What's Sovereign Debt? No Body Understands It!!

[Yamaka]

Share:

Facebook X (Twitter) LinkedIn WhatsApp Email Share Link

Hello ALL:

Here is an excellent article on Sovereign Debt (of the US) by Nobelist Paul Krugman - an unashamed Progressive of the Left:

http://www.nytimes.com/2012/01/02/opinion/krugman-nobody-understands-debt.html?_r=1


He is right on the money... we need to worry MORE about Jobs and Job Growth... not on Deficit and total Debt.

And, contrary to all the Conservative Economists, the 10 yr US Treasury Bond Yield dropped to less than 2% by the year end (1.84% a year)... this is a sure indication of what the Bond Holders of the World - the Bond Vigilantes, I jokingly call them -think of the US economy and her fiscal condition:

They say, "It's Excellent, therefore we all buy and spike the bond price UP and the yield drops precipitously".

The long run inflation expectation in the US is about 2% and the 10 yr bond gets less than that!!! Voila... that's very interesting to me!

Read on...

Give your considered opinion here.

Cheers.

 

[sangom]

Hello ALL:

Here is an excellent article on Sovereign Debt (of the US) by Nobelist Paul Krugman - an unashamed Progressive of the Left:

http://www.nytimes.com/2012/01/02/opinion/krugman-nobody-understands-debt.html?_r=1


He is right on the money... we need to worry MORE about Jobs and Job Growth... not on Deficit and total Debt.

And, contrary to all the Conservative Economists, the 10 yr US Treasury Bond Yield dropped to less than 2% by the year end (1.84% a year)... this is a sure indication of what the Bond Holders of the World - the Bond Vigilantes, I jokingly call them -think of the US economy and her fiscal condition:

They say, "It's Excellent, therefore we all buy and spike the bond price UP and the yield drops precipitously".

The long run inflation expectation in the US is about 2% and the 10 yr bond gets less than that!!! Voila... that's very interesting to me!

Read on...

Give your considered opinion here.

Cheers.

Krugman's statement that—
"Now, the fact that federal debt isn’t at all like a mortgage on America’s future doesn’t mean that the debt is harmless. Taxes must be levied to pay the interest, and you don’t have to be a right-wing ideologue to concede that taxes impose some cost on the economy, if nothing else by causing a diversion of resources away from productive activities into tax avoidance and evasion. But these costs are a lot less dramatic than the analogy with an overindebted family might suggest. " is correct and he is talking about the interest payments only. (Even there, he envisages obstructions like tax avoidance and tax evasion, though.)

There is no mention about repayment of the pricipal amount of the debt. I don't think it is irrelevant in the case of sovereign debts. Unless export surpluses are made assiduoudly, the principal will remain outstanding and, looking at US' balance of trade and payments, such net surplus seems a distant dream to me.

 

[biswa]

Here is an excellent article on Sovereign Debt (of the US) by Nobelist Paul Krugman - an unashamed Progressive of the Left:

I have very high regard for the intellect of Mr. Krugman, until the time I earn a Nobel prize for myself. And certainly there is no shame in being called a progressive.

 

[Yamaka]

Krugman's statement that—
"Now, the fact that federal debt isn’t at all like a mortgage on America’s future doesn’t mean that the debt is harmless. Taxes must be levied to pay the interest, and you don’t have to be a right-wing ideologue to concede that taxes impose some cost on the economy, if nothing else by causing a diversion of resources away from productive activities into tax avoidance and evasion. But these costs are a lot less dramatic than the analogy with an overindebted family might suggest. " is correct and he is talking about the interest payments only. (Even there, he envisages obstructions like tax avoidance and tax evasion, though.)

There is no mention about repayment of the pricipal amount of the debt. I don't think it is irrelevant in the case of sovereign debts. Unless export surpluses are made assiduoudly, the principal will remain outstanding and, looking at US' balance of trade and payments, such net surplus seems a distant dream to me.

Dear Sangom:

As we have talked about this before -

1. Corporations and Countries are perpetual entities legally speaking...which means they can keep the Debt indefinitely to perpetuity if they want, and/or payoff part of the principle when the "time is right" and financially making sense. Otherwise, they can "refinance" the debt depending on the "interest rate" situation. For example, I will argue right now the Bond Market is willing to lend money long term for a pittance of interest. Therefore, US must refinance all the debt and can borrow more money instead of taxing the citizens.

