What's with the US budget and recession stuff?

[DanS]

I don't think France is AAA by a long shot. But they seem more capable of controlling their medium-term fiscal trajectory right now.

[giblets]

S&P reaffirmed france's aaa rating. What a bunch of monkeys. US 5yr spread at 51 bps, France at 155.

Wikipedia says that France's public debt it only 83.5% of its GDP.

[KrazyHorse]

QE1 and two both had immediate impacts on inflation expectations as well as on the closest proxy we have for ngdp expectations (stock markets). Further, the split was quite favorable between inflation and real growth expectations, giving a direct measurement of the slope of the AS curve, and demonstrating that we are quite AD constrained.

[giblets]

This doesn't look that bad:

(Reuters) - The French government has raised its public debt forecasts from this year until the end of 2014, a new report by the budget ministry showed on Tuesday.
The report puts public debt at 85.4 percent of gross domestic product at the end of 2011, 86.9 percent of GDP at end-2012, 86.4 percent at end-2013 and 84.8 percent at end-2014.
The previous forecasts were, respectively, 84.6 percent, 86.0 percent, 85.6 percent and 84.1 percent.

http://www.reuters.com/article/2011/06/21/france-debt-idUSPISLHE7T320110621

[KrazyHorse]

Wikipedia says that France's public debt it only 83.5% of its GDP.

Why do you think that debt to gdp is the only useful piece of information? The market knows that fact, along with hundreds of other facts about France's finances and politics. If the monkeys at s&p know that the market is making that bad an estimate they should be able to rake in the dough.

[giblets]

Okay, so if I thought the market was stupid and wanted to get rich off of the French government what would I do? I'm just curious.

[KrazyHorse]

You would have a hard time as a small investor, because it is expensive to short bonds.

The most straightforward way to take a bullish view on French government finances versus the us government's would be to write cds on france and buy protection on the us. There are a few more risks you would hedge, but I'm not going into detail as I'm not allowed to offer financial advice. For a real capital markets participant there are any number of relatively cost-effective ways to bet on this...

[Ben Kenobi]

That's not a good analogy, but I think that KH's whole point is that QE1 and QE2 weren't big enough. We need QE3. Now. And make it big.

Oh, I agree. If the desire is to fix the underlying problem of long term debt deflation, no, it's not nearly large enough. The problem is that they would have to increase the money supply 10x to make it large enough.

Here's the real problem. Where's the money going to come from?

France is at 84.2. Canada at 81.7, UK is at 76.7, Germany at 74.3. Spain is at 64.3.

Worldwide the economy is 65 trillion dollars. Debt to GDP ratio is 59 percent worldwide. That's 20 trillion dollars of wiggle room. That's all there is.

[giblets]

Here's the real problem. Where's the money going to come from?

A printing press?

[Ben Kenobi]

If the monkeys at s&p know that the market is making that bad an estimate they should be able to rake in the dough.

You're going to bet against Sarkozy?

[Ben Kenobi]

A printing press?

The Mugabe solution? Excellent!

[KrazyHorse]

Ben has already shown in this very thread that he doesn't understand the difference between government debt-financed spending and money-financed asset purchases.

[KrazyHorse]

The Mugabe solution? Excellent!

Hey idiot: REALIZED AS WELL AS EXPECTED INFLATION IS SIGNIFICANTLY BELOW TREND.

[giblets]

Is economics not required in Canadian high schools?

[Ben Kenobi]

REALIZED AS WELL AS EXPECTED INFLATION IS SIGNIFICANTLY BELOW TREND.

Uh, didn't I just argue that we are in both a long term debt deflation and a long term asset deflation, at least in the US?

The US can spend money to fight market forces, or they can simply allow market forces to take action. I'm betting against Ben and in favour of the market forces.

I understand perfectly what he's trying to do. I just don't believe he will be successful.