Naked Capitalism
James Galbraith: The Quasi-Inflation of 2021-2022 – A Case of Bad Analysis and Worse Response
James K. Galbraith | Lloyd M. Bentsen Jr. Chair in Government/Business Relations and Professor of Government at the Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin
Originally at INET
3 comments:
It was also an opportunity to pin the inflation donkey on MMT.
“ As Hyman Minsky observed (Marselli 1993), banks do not lend reserves and they do not need reserves in order to lend.”
It’s not enough to just say “they don’t lend reserves!”… They will just say “yes they do!” in dialogic exchange…
You have to point out that it’s a reification error of Accounting abstractions to think they do…
And Minsky is wrong they do need reserve balances in order to lend those balances (direct Fed liabilities) are Tier 1 assets and depositories must maintain a minimum balance of Tier1 assets proportional to total assets to remain in compliance…
“ The result is that the yield curve, normally upward-sloping, is now inverted. There is therefore no reason for any investor to buy or hold a long-term security – the short-term assets are not only safer, but also a better deal.
This is why an inverted yield curve is almost always followed by a slump in business investment, home construction, housing prices (and therefore the viability of mortgages), and of course in stocks and bond markets (Galbraith, Giovannoni and Russo 2007). At present writing, many observers can see the coming storm. ”
1. LOL if nobody wants or needs a long term bond then how are the prices bid up to the point the yield curve inverts?
2. Stocks have bottomed since the inversion in October 22…. JPM stock is 40% higher than its October low… though not yet back to all time highs…. SPY up about 17% from its October low also not back to highs …. risk free rate increases reduce the NPV of all financial assets so these assets not at all time highs… it also increases fiscal flow to USD balance owners…
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