Inflation picking up. Wage pressures mounting.

I have been saying that wage pressures are mounting. The evidence is clear. In my MMT Trader report I have included this chart below.

This is the current. up-to-date, snapshot on Employment and Withholding Tax Deposits flowing to the Treasury. It is accelerating. This is an indication of mounting wage pressures and a significant tightening in the labor market.

Producer prices up 0.5% in today's report. Forecasts were for a 0.3% rise. Tomorrow, CPI and that will be a shocker, too.

Treasuries are a sale. Fed will resume rate hikes soon.

Dollar going down. Commodities, gold, stocks, emerging markets, all going up. That's where you want to be.

Guo Yiming — China's exclusion from TPP and TTIP against globalization

The major international trade pacts known as the TPP and TTIP will involve historical errors without China's participation, a Chinese expert claimed during the annual conference of the Istanbul Chamber of Industry on Saturday.

Wang Wen, executive dean of Chongyang Institute for Financial Studies, a think tank under Beijing's prestigious Renmin University, made the remark during a session on the rise of free trade agreements.

As the only Chinese representative invited to the event, Wang voiced his concern on the exclusiveness and creating negative influence for the Trans-Atlantic Trade and Investment Partnership (TTIP) and Trans-Pacific Partnership (TPP) that are set to launch a new revolution in the international economic and trade system.

"Fresh trade protectionism is taking shape with new forms, and the unnecessary internal frictions in competition between developed countries and emerging economies continue to grow," said Wang, expressing concern the negative influences of TPP and TTIP could cause large scale strategic misjudgment, and increase tensions and uncertainties in the global economic and political systems.

He said the controversial trade pacts, which exclude all emerging economies, such as China, India, Russia, Brazil, and whose standards are obviously favorable to the developed nations, overlook the former's rights, and constitute a powerful rejection and even discriminate against them. He regarded the pacts as a de facto trade barrier protecting the developed countries' interests.…

Protectionism masquerading as "free trade."

China.org.cn
China's exclusion from TPP and TTIP against globalization

Guo Yiming

C.P. Chandrasekhar and Jayati Ghosh — Capital Bleeds from Emerging Asia

Everyone knows that 2015 was a terrible year for emerging markets – but exactly how bad it was has become clear only recently. Not only was it an annus horribilis in terms of net exports of goods and services, which declined sharply and even turned negative for some previously buoyant exporters, but it was also a time when capital flows reversed course. The downturns in both indicators have been much more widespread and substantial than they were initially expected to be, and even greater than mid-year assessments suggested.…

Naked Capitalism
Capital Bleeds from Emerging Asia
C.P. Chandrasekhar, Professor of Economics, Jawaharlal Nehru University, New Delhi; and Jayati Ghosh, Professor of Economics and Chairperson at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi

George Andrew Karolyi, David Ng, Eswar Prasad — .The coming wave: Where emerging market investors will put their money

Few economists understate the importance of emerging market economies in terms of world GDP and global growth prospects. This column asks where the future of emerging markets’ investments lie. Where investors have focused in the past and institutional path dependency are important determinants of emerging markets’ allocation of international investment portfolios. This has implications for the geographical distribution of emerging markets’ portfolio investments, a force to reckon with in international financial markets.…

To guide our empirical analysis, we then turn to the concept of information immobility proposed by van Nieuwerburgh and Veldkamp (2009, 2010). Rather than relying on information asymmetries, which should in principle decline over time, their theoretical model recognises that investors face a choice in deciding about which assets to acquire information when there are multiple risky assets in the investment opportunity set. For instance, investors have a comparative advantage in learning about their domestic assets. Even as information about foreign markets becomes easier to obtain, the initial information endowment leads investors to exert more effort in acquiring additional information about domestic assets, magnifying their comparative advantage. Similarly, investors would prefer to invest in foreign countries where they had an initial information endowment.

We propose empirical proxies on a country level and on an institutional investor level to detect possible emerging market investors’ information endowments for a particular destination country for their outward investments. On a country level, the proxies are historical foreign direct investment and trade flows between the home and destination country for outward portfolio investments. Such historical foreign and direct investment and trade flows typically result in business contacts and investment relationships that could serve as a source of the initial information endowment.

Transaction costs involved in gathering, processing, evaluating, and acting on information favors existing patterns as "endowments." 

vox.eu
The coming wave: Where emerging market investors will put their money
George Andrew Karoly, Professor of Finance, Samuel Curtis Johnson Graduate School of Management, Cornell University, David Ng, Professor of Finance, Cornell University, and Eswar Prasad, Tolani Senior Professor of Trade Policy at Cornell University, Senior Fellow of the Brookings Institution and Research Associate, NBER
ht Mark Thoma at Economist's View

Leslie Shaffer — Goldman: This is the third wave of the financial crisis

Emerging markets aren't just suffering through another market rout—it's a third wave of the global financial crisis, Goldman Sachs said.…

The emerging market wave, coinciding with the collapse in commodity prices, follows the U.S. stage, which marked the fallout from the housing crash, and the European stage, when the U.S. crisis spread to the continent's sovereign debt, the bank said.…

Goldman: This is the third wave of the financial crisis

Leslie Shaffer

Dani Rodrik — Back to Fundamentals in Emerging Markets

Useful post. I would take issue with the following assertion, however, which seems to be based more on ideology than fact.

