The Pillory of Stocks and Flows?
Following up on The Velocity of Black Holes?
The primary driver of the economy is spending, as reflected in aggregate demand.
The primary transmission mechanism is the ex nihilo (out of this air, manna from heaven) creation of money, which occurs when money is lent for the purposes of economic development.
The velocities at which that money is lent and its expenditure rate determines the rate of inflation.
Many type 1 transaction and productive GDP activities have been outsourced and offshored to labor at the margin, in preference of type 2 asset shuffling and emasculated service based economies.
As previously Nattered, Saint James Goldsmith was right. Do the math, it has not, cannot and does not work. The jobs and wage increases necessary to overcome the gravity of that "trap" or black hole are not forthcoming.
Any nominal wage increases in offshore and onshore economies will be subject to the paradox which will be reinforced by the growing number and $ volume of type 2 vs type 1 transactions.
Nominal wage increases may sound nice, but without utility or REAL effect they are muted viz. only to be sucked in by declining real wages, increasing unadvertised inflation (stagflation), the vortex of increased cost of loan funds, and the ever mounting debt service and transfer payments which attempt to keep the global ponzi scheme alive.
Yes it is different this time, a witches brew of central bank monetary policy, ZIRP, QE, NIRP and now QT, thus there is something more than natural in this.
Ceteris Paribus, under NORMAL circumstances increasing business and consumer credit, or lending for expansion and consumption would drive a healthy inflation. But current conditions or circumstances are anything but normal.
In the case where REAL INCOMES are being overrun by unhealthy STAGFLATION, and expansionary GDP lending is overrun by speculative lending, the effects are deleterious and can not end well for many.
This all comes back to three things:
1. A lack of real wage growth resulting in a declining standard of living.
Since 1973, with real incomes in the US showing 10% growth, nominal incomes are not keeping up with "advertised as tame" inflation, much less the real rate of inflation which would make said real growth, negative.
Thus nominal is ever increasing, its just getting better all the time? But real is stagnant +10% in 44 years, so +0.2% annual increase. With real inflation calculated, a massive decline in purchasing power and standard of living
2. The cash balances paradox.
Since the advent of notes and specie, and the furtherance of credit based money, I need not enter Marshall's opine, Salmo's Paradox demonstrates the mechanisms: the more they want, the less they get.
3. The growing volume of type 2 non-gdp-pce transactions contrasted against the former two factors. Think hard on that one.It is not stocks, it is flows, and specifically the nature or aspects of those flows, and in order to get upstream to spawn, and one of our mentors Salmo Trutta, knows flows.
To ignore the aggregate effect of money flows on prices is to ignore the inflation process. Vt (Transaction Velocity of Money) is a function of three factors:
(1) the number of transactions;
(2) the prices of goods and services;
(3) the volume of M.
…Inflation analysis cannot be limited to the volume of wages and salaries spent. To do so is to overlook the principal "engine" of inflation - which is of course, the volume of credit (new money), created by the Reserve and the commercial banks, plus the expenditure rate (velocity) of these funds.
Financial transactions aren't random. The significant economic purposes for which a debt was contracted, or the manner in which it was financed, is of in-estimable value in evaluating its impact. QE2 encourages FINANCIAL investment as opposed to REAL investment." - Salmo TruttaTo summarize...
The primary driver of the economy is spending, as reflected in aggregate demand.
The primary transmission mechanism is the ex nihilo (out of this air, manna from heaven) creation of money, which occurs when money is lent for the purposes of economic development.
The velocities at which that money is lent and its expenditure rate determines the rate of inflation.
Many type 1 transaction and productive GDP activities have been outsourced and offshored to labor at the margin, in preference of type 2 asset shuffling and emasculated service based economies.
As previously Nattered, Saint James Goldsmith was right. Do the math, it has not, cannot and does not work. The jobs and wage increases necessary to overcome the gravity of that "trap" or black hole are not forthcoming.
Any nominal wage increases in offshore and onshore economies will be subject to the paradox which will be reinforced by the growing number and $ volume of type 2 vs type 1 transactions.
Nominal wage increases may sound nice, but without utility or REAL effect they are muted viz. only to be sucked in by declining real wages, increasing unadvertised inflation (stagflation), the vortex of increased cost of loan funds, and the ever mounting debt service and transfer payments which attempt to keep the global ponzi scheme alive.
Yes it is different this time, a witches brew of central bank monetary policy, ZIRP, QE, NIRP and now QT, thus there is something more than natural in this.
Ceteris Paribus, under NORMAL circumstances increasing business and consumer credit, or lending for expansion and consumption would drive a healthy inflation. But current conditions or circumstances are anything but normal.
In the case where REAL INCOMES are being overrun by unhealthy STAGFLATION, and expansionary GDP lending is overrun by speculative lending, the effects are deleterious and can not end well for many.
Less spending, less income, less revenues, less latitude for producers to lower prices, less investment in future economic activity, less hiring, lower or stagnated wages, lower production, layoffs ensue, rinse, spin and repeat. - The "Psycho Social" Aspects of Spending?
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