This brings us to the question of when should we tax the citizens and when should we "finance/refinance" the debt by borrowing in the Open Bond Market.

Presently, I favor financing/refinancing from the Open Bond Market.

2. Soon after Obama came into the WH, the tax revenue precipitously fell to about 15% of the GDP (the long run average has been about 19-20% of GDP, AND the federal Expenditure went up to about 24% of GDP because of persistent high unemployment (and the unemployment benefits for more than 2 years).

Therefore, there is the yawning Deficit and exploding Debt. All because of the Deepest Recession hit the world in 2008.

3. I am not worried about this Deficit and Debt now. I am worried about Jobs and Job Growth. If we solve this, then deficit and debt automatically will be resolved.

That's the point Paul has been hammering, and the Republicans don't get the message.

Cheers.



What's needed is the growth of the Debt should be slower than the growth of the GDP or aggregate income or the growth of the tax revenue, as appropriate, as Krugman says.

 

[KRS]

Dear Sri Yamaka,

You said:

What's needed is the growth of the Debt should be slower than the growth of the GDP or aggregate income or the growth of the tax revenue, as appropriate, as Krugman says.

Bingo! You have hit the nail on it's head. The argument between the democrats and republicans is just on this point.

Democrats believe that by increasing Government spending, they can stimulate growth and jobs. The Keynesian theory that underlies this theory seems to be at best shaky. Please read:
Hirsh: Fact and Fiction on the Stimulus Package - The Daily Beast
RAHN: Government spending jobs myth - Washington Times

The reduced money velocity accounts for keeping the inflation in check and if it increases as it must during growth in economy, be ready to go back to Carter years. Japan is a prime example of a big government 'investments' not stimulating growth.

Government never creates wealth directly (except as a customer for private industries, e.g, defense). Only the Private Sector can create wealth. So it makes sense to limit the size of the government, so that the wealth creating machine has the lion's share of the capital available for productive work. Reducing the government spending to match the tax receipts is the only way to accomplish this. Government should spend money only for defense, sensible regulations and enforcement and protecting the poor and those who can not take care of themselves.

This what the republicans want. And this vision I can readily agree with.

Regards,
KRS

 

[Yamaka]

Dear Sri Yamaka,

You said:


Bingo! You have hit the nail on it's head. The argument between the democrats and republicans is just on this point.

Democrats believe that by increasing Government spending, they can stimulate growth and jobs. The Keynesian theory that underlies this theory seems to be at best shaky. Please read:
Hirsh: Fact and Fiction on the Stimulus Package - The Daily Beast
RAHN: Government spending jobs myth - Washington Times

The reduced money velocity accounts for keeping the inflation in check and if it increases as it must during growth in economy, be ready to go back to Carter years. Japan is a prime example of a big government 'investments' not stimulating growth.

Government never creates wealth directly (except as a customer for private industries, e.g, defense). Only the Private Sector can create wealth. So it makes sense to limit the size of the government, so that the wealth creating machine has the lion's share of the capital available for productive work. Reducing the government spending to match the tax receipts is the only way to accomplish this. Government should spend money only for defense, sensible regulations and enforcement and protecting the poor and those who can not take care of themselves.

This what the republicans want. And this vision I can readily agree with.

Regards,
KRS

Dear KRS:

1. Right now, we are at the point of danger of slipping into deflation... there's no sign of inflation in the horizon. Please follow the 10 y US T rate which tells the story about future inflation as per the World Bond Market.

"Helicopter Ben" knows the evil of deflation; he will not hesitate to use any weapon to stop this menace from starting: once deflation starts, it's impossible to stop - this will destroy everything that we built over decades.

2. Right now Democrats worry about Deflation, Jobs and Job Growth. Republicans for some tactical political reasons think more about deficit and debt.

I recall in the early years of W Bush, the same people argued "Deficit and Debt don't matter; Only Growth matters"... Now, they have suddenly changed the slogan. Because Barack Obama is in the White House.

