Replies to post #215467 on Tornado Alley (PROG)

[StephanieVanbryce]

America doesn’t have a federal public debt problem:

net interest payments on the U.S. public debt are currently about 1% of GDP. This is about as low as it has been in the post-World-War II period, and is very small by any measure. The fact that our government is still trying to reduce economic growth and employment while we have more than 20 million people unemployed or underemployed is testimony to the unbridled power of the special interests that dominate debate over economic policy in the United States

http://www.theguardian.com/commentisfree/2013/dec/18/us-budget-deal-good-bad-stupid

Great post F6, Thanks for taking the time .. such excellent references.. . can you imagine? 1% interest on our debt! .. that's it! ... We really really need to spend some more money .. .lift federal salaries and let's go on the infrastructure .. and build some trains or dams OR go to a new moon! .. ;) . .

[F6]

another reference I meant to include:

(linked in) http://investorshub.advfn.com/boards/read_msg.aspx?message_id=93241571 and preceding and following

[fuagf]

nice .. re the 'public spending' vs 'private spending' debate .. the position of some that public spending cuts out private spending side vs the hey, doesn't matter what spending .. it's spending which was/is needed, period .. on rereading the one you replied to

It's the Austerity, Stupid: How We Were Sold an Economy-Killing Lie .. this bit in the first one ..

The problem, from an economist's perspective, was a simple one: The housing bubble had burst, and banks were stuck with enormous losses on their housing-related securities .. http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf . They desperately needed to sell assets to remain solvent, but when everyone wants to sell all at once, and nobody wants to buy, the result is a death spiral: Falling prices require ever more asset sales, which in turn produce ever steeper price drops and further asset sales. This vicious cycle eventually transformed an ordinary recession into something far more threatening—a banking crisis recession. .. http://www.motherjones.com/politics/2013/09/austerity-reinhart-rogoff-stimulus-debt-ceiling

and the 2nd

How Washington has choked off the recovery .. this bit ..

The stimulus spending peaked around the middle of 2010, which is when the total number of government jobs began to decline. Had this been a normal recovery, the number of government jobs would have continued to tick upward as the economy improved and tax receipts bounced back. The deep real-estate bust cut sharply into tax receipts at many state and local governments, however, and helped keep the whole economy depressed. That’s one of the things the Fed has tried mightily to turn around, by forcing interest rates far below normal levels. It finally began to work in 2013, with a housing recovery now firmly underway. That’s one reason the Fed recently said it would pare back the bond purchases that constitute quantitative easing, with the whole program possibly coming to an end within a year or so. .. http://finance.yahoo.com/blogs/the-exchange/how-washington-has-choked-off-the-recovery-190355229.html

the link with those, again .. http://investorshub.advfn.com/boards/read_msg.aspx?message_id=95191447

.. brought back the 'public vs private' stuff .. one way to put it .. 'private spending'
the only one good vs spending is spending is good, in some economical situations ..

by memory there were a couple on that which i should have included in the one you replied, so three here ..

Five On The Floor .. excerpt ..

For those who don’t know or don’t get the paradox of thrift, it’s actually very simple: if people (or the government) cut their spending, and the Fed can’t offset this move by cutting interest rates, the economy will contract — and the economy’s contraction will reduce the incentive to invest, so that investment actually falls.

I know that many economists just refuse to accept this proposition, which seems absurd to them. But what, exactly, is their alternative? If you believe that a cut in spending under current conditions — it doesn’t matter whether it’s public or private spending — leads to more rather than less investment, what is the mechanism? How does my spending cut give businesses a reason to spend more rather than less (other than via the confidence fairy)? Remember, interest rates can’t fall — the zero lower bound isn’t a theory, it’s a fact, and it’s a fact that we’ve been facing for five years now.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=93041265

and

"As far as creating aggregate demand is concerned, spending is spending"
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=83109301

and

no, shermann, quite the opposite .. lack of public and private spending and investment .. public and private saving more, because this depression was not a normal economic overheating business cycle recession where inflation increases and Fed raises interest rates to kill it so then recession, as in the early '80's .. the latest recession was a financial asset explosion and bust, leading to an asset price collapse .. so public and private saved/are still saving instead of spending .. GOP austerity policies, of course, added to the House GOP Caucus Room Restaurant decision to oppose every bill Obama puts forward .. so job bills .. poop .. GOP austerity policy which long before had proved to fail .. still in spite of the conservative, maybe even treasonous behavior, the US recovery puts Europe's to shame .. in spite of .. http://investorshub.advfn.com/boards/read_msg.aspx?message_id=94539115

i added a couple of commas and corrected a spelling mistake in that one ..

