Are You Kidding?

Ken Rogoff is a very serious man, so I know he is NOT kidding. But what he is proposing is theft, pure and simple.

"...the real problem is that the global economy is badly overleveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation."

So, he proposes that "we" (meaning borrowers; you creditors can go screw!) simply inflate by 4%-6% a year until we have destroyed the value of the outstanding debt.

Remember, there is a huge amount of US sovereign and corporate debt, with fixed coupon rates, in the hands of foreign banks and governments. HUGE. Foreigners "own" nearly $5 trillion in US sovereign debt. I use the scare quotes because if we do the "Full Rogoff" then it turns out they don't own what they thought they owned, after all, which was a promise to pay back the loan.

Let's do an example. Suppose inflation is 2%, the "real cost of funds" is 2% (just say, okay, for simplicity) and has been for a while.

A bond with a par value of $1,000, a coupon rate of 4% (about what US Treasuries are going for) with a maturity 20 years from now, would then be worth its par value of $1,000 (inflation 2% plus cost of funds 2% = 4% current market rate = 4% coupon rate, and again just let me simplify it this way). (A calculator, if you want to try this at home)

Now...we go to 6% inflation, not anticipated but introduced overnight and everyone knows it, it's intentional and it is not going away anytime soon. And say real cost of funds is still 2%.

What is the bond worth now?

That would be $601.49.* $400 of the bondholder's wealth has been destroyed. Well, not destroyed, exactly: stolen. Because the debtors are now paying back in inflated, less valuable dollars.

That is Rogoff's solution? Kill the rich? Abuse the idiots who loaned us money? It's impressive how soon the rule of law dies when the wealthy elites of a nation find it to be in their interest.

To be fair, Dr. Rogoff does recognize the problem: "Of course, inflation is an unfair and arbitrary transfer of income from savers to debtors. But, at the end of the day, such a transfer is the most direct approach to faster recovery. Eventually, it will take place one way or another, anyway, as Europe is painfully learning."

That's a truly remarkable statement. This action, if consciously taken by the monetary authorities, would have the effect of saying that all debtors, ALL DEBTORS regardless of size, are "too big to fail."

Wow. Remember, Dr. Rogoff is the former chief econo-shaman at the IMF. The same IMF that tells poor countries they have to pay back 100% of THEIR debts.

**************************************
*Yes, that's assuming that the 2% cost of funds, 6% inflation are the new steady values. Rogoff wants 6% inflation to be temporary. But it would change expectations in a way that would make it hard to readjust very quickly. When the inflation (QE3? QE7?) ends, it would not work to say, "Okay, now we want to borrow at 4% again! We promise never to do that whole inflation thing again. That was only a one time thing."

The culture that is Germany

People, did you know that the German word for "advisor" is "berater"?

That tells you a lot right there doesn't it?

Follow up: do you know how to say MVP in German? Answer is here.

Selfish reasons to NOT have (more?) kids

Ah yes, kids are cuddly, fun, look like you, and are impervious to your attempts to influence them via expensive or time consuming parenting techniques, so just, chillax, be fruitful and multiply, and enjoy the floor show, what could go wrong?

Well there's this:

More than half of baby boomer mothers in the United States support adult children financially and 60 percent are the person their offspring go to when they encounter problems, according to a new survey.

Of women with children over age 18, nine percent said they had adult children living back home for indefinite periods. Twelve percent were primarily responsible for their adult child or children's financial well-being and 31 percent said they had children who returned home, relied on them but expected to become independent.

People, can I get a Yikes!!??

And of course you can't argue that you would raise your child not to be such a shameless leech, because, as we all know, parenting doesn't affect how kids turn out!

Van the Man

Check out this interview where Van Morrison says he's written 300 songs better than brown-eyed girl and that there is zero new music that he likes.

The Girl Store

Wow. Disturbing. The Girl Store.

Some comment. ("Heart rendering"? They want to boil the fat and connective tissue out of it?)
And this is just creepy.

So....good thing, bad thing?

.

Wrath of Khan

Bob Frank takes the death of Al Kahn as an occasion to launch into bizarre attacks on macro theory and airline deregulation.

KAAAAAAHHHHHNNNNNNNNNN!!!!!

Apparently Al once said "if you can't explain what you are doing in plain English, you're probably doing something wrong", which I guess means the general theory of relativity is pure bullcrap.

Bob riffs off this to "If you can’t describe what your model says in plain English without provoking derisive laughter, it probably doesn’t say anything of value”, and says Macroeconomists should take heed.

KAAAAAHHHHHHNNNNNNNN!!!!

I must say though, that I've never thought it was hard to say what DSGE models were saying in plain English without getting laughs. I did find it so hard to say what textbook Keynesian models were doing with a straight face that I had to quit teaching intermediate macro.

Bob then returns to his main theme, an appreciation of all things Kahn:

"Many disgruntled air travelers remember him unfavorably as the chief architect of commercial airline industry deregulation. But as he was quick to remind critics, planes now fly with many fewer empty seats than they used to, resulting in much lower average fares, after adjusting for the sharp increases in operating costs that have occurred in the interim."

KAAAAAHHHHHNNNN!!!!!

Um, I'm pretty sure there was a lot more to airline deregulation than decreasing the number of empty seats on flights. There was entry, there were new routes, there was the opening of air travel to the middle class. In short the industry was transformed in a way that massively benefitted consumers.

I'm not sure why Bob is so conflicted that here in his homage to Al, he feels the need to take shots at Al's crowning achievement.

Bob then ends with a heartwarming story about how kind and beloved Al was:

"A story circulating at the time described an English professor’s complaint to him about the high salaries of economics professors. “Perhaps you should consider starting an English consulting firm,” he is said to have responded."

If I didn't know better, I'd think Bob didn't actually like Al very much.