7 ms·

Capitalism’s over: The man who made millions betting economy would never recover

47 points by llimos 5y ago

AnIdiotOnTheNet 5y ago
> “My grand, macro thesis is that real interest rates have to stay low, and that’s because the rich have all the wealth and like saving,” I feel I'm the choir and this guy is the preacher, leaning as I do towards full-on socialist, so I'd like to hear a counter argument from someone who believes the opposite.
- panick21_ 5y ago
  Check my other post for a reason why this is nonsense.
- aidenn0 5y ago
  I'm definitely not full-on socialist[1], but that statement just seems obviously true to me. My lifetime has been a steady increase in levels of inequality, with no end in sight. 1: I think a moderately progressive tax system (e.g. top tax bracket around 50%) combined with unifying investment-income with earned income would go a long way towards fixing the system. Progressives seem to believe that billionaires need to be punished, I'd just like for them to not be able to maintain their wealth indefinitely without taking on some real risk.
  - kwhitefoot 5y ago
    You need to tax unearned income as well.
    - aidenn0 5y ago
      Which is why I said "unifying investment income with earned income" in my footnote?
- aeternum 5y ago
  The rich are generally net lenders so low real interest rates should hurt them. Yes asset prices seem to be going up, but asset prices should generally stay the same in real terms. The poor are generally net borrowers so low interest rates have for most of history been considered good for the poor. Very recently wages have not kept up especially real wages. I think most of that has to do with globalization. IE US wages have lagged while China/India has seen above average wage growth. Basically you have much of the US workforce saying 'I make twice as much as my parents did at my age, why can't I afford a house?' But in real terms, their parents' labor was valued significantly higher than their labor currently is. The world was a different and less connected place back then so there was much less international wage competition.
  - llimos 5y ago
    What does "net lenders" mean? The rich use debt extensively to invest in assets. They're not lending the money out. They borrow way more than the poor, and buy assets.
    - aeternum 5y ago
      A loan is an asset to the person that made the loan. Yes some of the rich use leverage to increase the amounts they can put towards assets / lend out. In general though they are still net lenders. For example it is very unlikely that a rich person with 100mil would take out additional leverage for another 50mil and let that 150mil just sit in cash. Doing that would make them a net borrower (of 50mil). Instead, they will invest that 150mil, suppose they decide to buy a bundle of mortgage-backed securities. They now have an asset worth 150mil, and via the txn they are effectively lending 150mil worth of value to homeowners. Even with the 50mil loan, they are still a 100mil net lender.
- flurben 5y ago
  For starters, in the U.S. system, interest rates on government debt are set by central bank policy. Investors cannot force it up or down. In general, I'm not sure the guy they are quoting is a reliable source of information about macroeconomics.
  - panick21_ 5y ago
    That's a was oversimplification and is as constructed not correct. Interest rates on government debt are not set by central bank policy. Nominal rates on back reserves are set by central bank policy. But those rates are set RELATIVE to real rates. So if real rates are low then the central bank can not magically set them higher without causing massive economic damage. So yes, investors and the real economy very much influences interest rates. In addition government debt interest rates are very different and are mostly determined by market forces.
llimos 5y ago
Firefox reader view beats the paywall
Ginden 5y ago
Marxists predicted that capitalism will fall in few years in 1910s, 1920s, 1930s, 1940s, 1950s,1960s,1970s. For some unexplainable reason, predictions of dramatic changes in systems with billions of variables always fail.
- airza 5y ago
  I can see that you didn’t read the article.
  - aeternum 5y ago
    The article was rubbish, the author himself is a counterargument to his point. He came from a poor family, worked hard studying economic history, became a successful trader and thus extremely wealthy, yet he still proports >Now, no matter how hard you work, how smart you are, if you come from the ‘wrong’ family you’ll probably never own property. That is feudalism. We’re going back into a world of aristocracy. Capitalism’s over. Seems more like he thinks so much of himself that no one else could possibly do what he did.
    - thundergolfer 5y ago
      He says “probably” so the existence of himself is not a counterargument.
      - panick21_ 5y ago
        If he want's to declare 'capitalism' over then he should do more then say 'probably' as that is quite a range of possibility. How 'probable' is it and what alternative system does he propose that makes it much more 'probable'. By the reading he suggest, I has fallen in with a school of economic thinking that is basically going back to 1960 socialist school of thought that in my opinion is so much theoretical nonsense with no practical reality.
- buzzscale 5y ago
