tag:blogger.com,1999:blog-5154389358831836369.post7923547374112145102..comments2024-03-28T02:00:36.854-04:00Comments on The Slack Wire: Debt and DemandJW Masonhttp://www.blogger.com/profile/10664452827447313845noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-5154389358831836369.post-87128162873339923402019-12-17T17:07:35.312-05:002019-12-17T17:07:35.312-05:00PLEASE READ!!Hello Guys!!! I am Caro I live in Ohi...PLEASE READ!!Hello Guys!!! I am Caro I live in Ohio USA I’m 32 Years old, am so happy I got my blank ATM card from Adriano. My blank ATM card can withdraw $4,000 daily. I got it from Him last week and now I have withdrawn about $10,000 for free. The blank ATM withdraws money from any ATM machines and there is no name on it because it is blank just your PIN will be on it, it is not traceable and now I have money for business, shopping and enough money for me and my family to live on.I am really glad and happy i met Adriano because I met Five persons before him and they could not help me. But am happy now Adriano sent the card through DHL and I got it in two days. Get your own card from him right now, he is giving it out for small fee to help people even if it is illegal but it helps a lot and no one ever gets caught or traced. I’m happy and grateful to Adriano because he changed my story all of a sudden. The card works in all countries that is the good news Adriano's email address is adrianohackers01@gmail.comCaro Williamshttps://www.blogger.com/profile/07069629319338780440noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-30130517086262914962019-12-08T20:40:09.324-05:002019-12-08T20:40:09.324-05:00PLEASE READ!!Hello Guys!!! I am Caro I live in Ohi...PLEASE READ!!Hello Guys!!! I am Caro I live in Ohio USA I’m 32 Years old, am so happy I got my blank ATM card from Adriano. My blank ATM card can withdraw $4,000 daily. I got it from Him last week and now I have withdrawn about $10,000 for free. The blank ATM withdraws money from any ATM machines and there is no name on it because it is blank just your PIN will be on it, it is not traceable and now I have money for business, shopping and enough money for me and my family to live on.I am really glad and happy i met Adriano because I met Five persons before him and they could not help me. But am happy now Adriano sent the card through DHL and I got it in two days. Get your own card from him right now, he is giving it out for small fee to help people even if it is illegal but it helps a lot and no one ever gets caught or traced. I’m happy and grateful to Adriano because he changed my story all of a sudden. The card works in all countries that is the good news Adriano's email address is adrianohackers01@gmail.comCaro Williamshttps://www.blogger.com/profile/07069629319338780440noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-2918663954521640472014-01-05T07:48:12.080-05:002014-01-05T07:48:12.080-05:00Whoops I get it now (I hope).
However it seems to ...Whoops I get it now (I hope).<br />However it seems to me that it isn't high inflation that does the trick, but rather higer than expected inflation that erodes debt/old interest/adds to demand, while lower than expected inflation adds to the debt burden/increases old interest in real terms/potentially subtracts from demand.<br />This is a problem from a policy point of view, because you can't really beat inflation expectations upward everytime (though having a bout of inflation today would be great news, as long as it is the classic wage driven inflation).Random Lurkerhttp://gemito2073english.blogspot.it/noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-83417037249535257382014-01-05T00:37:05.117-05:002014-01-05T00:37:05.117-05:00Yes, I guess you can say that ceteris paribus a re...Yes, I guess you can say that ceteris paribus a reduction in borrowing will translate into a reduction in consumption and housing demand. But it's a mistake to apply that reasoning to concrete historical data, because cet. is not par. JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-18123667888245219322014-01-05T00:34:39.675-05:002014-01-05T00:34:39.675-05:00Yes, it does.
