Fixed-income comments

A month ago,  I attended the SF Fed/Bank of Canada conference on fixed income. I had the chance to comment on Michael Bauer and Jim Hamilton's "Robust Bond Risk Premia.” My comments here.

As usual when faced with a really nice paper, I used most of my discussion time to survey the field and give my views on current facts and challenges, which is why my comments might be interesting to blog readers.

Some highlights: I reran regressions of bond returns in the style of Joslin, Priebsch, and Singleton, forecasting returns with the first  three principal components of yields, and growth and inflation. Here are the results:

First row: the slope factor forecasts returns with the usual 18% R2. Second row: Inflation and growth do not forecast returns at all. Third row: in combination with the first three principal components, the R2 rises to 0.26 by adding growth and inflation. Inflation now becomes a significant predictor, and its presence raises the coefficient and t statistic on the level and slope factors. This is an interesting OLS puzzle.

If you plot inflation, you see it is mostly a downward trend in this sample period. So, it occurred to me, what if I used a trend instead? The last two rows of the table add a trend. Indeed, with the trend, growth and inflation disappear. In fact, we can drop growth, inflation, and the third principal component, forecast returns with amazing t statistics and an R2 of 0.62, which must be an all time high.

What's going on here? Is the trend just picking up a trend in returns? Here is a plot of expected returns (a + b x_t) and actual returns (r_t+1) for four of the models in Table 1.

The point: the trend is not just picking up a trend in returns. And the 62% R2 is not a pathology of one big outlier, a trend, or something else.  Instead, the trend serves to filter the level factor, and to a lesser extent the slope factor. The message is not "a trend seems to forecast a trend in returns" but "the cyclical variations picked up by detrended level and slope factors seem to forecast returns."

So what does this all mean? Is this proof growth and inflation don't work because they are driven out by trends? No, the trend is after all a proxy for something economic.  (This is roughly Cieslak and Povala's point, who get over 50% R2 in a longer sample with smoothed inflation.) Is this all a big econometric goof, because serially correlated right hand variables are a mistake? No, and my comments go into this at length. Bauer and Hamilton's point is this econometric problem, but they don't get close to t statistics of 10. OLS cares about serial correlation of the residuals, but not of the right hand variables.  In the end, it's a interpretation issue, not an econometric one.

The biggest point of my comments: It's time to get past forecasting returns one at a time. Classic finance got past "is AT&T a good investment?" in the 1960s, after all, and moved on to portfolios and covariances. Here, the more interesting outstanding question is the factor structure of expected returns  -- do expected returns on all bonds move together over time? -- and the risk premium question -- what are the factors, covariance with which drives that variation in expected returns?

To this question, perhaps we should take a lesson from the VAR literature of the 1980s, and stop worrying tremendously about equation by equation parsimony in forecasting. Instead, accept that forecasting regressions will be a somewhat overfit, but put our attention in the cross-equation structure of forecasts.

To be specific, the next graph shows the expected returns of bonds with maturity 1-10 years -- the fitted value of each bond's return-forecasting regression. The graph is clear: these are not 10 different series. The expected returns on all bonds move in lockstep. There is a strong one-factor structure in expected returns.

Finance 101: Expected return = covariance of return with something, times risk premium. What's that something? In this context, the bonds whose expected return moves most over time should have returns that covary proportionally more with some factor. What is it? The next picture plots how much each bond moves with the common factor shown in Figure 11 against the covariance of the 10 bond returns with innovations in the bond principal components, growth, and inflation.

Again, the pattern is pretty clear: time-varying expected return corresponds completely with covariances with the level factor. Covariances with the other factors are all about zero, and do not vary in the same way as expected returns.

In sum, this simple exploration shows a pretty strong pattern: 1) There is a strong one-factor model of expected returns -- expected returns on bonds of all maturity move together over time. 2) There is a strong one-factor model of risk: the single time-varying risk premium in all bonds corresponds to covariance with a single factor, innovations to the level of interest rates.

This is all very simplified of course. The point: This kind of characterization of the joint behavior of bonds of various maturities -- and later of bonds, stocks, and foreign exchange -- seems like a more interesting unanswered question than the precise identity of forecasting variables for each security, taken in isolation.

These points are a bit of a rehash of older papers, Decomposing the yield curve and more generally  Discount Rates. But they are also an extension --- the "Decomposing the yield curve" point holds using the JPS forecasters and factors, and updated data.  This kind of inquiry needs a lot more work.

