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Draghi on Root Causes

I get a kick out of someone with great authority (especially central bankers these days, given their quickly fading super powers) speaking confidently about the root causes of some problem as if you’re an uninformed ignoramus (i.e., not an economist) if you don’t see what is so obvious to them and people like them. Such is the case with ECB chief Mario Draghi’s explanation to the Germans about why interest rates are freakishly low.

To wit:

They (low interest rates) are the symptom of an underlying problem, which is insufficient investment demand across the world to absorb all the savings available in the economy. And so the right way to address the challenges raised by low rates is not to try and suppress the symptoms, but to address the underlying cause.

Got it?

It’s the ‘ol “lack of aggregate demand” root cause canard (i.e., as opposed to the more sensible reckless, multi-decade expansion of credit and debt that artificially raised aggregate demand) that future historians will someday have fun with, that is, after the current set of top economists and central bankers are completely discredited.

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Outlooks, Education, and Income

From a recent item at Pew Research via this Wall Street Journal story today come the two related charts below that go a long way in explaining the rise of presidential candidate Donald Trump who, not long ago, proclaimed “I love the poorly educated”.

One would think that if you factor in the gargantuan student loan debt that now comes along with many of those college degrees and income gains shown above for the millennial set, those blue and gray curves would adjusted downward, probably by a lot.

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Much ado in the financial media this morning about yet another warning from the Bank for International Settlements about the current state of affairs in the global financial system as it relates to debt levels that now exceed the 2007 highs, negative interest rates, and faltering confidence in central banks who seem increasingly befuddled and desperate.

The tone appears to have been lost on whoever penned the outlier headline below.

The Bloomberg article is about as positive as the headline, so this can’t be blamed on whoever’s responsible for ensuring that headlines are click-worthy to readers.

Maybe it’s not such a bad thing to look on the bright side of things now and then, though this may not be a particularly good opportunity to do so…

For someone who will turn 90 this Sunday, he seems pretty sharp…

The Fed Chairman they once called Maestro thinks that negative interest rates “warp” investor behavior (something that you just don’t say when you’re sitting at the head of the big table at the Eccles Building) and that he hasn’t been optimistic in “quite a while”.

Millennials on Debt: “Me No Likey”

A new report from the New York Fed shows a disturbing trend (if you’re a bank, that is) about consumer credit as the borrow-and-spend baby-boomer generation heads off into the sunset with a chastened millennial generation not able/willing to take up the slack.

Here’s the key take-away:

We find that aggregate debt balances held by younger borrowers have declined modestly from 2003 to 2015, with a debt portfolio reallocation away from credit card, auto, and mortgage debt, toward student debt. Debt held by borrowers between the ages of 50 and 80, however, increased by roughly 60 percent over the same time period.

It appears that getting saddled with monstrous student loan debt might be good for tenured professors and college administrators, but bad for an economy that is based largely on buying things you don’t need with money you don’t have.

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