Illusion of Recovery – Part I: Print and pray has officially failed - Eric Janszen

[Sharky]

Re: Illusion of Recovery – Part I: Print, spend, and wait has officially failed - Eric Janszen

Speaking of infrastructure projects, I heard some rumblings on CNBC this morning that Obama's speech next week might propose something along those lines -- as well as something about providing targeted work for people who have been unemployed for 6 months or more. Building roads and bridges? Or what?

Also, based on conversations with some friends in Hong Kong, I believe the "boom" in mainland China is really nothing more than a giant jobs program. Without a for-profit motive (other than cronyism and back-room dealing), it doesn't strike me as a bubble as much as anti-riot insurance for those in power. Makes me wonder if the US might start down the same road....

[SamAdams]

Re: Illusion of Recovery – Part I: Print, spend, and wait has officially failed - Eric Janszen

The benefits should be designed to outweigh the costs of financing work up-front.

This way a project is financed through projected monthly energy expenditure (operational) savings with no (or little) cash outlay by the entity ordering the work to be performed.

This can be done in the residential and small commercial sectors through utility-based on-bill financing and ESPCs in the large commercial, industrial and .gov sectors. They function as the financing mechanisms, with kWh savings guaranteed (assuming one has a proper contract) by the ESCO.

In this way, energy infrastructure can be upgraded faster than one would imagine without requiring much up-front cash. There is still loss to finance charges, and downside risk if oil/electricity/etc. drop significantly in price, but mechanisms to spur rapid investment that pay for themselves, plus offer a good chance for additional financial benefit, do exist.

Of course, this works best with relatively vanilla activities (insulating, retro-commissioning, replacement of older furnaces/boilers etc.) It also requires more sophistication in contractual agreements than many entities possess to ensure one does not get ripped off (there are a few third-party firms that do this - also for a fee).

When an investment makes sense (has a positive ROI), as energy efficiency typically does, there will always be ways to accelerate adoption. Also see Fred's post above ^.

And like similar espc programs, overwhelmingly used by governments since business will make roi investment themselves, the roi, if any is achieved without creating functional problems, goes towards further growth of bureaucracy or keeping alive bureaucracy that should not be operational in the first pace. Presumably there is some mechanism for government projects to deliver roi to the broad economy? How would this work? Hypothetically if the government built a nuclear power plant to deliver cheap electricity would this not be built at a premium to a non-stimulus project and therefore require additional subsidy to keep prices competitive? Why not just make select private utility and energy companies public? They already have the infrastructure or can more easily build. My hunch is all these "solutions"will not work in the long run or will create new "public"problems or subsidize select favored corporations at the expense of small business and innovation. The only solutions from public spending fix problems made with public policy in the first place. Maybe we should build a new Panama canal? Space elevator? Grants for energy efficiency? The us had those in the stimulus.
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[jk]

Re: Illusion of Recovery – Part I: Print, spend, and wait has officially failed - Eric Janszen

And like similar espc programs, overwhelmingly used by governments since business will make roi investment themselves, the roi, if any is achieved without creating functional problems, goes towards further growth of bureaucracy or keeping alive bureaucracy that should not be operational in the first pace. Presumably there is some mechanism for government projects to deliver roi to the broad economy? How would this work? Hypothetically if the government built a nuclear power plant to deliver cheap electricity would this not be built at a premium to a non-stimulus project and therefore require additional subsidy to keep prices competitive? Why not just make select private utility and energy companies public? They already have the infrastructure or can more easily build. My hunch is all these "solutions"will not work in the long run or will create new "public"problems or subsidize select favored corporations at the expense of small business and innovation. The only solutions from public spending fix problems made with public policy in the first place. Maybe we should build a new Panama canal? Space elevator? Grants for energy efficiency? The us had those in the stimulus.
,

no one but gov't builds e.g. roads and bridges. and some private investments may be too large or too risky for any private entity to undertake in the absence of a gov't guarantee or financing. re: your nuclear plant example: there is a limited private insurance pool available for nuclear plants in the u.s., with the tail risk assumed to be taken by the gov't. http://en.wikipedia.org/wiki/Economi...ants#Insurance

[Polish_Silver]

Fed gov debt >> 6%

Then we wasted more time arguing about whether the nation has too much public debt, when in fact public debt as a portion of total private and public debt outstanding is only 6% of total debt, down from 13% in the 1960s. Financial corporate debt, on the other hand, has over the same period grown from 2% to 37% of total debt

Please explain this 6% figure. Fed Gov debt is 10 trillion at least.
Unless total debt is 160 trillion, federal debt is a lot more than 6%, not to mention state and local.

