So this is your snapshot of the economy.Buinsess Insider
On the one hand, you have basically no inflation by historical standards.
But in terms of asset markets, particularly real estate in prime locations, prices are going up like crazy. The situation is not good, and it drives Central Bankers mad, because they don't like to see numbers like that one in London, but they don't want to choke off a recovery when inflation isn't at the levels they want.
And again, this isn't just London. The same scenario has presented itself for years in the US. There hasn't been worrisome inflation in a long time, but there have certainly been destabilizing asset booms.
As for why this is, people have all kinds of theories. Some think it's a function of central bank policies that are impotent and boosting the real economy, but are effective at blowing financial bubbles by providing cheap capital. Others talk about a "new normal" or "structural stagnation" where for structural reasons, economies are unable to grow and induce normal inflation. The view of Larry Summers is that something has changed in the economy (perhaps relating to population changes and technology) that necessitates bubbles in order to get widespread growth. Nobody has nailed it down exactly.
We Just Got The Perfect Snapshot Of A Modern Economy
Joe Weisenthal
1 comment:
“Nobody has nailed it down exactly.” If Weisenthal doesn’t know the answer to a question, what’s he doing wasting everyone’s time by writing an article on the subject?
As for “nailing it down” I’d guess most MMTers can nail it down with one hand tied behind their backs: like this.
First, the empirical evidence is that interest rate cuts have little effect. But to the extent that they do, there is clearly a LIMIT to what they can do: that is, interest rates pull investment forward in time, and there is a limit to the amount of “pulling forward” that any household or business will do. Worse still, as pointed out by Mervyn King, former governor of the Bank of England, the “pull forward effect” clearly lasts for a limited time (perhaps two years at most). I.e. after that time, low interest rates have NO EFFECT AT ALL.
The only option then is fiscal policy, which is the device most MMTers would have advocated using in the first place. Or to be more accurate, MMTers advocate simply creating fiat and spending it (and/or cutting taxes). And that policy is actually a mix of monetary and fiscal policy.
I’ve regarded Joe Weisenthal as an idiot for some time. That article simply confirms my opinion of him.
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