The Next Three Years

[FRED]

Re: The Next Three Years

Fred- Thanks for the nice work. It's very helpful. I have a quick question on the slide entitled "Private vs. Public Debt". Shouldn't the Private Debt Gap be $12 trillion ($12.231 to be exact)? Or does the $12 trillion Private Debt Gap and the $4 trillion Public Debt Filler behave in a similar manner so they are combined? If so, can you elaborate on the dynamics of that?

It's an error, one of five left to fix in the next version.

Also, I would like to better understand the impacts (if any) the Private Debt Gap and Public Debt Filler have on unreserved credits, base money supply, and latent inflation/disinflation/deflation.

Thank you.

Long story short, if private lenders don't forgive the debts, the government is on the hook one way or another. Moving debt from private to public account worsens the fiscal position, weakens the currency, and increases cost-push inflation from energy imports.

[think365]

Re: The Next Three Years

Fred- Thanks for the nice work. It's very helpful. I have a quick question on the slide entitled "Private vs. Public Debt". Shouldn't the Private Debt Gap be $12 trillion ($12.231 to be exact)? Or does the $12 trillion Private Debt Gap and the $4 trillion Public Debt Filler behave in a similar manner so they are combined? If so, can you elaborate on the dynamics of that? Also, I would like to better understand the impacts (if any) the Private Debt Gap and Public Debt Filler have on unreserved credits, base money supply, and latent inflation/disinflation/deflation.

Thank you.

[astonas]

Re: The Next Three Years

I think the concept of valances has more to do with thresholds.

As I noted in the Linear No Threshold post, there are behaviors which do not scale in linear or even proportional fashion. They are step behaviors just as there are valance bands for electrons around atoms.

Most likely your confusion is because you're thinking electron clouds as opposed to Bohr era orbits.

Nope, those are discrete as well.

The theory (as I extrapolate it) is that the effects of fundamental shifts in one or more of the above areas is threshold driven; until the threshold is achieved there is no change, but once the threshold is exceeded then the change is nearly instantaneous (and irreversible?).

Ah, ok, so more of a band gap/photoelectric effect analogy, than an actual valence band analogy, (unless he really wants to dive into k-space). ;-)

[c1ue]

Re: The Next Three Years

Hmm, I thought I was pretty comfortable with the concept of valences in chemistry and physics, but I'm not sure I follow this bit. Are you saying that the "Federalization/Debt Resolution and Balkanization/Debt Default represent opposite ends of a continuum, which may or may not be orthogonal to other axes in the system, such as a "Peak Cheap Oil sooner/later" axis? If so, I would probably use a "vector" analogy instead. Or am I completely misunderstanding where you are going here?

I think the concept of valances has more to do with thresholds.

As I noted in the Linear No Threshold post, there are behaviors which do not scale in linear or even proportional fashion. They are step behaviors just as there are valance bands for electrons around atoms.

Most likely your confusion is because you're thinking electron clouds as opposed to Bohr era orbits.

The theory (as I extrapolate it) is that the effects of fundamental shifts in one or more of the above areas is threshold driven; until the threshold is achieved there is no change, but once the threshold is exceeded then the change is nearly instantaneous (and irreversible?).

[astonas]

Re: The Next Three Years

Great question. Not only do we have to worry about the relative impact of each of these three drivers, assuming we are correct and these are indeed the most relevant processes of change, but we also have to consider their impact on each other. To do this we have come up with the concept of "valances," borrowed from physics. Unlike the hard science version, economic process change valences are strictly qualitative. The valance of Eurozone Fracture, for example, is between Federalization/Debt Resolution and Balkanization/Debt Default.

Hmm, I thought I was pretty comfortable with the concept of valences in chemistry and physics, but I'm not sure I follow this bit. Are you saying that the "Federalization/Debt Resolution and Balkanization/Debt Default represent opposite ends of a continuum, which may or may not be orthogonal to other axes in the system, such as a "Peak Cheap Oil sooner/later" axis? If so, I would probably use a "vector" analogy instead. Or am I completely misunderstanding where you are going here?

A doubling of private sector debt in seven years is dramatic no matter how it's depicted. Given the emphasis on public sector debt, which backstops private debt under the rules of our political economy, that growth rate is relevant, Larry Summers' comments notwithstanding.

I completely agree that all of the drama is there, real, and well-depicted, regardless of presentation. My point was that since this is the case, you could give people who are practiced at reading semi-log graphs a chance to glean some additional information from the same graph. A semi-log plot allows for easy identification of things like inflection points, and steady exponential growth regimes, which can be read directly in a semi log plot without additional annotation, and are quite hard to see on a linear scale, since they look more like slow curves. But again, that may not be the main point you were trying to make with the graphs, and if you feel it distracts from the main point, you may not want to go there.

