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Pity the poor bondholder

By Owen Paine on Tuesday July 8, 2008 09:43 AM

"Unfortunately, no one, certainly not in Asia or the US, seems willing to bite the bullet and help engineer the necessary co-ordinated retreat to sustained sub-trend growth, which is necessary so that new commodity supplies and alternatives can catch up."

That's Harvard's own Kenny Rogoff, who wants to slow global growth by any means necessary -- because prices are rising too fast. Right now, sez the kenmeister, "governments are clawing to stretch out unsustainable booms... Getting the diagnosis right is the place to start. The world as a whole needs tighter monetary and fiscal policy."

Let's pass by this odd conflation of diagnosis and prescription. As far as cures go, this is the purest kind of allopathic fools' poison. Advice like this breeds cures more sociopathological by far than the social pathology it's alleged to cure. The remedy for a boom -- trigger a bust. Sound familiar?

It's the top-shelf kill cure made at least nationally famous by Paul "submission hold" Volcker back in the Carter/Reagan years. But hey, Kenny wants to go global with it.

See, Kenny means by "sustained sub-trend growth" an earth-wide figure-four financial hog tie. After that euphemism, try on this for pop speak:

"The historic influx of new entrants into the global workforce, each aspiring to western consumption standards, is simply pushing global growth past..."
-- wait for it --
"the safety marker on the speed dial."
By easy analogy we find a plausible, dire diagnosis: the world economy has a safe operating range above which -- what? train wreck? Or is that a con -- like the infamous national operating rate ceiling on job growth and safety limit on economy-wide job-carrying capacity?

The real heavy here is that vastly overrated Mr Nasty, accelerating inflation. Heaven forbid the oppressed bond holders of planet Terra take some real value losses through unanticipatedly swift price level change.

Bust through this mental barrier about paper wealth being king, and we might just morph into a new age of sustained super above-trend growth. Now wouldn't that be awful?

Comments (5)

Al Schumann:

Owen, whenever you write about the econ-con, I can't help feeling hungry. Call it the hangover I've got from primitive and not so primitive accumulation. Or call it dread. A snack seems to help a little.

Anyway, in my hangover the first thought I had was that a large number of people are depending, for present and future well being, on the handlers of paper wealth. A big enough hollowing out, through inflation, means real misery for them. I wouldn't want to trust even the greenest, most socialist growth to keep that from happening. So how about borrowing an idea from our Georgist friends: the basic income?

I can't say whether my fears are realistic or not, but knowing that no one would fall below a certain level, ever, would make that irrelevant.


"knowing that no one would fall below a certain level, ever would.." end corporate capitalism as we know and love it


"knowing that no one would fall below a certain level, ever, would.."
end corporate capitalism as we know and love it

plato's cave:

Problem with this analysis (or your comment on it) is that the only way governments can slow growth (or inflation) is to raise interest rates. And that also produces losses to bondholders (whose bonds at current rates become worth less.)

Also, I imagine that the financial interests driving current global growth -- the currency speculators, derivative traders, hedge-fund managers, Sorosian speculators -- all of whom are operating way beyond the frontiers of prudent risk because there is no place else to make a profit, are a much more potent force than the bondholders.

Expansion is the iron law of capital, until it crashes.


"the only way governments can slow growth (or inflation) is to raise interest rates"

thus spoke herr volcker

t'ain't so of course

its evil madness
simply because
its couched as
if a serious protracted dose
of world wide mass misery
is the sole and necessary remedy
for todays global conjuncture

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