employment growth of the last few years is in fracking, a much more energy intensive method of mining petroleum than conventional oil extraction. That simply leaves less energy (the net) for the rest of society to use to create wealth (or maintain wealth already created). Thus it shouldn’t be surprising that labor force participation is low and wage growth is flat. It doesn’t matter if prices are low if people don’t have money to spend.

      • fiftyohm says:

        So if energy prices are low, where is the money these people are supposed to be spending going? Not to energy, apparently – which seems to be your thesis.

    • 1mime says:

      Enon, I think supply and demand is pricing the energy market If anything, fracking has proven that new drilling methods can successfully increase production of fossil fuels. Another major factor is the emergence of alternative energy sources which is especially important to younger people, is growing in other industrialized nations as the “fuel of choice”, and appeals to a growing cadre of environmentalists.

      One of the great things about the energy industry is that it has a huge capacity for re-inventing itself. Tough times right now but it is a very cyclical industry and the big players know how to survive.

  16. RobA says:

    Interesting topic and should provide for a refreshing change of pace down here in the comments section.

    What I find most fascinating is that this is the exact OPPOSITE of what was predicted by so many and what was causing all the angst with regards to QE.

    QE 1 through 4 was supposed to be “money printing” created Weimar repiblic style inflation and it doesnt look like that’s going to be the case.

    I guess the defining feature of finance Is that even the smartest ppl in the world have no actual clue what’s going on in real time. Things are only ever understood in retrospect.

    • fiftyohm says:

      Y’know – it just might be that Swiss francs, (and greenbacks, if you’ve looked at rates lately), just suck less that other places to park wealth. What are you gonna buy? Euros? I don’t think so. The renminbi? (It’s illiquid crap.). What then? Yen? Hardly. It’s a race to the bottom, if you ask me.

    • moslerfan says:

      Rob, many people understood that QE would not create Weimar/Zimbabwe or even Greece. On the other hand, QE was always a poor way to stimulate spending, which is what was needed as the private sector pulled back on consumption when their home equity disappeared. Simply creating money that sits in reserve accounts doesn’t do a good job of stimulating demand. On the other hand, it doesn’t create inflation either. It does (did) drive demand for reserves (and therefore interest on reserves) to zero. Where I believe they will be for a good long while.

      But wouldn’t it be nice if those who were so wrong would don sackcloth and ashes and stop running their pieholes on TV and on the internet?

      • RobA says:

        Good points, this is my understanding as well of QE.

        It didn’t create inflation in the same way that dumping a bilion gallons of water behind a dam will not cause a flood downstream.

        The money needs t get into the order to create inflation, and the big banks have acted as the dam.

        QE looks,to me, do be a giant wink, wink, nudge, nudge to the world’s 1%. A way for the wealthiest people in the world to put their money to work in a rigged game that everyone knew was rigged and you couldn’t lose.

        It’s the allegorical equivalent to a casino inviting all the high rollers down to play roulette on a table that only has Black 31 on the wheel.

        As long as QE wqs going on, you couldn’t lose. I’m not sure that was the INTENT (although it might have been) but it certainly was the effect.

  17. stephen says:

    Common sense tells me that if you have deflation either you had a huge surge in productivity beyond what people can or want to consume or demand has fallen off. People like to consume things so I doubt that productivity is the cause. I agree with Professor Krugman’s idea that demand has fallen. And that is due to the income and wealth inequalities. The majority of us do not have enough money to consume all or at least a big portion of what we are capable of creating. You could have the government tax and redistribute to solve this dilemma. Or create conditions where workers could barter for a bigger share of their labour. I am an old fashion conservative and the latter is what I would prefer. And if conservatives do not start pushing for the latter eventually the former is going to happen.

    • RobA says:

      redistribution of wealth needs to be a priority.

      The fact of the matter is, trickle down economics doesn’t work. giving the wealthiest ppl more money does nothing to help the overall economy.