  “My grand, macro thesis is that real interest rates have to stay low, and that’s because the rich have all the wealth and like saving,” he reflected. “Now, no matter how hard you work, how smart you are, if you come from the ‘wrong’ family you’ll probably never own property. That is feudalism. We’re going back into a world of aristocracy. Capitalism’s over.”
panick21_ 5y ago
Yes and lots of people made millions buying and selling crypto currencies, or stocks or whatever. Making a couple million is hardly prove that your 'grand theory' is correct. As Talib and others have long pointed out with traders, there is an element of randomness. At the same time correctly identifying the effect from the symptoms might be useful, but it doesn't mean you understand the root cause. Total nominal spending is a function of central bank action. What he actually bet on was that central bank failed to properly react to the situation and let a massive nominal spending gap develop. Monetary economics predicts very well what happens when you have nominal spending gap and that is exactly what happened in 2008 and beyond. Recovery was massively better if the places where the central banks had nominal spending on trend and much worse the bigger the spending gap was. Some Keynesian economist might argue that central banks couldn't not do anything if interest rates were low. This is an old Keynesian believe that somehow stuck in the minds of many older influential economists and had still been around in central banks operational doctrines. Of course many of economists both before and after Keynes never believed this. Central banks models were based on New Keynsian style economic modeling that were interest rate depended and relied on past data, rather then forward looking indicators. Central banks were literally driving by looking in the mirror while having a steering-wheel that only worked under certain conditions. Even in New Keynesian economics this had been criticized but not enough for it to make it into conservative bank operations (with few exceptions). And even those famous economists who were critical continued their focus on interest rate. This led central banks to misunderstand the crisis, the realized the spending collapse to late. Real-interest rates collapsed and nominal interest rates were close to zero breaking many central banks models. Leading to nominal spending shortfall and the exact sort of problems described in the article. The idea that this happened because of inequality makes no sense. If that was true then post-2008 we should have seen a clear dataset where more equal countries had better rediscover then more unequal countries (or monetary zones). However no such correlation exists to my knowledge. Just like in 1929-1931 all kinds of things were blamed (and are often still blamed) but by now the majority of economists agree that fundamentally about a nominal collapse and a failure of the central bank. Even central banks have admitted it. It probably gone take another 50 years but eventually they will admit that they were mostly at fault in 2008 as well. Until then everybody can parade around their hobby horse. Non of this of course says anything about if in-equally is good or bad. Or if such crisis make inequality worse, they very well might. My assertion here is simply that overall economic recovery measures are not dedicated by inequality rates.
Tiktaalik 5y ago
I think he's right that we're headed to neo-feudalism. Already in Canada the price of housing has spiked so high and so fast that regular people pretty much have no hope in hell of buying anything without parent help (ie. dynastic wealth). Wasn't even 20 years ago that housing was affordable by working class people. We seem very far away from any sort of political shift that would change this.
- panick21_ 5y ago
  The term neo-feutalsim for me as a somebody interest in history is just so incredibly dumb. It plays on the absolute non-understanding of what feudalism was just to play on the association 'feudalism' bad therefore 'Neo-feudalism' bad. There are plenty of places where you could get a cheap house, that's just not where people would want to live most of the time. And we know pretty well what mechanism drive the insane prices in city properties. Its not that big a mystery and certainty not to the point where we should claim our modern economy is 'neo-feudalsim'.
  - Tiktaalik 5y ago
    > There are plenty of places where you could get a cheap house, that's just not where people would want to live most of the time. We are at the point in British Columbia where this no longer the case. Doesn't matter if it's a quasi-ghost town in the deep interior of this province with zero economy. It's still priced beyond a working class salary.
    - panick21_ 5y ago
      Then you need to be willing to rezone and create higher density. This is often massively restricted and that is the primary issue. These areas don't WANT to create cheaper housing.
  - GLGirty 5y ago
    "Neo Feudalism" is a dumb term... but people say "hold down the fort" O_o I'd love a more nuanced term, but I don't think 'minimal social mobility' is snappy enough to catch on. What's a better label? Asking sincerely as a person with only a passing familiarity of historic economies. > we know pretty well what mechanism drive the insane prices Asking four people here would yield five different answers. And they'd all be somewhat correct and correlated!

