Evergrande -- redux of what?

I don't know much about Evergrande, but given the origin of this blog did want to share some speculation. First, their debt is denominated in dollars, so unlike Russia in 98, default may not be optional (Russia could have printed rubles if it wanted). CCP may have enough US$ to make good on Evergrande obligations, but whether they do so, and what they ask in return, is unclear. When put in the context of China's forex dollar holdings, Evergrande's obligations seem small.

Counterparties will take a haircut, write down their capital base, which could trigger a wave of defaults. At this point the structure of the counterparties matter -- who are they? To what degree do they lend? Will they require their counterparties to pay early, or cease to rollover credit? I don't know enough about the Chinese finance system, particularly at the municipal level, to predict. Fundamentally, who was buying dollar denominated debt issues by a chinese real estate developer?

Some counterparties I'm sure are foreign, particularly, US hedge funds. It would be rich if the CCP held this over them for concessions from the US regime. China Joe indeed.

Ultimately for China, the question is 1) at what point are obligations in renminbi, in which case the government has a LOT of options in how to manage it, with minimal impact to the Chinese economy, and 2) for purely dollar denominated obligations, will they run through their reserves vs force creditors to take a haircut. China is much bigger than Argentina.

Against the Universal Basic Income

The Universal Basic Income (UBI) has been getting buzz. So much so in fact, that even Bruce Sterling mentioned it in his rambly SXSW keynote.

In short, UBI recommends that the Govt gives every citizen an unconditional cash payment. This has a number of benefits. First, it's simple and transparent, and if it replaces the tangled mess of transfer payments most Governments have today, the better. Second, it has no negative incentive effects, as the recipient does not face the brutal marginal tax rates an individual faces as he starts to earn more money and so ceases to qualify for various means-tested programs. Morever, it's very freedom enhancing. As Albert Wenger put it, in a post-capital world, humans needs freedom, and UBI is a key mechanism to deliver economic freedom so individuals can pursue their true calling.

Let me make a counterclaim on both humanistic (small h) and Economic (large E) grounds.

On humanistic grounds, the ability to consume is necessary but insufficient. People also need a feeling of being needed and useful, and working a job is a mechanism for that. Working for a wage is just a scalable formalization of working in the family business, the underlying mechanism is the same, and work, work as part of a group, is a central element of what makes people happy.

I recently heard a story that, in Japan, a normal thing to do in retirement is open a small mom-and-pop shop. I have no idea that this is true, but I can understand why puttering in a small, marginally profitable business, might be a better retirement than moving to Florida and doing nothing.

A Universal Basic Income does not generate a useful mechanism by which an individual can contribute, so while it is being pushed on Humanitarian grounds, it is, in fact, anti-humanitarian in its impact. While a select few may flourish with the boundless creative freedom of a trust fund, others will simply feel adrift.

I leave the anecdote of teaspoons, bulldozers, and the great Depression as an exercise for the reader to contemplate -- see if you can spot Hayek's error.

Shifting to economic concerns, UBI is usually funded by taxes (often corporate taxes as those are the villains of choice). However, any sort of neutral tax and fund mechanism would stifle aggregate demand. Indeed, the only reason why there is unemployment, or underemployment, in the first place is because the economy has too little aggregate demand as a consequence of the household sector being undercapitalized.

UBI is popular in the US because the US continues to struggle under the balance sheet recession which came after the 2008 crash, sort of a light version of what Japan's been struggling with since the 80s. And like Japan, economists continue to warn against inflation and the unsustainability of public debt, while prices continue to stagnate and fall, and people remain unemployed, underemployed, or precariously employed. And we wonder why folks aren't spending.

Tackling a basic issue of lack of AD with a new tax is crazy counterproductive. Instead, we should simple boost demand with tax cuts/spending and then see, once employment is back where it should be, how good a UBI seems.

Finally, it's interesting to draw a connection between UBI and the Job Guarantee recommended by post-Keynesians. I'm not an advocate of Job Guarantees either, but I do think they are preferable to UBI because they maintain more of a link between income and contributing through useful work.

Ruled by experts? Not the Fed.

Tyler Cowen asks whether it's better to be ruled by experts, or the people?

My personal preference is "neither", but Cowen undermines his answer by saying "people in most cases, but not in technical areas, specifically, the Federal reserve".