[Polish_Silver]

Re: Illusion of Recovery – Part I: Print and pray has officially failed - Eric Janszen

average of 4% per quarter starting in Q2 2009.

It seems like we need 4% growth per annum. You make it sound like we need 4% each quarter.

Please be more careful! I'll agree to be numeric proof reader, something desperately needed around here!

[Slimprofits]

Re: Fed gov debt >> 6%

Please explain this 6% figure. Fed Gov debt is 10 trillion at least.
Unless total debt is 160 trillion, federal debt is a lot more than 6%, not to mention state and local.

18%?

I'm also not sure how EJ/Fred arrived at 6%. Here is their graph from another thread:

[Polish_Silver]

Typos in this post!

If the US government debt-to-GDP ratio reaches 20% or perhaps even 15% of GDP,

Should be "deficit" not debt. The debt is already near 100% of GDP.

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In 1980 interest rates had one way to go if the Fed was determined to stop an inflation spiral from developing into full blown hyperinflation: down.

Should be "up". Lowering interst rates does not stop an inflation spiral!

Please let me proof read your posts! You big picture guys need a bean counting, hair splitting, underling like me to catch all your typos and semantic mistakes.

[dcarrigg]

Re: Illusion of Recovery – Part I: Print, spend, and wait has officially failed - Eric Janszen

And like similar espc programs, overwhelmingly used by governments since business will make roi investment themselves, the roi, if any is achieved without creating functional problems, goes towards further growth of bureaucracy or keeping alive bureaucracy that should not be operational in the first pace. Presumably there is some mechanism for government projects to deliver roi to the broad economy? How would this work? Hypothetically if the government built a nuclear power plant to deliver cheap electricity would this not be built at a premium to a non-stimulus project and therefore require additional subsidy to keep prices competitive? Why not just make select private utility and energy companies public? They already have the infrastructure or can more easily build. My hunch is all these "solutions"will not work in the long run or will create new "public"problems or subsidize select favored corporations at the expense of small business and innovation. The only solutions from public spending fix problems made with public policy in the first place. Maybe we should build a new Panama canal? Space elevator? Grants for energy efficiency? The us had those in the stimulus.
,

The Panama Canal is terrible. It benefits nobody. The Hoover Dam sucks too. So does the interstate system.

Small business!!!! Innovation!!!! Bureaucracy!!!!

Further catch phrases containing no "solutions"!!!!

Let me guess, your other tab's open to reason.com. Even they wouldn't hate on the Panama Canal. Ideology is getting thick these days. I think libertarianism will be the new version of marxism. Blind faith in its power grows by the day.

[jtabeb]

Re: Illusion of Recovery – Part I: Print, spend, and wait has officially failed - Eric Janszen

My understanding is the same and I agree with your assessment.

[c1ue]

Re: Illusion of Recovery – Part I: Print and pray has officially failed - Eric Janszen

My understanding is that a wage-price spiral is helpful for discharging debt because the nominal wages of individual workers rise, providing them with the cash to pay down their debt, and generating nominal tax income for the government. In contrast, cost-push inflation from commodities and imports is unlikely to help much by itself, because that mostly translates into income for producers of commodities and imports. From what I understand, labor had a lot more pricing power in the 70's and 80's, so it was able to secure nominal wage increases to help offset inflation. That isn't going to be the case this time around, so possibly high cost-push inflation won't help as much with the debt.

This is reasonable.

I would point out that one major reason why labor has so poor pricing power is the influence of FIRE and debt on labor costs. While an injection of inflation due to commodity price increases in turn due to dollar devaluation might not be accompanied immediately by labor wage increases - at the same time the discharge mechanism might just shift from "inflating away" to "defaulted on".

Thus while we might not get a inflation-wage increase-price increase spiral a la the disco era, could we not instead get an inflation-mass default-debt reduction-effective income increase due to reduced debt load effect, the ultimate result being reduced private and corporate debt levels and a 2nd order improvement in labor competitiveness?

The overall impact is still pretty darned bad I think.

[Sutter Cane]

Re: Illusion of Recovery – Part I: Print, spend, and wait has officially failed - Eric Janszen

The Panama Canal is terrible. It benefits nobody. The Hoover Dam sucks too. So does the interstate system.

Small business!!!! Innovation!!!! Bureaucracy!!!!

Further catch phrases containing no "solutions"!!!!

Let me guess, your other tab's open to reason.com. Even they wouldn't hate on the Panama Canal. Ideology is getting thick these days. I think libertarianism will be the new version of marxism. Blind faith in its power grows by the day.

Thanks for your efforts in consistently replying to the libertarian talking points. A lot of the time I see them and get annoyed, but just don't have the energy or don't want to bother. Keep fighting the good fight.

