Boomerbuster: FERGUSON'S EXPLANATION 2006 GUARDIAN FOR WHAT I HAD DESCRIBED REALLY IS CONVERGENCE

Tuesday, April 24, 2018

FERGUSON'S EXPLANATION 2006 GUARDIAN FOR WHAT I HAD DESCRIBED REALLY IS CONVERGENCE

"Anti-monetarists point out that the relationship between monetary growth and inflation has simply broken down. Inflation is low nearly everywhere. The latest figure for the annual growth in American core consumer prices is just 2.3 per cent, down from 3.8 per cent in May. Yet the annual growth rate of M3, which diehard monetarists have continued to track unofficially, is just under 10 per cent. Last year, according to the IMF, M2 increased by nearly 13 per cent in the UK. In some emerging markets the figure was higher. Russia's money supply grew 25 per cent.

Yet simply because consumer price inflation has remained low, money has not become irrelevant. On the contrary: it is the key to understanding the world economy today. For there is nothing in Friedman's work that states that monetary expansion is always and everywhere a consumer price phenomenon.

In our time, unlike in the 1970s, oil price pressures have been countered by the entry of low-cost Asian labour into the global workforce. Not only are the things Asians make cheap and getting cheaper, competition from Asia also means that Western labour has lost the bargaining power it had 30 years ago. Stuff is cheap. Wages are pretty flat.

As a result, monetary expansion in our time does not translate into significantly higher prices in shopping malls. We don't expect it to. Rather, it translates into significantly higher prices for capital assets, particularly real estate and equities. The people who find it easiest to borrow money these days are hedge funds and private equity firms. Through leveraged buy outs, the latter can easily acquire companies and, by improving their cashflow, boost their valuations. These guys then buy houses in Chelsea with the millions they make." NF 2006, apparently...

Even a blind squirrel, Ferguson, can occasionally find a nut!

"Thursday, August 19, 2010

INFLATION AND DEFLATION BOTH ECONOMIST RED HERRINGS

I should point out,

that, when you are gradually, inch by monthly inch, slowly, annually, becoming a third world economy, trading down, down, to cheaper and cheaper produced goods, to the bottom;

reducing prices, down, down, to cheaper and cheaper priced goods,

to the bottom, you tend,

almost by inertia,

to steer a path, because you have to,

between little blips of inflation, or deflation,

sort of looking for a daily, weekly, monthly, yearly, perpetual 'soft landing',

at the 'greatest good for the greatest numbers' airfield (let's not call it an airport).

That is what the US 'economy' if one can speak about such a thing, has been doing.

That is why we haven't had much 'overt' inflation, because we have been buying, and producing offshore more cheaply, goods made offshore.

That also is why we haven't had deflation, because their offshore costs were less, for a little while, and printing fiat money to buy them, so long as the money is accepted, wards off symptoms of deflation.

Keeping prices, and wages, gradually 'trickling down' (a different idiom: UNPROSPERITY TRICKLING DOWN) more or less together,

WHERE'S THE BEEF?

Krugman has put his finger on it, domestic jobs, that is the 'sticky wicket' in the whole sordid process, inasmuch as more and more work, of whatever kind, goes offshore, there remain fewer jobs, of any kind, to fund purchase of those cheaper offshore goods.

The other aspect of the situation, re currencies, aside from inflation/deflation, is that these producing countries have begun to realize that US currency is really backed by nothing anymore, no productivity, no specie, nothing.

One takes it, as a medium of exchange, largely hoping to prop up temporarily (self interest) the stultifera navis, and/or to get something of real value from third parties (the old eurodollar situation now globalized).

The Bretton Woods system, flawed from the outset, gold standard even abandoned by US in '71-72(?), a prescription for market sloth, and manipulations of all kinds.

It is not that complicated, really."

This describes what Leonhardt talks about today, and which I already noted: