Limits of the debt/GDP ratio

Quick primer on debt, Greece is at 155% debt/GDP, and the USA is somewhere around 100%, and the US is running 10% annual deficit. (These are crude estimates based on order of magnitude.) We differ from Greece in a number of ways: 1) we don't face high interest rates, 2) we can print our own money, and 3) tax evasion isn't nearly as common.

Generally speaking, these differences imply that we aren't in any major danger of "becoming like Greece," but I think what's happening to Italy should be a warning for us. Yes, they are part of the Euro, and can't try to monetize their debt, but they are a big important part of the Euro. While I previously would have thought that our debt limit was well above what got Greece into trouble, seeing Italy have trouble at 119% (end of 2010) implies that action should be taken sooner rather than later. Yes, we could face unlimited borrowing constraints, as Japan seems to, or we could slip into dangerous waters. The reason I think we should act now, is the same principle as acting on global warming: reduce the likelihood of a possible catastrophic event.

If the model was clearer, and we knew that a fiat currency would absolutely prevent problems, then let the debt grow until the economy recovers during Bachman's second term. However, absent that certainty we should proceed with caution.

A bright spot

I can't say I'm a fan of the deal, but this was a wonderful example of both sides coming together. Unfortunately, I think for our nation to properly heal, we need a recovered economy. Obviously, reducing GDP via cuts to the federal budget is going to move us backwards, but it's looking like hope is retreating.

billion not trillion dollar coins please

A method for the Treasury to print money has been making the rounds. Let's posit that depositing newly minted large denomination coins will directly result in inflation. To the extent that this avoids default, it's a great idea, but it should be conducted based on daily revenue short falls rather than a "trillion dollar coin." By making it clear that the money supply will be expanded as needed, future inflation expectations will be raised. With higher inflation expectations, businesses will start spending some of the crazy-high cash reserves they are sitting on, and unemployment may finally start to fall. Note that it doesn't matter if coin minting scheme actually causes inflation; it only matters that enough executives think it will.

While we are on the topic of inflation, the obvious added benefit is that it will reduce the deficit in real terms.

Debt Ceiling Leverage

Two ideas have recently surfaced which both involve the federal reserve. In one, the Fed destroys the treasuries they own. The result is immediate space under the debt ceiling. In a slightly modified version of this, the Fed will just destroy t-bills which will at least allow the treasury to continue issuing cash management bills and the like.

In the second idea, the Fed simply allows the US Government to overdraw its account, and continues crediting payments. Clearly this is just printing money. Assuming that these options are legally possible, Obama should at least be making unassuring noises about them.

Here's why: libertarians and tea party types have deep fears of inflation and are more or less unanimous in their view that "'inflation is always and everywhere a monetary phenomenon." They also tend to be terrified of inflation and view it as far more troublesome than, say, a ruined economy. Making their biggest economic fear (well, after being told what ketchup brand to buy) a little closer to reality might just make them slightly more flexible. Nah. For good measure, maybe Obama should hint at having to sell off the gold reserves (this assumes that they can understand the impact of drastically increased supply on a market).

The Death of Borders

Much is being written about the death of Borders, and ebooks are often mentioned as the cultprit. While ebooks (and mp3 downloads) may have been what nudged them over the edge, they weren't the main instigator. Borders had a failed international expansion and took on huge debts. Barnes and Noble, which has survived (so far) stayed relatively debt free and always seemed to do a better job of managing their inventory. It also sounds like Border's in store inventory was mandated by company management and infrequently allowed store and regional managers to adjust for local taste.

Anyway, the upshot is that a flawed, but pleasant institution is gone. One more item, in a You've got Mail vein, in my experience bad independent book stores have suffered far more than good ones. Stores with poor selection, hours, or located in unwalkable neighborhoods have died. Other notable victims were those shops with holier than thow staff. On the other hand, stores such as The Elliot Bay Book Company and the Toadstool are still going strong.

On Cars

So, Bryan Caplan thinks human happiness peaks when eating at Chili's after buying a tv at Best Buy. (Speaking of chains, WFMI keeps going up despite the boycott. I've been wanting to reduce my Beta as an SPX over 1000 has me very nervous. Time to get short Whole Foods?) Ryan Avent, ever the voice of reason, points out that preferences vary.

The pro-American sprawl crowd seem to have more of an ideological objection to Europe than the "actually, the European lifestyle is somewhat appealing" crowd. That is, they seem to think that touristy Europe is an illusion: most Europeans don't live there you know, (presumably Europeans taking a holiday in America visit Church Falls rather than D.C.) Furthermore, the real Europe is a horrible disutopia caused by an oversized government. I'm not sure if it's because they feel threatened by it, or if they truely love mowing their lawns.

Democratic Stupidity

Remember when the media treated the nuclear option as if it was a perfectly normal thing for the then Republican congress to consider? Remember how democrats agreed they could keep the filibuster option, as long as they only used it when Republican said it was ok? I'm glad they could see so far into the future.

Aren't they glad they preserved that right? Aren't we glad that an extremist, minority party of now-discredited ideology can do so much damange to the stimulus bill?

While I'm at it, I'm glad that the $15,000 credit for home purcahses is dead. Talk about a dead weight loss.