Chart of the Day: Pain in Spain


by Chris Becker

Today’s chart is a sorry pair out of Fitch’s 2015 Global Housing and Mortgage Outlook, that we previewed earlier today with regard to Australian house prices.

While the chart highlighting nominal house price growth was both awesome and disgusting, showing Australia leading the way, the detailed specs on Spain were equally sobering.

For those unaware of the state of the Spanish economy, it continues to suffer in the extreme in the wake of its burst housing bubble, with unemployment at depressing levels, ca. 25% (youth unemployment is at 54%!):


Almost nothing has arrested this abhorent state of affairs, including lower rates (now zero), as non-performing loans continue to drag with no recovery in sight. The diagnosis is quite simple. The orgy in mortgage lending before the GFC is a debt that cannot be repaid.


The lifeblood of an economy is credit creation, that is new mortgages and business loans that create aggregate demand that creates spending which creates employment and therefore revenue for government. When an economy is saturated in debt, usually of the non productive kind that is sucked up by speculation, aggregate demand growth reverses, spending retracts,  unemployment spikes, revenues disappear.

Most of the time this cycle restarts as government spending (automatic stabilisers) fills the gap, interest rates come down a little, prices fall, malinvestments are cleared, more modest and conservative business loans are created, confidence rises and off we go!

The problem is interest rates are at zero and can’t go lower and the government cannot spend more (Spanish debt to GDP has more than doubled to over 90% since the GFC) as markets are unwilling to purchase sovereign debt (hence the call for the ECB to do so).

The solution for Spain is simple but unpalatable. Don’t worry about the government debt. Get rid of the mortgage debt.

Latest posts by Chris Becker (see all)


  1. The solution is simple? Raise rates to encourage sustainable and fair use of debt. Australia should do the same.

    • Yep very simple.

      Cost of servicing the mountain of debt that hasn’t been paid off will rise, reducing household incomes, reducing spending, increasing unemployment, thus increasing loan arrears and creating larger pools of bad debt that will never be paid.

      • AHh – no – it will force bankruptcies and clear the debt. The problem is moral hazard as banks have no risk.

        Return that risk via failures and the process will correct.

      • these bankruptcies you mean?

        So 25% unemployment isnt high enough either? How about 50%?

        I agree with you on moral hazard – the banks who lent this mortgage debt need to go to the wall.

        thats how capitalism works, not the socialised banks that Europe are backstopping at the expense of everybody else.

      • Ssshhh Lev, we’re bad people who don’t want a glut of unpayable debt to keep ballooning.

        If you’re on twtr Lev hit me up @mektronik

      • So we tell the Spanish kids that if you take this medicine, and if everything works out, and a range of ‘parties’ don’t change their minds, then your children may gain employment and a home of their own.

        That real possibility for Spain as here is what has inspired Andy to ‘think outside the square’.

      • Isn’t that what bankruptcy is for Chris? Bad credit rating for a few years (fair enough), but clean slate for the ex-borrower… and lender realises the business risk. The attempt to avoid this is the problem.

      • ORRRRRRR

        the govt could deficit spend to support employment and demand while private debt is defaulted and interest rates are normalized to support the currency

        But thats none of my business kermit

        (Not an option while in EU obviously)

      • Chris,

        Steve Keen is now writing columns at Forbes and his first one touches on this subject.

        “The catastrophe in Europe has occurred because the “Growth and Stability Pact”—which I prefer to describe as the “Contraction and Instability Pact”—has enforced austerity by the government sector (the policy took effect in mid-2010). Consequently the private sector has continued to delever—as Figure 6 shows for Spain—and a Depression has resulted in Spain and Greece.”

        The whole piece begins here:

        It might be a good one for tomorrows links page.

      • @footsore,

        Agree, tho’ I would take it another step further than the politician, as they are just front house staff for other interests.

      • To use one of Keen’s favourite words – what a load of bollocks!!!!!

        As usual he just ignores the external account and the whole issue of government deficits, in a negative real RAT interest rate environment, driving increased CAD’s and thus increased foreign debt.
        So the UK ‘benefits’ from having a bit of residual as a Reserve Currency and it can ‘get away’ with this crap for a while – until it can’t!!!
        Exactly the same as Aus can ‘get away’ with it for a while longer because we still have some assets we are willing to flog to foreigners.
        What great thinkers we now have!!!!

        This is so effing depressing that so-called serious ‘professors’ keep coming up with this short-term myopic stuff that is demonstrably tripe!

  2. So a debt jubilee for the greedy f*ckers with dollar signs in their eyes who over-borrowed because property only ever goes up? Let us all pray that never happens here.

    • +1, not a fan of the debt jubilee, but if it does come about savers must receive the same (tax free). It could also be only applied to PPOR so the scum specfestors realise the risk of their specuvestment.

    • mm,

      No, a debt jubilee for people who were fooled into believing they had no choice. Were talking OPs here, not IPs I gather.

    • @dennis

      Yeah I’m not totally unsympathetic to that – there sure has been a lot of fear-mongering going on to prop up the ponzi.

      But really, fixing the moral hazard on the lending side is what’s needed, not creating a whole new moral hazard on the borrowing side. What would quashing the debt do to future iterations of bubble mania?

      We need a limited form of jingle mail. Why should lenders be able to dish out the cash risk-free? Should I be able to hand out $100 notes at the pub every night to all and sundry and sit back and collect the vig with no risk of someone doing a runner? Hell no…. But that’s the banksters lot in this country and it’s cancerous. Shut it down.

