11-14-2016, 03:10 AM
(11-14-2016, 02:03 AM)Warren Dew Wrote:(11-14-2016, 12:47 AM)Galen Wrote: In short the bust and the necessary clearing of malinvestment was aborted in 2009. In my opinion the day of reckoning was simply postponed at great cost which will probably be revealed in the next year or so.
While they wouldn't put it this way, the Fed was attempting to clear the malinvestment gradually through inflation. The malinvestment in 2009 was largely in overvalued housing. Inflation should eventually permit the actual value of housing to reach the nominal value. This would ease the process of clearing the malinvestment since people could keep their houses and just keep paying inflated mortgages down until the mortgages were no longer inflated.
Obviously this produced other distortions. I believe the malinvestment has been partially transferred from housing to equities. But a collapse in equities is less societally damaging, since most people who are heavily invested in the stock market can afford losses without becoming homeless.
I don't think the day of reckoning will be severe. This is because the natural growth rate of the economy, and thus the natural interest rate, has been declining. As a result, some of the asset inflation has been turning into a real increase in value.
Correct fiscal policy - as you say, letting people keep their money, by reducing tax rates, and also reverting various forms of welfare benefits to where they were before Obama increased them, if not below that - will of course increase the economic growth rate above the natural growth rate for a time, which would be expected to cause pain with respect to inflated assets. However, that will be partially or fully compensated for if Trump cuts immigration and increases deportation, as people coming off the welfare rolls or unemployment to work will be compensated for by illegal immigrants leaving.
If Trump follows these policies, I believe the net result will be a fairly rapid and painless rise in wages, but pain in the equity markets for the investor class. Once the investor class realizes what is going on, they will fight him tooth and nail. This may end up in a fight between the financial investor elites and the business owning elites, with Trump on the side of the latter. I'm not sure how that turns out.
Thoughts on any of that? Am I missing anything?
Just about everything, I think.
The price of housing is going up, that's true. But it was too high even when it collapsed in 2007-08. So fewer people can afford a home, or mortgage payments, these days, and another bubble is already in the works, especially with the Trump deregulation. Rents are going up, homelessness is increasing and poverty is magnified.
I don't figure how lower housing prices caused higher stock prices. Where is your evidence that people who own "underwater" homes invested in stocks? They lost equity and can't afford them. The corporate and financial world has recovered quite handsomely, though, and that's whose wealth is traded on Wall St. When Wall St. is deregulated by the Republicans, the danger of crashes will mount quickly. I predicted before that the 2008 crash would not be repeated on that scale, but that prediction is only based on astrology. The financial conditions about to be put in place are perfect for another depression like 2008-09. I expect it to occur at least by 2018.
Interest rate declines were not natural; they were determined by the Fed.
Correct fiscal policy is stimulus for those areas of the economy that are slow. That means higher taxes and more government spending and welfare as needed. Keynes is correct; Ayn Rand is wrong. Trickle-down doesn't trickle. It failed miserably in the 1920s, 1980s and 2000s and will fail again. Inflation may increase, as rich people spend money on themselves, gas prices skyrocket as fossil fuel investments become lucrative again, the national debt balloons fantastically, and resulting higher interest payments gobble up federal spending. Much money may be fiatted and printed. But economic growth will stall and decline. Deportation and immigration cuts will hurt the economy, as fewer workers are available for the jobs that middle class whites do not want and never had anyway.
Trump policies will probably include no minimum wage increase, which will keep wages flat as it always has before, and income will decline relative to the inflation he will cause, thus increasing poverty and a decreasing middle class. Investors will profit from the new deregulation and repeal of Dodd-Frank, thus resulting in rampant speculation and fraud, crashing the economy again.
Yup, you missed it on just-about everything.