the strong usd

[jk]

Re: the strong usd

first, the fed's future:



2nd, fwiw- shvets' recommendations as of a year ago [latest i could find]- NOTICE THE THEMES IN THE "THEMATICS" PORTFOLIO. not very uplifting, huh? [and qsg, the 2nd portfolio = "quality sustainable growth"]



btw- he also likes gold.
“If you think of gold, the only way gold loses is if normal business and private sector cycles come back. If that is the case, gold goes back $100 per ounce. The other outcomes deflation—stagflation, hyperinflation—are all good for gold.” As for a return to a gold standard, Shvets has more bad news: “Gold standards come back after the war, not before the war.”

[jk]

Re: the strong usd

Awesome, thanks! I'll try to check it out later tonight. If not, should have time tomorrow. I'll just throw out FWIW that it sounds more post-keynsian than neo-keynsian, and I hate that the terminology got like that.

agreed. can you help me distinguish neo [or post] keynsian policy from mmt? in practice, i can't tell the difference.

btw, fwiw re monetary policy: my thought is that lower rates are stimulative when the general level of debt is low, and there is significant capacity to take on more debt for productive purposes. otoh, when debt levels are very high, lower rates are just a symptom of the drag that debt service is having on a sluggish economy. apparently the fed hasn't figured this out, or perhaps just doesn't know what to do about it, or perhaps just realizes it means that their actions are just kabuki theater at this point. the baton has passed to the fiscal side, but the fiscal side has yet to get a firm grasp on it.

[dcarrigg]

Re: the strong usd

here's another interview with viktor shvets. at 37min it's not as information dense as the one i posted above, but it is VERY interesting. he discusses how the ever lower cost of capital is in fact undermining capitalism, the [il]logic of negative rates as the reductio ad absurdum of monetary policy as stimulation, and how in fact monetary "stimulation" has become disinflationary and perhaps outright deflationary. he discusses monetary policy as increasing inequality. he sees a shift toward neo-keynesian and mmt policies, fiscal policy essentially, as where it's going, but the full transition will take decades. [i see the u.s.'s recent "temporary" abolition of the debt ceiling as a step in that direction]. in the meantime we have cross currents. a world of increasing "balkanization" [to use an old term] will tend to counter some of these trends, increasing labor power at the expense of globalization, at least for those countries which are capable of implementing mmt. some, perhaps many, em's will revert to being called "underdeveloped" instead of "emerging." lots of interesting stuff.

https://www.bloomberg.com/news/audio...-world-podcast

Awesome, thanks! I'll try to check it out later tonight. If not, should have time tomorrow. I'll just throw out FWIW that it sounds more post-keynsian than neo-keynsian, and I hate that the terminology got like that.

[jk]

Re: the strong usd

here's another interview with viktor shvets. at 37min it's not as information dense as the one i posted above, but it is VERY interesting. he discusses how the ever lower cost of capital is in fact undermining capitalism, the [il]logic of negative rates as the reductio ad absurdum of monetary policy as stimulation, and how in fact monetary "stimulation" has become disinflationary and perhaps outright deflationary. he discusses monetary policy as increasing inequality. he sees a shift toward neo-keynesian and mmt policies, fiscal policy essentially, as where it's going, but the full transition will take decades. [i see the u.s.'s recent "temporary" abolition of the debt ceiling as a step in that direction]. in the meantime we have cross currents. a world of increasing "balkanization" [to use an old term] will tend to counter some of the current trends, increasing labor power at the expense of globalization, at least for those countries which are capable of implementing mmt. some, perhaps many, em's will revert to being called "underdeveloped" instead of "emerging." lots of interesting stuff.

https://www.bloomberg.com/news/audio...-world-podcast

[dcarrigg]

Re: the strong usd

I suppose my point was more directly that labor's share declining while population increases necessitates a drag on inflation. People can't pay inflated prices when the real aggregate wage pool is shrinking and asset prices are inflating. So the design is the key. Not just the loose fiscal policy itself. Appropriate it all at the top, and advance capital's position vis-a-vis labor, and I can even imagine scenarios where it could be counterproductive.

To be wonky about it, the kind of DSGE model results one expects from priming the pump assume the macro competitive equilibrium is Pareto Optimal and affects the micro-foundations of consumption. Or, in English, the fancy econ models that very serious people use assume that helicopter money etc. makes some people better off without making anyone worse off, and that these effects will be reflected generally in the prices of the stuff people buy in day-to-day life. But labor's declining share doesn't jive with the assumptions. Labor's share was a constant in Keynes' day. It was a remarkable constant for a very long time. Bowley's Law. It was foundational to neoclassical wage theory. It was one of Kaldor's 6 Facts. It's baked deep into the theoretical cake. And it hasn't been true for nearly 40 years now.

