Paul Krugman, Nobel Laureate and all round moron, often repeats “Debt is money we owe ourselves”. His argument is that it does not matter, because America can print money whenever it wishes to pay back whoever it wishes. Sadly, he is absolutely correct.
Furthermore, he can point to Japan and Italy whose debts are vastly greater than the US burden and who have suffered no currency collapse at all.
The policy works but only in the technical sense. In fact, it is most likely a national death warrant. Japan has the lowest birth rate in the world, closely followed by Italy. Most of Europe fills the top 10 placings.
I may be wrong, but the story is a simple one.
Generally, highly indebted countries have spent future money to protect incumbent voters, in most cases the generations 50 and over. As a result they hold many assets at greatly inflated values. The option for the younger generation is this:
- Pay an inflated price for the number one asset you desire (a home)
- Also pay for the debt that was used to inflate its price through higher taxes
It is of course, an absolutely awful deal and quite sensibly people decline it. If you do wish to start a family, you need somewhere half decent to live it is just about the only non-negotiable in the whole arrangement.
So, young people either do no have a family at all or move somewhere with a better set of economics and it is absolutely clear that this is true from Japan, Italy, all across Europe and now in the United States.
Krugman’s theory seems to be that people do not notice this intertemporal theft, but they absolutely do. The saddest thing about the crazy monetary policies is that their impact is so far reaching into the future. That really is the trick, that the can is kicked down the road for more than a generation and once people realise it is far too late.
How many people are not here who otherwise would be because of this nonsense?
He simply lives in the gift of the government, paid from the public purse for his role as “Distinguished Economics Professor for The Graduate School and University Center of the City University of New York.”
He is a paid US dollar shill. Millions of people live (or do not) with the consequences of insanity from people like him.
As to the $28 trillion in debt, that’s before President Kamala gave away $1.9 trillion this week. $30 trillion soon.
A date with destiny
30 year bonds off to an inauspicious start to 2021. So far down 15%.
Only in 1980 have bonds had a worse start and then recovered. They finished that year flat because the oil crisis of the late 1970s was ending and inflation was beginning to ease. Mostly thanks to the discipline of Paul Volcker, who took over at the Fed in 1979. It was the start of the 40 year bond bull run.
This time around we haven’t even started worrying about inflation, in fact our policy makers would give a limb for it. You could make a reasonable case for bond prices recovering, the trend is your friend after all. If bond prices have been rising for 40 years, why can’t they keep rising for another 10? Interest rates have been falling for 300 years, surely that continues too.
Maybe the answer is simpler. The cohort of natural bond sellers (retirees) is much larger than the cohort of natural buyers (workers 35+). What is more, that second and smaller cohort, do not like or trust bonds. Add to that the unprecedented new supply of bonds coming on to the market this year and next. The only hope is that the Federal Reserve buys more of them and my prediction is very much that they will.
Anyone been to Norway? I’m guessing mostly the answer is no because the weather is ordinary and the cost of living is astronomical. Norway, while not at the top of the rankings in GDP per capita is easily the richest country in the world. It’s not close. The $1.2 trillion sovereign wealth fund holds quarter of a million dollars per head of population. They could pay off their national debt tomorrow and not even notice the difference.
All this fabulous wealth came, predictably, from oil. Rather than spend it on luxury cars and decapitating journalists, the Norwegians sensibly invested it in other things, including technology and alternative energy.
One of the largest oil companies in Norway is called Aker. They announced a new subsidiary this week called Seetee which will invest in bitcoin and bitcoin mining infrastructure. It will also hold its entire corporate treasury in bitcoin.
Here is what the majority owner of Aker had to say in his Shareholder Letter:
I am greatly encouraged by this because I have yet to find anyone who has spent time in looking into, understanding and researching bitcoin who then did not want to participate. You simply need to take the time to do your own research.
Seetee will establish mining operations that transfer stranded or intermittent electricity without stable demand locally—wind, solar, hydro power— to economic assets that can be used anywhere. Bitcoin is, in our eyes, a load-balancing economic battery, and batteries are essential to the energy transition required to reach the targets of the Paris Agreement. Our ambition is to be a valuable partner in new renewable projects.
It appears we are collecting billionaires. We now have Peter Thiel, the founder of PayPal mining bitcoin with renewables in America, Kjell Inge Røkke doing the same in Norway, Michael Saylor converting his corporate treasury at MicroStrategy, Elon Musk chipping in at Tesla and finally we have Jack Dorsey who sells more bitcoin than anyone via CashApp and has probably been our best advocate.
Are they all wrong?
For the very interested there is an excellent newsletter known as Bitcoin OpTech. It is a (humourless) weekly update that summarises what is happening in bitcoin development.
When you read it you will likely understand little at first but you might find some of the content interesting. You can follow developments in the lightning network, new encryption signatures and all manner of other nuances.
It’s geeky stuff but it will give you a sense of the brainpower and effort that continues to go into this protocol. It’s absolutely mind blowing, particularly because it is open source and the people doing all the work are not getting paid for it.
I tend to dip into every few weeks to remind myself how little I still know.
During the pandemic I had a bit of time on my hands so I took up oil painting. This is my first work, it’s called “J’adore Christine”.
In it I have tried to reflect ECB policy. I want to share some of the deeper meanings of the painting with you
Her tilted head is a nod to rising yields at the long end.
The pursed lips reflect the prudence with which she has increased the ECB balance sheet from 35% of EU GDP to over 70% in short order.
Uneven eyes, that’s about divergent yields across the continent, I can’t help that it looks a bit weird. It is.
The grey aspect; the ageing European population and its collapsing birth rate.
Finally, the pearls and the Hermes scarf. That’s a let them eat cake reference, which I hope you like.