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Via Warren Meyer:

4 Responses to “Will Anyone Own This?”

  1. Harry says:

    Well, our central bank has jumped in with a lot of money recently, with an attempt to keep long-term Treasury yields low. A cynic might say they think it a good investment for its portfolio, and that the rise in commodity prices has overdiscounted future inflation. After all, the Fed and Treasury have thousands of PhD’s making models, so they know what the future holds, right?

    But I am not going to trash the Fed like Ron Paul. The Fed has been presented with an impossible situation, and it has not been the first time this has happened. Sure, it has made bad policy choices, going back to when it was founded, but we need a central bank to provide liquidity, especially during runs on banks. However, when it is asked to do more than that and keeping prices stable, they go into a realm they cannot control. This not my idea, it is the idea of Milton Friedman and others who are persuasive about how the world works.

    To your question, I am not advising going long on 30-year Treasurys, or on Italian bonds either, and did say no to some Italian telephone bonds recently and a year ago. I question whether the Fed has much power to control anything but the shortest rates for long because to my knowledge they never have been able to do so. But don’t blame them, blame Congress and the Treasury, who have forced them into a dilemma.

    Next time a politician says he agrees with Paul Volcker, ask him what part of Paul Volcker he agrees with.

  2. Harry says:

    A few additional observations. The first is that debt is not bad for individuals, enterprises, or government, although, all things being equal, it is better not to be in debt, if only because it enhances one’s borrowing power when one needs it. Certainly for a government to build a bridge that will last for a hundred years, provided that the rate is not usurious, should sell long-term bonds to finance the bridge, as opposed to taking money from the people living now, near the bridge, and impoverishing them for the sake of future generations who would get to use the bridge for free.

    This is very different from using debt to finance operations. Anybody who has been in business for themselves knows the risks with that.

    Now, there have been countless enterprises, operating on a shoestring, that have used debt financing to pay for the non-family help, the heating and electric bill, and the real estate taxes or the rent, and indeed that is responsible for many successful and failed business ventures. In the land of opportunity, here, it accounts for why we are the envy of the world.

    On the other hand, someone once told me that John D. Rockefeller saved half of whatever earned. Looking at several pictures of him, I can believe this. He may have been a fun guy to play golf with, but I would not hold him up as Platonic role model. Nevertheless, it worked, debtwise, financing his own ventures with his own money, and a whole lot of other people’s money, too.

    It is a question of how much debt you can handle.

    This is the reason why I mistrust government run by former bankers and their allies, lawyers. They think debt is good, and that any enterprise that has no debt is “undermanaged.”

    I have hardly any problem with leveraged buyout firms leaving former stockholders of a company with “the stub” after they have borrowed much to saddle the new company with an albatross of debt. How would one intervene without setting up a system that choked the next person from starting a business that might make him or her wealthy some day?

    It is quite another thing for our rulers to decide that the people they rule get leveraged up to pay the current bills of the king, let alone the king’s highway.

  3. Harry says:

    Speaking of graphs, Pat Toomey was on today with James Clyburn, one of his counterparts on the eight-person Death Committee. At the end of Clyburn’s interview with Chris Wallace, he said that he would not accept dynamic scoring, which he uncharitably said was in Pat Toomey’s dreams, but I praise Clyburn (Clybourne? My apologies.) for his laying his cards on the table. He evidently believes, or at least says he believes, that the ratio of revenues to tax rates is a straight line, the same belief held by, well, children who have never learned the Law of Diminishing Returns.

    Toomey proposed lowering the maximum income tax rate, implicitly making a statement that we are on the wrong side of the curve, and suggesting that lower rates might stimulate growth quickly. I think he picked that number because it worked thirty years ago under similar circumstances. Rates dropped, revenue rose. Pat Toomey understands that the graph is not a straight line rising from the valley to the top of the Matterhorn. It is a curve, where 100% rates yield zero revenue. Rational people can debate about where we are on the curve, but Plato would say that no rational man would accept straight-line scoring voluntarianally.

    However, I cannot remember when any two people came as close to framing the debate in such clarity. Yeah, you had to listen closely, but in a few minutes they got to the point.

  4. Harry says:

    Geez. Voluntarily. The IPhone made me do it. Luddites were right.

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