    • A debt jubilee without structural changes is just a big reset button for a replete adventure.

      Skippy… old testament boom bust economics has failed every time imo.

      • A debt jubilee without structural changes is just a big reset button for a replete adventure.

        Thank you skippy – beautifully summarised!!!!!!!

        replete or repeat? Both i guess!

  3. From the chart:
    nonperforming loans were almost nonexistent (<0.5%) before bubble burst

    Australia is different (our bubble will not burst) because we have very low percentage of nonperforming loans (0.7%)

  4. If number of mortages is rising, are housing or commercial starts also increasing in Spain? Does this indicate it is turning the corner?

    Is continuing austerity in Spain a condition of ECB purchases of Spanish government debt from Spanish and other banks?

    Is ECB buying Spanish government bonds and if so, from which banks and in what proportions?

    Is QE an interest rate subsidy to the PIIGS, but hardly at all to the core countries? and is this regarded as a contra to the exchange rate subsidy that the core is enoying because of the PIIGS?

    If any of the PIIGS default will it be the ECB left holding the bag because non-Spanish banks have sold their Spanish Bonds to the ECB or not bought replacements as existing bonds have matured?

  5. “that is new mortgages and business loans that create aggregate demand that creates spending”

    Sorry I must have missed that class at uni. How does creating mega-mortgages increase aggregate demand and how do people with mega-mortgages start spending ?

    Oh that’s right – they don’t.

    • your missing the other side – the person who sold the house gets his capital gain in the form of newly created money, ie. the mortgage created without deposit by the bank. e.g buy a house for $350K, mortgage $300k. Sell for $500K with $250K mortgage discharged, $250K profit that is turned into spending power (or used to leverage again)

      Its basic economic empirically proved theory. If you learn neoclassical economics at uni, (as I did), then of course your BELIEF would be different. The facts dont care about your beliefs. This is how it happens.

      • Newly created debt some one has to discharge, the debt doesn’t disappear when you make it bigger…

      • Chris

        Spain’s imports are about 30% of GDP. So let’s say you print money and splash it around the economy every timne that goes around in a circle, if it is going into RE and producing nothing, you lose 30% of it. Effectively over a reasonably short period almost the whole lot ends up as foreign debt. So Governemtn money printing, in whatever form, is not FREE money. it ends up as debt. There is no such thing as free money.

      • Oh I see, banks don’t borrow and hedge off shore nor do they use savings – they just whisk it up out of thin air – I get it. No, wait – they do borrow off shore and the do use savings…..

        And that magical $250k is then used to purchase another house for the previous seller and requires them to take out another massive loan – because of you know, that need for shelter and one up the Joneses – which evaporates another $500k OUT of the economy.

        Ohhh – and that initial mortgage of $300k just evaporated that persons spending power as well.

        Ohhhh and guess what – all that profit is also being syphoned off into ever higher echelons of investor class which DO NOT SPEND IT IN THE ECONOMY, for those of us who studied neoclassical economics at uni as I did, then went on to do several other masters to EXPAND their knowledge would understand that it does not trickle down…….I know right….. who would have thought that trickle down theory was debunked right.

        But don’t worry there are still massive profits being made by Asian developers who are ploughing their profits back into the economy by spending it at the footy, buying extra apples when they go shopping and taking the longer route in their taxi just to get the credit creation and trickle down process REALLY kicking along.

        Then of course there are those super funds building awesome high rise apartments who are definitely ploughing their money back into the economy via capital gains and never ending house price gains on apartments as seen in Spain.

        Unless of course MMT was not really such a grand idea after all.

      • I’m with Chris on this. The arguments put forward by others are strawman arguments, Chris never mentioned government deficit spending for Spain, his comment related to what happens in one trade..

        Employment is Spains issue, or a lack of it. Without a pay packet people can’t spend and then the economy fails. Spain has essentially outsourced it’s manufacturing to the northern euro countries which makes them wealthy at Spains expense, but they won’t chip in with welfare payments, so Spain gets shafted from both ends because of the Euro.

        Until Europe becomes a true “United States of Europe” with a monetary union it just isn’t going to work in times of economic stress.

      • Employment is Spains issue, or a lack of it. Without a pay packet people can’t spend and then the economy fails. Spain has essentially outsourced it’s manufacturing

        So long as our unemployment stays below the level of Spain just before the bubble burst (about 8%) no probs then.

        Good thing we weren’t dumb enough to offshore our manufacturing so there’s still plenty of jobs if demand for commodities falters.

      • @Leviathan,

        MMT is not an Ideology nor is a proscriptive, it is just a description of the creation and destruction of HPM, as well as its relationship with private moneys.

        Skippy… now on the other hand what agency influences its application – is – something which should be examined.

      • Peter

        You have to look at the consequences a little further down the track. You are looking at this simply as a case of ‘Do we wanmt high unemployment or do we want low unemployment?”
        That’s not how this works except in the mind of Magic Pudding devotees. Please read my post below on the consequences of printing into an unproductive economy.
        I repeat again – There is no such thing as free money. When you print it has consequences and for an unproductive economy those consequences are, in the end, dire.

      • @ flawse,

        The vast majority of money is privately created but, yes backstopped by HPM. So the printing meme is a bit loaded if not inaccurate. What is more curious is this fear that excesses can not be removed.

      • Flawse – there is no printing, but governments can run a deficit which is what they usually do, not just here but everywhere since forever.