[F6]

Florida Law Mandating Drug Tests For Welfare Struck Down By Federal Judge



12/31/2013 4:37 pm EST

Dec 31 (Reuters) - A U.S. judge on Tuesday struck down a Florida law requiring drug screening for welfare recipients, saying that it violated the constitutional protection against unreasonable searches.

Florida Governor Rick Scott, a Republican who campaigned on a promise to expand drug testing, said he would appeal the ruling.

The law took effect in July 2011 and required parents to undergo and pay for urine tests for illegal drugs when they applied for Temporary Assistance for Needy Families, a federal-state program that helps poor people with children pay for food, shelter and necessities.

The testing fee of $25 to $45 was to be repaid by the state if the test came back negative, but applicants who tested positive would have been barred from receiving benefits for a year.

Enforcement of the law was temporarily halted in October 2011 after the American Civil Liberties Union sued, arguing that mandatory testing of people who were not suspected of using drugs violated the constitutional prohibition against unreasonable searches and seizures.

U.S. District Judge Mary Scriven permanently halted enforcement of the law in Tuesday's ruling. She agreed with an earlier court finding that "there is nothing inherent in the condition of being impoverished that supports the conclusion that there is a concrete danger that impoverished individuals are prone to drug use...."

The lawsuit was filed in U.S. District Court in Orlando on behalf of Luis Lebron, a U.S. Navy veteran, college student and single father with sole custody of his then-5-year-old son.

Lebron was denied benefits when he refused to take the test.

"The new law assumes that everyone who needs a little help has a drug problem," Lebron said when the suit was filed in 2011. "It's wrong and unfair. It judges a whole group of people on their temporary economic situation."

Scott and other supporters of the law argued that welfare recipients needed to be drug-free to prepare them for jobs. They said businesses had been requiring such tests for years and that government should do the same to ensure that taxpayer money wasn't used to buy illegal drugs.

"Any illegal drug use in a family is harmful and even abusive to a child," Scott said on Tuesday. "We should have a zero tolerance policy for illegal drug use in families - especially those families who struggle to make ends meet and need welfare assistance to provide for their children."

During the time the law was in effect, about 2.6 percent of recipients tested positive for illegal drugs, mostly for marijuana, according to the court documents.

The failure rate was well below that of the general population. The U.S. Department of Health and Human Services found in a 2009 survey that about 8.7 percent of the population aged 12 or older had used illicit drugs in the previous month.

Generally, the courts have allowed suspicionless drug testing only when public safety is at risk, such as for armed officers or railroad workers who operate heavy equipment.

The case is 6:11-CV-01473-MSS-DAB.

(Reporting by Jane Sutton; editing by Gunna Dickson)

Copyright 2013 Thomson Reuters

http://www.huffingtonpost.com/2013/12/31/florida-welfare-drug-tests_n_4525534.html [with comments]

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(linked in) http://investorshub.advfn.com/boards/read_msg.aspx?message_id=85141323 and following

[fuagf]

The Anti-Scientific Revolution in Macroeconomics

.. to your first one of Paul's ..

Paul Krugman January 12, 2014, 2:13 pm 73 Comments

Well, now I’m in Dublin to receive the James Joyce Award .. http://www.literaryandhistorical.org/ ; life is interesting, although it does tend to get in the way of blogging.

But I thought I could squeeze out a few minutes to talk about something I’ve been thinking about a lot lately: the remarkable extent to which powerful groups, including a fair number of economists, have rejected intellectual progress because it disturbs their ideological preconceptions.

What brings this to mind is the debate over extended unemployment benefits, which I think provides a teachable moment.

There’s a sort of standard view on this issue, based on more or less Keynesian models. According to this view, enhanced UI actually creates jobs when the economy is depressed. Why? Because the economy suffers from an inadequate overall level of demand, and unemployment benefits put money in the hands of people likely to spend it, increasing demand.

You could, I suppose, muster various arguments against this proposition, or at least the wisdom of increasing UI. You might, for example, be worried about budget deficits. I’d argue against such concerns, but it would at least be a more or less comprehensible conversation.

