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Guest Post: Understanding Failed Policies: Wealth Effect, Wage Effect, Poverty Effect
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Central banks' attempts to boost borrowing, consumption and wages by inflating asset bubbles leads to the poverty effect, not the wealth effect.
Central bankers have been counting on "the wealth effect" to lift their economies out of the post-2009 global meltdown slump. The wealth effect concept is simple: flooding the economy with credit and zero-interest money boosts the value of assets such as housing, stocks and bonds. Those owning the assets feel wealthier, and thus more inclined to borrow and spend more money. This new spending creates more demand which then leads employers to hire more employees.
Unfortunately for the bottom 90% who don't own enough stocks to feel any wealth effect, the central bankers got it wrong: wages don't rise as a result of the wealth effect, they rise from an increased production of goods and services. Despite unprecedented money-printing, zero interest rates and vast credit expansion, real wages have declined.
Apologists will claim that it would even be worse without central banks attempting to inflate asset bubbles in search of the wealth effect, but the wage/M2 money supply correlation suggest chasing the wealth effect has been a policy failure.
The unintended consequence of inflating asset bubbles to drive an illusory wealth effect is that speculative bubbles inevitably pop, creating a pervasive poverty effect. The asset bubble creates phantom collateral that households borrow against. When the bubble pops, they're left with the debt and debt payments ("the poverty effect") while the ephemeral "wealth" has vanished.
Frequent contributor B.C. has offered some charts correlating wages, M2 money supply and production. His commentary elucidates the difference between inflation that includes wages (wages rise along with prices) and inflation that erodes purchasing power (wages stagnate while prices and assets rise).
(The chart notes are mine.)
Here is B.C.'s commentary:
I tend to think of "inflation" as the effect on the purchasing power of wages from the differential rate of change of money supply (and by extension bank lending and GDP) to wages (relied upon virtually exclusively by 90% of households, including those receiving transfers from taxes on wages) with regard to production.In other words, if wages are rising along with production and prices, price inflation is largely a reflection of population, value-added output and consumption, and commensurate returns to labor from growth of money and production, i.e. an optimal growth condition.
However, if growth of money (M2) and bank lending (and GDP, which rises as a result of gov't deficit spending), exceeds growth of wages and production, money inflation tends to result in price inflation that erodes the purchasing power of wages and private production. This reflects economic conditions that are sub-optimal or recessionary.
To the extent that there is a so-called "wealth effect," the flow effect is likely in the opposite direction as is commonly assumed; that is, rising production and wages to money supply affect an increase in asset prices; therefore, it should be referred to as the "wage effect" on growth of economic activity and asset prices, rather than the converse.
Thus, the S&P 500 dropping back to the level of the mid-'90s (when the bubble commenced) would reflect the "wage effect" and actual sub-par economic conditions rather than the dubious "wealth effect" assumed from rising asset prices.
Of course, in the hyper-financialized US economy and global imperial trade regime, this is heresy.
Thank you, B.C. In other words, a sustainable wealth effect results from the wage effect, as rising production of goods and services organically boosts wages. The Federal Reserve and other central banks have it backwards: inflating asset bubbles does not increase wages or create a sustainable wealth effect; increasing production of goods and services bolsters wages which then leads to a sustainable wealth effect.
Inflating serial bubbles as a means of boosting more borrowing and consumption only leads to the poverty effect: an erosion of wages' purchasing power and the inevitable deflation of asset bubbles that leaves unpayable debt once the phantom collateral evaporates.
The Fed has been able to maintain price stability but not wage/purchasing power stability. That dooms its entire intervention project.
Simply put, central banks' attempts to boost borrowing, consumption and wages by inflating asset bubbles leads to the poverty effect, not the wealth effect.
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Can't this thing just die already so we can hurry up and start rebuilding. Delaying the inevitable helps no one but the politicians and banksters.
USA TODAY
Top Story:
The Department of Treasury has announced that it will auction-off the following aircraft carriers:
Nimitz (CVN-68), Dwight D. Eisenhower (CVN-69), Carl Vinson (CVN-70),Theodore Roosevelt (CVN-71), Abraham Lincoln (CVN-72), George Washington (CVN-73), John C. Stennis (CVN-74), Harry S. Truman (CVN-75), Ronald Reagan (CVN-76), George H.W. Bush (CVN-77).