        If a government is going to cover the welfare cost and social cost of high unemployment they may as well put people to work and get something done at a time when they can borrow cheaply.

        Why did they build the Hoover Dam?

        The government will go into deficit anyway, look at the Abbot government – the deficit is twice as large as the ALP one they criticised. They promised a surplus and gave us a bigger deficit – that can’t be avoided unless we want people dying of hunger in the streets.

        So if we are going into the overdraft we should get something back for it. Simple business philosophy.

        I don’t want my taxes wasted on welfare that is avoidable or on programs to keep kids in school or teenagers off drugs, I want value for money so I want a government who will spend good money to get good results that will make us more efficient in the future.

        Frankly I’ve had enough of namby pamby governments who can’t tell it straight and get things done. I want progress not austerity that sends us back to the stone age. No one ever succeeds in business by cutting spending on R&D and asset purchases during a recession, that’s the best time to do something positive.

  6. “Most of the time this cycle restarts as government spending (automatic stabilisers) fills the gap, interest rates come down a little, prices fall, malinvestments are cleared, more modest and conservative business loans are created, confidence rises and off we go!”

    Sorry Chris! I know you are pushed for tinme etc but…..really….
    Nice fairy story and rates right up there with all the other Magic pudding stuff.
    Spain’s problems centre around the gross misallocation of resources that resulted from being a member of the EEC which gave it two things
    1. Lower interest rates than it could have possible sustained on its own
    2. Massive investment in Spanish real estate particularly from the UK (itself running artificially lower IR”s)
    The whole economy became Real Estate and debt. The GFC cut the funds available in a big way which precipitated the debt problem that had already been created.
    Now if you take the Spanish economy and just hit it with government spending and even lower rates what would we expect to get? We’ve done the same thing as previously and expect a different outcome? I think that is one of the common definitions of madness.

    What would happen would be that you would get your RE bubble reinflated and an expansion of the CAD roughly in line with the new government spending. Thus you get foreign debt which needs to be covered by the other good citizens of the EEC. In this regard the only possible short term solution for Spain is to flog ever more of its RE to ever more foreign ‘investors’

    There is no Magic Pudding or fairies at the end of the garden. The distortions now inherent in Western economies cannot be fixed by ever greater doses of what caused the problem in the first place.We will not fix debt by creating negative interest rates to create even more debt. We need to set about fundamental reform. Importantly a necessary part of that reform, to create sustainable economies and ecologies, requires an increase in interest rates to create savings in both money and resource terms.
    An increase in IR’s will, as lev points out, mean liquidation of the debt through bankruptcies. That is the only way it can work. Debt Jubilees are total baloney and will serve nothing except to set us up for even worse over-consumption vs production and even worse debt in the long term.

    For goodness sake can we drop this government spending automatic stabiliser baloney. It’s just non-sensical. Government spending in our economies as they are now structured is not a stabiliser. In fact it reinforces the very distortions that are at the core of our problems

    • Bingo! And worse than that flawse the young are being sacrificed so banks and pensions don’t get hit. Sickening. But hey, let’s add more debt and call it austerity..

    • Um Bill…what do you think I was explaining? That is the theory in a normal cycle (one which we havent had for years)

      The whole approach so far in Spain is exactly as you describe – hit with govt spending and lower interest rates as per normal.

      And it hasnt worked…because there are massive structural problems and a history that you have repeated, that has been told here by me and others for years at MB.

      No contest there.

      Yes interest rates have to return to normality, but you cant do that with a pile of meta money debt that is beyond anything seen anywhere.

      The banks need to go to the wall, as has happened in the past (when captialism was capitalism) – and that means writing off the debt.

      That is not going to happen with the Germans holding the rest of Europe to ransom as they own all that debt.

      so other options need to be explored….

      Debt jubilees are as old as gold in use in monetary crisis – if you want to keep looking for answers in the past, its the biggest bloody answer in shining neon lights there is.

      • Debt jubilees – so you are advocating the confiscation of savings? How is it going to work? Without reform you just set the whole thing up for an acceleration of ever more debt at a faster and faster rate. A debt jubilee just means you don’t need reform – short term.
        Edit: As I’ve posted often enough and never got an answer – how do you persuade those in the world outside our nation, who, while enjoying a much poorer living standard, have worked industriously and saved, to give up their savings so we can go on enjoying our lifestyles. The only promise we are giving them is that iof it happens again we will confiscate their savings again! Yeah right!

        Everything thought aboput these days is just short termism. As I’ve written often enough long term in economics used be a minimum 10 years. Even then personally I reckoned it should have been 20 to 30 years. Now long term is 12 months and very few econom ic papewrs are even looking at that long a term. The outcomes generated by the policies that have been followed are looked at in terms of their immediate effect while also totally ignoring the effect of the external account and debt. Now you accuser me of living in the past here – maybe – God knows I’m old enough! However totally ignoring the effect of the external account and the debt created there-in is just fairy tale stuff. Yet the whole of modern economics is beset by it. Sectoral analysis is great…until it starts to give us evidence and answers we don’t like so at that stage we can ignore it! It doesn’t exist. Just because you (as in economics genedrally not you personal;ly) don’t look at something doesn’t mean it doesn’t exist.

        Everyone is looking for easy answers! We want it all fixed without pain and we want it fixed NOW! it has taken us 50 years to create these damned problems. What in God’s name gives us the impression we can fix 50 years of distortions in a few months?

