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i think that if pensions wanted to invest in more corporate/junk bonds, they could have done that. so what stopped them from doing it that is going to change?
I'm not saying that IS the OP's proposal, just typed that as an example of how he COULD, if he wanted to, explain this mysterious proposal in a few sentences so we could all understand it.
Almost always, if you can't explain an economics matter in fewer than ten sentences that can be understood by a reasonably attentive eighth-grader, it's snake oil.
I'm not saying that IS the OP's proposal, just typed that as an example of how he COULD, if he wanted to, explain this mysterious proposal in a few sentences so we could all understand it.
Almost always, if you can't explain an economics matter in fewer than ten sentences that can be understood by a reasonably attentive eighth-grader, it's snake oil.
he didnt specify junk but in reading his last post he seems to be saying that this isnt corporate debt that gets the lowest rates, it has higher risk/return make up. so it seems you are more or less accurate to what he is saying.
i appreciate he wants to solve the debt issue without raising taxes or increasing debt by outgrowing the debt but im not convinced throwing more money into corporate bonds (and im not sure how you make people throw that money there since they didnt want to do it before) is the solution.
I’m certainly not confused on any aspect of the debt market we are discussing, the overall borrowing or the fact you made an entirely false claim the Corp borrowing gets spent quickly. You can continue to say I’m the one confused but I’m not having to write novels of ramblings to fight my way out of a wet paper bag.
I give full explanations to your questions and back them up with supporting data and definitions. Your comments are short statements that simply state your position without any explanation or supporting documentation. Your statement is that I claim in your words that falsely corporate borrowing gets spent quickly, this is close to my statement but not completely true. What I stated was corporate bond funds are spent faster than credit. If there was a movement into corporate bonds rather than credit the velocity of transactions would increase.
There are other investments that spend money faster than corporate bonds and even in the corporate bond market some corporate bonds would expend the funds they received faster than other corporate bonds. Credit is expanded by the central bank to meet macroeconomic targets, the risk and return relationship is taken away. The risk and return relationship remains with corporate bonds and a movement into corporate bonds instead of unsecured credit will protect investors wealth, provide fixed income returns and increase the velocity of transactions.
The argument I am making is to move investments from credit, which is cheap due to the central bank's macroeconomic agenda to attain economic growth targets, to corporate bonds which are more expensive due to the risk and return relationship. I did not say corporate bonds are the ultimate fast spending financial product, in fact I think new financial products that spend money faster could be developed, but I do think they will spend money faster than credit. As you pointed out corporations will take on cheap credit to hold on to for future expenses.
That may be true for credit, but with corporate bonds the increase in corporate bond capital comes at the price of higher risk for the share holder in that corporation if the company becomes insolvent. Companies will be reluctant to increase corporate bond holdings unless they need to spend money quickly. If a company has not been downgraded and they can receive cheap funds from corporate bonds due to high demand they might increase issuances, however if the company has been downgraded and the funds are more costly they will only be issued in necessity.
This is what I feel you have confused, first my statement that corporate bonds can speed up the velocity of transactions. It can if credit is being expanded and corporate bonds are expanded instead of credit. Second statement, that corporate bonds are good at increasing the velocity of transactions. They are faster than credit which is the mechanism used in most nations through the interest rate mechanism, corporate bond issuances would be more efficient in terms of money velocity. The third is you are seeing demand pricing rather than risk pricing, risk pricing is better IMO.
Frankly, I'd like to just see a couple simple sentences explaining what the wet paper bag even IS. But we're not going to get that.
I think OP is suggesting that private pension funds invest in junk bonds rather than blue chip stocks and gilt-edge bonds, and then somehow (mechanism not explained) this will affect governmnet debt. But I'm trying to tease out the meaning from textual evidence, like trying to decipher hieroglyphics from a Rosetta stone. Here is an example of what the OP COULD write, but doesn't:
"I propose that private pension funds be required, by government regulations, to put a large fraction of their assets into junk corporate bonds and high-risk high-growth stocks. Dumping that money into those sectors will increase prices for those assets and aid the operations of the companies issuing them, and the ensuing increase in economic activity will increase government tax revenues."
