http://davidstockmanscontracorner.co...hicken-little/
Snippet:
The crucial point about the above chart which covers net production in the entirety of the US business economy——-mining, energy, manufacturing, wholesale and retail trade—–is that it is expressed in actual nominal dollars which ring at the cash register.
By contrast, all of the Keynesian jawing about “real” interest rates, “real” GDP growth, “real” consumer borrowing and spending etc. assumes that “inflation” can be measured accurately by the primitive techniques of the Washington statistical mills; and that the whole system of national income and product accounts (NIPA), which is predicated on these “deflators”, actually reflects reality.
No it doesn’t. The Keynesian alternate vocabulary of economic newspeak often creates the appearance of growth and gains in the macro-aggregates by the presumptions of theory, not the tabulation of empirics at the cash register.
For example, the GDP accounts provide for steady “real growth” in spending for upwards of $3 trillion of “imputations” that do not even exist, such as theoretical outlays for rents by owners who live in their own houses; or by increasing the reported numbers for software and other technology spending by up to 10X on the grounds that improved quality and function should be registered in deeply negative “deflators”.
At the end of the day, however, main street households and businesses do not spend “real” or deflated dollars as computed by the Washington statistical mills; they spend the nominal dollars they have earned or saved, taking into account their own subjective views on the rate at which its purchasing power is being eroded by the rising cost of living.
In this regard, “real interest” rates are an unadulterated fiction. Households borrow based on the monthly cost of carry and the capacity of their incomes to support the contractual debt service required by the marketplace. Professor Summers’ hooey that real interest rates are negative but too tight never crosses the mind of any real world borrowers.
What does cross their mind, by contrast, is debt service carry-capacity and the penalty spreads they might face based on their credit histories. In that regard, here is the collective verdict of America’s 115 million households as reflected in their nominal dollars of mortgage, credit card, auto, student and other consumer debt.
To wit, after exploding by 5X between 1987 and 2008, household debt has gone flat as a pancake since the financial crisis, and, in fact, is nearly $400 billion or 3% lower than it was in early 2008.
That’s right. During that very same period, the Fed’s balance sheet exploded from $800 billion to $4.5 trillion or by more than 5X. Yet all that monetary stimulus had no impact whatsoever on household spending and borrowing. Self-evidently, professor Summers negative real interest rates, which are still too tight by his lights, did not induce tapped-out households to borrow and spend up a Keynesian storm.
Snippet:
The crucial point about the above chart which covers net production in the entirety of the US business economy——-mining, energy, manufacturing, wholesale and retail trade—–is that it is expressed in actual nominal dollars which ring at the cash register.
By contrast, all of the Keynesian jawing about “real” interest rates, “real” GDP growth, “real” consumer borrowing and spending etc. assumes that “inflation” can be measured accurately by the primitive techniques of the Washington statistical mills; and that the whole system of national income and product accounts (NIPA), which is predicated on these “deflators”, actually reflects reality.
No it doesn’t. The Keynesian alternate vocabulary of economic newspeak often creates the appearance of growth and gains in the macro-aggregates by the presumptions of theory, not the tabulation of empirics at the cash register.
For example, the GDP accounts provide for steady “real growth” in spending for upwards of $3 trillion of “imputations” that do not even exist, such as theoretical outlays for rents by owners who live in their own houses; or by increasing the reported numbers for software and other technology spending by up to 10X on the grounds that improved quality and function should be registered in deeply negative “deflators”.
At the end of the day, however, main street households and businesses do not spend “real” or deflated dollars as computed by the Washington statistical mills; they spend the nominal dollars they have earned or saved, taking into account their own subjective views on the rate at which its purchasing power is being eroded by the rising cost of living.
In this regard, “real interest” rates are an unadulterated fiction. Households borrow based on the monthly cost of carry and the capacity of their incomes to support the contractual debt service required by the marketplace. Professor Summers’ hooey that real interest rates are negative but too tight never crosses the mind of any real world borrowers.
What does cross their mind, by contrast, is debt service carry-capacity and the penalty spreads they might face based on their credit histories. In that regard, here is the collective verdict of America’s 115 million households as reflected in their nominal dollars of mortgage, credit card, auto, student and other consumer debt.
To wit, after exploding by 5X between 1987 and 2008, household debt has gone flat as a pancake since the financial crisis, and, in fact, is nearly $400 billion or 3% lower than it was in early 2008.
That’s right. During that very same period, the Fed’s balance sheet exploded from $800 billion to $4.5 trillion or by more than 5X. Yet all that monetary stimulus had no impact whatsoever on household spending and borrowing. Self-evidently, professor Summers negative real interest rates, which are still too tight by his lights, did not induce tapped-out households to borrow and spend up a Keynesian storm.
edition…