      • @flawse the speed of fix is in direct correlation to the level and sustainment of raising rates. If GS took them to 18% we’ll have the bubble sorted in a day.

      • Andy we sure would. However there would be massive social unrest! (Ending in dictatorship) I just see no way out really.

    • Flawse, How is unemployment at 23% a solution to any of that stuff?

      btw I agree pretty much with what you said about the causes – cheap money from the core and a real estate bubble.

      • Sweeper
        I sure as hell don’t have the answers to this mess. My signature “The answers lie back in time” says that pretty clearly. I know that the end game is dictatorships and war. I am guessing that is already an inevitable outcome. Anything we do towards reforming the misallocations means dislocation (polite word for unemployment, bankruptcy and hell) We don’t immediately sprout re-educated people thinking in productive ways. We don’t immediately sprout modern factories across the landscape. Nevedrtheless our long term wellbeing will only be further damaged by pursuing policies that just result in expanding the current clearly unsustainable distortions. We got to 23% unemployment with the present policies. I just can’t see how pursuing the policies that brought about 23% unemployment will fix it. Yes we may get short term relief by increasing the debt but at what cost long term.

        My position has always been i don’t have the answers. However we need to start viewing the problems correctly so at least we can ask ourselves the right questions.
        As to it all it just makes me sad. I think we are going to lose a wonderful civilisation. I’m not sure it could have been avoided given the intrusion of the massive brainwashing of television. We are ‘at where we are at’ so to speak.

      • Yeah but isn’t it better to have the distortions and a 5% unemployment rate rather than have the distortions and a 23% unemployment rate. High unemployment achieves nothing.

      • Why do you assume you will get 5% unemployment? Evidence? What happens when you can’t get financing for the imports – espoecially the extra imports you start creating through your money printing? Initially, you get Interest rate rises to try to attract the necessary funding – then where are you? Finally, and maybe after not so long a time, your external sourcers of funding dry up altogether. You ban imports and living standards go through the floor and you live on dirt. Can you feed yourself? Can you buy medicines etc etc etc. The whole import retail consumption model of your economy collapses! Unemployment? 23% would start looking like a very desirable number.
        Note HnH’s warnings on Aus position
        Our position is a lot better than Spain’s. We still have lots of farm land and quite a few mines to flog before the stuff flies into the fan. All Spain has is its climate and RE.

      • @flawse,

        Agree that we can’t magic up people thinking productively overnight, but we can very rapidly stop policies which educate people to think unproductively.

        When you’re an addict, delaying rehab is just going to make your withdrawal all the worse.

  7. The lifeblood of an economy is credit creation, that is new mortgages and business loans that create aggregate demand that creates spending which creates employment and therefore revenue for government.

    Think the credit creation process is the core reason that got them into this mess. Richard Werner explains in Princess of the Yen where the ECB supervised silly lending growth rates in Spain, Portugal, Greece, Ireland until they were saturated with debt and the whole pile imploded. Documentary adaptation of that is shown here.

    Now that Blackstone and other groups have latched on its hard to see an easy way out. Seems to be how things are done. Allow a flood of credit to blow a bubble, let it implode then force structural reform to suit a select few interest groups.

  8. “For those unaware of the state of the Spanish economy, it continues to suffer in the extreme in the wake of its burst housing bubble, with unemployment at depressing levels, ca. 25% (youth unemployment is at 54%!):”

    It’s funny, I heard a “business expert” holding Spain up as an example of how embracing austerity can help turn things around.

    • Rob – time frame!!!! The term austerity seems to encompass everything that might involve short term pain. Yes short term interest rate rise and governments balancing budgets will make things worse – higher unemployment bankruptcies etc than would otherwise have been the case.
      However is the solution to reinforce everything that is now wrong and make the problem worse for the future.
      (I see this is now being openly admitted to but still advocated by eteemed economics pfofessors)

      We have no choice to embrace reform. Will it be damned painful? You can bet your sweet ass!

      • Just a quick observation on ‘austerity’. A new paper concludes reduction in government spending superior to tax increases in terms of fiscal adjustment and minimising output losses. Tax increases carry significantly more downside to growth in following years.

        Something for governments to consider.

      • “Rob – time frame!!!!”

        Yes, but is the time frame? Is it quantifiable? I mean most economies will recover by themselves given enough time (assuming their isn’t political instability first).

        To be honest I’m not going to take medicine (given the risk) for an injury if i’m very confidence it will heal me faster than I’ll naturally recover.

      • ” I mean most economies will recover by themselves given enough time (assuming their isn’t political instability first). ”

        How? Evidence? We’re now 7 to 8 years into this thing and the mire just gets deeper. There is no point in saying, as per Ken Henry, “Well that’s what happened last time” It saves the energy of thinking I guess which seems to be the only economy practised by modern economists.
        Political instability is a given as we get deeper and deeper in the mire

      • “We’re now 7 to 8 years into this thing and the mire just gets deeper.”

        That doesn’t make me think their austerity programs (or the single currency for that matter) have been awfully successful.

      • Bwahahahahaaaaa What austerity progrqamnes?
        Show me a western economy (other than Germany and one or two minor economies) that has not expanded its debt in the last 8 years?

  9. Just before Xmas I talked with some German expats l used to work with that now live in Barcelona they’re strongly in favor of Catalan independence…everything will be fixed if they can only put the dysfunction of Spain behind them. Doesn’t make much sense to me but josh they’re passionate about it…evokes memories of Yugoslavia (ca1990) I was holidaying in Croatia and the tension between locals and the mainly Slave army were palatable.

