Useful information! I didn’t know about the relationship between Real GDP and nominal GDP. Thanks!
A deflationary era for the US might ‘feel’ like a Depression. What’s rattling around in the back of my mind are these unknown factors: years of quantitative easing; astronomical levels of national debt; trillions of dollars in derivatives an…
Useful information! I didn’t know about the relationship between Real GDP and nominal GDP. Thanks!
A deflationary era for the US might ‘feel’ like a Depression. What’s rattling around in the back of my mind are these unknown factors: years of quantitative easing; astronomical levels of national debt; trillions of dollars in derivatives and credit swaps. Sounds like the proverbial recipe for disaster.
Someday they may be calling you the economic Oracle of Delphi, not theCassandra, Mr. Kust.
Oh wait! I did see these graphs in your ‘Abenomics’ post on June 6. I actually printed that one out, to easily find in the event that the Fed makes the same mistakes that Japan made. I just re-read it now; I wanted to more fully grasp these details on liquidity traps and money velocity, but I’ve been too sleep-deprived to get back to it until now (new kitty, who’s a sweetie but who’s completely nocturnal!) Anyway, yes, I think the Fed is going to overshoot or wrongly time something or generally muck it up, and I appreciate your efforts in letting us know their errors.
Oracle of Delphi? Hell, I'll be satisfied with a simple "dude knows his stuff"!
(Thanks, btw!)
If the past few years demonstrate anything it is that we should not be too quick to quantify the precise impacts of QE on the economy, other than to say "not good."
Because money velocity tanked in 2008 and again in 2020 even as the Fed was goosing the money supply, consumer price inflation took time to materialize (asset price inflation, which shows up in financial markets, has in fact been the primary engine of price appreciation in equity markets since 2008). Consumer price inflation did not emerge until 2021, after multiple rounds of direct-to-consumer stimulus payments in an economic environment characterized by ruptured supply chains on a global scale. The resulting upticks in money velocity have powered the consumer price inflation we've seen since 2021 (Friedman does not explicitly say so in his discussions of inflation as a monetary phenomenon, but I suspect that money velocity increase is a more influential driver of consumer price inflation than money supply growth, something that many nominally Friedmanite monetarists tend to overlook).
Extending that thought process a bit further, debt levels are not an immediate economic destabilizer so much as they are a drag on economic activity: the higher the debt level, the higher the debt service--nationally, commercially, and per capita. Every dollar directed at debt service is a dollar directed away from both investment and consumption--the two main engines of economic growth. High debt levels thus retard economic potential for the duration that the debts remain unresolved.
Swaps are best thought of as a vial of economic nitro glycerin. On any given day, they pose no threat to the economy. However, when the right combination of interest rate rises and money supply decreases is reached, the resulting financial explosion can be devastating to financial markets. Given even Main Street's reliance on credit financing for daily operations, this has the capacity to disrupt even non-financial economic activity. In other words, swaps are never a problem until suddenly they are, and when they are, they are a problem of apocalyptic magnitude. That is a lesson the world has not learned from the 2007-2009 GFC.
Consequently, US debt levels are not so much an immediate problem for the economy as they are a restraint on potential solutions for countering deflationary forces being expressed in various economic sectors. When grappling with the need to find such solutions, however, in every perspective besides the purely academic that quickly becomes a distinction without much difference.
Useful information! I didn’t know about the relationship between Real GDP and nominal GDP. Thanks!
A deflationary era for the US might ‘feel’ like a Depression. What’s rattling around in the back of my mind are these unknown factors: years of quantitative easing; astronomical levels of national debt; trillions of dollars in derivatives and credit swaps. Sounds like the proverbial recipe for disaster.
Someday they may be calling you the economic Oracle of Delphi, not theCassandra, Mr. Kust.
Oh wait! I did see these graphs in your ‘Abenomics’ post on June 6. I actually printed that one out, to easily find in the event that the Fed makes the same mistakes that Japan made. I just re-read it now; I wanted to more fully grasp these details on liquidity traps and money velocity, but I’ve been too sleep-deprived to get back to it until now (new kitty, who’s a sweetie but who’s completely nocturnal!) Anyway, yes, I think the Fed is going to overshoot or wrongly time something or generally muck it up, and I appreciate your efforts in letting us know their errors.
Oracle of Delphi? Hell, I'll be satisfied with a simple "dude knows his stuff"!
(Thanks, btw!)
If the past few years demonstrate anything it is that we should not be too quick to quantify the precise impacts of QE on the economy, other than to say "not good."
Because money velocity tanked in 2008 and again in 2020 even as the Fed was goosing the money supply, consumer price inflation took time to materialize (asset price inflation, which shows up in financial markets, has in fact been the primary engine of price appreciation in equity markets since 2008). Consumer price inflation did not emerge until 2021, after multiple rounds of direct-to-consumer stimulus payments in an economic environment characterized by ruptured supply chains on a global scale. The resulting upticks in money velocity have powered the consumer price inflation we've seen since 2021 (Friedman does not explicitly say so in his discussions of inflation as a monetary phenomenon, but I suspect that money velocity increase is a more influential driver of consumer price inflation than money supply growth, something that many nominally Friedmanite monetarists tend to overlook).
Extending that thought process a bit further, debt levels are not an immediate economic destabilizer so much as they are a drag on economic activity: the higher the debt level, the higher the debt service--nationally, commercially, and per capita. Every dollar directed at debt service is a dollar directed away from both investment and consumption--the two main engines of economic growth. High debt levels thus retard economic potential for the duration that the debts remain unresolved.
Swaps are best thought of as a vial of economic nitro glycerin. On any given day, they pose no threat to the economy. However, when the right combination of interest rate rises and money supply decreases is reached, the resulting financial explosion can be devastating to financial markets. Given even Main Street's reliance on credit financing for daily operations, this has the capacity to disrupt even non-financial economic activity. In other words, swaps are never a problem until suddenly they are, and when they are, they are a problem of apocalyptic magnitude. That is a lesson the world has not learned from the 2007-2009 GFC.
Consequently, US debt levels are not so much an immediate problem for the economy as they are a restraint on potential solutions for countering deflationary forces being expressed in various economic sectors. When grappling with the need to find such solutions, however, in every perspective besides the purely academic that quickly becomes a distinction without much difference.