Mr Barnanke's just released prepared remarks to the Senate's Committee on the Budget covered the alarming threat of heavy Social Security entitlements to the US deficit and economy in careful demographic detail.

Well, maybe not that alarming: in these easy money times it's worth only (40) Dow Points thus far. Old issue coupled with faith of the sit-out-the-hurricane variety in action.

What will it take for a necessary core of Congress, Senate, the Administration and voters to grasp the nettle?

[Ed: a Midas piece in, maybe?]

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  1. "Cassandra" // 1/19/2007 05:13:00 PM

    CC asked - "What will it take for a necessary core of Congress, Senate, the Administration and voters to grasp the nettle?

    As bona fide Yank of the Blue State variety, one must understand that Americans only pre-emptively fix OTHER peoples problems, but do fix domestic problems until long after the wheel has come the proverbial wagon. So the simple answer is: it will take a rather unpleasant a stage-coach wreck before any interests are suitably motivated to "fix" anything. Sad but true. The world seems to be split between Cassandra's like yours truly (and the EU & ECB provisionally sits here even if the take the free ride when offered), and those who are the financial equivalents of Holocaust Deniers.

    On the latter, I will say that the capacity of the system to employ and absorb leverage has proven greater than anything that I could ever have imagined. And that is being honest. But that is, independent of of whether that has anything to do with the future, for there must be some path-dependency at some point. Mark Thoma has a nice little piece linking to Mishkin's speech where he, in the Holocaust Denial camp says: Don't even try because it's impossible to forecast. Just be quick to pick up the pieces after. I would of course beg to differ....

  2. RJH Adams // 1/19/2007 06:50:00 PM

    What irritates in particular (on leverage) is the acceptance where it matters (at least officially) of the inevitability that we must all accept a fatalistic approach. Maybe it will happen. Maybe it won't. Just don't worry about it.

  3. "Cassandra" // 1/19/2007 07:14:00 PM

    I thought Issing won every single debate with his American counterparts in regards the wisdom of taking action on asset prices where it is deemed reasonable and wise to do so.

    The fact that we find more than 100,000 of ourselves pinned down between the Tigris and Euphrates on far flimsier and disingenuous evidence than is available to economists studying asset prices and their likely macroeconomic consequences, and that those arguing that somehow it is the economic policy maker that are not suffficiently responsible to intervene would be rather laughable were it not so tragic, on both accounts.

  4. RJH Adams // 1/19/2007 11:32:00 PM

    On asset prices, Mishkin's recent pronouncements (it would be nice to hope they were out of context) are appalling - but does any one over there care?

    Issing and the ECB two-pillar thing looks Canute-like given French politics (despite the German counterweight) but this might well be the year such scepticism is to be proved wrong.

    All the pieces are there for the ECB to take action (at least, according to the Issing formula) - strong house prices with equities flying + robust money and credit growth.

    But there is no/little political cover. Inflation is the lantern watched in public, Pavloved into obsessing on it alone. What? No inflation and the ECB wants to raise rates because M et Mme's portfolio and second home are appreciating too quickly? Pull the other one and don't dare, cloistered practitioner of the dismal arts, tell me I'm poorly.

    Jesus, even Mme Royale and on-a-higher-plane-election-smartie consort M Hollande ("I do not like the rich")don't want to wind-up their real estate holding company yet. Or so it is claimed, because in an alternative universe it may be possible that a house on the Riviera, a flat in Boulogne-Billancourt plus the constituency property really can be had for a mere c. 750k€. Nothing like bungling electioneering to warm the cockles. For God's sake at least make a fight of it! Show some bravitude (what is that again, love?) - I made Sarko only a narrow favourite.

    Suffice to say that any future wealth tax queries from C does Tokyo will be forwarded to Socialist Party headquarters.

    But I pull back from the rant long enough to conclude that a quasi-independent ECB must be wary how it strategises the Issing philosophy (for I hope it is what they are implementing). And it would be Brutus-sweet if Trichet was indeed the man to slide the knife in.

  5. Charles Butler // 1/20/2007 01:34:00 PM

    Of real interest to me (and usually dismissed as being OT or even silly. I'm prepared and won't take offense) is how, in fact, the west got into the position of needing so much liquidity - or is that "needing China so badly"? I even find liquidity to be an obfuscating term. It's better stated as, "God, is there ever alot of money around". And inflation? How about forgetting price increases on predetermined "baskets of goods" and work on how much money a person has to have to get the goods that he thinks necesssary at a point in time. Therein lies the secret. Put otherwise, if there's no inflation, why are there no savings? And I don't buy the low interest rate argument. There is nothing inherent in negative real interest rates, as we saw until recently, that compels the account holder to withdraw his money and buy a better television (false premise being that the messenger is the content) whose price is subsidized by globalization. Argue that it is expressed as asset price inflation. Then why is it that the average American with a gross income of $150,000 had a net worth, a couple of years ago, of $250k?

    The only thing that distinguishes all this from the "going to hell in a handbasket, so live it up" scenario of price inflation, or chronic poverty, is the officially-approved basket of goods. But who's going to put themselves in the middle of a symbiotic economy of drug dealers and addicts? The Chinese have lived that experience firsthand 170 years ago.

    BTW, a couple of political moves recently in Spain to address the local problem of high house prices and limited availability of rental accommodation. In the Pais Vasco they are considering fining, on a monthly basis with an escalating scale over time, owners of unoccupied dwellings. In Cataluña, the proposal is to actually expropriate the use of said dwellings to be managed by the community government. Serious populism in a society that tends to invest free funds in property rather than bank deposits

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