We are pleased to offer the de-militarized ships to serve for global humanitarian services. The proceeds will be used to help fund Social Security and other un-funded liabilities.
I wish. That would be so awesome. Once the US is oil independent, we no longer need them to protect our supply lines -- sell them to the Europeans.
Aren't those nuclear-powered carriers? I didn't know we sold decommissioned nuclear powered ships to the private sector.
If so, can I buy a nuclear powered sub when it's decommissioned? I think having one of them would be way cooler than an aircraft carrier.
Credited Response. A sub would be totally badass. Could you imagine popping up among the other Yachts in Monte Carlo, popping the hatch and going for dinner.
"Can't this thing just die already so we can hurry up and start rebuilding. Delaying the inevitable helps no one but the politicians and banksters."
Considering that the Great Reset will sentence millions upon millions of people to a horrible death by starvation (as their meager income of $1 dollar a day transforms into shit-paper), it is somewhat understandable, that the the powers that be, are sticking their fingers in the dyke...at least until the next election cycle is over with that is.
You will be declared a rougue state and accused of possessing WMDs...once again, "we" will have the receipt.
so you seriously think - from your previously Bavarian point of view - that all the carriers and all the bases (including those in Bavaria) are there only to protect the US supply lines? Specifically that Uncle Sam would be willing to sell them to europeans when oil independency is reached?
The US is becoming more like the old Soviet Union. We know what happened with them. Paid rides on Mig 29.
The military went broke.
my take: their elite lost their resolve and their younger scions wanted a piece of the capitalistic consumeristic pie
people just like the hang on as long as possible.
it's that birdees to finalize it all...
http://www.google.be/imgres?q=hanging+on+the+edge+finger&um=1&hl=nl&biw=1657&bih=936&tbm=isch&tbnid=D6eMXNwnXjUA6M:&imgrefurl=http://indiegames.com/2012/10/browser_game_pick_no_birdie_no.html&docid=AkUYG1qp49OiJM&imgurl=http://indiegames.com/nobirdieno.png&w=478&h=374&ei=SrQ0Uf6gB4Wc0QX_74GQCg&zoom=1&ved=1t:3588,r:64,s:0,i:276&iact=rc&dur=438&sig=106620503184103445883&page=3&tbnh=178&tbnw=227&start=62&ndsp=36&tx=148&ty=49
It's funny to me that the same Trickle-down economy tactics of the Reagan administration are soo similiar to that of Obama's wealth effect, yet the two factions of voters will argue the "differences" between the two policies.
Agree.
Repubs - Let rich people keep more of their money. That money will make it down to the little people if the work on goods and services for the rich.
Dems - Give bankers interest free money. That money will be loaned out to the little people or be used to buy stocks which will make the little people with 401k plans feel richer.
Pretty good summary of the two.
This whole essay could be summed up more succinctly
wealth effect = cart before horse.
It's really a sophisticated form of cargo-cult reasoning. The same thinking held sway during the Great Depression - since the depression caused farm prices to fall, they figured that forcing prices higher by destroying produce and livestock would assist recovery.
Where are the fuckin' choppers Bernanke, you stupid motherfucker??!!! You never told us they were only going to do the drops over a select couple of buildings in lower Manhattan you lying scumbag. You should have trickled down, instead of being here to fuck everything up.
Tha's because most people only think in terms of taxes. They don't grasp the concept of printed money and the affect it has on them. They blame the merchants for the rising cost of goods instead of the real culprits... the private banking cabal
Is it sucky to be most people or ZH people? I prefer the latter, but the former ignorance was a pretty good ride.
There are time when I wish I could slip back into the matrix and forget about all this crap, but sadly I can never unlearn what I have learned.
Sounds to me like Conduct Disorder or maybe Opositional Defiant Disorder.
There is a pill for these maladies; see a shrink.
/s
Or, you could just continue buying and consuming Orly's eternally-$0.99/lb chicken breasts*. They will surely cure you of your inflation dementia in a heartbeat!