    Maybe Spain can fix all its problems with another war….I hear wars are good for business.

  10. @Leviathan

    Could I suggest your read teh Bank of England paper from 2014 on how commercial banks create deposits as they create loans.

    Foreign debt arises as the trade deficit is funded by those who have the trade surplus.

    Rising real estate prices over long terms assist in financing the consumption of the middle class retired as they run down assets over the course of their retirement.

    • Sure that’s why the wealth disparity has been getting larger and larger, to help the middle class….

      • This might highlight the conversation.

        The only thing America is manufacturing is Billionaires at the moment, 492 at the moment as compared to China’s 152.

        Number of billionaires in the United States from 1987 to 2012

        This graph shows the number of billionaires in the United States from 1987 to 2012. The number of billionaires in the U.S. has increased tenfold during this time, from 41 billionaires in 1987 to 425 billionaires in 2012.

        Skippy… as one can see the light down ward blip has been more than corrected for since the GFC.

      • Thanks skippy! 🙂 Being the Reserve currency the US can print up as many billionaires as it needs…until it can’t. The post elsewhere from Zerohedge on the future of the petrodollar is relevant – don’t ask me about time frame or anything else for that matter. Shale oil has allowed the US to get away with its printing of recent years. My brain does not compute at all re the US at the moment.

      • Sorry flawse I don’t subscribe to the petro dollar view, might have had some relevance post WWII, as a strategic tool but, that time has come and gone.

        And historically, any autonomous momentary sovereign can create moeny ex nihilo, its just a matter of others wanting it, for what ever reasons.

        Skippy… as far as shale goes my worthless 2bob is… its just another sort of land development scam, purely to front run for a quick buck and justified by its GDP contribution. Its going to have high legacy costs but, by that time the looting will be over and you just BK the liability.

      • Note that over the same period the value of $1bn halved and the population incresed by 1/3, so there ought to be quite a few more US billionaires by now.

      • Stat,

        I had this same conversation with Daniel Paul King in America, my thrust was its immaterial to do quantitative comparisons due to inflation et al as it does not reflect the sociopolitical ramifications. At the end of the day inflation or in your seemingly view, debasement distribution is across the entire spectrum.

        Skippy… now don’t get me wrong here I’m not advocating parity here for everyone, its just the shitty dynamics it can lend its self too.

      • Perhaps to be more direct about it, I believe the correct comparison is between the proportion of US citizens who in 1987 had at least $500 million and the proportion in 2012 who had at least $1bn.

        I suspect that there has been an increase, but that to talk of a tenfold increase is hyperbole.

      • Stat,

        In your hand book in might be hyperbole but, the increase is real or do you want to quibble with the short time frame between the downward inflection point and the resulting upward in such a short time line.

        I also thought I mentioned everyone is effected by your attempt to quantify things in a hard numerator and as such the the ratio still holds true across the entire spectrum.

        Skippy…. I hope your not being disingenuous…

      • migtronixMEMBER

        And historically, any autonomous momentary sovereign can create moeny ex nihilo, its just a matter of others wanting it, for what ever reasons

        But that can be said of anyone. I’m an autonomous monetary sovereign and create money ex nihilo, I just can’t find anyone who wants it, because sadly I don’t have people that I can force at gunpoint to use it.

      • No mig-i you are not an autonomous momentary sovereign as you do not have the capacity to write laws, only governments have that capacity.

        No guns involved with you accepting it either, unless taxes are a form of ballistics.

        You are free to use bitcon or any other medium of exchange [diamonds and precious stones are an internationally top shelf recognized medium], tho you have to pay tax in FRN.

        Skippy… yet here is where I will agree with you on federal taxation, it is a hang over from the gold standard [commodity money] and highly discriminatory to the average sort. But yeah… dragging millstones around seems to be in vogue.

        Edit… taxes at a sovereign level should only be to thwart unwanted inflation.

      • Not disingenuous. Agree that there is an increase in inequality and currency may have been debased. Disagree that comparison of billionaire numbers tells us very much about such changes. Can’t measure several things at once with a single metric.

      • migtronixMEMBER

        you do not have the capacity to write laws, only governments have that capacity. No guns involved with you accepting it either, unless taxes are a form of ballistics.

        So… actually a sequitor right? I mean, it doesn’t become non just because you say that right?

        BTW, how about you don’t pay taxes and come back and tell me if there were ballistics involved in their recovery….

      • It not a matter of if “I” say its right kantian its a matter of operational reality, something that is intrinsic to humanity from dot one, your ex nihilo prostrations aside.

        Wrap you mind around this so called independent thinker….

        Calgacus January 15, 2015 at 1:16 am

        Washunate:This post is based on the claim that the federal government currently operates under a budgetary constraint.

        No, it isn’t. That is not what Fullwiler is saying, not true & not MMT. The only constraints that the US government operates under are self-imposed ones, like the debt ceiling which right now is the only one that has any meaning, which is not much.

        Name a program that hasn’t been included in the budget due to a constraint on the number of dollars the government could produce?
        There isn’t any, and here we agree. Where we may disagree is on the effect of massive budget constraint propaganda. We agree that there are no meaningful intertemporal or government budget constraints. But students in economics are taught that there are. Politicians speak of them and say things like the US government is broke. Several people in this current thread seem to give such ideas excessive (= nonzero) credence. Mindless and impossible attempts are made to “balance” budgets – with some kind of deficit size targetting. This post is saying this is stupid numerology, nearly as silly as thinking that if the deficit or surplus is an odd number, it is a catastrophe, while having an even number would bring a year of wonderful happiness for all. It is the actions based on these widely held irrational beliefs, an imaginary budget constraint that cause damage.