China’s economic achievements are undeniable. But it remains an authoritarian country where the Communist Party retains its political monopoly. So the challenges of political and institutional transformation are immeasurably greater than in India. The uncertainty that confronts a long-term investor in China is correspondingly higher.

It's myopic. China has been so successful because of its centralized control and strategic planning. India remains mired in the past owing to the condition of its bureaucratic and dynastic political system, which, although democratic, is lumbering, cumbersome, and corrupt. China has a clear advantage here, and foreign investment in China shows that sophisticated investors realize it.

Project Syndicate
Back to Fundamentals in Emerging Markets

Dani Rodrik | Professor of International Political Economy at Harvard University’s John F. Kennedy School of Government

Ambrose Evans-Pritchard — Emerging market currencies crash on Fed fears and China slump

Global economy rolling over without ever even getting up?

The Telegraph
Emerging market currencies crash on Fed fears and China slump
Ambrose Evans-Pritchard

Ambrose Evans-Pritchard — Dollar surge endangers global debt edifice, warns BIS

Off-shore lending in US dollars has soared to $9 trillion and poses a growing risk to both emerging markets and the world's financial stability, the Bank for International Settlements has warned.

The Telegraph
Dollar surge endangers global debt edifice, warns BIS
Ambrose Evans-Pritchard

Jack Rasmus — On the Causes of Investment Decline in the US Economy

Sustained recovery requires direct investment, not just a rise in consumption income that hopefully might convince capitalists to again reinvest in the US (or not convince). So the problem is not merely a lack of income growth to stimulate investment. US capitalists are investing–just not in real asset investment and not in the US. They are investing in emerging markets, and even more so in financial asset markets globally (which are now more numerous, liquid, and available than ever before due to the creation of an unregulated global shadow banking system).… 

The more fundamental problem is that finance capital has changed. Raising incomes of workers and middle class Americans will help somewhat, but not all that much. It will not result in sustained economic recovery any longer. It is therefore not the main solution to the long term economic stagnation that the US has been experiencing since 2009. Capitalist profit opportunities are simply greater offshore in EMs, and in financial asset markets, than they are from making goods and services in the US, even if US workers were able to buy those real goods and services if they had more income.…

To argue simply for wage and income growth as the solution to a chronic stagnant US economic recovery—as Krugman and colleagues do for example—is to assume that capitalist enterprise will redirect itself from more lucrative profit opportunities from financial speculation and in offshore markets, back to less profitable real production of goods and services in the US. They won’t to any significant extent, since rates of return in the latter are significantly less than in the former. 

The only real solution to a sustained US recovery is for massive public government investment, that then subsequently creates income. Investment precedes income creation, it does not necessarily follow it any longer in a world of 21sts century global finance capital. Just calling for income growth (via minimum wage hikes, more contingent job creation, tax cuts, or whatever) will not necessarily result in US-based investment if Capitalists continue to shift to more profitable financial speculation offshore; public investment must therefore occur prior to income growth in order to generate a sustained recovery.… 

In today’s world of 21st Century Global Finance Capital, don’t expect capitalists to invest in real production and thus jobs and income in the US economy as they did decades ago. They are too busy making greater profits offshore and in financial asset speculation, leveraging the trillions of dollars of free money and credit created for them by the Federal Reserve. If real investment in the US economy is ever to return, it will have to come via major public investment initiatives. And if not, expect chronic economic stagnation to continue, as has been the case since 2010.

Counterpunch
On the Causes of Investment Decline in the US Economy — A Reply to Thom Hartmann’s Interview of Richard Wolff
Jack Rasmus

Marshall Auerback — China And The Emerging Markets

"Another shoe to drop."

Macrobits
China And The Emerging Markets
Marshall Auerback

Dani Rodrik — Death by Finance

That neoliberal "free markets, free trade and free capital flows" theory isn't as advertised. Puncturing  the myths.

Project Syndicate
Death by Finance
Dani Rodrik | Professor of Social Science at the Institute for Advanced Study, Princeton, New Jersey

Houses and Holes — BIS warns of emerging markets contagion

The Bank of International Settlements has warned that contrary to the reassuring words of “analysts” everywhere, emerging markets are vulnerable to a liquidity squeeze and it has identified the mechanism of why:

Tighter global integration of markets increase risk of contagion.

MacroBusiness
BIS warns of emerging markets contagion
Houses and Holes

Yves Smith — Emerging Markets Contagion Starting to Hit Eurozone

Now some analysts, like Gavyn Davies, remain relatively sanguine, pointing out the the emerging markets crisis of the later 1990s produced only short-term disruption in advanced economies. That considerably underplays the dodged bullet of the LTCM bailout. But more important, as reader Scott has stressed, emerging markets were just over 30% of global GDP then versus roughly 50% now. It’s hard to imagine that if half of the world’s economies are in mild to severe distress that the rest of the world will get off scot free.