A wise comment

Scott Sumner passes on a wise comment from his blog:

...the main problem in America is that the public, including its highly educated members, is social-scientifically ignorant. Most people I talk to about policy do not even realize that there is anything non-trivial about policy analysis. They want the government to make sure that four phases of rigorously designed RCTs be performed before drugs are made available to the public, for fear of unintended consequences of intervening on a complex system like the human body, yet they think they understand the consequences of highly complex interventions on human societies by introspection alone. Not only do they think they understand the consequences of alternative policy choices, but they're so confident that their understanding is right and that its truth is so obvious that the only explanation for disagreement is evil intentions.  

When I point out that on virtually every policy issue, at least somewhat compelling arguments for many conflicting points of view have been made by relevant experts, people usually react in disbelief or denial, or immediately retreat to questioning the motives of these experts ("of course they say that, they're on the payroll of Big Business" or whatever). These patterns of speech and behavior are uniformly distributed across the political spectrum, even if intelligence and knowledge of well-established facts is not. Even many experts in particular areas of social science evince no awareness of the lack of expert consensus on almost anything in their field, and give the impression of unanimity to an unknowing public.

(Emphasis in the original.) The rush to bulverism (evil intentions or corruption of people who disagree) is particularly noticeable in economic commentary.  Uncertainty about policy is especially strong in macroeconomics and finance.  That doesn't mean anything goes. Many arguments do violate basic budget constraints or suffer other obvious logical flaws.

How do you know economists have a sense of humor? We use decimal points.

Hounded out of business II

Nathaniel Popper at the New York Times Dealbook, writes "Dream of New Kind of Credit Union Is Extinguished by Bureaucracy" It's a worthy addition to the series of anecdotes on how regulation, especially discretionary actions of regulators, are killing investment and businesses.

Again, we collect anecdotes as a challenge to measurement. There is no data series on numbers of businesses driven away by regulation. Yet.

This is a good anecdote, as it illustrates a too little reported underbelly of financial regulation.

Mr. Kahle saw how hard it was for the employees at his firm to obtain loans, and more broadly, how the existing financial system had helped contribute to the financial crisis. He thought he could do things differently, and he aimed to prove it when he began applying to open a credit union in early 2011.

Since then, the credit union has faced a barrage of regulatory audits and limitations on its operations, ...Now, Mr. Kahle is giving up on his dream of creating a new kind of bank, ...

...the troubles faced by his Internet Archive Federal Credit Union point to how difficult it can be to try out anything new in the heavily regulated industry.
After an 18-month application process, regulators let the Internet Archive Federal Credit Union open in 2012, but with restrictions that did not allow it to offer basic banking products, such as debit cards and online banking.

Mr. Modell said that during the 18-month application process, he and Mr. Kahle made 4,756 changes to their application and made it through only because of Mr. Kahle’s wealth.  “I could afford to say yes at every turn — every time they made some weird demand,” Mr. Kahle said. 

When they did get their charter from the N.C.U.A. in August 2012 — the first new credit union chartered that year — the Internet Archive Federal Credit Union was limited by the regulators to loans of $5,000 or less, and it could generally serve only people in a small area around New Brunswick, N.J., where the credit union was located.

It's a wonder that the US is still only in the mid 40s on the world bank's list of how hard it is to start a new business.  But just getting going, with restrictions that make profitability essentially impossible, is only the beginning.

it [the credit union] has faced a steady stream of official exams since: 11 in 14 months. In August, the credit union, by its own count, spent 187 hours dealing with regulators and only 61 hours dealing with customers.

The credit union’s other ideas for expansion were also shot down. In 2014, the Internet Archive Federal Credit Union tried to team up with an organization for migrant workers, the Farmworker Support Committee, to offer bank accounts and cheaper money transfers, but the idea was eventually rejected by an N.C.U.A. examiner.

And when the regulators turn against you, they know how to turn the screws:

Mr. Modell and Mr. Kahle said the red flags raised by the N.C.U.A. examiners had been over small discrepancies and record-keeping issues — and often turned out to be factually wrong.

“None of the compliance issues listed in the report were correct,” the credit union wrote in an appeal sent to the N.C.U.A. in May, after the agency lowered the credit union’s regulatory rating.

