Eh-conomics

[kybkh]

Economics is taken for granted by most. As long as the Dows up and gas is down there's not much to discuss. Following the Economic Crisis of 2007-08 the US economy has held together fairly well. Growth has not been robust by any means and "quality" job creation has been ho-hum but in 2008 many "experts" were predicting a far worse, longer lasting downturn.

Gold was supposed to be going to $5000 cause the Fed had shown the dollar to be no better than a Zimbabwean note; ctrl+p on demand just like in 3rd world countries. Banks were getting free money so assets were bound to soar as this easy money started pumping it's way in to the system looking for return. Many of us were sure of it.

Well, the "goldbugs" proved to be wrong in the near term. The Federal Reserve used "Interest on Reserves" (and a twist of the arm) to keep the circulation of money down and not all assets inflated. About the only one that has is the equity market. Which is crucial for Boomers and their pension plans. Real estate has rebounded but is not what it was prior to 2008, even with the lowest 30 year mortgage rates imaginable. The past 8 years have been a nice, catch your breath moment for most.

Trouble is on the horizon however. There's continued talk of a normalization of rates as seen in the $ strength since election day. (Hard to imagine rates going up unless forced if Trump follows through with his deficit spending plan.) The equity market has been on fire since bottoming out in 2008 and history would indicate that a 10-20% pullback is long over due. The low interest rates have also pulled forward purchasing. I haven't been in the market for a new TV for over 5 years because when the rates were dropped to 0% interest for 12 months I bought all the TVs I needed that year and haven't even considered looking since. As opposed to being more conservative with my spending and spreading the purchases out like I would have if not for the interest free deals.

Also, at the end of the day, Trump won on economics. Look at the map. Look at what is happening in those states. NAFTA was the stake in Hillary's...heart????

Cheap foreign labor and "free trade" agreements have made the transfer of manufacturing a no brainer for corporations looking to boost the bottom line. It's a total double dip to move factories to places like Mexico. Not only are you saving in labor cost in per hour wages but you get action in the FX market when it's time to import the goods back to America and sell them in USD$$$.

That's only half the problem though. Automation is eliminating jobs just as fast and as soon as they figure out this robot shit or 3-D printing it will go exponential.

This isn't a problem unique to America. The global trend is a regression to the mean for the Western standard of living as semi-skilled labor is continuously decreasing in value.

This is the economy Trump is inheriting. An overcooked equity market, a Federal Reserve with a spent chamber of ammo (not much else they can do) and a global trend of decreasing standards of living. The man is in a tough spot for certain.

How can he halt the devaluation of human capital?

Well, we saw him in action at Carrier just yesterday. Hard to knock the guy when he's already getting results. So lets pretend for a second that Trump follows through with lowering corporate tax rates making the US worker more cost competitive. Is the US in the position to get in a price war with Mexico? No, if the US makes the cost of labor here cheaper for corporations by 25% that still would not be enough to offset the cost savings of moving to Mexico. Tariffs will have to be part of the equation.

The good thing is we still have all the money. So we can charge a premium to access our market place because without US demand for poorly made Chinese toys who else is going to buy them? We still have leverage as a marketplace. Just like any other buying group has over producers. It's time to use it.

The bullshit of the benefit of open borders has become apparent. We were supposed to send all our mfg jobs to Mexico then we would all become middle management, finance professionals and nurses. Well, at least the nurses thing is happening. No such thing as middle management anymore and accounting and finance jobs are so standardized they can do most that number importing/inputting shit over in India then send it back over here for analysis.

It's a turd sandwich for sure. If Trump can somehow return this economy to just 3% growth, we'd all be winners though.

[apeman]

Despite all the other factors, productivity is low and has been low for a decade. That is the key long-term driver of the economy and more importantly increases in the standard of life. Remains to be seen if and how we get back to real productivity gains.

[TheReal_ND]

I see...

[Fife]

X

[ssu]

kybkh,

The reason why we didn't have 5000$ gold and inflation is that when economic debt bubble burst, this created such huge deflationary effect that the pumping of trillions in new money didn't have the inflationary effect. More importantly, the money didn't go to people and consumer prices, it created asset inflation, the booming Stock Market recovery. Of course, the bubble is still there. And the crisis can come back, not in the same fashion, but still.