47 points by llimos 5y ago

> “My grand, macro thesis is that real interest rates have to stay low, and that’s because the rich have all the wealth and like saving,” I feel I'm the choir and this guy is the preacher, leaning as I do towards full-on socialist, so I'd like to hear a counter argument from someone who believes the opposite.

panick21_ 5y ago
Check my other post for a reason why this is nonsense.
aidenn0 5y ago
I'm definitely not full-on socialist[1], but that statement just seems obviously true to me. My lifetime has been a steady increase in levels of inequality, with no end in sight. 1: I think a moderately progressive tax system (e.g. top tax bracket around 50%) combined with unifying investment-income with earned income would go a long way towards fixing the system. Progressives seem to believe that billionaires need to be punished, I'd just like for them to not be able to maintain their wealth indefinitely without taking on some real risk.
- kwhitefoot 5y ago
  You need to tax unearned income as well.
  - aidenn0 5y ago
    Which is why I said "unifying investment income with earned income" in my footnote?
aeternum 5y ago
The rich are generally net lenders so low real interest rates should hurt them. Yes asset prices seem to be going up, but asset prices should generally stay the same in real terms. The poor are generally net borrowers so low interest rates have for most of history been considered good for the poor. Very recently wages have not kept up especially real wages. I think most of that has to do with globalization. IE US wages have lagged while China/India has seen above average wage growth. Basically you have much of the US workforce saying 'I make twice as much as my parents did at my age, why can't I afford a house?' But in real terms, their parents' labor was valued significantly higher than their labor currently is. The world was a different and less connected place back then so there was much less international wage competition.
- llimos 5y ago
  What does "net lenders" mean? The rich use debt extensively to invest in assets. They're not lending the money out. They borrow way more than the poor, and buy assets.
  - aeternum 5y ago
    A loan is an asset to the person that made the loan. Yes some of the rich use leverage to increase the amounts they can put towards assets / lend out. In general though they are still net lenders. For example it is very unlikely that a rich person with 100mil would take out additional leverage for another 50mil and let that 150mil just sit in cash. Doing that would make them a net borrower (of 50mil). Instead, they will invest that 150mil, suppose they decide to buy a bundle of mortgage-backed securities. They now have an asset worth 150mil, and via the txn they are effectively lending 150mil worth of value to homeowners. Even with the 50mil loan, they are still a 100mil net lender.
flurben 5y ago
For starters, in the U.S. system, interest rates on government debt are set by central bank policy. Investors cannot force it up or down. In general, I'm not sure the guy they are quoting is a reliable source of information about macroeconomics.
- panick21_ 5y ago
  That's a was oversimplification and is as constructed not correct. Interest rates on government debt are not set by central bank policy. Nominal rates on back reserves are set by central bank policy. But those rates are set RELATIVE to real rates. So if real rates are low then the central bank can not magically set them higher without causing massive economic damage. So yes, investors and the real economy very much influences interest rates. In addition government debt interest rates are very different and are mostly determined by market forces.

llimos 5y ago

Firefox reader view beats the paywall

Ginden 5y ago

Marxists predicted that capitalism will fall in few years in 1910s, 1920s, 1930s, 1940s, 1950s,1960s,1970s. For some unexplainable reason, predictions of dramatic changes in systems with billions of variables always fail.

airza 5y ago
I can see that you didn’t read the article.
- aeternum 5y ago
  The article was rubbish, the author himself is a counterargument to his point. He came from a poor family, worked hard studying economic history, became a successful trader and thus extremely wealthy, yet he still proports >Now, no matter how hard you work, how smart you are, if you come from the ‘wrong’ family you’ll probably never own property. That is feudalism. We’re going back into a world of aristocracy. Capitalism’s over. Seems more like he thinks so much of himself that no one else could possibly do what he did.
  - thundergolfer 5y ago
    He says “probably” so the existence of himself is not a counterargument.
    - panick21_ 5y ago
      If he want's to declare 'capitalism' over then he should do more then say 'probably' as that is quite a range of possibility. How 'probable' is it and what alternative system does he propose that makes it much more 'probable'. By the reading he suggest, I has fallen in with a school of economic thinking that is basically going back to 1960 socialist school of thought that in my opinion is so much theoretical nonsense with no practical reality.
buzzscale 5y ago
“My grand, macro thesis is that real interest rates have to stay low, and that’s because the rich have all the wealth and like saving,” he reflected. “Now, no matter how hard you work, how smart you are, if you come from the ‘wrong’ family you’ll probably never own property. That is feudalism. We’re going back into a world of aristocracy. Capitalism’s over.”