The N.C.U.A. sent its examiners on an increasingly frequent basis and requested more and more monthly reports from Mr. Modell... By mid-2014, the credit union had made less than $50,000 in loans and Mr. Kahle suggested to Mr. Modell that it was time to give up

And this business seems pretty much a poster child of benevolent capitalism:

“The original vision of this thing — of helping nonprofit workers, or helping the poor — they will not allow it,” Mr. Kahle said.

Given the bad press payday lenders get, this is doubly sad. The quantifiable result:

the number of credit unions in the United States has been shrinking each year since the crisis. There are around 6,300 credit unions, down from 7,000 in 2012 and 8,400 in 2007.

The larger backdrop would be amusing if it were not tragic. While the monetary policy part of the Fed has wanted stimulus and more lending, the regulatory apparatus has apparently been busy making sure banks don't lend, at least to anyone who needs the money, new banks don't start, and financial innovations don't emerge.

Update: LabMD CEO Michael J. Dougherty has a blog and a book.

Spot insurance markets

Obamacare/ ACA was in the news last week. Some relevant summaries, and comment below.

United Health pulling out of the Obamacare exchange market

UnitedHealth reported one problem after another: An expensive risk pool that lacks the younger and healthier consumers who are supposed to buy overpriced plans to cross-subsidize everyone else....People join the exchanges before they incur large medical expenses—insurers are required under ObamaCare to cover anyone who applies—and then drop out after they receive care. The collapse of the ObamaCare co-ops is recoiling through the market.

... Commercial insurers are being displaced by Medicaid managed-care HMOs, with their ultra-narrow physician networks and closed drug formularies.

From the WSJ blog,

...Health plans say they have had more sick people, and fewer healthy people, sign up under the new rules than they need to keep prices stable. ...It’s also cited as a factor in some insurers’ decisions to withdraw products from the market or offer more limited choices of providers this year. Health Care Service Corp., which owns Blue Cross and Blue Shield plans in five states, already has pulled out in selling through HealthCare.gov in New Mexico, and yanked its preferred-provider organization offerings in Texas.

From Rising rates pose challenge to health law

Federal officials are pushing people to evaluate their options and consider switching plans to try to keep costs in check, in a message regularly summarized as “shop and save.”

In about half of the states using HealthCare.gov, people in popular plans can pay lower premiums in 2016 than they did in 2015—as long as they are willing to switch to a plan with a different insurer, usually with a narrower network of doctors and a higher deductible. 

A story:

Kimono England...said... Their health plan’s decision to withdraw its “preferred provider organization” product this year tipped her over the edge.

She said she now has only a narrow provider-network option that doesn’t include her local doctors,...she decided to enroll in a Christian health-care sharing ministry, in which members agree to pay each other’s health bills... since the ministry won’t pay for an expensive specialty shot her husband needs four times a year they are thinking of buying a health plan just to cover him.

The move by the England family would mean that five people with relatively low medical costs exit the insurance risk pool, and one person with large expenses remains—bad news for the insurance industry.

Also,  Mary Kissel interview of Holman Jenkins (video)

Comments:

Let's beyond the standard headlines -- "Millions more covered!" "But they're all medicaid or high subsidy!" (For example here.) "Premiums going up!" "Not if you shop!" and so forth.

Health "insurance" seems to be moving to a spot market, in which large numbers of people change plans, sign up, or leave every year, and in which large numbers of companies change their plans and coverage every year.

The churn on the individual side and its spiraling costs was a predictable (and widely predicted) response to the ACA, which addressed preexisting conditions by mandating insurers to cover anyone at the same price. The joke around the passage of the ACA was that health insurance would consist of a cell phone, which you use to buy coverage on the way to the hospital.

Yes, open enrollment is only once a year, but it's not really a constraint. Most conditions involve years of care, and you can wait six months to ramp up big expenses. A binding non-insurance penalty close to the cost of insurance was never going to pass.

Moreover, the problem is not so much insurance vs. no insurance, it's the right to move around between plans. Buy a bronze high deductible policy one year. If you get sick, move to a gold low deductible big network policy the next year.

The tragedy here is what was lost. Yes, individual insurance had big problems. But before the ACA, there were millions of people who bought insurance when they were healthy; that paid guaranteed-renewable premiums in a large stable health insurance companies, so that when they got sick, they would still have good affordable health insurance. Sure, it didn't work for people who moved across state lines, who got jobs with employer-provided group plans, and many suffered various snafus. But for many self-employed people and small business owners outside the big company - big government nexus, it actually worked ok.