If I had to pick a single area where faculty rule would be most appropriate, it is the Federal Reserve. (The Environmental Protection Agency would be another candidate.) Very few citizens understand such basic concepts as how inflation rates are calculated, the differences between real and nominal rates of interest, or how the shadow banking system is supposed to work, much less tripartite repurchase agreements or the Basel capital standards. The complexities increase every year, and it is no accident that the last two Fed chairs have been drawn from the highest ranks of academic economists.

Unfortunately, the Federal Reserve is the one area where experts have been most wrong, and have caused the most harm to the people.

Trump, Brexit, and Aggregate Demand

A lot has been written about Trump, Brexit, and the so-called revolt against the Davos consensus that's been in place since Clinton (or earlier). All of it may be true, or have some truth to it, but fundamentally the economics problems today stem from a lack of aggregate demand.

I was at an econtalk between Russ Roberts and John Cochrane, and while I was struck by how incidental the usual libertarian talking points sounded, I thought that a point Cochrane made about market size was very insightful. He said "the larger the market, the greater the gains from specialization" which is obviously true. There is something very valuable in large, open, free markets and to lose that is a tragedy.

It's a tragedy happening right now as middle class workers, seeing jobs slip away, are voting for protectionist trade policies. And I'm a Chicago Boy, but still support this.

I support this because I don't see an equally strong fiscal response creating enough demand to generate the new jobs these people can do. Suppose I was willing to pay a 15% premium for a "made in America" product. But my budget constraint means I cannot. If I had more money, I would, as I would consume local manufacture as a consumption good. But taxes are so high that on the margin I end up not doing it.

I think the US can produce high quality products, and I think there is a premium it can capture for local manufacture, but I also think that the population's budget constraint means that that market is too small to employ all those individuals with manufacturing skills who have seen their work go overseas. A larger deficit would meet household's savings demand, relax their budget constraint, and I think drive demand that would help put those who produce tradable domestically back to work.

iPhone 7

If there's anyone ready to ditch the audio jack, it's me. My car has excellent bluetooth connectivity, which I use to listen to podcasts during my commute, and the rest of the time I use Bose's excellent Bluetooth noise cancelling headphones, which also have outstanding connectivity.

I have an outstanding (dual subs, high sensitivity speakers, Class A amp etc.) hi fi system that I stream music to digitally, not via an analog cable to my iPhone.

So I really am done with cables. And yet...

I don't like Apple's cable port. It's flaky and it's hard to get reasonably priced peripherals. They will also change it, so I don't want to invest in any part of the eco-system. Similarly for headphones. Apple's focus on hardware/software integration means that whatever Bluetooth variant they come up with will be Beats exclusive and Beats suck.

There's a brand mismatch between Beats, which are stylish for those who don't know better, and Apple, which (contra the 4chan crowd) are stylish for those who do know better. If Apple had bought Grado it would be a different story, but they bought Beats. So I do not want any part of any eco-system that pushes me to Beats.

Most importantly, I see no benefit from losing the jack. They say it frees up space, but the stereo sound is, I'm sorry to say, ridiculous, and if they wanted space they could have gotten rid of the useless second speaker.

Anyway, I am due for an upgrade, but maybe it will just be a new case and a battery change. I will wait the next cycle out for something useful, like wireless charging, or fast charging, and see what happens to the analog hole.

Brexit and markets

The S&P is down about 5% from it's high. Dramatic, but no big deal compared to the 50% drop in 2008. The broad selloff is being attributable to Brexit, specifically, the poorer growth prospects for the UK, the EU, and general economic uncertainty.

I don't this market prices reflect any of those things, I think they reflect bad bets, margin calls, and homogeneity across hedge funds.

I'm sure many hedge funds were long sterling, or betting one way or another that Brexit would not happen (basically, a merger-arb play at the transnational political level). When the merger didn't happen, or more specifically, when the divestment did happen, they lost money and thus needed to make margin calls.

To make margin calls, they sold what they had, which was basically everything else. Selling stuff drives the price down. Since they are all making the same bets (and charging 2% and 20% for it) they all sell the same stuff and prices move together.

Note that all of this has no connection to the UK and EU. Individual countries, particularly those as large as the UK, can survive perfectly well whether they are part of a broader agreement or not. Canada and the US trade is a good model for the UK and the EU.