*Available at all finer grocery stores in 1988 today.
the difference is in the fundamentals. what was essentially a liquidity shortage under Reagan required monetary expansion.
the problem, is that our current administration is a cargo cult, waving their arms mimicking the ground crew motions from aid drops in Africa, that they came to associate arm waving with a plane showing up with food, never understanding why the plane never showed up.
Enjoy the delay. Keep buying Gold/Silver at discount. Give the Banksters back their FIAT while taking PM's off the market. Fortunes will be made. Pitty the ignorant.
Central bankers could not care less about the wealth effect, except for other bankers and cronies. All this kabuki is extend and pretend, while they accelerate the looting before the crash. It is in your face looting as well, no bother for pretenses. This article is ridiculous.
The premises that they really believe their "Wealth Effect" bullshit and that the actual results are "unintended consequences" are dubious at best.
Dude, this thing is not going to die for years, if not for a couple of decades. Look how long they have been able to keep Greece ostensibly limping along, and Greece can't even print its own currency, let alone the world's reserve currency. How long do you think they will be able to keep our system limping along when we have the benefits of both?
There is not gonna be a big cataclysmic collapse, any more than there was in Rome. Instead, there will be a slowly grinding poverty that reduces the people to dust. As the Stones would say, "What's the funky noise? It's the tightening of the screws." Rome zombied its way along until everyone that was capable had left, and this took centuries. Rome was not overwhelmed by waves of furious barbarians. It was abandoned as the people realized life was better with the barbarians than under Rome's increasingly out of touch and despotic attempts to legislate economic balance into existence while it pursued economic imbalance. Rome finally collapsed because there was no one left to defend it.
Japan and Europe have to collapse first. Japan already lit the fuse, but it will take several years before their inflation powder keg explodes. Where do you think all the paper wealth in yen and Japanese bonds will go as people seek safe harbor? And when someone in Europe, most likely the Finns, realizes that he who panics and leaves the Euro first panics best, where do you think all that money will go? The dollar is going to strengthen for a long time yet. The amount of borrowing yet to come will dwarf anything we have done so far. And it is only after we run out of places to export inflation to that our inflation will return to us immediately, which will initially cause an immense increase in borrowing as our government tries to outprint inflation, which will finally lead to dollar repudiation. But that is a long time away yet.
You want a faster collapse, as we all do? Start looking for a d'Anconia or Ragnar.
So you are going to sell assests for the worthless Yen and Euro,I guess there is a sucker born everyday.
5 years ago i wouldnt have agreed - i thought surely this must be flushed down the toilet asap. But since then i have been constantly surprised by the oligarcy's insistence on prolonging this turkey as long as possible.
so now im kinda more in your camp gwiss. There is no intention to 'be sensible' and reboot, because too many in the oligarchy then lose their shirts. The oligarchy will prolong this as long as possible, with each flash-point being a time when they stab each other in the back, chipping away at the core, going back to the facade in the meantime until the next dogfight compels them to infighting again.
5 years and theres still 4 merchant banks left. Next crisis will whittle it down to 3. Then, what? another 4-5 years of pretence before its knocked down to 2? (JMP and Golman will be last men standing IMHO)
the only flaw, i guess, with the rome analogy is that todays electronic world moves a lot, lot faster. The barbarians can be at the gates in a HFT nano-second.
Any system built upon exponential credit to fuel exponential consumption is mathematically doomed to fail.
As long as there is an exponential growth of population it will work quite well, at least until we are running out of ressources. However, due to greed credit growth exceeded population growth. Now the only way to keep it running is to stretch maturities or to inflate bubbles. Whatever we do we are doomed, unless we find another planet full of people to expand our system.
"The unintended consequence of inflating asset bubbles to drive an illusory wealth effect is that speculative bubbles inevitably pop, creating a pervasive poverty effect."
Objection, your honour. "Unintended" is inabmissable as hear-say.
I think you meant to say inobamamissable. Must have been affected by the jedi, mindmeld, NCC-1701, X-wing, light sabre, phaser.
Very good. I will take that as a "sustained".