Those relationships are all gone now. If ever we do move back to long-lasting, individual insurance, that you buy when healthy so that it covers you when sick, the millions of people who did the right thing and bought in to the system are now gone.

It's more surprising, at least to me, that annual chaos is breaking out on both sides.  Plans are discontinued, companies leave the market, coops come and go bankrupt, networks change, and many of us have the pleasure of annually sorting through health insurance policies, trying to figure out which ones cover the doctors, hospitals, and medications we are using or might need next year, all likely to do it again in the next year.

Our "federal officials" are not only not bemoaning this chaos -- they're encouraging it! "Shop and save." Shop because your plan got canceled, they changed your network, they vastly raised your premiums, and so forth. Save because they won't pay your claims.

I guess Americans need something to do between Thanksgiving and New Years. Together with shopping for cell phone contracts, cable and internet bundles, and figuring out our frequent flyer programs, this should keep us all plenty busy. Winter in the Republic of Paperwork.

Will the supply churn continue? One view of this is simply that companies need time to adapt. They made optimistic assumptions about their pools, find they're losing money and have to adjust. In time, we will again see stable offerings by stable companies.

Maybe, but I doubt it. If people keep playing games, moving to high cost policies when they get sick, health insurance for those of us not getting subsidies will be astronomically expensive. It ceases being insurance.

A different view is that the supply churn is the industry's way of solving the problem. By changing networks and coverage each year, by canceling policies frequently, by companies forming, dissolving, entering and leaving markets,  they keep us on our toes. A stable wide network plan with reasonable cost will attract too many sick people. So, the answer is, keep it unstable.  The same kind of price discrimination by complexity that pervades airlines, cell phones, and credit card contracts, might pull in healthy people who don't have time to spend three weeks a year finding out what doctors are covered by what plan.

Related, I suspect the industry is finding a way to segment the market. There are really four separate health insurance systems: 1) Expanded Medicaid. 2) Highly subsidized premiums based on income. 3) Non-subsidized individual policies. 4) Employer provided insurance for high income people with full time jobs. The first three were supposed to be parts of the same market, but it's fragmenting, with medicaid and subsidized plans giving out low cost low quality care.

This is not a grand conspiracy theory. Like most outcomes in economics, it's not obvious any of the participants understand what's going on, and an evolutionary process settles on outcomes that "work" in the regulatory environment and don't lose catastrophic amounts of money.

Health insurance really does not work as a spot market, of course.

The answer? For those who haven't been reading this blog very long (collections here and here), it is straightforward: Lifelong, deregulated, guaranteed-renewable, individual insurance, bought when you're healthy, carried along from state to state and job to job, with employers contributing premiums rather than setting up group plans. Deregulation of supply, so that for most procedures you can just pay cash and not be rooked by made up prices.

Early Fisherism

John Taylor has an interesting blog post with a great title, "Staggering Neo-Fisherian Ideas and Staggered Contracts." John goes back to a paper he wrote in 1982 for the Jackson Hole conference, on the issue of that time, how to lower inflation. He presented simulations of a model with staggered wage setting, which I reproduce below.

So as far back as 1982, here is a model in which lower interest rates correspond with lower inflation, both in the short run and the long run.  John's model has money in it, so the mechanics are a pre-announced monetary contraction.

Sargent's famous "Ends of four big inflations"  tells an even more radical story.

On solving the governments' fiscal problems, inflation ends instantly. Sargent and Wallace alas do not have interest rate data, but from the inflation data it's pretty plausible that interest rates fell like a stone when the fiscal reforms are implemented. They have money stock measures -- and the ends of these inflations did not have any monetary tightening at all. Money stock measures all expanded substantially as inflation ended.

I've been having an interesting back and forth with a correspondent about Milton Friedman's views. In  "Do higher interest rates raise or lower inflation?" I quoted Friedman's 1968 address, and said he believed that an interest rate peg is unstable. Not so fast says my correspondent, and passed on a lovely memo written by Milton Friedman -- better still once owned by Anna Schwartz. (Yes I checked that it's ok to post this)

and later

As I read this quote, Friedman emphasizes that lower interest rates come only with lower inflation in the long run, so there is some Fishery theory here. But in the short run, if the Fed lowers money growth, then interest rates will first rise but then decline as inflation declines. So the implied short run relationship goes the other way.

As I read it, then, Friedman says it is possible to target interest rates. But to do so requires particularly active money growth policy to offset the instability that would result from simply announcing a fixed interest rate.