Cheap politics.

3. Because of the Deepest Recession, Govt is forced to spend more than what it takes now... this is a short run problem. We need to keep up with Aggregate Demand, lest we will slip into recession again and deflation will be triggered.

Watch out of Recession and Deflation.

4. Who creates Wealth? It's the co-operative venture of BOTH private and public sector... we will talk about this another day!

5. Already people like George Will has conceded that Barack Obama will be in the WH for the next 4 years.. because of the disarray in the Republican tent: There is fight between true Libertarians, the Tea Partiers and the Moderates.

Let's wait and see who the Iowans choose to meet the Heavy Weight Champion of the Campaigning - BHO!

More later...

Regards.

Y


Romney is not getting more than 25% of the Republican caucus people!

 

[KRS]

Dear Sri Yamaka,

You may be correct on deflation, but I do not think it will happen - we may have anemic growth in the 1% range, which will protect us from deflation.

As you say, BB will watch out for both deflation and inflation. Money supply is not the issue. Growth of jobs in the private sector is. What are clearly making the companies to hoard their cash are the policies of this government.

I do not think that the Republicans alone are playing election year tactical governing. The President has been doing that since the 2010 election.

Yes, may be the President will be reelected (I doubt it though), only if the economy does a miraculous turnaround with an accompanying job growth.

I am an independent and let me wait and see who will the Republicans nominate.

Regards,
KRS

 

[Nara]

Y:

...
5. Already people like George Will has conceded that Barack Obama will be in the WH for the next 4 years..

KRS in response:

Yes, may be the President will be reelected (I doubt it though)

Folks, herein lies the problem. What we have in the U.S. is a one-party state with two wings. The politburo of this party consists of Corporations and Bankers, elected officials are not allowed. There are two wings in this party, each competing for favors from the politburo.

As it so happens, today is the start of a charade called primary voting season, an excruciatingly long process, one that started about a year ago and will end in 5 months or so only for the general election season to start, is one by which each of the two wings of this one party selects its candidate to run in the general election.

This process is so closely controlled by the oligarchy, anyone who is not fully committed to the oligarchy and the politburo stand no chance of getting selected. Then, in the general election, the people get to vote for a candidate preselected by the oligarchy.

If you think I am being too extreme please read this insightful Rolling Stone article by Matt Taibbi. Some excerpts:


Contributions from corporations and bankers during 2008 election cycle:
[TABLE="class: grid, width: 500"]
[TR]
[TD]Company
[/TD]
[TD]Obama
[/TD]
[TD]McCain
[/TD]
[/TR]
[TR]
[TD]Goldman Sachs[/TD]
[TD]$1,013,091[/TD]
[TD]$240,295[/TD]
[/TR]
[TR]
[TD]JP Morgan Chase[/TD]
[TD]$808,799[/TD]
[TD]$343,505[/TD]
[/TR]
[TR]
[TD]Citigroup[/TD]
[TD]$736,771[/TD]
[TD]$338,202[/TD]
[/TR]
[TR]
[TD]Skadden[/TD]
[TD]$543,539[/TD]
[TD][/TD]
[/TR]
[TR]
[TD]UBS AG[/TD]
[TD]$532,674[/TD]
[TD]$187,493[/TD]
[/TR]
[TR]
[TD]Morgan Stanley[/TD]
[TD]$512,232[/TD]
[TD]$271,902[/TD]
[/TR]
[TR]
[TD]WilmerHale LLP[/TD]
[TD]550,668[/TD]
[TD][/TD]
[/TR]
[/TABLE]

One of the reasons Obama won is the oligarchy preferred him by almost 2-1 margin over McCain, and boy Obama delivered for the oligarchy!!! The oligarchy is almost never wrong.

• The only place we can be absolutely sure this battle (battle for true democracy) will not be found is in any national presidential race between Barack Obama and someone like Mitt Romney.
• [...] basically what that means is that voters are free to choose anyone they [the oligarchs] want, provided it isn’t Dennis Kucinich, or Ron Paul, or some other such unacceptable personage.
• It was always annoying when these two parties and the slavish media that follows their champions around for 18 months pretended that this was a colossal clash of opposites. But now, with the economy in the shape that it’s in thanks in large part to the people financing these elections, that pretense is more than annoying, it’s offensive.
• Or maybe not, we’ll see. In any case, the dreary campaign to choose the next imperial administrator -- the One Percent-Off, let's call it -- starts tonight. It’s the same old ritual, but I just don’t think it’s going to fly the same way this time around.

