Marshall's Cash Balances
Martin at Macronomics - "We would posit that NIRP, to some extent, is akin to "The Law of the Maximum" and creating as such a very strong "hoarding" mentality, leading to the unintended consequence for some consumers to increase their savings and companies to delay "investing". "
The Nattering One muses... Marshall's cash balances, as Salmo Trutta stated: "by wanting more, the public ends up with less, and by wanting less, it ends up with more."
We examined this paradox at length in Contractions in Money Flows and Market Liquidity.
What has caused all this secular stagnation we hear about in the media narrative. Here is a simplification, let us consider the case of "hoarding", and ASSUMING the supply of money is FIXED:
+ many want to increase their cash balance
- many spend less
+ aggregate demand for money increases
+ value of money increases
- goods prices decline (not staples)
- profit expectations decline
- loan volumes decline
- money velocity declines
- bank cash balances decline
Wash, rinse, spin, repeat
QE, NIRP, ZIRP are contractionary to economic growth and AD (aggregate demand). Low, no and negative growth will lead to lower revenue and defaults. With little downward price flexibility, production, orders and layoffs ensue. Wash, rinse, spin, repeat.
Rather than goods price deflation, asset deflation should occur at some point. Commodities have already adjusted, stocks next, with defaults and rising spreads followed by bonds, with rising market interest rates, housing to follow. The question is not if, but when, how (triggers) and to what degree of severity.
The Nattering One muses... Marshall's cash balances, as Salmo Trutta stated: "by wanting more, the public ends up with less, and by wanting less, it ends up with more."
We examined this paradox at length in Contractions in Money Flows and Market Liquidity.
What has caused all this secular stagnation we hear about in the media narrative. Here is a simplification, let us consider the case of "hoarding", and ASSUMING the supply of money is FIXED:
+ many want to increase their cash balance
- many spend less
+ aggregate demand for money increases
+ value of money increases
- goods prices decline (not staples)
- profit expectations decline
- loan volumes decline
- money velocity declines
- bank cash balances decline
Wash, rinse, spin, repeat
QE, NIRP, ZIRP are contractionary to economic growth and AD (aggregate demand). Low, no and negative growth will lead to lower revenue and defaults. With little downward price flexibility, production, orders and layoffs ensue. Wash, rinse, spin, repeat.
Rather than goods price deflation, asset deflation should occur at some point. Commodities have already adjusted, stocks next, with defaults and rising spreads followed by bonds, with rising market interest rates, housing to follow. The question is not if, but when, how (triggers) and to what degree of severity.
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