Either way, thanks for a great presentation.

[FRED]

Re: The Next Three Years

Thanks FRED and EJ!

I was wondering if there were any plans to address two points, which occurred to me while watching the video:

1) The four areas identified (Debt Deflation, EuroZone Fracture, China's Great Wall of Money, and Peak Cheap Oil) are all well-explained and well-defined, but it is not necessarily true that these should all have effects of similar magnitudes. Perhaps this is asking more than a well-reasoned argument can be expected to provide, but I was wondering what the current thought was about comparative potential magnitudes of these drivers? The circles are all the same size, but I'm guessing that's just to provide a simple graphical representation, right?

Great question. Not only do we have to worry about the relative impact of each of these three drivers, assuming we are correct and these are indeed the most relevant processes of change, but we also have to consider their impact on each other. To do this we have come up with the concept of "valances," borrowed from physics. Unlike the hard science version, economic process change valences are strictly qualitative. The valance of Eurozone Fracture, for example, is between Federalization/Debt Resolution and Balkanization/Debt Default.

2) in Debt Deflation: Showing money vs. time graphs on a linear (rather than log) y-axis does make the graph much more dramatic, and perhaps that was the desired effect here. Nonetheless, I feel obliged to point out that a semi-log plot provides a more meaningful presentation of any quantity that changes multiplicatively with time. Since inflation and debt interest both apply to money multiplicatively (as does population growth, and other factors in the denominator) there really aren't very many contexts in which a linear-linear graph is the most informative choice. Of course, the selection still depends on your audience, and goals. If the intent was chiefly for the graphs to provide the emotional impact ("wow, look at that debt grow!") rather than provide information about relative magnitudes and changes, please disregard this comment.

A doubling of private sector debt in seven years is dramatic no matter how it's depicted. Given the emphasis on public sector debt, which backstops private debt under the rules of our political economy, that growth rate is relevant, Larry Summers' comments notwithstanding.

[astonas]

Re: The Next Three Years

Thanks FRED and EJ!

I was wondering if there were any plans to address two points, which occurred to me while watching the video:

1) The four areas identified (Debt Deflation, EuroZone Fracture, China's Great Wall of Money, and Peak Cheap Oil) are all well-explained and well-defined, but it is not necessarily true that these should all have effects of similar magnitudes. Perhaps this is asking more than a well-reasoned argument can be expected to provide, but I was wondering what the current thought was about comparative potential magnitudes of these drivers? The circles are all the same size, but I'm guessing that's just to provide a simple graphical representation, right?

2) in Debt Deflation: Showing money vs. time graphs on a linear (rather than log) y-axis does make the graph much more dramatic, and perhaps that was the desired effect here. Nonetheless, I feel obliged to point out that a semi-log plot provides a more meaningful presentation of any quantity that changes multiplicatively with time. Since inflation and debt interest both apply to money multiplicatively (as does population growth, and other factors in the denominator) there really aren't very many contexts in which a linear-linear graph is the most informative choice. Of course, the selection still depends on your audience, and goals. If the intent was chiefly for the graphs to provide the emotional impact ("wow, look at that debt grow!") rather than provide information about relative magnitudes and changes, please disregard this comment.

[wayiwalk]

Re: The Next Three Years

Very interesting video, but I had to turn the music off, a little too hypnotizing for me, putting me in a catonic state

I'll look forward to the presentation with EJ's narration. Agree that it is typically tough to call in during the work week.

[pianodoctor]

Re: The Next Three Years

Thanks, FRED. Also, I second JK's request.

[jk]

Re: The Next Three Years

Starting in 2012 we'll have two regularly scheduled monthly webinars for subscribers. The first will be produced from this presentation.

i hope they will be recorded for time shifting. i haven't been able to participate in a single webinar because of scheduling conflicts.

[FRED]

Re: The Next Three Years

Thank you. When it says the audio portion is available to Select subscribers, do you mean a narration, not just the music track? Where do Select subscribers go to get that version?

Starting in 2012 we'll have two regularly scheduled monthly webinars for subscribers. The first will be produced from this presentation.

[pianodoctor]

Re: The Next Three Years

Thank you. When it says the audio portion is available to Select subscribers, do you mean a narration, not just the music track? Where do Select subscribers go to get that version?

[RK]

Re: The Next Three Years

Great Video, Thanks,

[FRED]