Monday, August 24, 2015

Andrew Lainton — How a Chinese Equity Black Monday Transmits to a Global Money Supply Collapse

Stock market bubbles are fulled on speculation – on what Guzman and Stiglitz (2015) call tellingly ‘pseudo wealth’. It is the collapse in that pseudo wealth that causes aggregate demand collapse in the wider economy.
Karl Marx called it "fictitious capital," which is the term that Michael Hudson uses for it now.

Lainton's analysis is based on Hyman Minsky's approach to banking and its relation to the economy.

Decisions, Decisions, Decisions
How a Chinese Equity Black Monday Transmits to a Global Money Supply Collapse
Andrew Lainton

6 comments:

Michael Norman said...

What is a "global money supply collapse?" What the hell is that?

Tom Hickey said...

Banks not lending, like happened in the US at the time of the crisis.

Michael Norman said...

Ahhhh....

Tom Hickey said...

To clarify, this is has been a financial crisis from the beginning, not an economic one. The financial crisis went viral and contagion took down real economies along with it.

The problem is demand, which comes from government spending and bank lending. If bank lending contracts, then government spending has to substitute. Obviously, everyone can't export their way out in a closed global economy.

The US has been supporting the global economy with its twin deficits, letting many countries export while supporting domestic demand and employment with a relatively stimulative fiscal stance.

The fear is that if the Fed tightens, which means makes domestic private borrowing more costly and Congress doesn't loosen fiscal, which is unlikely, then this reduces some of the support that the US has been providing both internally and externally.

The Fed is not helping by sending signals it wants to tighten, and the fractious US political situation now that the 2016 campaign has begun is increasing uncertainty, too.

And China analysis are not concerned about the Chinese economy per se. They are concerned about the credit situation in China, which they fear will affect the Chinese economy adversely at some point.

The question is, is this that point in time?

The conditions are present, but it doesn't have to be since "it is only money." The real factors are OK.

Tom Hickey said...

Or to put it another way, fictitious capital (asset valuation) has gotten way ahead of real capital (fundamentals). A correction can affect the performance of the real economy because money is not neutral, demand being based on finance.

Ryan Harris said...

Or it is the demographics, slowing population growth, slowing urbanization, The end of investment boom in China. If there was decades more of robust growth in China, the US downturn and financial crisis would not have been relevant and the old flows of money would have continued. They didn't. The old money cycling pattern ended.

So Tomato, Tomatoe.

Some would say London bankers controlled the US industrialization too and when it panicked and crashed it was their fault. But it is only half the story.