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Old 09-22-2010, 02:22 PM   #21
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I read Mankiw and Krugman regularly, but not Kotlikoff. The piece in the OP seems to be Kotlikoff doing exactly what he complains Krugman does - attacking the messenger rather than the message. I'll agree that Krugman is sometimes too strident. Given that he's been on the losing side of lots of policy arguments over the years, even though he feels the facts are with him, I can see how that would happen.

On the particular issue of current interest rates, it seems that Krugman is right. If Kotlikoff was predicting a big 12 month increase a year ago, he got it wrong.

Because of this thread, I read some of Kotlikoff's blog entries. I have to admit that I'm intirgued by the idea of limited purpose banking, which shows up in a number. His piece that says the interest differential between Greek and US bond rates (10% vs. 3.75%) is pretty much backward should provide a great arbitrage opportunity for someone who agrees with him.

I agree with much of what G4G has posted here. I'll add that some of the disagreement is long term vs. short term. The big Keynes insight was that time frames matter, policies that would make sense if all markets instantaneously adjusted to new information don't make sense in the real world. I'd like to see the debate framed in those term.
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Old 09-22-2010, 06:11 PM   #22
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Of course, we don’t have to limit our choices to Krugman and Kotlikoff, or even assume that one is always “right” while the other always “wrong”. They both have their moments.
That kind of insightful, even-handed analysis is out of place in this discussion. Please knock it off!
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Old 09-23-2010, 08:53 AM   #23
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That kind of insightful, even-handed analysis is out of place in this discussion. Please knock it off!
All right. Then they're both wrong. How's that?
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Old 09-24-2010, 05:24 PM   #24
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It appears your affection is not reciprocated, Ha.

Poor Kid on Block Gets Fleeced by Elderly: Laurence Kotlikoff - Bloomberg
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Old 09-25-2010, 12:59 AM   #25
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It appears your affection is not reciprocated, Ha.

Poor Kid on Block Gets Fleeced by Elderly: Laurence Kotlikoff - Bloomberg
Yes, I knew about this regretful lapse in his judgment.

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Old 10-02-2010, 08:09 PM   #26
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Krugman is a hack. Does he ever get anything right?

Of the guys I follow Marc Faber has been the most impressive.
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Old 10-03-2010, 08:27 AM   #27
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Krugman is a hack. Does he ever get anything right?

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The Op Ed(s) in question were about interest rates, about which Krugman continues to be correct.
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Old 09-12-2011, 12:16 PM   #28
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One year later and the 10-yr rate on government bonds continues its downward trend. 1.92% today.

Maybe the bearded economist from Princeton actually knows something worth listening too, even by those who don't agree with his politics.
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Old 09-12-2011, 02:30 PM   #29
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...but too many folks ignore that in favor of some pre-set theory governed, it seems, mostly by politics....
Yes sir. but that is only if they need a plausible reason.... they find one to support their agenda and planned action. Most time their agenda is all the reason they need.
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Old 09-12-2011, 02:49 PM   #30
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One year later and the 10-yr rate on government bonds continues its downward trend. 1.92% today.

Maybe the bearded economist from Princeton actually knows something worth listening too, even by those who don't agree with his politics.
You are extremely cute, that is why I love your posts so much. I am most fond of your "nah nah nah nah na" numbers.

Time will tell, but speaking for myself I do not bet on interest rates, especially betting that low rates will go lower, or high rates higher. They may well, but it suffers from what any odds-on bet suffers from. The loss can be large, but the possible gain is capped. True that a trend will likely continue, but one must examine not only frequency, but also mathematical expectation.

True that I dislike Krugman's politics, but I would never bet with or gainst him. It just is not practical.

I notice that your posts are mostly about what others (like me) have got wrong. Why not tell us a little about your investing prowess?

Ha
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Old 09-12-2011, 02:58 PM   #31
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You are extremely cute, that is why I love your posts so much. I am most fond of your "nah nah nah nah na" numbers.


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I notice that your posts are mostly about what others (like me) have got wrong. Why not tell us a little about your investing prowess?

Ha
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Old 09-12-2011, 03:36 PM   #32
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Why not tell us a little about your investing prowess?

Ha
I did well enough on an institutional credit trading desk to leave that job voluntarily and forever at the age of 38.
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Old 09-12-2011, 05:12 PM   #33
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Back on point . . .

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Time will tell, but speaking for myself I do not bet on interest rates, especially betting that low rates will go lower, or high rates higher. They may well, but it suffers from what any odds-on bet suffers from. The loss can be large, but the possible gain is capped. True that a trend will likely continue, but one must examine not only frequency, but also mathematical expectation.
None of this was about betting on interest rates, but rather comparing two competing views of how the economy works (or doesn't work) at this particular moment in time. There are all kinds of ramifications based on which worldview is correct - from the economic outlook, to appropriate policy responses, to investment implications. Who's right matters. Fortunately, each view comes with specific predictions we can test against reality.

Thinking about these macro drivers led to this comment (and actual equity sales a few days earlier) back on April 24 when the S&P was ~1320

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I do think we have an extended market and an economic slow down looming (largely due to the fiscal drag of expiring stimulus and budget cuts combined with the shock of a 35% yearly increase in gasoline prices). I don't think we're heading for recession, but we could easily see a repeat of last Spring when the economy also hit a soft patch and the S&P declined 15% or so.
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Old 09-12-2011, 05:48 PM   #34
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Time will tell, but speaking for myself I do not bet on interest rates, especially betting that low rates will go lower, or high rates higher. They may well, but it suffers from what any odds-on bet suffers from. The loss can be large, but the possible gain is capped. True that a trend will likely continue, but one must examine not only frequency, but also mathematical expectation.