The economic prospects for the UK depends on how well it can stimulate it's economy, through deficit spending, and return to something closer to full employment. That will probably help make the national mood there more generous as well.

Brexit

Although markets are down, I don't think Brexit will be bad for the British economy. Indeed, I think that it will be a boon.

A major structural issue in the EU monetary union was that individual countries no longer had their own currency, but there was no entity, such as a US's Federal Reserve, which could run deficits to support any nation whose desire for savings outstripped available savings. This triggered paradox of thrift conditions, where austerity drove deficits higher, demanding more austerity. The price was paid in human misery and unemployment, and it was totally wasteful, totally destructive, and totally unnecessary.

Greece may not be a well governed country, but the human cost in forced unemployment and underemployment was high and not only brought no benefit, but could not bring any benefit. As Zizek would say, austerity was the German superego run amok.

The UK can now run deficits denominated in the pound sterling, keep its population employed, and try to run its country, for its citizens as best it can, to the extent it is allowed to. Good luck to all.

Short Facebook, Long Apple

Apple is going to add paid ads to app store searches.

Currently, most of the money FB makes, especially on mobile, is on mobile ads. Most of that money is from game companies who desperately need installs, but cannot buy installs via Apple because Apple doesn't sell them.

FB is the only media company with enough reach on mobile, and enough people on its app looking to kill time, that you can buy the installs you need by marketing through them. The strategy is to buy enough installs to get into the top 10, and then hope the game is popular enough with sufficient retention that you can stay in that top 10 by scaling back your spending and using the organic installs chart position gets you (Apple's "most popular free games" category works exactly the same way as the "free online games" keyword works on Google.com).

This is all incredibly inefficient. Companies would rather just pay Apple instead of this crazy bank shot where FB gets paid, Apple's rankings get played, and no one believes in the editorial neutrality (which is real!) on the Apple app store home page.

Apple cut out the middle man. If they execute this right, they should just absorb all of FB's mobile ad revenue.

Short Facebook.

Apple might start charging for App store placement

Apple's app store is a strange beast. App store placement drives discovery, and is a key channel for companies to get downloads. If your game is in the "top 10 free games" list on the app store, it will be downloaded.

This mechanism is programatic, and companies "game" it by spending a lot of money to drive downloads. Once they have driven enough downloads to get into the top 10, it's much cheaper to keep the game there as organic downloads will spike, meaning you need fewer paid downloads to maintain your overall download number (and therefore, rating).

However, Apple will not accept money for driving a download, so developers pay Facebook instead. Facebook is the best, scale driver of downloads for mobile apps, so the money developers want to pay to market their app on the Apple app store is instead going to Facebook because there is nowhere else for it to go.

Ironically, Apple's attempt to break this dynamic is to promote apps on their app store homepage editorially -- editors pick what's great and showcase it. However, customers think that those (legitimate, free, editorially driven) choices are in fact paid placement. So Apple tried to take the high ground, doesn't get credit for it from customers, and sends a lot of money (inefficiently) to Facebook.

Maybe that will change. 

Apple Inc. has constructed a secret team to explore changes to the App Store, including a new strategy for charging developers to have their apps more prominently displayed, according to people familiar with the plans

The app store  isn't broken, but app discovery is. There is no reason why the best way to get your app infant of the right potential customer is to pay Facebook to market it based on look-alike's amongst cat pictures. If Apple cracks this but, it will be a huge business, potentially AdWords huge, and most of that money will come from Menlo Park.

Fork Bitcoin

I don't have a dog in the Bitcoin fight, but it's worth reading Fred Wilson's post for his (invested) perspective:

I’ve been writing about the Bitcoin blocksize debate here at AVC (the only place I write and I’m hard core about that) for the past year. It’s a big deal. At the core of the debate is whether the Bitcoin blockchain should be a settlement layer that supports a number of new blockchains that can be scaled to achieve various goals or whether the Bitcoin blockchain itself should evolve in a way that it can scale to achieve those various goals.

In my simple mind I liken it to this. Should Bitcoin be Gold or should Bitcoin be Visa. If it is Gold, it’s a store of wealth and something to peg value to. If it is Visa, then its a transactional network that can move wealth around the globe in a nanosecond

My understanding is that the politics of Bitcoin set is up as Gold initially. I've written elsewhere about why I think this model of money is incorrect, based on gold-standard thinking instead of understanding money as a way to track obligation (or "balance sheet" thinking). Bitcoin's value is from its distributed ledger technology, the blockchain, not particulars of how Bitcoin itself will or will not scale (ultimately, structurally it cannot be a store of value).