In the last 20 years, Labor's share of output has fallen from 64% to 57%. So 7% of GDP that used to go to wages back when W. took office now doesn't. The problem is international. It's actually worse in many other countries. Even Brent Neiman, a U Chicago guy who worked for W. -- so not a guy typically aligned with me -- has pretty much pointed the finger at cheap capital. He even suggested that ways to push labor's share up include higher interest rates, corporate tax increases, higher depreciation rates, etc. Things that make capital more expensive.

See, the typical idea is that more capital investment -> more productivity -> higher wages. But it seems to me that in an environment in which labor's share is declining, it's entirely possible that more capital investment -> more productivity -> lower wages. When labor and capital's shares are no longer constant, but floating, my thinking is that doing things that make capital cheaper can simply float labor's share down. The next leap I make is bigger, which is that labor's share shrinking has disinflationary effects. It's a headwind. This is the way I've at least worked out in my dumb skull why we didn't see inflation before the sequester when we had a bit of fiscal stimulus tailwind combined with unprecedented monetary stimulus.

So if the goal is to get it going, and you're not going to just hold a debt jubilee, you've got to actually find a way to do it from the ground up, not from the helicopter down. Commodity prices could push it a bit from the outside. But my guess is that if wages aren't increasing, it'd actually just squeeze other things down.

Whole thing has me thinking back to this old one again:

Well all I know is just what I read in the papers or what I see as I prowl hither and thither. With the election over everybody seems to have settled down to steady argument.


The old hidebound Republicans still think the world is just on the verge of coming to an end, and you can kinder see their angle at that for they have been running things all these years.


I got a letter the other day from a very prominent businessman in Los Angeles, Mr. Frank Garbutt, the man that has made running of clubs a science, and not just a business. He owns every club from the great Los Angeles athletic club to beach clubs, golf clubs, to polo clubs. Now Frank is the longest headed man you ever saw. Yet he said there wouldn’t be a bank open in five months after Roosevelt took office. I don’t know what these fellows figure the Democrats are going to do with the country.


You would think a lot of folks would have their passage booked to some foreign land til the next election when they could get these Democrats back among the unemployed. Why they were in for eight years here not so long ago, from 1912 to 1920. Course I was just a boy and can’t remember back that far, but I have heard my dear old dad say there was some mighty good times, including a war thrown in for good measure.


Personally I could never see much difference in the two “gangs.” They used to be divided by the tariff. The tariff was originally supposed to aid the man that manufactured things. Well, the Democrats of those days didn’t manufacture anything but arguments, so they were against the tariffs, but the south woke up one day and saw some spinning looms advertised in the Montgomery Ward menu card, so they sent and got some and started spinning their own cotton.


Well they had cheap water power, cheap coal, cheap labor, and the Yankees started moving their shops down from the north. Well the Democrats woke up on another morning with a tariff problem on their hands. The South had gone industrial in a big way. Well they started talking about a tariff in bigger words than the north, so now that the South had got ‘em some smokestacks where they only used to have some mule sheds, why they are just tariffing themselves to death. So that left the principal dividing line between the two parties shot to pieces. You can’t tell one from the other now. Course, the last few years under Mr. Coolidge and Mr. Hoover there had grown the old original idea of the Republican Party, that it was the party of the rich. And I think that was the biggest contributing part in their defeat.


I think the general run of folks had kinder got wise to that. In the old days, they could get away with it, but of late years, the rich had diminished till their voting power wasn’t enough to keep a minority vote going. This last election was a revulsion of feeling that went back a long way ahead of the hard times. Mr. Hoover reaped the benefit of the arrogance of the party when it was going strong.


Why, after that ’28 election, there was no holding ’em. They really did think they had “hard times” cornered once and for all. Merger on top of merger. Get two nonpaying things merged and then issue more stock to the public. Consolidations and holding companies! Those are the “inventions” that every voter that had bought during the “cuckoo” days was gunning for at this last election.

Saying that all the big vote was just against hard times is not all so. They were voting against not being advised that all those foreign loans was not too solid. They were voting because they had never been told or warned to the contrary that every big consolidation might not be just the best investment. You know the people kinder look on our government to tell ‘em and kinder advise ‘em. Many an old bird really got sore at Coolidge, but could only take it out on Hoover. Big business sure got big, but it got big by selling its stocks and not by selling its products. No scheme was halted by the government as long as somebody would buy the stock. It could have been a plan to deepen the Atlantic Ocean and it would have had the endorsement of the proper department in Washington, and the stocks would’ve gone on the market.

