In response to an FT article by Martin Wolf on 13th January 2016, entitled 'What market turbulence is telling is'
“Equally important is finding a powerful new engine of demand as old ones splutter and die. It is not at all obvious where this is to be found...The adjustment ahead for a world economy so addicted to credit bubbles is going to be difficult”
It is not at all obvious. Reading your article here it is not obvious, to me anyway; that you have any idea what you are talking about. Where do you think the last powerful engine came from? From a China that was and is...addicted to credit bubbles...which temporarily suspended the crash in the previous engine of global growth...a USA that was and is...addicted to credit bubbles. How far back do we need to trace the insanity before you get it? What do you think is going on in Emerging Markets right now? The unwinding of somewhere between $6 and $9 trillion worth of carry trades, funded on a cheap dollar which is now not so cheap. Where do you think that $6 to $9 trillion came from? From the gambling chips levered to the sky using the raw material created by...the Federal Reserve AKA - the biggest credit bubble blowing machine the world has ever seen.
You have consistently misdiagnosed the problem and advocated the very policies that have systematically produced it. Now you bemoan the situation and look around wondering where the next 'powerful engine of demand' is coming from.
Maybe the tooth fairy will show up again. If she does, check her handbag - you'll find monetary heroine inside. It won't say that on the label though, it won't even say 'neo-Keynesian Kool-Aid mixed with Monetarism for added potency'. It will say something else...but you won't have long to wait to find out what it will say. The 'great and the good' will be gathering in Davos in a few days, and they will be talking about it in meetings, dinners, coffee breaks and corridors. They'll be discussing how to create the next great credit bubble, I'm sorry that should say stimulus to aggregate demand. This time it'll be referred to as 'helicopter money' for the benefit of some, 'QE for the people' for others, depending on how the monetary quacks decide to spin the politics. It should be called what it will be - debt monetisation.
The problem is debt. The so-called 'demand problem' is the inability to fund the debt. Using simple figures for the purposes of illustration the problem is this. If your nominal GDP is growing at 2% and your debt is growing at 3%, you need to get 2% inflation to be able to stay afloat. The quacks have no way of creating growth because they haven't got the foggiest idea how business works, how capital is formed or how wealth is created. The answer - inflation. That's what the central bank inflation targets are all about. They actually want far more than that, and I'm pretty sure you know that Mr. Wolf. They don't tell the plebs that of course, but I bet dollars to donuts Dr. Yellen and Mr. Draghi would be delighted to get 3%. Mr. Kuroda would probably propose marriage to someone if they could give him even more. Why? Because if not, it's game over, and they know it.
Again - the issue is debt; it has been caused by government and casino sponsored credit bubbles. It is unsustainable and the chosen way out for the quacks is inflation. The savers you deride at regular intervals will be expected to transfer their wealth to insolvent governments and crony organisations though the vehicle of inflation. Here's another word for it Mr. Wolf - theft...backdoor confiscation of wealth through inflation created through the vehicle of debt monetisation.
That's what is going on here Mr. Wolf. Here's someone you apparently respect - on this very subject:
'By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens'
John Maynard Keynes