      I read an interesting post by Krugman where he gives some clear and concise real world scenarios that explain why. In a consumer driven economy, the only thing that keeps us going is, naturally, consuming. And while the rich tend to consume more goods per capita, there is still a limit. Rich ppl still only sleep on one mattress, for example. They only eat on one table (at a time). Sure, because of bigger homes and more disposal le income, they might have a few more of these specific goods then a middle class person (they might have 3 cars 8nstead of 1, for example).

      At the end of the day, $100,000 given to 10,000 people is going to create far, far, far, fat, far more overall economic consumption then if that $1 billion was in the hands of one person.

      That’s why I equality is so crippling and danger us and needs to be combated. Not because it’s unfair and injust (although it sometimes is) but because it’s bad for society as a whole. Ironically, it’s even bad for the 1% who would soend a considerable amount of their fortune FIGHTING redistribution policies.

      • 1mime says:

        You got it right, Rob. People who are barely getting by despite working hard, simply don’t have disposable income. Hence – demand falls. Why is that so surprising? We’ve talked many times about Henry Ford’s philosophy that he wanted to pay his workers enough so they could afford to buy the car they manufacture. This ain’t rocket science. Couple stagnant income/wages with longevity and there are going to be huge numbers of Americans who will live in poverty with no hope to get out. Income inequality has no redeeming upside.

        Geez! Think I’ll fix a mimosa and hang out on the porch and forgetaboutit…..

      • RobA says:

        My porch is always open 1mime 😉

      • 1mime says:


      • fiftyohm says:

        Sorry 1 mime. Mimosas require champagne, and we need to redistribute that sort of wealth.

        Oh well…

      • 1mime says:

        I’m all in for redistribution, 50. You bring the champagne, I’ll bring the OJ (-:

      • fiftyohm says:

        Nope. In your world, I can’t have any either. Sucks, doesn’t it?

    • moslerfan says:

      Stephen, you’re exactly right. Having 1% of the people hoard all the money is not the way to grow the economy. And, as billionaire Nick Hanauer has observed, “Show me a highly unequal society and I’ll show you a police state, or a revolution. There are no counterexamples.”

  18. 1mime says:

    Individual investors who normally hold bonds for security in a retirement portfolio are facing low yields not only from bonds but from dividends and moribund interest rates. And, all of this is happening at a time when more are living longer and need to protect or grow savings, (depending upon where they are in the life cycle).

    The NYT piece by Paul Krugman brought up a really interesting point about individual economic perception. The preponderance of “think tanks” being financed by the uber-wealthy and highly political foundations are creating an economic reality for an “… audience..(who).. doesn’t want actual insight, it just wants affirmation of what it wants to hear, and it doesn’t care how embarrassingly you screw up as long as you’re ideologically on the right side.”

    Indeed, “where the hell is inflation”? What has caused “this economic growth… to near-90’s levels”. Does anyone even care as long as the economic message they subscribe to is painting either a very rosy picture, or, if politically expedient, a depressingly pessimistic one?
    What to do? Who to believe?

    Does the emperor have any clothes?

  19. MikeTeeVee says:

    According to Paul Krugman (and others), we know exactly now to deal with this scenario, except for (as usual) the politics:

    • goplifer says:

      While I think Krugman’s solution would probably be less damaging than the route we’re taking, I don’t get the impression that he understands the problem any better than other economists. Basically, I think the profession as a whole is behind the envelope, unwilling as of yet to recognize the ways that new economic forces have changed the shape of the game.

      • 1mime says:

        Lifer, to what extent can economists realistically make observations given how interconnected the world economy is? Assuming your theory is correct: i.e., society innovates in tandem with deflationary tendencies, we are all inextricably linked economically. What happens in Greece – what happens in America – impact financial markets everywhere. How can anyone plan in a vacuum?

        Two of our GOP presidential candidates (Cruz, Paul) announced that they have signed pledges to …” oppose or veto any proposal to raise taxes if they win the White House.”

        You can always depend upon Grover Norquist’s crystal ball. Who needs economists?

      • goplifer says:

        They need new models. The old, reductive approach developed in a much less complex world. A new generation of economists is beginning to explore the science of evolution to find clues to predicting the behavior of complex organic systems like an economy.

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