        If you are dying of thirst in a desert and imagine you are enclosed in a cage – the fact that you are one foot from an oasis doesn’t help you. The point is – dispel the imaginary cage constraint, and concentrate on getting yourself and all your camels a drink. The idea is that we should base our actions, our design of government programs on constraints having to do with the real world – that is inflation – monetary prices of real stuff.

        And there are zillions of programs which aren’t included in the budget because of the imaginary constraints. Welfare for rich predators tends to be protected, while programs that would quickly and easily increase the general welfare and the welfare of the bottom 99% are often relentlessly starved of funds.

        Sorry for not replying to your long reply to me at the You Are Worth More Than The “Market” Says post. I’ve answered many of the points you made there before – but will try to respond soon in the next relevant post. Seems like whenever I get such a serious, welcome reply, things suddenly come up in unreal life & I am unable to respond with the timely reply it deserves.

        Skippy… libertarians are not about liberty, but totality, funding issues.

      • migtronixMEMBER

        There’s no oasis, there are no camels, there is no water. But let’s pretend any way huh? Good, clear, thinking there. Genius really, there are no constraints, but don’t ever let be said you think infinity is doable….

      • migtronixMEMBER

        So like Rumsfeld’s “known unknowns”? Never thought I’d hear that (discredited) line of “reasoning” again….

      • @skip,

        Don’t know what you are trying to say.

        You’re trying to show something by saying a datum changed. My point is that seeing as two important parts of where that number came from – the US population and the value of US$1bn are now very different, you can’t proceed without establishing what the number of billionaires would be in the ‘everything else equal’ case.

        My figure is around 250, and I’d put a pretty wide confidence interval on it.

        Even if we get over the threshold of ‘it having changed, I don’t see that it tells us anything more than inequality went up, if that, and it doesn’t allow us to quantify the change because we’re basically dealing with where on the normal curve of wealth in the US $1bn happens to sit, even though we’re just about certain the curve isn’t normal, so it won’t mean anything.

        And you want to have a go at people for trying to use VaR?. (You’ve got the same problem – you’re reasoning about a long tail)

        EDIT: I actually think I agree with many of your conclusions, but it’s following the twists and turns of how you get there that’s a problem, and leaves me unsure that I know what your conclusion actually is.

      • Mig-i,

        That you use Rumsfeld’s truisms is due to your own personal bias and a thinly veiled attempt to discredit by association. Rumsfeld’s machinations have zero relevance or connection to MMT. Again as is your want, you are unable to engage in the material in any meaningful way but, tirelessly try to diminish anything not of your collectives desires. Save to deploy zingers and tactlessly disparage.


        It I did not make it clear enough, the chart shows a distinct trend no matter how you try to convert it by means of exchange. What you also seem to forget is for the large part the population out side the top quintile has actually seen massive PP and wage destruction. So your optics are way over generalized from a so called logical view, it lacks granularity.

        Some more fleshing out –

        DCR, I think you have a very wrong understanding of MMT – and of money. There really isn’t any other kind of money than “fiat” money, credit money. Rocks, twigs, seashells etc can’t be and never were used as money. There isn’t any other way to create money but “out of the ether” – by a joint agreement between a creditor and a debtor. And in the real world, nobody is forced to accept junk fiat money – if you have too much, send it to me. Or I’ll come by & pick it up. (OK. I’ll pick up “money-things” for nitpickers.)

        MMT is just about using money as a very easy to understand tool – that’s the problem, understanding money is too easy – which is why few understand it- a tool to organize the division of labor, organize “human effort and ingenuity, real work” for us human beans to lead an easier life than our ancestors. “Magic pony” thinking is the opposite of MMT, which is just plain old accounting, really. What definition of “closed system” are you using that doesn’t make the planet Earth, the global economy a closed system as it pertains to money? If “not closed” doesn’t mean “trading with Martians”, what does it mean?”

        Skippy…. please by all means do engage the material… the constant drunk looking for keys under the streetlight is tiresome.

      • “MMT is just about using money as a very easy to understand tool – that’s the problem, understanding money is too easy – which is why few understand it- a tool to organize the division of labor, organize “human effort and ingenuity, real work” for us human beans to lead an easier life than our ancestors. “Magic pony” thinking is the opposite of MMT, which is just plain old accounting, really. What definition of “closed system” are you using that doesn’t make the planet Earth, the global economy a closed system as it pertains to money? If “not closed” doesn’t mean “trading with Martians”, what does it mean?”

        Mig-i…. Rumsfeld has nothing to do with MMT and trying to link the two is bad form.

        Stat…. you seem to forget the wage and PPP of the lower quintiles during the time line, e.g. your logic does not refute reality.

      • migtronixMEMBER

        please by all means do engage the material… the constant drunk looking for keys under the streetlight is tiresome.

        Please you’re the one if anybody and especially me ever answers you with either links, or observations or detailed discussion on historical perspectives you say “caveman”, “slaver”, “AET”, “Chicago School”.

