July 25, 2012

400-Word Scenario #3: Retirement Redistribution

Patrick Marren
Partner

A future scenario of mass wealth redistribution to a generation that just did not save enough for retirement.Read more

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July 12, 2012

400-Word Scenario #1: Clawback World

Patrick Marren
Partner

Scenario planning requires imagination. Everyone likes to pretend that imagination is fun and games. But really, imagination is often very difficult and painful, because it requires us not just to take incremental steps along a pre-existing path, but to make up an entirely different path. (There are gradations of this: from some godlike perspective even truly ingenious innovative thoughts can seem boring and incremental, and from an quotidian perspective simple incremental steps can seem like the moon landing. But I digress.) 

However, imagination, pain in the posterior though it...Read more

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July 09, 2012

Frank Newman's Six Myths - #6: If the U.S. does not get its fiscal deficit reduced soon, U.S. Treasuries will face the same problems as bonds of Greece and Ireland

Charles Perrottet
Partner

Today we examine the sixth and final “myth” from Frank Newman’s book Six Myths That Are Holding Back America – the worry that U.S. Treasuries could come to have the same problems of lack of demand due to fear that it will not repay the bonds coupled with escalating interest rates.  As with all the myths, Mr Newman attempts to present the mechanisms that drive international finance.  The policy implications are rich and varied and the subject of legitimate debate.  Scenario planning can and should be used to evaluate alternatives.

U.S. Treasuries are widely regarded as the...Read more

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July 02, 2012

Frank Newman's Six Myths - #5: Deficits create great burdens of repayment and taxes for our children

Charles Perrottet
Partner

Today we examine the fifth “myth” from Frank Newman’s book Six Myths That Are Holding Back America – that the national debt will be a crippling load for our children and grandchildren to repay.

These days it seems that we get a constant stream of articles proclaiming that we are bankrupting our children and grandchildren through the massive national debt that we are compiling.  While the numbers are very large, the argument that it is a burden to our offspring implicitly compares the national budget to a family budget.  This is intuitively appealing, but misses...Read more

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June 29, 2012

Frank Newman's Six Myths - #4: If the deficit is reduced, then national saving and investment will increase

Charles Perrottet
Partner

Today we examine the fourth “myth” from Frank Newman’s book Six Myths That Are Holding Back America – the presumption that increased saving will drive increased investment.

By definition, the government will reduce the deficit when it spends less than it receives.  Everything that the government receives comes from the private sector (either from taxes or the sale of Treasuries) and everything that it spends eventually finds its way back to the private sector.  If the government collects more than it spends it creates “Government Savings”.   On the other side of the...Read more

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June 26, 2012

Frank Newman's Six Myths - #3: If everyone tries to save more, the nation will save more, and investment, GDP, and employment will increase

Charles Perrottet
Partner

Today we examine the third “myth” from Frank Newman’s book Six Myths That Are Holding Back America – the presumption that increased saving will drive increased investment.

Friedrich Hayek published an article titled the “Paradox of Saving” in 1929.  This concept was later popularized by John Maynard Keynes who discussed the “paradox of thrift”.  The paradox rests in the observation that, while saving by a single individual increases that individual’s wealth, if everyone in a nation increases their saving, this must necessarily decrease spending.  With less spending national...Read more

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June 22, 2012

Frank Newman's Six Myths -#2: Treasuries "crowd out" financing for the private sector

Charles Perrottet
Partner

Today we examine the second “myth” from Frank Newman’s book Six Myths That Are Holding Back America – the belief that treasury bills compete with private sector organizations for available capital.

Some of this confusion comes from the “fallacy of composition.” Paul Samuelson defined this as “A fallacy in which what is true of a part is, on that account alone, alleged to be also true for the whole.”  A simple example from arithmetic would be that since 1 and 3 are both odd numbers, then the number 4, which is made up of 1 and 3, must also be odd.  In economics it is clear...Read more

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June 21, 2012

Frank Newman's Six Myths -#1: Asian nations are bankrolling the U.S.

Charles Perrottet
Partner

Today we examine the first “myth” from Frank Newman’s book Six Myths That Are Holding Back America – the idea that Asian nations are bankrolling the U.S.

 

The key to understanding the impact of foreign purchases of U.S. Treasuries is that, except for the very small amount of cash physically carried by tourists, cash never leaves the country.  Money is never “used up”.  It merely changes ownership.  A deficit in the U.S. balance of trade creates a call on U.S. dollars by foreigners.  This in turn results in a transfer of dollars from one account to another,...Read more

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June 20, 2012

We're Doomed! No, We're Saved! Euro Scenarios

Patrick Marren
Partner

Scenario consulting has rarely had a better promotional material than Europe has been pumping out the past year or so. Uncertainty abounds.

Sunday's election in Greece has once again caused the Very Serious People in Europe to breathe a sigh of relief. "New Democracy, the mainline conservative party that wants to stay in the euro, won the election and can form a government! We're saved!" 

But Sunday's result guarantees nothing. The ultimate fate of Greece's membership in the Euro Zone rests not on which party is in power – the Coalition of the Radical Left, Syriza, had also...Read more

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June 18, 2012

Book Review: Six Myths that Hold Back America

Charles Perrottet
Partner

Frank Newman's book, Six Myths that Hold Back America, exposes what he says are six false beliefs that are widely held in the United States – even or especially among people who are in a position to make policy.Read more

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