Global liquidity, Asian growth and demand for commodities. A few sentences.
$this->bbcode_second_pass_quote('', 'I')n an earlier report on the topic of Asian liquidity and its impact on commodity
prices, we warned that a reversal in Asian monetary conditions could threaten
synchronised global themes ranging from property and gold to industrial metals.
Given the recent market action, we thought it worth constructing a composite
liquidity indicator for Asia (ex-China) which we can monitor over coming months.
► Synchronised booms across Asia have been interpreted as structural. Market
commentators often see skyrocketing forex reserves across many emerging economies,
particularly in Asia, as the structural result of outsourcing and increased exports
combined with larger US Treasury holdings from continuous currency interventions. Both
of these are deemed to be ongoing. Hence, the liquidity multiplier-effects of these huge
reserves are assumed to keep working too. We, however, think that the payback for a
protracted liquidity boom (2002-5) is now hitting Asian shores in the form of explosive
commodity and energy price behaviour – something to which Asia is, in turn, highly
sensitive. Inflation worries are making Asian central banks rapidly rein in liquidity.
► Our newly constructed Asian monetary conditions indicator declining. Although it is
a provisional indicator based on an unweighted aggregate of bond yields and quantity of
money measures from key Asian economies (ex-Japan, ex-China), our new Asian
monetary conditions indicator has progressively weakened over the past year. In fact, the
individual monetary constituents all tell the same story. Our charts inside show how an
entire range of global themes, from property to gold to metal demand, followed the
liquidity boom in a synchronised manner during 2002-5. They are now under pressure.
► A weakening US IT cycle and rising domestic Asian inflation not helpful. Had Asia's
real economy been in a position to continue accelerating despite tighter money, the
capex and construction booms which had been fuelling metal demand could have
continued for a while longer. Unfortunately, US IT orders data as well as our Asian export
model are signalling weaker external demand for Asia during H2 2006. This is a bad time
for central banks to be running out of monetary levers.
PeakOil is You
THE Stagflation Thread (merged)
Re: stagflation - not likely?
by MrBill » Thu 01 Jun 2006, 09:15:17
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
-
MrBill - Expert
- Posts: 5630
- Joined: Thu 15 Sep 2005, 03:00:00
- Location: Eurasia
Re: stagflation - not likely?
by Ayame » Sat 29 Jul 2006, 07:42:29
Is the US undergoing stagflation yet? Someone said inflation was strong but economic growth has slumped, is that stagflation?
- Ayame
- Tar Sands
- Posts: 631
- Joined: Thu 29 Jun 2006, 03:00:00
- Location: UK
Re: stagflation - not likely?
by Kingcoal » Sat 29 Jul 2006, 08:41:06
I remember the early EU being advertised as a "united states of Europe." There is a huge difference between the USA and the EU, however. In the US, once you join (become a State of the Union), you join forever. To cede from the Union will bring the US military calling.
"That's the problem with mercy, kid... It just ain't professional" - Fast Eddie, The Color of Money
-
Kingcoal - Expert
- Posts: 2149
- Joined: Wed 29 Sep 2004, 03:00:00
- Location: Pennsylvania, USA
Re: My brain hurts: stagflation (again)
by Tyler_JC » Fri 04 Aug 2006, 15:55:53
$this->bbcode_second_pass_quote('FatherOfTwo', 'B')ack to fighting stagflation – I’m still not clear on why fighting the inflation monster is of a higher priority than spurring the economy and creating jobs. Plus, in a twisted sort of way, with the US’ extreme foreign debt load, doesn’t raising interest rates shift the burden to the US? Lower interest rates, and thus higher inflation, does tend to inflate away their debt. Yes I realize there are risks, but we’re in a pick your poison situation and don’t see why allowing higher inflation isn’t the lesser of the two evils.
FatherOfTwo, you are mostly correct.
Since the 1970's, the Federal Reserve has given up trying to eliminate inflation entirely. For a debtor nation, this is generally seen as a good thing.
They decided that a strong economy with 2% or 3% inflation is better than a weak economy with zero inflation.
That's why the Fed's "inflation target" isn't zero.
The balance between growing the economy and stopping inflation is too difficult and too dangerous to risk a zero percent inflation target. Moderate inflation gives the Fed a cushion against overzealous rate hikes.
The Fed sometimes goes too far in its efforts to stamp out excess liquidity (1929-1930 ring a bell?) and as a result, the money supply dries up causing a recession.
To be fair, the central bank has a very difficult job. They are trying to predict the future of the most complex system imaginable while only looking in the cloudy, rear-view window.
And we won't have Alan Greenspan to spread magic confidence dust over the markets.