        I have engaged you far more than you’ve bothered to do me, far more! You still don’t notice that EVERY time you tell me to look something up I already know about it – and have a completely different conclusion to you, so assume the Koch brothers are afoot! I’ve told you I’ve never been to the States, been lots and lots of places, never the States, have no intention of ever going there. Zero interest in the Kock bros or any other seppo….

      • Clear it up for you Stat?


        “Known Unknowns” is spot-on for MMT

        You all know you can print to fund your lack of real production – but you deep down inside ‘know’ the amount you can do it without calamity ensuing is ‘unknown’.

        That annoying shiny rock people like to use as a store of value just wont go away either

        Au still outperforming all fiat by 95% in the last century.

      • I’m not forgetting about the people outside the top quintile (mind you, your chart is talking about the top 1 millionth), my whole point was you need more than the billionaire count. Data on the non billionaires is exactly where the hole is.

        Of course there’s a trend. The US population changed. Change the metric to ‘number of billionaires in 1987 dollars’ and plot the US population change for comparison, and maybe it starts to mean something But even then, not really, for exactly the same reason VaR works badly – inference on extreme quantiles is dodgy. There isn’t a model that is accepted as robust in the extreme areas of the tail that we’re operating in here.

        A better starting point would be to convert to ‘billionaires per million people’ and plot that over time (but get rid of the columns). For comparison, plot that against how much median household wealth grew over the period. it’s not quite right, but it’s a start in comparing how billionaires are faring compared to everyone else.

        BTW the US billionaire population still hasn’t recovered from the GFC – they’ve got to get another 50 odd to go, and the US is way down on their share of worldwide billionaires – 40% to 33%. By contrast total household wealth apparently has surpassed the GFC peak (52 trillion in 2008 vs 55 trillion in 2012)

      • logic does not refute reality

        Not trying to refute reality or anything else. Trying to answer the question : ‘Is there enough data to draw a conclusion?’
        Answer: ‘No’.

        The data that might lead to a conclusion is two or more plots of the whole income distribution over the time period.

      • Mig-i,

        Not one point of order was refuted nor engaged in your comment.

        The post 50s libertarianism movement is diverse, yet its foundations are one and the same and based on the same meta narrative. As such its difficulty’s with MMT et al are not because of want for fact but, too acknowledge it is to forgo some of its most fundamental beliefs.

        America is ground zero for the libertarian movement as the funding for it emanates with in it. The Koch brothers are just a hard right faction of a much larger neoliberal group with deep pockets. AET is just the baseline established by the funders via the establishment of MPS, neoclassical is a tweaked phase II and neo – new Keynesian more of a populist tool see Krugman.

        Per your conclusions IMO your optics are more than likely at fault, ridged mental anchors can be problematic. This is why consensus, peer review, and transparent methodology is critical. Sadly a great deal of academia in America [exported also] has been poisoned by intentional means through graft and political leverage.


        Out performing in what way, unrealized price[?] in a short timeline. Anthropology, sociology and psychology are quite concise on the pathological nature of object fetishes. What you also fail to acknowledge is with out government what price would AU have out side a small segment of the world total population. Its more about indoctrination than it is about some universal truism e.g. being born into a reality than an examination of reality. Yet no one is attempting to stop you from playing with it, knock your self out mate.

        This draws a similar parallel see: Bitcoin revealed: a Ponzi scheme for redistributing wealth from one libertarian to another


        It shows the corrosive effect it has on the political apparatus, who were the first to benefit after the GFC and at the cost to whom. One has to observe the most productive years in American history was during a higher and more progressive tax system. Although it did not take long for some to band together and establish a forest of lobbyists and think tanks to ring fence the DC area, in order to bribe and exert undue influence. This culminates in stuff like the Citi memo advancing the corporatist plutocracy along with mobs like ALEC formulating most policy.

        Skippy…. everything is political in the first order, as such it behooves to understand the players and the mechanics behind that.

      • @skippy,

        Yeah okay whatever.

        Your data doesn’t even begin to attempt to show any of that – whatever trend is there is relatively steady except for the GFC and ’97. No sign of any event causing a change to the slope, so no sign of effects of policyt And the median household income has recovered better post-GFC than the billionaire cohort, so your data doesn’t show the 0.1% benefitting unequally.

        The things you talk about could well be happening but this data doesn’t show it.

        The memos, OTOH, do show perfidy of the highest order, and yeah of course if’s f king political, everything’s political. of course it’s f king satirical, everything’s satirical (except mabye those memos – I think they actually can’t be satirised)

      • Stat,

        I would like to see the data that suggests median household income has recovered better or at all, especially when countenanced with increasing outlays al la Warrens type of work [two income trap] and lets not forget multiples i.e. a small increase for the median mob does not equal the same ratio for the upper quintiles.

        Skippy… It was Obama’s decision not to take the hair cuts and bail out at par imo, the ramifications.

      • Sorry, I mis-spoke. I should have referred to total household wealth.

        IN 2012 the nominal pie was larger than in 2008, but the number of billionaires was smaller.

      • @Stat,

        You might have missed the 2014 number of 492 billionaires in my comment which clearly tops the previous high of 469 as of 2008.

        Yet I don’t see the median your talking about see: 56,4365 [2007] to 51,9395 [2013] and now $53,891 as of 2014.

        Median household income in the United States from 1990 to 2013 (in U.S. dollars)

        Skippy…. bearing in mind demographics and aggregates issues skewing the data along with increasing loss of PPP.

      • To further provide examples of this trend.

