Doing time with Ken Rogoff

Hilsenrath on Rogoff: Interest rates are low, he says, because investors are averse to risk, governments are forcing banks to hold low-risk government debt and central bankers are pushing rates down, he says. This view leads to different prescriptions for the problems that now nag the global economy. Mr. Summers argues for government borrowing to fund investment. Mr. Rogoff wonders if the solution to a debt supercycle is really more debt. “It is highly superficial and dangerous to argue that debt is basically free,” he says.
The good news here is that debt cycles don’t last forever. “As the economy recovers,” Mr. Rogoff says, “the economy will be in position for a new rising phase of the leverage cycle. Over time, financial innovation will bypass some of the more onerous regulations. If so, real interest rates will rise though the overall credit surface facing the economy will flatten and ease.”

What is the cycle time of the debt cycle, relative to the cycle time of monetary regimes?  He does not say. I have Reagan and Bush the Elder running up debt for 12 years, and Bill Clinton running it partly back down over eight.  The Dick 'deficits dont; matter' Cheny running it up until we crash. Now Obama has gotten deficits partly back down. We are losing the time race.

The Fed has its loan portfolio set at six years, from now.  That is a long time to maintain political sanity in DC, and too long to maintain sanity in California or New York, much less Illinois. We are in our regularly scheduled slowdown, its election season, and the time is ripe for mass insanity among the politicians.

And what about  public sector pensions? These folks are going to retire soon, so how do the fund managers convert stocks into cash without crashing the market?