This election was lost four and six years ago, not this year. They didn’t start thinking of the old common fellow till just as they started out on the election tour. The money was all appropriated for the top in the hopes that it would trickle down to the needy. Mr. Hoover was an engineer. He knew that water trickles down. Put it uphill and let it go and it will reach the driest little spot. But he didn’t know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night, anyhow. But it will at least have passed through the poor fellows hands. They saved the big banks, but the little ones went up the flue.

No sir, the little fellow felt that he never had a chance, and he didn’t till Nov. 3, and did he grab it? The whole idea of government relief for the last few years has been to loan somebody more money, so they can go further in debt. It ain’t much relief to just transfer your debts from one party to another, adding a little more in the bargain. No, I believe the “boys” from all they had and hadn’t done had this coming to ’em.

[jk]

Re: the strong usd

dc, re wages. the volcker/reagan recession and shift to neo-liberalism was triggered by wage oriented policies which led to sig inflation. the system won't go back to those '70's policies. i think that's been the sticking point. soon, however, i think the powers that be will realize that they need a lot of inflation, and they need it a lot. mmt, helicopter money, infrastructure and other gov't spending will be trotted out to pump money into the economy. some of it should reach workers.

[jk]

Re: the strong usd

on another subject: jeff snider noted the 7% decline in chinese imports and interpreted it as weakness in the chinese economy. meanwhile however, chinese oil imports are reported up 9% [in volume]. luke gromen points out that suddenly the saudis have become china's biggest supplier again, supplanting russia in that role. we know that russia has an agreement to deal with china in local currencies. he imputes that saudi is now selling oil to china in cny [?converting it to gold]. if so, the value of DOLLAR denominated imports would go down, but it would not mean weakness, it would be a symptom of movement away from the dollar standard.

[dcarrigg]

Re: the strong usd

recommend this 4.5 min interview with viktor shvets - very smart guy i've set a google alert for. really speaks [indirectly] to jeff's snider's euro$ contractions, as well as fiscal and political climate.

www.bloomberg.com/news/videos/2019-08-09/monetary-policy-is-becoming-very-toxic-macquarie-s-shvets-video&ct=ga&cd=CAEYACoUMTIyNDQ1NjE3NDYwNTg3MjEwNDMyGjNkNDkxNzE 4ZWEyOTgxZWU6Y29tOmVuOlVT&usg=AFQjCNHG9j8i7iQV-iiCFnKBsQbz1Z2_JA

That was a good clip. In my case, he's preaching to the choir; much in line with my own thinking. Here's Summers' layman piece on secular stagnation to which he referred. Seems to me Larry's diagnosed the problem alright, but his prescription is woefully insufficient. Like he figured out there's cancer there, but still thinks some acetaminophen and bed rest is the best thing for it. Maybe run a healing crystal over it for good measure.

I mean, more and more, the 'smartest guys in the room' are starting to suss out the problem. Only thing is, they want to point the finger at everything but laws and institutions as the driver of the problem. So blame technology. Or blame globalization. Or some other nebulous thing about which there's relatively little to be done.

Making wages go up is not hard. You don't even have to do anything that radical. There's sufficient laws already on the books. Don't keep letting low-earning people get salaried at $20k or $30k per year then worked 60 hours per week. Enforce the overtime provisions of the FLSA strictly. End the bullshit "independent contractor" loophole, at least for the largest abusers like Uber and FedEx etc. End all the non-compete and non-disclosure and illegal non-poaching agreement bullshit. Bust up monopolies and oligopolies and bring competition back, making those non-poaching cartels harder to establish. Increase the federal minimum wage; it has been stuck at $7.25 for over 10 years again since July 24, 2009. If you wanna go hog wild, repeal Taft-Hartley. There's one spot where less government might actually help. Anyways, you get the idea. I could bullet out 100 of these things. It's not hard.

But if you just say, "Well, technology and globalization are driving down wages, so there's nothing to be done," then I don't see how you ever address the demand problem they see in the secular stagnation hypothesis.

I'm glad more and more of the 'very serious people' are starting to identify the problem. It is a positive development. But I'm afraid their heads are too filled with supply and demand graphs that instantly jump to the assumption labor rates have everything to do with some spooky voodoo magic setting them, and not a series of arbitrary laws and employer-employee power dynamics which allow employers to essentially dictate wage rates within the confines of which laws are being enforced.

Of course, there are a million less direct ways to stimulate demand. Taking some of the risk out of working class life would be huge. But these are all political choices again.

So in the absence of any of that, maybe we get a turn to minor stimulus-style temporary fiscal policy like Summers discusses.

Or maybe we just get more gridlock and none of it.