Now as the economic data looks good, it may likely that the Fed will hike up interest rates, in a miniscule way, but still. And there's just a ton of things that can basically set in motion a logical result of a prolonged asset inflation cycle. Have then the glitch, a trade war or threat of it, some crisis, and boom! We are back where we were before.

(And btw, nice Avatar!)

[Fife]

X

[ssu]

OK,

This is good thing to try to make more clear, fife. With an inflationary effect I mean a phenomenon that looks like inflation and has similar effect, but isn't classic inflation.

I assume you know how classic inflation works.

Like this way:

1) First the Government that is spending far more than it gets in taxes, "prints" the money to cover it's bills.

2) The money goes to the first people that the public sector owes. They benefit being the first one's as inflation hasn't yet kicked in.

3) As there is more money going after resources that cannot printed out of thin air, like natural resources, the prices rises.

4) This has an effect that producers have to raise their prices

5) Seeing that prices have risen, the last in line, the workers and ordinary people, demand higher salaries to cope with the risen prices.

6) The government then blames the workers of wanting higher salaries being the culprit to the inflation and demand they would contribute by not asking for higher salaries.

* * *

Now, what just happened that it didn't go this way into a classic inflationary cycle... I'll try to give an example:

1) After the Financial Sector had gambled with debt money assuming perpetually rising real estate prices, the whole monetary system came close to total collapse as banks refused to lend to each other.

2) To stop this deflationary collapse, the Central Banks in secret put trillions into the system to uphold the asset bubble in such order, that the biggest banks wouldn't fail. Only few of the most reckless (or the least connected) failed. Or the ponzi schemers that admitted their wrongdoing.

3) Now these trillions money didn't go to production, to the use of natural resources, to building things, but to simply to prop up asset prices that never should been anywhere near what they were.

4) When the money didn't basically enter the real world, but just stayed in the Financial realm, it raised the asset values, stocks recovered, and finally also the real estate market far more than the other stagnated real economy would have

Hence the above is called asset inflation: When the price of land, shares etc rises more quickly than the rate of economic growth. Above I tried to explain just why that happened.

[Fife]

X

[ssu]

Thanks. So, we just get rid of fiat "money," and the involvement of the state in our currency, right?

Be carefull what you wish for.

Economics is bad field to implement ideologically based policies and changes. Economics rarely gives "yes" or "no" answers, but long "...but then on the other hand..." arguments with nuances that confuse people who want simple answers and culprits for their economic problems. Usually disagreeing economists both have valid and important points.

1. The relation of state and money

When you have "local" money, it can be prone to fail or even can be a real bummer: Just think of an example from the 19th Century when you would work in factory, and the factory owner would pay you in his own money. With his money you could go to the factory shop (again owned by the factory owner) the necessities you need. But to change your money to another currency or a foreign currency would be impossible. Like that deal?

Hence there are also arguments for a nation have an own currency and a central bank to control it. It's just the World we live in.

2. Fiat money

Here again not everything is black and white. If banks would be simple piggy banks were the rich would put their money, and the banker could only give that money away for somebody to take a loan, there wouldn't be many people getting loans. In Third World countries are poor and stay poor because they cannot get a large longer time period loan like a mortrage, that they can pay back and in the end as they retire then have actual wealth, their home. Remember that the most of the money ever created "from thin air" is when you put your signature on the bank loan that you will pay the debt back with interest, not when the Central Bank creates money from thin air.

And lastly, that the nation can tax it's people should be a perpetual income stream, so there is some credibility in a fiat money that a nation has. Now, the real question is just how reckless is the state and it's leaders with the fiat system. Best Central Banks have been those that basically mimicked their fiat currencies like they would be gold and haven't been controlled by the politicians. Yep, there is ample amount of things to critisize Central Banks about, but the viewpoint shouldn't be an ideological one.

[SuburbanFarmer]

Great posts kybh and ssu.

I'll only take a single line to say that this is the same thing I was arguing on the DCF thread, whilst being shouted down by DSL and friends.