Face it. Unless there is a paradigm shift of major proportions we had better get ready for war. The system is simply unsustainable and if one were a conspiracy theorist it would appear the wealth effect is being used now to make the rich richer before the debt slaves are armed for the inevitable foreign engagement.
Just like Germany and Japan at the start of WW2, the US’s military strength will erode rapidly once the sleeping dragon is awake. I’m not looking forward to seeing one billion people pissed-off.
In any war, it's not the rich who are the cannon fodder. So what do they care if we get into a major conflagration? Actually, war is just another business opportunity for them. Also, takes care of the "excess labor" problem. In in some respects, war and even a very major one is but one of the economic "growth" options on the table.
It usually works well for those on the winning side.
The losing team does get to rebuild eventually following a complete devastation of its infrastructure.
If you're not ready for war it's probably too late. They are moving to lock things down at a rapid clip.
I did it by Occident :
Interesting point of view.
Please be more specific: who do you think will throw the first punch at whom?
History has shown that it’s always the most economically repressed country that draws first blood.
"In other words, a sustainable wealth effect results from the wage effect, as rising production of goods and services organically boosts wages."
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Yes, unfortunately in order to actually produce any real goods and services (sorry "financial products" are fucking bullshit) you need excess energy and ample real inputs (i.e. commodities). The world has become flooded with excess paper fucking promises and takers (i.e. consumers). Wake the fuck up folks, until the dead weight (paper fucking pushers, useless eaters, and unproductive debt is cleared) things will only get worse. History is very clear on this. Humanity isn't just another unsustainable ponzi, it's the unsustainable ponzi. Hedge accordingly.
All I hear about is crumbling infrastructure yet a large number of the population is unemployed. Imagine our ancestors 500, 1,000, 2,000 years ago. You think they would have a bridge crumbling in the village while 15 of the 100 villagers just sat around each day while the others did all the work?
At the very least, put the fuckers on unemployment to work rebuilding the infrastructure.
First you have to get them off marijuana, Dancing with the Stars and American Idol.
One of these things is not like the other. Whats your beef with plants?
Privateers would scream bloody murder about socialism. Nothing productive gets to happen unless it passes through them so they get their cut. Sanity has nothing to do with it.
LawsofPhysics,
Screw the hedge!
Just stop feeding any addiction to trading and do something else productive while enjoying the theatricals on this board for entertainment purposes. Don't care anymore.
Buy physical and good PM shares on the cheap held in direct registration mode outside the banking system. Get off the playing field and watch the show from the sidelines. Enjoy!
OT-I see CNBC has eliminated their reader comments section as they were probably tired of people picking apart their BS propaganda articles. maybe it's getting harder to control the message
Graphic evidence of four years of 0blama's failing marxist policies.
CNBC has to run everything they do through the WH anyway
All wars are banker wars
www.youtube.com/watch?v=5hfEBupAeo4
that's an excellent watch
Much of this is fairly well-known on ZH. However, my two takeaways (and I'm no expert here, so please add/comment):
1) Muslim countries in the Middle East do not believe in usury (charging interest) as does the Western system.
2) Those muslim countries do not have central banks that are part the Bank of International Settlements
In other words, the war we have going on has been going on since the beginning of time and is one of 'monetary ideology'.
When GWB et al call them terrorists that affect national security, it starts to fall into place.
And it is always interesting that "monetary ideology" is always tied to "religious ideology".
Example: the Jews and Christians (Fiat Currency) vs the Muslim world (Oil).
It makes you think what the Fed's true interpretation of "god" is for the phrase "In God We Trust".
Of the 7 countries in your category which did not have membership in BIS( Iraq, Syria, Lebanon, Libya, Somalia, Sudan and Iran) two have been carved up and at least one is now on the carving board. It could be strongly argued that list of 7 - which are the ones Wesley Clark was told would be attacked as the heart of the neo-con\sionazi ME agenda - are in the target sites for other reasons than their monetary regimes.
Unfortunately, "Muslim countries" whether governed at present by secular or religious authorities, all subscribe to usury(interest)banking, and simply conceal that fact with a variety of methods. There are some serious advocates of non-usury banking to be found in the group of south asian Muslim countries like Malaysia, but none of them hold power presently, and the overall trend is very much in the opposite direction.