But if you follow right-wing talk — by which I mean not Rush Limbaugh but the Wall Street Journal .. http://online.wsj.com/news/articles/SB10001424052702303670804579233913327613176 .. and famous economists like Robert Barro .. http://online.wsj.com/news/articles/SB10001424053111903596904576516412073445854 — you see the notion that aid to the unemployed can create jobs dismissed as self-evidently absurd. You think that you can reduce unemployment by paying people not to work? Hahahaha!

Quite aside from the fact that this ridicule is dead wrong, and has had a malign effect on policy, think about what it represents: it amounts to casually trashing one of the most important discoveries economists have ever made, one of my profession’s main claims to be useful to humanity.

If you read Barro’s piece, what you see is a blithe dismissal of the whole notion that economies can ever suffer from am inadequate level of “aggregate demand” — the scare quotes are his, not mine, meant to suggest that this is a silly, bizarre notion, in conflict with “regular economics.”

You’d never know, either from the WSJ or from people like Barro, why anyone ever felt that regular economics — the economics of supply and demand and all that — was inadequate.

But you see, there are these things we call recessions. And if you believe regular economics is all there is, you should find them very upsetting.

Think, for example, about the Great Recession and its aftermath. Regular economics says that economies should normally get richer each year, as their work force and capital stock grow, and technology advances. But after 2007 the United States and other advanced countries suddenly went into reverse, becoming poorer instead of richer, and for an extended period too:


Real GDP per capita

So did plagues kill off part of the work force? Did termites eat part of the capital stock? Did technology retrogress? No, no. no. On the last point, has anyone noticed that the iPhone was introduced in 2007, and that the whole smartphone/tablet revolution has more or less coincided with a period of terrible economic performance?

So what did happen? Keynes offered an answer: it is, in fact, possible for economies to suffer from an overall lack of demand. Other people had said things along these lines, but Keynesian economics put it front and center.

This really was an intellectual revolution; indeed, while I’m generally against scientific pretensions, it amounted to a scientific revolution, something like plate tectonics in geology. Suddenly the seemingly inexplicable — what elevates mountain ranges? what explains periods of economic retrogression? — became comprehensible.

And yes, the theory has made successful predictions — surprising predictions that people who didn’t accept the theory regarded as absurd until they came true. I’ve written a lot about what happened (or actually didn’t happen) to inflation and interest rates; go back to 2009 and read what the usual suspects were saying. You claim that the Fed can print vast quantities of money without causing inflation? You claim that the government can run huge deficits without driving up interest rates? Hahahaha.

But even better, in a way, is the relationship between government spending and private spending. Demand-side economics says that under depression conditions government spending won’t compete with private spending — in fact, lower government spending will lead to lower private spending too. Hahahaha! After all, common sense says that the government and the private sector are in competition for scarce resources. Except if we look at the euro zone, where some countries were forced into severe austerity while others weren’t, we see this:



Percent changes in real government consumption and real private spending, 2009-2013

So let me summarize: we had a scientific revolution in economics, one that dramatically increased our comprehension of the world and also gave us crucial practical guidance about what to do in the face of depressions. The broad outlines of the theory devised during that revolution have held up extremely well in the face of experience, while those rejecting the theory because it doesn’t correspond to their notion of common sense have been wrong every step of the way.

Yet a large part of both the political establishment and the economics establishment rejects the whole thing out of hand, because they don’t like the conclusions.

Galileo wept.

http://krugman.blogs.nytimes.com/2014/01/12/the-anti-scientific-revolution-in-macroeconomics/?_r=0

[fuagf]

Kocherlakota and the Cultists

January 28, 2014, 1:36 pm

Narayana Kocherlakota, president of the Minneapolis Fed, is the prodigal son of monetary stimulus. He was the Fed’s leading hawk a few years ago, reflecting in part the ultra-freshwater macro doctrines of the Minnesota econ department and his bank’s closely associated research department. But he did something amazing: he looked at evidence, listened to his critics, and changed his views .. http://www.nytimes.com/2014/01/28/business/a-federal-reserve-policy-maker-urges-it-to-do-more.html?smid=tw-share&_r=0 — becoming the Fed’s leading dove.

This is totally praiseworthy, especially because it almost never happens.