Cheers!

 

[Yamaka]

Y:


KRS in response:
Folks, herein lies the problem. What we have in the U.S. is a one-party state with two wings. The politburo of this party consists of Corporations and Bankers, elected officials are not allowed. There are two wings in this party, each competing for favors from the politburo.

As it so happens, today is the start of a charade called primary voting season, an excruciatingly long process, one that started about a year ago and will end in 5 months or so only for the general election season to start, is one by which each of the two wings of this one party selects its candidate to run in the general election.

This process is so closely controlled by the oligarchy, anyone who is not fully committed to the oligarchy and the politburo stand no chance of getting selected. Then, in the general election, the people get to vote for a candidate preselected by the oligarchy.

If you think I am being too extreme please read this insightful Rolling Stone article by Matt Taibbi. Some excerpts:


Contributions from corporations and bankers during 2008 election cycle:
[TABLE="class: grid, width: 500"]
[TR]
[TD]Company
[/TD]
[TD]Obama
[/TD]
[TD]McCain
[/TD]
[/TR]
[TR]
[TD]Goldman Sachs[/TD]
[TD]$1,013,091[/TD]
[TD]$240,295[/TD]
[/TR]
[TR]
[TD]JP Morgan Chase[/TD]
[TD]$808,799[/TD]
[TD]$343,505[/TD]
[/TR]
[TR]
[TD]Citigroup[/TD]
[TD]$736,771[/TD]
[TD]$338,202[/TD]
[/TR]
[TR]
[TD]Skadden[/TD]
[TD]$543,539[/TD]
[TD][/TD]
[/TR]
[TR]
[TD]UBS AG[/TD]
[TD]$532,674[/TD]
[TD]$187,493[/TD]
[/TR]
[TR]
[TD]Morgan Stanley[/TD]
[TD]$512,232[/TD]
[TD]$271,902[/TD]
[/TR]
[TR]
[TD]WilmerHale LLP[/TD]
[TD]550,668[/TD]
[TD][/TD]
[/TR]
[/TABLE]

One of the reasons Obama won is the oligarchy preferred him by almost 2-1 margin over McCain, and boy Obama delivered for the oligarchy!!! The oligarchy is almost never wrong.

• The only place we can be absolutely sure this battle (battle for true democracy) will not be found is in any national presidential race between Barack Obama and someone like Mitt Romney.
• [...] basically what that means is that voters are free to choose anyone they [the oligarchs] want, provided it isn’t Dennis Kucinich, or Ron Paul, or some other such unacceptable personage.
• It was always annoying when these two parties and the slavish media that follows their champions around for 18 months pretended that this was a colossal clash of opposites. But now, with the economy in the shape that it’s in thanks in large part to the people financing these elections, that pretense is more than annoying, it’s offensive.
• Or maybe not, we’ll see. In any case, the dreary campaign to choose the next imperial administrator -- the One Percent-Off, let's call it -- starts tonight. It’s the same old ritual, but I just don’t think it’s going to fly the same way this time around.

Cheers!

Dear N:

Can you please elaborate on your last line: "It's the same old ritual, but I just don't think it's going to fly the same way this time around".

The first half seems to contradict the last half in the sentence!

I follow the RealClearPolitics Average which says

Mitt and Paul are TIED at about 23% and Rick Santoram is at about 16% slowly inching up...

For a perverse reason, I want Paul to win Iowa! Then go on to disrupt NH, SC and FL, where Newt may have some lead for now...

Also, I understand this time around the GOP is not giving all the delegates to the Winner Takes ALL, which means the Nomination could prolong till May, which is good for BHO!!!

