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What bothers me more than anything outside of the conflation of "assets" such as stocks and bonds as indicators of actual economic "growth" is that they are pla

What bothers me more than anything outside of the conflation of "assets" such as stocks and bonds as indicators of actual economic "growth" is that they are placing an inter-generational bet: They are using money today which must be paid back tomorrow. The people who stand most to benefit are adults today. The people who stand most to lose are their children's children.

RobertoG 10y ago
"They are using money today which must be paid back tomorrow." That reasoning doesn't support examination. The adults of today use the real resources of the economy of today. The adults of 50 years from now, will use the resources of the economy of their time. If we are worried about the people of the future, we will try to create real resources (knowledge and technology specially) that they can use, and we will worry less about debt. In fact, we should be using debt to create those resources as fast as possible.
- nugget 10y ago
  In your description a debt created in return for consumption today and honored in the future is like a wormhole in space-time. Unlike iron or steel, personal labor is a real resource capable of time travel. A psychiatrist can work 40 hours or 80 hours this week. Presumably society is better off if he works 80, so we promise him more money (future demand) in return for his services now (supply pulled forward, especially if he retires earlier than he otherwise would). In theory, as you imply, future generations are better off since you have "accelerated" economic development which is usually net positive. In reality, taken to the extreme, you wake up one day and find that you have been born into a world of neonatal debt slavery to retired psychiatrists who you never met and (especially without population growth) the entire system collapses and reboots. This describes Japan: a country with 300% debt to GDP and flat to declining population, where babies are born into a headwind of sovereign debt.
  - RobertoG 10y ago
    You complicate the issue too much. What would you prefer, to live in a Somalia with 0% public debt or in a Japan with 300% public debt? And why? Because in one there is real infrastructure and knowledge and the other not so much. Or if we want to go all science fiction. In what future do you prefer to live? One with economic fusion, artificial intelligence, and robots that do the entire job but a 300% debt or a future of 0% debt and less technology or infrastructure that today. Debt is a political arrangement and organizational issue. Real wealth comes, surprise, from real wealth.
    - nugget 10y ago
      You aren't wrong. I believe in economic acceleration but there is a limit to how far you can take it, which we are now testing with ZIRP. In this case the central banks kept their feet on the gas pedals too long out of political fears of a global depression. Global depressions suck but they are also very useful in that they create healthy periods of intense asset reallocation to prevent malinvestment. Did (largely successful) Japanese attempts to prop up their economy in the 90s and 00s prevent more acute pain but also kill an entire generation of Japanese entrepreneurs who would have cut their teeth with blood in the streets? Instead of healthy reallocation, we have far less targeted broad asset inflation in an attempt to keep economic acceleration going when we are already near the point where GDP growth equals debt service requirements and I don't think it ends well. It's also interesting that ZIRP screams ''maximize your human capital'' at the same time that automation threatens opportunities for the bottom rungs of the work force, and it's not clear how that dilemma will be resolved.
toomuchtodo 10y ago
Yes! You've hit the nail on the head! QE is indentured servitude of future generations. Inflate assets younger members of society need (housing) or are expected to purchase for retirement (equities), profit.
- simonh 10y ago
  It's just the latest in a trend. Generous final salary pensions, inflationary tax breaks and support for first time buyers, arguably even high spending on geriatric health care. It all drives up prices and costs for the tax payers of the future. Shame they don't have any votes to cast in today's elections.
  - poof131 10y ago
    I believe some of them do and that’s a major reason populist politicians are becoming in favor. Would be interesting to see the average asset ownership between supporters of the traditional candidates Clinton/Cruz and outside candidates Sanders/Trump. My guess is that the bases for the latter candidates (young/working-class) have a lot less ‘ownership’ and wouldn’t care too much if the stock market and home prices where cut in half.
    - TorKlingberg 10y ago
      At least in the UK the populist UKIP gets a lot of votes from old people.
  - rndmind 10y ago
    Well... the federal elections are not democratic ( electoral college ) I lament this point because ... bush vs. al gore is still a sore subject, and the federal reserve is a private institution. Not to mention the supreme court justices are not elected.
    - simonh 10y ago
      I'm a Brit so not my business, but hey it's the internet. Over here none of our Judges are elected, and I think that's a very good thing. They are professionals, not politicians. The SCOTUS Justices are appointed, questioned and confirmed by elected representatives. I really don't see why that isn't enough. Voting directly for judges, based on their statements or track record on how they interpret the law, is far too close IMHO to holding referendums on whether people are guilty or innocent. Judges are required to serve the law. Making them beholden to an electorate and asking them to serve both masters is abhorrent to the basic principles of justice. The statue over the Old Bailey is blindfolded for a reason.
ArkyBeagle 10y ago
See also "The Greatest Generation." They presided over the largest expansion of Federal debt in (at least recent ) history. Y'know, WWII? Things were fine. What's needed is GDP growth.