Either way, you've all heard me drone on before about how there's no way for wages to go up without a revolution in how HR people think and do their jobs. There has to be major changes to labor law and the enforcement of labor law, changes that get them all going to conferences and doing their daily work much differently. And the bosses have to wrap their heads around the idea that labor rates are going up. And if those things don't happen, I don't see where the demand comes from. And that's my problem with the straight fiscal policy approach.

Here's a lovely anecdote about bureaucracy: Back when the Obama stimulus came out, one of the metrics they tracked was job-hours worked. Then when those added up to enough, they'd call it a 'job created.' Didn't quite matter if it was a one week job or a three year job. So the math was always fuzzy. But one of the points of the stimulus was supposed to be to employ people during the Great Recession. And states wrote their little grants. And they put in excel line items for new employees. Employing more people was supposed to be a positive factor in the assessment of your grant application. And states got these grants to do the things they said they'd do. But states have FTE caps. Basically a maximum number of employees any given agency is allowed to have. And they set them either by law or by regulation annually with their budgets as a matter of course. And then HR departments enforce them. So, all these grants from the stimulus suddenly flooded in. And they had line items to hire all these people. But states couldn't or wouldn't change the law to lift the FTE caps to allow the departments to use the federal grant money to hire people they said they'd hire. So in the end, billions ended up going back to the US Treasury and states ended up never hiring the people they were supposed to. If the laws and regs and internal procedures around HR departments, which are all designed to minimize hiring and minimize wages, don't change, it'll always drag on fiscal policy's potential impact.

[jk]

Re: the strong usd

recommend this 4.5 min interview with viktor shvets - very smart guy i've set a google alert for. really speaks [indirectly] to jeff's snider's euro$ contractions, as well as fiscal and political climate.

www.bloomberg.com/news/videos/2019-08-09/monetary-policy-is-becoming-very-toxic-macquarie-s-shvets-video&ct=ga&cd=CAEYACoUMTIyNDQ1NjE3NDYwNTg3MjEwNDMyGjNkNDkxNzE 4ZWEyOTgxZWU6Y29tOmVuOlVT&usg=AFQjCNHG9j8i7iQV-iiCFnKBsQbz1Z2_JA

[jk]

Re: the strong usd

they've read mackinder. or maybe they just feel it in their bones. anyway obor looks to operationalize the world island.

[dcarrigg]

Re: the strong usd

It's very simple, China doesn't want to depend on the USA. Doesn't want to export to the USA if possible.

That sounds more or less right. All eyes have turned westward to the hills, not eastward to the sea. China is by far the world's largest trading country now. It loans more alone than the world bank does collectively. There are other strategic reasons to build pathways to move people and things around that don't involve the crossing the pacific or the straight of malacca.

[touchring]

Re: the strong usd

I don't pretend to know. I'll simply say this: China has its own plan. And everything in China is geared to that plan. The plan may be good or bad. But short of overwhelming force, the plan will be done.

It's very simple, China doesn't want to depend on the USA. Doesn't want to export to the USA if possible.

[dcarrigg]

Re: the strong usd

I don't pretend to know. I'll simply say this: China has its own plan. And everything in China is geared to that plan. The plan may be good or bad. But short of overwhelming force, the plan will be done.

[Chomsky]

Re: the strong usd

i also find snider very hard to understand. as best as i can figure, he's saying there wasn't a meeting of some committee which said "let's devalue the rmb this week." instead the global monetary system, fundamentally the eurodollar system, is spinning out of control and everyone is doing their best to cope using their limited abilities to direct events.

Agreed on that reading.

Snider could use some help in editing/clarifying. But given the astounding rate at which he produces content, I am happy to have to parse through his missives twice or so to glean his insights.

[jk]

Re: the strong usd

When I read something like this it makes me mad:

"Nobody is devaluing their currency. It’s the tell-tale sign of the eurodollar downgrading and damaging the whole global economy. "

Did China take some action that caused their currency to drop suddenly overnight or not? I'm guessing that what he means is that China has allowed its currency to float. That means they stopped intervening in the bond markets to buy US govt treasuries when the currency drops. In other words the natural level of the RMB is lower not higher.

The thing I don't understand is that China stopped being a net buyer of treasuries in 2014. What exactly happened to cause this sudden drop?

I never understand exactly what that guy is saying. He is like an oracle. You need to interpret his remarks.

i also find snider very hard to understand. as best as i can figure, he's saying there wasn't a meeting of some committee which said "let's devalue the rmb this week." instead the global monetary system, fundamentally the eurodollar system, is spinning out of control and everyone is doing their best to cope using their limited abilities to direct events.