2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

[EJ]

Re: But who does the capital deepening ?

I think a root problem is not enough saving and "real" investing.

High wealth people do not spend on consumer luxuries. But do they invest?

The standard argument that diverting money to poor people is stimulative because they spend all their money is a fallacy. We do not need short term stimulation, but long term capital deepening.

Giving money to what group will cause capital deepening?

Poor people spend money on food and imported consumer items. That will not increase our productive capacity unless they start buying more sustainable food grown domestically.

I am not trying to attack poor people, I am just claiming that giving them more money does not logically increase the nations productive capacity. (Neither does asset price inflation, of course)

Government "giving money to poor people" does not solve the problem of reflating an economy characterized by a wide wealth disparity, nor is directing credit expansion to asset markets such that benefits accrue only to households with significant financial assets an ineffective policy if the goal is to get the economy growing again in a sustainable way.

Obviously the quandary is employment and incomes.

In my next article we look at where the jobs are and aren't.

The Fed itself has only re-hired one thousand of the six thousand that it laid off after the financial crisis.



The telco industry continues to shed jobs.



Don't hold your breath waiting for buggy whips or publishing to make a comeback.



Real estate is making a surprisingly strong labor market rebound.



With firms unwilling to make long-term hiring commitments, the temp job market is booming.

Wait. That chart reminds me of something.

How's that for correlation?

[Polish_Silver]

But who does the capital deepening ?

. ....Now we face an even bigger problem. The effort to reflate the housing bubble only appears to be working at the higher end of the housing market. ....

The unintended consequence of the use of asset price inflation as a means of reflation of the economy is even greater wealth inequality.

I think a root problem is not enough saving and "real" investing.

High wealth people do not spend on consumer luxuries. But do they invest?

The standard argument that diverting money to poor people is stimulative because they spend all their money is a fallacy. We do not need short term stimulation, but long term capital deepening.

Giving money to what group will cause capital deepening?

Poor people spend money on food and imported consumer items. That will not increase our productive capacity unless they start buying more sustainable food grown domestically.

I am not trying to attack poor people, I am just claiming that giving them more money does not logically increase the nations productive capacity. (Neither does asset price inflation, of course)

[seobook]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

From 1998 to 2000 I noted here that the asset price inflation of the "Roaring '20s" created vast wealth disparities, and that the key challenge of reflation policy in the early 1930s was after the crash was how to get a few thousand wealthy families to generate enough demand for goods and services via their personal consumption to generate significant employment for millions of unemployed and their destitute families. My worry was that the crash of the NASDAQ, DJIA, and SP500 markets may present a similar challenge. After FDR was elected a more effective albeit too-little-too-late reflation was accomplished via currency depreciation and deficit spending; the economy had already shrunk by 25%.

I didn't see a repeat of that. I didn't see the Fed and Congress waiting until the economy crashed and a deflation spiral got going. But I did think that the wealth disparity left over from the boom was likely to be a factor in an uneven recovery, that in fact came to be called a "jobless recovery."

The solution to the problem as I finally caught onto in 2004 was the housing bubble, a way of spreading asset price inflation down to middle and to some extent lower income and wealth groups.

Now we face an even bigger problem. The effort to reflate the housing bubble only appears to be working at the higher end of the housing market.

Unit sales of single family homes by price range. QE (mortgage interest rate/bond price fixing), plus bank programs, etc. helped buyers of new homes >$400,000.

The unintended consequence of the use of asset price inflation as a means of reflation of the economy is even greater wealth inequality.

Here's a version of that same chart, with the data indexed to the starting point of the chart rather than showing volume...I think indexing makes it easier to see the market stratification, especially when there is so much data on one chart.
http://research.stlouisfed.org/fred2/graph/?g=y2j
http://research.stlouisfed.org/fred2...raph.png?g=y2j


and here's a stacking view of the same
http://research.stlouisfed.org/fred2/graph/?g=y2k
http://research.stlouisfed.org/fred2/graph/?g=y2l

[littleshark]

Re: But who does the capital deepening ?

Eric, seems to me that the highest growth industry for employment going forward is going to be health care and health care related services and biotech.

Im only 42 and am dealing with the unfortunate situation of my father having dementia at a very young age. This is something that the children of baby boomers are going to start dealing with more and more.

Robotics and and technology can't replace the care needed to give the increasing numbers of elderly. Health care workers and aides are going to be in increasing demand, along with services aimed at helping people deal with Medicare applications and all the paperwork involved in applying and qualifying for govt programs, assisted living facilities, nursing homes, etc.

Breakthroughs in medical technology, which can be the result of massive spending, both public and private, to find cures for many debilitating diseases will also help employ more medical researchers and start up biotechs.