I don't know if Fred is on the Gold or Visa side, but personally, I think Visa is more likely to be valuable than Gold.

Nonsense about the Apple headphone jack

I don't know whether Apple will remove the headphone jack from the next iPhone or not, but this Slate article has made to write about it and link to them. Well played, sir! What I do know is that this doesn't seem to make much sense:

Lightning is a superior connector compared to the existing 3.5 mm audio jack in the iPhone because it's digital. That means the iPhone's software could fine-tune the way headphones sound, like an equalizer. An app like Spotify could also be programmed to open whenever you plug in headphones.

If a digital signal is transmitted via Lightning, it just means that the Digital-to-Audio converter (DAC) needs to be somewhere in the headphone instead of in the device. There may be benefits in isolating the DAC from other microprocessors in the phone, but I'm not that much of an audiophile and frankly, Apple's iPhone DAC is pretty good already. However, since the iPhone already has a DAC, and that the music it plays is digital, it means that it can iPhone software can already fine-tune the way headphones sound. In fact, it already has an equalizer.

The primary reason to remove the 3.5mm jack would be to make the iPhone thinner still. My preference would be that Apple keeps the iPhone the same thickness, but does something about the case I need to wrap it in so it doesn't break. The case adds more size to the iPhone than Apple can remove, and an integrated solution might be better (and smaller) than what customers do now.

Fed Raising Rates

Looks like the Fed is raising rates, and this WSJ article goes through winners and losers. There's another way to think about it though.

Firstly, orthodox macro has lower rates as simulative because it encourages borrowing, which comes concomitantly with spending. However, when you are in a balance sheet recession, with an overly leveraged economy, then this additional borrowing doesn't happen, which has been the story in the US since 2008 and in Japan since about 1985.

More specifically, the leveraged stimulant that lower rates drive comes essentially from residential housing and the mortgage market. Prices remain high on the coasts, and people have all the house they need elsewhere. With a weak labor market, stagnant wages, and generally poor business demand, I don't think households are ready to leverage up or have the cash to go long(er) housing.

Secondly, on the flip side, higher interest rates mean more interest income, and income is what remains missing in this economy. 0.25% isn't much, but it's better than ZIRP, and while I see this as being too small to have much of an impact, it is (mildly) simulative.

More broadly, as Mosler points out, the Fed should really leave interest rates at zero permanently. There's no purpose to them, it would take all the profit out of the bond speculation market, and most importantly, it would focus stimulus on the channel which is actually capable of delivering it -- fiscal.

IPO as down round

Square has gone public, seeking a target valuation of about $4B, down materially from it's $6B round in 2014. What this means depends entirely on the clause in it's cap table.

It's quite likely that later investors, who put money in at $6B, have provisions that protect their investment. They will likely be getting all of their money out, and maybe even making a profit.

Earlier investors may be sitting on more gains, and likely have liquidation preferences as well, so they too will, most likely, get all of their money out and make a nice return.

However, $2B of value has vanished, and this needs to come from somewhere. Most likely, it will come from the equity stakes of employees, and maybe the founders as well unless they negotiated some insurance for themselves.

If their stakes have been wiped our, maybe management will issue them new shares at the $4B public valuation? I'm not sure I've ever seen a down round in such a public arena before.

Miitomo

I am incredibly excited about Nintendo's new mobile game/messaging app, Miitomo. Messaging, and photos, are the killer apps on mobile phones, and I cannot wait to see what Nintendo has created by adding it's game magic to these basic core functionalities.

The Housing Bubble involved banks

Two economists from my alma mater have an article on 538 about why the Housing Bubble tanked the economy when it burst in 2008, but the Internet Bubble of 2000 did not.

What explains these different outcomes? In our forthcoming book, “House of Debt,” we argue that it was the distribution of losses that made the housing crash so much more severe than the dot-com crash. The sharp decline in home prices starting in 2007 concentrated losses on people with the least capacity to bear them, disproportionately affecting poor homeowners who then stopped spending. What about the tech crash? In 2001, stocks were held almost exclusively by the rich. The tech crash concentrated losses on the rich, but the rich had almost no debt and didn’t need to cut back their spending.