Exactly as with the Calvinist\Protestant revolutions of European christedom, the Muslim world was subject in the C20th to a 'reform' movement which sought to legitimize and facilitate 'banking' and the system of usury\interest. The impetus behind this movement was the British secret service and the other paid lackeys of imperial zionism who moved men like Muhammad Abduh into positions of influence having first disguised them as "Islamists" - his first Fatwa as Grand Mufti: “Interest in saving funds is allowed”.
Everything down to the present moment of pseudo Arab spring revolutions has followed from the same blueprint, with the Merikan neo-cons\trots simply picking up the ball from the British -on behalf of the same shadowy cartel behind it all. Modern "Islamic Banking" is the same farce writ large, using the subterfuges of ijtihad darurah and hila, as propounded by complicit 'scholars' and clever legal minds to get around the bottom line prohibition of riba...which is the corruption of real trading, real 'free enterprise' and the real social cohesion - all natural elements of societies' which remove the monechangers from their midst.
G-Daff was the only serious modern day challenger to the status quo - they painted him as a "clown" and "madman" - the better informed know he was a hero... who died fighting for what he believed in...and showed us part of the path back to our future.
in the future...
they'll write books about this crisis...
and the future policy warloards will be better equiped against future crisises...
just looking for the silver linging into all this mess...
I absolutely agree that this crisis will make the history books.
Notwithstanding, the plebeians have never learned from the past mistakes of their leaders. MOAR! bread and circuses PLEASE!
Translated: ObamaPhones and Reality (BS) Shows etc.
"Those owning the assets feel wealthier, and thus more inclined to borrow and spend more money"
There is no 'trickle down' effect, no matter how it is labelled.
If you want to increase demand, you must increase the disposable income of the 90%, DIRECTLY.
that "trickle down" is the govt pissing on your leg when they do shit like raising taxes like they just did to waste in order to turn around and waste that $ on defense systems-also-Israel will avoid "foreign aid" cuts in the sequestration-shocking-I know
The thing is: Corporate America, Wall Street, AND the Government are all working together to keep this recession intact.
Now, they don't want things to fully implode, because then they would risk regime change on top of the usual social unrest that could shed blood (finally) on their door step.
But if these entities keep this recession/weak growth cycle the way it is, then they can continue to get loans at small interest; keep wages down and use "slow growth" as an excuse; to continue to drive debt levels up as consumers have to borrow to get cars/degrees/consumer goods; and to have an excuse to say, because of this environment, that cuts to wages will be necessary for "competitiveness" in the globalized labor market.
The government (and the Fed) also love this, because then they can keep interest rates low, which then improves housing numbers (for Wall St) and keeps the borrowing costs low for the government (which defense contractors, big pharma, and other pork can have at the troft).
It's not getting better, you don't have a say, and your taxes are also probably going to go up even more. Some say it's the New Normal, but its really the Old Normal if you study this shit going back to the times of Charlemagne in France.
Krugman will claim that increased Money Stock (M2) will end up in the hands of those citizens who need it most; those with broken windows and those who fix windows, and that to increase consumer spending the government simply needs to spend more - and that taxing people more will also make them spend more.
You are seeing the end game of Keynesianism, where the government takes money from the productive that otherwise would have been saved, and gives it to the non-productive, who are expected to spend it and reinflate the economy. Is it any wonder that the savings rate has plummeted again?
Tyler, I think you might find this interesting..........Deja-Vu all over again !
http://www.whale.to/b/m_ch11.html
Repumping already deflating asset bubbles is a failed policy and just kicks the perverbial can down the road. These central wankers are all fuck'n morons. When this thing turns against them, when these markets implode from the weight of debt, the massive printing of fiat currency and government corruption, the sheeple will pay the final price as wealth evaporates worldwide....and the central bankers will be the ones to blame....clearly.
It's back to the future.. it's 2007 again, they wasted trillions and seven Years. The next one will be a doozy with the Fed-Duh out of bullets.