RobertoG 10y ago

"They are using money today which must be paid back tomorrow." That reasoning doesn't support examination. The adults of today use the real resources of the economy of today. The adults of 50 years from now, will use the resources of the economy of their time. If we are worried about the people of the future, we will try to create real resources (knowledge and technology specially) that they can use, and we will worry less about debt. In fact, we should be using debt to create those resources as fast as possible.

nugget 10y ago
In your description a debt created in return for consumption today and honored in the future is like a wormhole in space-time. Unlike iron or steel, personal labor is a real resource capable of time travel. A psychiatrist can work 40 hours or 80 hours this week. Presumably society is better off if he works 80, so we promise him more money (future demand) in return for his services now (supply pulled forward, especially if he retires earlier than he otherwise would). In theory, as you imply, future generations are better off since you have "accelerated" economic development which is usually net positive. In reality, taken to the extreme, you wake up one day and find that you have been born into a world of neonatal debt slavery to retired psychiatrists who you never met and (especially without population growth) the entire system collapses and reboots. This describes Japan: a country with 300% debt to GDP and flat to declining population, where babies are born into a headwind of sovereign debt.
- RobertoG 10y ago
  You complicate the issue too much. What would you prefer, to live in a Somalia with 0% public debt or in a Japan with 300% public debt? And why? Because in one there is real infrastructure and knowledge and the other not so much. Or if we want to go all science fiction. In what future do you prefer to live? One with economic fusion, artificial intelligence, and robots that do the entire job but a 300% debt or a future of 0% debt and less technology or infrastructure that today. Debt is a political arrangement and organizational issue. Real wealth comes, surprise, from real wealth.
  - nugget 10y ago
    You aren't wrong. I believe in economic acceleration but there is a limit to how far you can take it, which we are now testing with ZIRP. In this case the central banks kept their feet on the gas pedals too long out of political fears of a global depression. Global depressions suck but they are also very useful in that they create healthy periods of intense asset reallocation to prevent malinvestment. Did (largely successful) Japanese attempts to prop up their economy in the 90s and 00s prevent more acute pain but also kill an entire generation of Japanese entrepreneurs who would have cut their teeth with blood in the streets? Instead of healthy reallocation, we have far less targeted broad asset inflation in an attempt to keep economic acceleration going when we are already near the point where GDP growth equals debt service requirements and I don't think it ends well. It's also interesting that ZIRP screams ''maximize your human capital'' at the same time that automation threatens opportunities for the bottom rungs of the work force, and it's not clear how that dilemma will be resolved.

toomuchtodo 10y ago

Yes! You've hit the nail on the head! QE is indentured servitude of future generations. Inflate assets younger members of society need (housing) or are expected to purchase for retirement (equities), profit.

simonh 10y ago
It's just the latest in a trend. Generous final salary pensions, inflationary tax breaks and support for first time buyers, arguably even high spending on geriatric health care. It all drives up prices and costs for the tax payers of the future. Shame they don't have any votes to cast in today's elections.
- poof131 10y ago
  I believe some of them do and that’s a major reason populist politicians are becoming in favor. Would be interesting to see the average asset ownership between supporters of the traditional candidates Clinton/Cruz and outside candidates Sanders/Trump. My guess is that the bases for the latter candidates (young/working-class) have a lot less ‘ownership’ and wouldn’t care too much if the stock market and home prices where cut in half.
  - TorKlingberg 10y ago
    At least in the UK the populist UKIP gets a lot of votes from old people.
- rndmind 10y ago
  Well... the federal elections are not democratic ( electoral college ) I lament this point because ... bush vs. al gore is still a sore subject, and the federal reserve is a private institution. Not to mention the supreme court justices are not elected.
  - simonh 10y ago
    I'm a Brit so not my business, but hey it's the internet. Over here none of our Judges are elected, and I think that's a very good thing. They are professionals, not politicians. The SCOTUS Justices are appointed, questioned and confirmed by elected representatives. I really don't see why that isn't enough. Voting directly for judges, based on their statements or track record on how they interpret the law, is far too close IMHO to holding referendums on whether people are guilty or innocent. Judges are required to serve the law. Making them beholden to an electorate and asking them to serve both masters is abhorrent to the basic principles of justice. The statue over the Old Bailey is blindfolded for a reason.

ArkyBeagle 10y ago

See also "The Greatest Generation." They presided over the largest expansion of Federal debt in (at least recent ) history. Y'know, WWII? Things were fine. What's needed is GDP growth.