It pains me to say this, because I love economics and I love Chicago, but Sufi and Mian get this wrong because of the core gap in monetary economics -- they miss the finance system.

In general, economics treats money as an "illusion" in that it facilitates the trade and exchange of real goods and services, but fundamentally does not impact or distort that exchange (at least to no great degree). A rose is a rose is a rose, and therefore a good is a good is a good regardless of whether it's prices in dollars or shekels. Therefore, money in general and banks in particular do not play a central role in macro monetary models, which instead focus on things like time preference, consumer expectations, etc.

In reality, money, or more particularly credit, plays a central role in the economy because of how bank lending works. When banks lend, they lever up their balance sheet, and therefore create money out of "thin air", constrained only by capital requirements on the supply side, and the number of qualified borrowers on the demand side.

Saif and Mian are unaware of this dynamic, as they show in their opening paragraphs:

In 2000, the dot-com bubble burst, destroying $6.2 trillion in household wealth over the next two years. 

Five years later, the housing market crashed, and from 2007 to 2009, the value of real estate owned by U.S. households fell by nearly the same amount — $6 trillion

These two $6T are not comparable. In the dot-com bubble, the loss wiped out venture accounts and household wealth in brokerage accounts, but neither was enabling additional lending (and therefore money supply). In the housing bust, $6T of bank capital (which collateralized the loans) was propping up an additional $120T or so (at a 5% capital requirements ratio) of money supply, so the impact on the economy was over an order of magnitude greater.

Without understanding credit, and the role banks play in the economy, economics will continue to struggle to explain the business cycle, and fall for fads like distributional spending effects.

Peak Unicorn?

Dan Primack writes in Fortune that we might be seeing "peak unicorn".

Since landing in San Francisco on Wednesday, I’ve met with an assortment of senior venture capitalists, bankers, entrepreneurs and crossover investors. All of them have, in one way or another, been involved with so-called ‘unicorn’ companies. As in the past, they are nearly unanimous in sentiment. The difference now is that their sentiment is fear.

The past several years of raising too much, too high, too soon has run smack into a much more conservative investor ethos. Later-stage tech startups can still raise growth equity — and still lots of it — but not necessarily at the terms they were receiving just two months ago.

He follows up in his newsletter:

In response, many have shrugged and said something like, "Even if all of these companies were to completely fail, it wouldn't really have a broad economic impact. The amount of venture capital invested each year is tiny compared to the public markets, and just half of the amount of VC invested in the dot-com boom."

But that's a pretty narrow view of what matters, given how many people each of these companies employ (and how many new employees they keep adding). Research firm PitchBook reports that 91 of the U.S.-based unicorn cohort employ around 57,000 people, with many of them adding hundreds of new workers within the past year.

57,000 really isn't that many people. Apple employs about 40,000 all by itself. And since this bubble is equity financed, not debt financed like the housing bubble, if it pops the write downs will not impact general credit and economy function.

Also, the likelihood of unicorns absolutely failing is very low. You have to have some product market fit to get to the size they have, the only question really is of valuation. If valuations are too higher, and the investors have been smarter about the deal terms than the entrepreneurs, then the only outcome will be lower (or no) returns for the entrepreneur and modestly worse outcomes for the investors.

M is for Millenial?

Interesting piece on Facebook's new Messenger AI, "M":

When you ask M a question, the AI works to understand what you’re asking and formulates a response. But rather than sending it to you, the system sends this response to human “trainers”—customer-service types who work alongside the Wit.ai team inside Facebook’s new building in Menlo Park, California. These trainers then decide what else must be done to provide what you’re looking for

So it sounds like M gets the input, and then essentially send it to a Millenial, who Googles etc., to get the task done. I guess that works, and I think there are some startups taking this approach ("don't scale!") Fun to see it filter to FB, and a great cultural fit for them too. And now we know what "M" stands for.

In doing that heavy-lifting, the humans generate a roadmap for how particular questions should be answered. “Everything the trainers do, we record every step,” Lebrun says. This includes what websites they visit, what they say when calling the DMV, what they type in response to M users, and so on. In the future, this data can help drive a more advanced system based on deep learning, a form of AI that masters tasks by analyzing enormous quantities of information across a vast network of machines.

The long term plan is to gather inputs and automate the more common queries. Sounds great if it works. Siri has been a big disappointment as Apple's ability to deliver great experiences suffers post-Jobs.