The K-K position is that if debt r...Yes, it does. <br /><br />The K-K position is that if debt ratios were rising at, say, 2% a year over 1983-2007, and we expect them to be flat going forward, then we need G or X-M to be 2 points higher to make up for the lost demand. (from debt-financed household expenditure.) But that assumes that interest, growth and inflation rates are the same in the future as they were over that period. If there is also reason to think that nominal interest less nominal growth rates will be 2 points lower in the future than in the 1983-2007 period, then stable debt ratios do not imply any reduction in demand. More generally, to the extent that historical variation in debt ratios is driven by changes if inflation, growth and interest rates, it's not informative about the sources of demand. JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-34118094240167658062014-01-04T21:15:23.979-05:002014-01-04T21:15:23.979-05:00If I get tour point correctly, you say that, to na...If I get tour point correctly, you say that, to nave an increase in total debt, it is not necessarious that households go in a consumption binge: it suffices that, holding consumption fixed, real interest rate increase.<br />This is important when one analises the cause of the increase of debt.<br />However, as anonymous notes above, if households couldn't increase their debt level, they would have been forced to lower consumption at a 1 to 1 ratio to de debt that they instead incurred in, so from this point of view new debt still added directly to consumption.<br />So while you are correct, this doesn't change the Keen/Krugman hypothesis IMHO.Random Lurkerhttp://gemito2073english.blogspot.it/noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-50353095661842428932014-01-04T12:29:09.418-05:002014-01-04T12:29:09.418-05:00The difference is because Arjun and I are not look...The difference is because Arjun and I are not looking at market rates, but effective rates -- that is, total interest payments divided by the outstanding flow of debt. That's the appropriate measure for this kind of accounting exercise. Effective rates fell much more slowly than market rates, partly because of the existing stock of fixed-rate debt, partly because of a shift in the composition of debt toward higher rates.<br /><br />Arjun and I have another paper we're working on that explores this question specifically. Why have average rates faced by households (and nonfinancial business remained high) when headline rates have come down so much?JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-57404462628745664002014-01-03T21:09:41.323-05:002014-01-03T21:09:41.323-05:00(Second paragraph, first line, your "recent w...(Second paragraph, first line, your "recent work" link returns an error page.)<br /><br />JW,<br />From your second paragraph: "We show in our paper that the entire post-1980 rise in household debt ratios can be explained, in an accounting sense, by higher real interest rates."<br /><br />In <a href="http://www.interfluidity.com/v2/4831.html" rel="nofollow">Standards of evidence</a> Steve Waldman writes: "Real interest rates have collapsed since the early 1980s."<br /><br />And again, in his earlier <a href="http://www.interfluidity.com/v2/3830.html" rel="nofollow">Inequality and demand</a> SRW shows a couple graphs and describes "the slow and steady decline in real rates that began with but has outlived the 'Great Moderation'."<br /><br />It sounds like you are disagreeing with Steve Waldman on the direction of real rates. Does the contradiction arise because you are looking at real interest rates relative to growth rates, while Waldman is looking at real rates relative to the history of real rates?<br /><br />Even when I take Waldman's real interest estimate MORTG - MICH and subtract from it the rate of real GDP growth, <a href="http://research.stlouisfed.org/fred2/graph/?g=qAM" rel="nofollow">I still see a downtrend.</a> <br /><br />Can you explain the contradiction for me?<br /><br />ps, I put up a couple <a href="http://newarthurianeconomics.blogspot.com/2014/01/jw-masons-debt-and-demand-1-particle.html" rel="nofollow">short</a> <a href="http://newarthurianeconomics.blogspot.com/2014/01/jw-masons-debt-and-demand-2-door-number.html" rel="nofollow">posts</a> related to yours here.<br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-11462208661691217912014-01-03T14:31:25.232-05:002014-01-03T14:31:25.232-05:00Oh hey also would you mind using a handle of some ...Oh hey also would you mind using a handle of some kind? JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-44000424854023445332014-01-03T14:30:19.261-05:002014-01-03T14:30:19.261-05:00It seems to me that the most relevant counterfactu...<i>It seems to me that the most relevant counterfactual to ponder is what would have happened to final demand had households devoted more of their incomes to paying down debt post-1980 , such that debt/gdp remained at the 50% level. I have to think that would have had some negative effect on consumption.</i><br /><br />Households did devote more of their income to debt service after 1980, and this did have a negative effect on consumption and residential investment. That's the whole point.