Personally, I don't worry about it. As Greenspan once said:
"If the evident recent success of fiat money regimes falters, we may have to go back to seashells or oxen as our medium of exchange. In that unlikely event, I trust, the discount window of the Federal Reserve Bank of New York will have an adequate inventory of oxen."
Nope, the Fed won't have gold or silver or foreign currency stockpiles. But we will have livestock...
"www.peakoil.com is the Myspace of the Apocalypse."
- Tyler_JC
- Expert
- Posts: 5438
- Joined: Sat 25 Sep 2004, 03:00:00
- Location: Boston, MA
Re: My brain hurts: stagflation (again)
by jaws » Fri 04 Aug 2006, 19:09:14
$this->bbcode_second_pass_quote('FatherOfTwo', 'M')rBill, thank-you! My dig against economics is more based on my lack of understanding of it, however, I’ve always puzzled over how willingly economists dismiss, or severely discount, the impact of scarce resources. Many automatically assume demand will “create” them, or force the creation of an alternative. It’s like the economist who is locked in an air tight vault and says that because he demands oxygen, that it will be created. That’s why I said it’s detached from reality
An air tight vault isn't an economic problem, it is a physical problem. The vault does not obey the laws of economics, only human beings do that. When economists say that natural resources are created, they mean that what converts an inert naturally occuring substance into a resource is human demand. For example when oil was "discovered" in the mid 19th century, it was because a use for oil was discovered. Oil had always been around, and if at any point before in history it had been discovered people would just have considered it a useless, harmful substance to be cleaned up. It was the invention of mechanical power that made oil highly valuable.
It is what we do that creates natural resources. By changing what we do, we change natural resources available.
As for how rigorous economics is, all I can say is that it is a very controversial science and you need to make up your own damn mind as to what's true and what isn't. I've had professors who were die-hard Keynesians, and others who said that Keynesianism was voodoo. Those professors often swore by the theories of Paul Samuelson who famously predicted in one of his first books that the Soviet Union would rapidly overtake the USA economically.
-
jaws - Heavy Crude
- Posts: 1228
- Joined: Sun 24 Apr 2005, 03:00:00
Re: My brain hurts: stagflation (again)
by firestarter » Fri 04 Aug 2006, 20:11:20
If you take the best there is from all available economists, shake it up and pour it out you get
Murray Rothbard
"Briefly, the State is that organization in society which attempts to maintain a monopoly of the use of force and violence in a given territorial area.
In particular, it is the only organization in society that obtains its revenue not by voluntary contribution or payment for services rendered but by coercion. "
-- Murray Rothbard “The Anatomy of the State,” Ramparts, Summer 1965, reprinted in Egalitarianism as a Revolt against Nature, and Other Essays, Auburn, AL
Man, Economy, and State
Murray Rothbard
"Briefly, the State is that organization in society which attempts to maintain a monopoly of the use of force and violence in a given territorial area.
In particular, it is the only organization in society that obtains its revenue not by voluntary contribution or payment for services rendered but by coercion. "
-- Murray Rothbard “The Anatomy of the State,” Ramparts, Summer 1965, reprinted in Egalitarianism as a Revolt against Nature, and Other Essays, Auburn, AL
Man, Economy, and State
-
firestarter - Heavy Crude
- Posts: 1171
- Joined: Sun 19 Mar 2006, 04:00:00
Re: My brain hurts: stagflation (again)
by cube » Fri 04 Aug 2006, 21:06:30
$this->bbcode_second_pass_quote('jaws', '.')...
As for how rigorous economics is, all I can say is that it is a very controversial science and you need to make up your own damn mind as to what's true and what isn't. I've had professors who were die-hard Keynesians, and others who said that Keynesianism was voodoo.
....
yup everybody must find truth for themselves in life.....even if they fail. As for how rigorous economics is, all I can say is that it is a very controversial science and you need to make up your own damn mind as to what's true and what isn't. I've had professors who were die-hard Keynesians, and others who said that Keynesianism was voodoo.
....
Correct me if I'm wrong but doesn't Keynesianism economic theory state that stagflation is impossible? The argument being that if the economy is stagnating (high unemployment) then people have less money to spend. Less money == less demand for consumer products, thus prices cannot rise.
Of course we all know this idea is hogwash. The 1970's pretty much destroyed that theory.
I think we're going to see stagflation pretty soon like disco fever. Now that the housing boom is offically over or has been...consumer spending must fall. Since our economy is totally dependant on consumer spending.....expect the unemployment rate to rise.
- cube
- Intermediate Crude
- Posts: 3909
- Joined: Sat 12 Mar 2005, 04:00:00