panick21_ 5y ago

Yes and lots of people made millions buying and selling crypto currencies, or stocks or whatever. Making a couple million is hardly prove that your 'grand theory' is correct. As Talib and others have long pointed out with traders, there is an element of randomness. At the same time correctly identifying the effect from the symptoms might be useful, but it doesn't mean you understand the root cause. Total nominal spending is a function of central bank action. What he actually bet on was that central bank failed to properly react to the situation and let a massive nominal spending gap develop. Monetary economics predicts very well what happens when you have nominal spending gap and that is exactly what happened in 2008 and beyond. Recovery was massively better if the places where the central banks had nominal spending on trend and much worse the bigger the spending gap was. Some Keynesian economist might argue that central banks couldn't not do anything if interest rates were low. This is an old Keynesian believe that somehow stuck in the minds of many older influential economists and had still been around in central banks operational doctrines. Of course many of economists both before and after Keynes never believed this. Central banks models were based on New Keynsian style economic modeling that were interest rate depended and relied on past data, rather then forward looking indicators. Central banks were literally driving by looking in the mirror while having a steering-wheel that only worked under certain conditions. Even in New Keynesian economics this had been criticized but not enough for it to make it into conservative bank operations (with few exceptions). And even those famous economists who were critical continued their focus on interest rate. This led central banks to misunderstand the crisis, the realized the spending collapse to late. Real-interest rates collapsed and nominal interest rates were close to zero breaking many central banks models. Leading to nominal spending shortfall and the exact sort of problems described in the article. The idea that this happened because of inequality makes no sense. If that was true then post-2008 we should have seen a clear dataset where more equal countries had better rediscover then more unequal countries (or monetary zones). However no such correlation exists to my knowledge. Just like in 1929-1931 all kinds of things were blamed (and are often still blamed) but by now the majority of economists agree that fundamentally about a nominal collapse and a failure of the central bank. Even central banks have admitted it. It probably gone take another 50 years but eventually they will admit that they were mostly at fault in 2008 as well. Until then everybody can parade around their hobby horse. Non of this of course says anything about if in-equally is good or bad. Or if such crisis make inequality worse, they very well might. My assertion here is simply that overall economic recovery measures are not dedicated by inequality rates.

Tiktaalik 5y ago

I think he's right that we're headed to neo-feudalism. Already in Canada the price of housing has spiked so high and so fast that regular people pretty much have no hope in hell of buying anything without parent help (ie. dynastic wealth). Wasn't even 20 years ago that housing was affordable by working class people. We seem very far away from any sort of political shift that would change this.

panick21_ 5y ago
The term neo-feutalsim for me as a somebody interest in history is just so incredibly dumb. It plays on the absolute non-understanding of what feudalism was just to play on the association 'feudalism' bad therefore 'Neo-feudalism' bad. There are plenty of places where you could get a cheap house, that's just not where people would want to live most of the time. And we know pretty well what mechanism drive the insane prices in city properties. Its not that big a mystery and certainty not to the point where we should claim our modern economy is 'neo-feudalsim'.
- Tiktaalik 5y ago
  > There are plenty of places where you could get a cheap house, that's just not where people would want to live most of the time. We are at the point in British Columbia where this no longer the case. Doesn't matter if it's a quasi-ghost town in the deep interior of this province with zero economy. It's still priced beyond a working class salary.
  - panick21_ 5y ago
    Then you need to be willing to rezone and create higher density. This is often massively restricted and that is the primary issue. These areas don't WANT to create cheaper housing.
- GLGirty 5y ago
  "Neo Feudalism" is a dumb term... but people say "hold down the fort" O_o I'd love a more nuanced term, but I don't think 'minimal social mobility' is snappy enough to catch on. What's a better label? Asking sincerely as a person with only a passing familiarity of historic economies. > we know pretty well what mechanism drive the insane prices Asking four people here would yield five different answers. And they'd all be somewhat correct and correlated!