Binyamin Applebaum’s article on NK also contains dramatic evidence of the intellectual climate from which he had to emancipate himself, in the form of an email from Ed Prescott, founder and relentless promoter of real business cycle theory. Prescott:

---
It is an established scientific fact that monetary policy has had virtually no effect on output and employment in the U.S. since the formation of the Fed.
---

In reality, few if any topics in economics have been studied as thoroughly as the real effects of monetary policy. And the overwhelming consensus, from multiple lines of inquiry — Sims-type econometrics, Romer-Romer style event studies, Mussa-style comparisons of exchange regimes (which are also monetary policy regimes) — is that monetary policy has powerful real effects. This consensus could be wrong — such things have happened — and Prescott could make the case that the consensus is wrong. But that’s not what he’s saying. He’s declaring it “an established scientific fact” that what everyone outside his sect believes is totally false.

That’s not science, whatever Prescott may think; it’s being part of an irrational cult. And kudos to Kocherlakota for learning to stop drinking the Kool-Aid.

http://krugman.blogs.nytimes.com/2014/01/28/kocherlakota-and-the-cultists/

====


July 7, 2013, 8:27 am
That Terrible Taper

One of the odd things about the people arguing that we must raise interest rates to head off bubbles — Raghuram Rajan, Martin Feldstein, the BIS, and so on — is the near-universal assertion among this group that just a little rate increase can’t do any real harm. (Just a thin little mint). After all, rates are so low!

As I’ve argued, this is a novel economic principle; where else do we argue that demand curves (in this case the demand for investment) are vertical at low prices? But it has occurred to me that it might be helpful to look at what the partial victory of these people — their implicit success in bullying the Fed into talking about tapering despite a still very weak, low-inflation economy — has wrought. Bear in mind that the interest rates that matter most for the economy are not the rates at which the government can borrow, but the rates facing private investors — and above all, mortgage rates, for housing is the most important transmission mechanism for monetary policy. And here’s what we see for mortgage rates since the talk of tapering began:



Do you really think that this will have no effect? Really, really?

By the way, I see that some readers imagine that the effects of the taper talk somehow refute my earlier assertions that the rate at which the Fed is buying long-term bonds has little effect on interest rates. But you’re misunderstanding both what I said and what is happening now. My point was always that the direct effects of bond purchases were small, so that anticipated changes in the pace of purchases — like the end of QE2 in 2011 — had minimal effects.

What’s happening now, however, is that the taper talk has led to a sharp revision of market expectations about the path of short-term interest rates, which the Fed does control. From Gavyn Davies .. http://blogs.ft.com/gavyndavies/2013/06/28/how-the-fed-lost-control-of-short-term-interest-rates/ :

The Fed didn’t mean this to happen; it tried to communicate that it wasn’t changing the path of short-term rates; but this was naive on its part. The Fed can’t really commit to future policy; all it can do is signal its character .. http://krugman.blogs.nytimes.com/2013/06/30/historic-mistake-watch/ , and what it ended up doing here was convey the sense that it’s much more inclined to tighten too soon than previously thought.

So it’s a bad story, all around.

http://krugman.blogs.nytimes.com/2013/07/07/that-terrible-taper/

.. yep, still working to understand more nitty-grunty about this stuff .. edit add ..

Bernanke won't blow up bond market

By Stephen Gandel, senior editor June 19, 2013: 1:28 PM ET

The Federal Reserve may not be the big bad wolf of the bond market, despite what some say.

FORTUNE -- The last of the economy's Band-Aids are coming off. The question is how much it will hurt.

So far the answer from the bond market has been quite a lot. The yield on 10-year Treasuries spiked to 2.3% Wednesday after the Federal Reserve chairman Ben Bernanke indicated that .. http://money.cnn.com/2013/06/19/news/economy/federal-reserve-stimulus/index.html , yes, the bond stimulus will come to an end. Not immediately, or all at once. But Bernanke said if the economy remains on its current path he expects the Fed to curtail bond purchases later this year, and stop completely by mid-2014 if the unemployment rate hits 7%.

With Wednesday's move, bond yields have risen 0.8 percentage points in about a month. That might not sound like a lot, but the move translated into a 8% drop in prices for the 10-year. Bond investors aren't used to those kind of losses.

MORE: Why Bernanke can't win - http://finance.fortune.cnn.com/2013/06/18/why-bernanke-cant-win/

Some, though, are hunkering down for much worse .. http://money.cnn.com/2013/05/23/investing/fed-bond/index.html . A stream of boldface names, including Warren Buffett .. http://finance.fortune.cnn.com/2013/05/04/buffett-worries-about-feds-huge-experiment/ , Jamie Dimon .. http://finance.fortune.cnn.com/2013/06/06/jamie-dimon-volatility/ , and Goldman Sachs' (GS .. http://money.cnn.com/quote/quote.html?symb=GS ) CEO Lloyd Blankfein and COO Gary Cohn .. http://finance.fortune.cnn.com/2013/01/30/goldman-sachs-bond-market/ , have told us to watch out for rising interest rates. Most of them have focused on what will happen when the Fed stops buying. With that much buildup, it's no surprise that investors have rushed for the gates now that Bernanke has signaled the final countdown. The problem is there's no real evidence the Fed's moves will blow up the bond market, at least not if investors keep their heads.