        “”If recent trends continue, 2015 is on track to become the year with the highest levels of US wealth concentration in decades, challenging records that were set during the Roaring 1920s. Almost a quarter of all US wealth (more than $10 trillion) is currently held by the richest 0.1% of households – more than what is held by the bottom 90%.[i] One of the greatest sources of wealth for the top 0.1% class of super-rich is Wall Street, and Wall Street is also the source of the financial crisis that inflicted much economic pain on the bottom 90% in recent years. This has understandably led to a widespread feeling in American society that the rules governing Wall Street are stacked in favor of a small elite, at the expense of Main Street.

        However, much of the recent academic work in economics ignores the distributive effects of financial regulation and focuses solely on efficiency. By contrast, our recent paper on “The Redistributive Effects of Financial Deregulation” in the Journal of Monetary Economics puts the focus squarely on distributional considerations.[ii]”

        Skippy…. one has to keep in mind the agency behind the last decades imo.

      • Mig-i,

        No as any influx of labours is largely off the books or bellow the poverty line, that and if they actually stopped the influx, most of the southwestern economy would go poof. This is why the grandstanding by the Rep party is such a joke, their benefactors would off them if they actually hit their bottom line.

        What NAFTA did was allow large cap and some small cap corporations to do is, by order of importance, off load any legacy costs [employee and environmental], reduce tax exposure, improve political influence by virtue of regions low ethical and moral standards, which was to burnish earnings in order to game executive remuneration. This is clearly born out by wages to executive pay ratios since the mid 70s imo.

    • Foreign debt arises when you push too much money into an unproductive economy. You create money for people to spend and they do! If you’re running chronic and large CAD’s then the money, largely in an era of low inflation, ends up in the external account. We have accepted funding of that CAD by countries that run surpluses. That is not a cause just a source of funding. That’s our decision so we don’t have to cramp our lifestyles or go back to work. The price is large external debts and sale of assets to foreign interests.

      So in Spain’s case the short term solution is for it to get back to flogging off all its best RE to Russians et al. Not too sure how this fits with future generations of Spaniards being able to enjoy the maximum benefits of living in their own country.

  11. The only solution is getting rid of the Euro

    It is a farce – Italy, France, Spain would all have taken savage beatings to their global wealth – but their economies would have recovered by now.

    Of course, they would never have gotten into such a pickle because nobody in their right minds would have lent them that much money in the first place.

    All this artificial crap, printing money, deficits etc is just delaying the inevitable.

    The Japanese have now been taken-over by the Singaporeans and South Koreans in per capita income as a result of 25 years of idiocy.

    In 1997 South Korea got smoked by the Asian crisis.

    They reformed the place, took a massive hit on their currency and have grown to be richer than Japan.

    Not a Keynesian or a property bubble required…

    • South Korea is a protectorate of the USA and as such were ticked for car and ship building by the powers that be.

      Without this support things would be quite different.

      • Yeah – can’t wait for the ‘wealth effect’ from all those deluded people borrowing $600,000 to live in Woolongong…

        Australia – borrowing its way to prosperity – one development at a time.

        I am viewing all of these eventual slums through the prism of potential indoor lettuce farms. I am obsessed with the idea now…but then again, the walls on the $1m apartments would be too thin, the fans might keep the neighbors up.

      • Which is more deluded in reality, the low information rats seeking cheez, or the bigger rats that loan the chezz.

        Skippy… criminal loan compliance assisted by wonky computerized risk tools would never be part of the problem…. now would it.

  12. Why not just borrow money to make the debt repayments? Its been working well for my unemployed sister for the last ten years. She’s built up about £2m in her property portfolio in that time and has never been refused refinance. No income, just capital gain.

  13. There was an era, culminating in the 1930’s, when this sort of volatility was the norm, and worsening every cycle.

    Decades of automobile based development ended this era. It made urban land markets competitive and put consumer surplus into housing just like everything else. No more gouging of economic rent, no more fast-buck speculative gains, no more volatility.

    Urban planners saving the planet have restored the old paradigm. This is not good.

    But it is even worse than I originally thought, because in the cycles up to the 1930’s, there was not a lot of mortgage debt because there were not a lot of buyers for owner-occupation. Most people rented, and were not participants in the bubble volatility per se.

    But now? The reason Spain is such a b—-y mess is that now, “everyone” is implicated. The bubble equity conjured into existence and then wiped out, is an order of magnitude greater in the new urban-planning, post-automobile, post-democratisation of home ownership bubble era. We can do even “Greater” Great Depressions!! Watch us!!

    If there is anything we should be doom-and-gloomy about, it is this. I have never felt so driven in my entire life about any other issue; I have never been furiously emailing and trying to contact influential people on an issue before like I am on this one. Why can thousands of economics x-spurts not see this?

      • Yeah, that too….! It is bad enough anyway. It would be bad enough even without the demographics.

        I just learned that Japan has a phenomenon of ghost towns, and even ghost exurbs of significant cities. Google it, there are some photo essays, and there is even a spooky new kind of adventure tourism based on it. And their population decline has not really even started! Their median multiples, which are now being analysed by Demographia, are actually already in “affordable” territory. This is not just the demographics, the causes are the subject of another essay in its own right.

        I find it extremely ironic that in NZ there are activists who talk of “population”, in terms that surely mean that if NZ had Japan’s 126 million people instead of its current 4 million, NZ would be paved over from the entire coastline to the foot of all the mountain ranges. But Japan has ghost towns……and in fact it has massive swathes of beautiful countryside and nature too.