The Velocity of Black Holes?
Following up on The Nature of Transactional Velocity?
1. There is a paradox with respect to peoples monetary motives.
2. The aspect, nature or TYPE of transactions economic actors engage in.
The motives of actors, type of transaction, volume and amount thereof, will govern whether the overall affect and effect will be positive or deleterious.
One must know this... Real double digit inflation is masked and advertised as tame under 2%.
Just look at a chart of any bond, spread or Libor from the last 2 years of tame inflation. Yields and real yields are obviously being driven by factors OTHER than inflation advertised as tame, which is stagflation.
IMHO the cost of loan funds will continue to rise, but NOT due to a healthy wage driven inflation or increased income velocity or more important, a healthy nature or aspect of transactional velocities.
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.
Since 1970, type 2 speculative transactions have been on a exponential rise in frequency and dollar volume globally, with particular concentration in the US, Europe and Asia.
Any increase in non GDP type 2 transactions precipitates a rise in (total) transactions and an increase in the holding of transaction balances. Self reinforcing, aiding and abetting the paradox in #2.
Rather than just transactions involving the purchase of final output or GDP, both the demand for credit and the demand for money are influenced by total transactions. How?
If total transactions increase more rapidly than income (TYPE 1) transactions, broad money will expand more rapidly than INCOME and so income velocity will fall.
In the end, Type (2) transactions lead to increased broad money stock, demand for money, lower credit creation, monetary base and transactional velocity.
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.
A central bank singularity has formed, with the help of regulatory mandates causing bank disintermediation, and the resulting horizontal velocities in offshore shadow banking based upon the US dollar, Eurodollar (offshore credit based dollar) and synthetic derivatives flows.
We have traversed the accretion disk, inescapable gravitational forces are at work. Something has to give in what will be economic spaghettification and an ensuing reset?
Debt repudiation? Monetization? A Franklin becomes a Washington? Your guess is as good as mine, but know this for sure....
It won't be to the disadvantage of the 1%, with the burden falling on the other 99.
More to come in The Pillory of Stocks and Flows? Stay tuned, no flippin.
Liquidity preferences can be altered through natural and un-natural market conditions, viz. there is something in this more than natural.
Those preferences can lead to capital, which otherwise might be working towards PCE and GDP economic endeavor, being malinvested in pursuits (non PCE and GDP) which are deleterious to economic growth.
Those funds which become ensconced in the system, increase the demand for money, and reduce the transactional velocity of money. What are the underlying causes?
The first underlying cause? Ceteris paribus, wanting more money leads to an economic contraction with lower aggregate demand. Lower aggregate demand dictates less spending which is the primary driver of the economic engine.
The second underlying cause? It's not just the paradoxes effect of lower spending and lending, it's also the type of spending, lending or transactions that economic actors engage in, and the quantity thereof.To review, there are two important underlying causes which govern flows, transactions and velocities that most do not realize or understand.
1. There is a paradox with respect to peoples monetary motives.
2. The aspect, nature or TYPE of transactions economic actors engage in.
The motives of actors, type of transaction, volume and amount thereof, will govern whether the overall affect and effect will be positive or deleterious.
One must know this... Real double digit inflation is masked and advertised as tame under 2%.
Just look at a chart of any bond, spread or Libor from the last 2 years of tame inflation. Yields and real yields are obviously being driven by factors OTHER than inflation advertised as tame, which is stagflation.
IMHO the cost of loan funds will continue to rise, but NOT due to a healthy wage driven inflation or increased income velocity or more important, a healthy nature or aspect of transactional velocities.
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.
Since 1970, type 2 speculative transactions have been on a exponential rise in frequency and dollar volume globally, with particular concentration in the US, Europe and Asia.
Any increase in non GDP type 2 transactions precipitates a rise in (total) transactions and an increase in the holding of transaction balances. Self reinforcing, aiding and abetting the paradox in #2.
Rather than just transactions involving the purchase of final output or GDP, both the demand for credit and the demand for money are influenced by total transactions. How?
If total transactions increase more rapidly than income (TYPE 1) transactions, broad money will expand more rapidly than INCOME and so income velocity will fall.
In the end, Type (2) transactions lead to increased broad money stock, demand for money, lower credit creation, monetary base and transactional velocity.
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.
A central bank singularity has formed, with the help of regulatory mandates causing bank disintermediation, and the resulting horizontal velocities in offshore shadow banking based upon the US dollar, Eurodollar (offshore credit based dollar) and synthetic derivatives flows.
We have traversed the accretion disk, inescapable gravitational forces are at work. Something has to give in what will be economic spaghettification and an ensuing reset?
Debt repudiation? Monetization? A Franklin becomes a Washington? Your guess is as good as mine, but know this for sure....
It won't be to the disadvantage of the 1%, with the burden falling on the other 99.
More to come in The Pillory of Stocks and Flows? Stay tuned, no flippin.
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