Naked Capitalism

Emerging Markets Contagion Starting to Hit Eurozone
Yves Smith

Felix Salmon — Who’s to blame for the emerging-market crisis?

Paul Krugman and Dani Rodrik are out with dueling op-eds on the subject of the latest bout of financial-market craziness in places like Argentina and Turkey. Both men have been following emerging-market crises for decades; both indeed, are world-class experts on such episodes. What’s more, both economists have a broadly left-liberal worldview: there’s no deep ideological or philosophical rift here. And yet the two seem diametrically opposed.

Reuters — Econoblog
Who’s to blame for the emerging-market crisis?
Felix Salmon

Who's to blame. First, the institutional structure imposed under neoliberalism that rests on the myth assumption of "free markets, free trade, and free capital flows." Secondly, the requirement that the economy and therefore, the financial system as well, be run  by capital for capital preservation and accumulation, the myth assumption being that capital formation is the sine qua non of growth, which includes the myth assumption that "growth" is identical with greater prosperity. 

Of course, this is only part of the mythology which is ultimately to blame for recurrent social, political and economic problems. But it is an important part of it. There is no fix in an ill-designed or broken system without overhauling the system, or at least reforming it in a major way.

Neoliberalism is not only antithetical to democracy but also incompatible with distributed prosperity.

 

Yves Smith — George Mangus Warns of Broad Impact of Emerging Markets Turbulence

In the runup to the global financial crisis, George Magnus, who was then chief economist at UBS, was one of the most insightful commentators and was early to call how bad things might get. He’s best known for coining the term “Minsky moment” in early 2007, which he described as when “lenders become increasingly cautious or restrictive, and when it isn’t only over-leveraged structures that encounter financing difficulties . . The risks of systemic economic contraction and asset depreciation become all too vivid.”

Magnus returns and does not find much reason to be optimistic. In a comment today at the Financial Times, he discusses Turkey’s economic and political situation in some detail, and then discusses the potential for continued, widespread upheaval:

Naked Capitalism
George Mangus Warns of Broad Impact of Emerging Markets Turbulence
Yves Smith

Mark Gongloff — These Four Massive Threats Are Hitting Financial Markets All At Once

1. Taper Talk
2. Emerging Market Slaughter
3. Syrian Saber-Rattling
4. Yet Another Dumb Debt-Ceiling Fight

The Huffington Post

These Four Massive Threats Are Hitting Financial Markets All At Once
Mark Gongloff

Ashoka Mody — Misreading the Global Economy

In April 2010, the International Monetary Fund’s World Economic Outlook offered an optimistic assessment of the global economy, describing a multi-speed recovery strong enough to support roughly 4.5% annual GDP growth for the foreseeable future – a higher pace than during the bubble years of 2000-2007. But, since then, the IMF has steadily pared its economic projections. Indeed, this year’s expected GDP growth rate of 3.3% – which was revised downward in the most recent WEO – will probably not be met.

Persistent optimism reflects a serious misdiagnosis of the global economy’s troubles. Most notably, economic projections have vastly underestimated the severity of the eurozone crisis, as well as its impact on the rest of the world. And recovery prospects continue to depend on the emerging economies, even as they experience a sharp slowdown. The WEO’s prediction of a strengthening recovery this year continues the misdiagnosis....

Economic forecasts rest on the assumption that economies ultimately heal themselves. But economies’ powerful self-healing capabilities work slowly. More problematic, a misdiagnosis can lead to treatments that impair the healing process. Overly optimistic economic projections based on mistaken assessments of the global economy’s ailments thus threaten recovery prospects – with potentially far-reaching consequences.

In Europe, the banks’ wounds must be closed – weak banks must be shut down or merged with stronger banks – before recovery can begin. This will require an extensive swap of private debts for equity. For the global economy, the malaise reflected in anemic trade growth calls for coordinated fiscal stimulus by the world’s major economies. Otherwise, the risk of another global recession will continue to rise.

Project Syndicate
Misreading the Global Economy
Ashoka Mody | former mission chief for Germany and Ireland at the International Monetary Fund and currently Visiting Professor of International Economic Policy at the Woodrow Wilson School of Public and International Affairs, Princeton University

About 20 Percent Of Global Workers Telecommute: Poll

About one in five workers around the globe, particularly employees in the Middle East, Latin America and Asia, telecommute frequently and nearly 10 percent work from home every day, according to a new Ipsos/Reuters poll.

Telecommuting is particularly popular in India where more than half of workers were most likely to be toiling from home, followed by 34 percent in Indonesia, 30 percent in Mexico and slightly less in Argentina, South Africa and Turkey.

Read it at The Huffington Post
About 20 Percent Of Global Workers Telecommute: Poll

by Patricia Reaney | Reuters

Seems to be largely an emerging markets phenomenon.