I support BHO for the following simple reasons:

a. He passed the PPACA using all his political capital to get rid of the Pre-Existing Conditions and insure about 30 million citizens at a cost of $100 billions a year for comprehensive healthcare, a monumental achievement in the present partisan polarized Capital Hill.

b. He and Ben B worked hand in glove to stop the downward slide of this economy into Depression and Deflation.

c. He killed and buried Osama Bin Laden in the Deep Sea AND took all the secret plans of covert activities that he was planning against US.

Let our GOP colleagues fight among themselves between Tea Partiers, Libertarians, Moderates and the Conservatives and implode internally, as George Will fears.

That's good for BHO.

Wait & watch.

Ps. The Super PACs are unleashing their immense power of "Buying the Voters" in broad day light! Anyway, what are you planning to do about "The Oligarchs", anyway? Is Kucinich going to challenge BHO?

 

[KRS]

Dear Professor Nara Ji,

While your analysis above has some merit, I totally disagree with the'Oligarchy' concept. Corporate donations often misfire and in the last election the money (all money) went to the exciting candidate. Obama who once pledged to stay within the Government aid limit, went well over it by reneging on that promise.

The contrasts between the two parties are quite stark. More and more they are moving to and controlled by the extremes in their parties. This is because 2/3rd of the American public are polarized, between progressives and conservatives on ideological basis. I think the system works overall okay.

There are reasons why a Kucinich or a Paul will not and should not be chosen to run. Both of them are extremists with ideas that only minority support.

By the way, Obama did not help either the Wall Street or Main Street, hence their contributions to him are down much this year. So, you can not really make the case that any contribution elicits a favor in return.

Sorry, I do not share your extremely cynical view.

Regards,
KRS

 

[Nara]

....Can you please elaborate on your last line: "It's the same old ritual, but I just don't think it's going to fly the same way this time around".

Y, This is Matt, and what I understood was he is hoping this time it will be different come November, probably he is being too optimistic.

Mitt and Paul are TIED at about 23% and Rick Santoram is at about 16% slowly inching up...

You ask what I am going to do about the oligarchs and mocked whether Kucinich is going to challenge BHO. If enough people rise above the kind of mindless attraction to the horse trading -- who is up and who is down mentality -- then, it is these people who will throw the oligarchs out. They are the true tea-partiers (not the ones astro-turfed by Koch brother surrogates) and the 99% OWS movements. Matt is hoping this will happen this time.

To put it in your terms, wait and watch...

Cheers!

p.s. I don;t support BHO because:

• He promised to close GBay, did not
• He promised he will conduct the most open administration, but presided over the most secretive one
• He opposed giving retroactive immunity to telecom companies for illegal eavesdropping, but when came time to put money where his mouth was, he caved to the corporate interests
• He took the surveillance state he inherited from W and made it worse
• He took already shredded constitution from W and just eviscerated it with illegal assassination of US citizens far away from battle field with no due process
• He gave billions and even trillions to his banker friends but refusing to help the working class in real terms

The list goes on.

 

[Nara]

Outside of Shri KRS, Y and a few other silent readers of the forum residing in U.S. this may not be of interest to many. With this preamble I invite comments from anyone who cares, what is your take on the significant political news that came out today?

No, not the pointless horse race for Republican party nomination, but Obama making a significant recess appointment, more to come I believe, even though the Republicans claim the Senate is in session because they pretend it is in session with their once in 3 days proforma session.

In my view, there are two aspects to this "bold" move.

One is a crass political move to try to lure the disaffected progressives, whose ranks I like to believe I belong, back in to voting for him. May be I am wrong, may be he is growing a pair at last. Ah well, I have been jilted one too many times to just fall in line and vote for him. To get my vote he needs to fire his entire economy team and hire people like Joseph Stieglitz, unconnected to the Wall Street kleptocrates -- Y, I am aware this is not going to happen before hell freezes over and so BHO is not getting my vote.

The second aspect is the constitutional question. Even though it was the Democrats who started it to deny W his picks, having proforma sessions with the express purpose of subverting the President's prerogative is wrong.

In this particular instance, it is not even the qualification of the person being appointed, it is opposition to an agency created through legislation they lost on. If they don't like the agency they need to find legislative remedy, not use tricks to stop it from functioning as intended by law. This is an example of reasons why the approval rating of U.S. Congress is hovering just above single digits.