They didn't waste trillions. They encumbered the 99.99% with trillions of debt. Not a waste in their eyes. And they bought time to build drones, set up the TSA, militarize the police, buy 1.5 billion "manshredder" 0.40 bullets, and run more MK Ultra scam operations to confiscate guns. No waste at all :-(
If giving people free money/free shit is the answer, and we still have problems, then we aren't doing it good enough - so we should:
1. give everyone enough cash to pay off their current debts
2. give everyone $250,000 on their birthday
3. for those who work, set the pay rate at $500 per hour
4. for those who don't work, set the money-for-nuthin rate to $1000 per day
All problems solved in 4 easy steps.
Need to mention monetary velocity...
See this chart??
http://upload.wikimedia.org/wikipedia/commons/b/ba/Velocity_of_M1_Money_Stock_in_the_US.png
the Fed creates money and stuffs it into the top of the pyramid (the section with the lowest monetary velocity). The Fed should be stuffing new money into the base of the pyramid i.e. send every adult in the US a cheque for $10,000. This would ACCELERATE monetary velocity, it would also be a one time inflationary hit, but that would pass.
The best way to visualise it is the Maslow Triangle of needs, the base of this triangle is also roughly where the greatest monetary velocity is and the top is roughly where the lowest monetary velocity is. Everyone occupies a place on this triangle. From the homeless right up to Jamie "richer than everyone" Dimon.
http://www.consciousaging.com/Transpersonal%20Psychology/Conscious%20Aging%20-%20Maslow's%20Hierarchy%20of%20Needs.aspx
The bottom 90% collectively hold too much of the country's wealth and aren't doing their job to grow the economy. It would be better if weatlh was (fairly, let's reward success) distributed higher so that successful people could put the money to work.
Yes lets give all the money to Jamie Dimon and let him fix it
If your comment isn't meant sarcastically then you are pulling numbers out of your ass. The Walton family alone owns as much as the bottom 150 million Americans.
But there are still those in the underclasses undeserving of the wealth they have, wealth that could be put to use by successful families like the Waltons. Look what the Waltons have accomplished and imagine if they had more wealth to leverage. Ultimately, real competition will lead to one perfect man controlling all of the wealth the world. He will be wise, prudent, and generous and his wrath will be swift and just - like God. Like Bill Gates.
Yeah, I am being sarcastic.
Sarcastic only in that eVENtually it won't be one perfect man. It'll be two. Passivity assumes a regularly scheduled taste test. A Taster's Choice. A Pepsi Challenge. The Gas or the Chair, if you will.
I like Coke. Pepsi tastes like urine.
Or is it the other way 'round?
It's so hard for me to keep track of my own brand loyalty.
the underclasses?
those who were long time excluded from the magic of borrowing public money through fiat banking systems and so did not profit from never-ending rises in asset prices, you mean?
perhaps they deserve a new euphemism: the previously under-leveraged
For most people Wealth Effect = Trickle Down = a warm feeling.....running down your pantleg.
I've said it before, the most innovative thing the financial industry does is come up with slick names like Wealth Effect for the same old sales bullshit.
Bernank is a tool of the highest order. "Wealth effect", "asset purchases," "QE" only a dweeb academic would believe such nonsense and let alone PUT Trillions into it.. we are in deep. Prepare accordingly.
I reject the entire premise of the article. Central bankers don't give a rat's ass about what happens to the general public, their purpose is to rob and enslave us. One shouldn't look into any great meaning when robbers decide to tie you up to the bed instead of a chair, to make you more comfortable, while they rob your house (if not do other things while you're conveniently immobilized). Central bankers can talk all they want about jobs and recovery and such, but in reality they are doing nothing more than transferring currency to themselves, while debasing all of ours. What they say to us, or to Congress, or to the media, are just misdirections and deceptions.
Agree entirely Rehypothecator. Except it is not really even about money. Since they can make money up out of thin air through their central bankster minions, they potentially and literally have "all the money in the world." They use money simply as a tool for control. And the real purpose of transferring money from the middle classes to the 0.0001% is to make the middle classes feel powerless and desperate (and malleable slaves).
Note that I wrote "currency" instead of "money." They can't print money, but they can print currency. There is an important difference, money being a store of value, which ink in various configurations around pieces of paper, isn't. But they are eager to turn their plundered currency into money, noting the vast increases of gold holdings all the central banks are now showing. They can't print gold, but they can buy it with the currency they steal from us, or just print from thin air.
