Saturday, May 23, 2009
Wage inflation
Counterpunch: Real Lesson of the Financial Crisis
Against inflation. This article quotes Hoisington Investment's view that sufficient wage inflation will take a decade as aggregate demand slowly adjusts as aggregate supply. Further, they suggest that even if hypothetically inflation occurred immediately, without a corresponding increase in wages demand would just collapse. Also, makes the point that this is not an economic recession, rather the entire cause is front-loading bonuses at the expense of the economy.
Posted by stillthinking @ 10:32 PM (744 views) Add Comment
5 Comments
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1. nomad said...
This, to me, appears to be a very thoughtful and reasonable assessment, can anyone answer this to nudge my understanding along a little further.
CDSs are the insurance products, but can more that one person buy the same insurance package by paying the premiums? Is the ability to do this what caused the incremental increase in money (loans) out there? And front end salaries and bonuses of course.
It would be like me insuring my sick 98 year old mother and many other people being able to do the same.
2. dbc reed said...
A rare sighting of the velocity of money concept: that it does not matter what quantity of money is in play, just how quickly it is spent and passed round the economy.The theory used to be that mild inflation speeded up the velocity of money,because people would spend it rather than save it to see the value go down.Of course you have to stop the ordinary punters hedging hot money into assets like housing if you want people to go on spending in the shops .We had credit controls and Schedule A taxation on homeownership in the UK,the latter taxing house prices rises straight out of income (!!) .When the Tories abolished it in 1963 (to buy the homeowner vote) that's ,as Elvis said,when the heartbreak begins.
The Tories then increased the money supply by the Barber give-away budget in 1972(?) and house prices went from being dead flat for decades to increase by 70% in the subsequent two years.
Their one undisputed and lasting success was that the Tories blamed the workers and the unions for this, despite the economically literate Enoch Powell pointing out that the unions were "as innocent as lambs,pure white as the driven snow"(The unions can't increase the money supply can only react).
Fear of wage inflation haunts even this enlightened web-site.
I would have thought mild wage inflation plus Schedule A (or better LVT) would be the optimum conditions for a controllable medium velocity system.
3. easybetman said...
Hi Nomad - CDS are traded between parties and depends on the terms.Normally, you have to hand over the bond/loan certificate to the insurer if a default occurs so that they can collect whatever that is left in a bankrupcy proceeding if they have to pay out. However, in practise, there tend to be far more CDS contracts than the real thing, and when default occur, they will try to buy the certificate at the knocked down price and delvier to the insurer, or, just simply cash settled after a liquidation auction.
As for a sick 98 year old, if I write you a policy with premium of £99 covering just 3 months, with a payout of £100, I will gladly do it. It is all about pricing risk correctly.
4. easybetman said...
The situation that we are in is simply caused by us spending 3 years or so of our future income. Till those are paid back, there will be no recovery (though government can do a bit here and there to reduce pain).
5. mander said...
Ok but the politicians called it a sub-prime problem no securitazation problem because they have no clue and Wall Street words come out only.
If "credit is the economy's life's-blood," as President Obama says, then it should be distributed through a government-controlled public utility.
Let's not forget what Kennedy and Lincoln died for. I lost any hope of anything to happen under Obama. Hm?