That leads to a very interesting question, how the same interest rate path could be supported by different money growth paths.

Hounded out of business

The Wall Street Journal had a nice oped, "Hounded out of business by regulators" by Dan Epstein who was, well, hounded out of business by regulators. Excerpts:

Last Friday, the FTC’s chief administrative-law judge dismissed the agency’s complaint. But it was too late. The reputational damage and expense of a six-year federal investigation forced LabMD to close last year.

...the commission opened an investigation into LabMD in January 2010. ...the FTC refused to detail LabMD’s data-security deficiencies.... Eventually, the FTC demanded that LabMD sign an onerous consent order admitting wrongdoing and agreeing to 20 years of compliance reporting.

Unlike many other companies in similar situations, however, LabMD refused to cave and in 2012 went public with the ordeal. In what appeared to be retaliation, the FTC sued LabMD in 2013, alleging that the company engaged in “unreasonable” data-security practices that amounted to an “unfair” trade practice.... FTC officials publicly attacked LabMD and imposed arduous demands on the doctors who used the company’s diagnostic services. In just one example, the FTC subpoenaed a Florida oncology lab to produce documents and appear for depositions before government lawyers—all at the doctors’ expense.
Yet after years of investigation and enforcement action, the FTC never produced a single patient or doctor who suffered or who alleged identity theft or harm because of LabMD’s data-security practices. The FTC never claimed that LabMD violated HIPAA regulations, and until 2014—four years after its investigation began—never offered any data-security standards with which LabMD failed to comply.

...the case illustrates the injustice of the federal system that allows agencies to cow companies into submission rather than seek a day in court. During its three years of pre-suit investigation against LabMD, the FTC demanded thousands of documents, confidential employee depositions and several meetings with management. LabMD—which at its apex employed 30 people—spent hundreds of thousands of dollars meeting demands. No federal court would ever allow such abusive tactics. But this isn’t federal court—it’s a federal agency.

Furthermore, the FTC is likely to simply disregard the 92-page decision—which weighed witness credibility and the law—and side with commission staff. That’s the still greater injustice: The FTC is not bound by administrative-law judge rulings. In fact, the agency has disregarded every adverse ruling over the past two decades, according to a February analysis by former FTC Commissioner Joshua Wright. Defendants’ only recourse is appealing in federal court, a fresh burden in legal fees.

That’s what happens when a federal agency serves as its own detective, prosecutor, judge, jury and executioner.

The anecdote has two larger implications, in my view. First, many people including myself have a sense that this kind of regulatory persecution is harming economic growth. But there are no good estimates of the total number of companies put out of business, jobs destroyed, investment made worthless by regulatory persecution, or, even harder, projects not started from fear of such persecution. For the moment, we can only collect anecdotes, which is why I pass this one on.  But the measurement question is vital. Inequality is only a big policy issue because we have statistics on it.

Second, note the pretty clear charge that the FTC retaliated against LabMD for challenging the FTC. In "The rule of law in the regulatory state" (pdf, blog version here; excerpt at the insider here)  I started thinking about the political and free-speech implications of this kind of persecution.

With exceptions such as Lois Lerner at there IRS, the agencies are still first and foremost interested in protecting the agencies.

But it's easy enough these days to figure out who donates to what campaign, or who blogs about what.  To imagine that this kind of persecution will not be used for partisan political purposes -- or that fear of such persecution will not drive company owners to make political friends, make abundant contributions, pay for expensive speeches, and so forth -- is to imagine that a plate full of cookies at a children's birthday party will stay untouched when mom and dad say eat your vegetables first.  LabMD clearly needed a friend in high places to call and say "make this problem go away." Its successors will not make that mistake.

Inflation Drumbeat

Noah Smith has an interesting Bloomberg View piece on Japanese inflation. Three crucial paragraph struck me

... Japanese unemployment is very low, and the economy is expanding at or above its long-term potential growth rate of around 0.5 percent to 1 percent. So according to mainstream theory, inflation would be an unnecessary and pointless negative for Japan’s economy. Why, then, are there always voices calling for Japan to raise its inflation rate?

Actually, there are several reasons. The main one is that inflation reduces the burden of debt. Japan’s enormous government debt represents the government’s promise to transfer resources from young people (who work and pay taxes) to old people (who own government bonds). Since Japan is an aging society, there are more old people than young people. That makes the burden especially difficult to bear. Young people also tend to have mortgages, the repayment of which is another burden.