Democrats and Republicans, both are guilty of such nonsense. This is why there must be another way. Hope the stinking lazy youngsters who need to get a shower and then a job are able to persist in keeping it all stinked up to the oligarch class so that change becomes inevitable -- change can come only when it is made inevitable.

Cheers!

 

[KRS]

Dear Professor Nara Ji,

You have said:

The second aspect is the constitutional question. Even though it was the Democrats who started it to deny W his picks, having proforma sessions with the express purpose of subverting the President's prerogative is wrong.

In this particular instance, it is not even the qualification of the person being appointed, it is opposition to an agency created through legislation they lost on. If they don't like the agency they need to find legislative remedy, not use tricks to stop it from functioning as intended by law. This is an example of reasons why the approval rating of U.S. Congress is hovering just above single digits.

Democrats and Republicans, both are guilty of such nonsense. This is why there must be another way.

I totally agree with the above sentiment.

Regards,
KRS

 

[Nara]

If we look at the current cast of Republicans running for president that the the corporate media covers, one is apt to think all Republicans are kooks. But that is because we get to see only those who candidates that the oligarchs want us to see.

There are at least two eminently qualified Republican candidates who polled better than the current front runner Rick Santorum, John Huntsman, and a few others (these are candidates included in the debates), but routinely excluded as serious candidates by the corporate media owned by the oligarchs.

They are Gary Johnson, ex-Gov of New Mexico (abandoned run for GOP nomination and is now running for the Libertarian ticket) and Buddy Roemer, ex-Gov of Louisiana, still in the race.

Today I saw a fantastic interview of Buddy Roemer by Amy Goodman of Democracy Now. I particularly recommend this to Shri KRS, and others interested, you won't be disappointed. Why is this man excluded from all the debates? The answer is clear, some of his positions seriously threaten the oligarchs.

I would love to see Roemer go toe-to-toe with the corporate shill BHO. Even though I disagree with Roemer on some issues I would seriously consider voting for him, but alas, the oligarchs won't let him complete in any serious way, the American public can only vote for one of the two candidates they approve.

Roemer's case is a striking piece of evidence that what we have in the U.S. is a one-party system with two faces, both owned and controlled by the oligarchs.

Here is the interview: Buddy Roemer: GOP Pres. Candidate Who Backs Occupy, Campaign Finance Reform, Excluded From Debates

Cheers!

 

[KRS]

Dear Professor Nara Ji,

Buddy Roemer has less than 1% in national polls. Look at his performance in Iowa, where having money is not necessary, but hard work will pay dividends as demonstrated by Rick Santorum.

Results for Iowa Republican Caucus (U.S. Presidential Primary)

Jan 03, 2012 (100% of precincts reporting)

Mitt Romney
Rick Santorum
Ron Paul
Newt Gingrich
Rick Perry
Michele Bachmann
Jon Huntsman
Herman Cain
Buddy Roemer
No Preference
Other

[TD="align: center"]30,015[/TD]
[TD="align: center"]24.6%[/TD]

[TD="align: center"]30,007[/TD]
[TD="align: center"]24.5%[/TD]

[TD="align: center"]26,219[/TD]
[TD="align: center"]21.4%[/TD]

[TD="align: center"]16,251[/TD]
[TD="align: center"]13.3%[/TD]

[TD="align: center"]12,604[/TD]
[TD="align: center"]10.3%[/TD]

[TD="align: center"]6,073[/TD]
[TD="align: center"]5%[/TD]

[TD="align: center"]745[/TD]
[TD="align: center"]0.6%[/TD]

[TD="align: center"]58[/TD]
[TD="align: center"]0%[/TD]

[TD="align: center"]31[/TD]
[TD="align: center"]0%[/TD]

[TD="align: center"]135[/TD]
[TD="align: center"]0.1%[/TD]

[TD="align: center"]117[/TD]
[TD="align: center"]0.1%[/TD]

Do you really think that the Republican Party oligarchs blocked Roemer someway not to campaign in Iowa? He campaigned all right quite vigorously in Iowa, it is just that folks there did not buy his message, as I suspect would be the case nationally.

Regards,
KRS