True that I dislike Krugman's politics, but I would never bet with or gainst him. It just is not practical.

Ha
Don't sell yourself short. The premise and conclusion of this current discussion is disingenuous at best and sneaky at worst: Krugman argued last year - as he always does - that monumental levels of fiscal stimulus was/is necessary to increase the supply function throughout the economy which would increase the demand function while the general price level will be finely tuned to the right temperature by the prescient actions of your Federal Govt. As a Keynesian, he argues that "output and employment potential" must be seeded by fiscal stimulus which would scientifically - not theoretically - lead the economy back to full employment and thus to happy village dances on weekdays and chickens in everyone's pots on Sundays - at the proper price, of course.

Krugman argued that there should be no fear of "bond vigilantes" as they would be compelled to accept the Fed Govt's proper price levels and interest rates and have no serious ability to unleash monetary inflation problems as full employment will have the ultimate say on interest rates rather than the market. The current claims in this discussion that Krugman has been correct for the past year because interest rates are low today is giving him credit for an outcome that arrived from a route that Krugman did not predict: The unemployment rate is at even higher levels despite massive fiscal stimulus spending in addition to Queen Elizabeth I and II. Furthermore, to suggest that the fact low interest rates in the US are due to anything but the incredible flight to safety trade as a result of fiscal policy mistakes not only domestically but also globally is laughable. The forward rates curve, TIPS yields, Gold, etc. are indeed direct statements from the "bond vigilantes" that the various stimulus programs are failures. The fact that spot curves are low today simply means that US Trsys are the least ugly girl in the Ugly Girl contest right now as global investors need to park cash somewhere - wait til She's the only one left on stage.

"Output and employment will be close to full potential" is what Krugman argued in his article if the Fed Govt injected massive stimulus into the economy: M2 growth looks like El Capitan these days but we are on the brink of recession and unemployment is actually higher now compared to back then. And yet TIPS are straddling negative while Gold is really, really expensive...
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Old 09-12-2011, 06:01 PM   #35
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Output and employment will be close to full potential" is what Krugman argued in his article if the Fed Govt injected massive stimulus into the econom.
Talk about disingenuous.

Here's what he actually said upon the passage of the stimulus bill in 2009:

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The stimulus bill looks helpful but inadequate, especially when combined with a disappointing plan for rescuing the banks.

The Congressional Budget Office, not usually given to hyperbole, predicts that over the next three years there will be a $2.9 trillion gap between what the economy could produce and what it will actually produce. And $800 billion, while it sounds like a lot of money, isn’t nearly enough to bridge that chasm.

So far the Obama administration’s response to the economic crisis is all too reminiscent of Japan in the 1990s: a fiscal expansion large enough to avert the worst, but not enough to kick-start recovery; support for the banking system, but a reluctance to force banks to face up to their losses. It’s early days yet, but we’re falling behind the curve.
Two and one half years later this looks like a pretty prescient assessment and yet nothing at all like your portrayal.
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Old 09-12-2011, 06:17 PM   #36
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Yup, Krugman has been saying that the politicians have been focusing on long-term debt problems instead of immediate needs to get the economy out of a liquidity trap.

It seems the more credentialed and accomplished the source, the more apt some people are to ignore and reject what they're saying.
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Old 09-12-2011, 06:34 PM   #37
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Yup, Krugman has been saying that the politicians have been focusing on long-term debt problems instead of immediate needs to get the economy out of a liquidity trap.
Oh absolutely. Notice how rapidly our government debt is being retired?

The easiest thing is always to say "What we did was correct. We just needed to do much much more." But perhaps what was done was wrong, and more would just dig a bigger hole?

Now, I don't want to be home when the pig comes, so you guys carry on without me, OK?
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Old 09-12-2011, 07:52 PM   #38
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Oh it's his fault that politicians aren't retiring govt. debt?
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Old 09-12-2011, 09:48 PM   #39
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The easiest thing is always to say "What we did was correct. We just needed to do much much more." But perhaps what was done was wrong, and more would just dig a bigger hole?
Which is why I look to objective measures to assess these things. Negative real rates all the way through the 10-yr part of the curve tell you something very specific . . . more bonds please! If someone has a different interpretation, they'll have to walk me through the specifics.

PS - "Flight to quality" is actually a fundamental part of the liquidity trap thesis, not a refutation of it.
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Old 09-12-2011, 10:45 PM   #40
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Oh absolutely. Notice how rapidly our government debt is being retired?
Heh. It's consumer and personal debt that drive a liquidity trap. Think of it as waking up one day and realizing you're in over your head in debt, or have underwritten too much debt, and freezing up at the thought of borrowing or lending more.

Why isn't government debt a big factor? When was the last time you saw government say "Oh dear. We've too much debt, and had best slow our spending and balance our books." The debt just doesn't induce the fear it does in Ma and Pa.

Now here's the fun part. If the government decides to join in the fun and start an austerity program, the liquidity trap doesn't get better. Government employees get laid off, and the ones left behind get nervous. They spend less. Contractors get nervous. Some lose contracts. They spend less. That pesky liquidity trap gets worse. (See also "The Great Depression")

Ideally a government would run balanced over the long run, and would plan on running a deficit when the overall economy was in a liquidity trap, and a surplus during good times. Some governments actually do this. Is that weird, or what?
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