[astonas]

Re: Illusion of Recovery – Part I: Print, spend, and wait has officially failed - Eric Janszen

Thanks for your efforts in consistently replying to the libertarian talking points. A lot of the time I see them and get annoyed, but just don't have the energy or don't want to bother. Keep fighting the good fight.

+1

In the new Cold War, I'm less worried about China's "communism with Chinese characteristics" than I am of America resurrecting McCarthyism, and the other attendant problems we had at home. I'm still looking for exactly what form that's going to take, but knee-jerk free-marketers seem to be the dominant candidates in that role at the moment. In any conflict, the real key is not just competing in the struggle, but doing so in a way that doesn't diminish your own nation. To do THAT requires an ability to look objectively at the strengths and weaknesses of one's own arguments, and that is not something I frequently see in the "free markets are always best" crowd.

[aaron]

Re: Illusion of Recovery – Part I: Print, spend, and wait has officially failed - Eric Janszen

China is getting wage price inflation. In that sense, perhaps their "bubble" is not so insane at all. They are inflating mortgages away like America did in the 1970's. The U.S. came out of that OK (could even say good). It is something to think on.

[Chris Coles]

Re: Illusion of Recovery – Part I: Print, spend, and wait has officially failed - Eric Janszen

+1

In the new Cold War, I'm less worried about China's "communism with Chinese characteristics" than I am of America resurrecting McCarthyism, and the other attendant problems we had at home. I'm still looking for exactly what form that's going to take, but knee-jerk free-marketers seem to be the dominant candidates in that role at the moment. In any conflict, the real key is not just competing in the struggle, but doing so in a way that doesn't diminish your own nation. To do THAT requires an ability to look objectively at the strengths and weaknesses of one's own arguments, and that is not something I frequently see in the "free markets are always best" crowd.

We are not operating within what are described as free markets; we are trying to live as though free when in point of fact, we are all living in a medieval style feudal mercantile economy. For those interested, try chapters 4, 5 and 6 of The Road Ahead from a Grass Roots Perspective.

Turning to the point raised by ASH earlier:

From what I understand, labor had a lot more pricing power in the 70's and 80's, so it was able to secure nominal wage increases to help offset inflation.

Here in the UK, when the drive to withdraw local grass roots prosperity into the FIRE economy started to become very visible and the price of fixed and paper assets became the driving force for the new FIRE prosperity; the true value of wages started to decline. But another tipping point was also reached with the vast government inspired industrial ventures, British Coal, British Steel, British Rail, British Leyland,....... all started to show the insidious effects of a bureaucratic stifling of free enterprise by bringing together many individual companies to form vast conglomerates and a social war broke out between, the employees who were watching their standard of living decline and the "Establishment" employers who had to keep a lid on wages to enable the continuous illusion of prosperity for their defunct, grossly unprofitable enterprises. The 1972 - 1974 Miners Strike here in the UK was a very good example: http://www.agor.org.uk/cwm/themes/ev...74_strikes.asp Followed a decade later with the definitive Miners Strike in the 1980's.

Feudalism demands that wages are kept as low as possible to prevent natural competition between what would otherwise be free enterprise employers each freely competing for both the customer and the employee. You need both for a successful company within a freely competitive economy. More success brings benefits for both the company and the employee; the former in more profit and the latter in the form of higher wages and thus greater prosperity.

Greater prosperity brings a natural increase in wages that in turn again naturally inflate the economy.

In an uncompetitive economy, where feudalism reigns, the opposite occurs, when the owners of the now very large and potentially unstable conglomerates try every way possible to prevent wage increases; as they will destabilise their business model. In turn again, taking their control of government institutions towards government inspired moves, raising interest rates is a very good example; to "Prevent" inflation taking off.

In a true free market, changes in worker income have a stabilising effect. You may pay more, but have to remain competitive. In which case, it is the competition between individual suppliers to the natural economy that dictate the rate of sustainable inflation.

I remind you all that we have not been living within a naturally free, competitive economy, for many decades now.

[Scot]

Re: Illusion of Recovery – Part I: Print, spend, and wait has officially failed - Eric Janszen

The Panama Canal is terrible. It benefits nobody. The Hoover Dam sucks too. So does the interstate system.

Small business!!!! Innovation!!!! Bureaucracy!!!!

Further catch phrases containing no "solutions"!!!!

Let me guess, your other tab's open to reason.com. Even they wouldn't hate on the Panama Canal. Ideology is getting thick these days. I think libertarianism will be the new version of marxism. Blind faith in its power grows by the day.

Better than the blind faith people put in the state. And it's less dangerous, too.

A libertarian will admit he doesn't know what the "solutions" are. A statist doesn't know either, but that won't stop him from arrogantly shoving them down everyone's throats.