Krugman out of paradigm

Although it's a terrible word, and an unhelpful communication technique, out of "paradigm" is still the best way I can characterize the continuing struggle academic economics has with understanding how finance, and particularly the monetary system, actually work.

Mosler highlights this when reviewing a recent Paul Krugman column:

Krugman: I know that may sound crazy. After all, we’ve spent much of the past five or six years in a state of fiscal panic, with all the Very Serious People declaring that we must slash deficits and reduce debt now now now or we’ll turn into Greece, Greece I tell you.

But the power of the deficit scolds was always a triumph of ideology over evidence, and a growing number of genuinely serious people — most recently Narayana Kocherlakota, the departing president of the Minneapolis Fed — are making the case that we need more, not less, government debt.

Why?

Mosler: This is the right answer- because the US public debt, for example, is nothing more than the dollars spent by the govt that haven’t yet been used to pay taxes. Those dollars constitute the net financial dollar assets of the global economy (net nominal savings), as actual cash, or dollar balances in bank accounts at the Federal Reserve Bank called reserve accounts and securities accounts. Functionally, it is not wrong to call these dollars the ‘monetary base’. And a growing economy that generates increasing quantities of unspent income likewise needs an increasing quantity of spending that exceeds income- private or public- for a growing output to get sold. 

Krugman: One answer is that issuing debt is a way to pay for useful things, and we should do more of that when the price is right.  

Mosler: Wrong answer. It’s never about ‘when the price is right’. It is always a political question regarding resource allocation between the public sector and private sector.

A lifetime ago, Krugman wrote that mathematical models were useful because they took implicit, inconsistent assumptions and make them both explicit and consistent. This was an aid to clear thinking.

His current thinking on monetary operations has a number of implicit assumptions, which is why he believes a fiat state has the same constraints and responsibilities as a household, and why his thinking fundamentally comes from the "sound finance" school of thought and not the "functional finance" school of thought proposed by Abba Lerner back in 1951.

Gell-man's law and Kuran

Gell-man's Amnesia Effect goes:

You open the newspaper to an article on some subject you know well. In Murray's case, physics. In mine, show business. You read the article and see the journalist has absolutely no understanding of either the facts or the issues. Often, the article is so wrong it actually presents the story backward—reversing cause and effect. I call these the "wet streets cause rain" stories. Paper's full of them.

From Michael Chrichton.

Kuran argues:

One mechanism [for authoritarian regimes in the Islamic world] is kinship ties. Because organizations could not form, people relied on their blood ties. This was part of the reason that commercial transaction were and still are (relatively) personal rather than the impersonal model generally followed in developed states. 

From a mugwump (via Andreeson)

Alternatively, it could be exactly the opposite.

China and the Yuan

If China's devaluing the Yuan, it suggests that the economy there is slowing down too much. China remains export driven, and a cheaper currency makes exports more competitive.

Sources told Reuters that the move to devalue the yuan reflects a growing clamor within Chinese government circles for a devaluation of perhaps up to 10 percent to help struggling exporters.

Fundamentally however, exports mean that a country generates real goods, and then exchanges them for numbers in a spreadsheet, overall it's a better deal for the importer than the exporter. Life in an export-driven economy means you work hard, but don't end up with much for it because most of your output has been traded away for digital beads. Mosler (and MMT) argues:

In a weakening global economy from a lack of demand (sales) and ‘western educated, monetarist, export led growth’ kids now in charge globally, the path of least resistance is a global race to the bottom to be ‘competitive’. And the alternative to currency depreciation, domestic wage cuts, tends to be less politically attractive, as the EU continues to demonstrate. 

The tool for currency depreciation is intervention in the FX markets, as China just did, after they tried ‘monetary easing’ which failed, of course. Japan did it via giving the nod to their pension funds and insurance companies to buy unswapped FX denominated securities, after they tried ‘monetary easing’ as well. 

The Euro zone did it by frightening China and other CB’s and global and domestic portfolio managers into selling their Euro reserves, by playing on their inflationary fears of ‘monetary easing’-negative rates and QE- they learned in school

No country is pursuing a fiscal strategy for increase demand and reduce unemployment. Ultimately, fiscal is all that will work, so we have our mix of deflationary low interest rates, increased risk of credit problems, and export-driven devaluation.