<br /><br /><i>Also missing from this discussion is the effect of the distribution of debt , as noted by Cynamon et al and others. Aggregate debt ( and consumption ) dynamics are by definition not the same for disparate groups within that aggregate. </i><br /><br />This is what people say every time I present this work. It is possible that more unequal distribution of income contributed to higher new borrowing in the housing bubble period -- tho it needs to be shown more rigorously than I think it has been so far, even by Fazzari and Cynamon (whose stuff I like a lot). But for the 1980s, I don't think there is a consistent way to tell that story. <br /><br /><i>within , say , the bottom 80% of the income distribution , it's unlikely that "purchase of financial assets " accounted for much of the non-demand expenditure , ever.</i><br /><br />I wouldn't be so confident. The biggest piece was reduced transactions accounts. But yes, in general the bottom part of the distribution isn't contributing much to any of the financial aggregates.<br /><br /><i>Do you really not understand why the mainstream would welcome this paper with open arms ?</i><br /><br />I don't. Explain?<br /><br />Anyway, from my point of view the interesting thing is that this is a paper with no econometrics, no discussion of optimizing by anybody or of welfare or utility, no formal modeling of any kind. So at least methodologically it seems well outside what we think of as "mainstream" economics.JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-85095880729670995792014-01-03T14:14:21.508-05:002014-01-03T14:14:21.508-05:00Yes, you could regard a default as a paired source...Yes, you could regard a default as a paired source and use of funds. It's just a convention not to do so. But I think it's a helpful convention.<br /><br />On the credit card example of course you are right and this is an important point -- even households today routinely operate on the liability side as well as the asset side of their balance sheets. This is a change since the mid-20th century, when there was a very small number of transactions -- basically home and auto purchases -- which households could finance by issuing new liabilities. Among other things, the existence of transaction credit means the idea of a quantity of "money" is not applicable to modern economies. <br /><br />None of this matters for the point I'm making in this post, tho, I don't think.JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-75405922063294069712014-01-03T02:09:46.594-05:002014-01-03T02:09:46.594-05:00It seems to me that the most relevant counterfactu...It seems to me that the most relevant counterfactual to ponder is what would have happened to final demand had households devoted more of their incomes to paying down debt post-1980 , such that debt/gdp remained at the 50% level. I have to think that would have had some negative effect on consumption.<br /><br />Also missing from this discussion is the effect of the distribution of debt , as noted by Cynamon et al and others. Aggregate debt ( and consumption ) dynamics are by definition not the same for disparate groups within that aggregate. For example , within , say , the bottom 80% of the income distribution , it's unlikely that "purchase of financial assets " accounted for much of the non-demand expenditure , ever.<br /><br />" This has caused some adjustment in my view of the permeability of the "mainstream-heterodox" divide....."<br /><br />Do you really not understand why the mainstream would welcome this paper with open arms ?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-28701010596477908272014-01-02T17:53:31.563-05:002014-01-02T17:53:31.563-05:00Agree as per my second comment which didn't no...Agree as per my second comment which didn't notice your January 2, 2014 at 5:13 PM<br /><br />However this is not as trivial. <br /><br />For something to be a "source of fund", there needn't be an actual flow of money in one's person's bank account - for example a credit card usage to consume is a source and a use, respectively. <br /><br />Defaults is also a default on the principal. So I can think of a person consuming everything he earns and defaulting on a house loan in one period. So one could say his net incurrence of liabilities (net borrowing in your terminology) is negative and this is balanced in the financial account with a flow of default. <br /><br />I guess the 2008 SNA (which I like) doesn't do it like that and instead records writeoffs in the "other changes in the volume of assets accounts". Ramananhttps://www.blogger.com/profile/11123448543333785121noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-86794339463957033532014-01-02T17:18:25.751-05:002014-01-02T17:18:25.751-05:00Or maybe not! - depends on how one defines the ter...Or maybe not! - depends on how one defines the terms in the equations... so. Ramananhttps://www.blogger.com/profile/11123448543333785121noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-40376731928791211562014-01-02T17:13:37.326-05:002014-01-02T17:13:37.326-05:00Ramanan,
I don't think so. Default reduces th...Ramanan,<br /><br />I don't think so. Default reduces the subsequent flow of interest payments, but it doesn't itself constitute a source (or use) of funds. JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-5324480644351643812014-01-02T17:08:22.178-05:002014-01-02T17:08:22.178-05:00Nice post.
By the way since you are talking of d...Nice post. <br /><br />By the way since you are talking of defaults, the sources/uses of funds equation will need to be modified to include defaults. Ramananhttp://www.concertedaction.comnoreply@blogger.com