You can blame the Fed itself for some of the frenzy. Last year, the Fed said it wouldn't raise short-term interest rates, which are near zero, until the unemployment rate hits 6.5%. There is no target for when the Fed will end its quantitative easing program. That's created some confusion in the bond market and caused interest rates to move up faster .. http://finance.fortune.cnn.com/2013/06/14/rising-interest-rates/ .. than if the Fed had laid out when they would stop buying bonds and how much at a time. The Fed came closer Wednesday for setting down some guidance as to when QE would end, but Bernanke qualified his 7% target, saying the Fed would adjust its view on the program based on the economic outlook. "Not having consistent guidance has been a mistake," says Vincent Reinhart, a Morgan Stanley strategist and former top Fed economist.

MORE: Bond investors have already been pulling out before the Fed meeting
http://finance.fortune.cnn.com/2013/06/19/bonds-ben-bernanke-fed/money.cnn.com/2013/06/19/investing/bonds-fed-bernanke/index.html

But what is also true is that stream of debt doom worriers (which I have to say at times has included me .. http://finance.fortune.cnn.com/2013/02/11/banks-bond-bubble/ ) has made the Fed and its buying seem more important to the bond market than it may actually be. The Fed owns just under $2 trillion in Treasury bonds. That's less than 20% of the nearly $16 trillion in U.S. debt.

Still, much of that is not traded regularly. Banks, sovereign wealth funds, and other large investors own a similarly big amount of U.S. bonds as Bernanke & Co. And they aren't likely to sell even if prices drop. The Fed, too, says it has no plans to sell off its own holdings.

MORE: Don't believe Alan Greenspan's bullish case for stocks
http://finance.fortune.cnn.com/2013/06/19/dont-believe-alan-greenspans-bullish-case-for-stocks/

Currently, the Fed is adding $85 billion a month to its bond portfolio. Of that, slightly more than half, $45 billion, in going into Treasuries. The rest is going into mortgage bonds.

How does that compare to what's being sold? In May, Uncle Sam issued $184 billion in debt that won't come due for a year or more. In April, the Treasury sold $282 billion in similar debt. So the Fed is not exactly cornering the market with its bond purchases. And most Treasury bond auctions continue to be oversubscribed.

"There are other natural buyers of U.S. government debt that will step in that have been crowded out by the Fed," says Shyam Rajan, a U.S. rate strategist at Bank of America Merrill Lynch.

Yes, retail investors have been pulling their money out of bond funds .. http://money.cnn.com/2013/07/01/retirement/bond-funds.moneymag/index.html . But those mutual funds are a much smaller portion of the market than they were back in the mid-1990s. What's more, the amount of new debt is likely to shrink in the coming months. The CBO and others recently predicted that an improving economy and higher tax revenue could cause the U.S. deficit to fall to around $650 billion this fiscal year, down from $1.1 trillion. If that's true, the Fed could theoretically cut its bond purchases back and still have the same impact that it is currently having by buying $45 billion a month.

"With the government dramatically reducing amount of issuance, the reduced buying from the Fed could still have the power to keep rates low," says Scott Colyer of Advisors Asset Management.

When you look at the daily trading volume for the bond market, the Fed's importance is even smaller. An estimated $350 billion of Treasury bonds are bought and sold each day. Spread the Fed's $45 billion in purchases over the course of the month, and that works out to just 0.4% of overall Treasury bond market activity on a daily basis.

And that's if the Fed were to stop all of its purchases at once, which it isn't likely to do. More likely, the Fed would cut back bond purchases gradually, $5 to $10 billion at a time. That pullback could be spread between the Treasury and mortgage markets.

"My anticipation is the that the end of QE will be like going to the dentist," says long-time fed watcher Bob Eisenbeis of Cumberland Advisors. "The anticipation is worse than that actual visit."

http://finance.fortune.cnn.com/2013/06/19/bonds-ben-bernanke-fed/

.. i think those kinda synchronize .. LOL ..