Wednesday, January 24, 2007


Let me suggest a hypothetical.

Suppose there were two countries, in some sort of neo-colonial relationship. The rich country follows something like the German model, good social benefits, primarily tied to corporate employment, high capital stock, high education levels, and so forth. The poorer country has some social benefits, a social security system, a health care system that is overstressed and that doesn’t cover everybody, stagnating wages, and its capital stock is almost entirely colonial, i.e. the other country owns almost all of it.

Both share a common currency, and on a cash flow basis, the poorer country is sending a lot of cash to the richer country.

Monetary policy from the central bank clearly affects both countries, but both countries can have different fiscal policies. Moreover, cash flows between the two countries can dominate their local monetary policies. The cash flow from the poor country to the rich country has, in fact, produced a liquidity trap in the poor country. By the same token, the same cash flow has created a high degree of liquidity in the rich country, but, because the rich country imports much of its goods and services, it hasn’t seen much CPI inflation. Rather, it has had a series of asset price bubbles.

Now actually I’m talking about a single country here, the United States. The rich country consists of those who have substantial capital assets, and/or are well-situated in the corporate hierarchy. The poor country is low and middle income wage earners without major assets, whose primary asset, in fact, is their share of the social security system, and perhaps a low equity house in a “non-bubble” area like the mid-west.

The major cash flow is the Social Security surplus, which continues to divert enormous sums to the general fund, and the general fund pays out much of its cash to corporate contractors. Also whenever a member of the low income class buys something, a portion of that goes to the rich class, in the form of profits or the wages paid to the affluent class who manage the enterprise.
I think that, with only a few exceptions, “the poor country” has been in a liquidity trap for the past 25 years. CPI price inflation occurs when some of the liquidity that washes over the “rich country” manages to leak into “the poor country.” It is then immediately stamped down by raising interest rates, which pulls yet more money from low income workers (who tend to be debtors). Since high income liquidity primarily affects asset prices, and since asset price inflation is not considered inflation, monetary policy does not react.

Economic “growth” has been confined to the high income group, but since this tends to consist of nominal asset growth, it is not clear to what extent the growth is real. It may be largely an artifact of asset price inflation whose effects have been confined to a part of the economy that doesn’t show up in inflation estimates.

In short, the economy may actually be experiencing stagflation, but that is masked by asset price inflation. Any attempt to turn that nominal growth into actual consumption would trigger CPI inflation, which would immediately be met with interest rate hikes, which further hurt the real economy of low wage earners, but which does little to correct the underlying fiscal malady.


hedendai131 said...
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Máu trong giấc mơ đại diện cho cuộc sống, tình yêu, niềm đam mê cũng như sự thất vọng. Nếu bạn thấy từ “máu” trong giấc mơ của bạn, thì nó có thể ám chỉ đến một số tình huống sắp tới trong cuộc sống của bạn mà không thể thay đổi.Vậynằm mơ thấy máu
Dầu dừa là phương pháp hiệu quả giúp bạn nhanh chóng có một mái tóc mềm mượt và óng ả. Dưới đây là một số hướng dẫn cáchủ tóc bằng dầu dừa
Bạn vừa quan hệ với chồng và đang băn khoăn không biết mình đã thụ thai hay chưa? Và thử thai vào thời điểm này có chính xác hay không? Vậy
Kem dừa là món ăn vặt được nhiều người yêu thích với vị kem lạnh kết hợp với vị thơm, giòn và bùi bùi của dừa tạo nên một hương vị khó tả ở đầu lưỡi.cùng tìm hiểu cách làm kem dừa

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