Sustained higher inflation would represent a net transfer of resources from the old to the young. That would increase optimism, and hopefully raise the fertility rate, helping with demographic stabilization. It would also decrease the risk that the Japanese government will eventually have to take extreme measures to stabilize the debt.

I like these paragraphs because they so neatly distill the language used by the standard policy establishment to advocate inflation. Noah clearly separates the usual "stimulus" arguments from the new "debt" argument, which helps greatly.

Debt is a "burden." Sort of like snow on your roof, debt appears from the sky somehow and then represents a "burden" requiring "lifting," which would be beneficial to all.

Debt "represents the government’s promise to transfer resources from young people ... to old people.." Apparently, the government woke up one morning, and said "we promise to grab about two and a half years worth of income from young people and give it to old people." Undoing such an ill-advised promise does indeed sound worthy.

But, lest these soothing words lull you into idiocy, let us remember where debt actually comes from. The Japanese government borrowed a lot of money from people who are now old, when they were young. Those people consumed less -- they lived in small houses, made do with fewer and smaller cars, ate simply, lived frugally -- to give the government this money. The promise they received was that their money would be returned, with interest, to fund their retirements, and to fund their estates which young people will inherit.

Noah is advocating nothing more or less than a massive government default on this promise, engineered by inflation. The words "default,"  "theft," "seizure of life savings," apply as well as the anodyne "transfer." I guess Stalin just "transferred resources."


Amazingly, to Noah (and the views he ably summarizes here) this "transfer" will "increase optimism." Hmm. Let's look at the evidence for that. We have seen many large inflations, which wiped out middle-class savings along with government debts. Those events have generally been regarded as economically, politically, and psychologically destabilizing tragedies, not FDR-fireside-chat "optimism"-raising sessions. No surprise that few societies have voluntarily signed up for such treatment as Noah recommends. I would be curious to hear of a single happy historical antecedent. (I mean that. Perhaps I am mistaken in my understanding of Noah's proposal. A successful example might correct me.)

How does a government default benefit young people anyway? It does so if a large amount of tax revenue is being used to pay interest or principal on the debt, and the default is accompanied by a large tax cut for young families. Not by the same level of taxes and increased government spending on more railway-to-nowhere stimulus projects.  Without tax cut, there is no transfer. Noah is strangely silent on the essential big tax cut aspect of his plan.

Quiz: Find in Japanese (or American) government finances the actual "promise to transfer resources from young people (who work and pay taxes) to old people." If you say "government bonds," you (like Noah) got the wrong answer. The right answer is Social Security, Medicare, and public employee pensions. If Noah wishes to reduce the "burden" of intergenerational transfers, no matter that governments have promised to make those transfers and people have planned their lives around them, the silence on these promises is deafening.

If the purpose is default, why not just advocate default? A massive inflation also destroys private savings and wipes out private contracts. Oh wait, that's the point:

Young people also tend to have mortgages, the repayment of which is another burden.

Like the government, young people too I guess woke up one day and this "burden" parachuted down on top of their surprisingly big house.

So, according to Noah, a self-induced hyperinflation to generate an economy-wide debt default is necessary... to "decrease the risk that the Japanese government will eventually have to take extreme measures to stabilize the debt." I find it hard to imagine what more extreme measures he has in mind.

One practical difficulty: Like most governments, Japan rolls over debt fairly frequently. So inflation must come really quickly if it is to wipe out debt. A second practical difficulty: The BOJ, like our own Fed, seems completely unable to induce any inflation. With advice like this, thank goodness.

Another puzzle: What exactly is the "burden" of Japan's debt? Japan's interest rates have been zero for 20 years. Japan's growth rate g, as low as it is, is larger than its interest rate r. Japan pays next to nothing in debt service.  Is Noah joining the despised ranks of worrywarts like me that this can't last? But if it comes to an end, in a run on Japanese government debt and consequent inflation, then Noah gets what he wants. If it does not come to an end, Japan pays no debt service and gradually grows out of the debt. Where's the fire?

Again, this is not a post about Noah. One writes columns quickly, and space often prevents a full development of arguments.  I am resolved not to discuss or even imply criticism of a writer's motives, so if you infer that, undo the inference now.

Rather, let us appreciate and dissect Noah's language, logical loose ends, insouciant willingness to upend the lives of millions, and answers in search of questions, for how well they summarize so much policy blather; and therefore not to be lulled by that blather's repetition.