Now, OP, if you could discipline yourself to write something like that (not multi-page screeds trying to tell us how corporate debt instruments are priced), then we could actually discuss this proposal.
My guess is that it's all snake oil and OP doesn't want it discussed by people who could tear it into flinders.
No just switching to any type of corporate bonds are better than investing in unsecured credit. It has nothing to do with increasing asset prices either, it is about either increasing the number of trades that happen in an economy over a set period of time or investing in business entities that help to increase the economy's ability to produce output.
i think that if pensions wanted to invest in more corporate/junk bonds, they could have done that. so what stopped them from doing it that is going to change?
Currently the interest rate mechanism is used to increase economic growth by lowering the interest rate. This increases the availability of credit to try and increase borrowing or reduce outstanding debt repayment costs. Rather than increasing the availability of credit if funds were invested in corporate bonds they would be used more optimally than the credit funds due to the low cost of borrowing cheap credit created and how corporations use it.
The direction of pension funds into corporate bonds instead of cheap unsecured credit products will be more secure and be more likely to be spent. This can be taken further by investing in corporations that have a high spending turnover and develop infrastructure advancements that increases output. Specific corporate bonds can be selected due to the corporation's expenditure turnover being greater than others, for example companies in the manufacturing industry that have large overheads and labour costs to pay for.
I'm not saying that IS the OP's proposal, just typed that as an example of how he COULD, if he wanted to, explain this mysterious proposal in a few sentences so we could all understand it.
Almost always, if you can't explain an economics matter in fewer than ten sentences that can be understood by a reasonably attentive eighth-grader, it's snake oil.
I will give it a go below.
Financial products are used to provide funds for business to cover their operating expenses, when funds are lent to a business the business can choose how they use the money they have borrowed. Some businesses for example manufacturing companies have large overheads and have to spend the money they borrowed quickly. Other businesses do not have large overheads and often hold on to the funds they have borrowed for a long time, especially when they can borrow the money inexpensively. By selecting to invest in businesses that spend money faster than other businesses it is possible to increase the speed at which transactions occur within an economy over a set period of time to maximise GDP. The other aspect of the investment selection mechanism is to invest in businesses that produce goods that help to maximise economic output, like infrastructure improvements or technological advancements. Directing pension funds into businesses that have higher overhead expenditure turnover and develop technological advancements makes it possible to increase GDP and optimise economic output. I term this method, 'Pension Fund Easing'.
There are many other financial products that are better at speeding up the velocity of transactions than corporate bonds, but corporate bonds are faster than credit. This is just an example.
he didnt specify junk but in reading his last post he seems to be saying that this isnt corporate debt that gets the lowest rates, it has higher risk/return make up. so it seems you are more or less accurate to what he is saying.
i appreciate he wants to solve the debt issue without raising taxes or increasing debt by outgrowing the debt but im not convinced throwing more money into corporate bonds (and im not sure how you make people throw that money there since they didnt want to do it before) is the solution.
It is just an example that one investment is faster at spending money than another. In this case I claim corporate bonds are faster at spending money than credit, which companies tend to hold on to when it is cheap. Credit has lost the risk element that makes the price higher due to the central bank's economic target hitting agenda. Corporate bonds on the other hand increase return to reflect risk, which makes them more expensive and less valuable to hold on to.
The only "solutions" to the sovereign debt is to either default on it or hyperinflate it away... both are extremely disastrous for different reasons.
No, they can increase economic growth above the increase in borrowing. Eventually the percentage of government debt to GDP will fall to acceptable levels. Read the paper linked to below. It is only short.
so how do you encourage pension funds to invest more in corporate debt? some kind of tax benefits for doing so?
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