This could be a win/win for everyone if handled properly via some type of public/private partnership. Even in our current system of cronyism, if it resulted in medical breakthroughs and increased training and employment and better managed living facilities for the increasing elderly population where more services are needed, I wouldn't mind so much.

Better than pumping more QE in the system so the next Real Estate can buy a 4 cap and flip it to some pension fund at a 3 cap.

[Slimprofits]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

http://www.bloombergview.com/article...s-myth-busting

[porter]

Re: But who does the capital deepening ?

In my next article we look at where the jobs are and aren't.

Really hope this actually comes out soon and doesn't end up being one of your shelved "next articles." I mean that encouragingly because I really want to see your analysis on jobs.

[lektrode]

Re: But who does the capital deepening ?

Really hope this actually comes out soon ....mean that encouragingly because I really want to see your analysis on jobs.

+1
mostly because eye dont see where all the reported new jobs are showing up (at least the ones that i'd like to apply for)

[ProdigyofZen]

Re: But who does the capital deepening ?

The jobs are in the gulf coast corridor in TX, LA, MS, AL due to the boom in unconventional production. The unemployment rate in these regions is below 3% and there are supposed shortages of welders, pipe fitters etc.

Labor Shortages

The problem is the economists and hedge fund managers are extrapolating the labor shortages in this region to every region in the US which is simply a wrong headed argument. They are using this as evidence that "wage inflation" is coming for the majority of US workers.

I had one the other day tell me "we have already had a good amount of asset inflation the past 5 years and now we will have wage inflation on top of that"

[jk]

Re: But who does the capital deepening ?

The jobs are in the gulf coast corridor in TX, LA, MS, AL due to the boom in unconventional production. The unemployment rate in these regions is below 3% and there are supposed shortages of welders, pipe fitters etc.

Labor Shortages

The problem is the economists and hedge fund managers are extrapolating the labor shortages in this region to every region in the US which is simply a wrong headed argument. They are using this as evidence that "wage inflation" is coming for the majority of US workers.

I had one the other day tell me "we have already had a good amount of asset inflation the past 5 years and now we will have wage inflation on top of that"

as was discussed in the past somewhere in some thread, wage inflation will be segmented, just like the rest of the economy. you, poz, mentioned mckinsey compensation. software engineers have a class action suit going in silicon valley against google, apple, intel and i forget which other firm, saying that they conspired to hold down wages. so tech, maybe biotech, energy-related, some professional services will see income growth. elsewhere in the economy, not so much.

[ou812]

Re: But who does the capital deepening ?

Loving the interactive charts versus the pictures of charts.

How are you going to handle not having S&P500 data from FRED?

http://news.research.stlouisfed.org/...to-be-removed/

You've got until Friday to create your graphics. Looking forward to the next instalment in May once you've boiled the ocean.

[EJ]

Re: But who does the capital deepening ?

Loving the interactive charts versus the pictures of charts.

How are you going to handle not having S&P500 data from FRED?

http://news.research.stlouisfed.org/...to-be-removed/

You've got until Friday to create your graphics. Looking forward to the next instalment in May once you've boiled the ocean.

We like to annotate our charts so we will provide both the dynamic and the modified captures of charts. We will embed the dynamic charts for all of the other series but the handful that the St. Louis Fed has been unable to retain under license to data providers.

Our understanding is that the license to use S&P data forbids embedded charting. The St. Louis Fed when they designed the new charting system did not include a means to turn off embedding on a per data series basis. Fortunately there are plenty of other sources of S&P500 charts and data, but these cannot be embedded either.

[ProdigyofZen]

Re: But who does the capital deepening ?

Yes, wage inflation may be bifurcated but what matters is wages on the margin not just the core where there is higher wage growth.

The hedge funds and economists think the wage inflation will be broad and across all segments of the economy.

[Slimprofits]

Re: But who does the capital deepening ?

The hedge funds and economists think the wage inflation will be broad and across all segments of the economy.

Those Turkeys are using models and very limited samples of historic data (.pdf).

[sgominator]

Re: But who does the capital deepening ?

Government "giving money to poor people" does not solve the problem of reflating an economy characterized by a wide wealth disparity,

http://www.reuters.com/article/2014/...A3H0PQ20140418
Worth trying, anyway...

[thriftyandboringinohio]

Re: But who does the capital deepening ?

...The hedge funds and economists think the wage inflation will be broad and across all segments of the economy.

I hope they are correct.
We appear to be well past the point where further reductions in wages will help the economy.
An impoverished population does not buy many goods and services, and businesses suffer from lack of demand.

Perhaps an episode of broad, strong wage inflation will help pick up economic activity.