Another completely useless Charles H Smith presentation. But he needs to have someone who didn't sleep through high school math classes proof his articles. An increase from about 4,400 to 10,400 in the M2 money supply (2nd graph in article) is a 130% increase, not a 230% increase.
It all worked perfectly on the Computers and Chalkboard at MIT.. what happened? he he he..
The ruling elites and the Fed are not incompetent nor stupid. They know what they are doing. These consequences are not "unintended." Rather they are quite intended. Cui bono? Ordo ab chao - Out of Chaos Comes Order. Specifically the neofeudal fascist New World Order and the Hunger Games. I am tired of alternative media analysts claiming that the elites and their "technocratic" minions are dummies. However, they may have miscalculated on one point. If enough people around the globe wake up fast enough, there still might be some wooden shoes in the gears of their machine.
"Suck it in & cope."
Soon....
To get more income the US military will lease US aircraft carriers for trillionaire dinner parties.
Want a thrill ride on a 2 seat jet fighter.
The key to winning is bankrupting the other country. The US is doing an excellent job of printing itself into default.
Wealth Effect is I suppose what we would call Pigou Effect or Real-Balance Effect and it is peculiar that Bernanke applies a Homogeneity Postulate to this as if there were no distortions or sectoral imbalances. Greenspan thinks the Stock Market drives US Consumer behaviiour - but in Europe the Stock Market has little correlation with Consumer Spending; Housing is a more critical variable. The whole nature of Globalisation has screwed any established relationships because the Banking System is globally locked into cross-default and the Fed is basically destabilising the global financial system so every other Central Bank is playing an accommodating game. There is basically no way to model this disaster - it is like plasma running outside any system.
Bernanke is lost in a world of theory which was predicated on a very poor understanding on Monetary Transmission in an open economy. The only way to restore balance is to impose Import Controls and return to national markets to try to stabilise the economy around Manufacturing and Distribution with Banks as Utilities subservient to Business. Basically the global economy is finished
Hey Bernanke, stop being pivot-man at the Bankster Circle-Jerk long enough to have a look at what Central Bank intervention looks like. The Japanese Central Bank has been doing it for over 20 years now. Just expand the chart back at least to 1990, when the Central Bank got involved, and you'll see what your about to create here, you stupid motherfucker.
http://finance.yahoo.com/echarts?s=^N225+Interactive#symbol=^n225;range=my;compare=;indicator=volume;charttype=ohlc;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;QE has one purpose...to transfer the crap the bankers have on their books to the government's book! Zero interest is so bankers can score bonuses while doing the worse job of risk management i nrecorded history! The last thing the democrats want is to allow people financial freedom...who would vote for them then? The tax credit, deduction game is the only way the democrats ensure financial backing for their disasterous policies. Alas what can't last, won't. Who is ready for $10 gas, dozen ears of corn for $25 and a $30 loaf of bread?
http://www.nytimes.com/2013/03/04/business/economy/corporate-profits-soa...
No wonder GS, JPM, and BAC's stocks are rising like Bob Menendez at a Dominican Brothel.
Once again CHS pens a piece on a couple of possibly false assumptions.
1) Central bankers actually care about what happens to the 99%. It is much more likely that the attempt to re-inflate investment wealth is nothing more than to protect the wealth of the 1%.
2) Central bankers believe in the basic laws of economics, like supply and demand and are attempting to increase demand by the wealth effect. It is more likely that they view the 99% as a farmer would his flock of laying chickens, once their production falls below acceptable levels they are moved out and a new flock is moved in. The central bankers studied the last great depression and came to the conclusion that the mistake that was made was allowing the 1% to lose wealth thus setting off a downward cascading wave of deflation. It is more likely they believe they can make the laws of economics what ever they want them to be, therefore what happens to the 1% is all that matters and everyone else is replaceable. Demand is easily created by moving capital from developed countries to undeveloped/underdeveloped ones.
Could be worse. Like inflation or something.
Or something.
It looks like the effect of shifting demographics.
... part of the mechanism by which the gap between "the rich" and "the poor" grows wider and wider.