Essentially, he thinks that monetary policy should target a stable currency rather than inflation and employment. he argues that the Fed's dual mandate leads to a lot of incorrect price signals, which leads to misallocation of capital of economic inefficiency, whereas targeting currency stability would give the correct market signals, leading to a more prosperous economy.
Leudwig Von Mises had a great piece about what happens when you keep low-interest rates too low. To paraphrase badly, artificially low-interest rates send entrepreneurs a price signal that there is a glut of savings and that entrepreneurs should go invest in capital equipment. However, there is no savings glut so after investing in capital equipment by the time production comes on there are no buyers for the products which end up causing the need to liquidate all the malinvestment. It's hard not to see that cycle repeating with all the zillions of start-ups AND all the asset managers that have shown up the last 20-years.
Regarding negative real rates - any thoughts as to whether or not western central banks are doing this *intentionally* with the goal of shrinking (inflating away) national debts?
To your point about the flip from capital to labor in the west. I did a webinar yesterday with Greg Crabtree. He does small biz outsourced CFO work and has been creating a model aggregating 100 of his clients for 5 years or so. All different industries and geographies in the US. He showed that we hit an employee shortage in 2019 which reversed in the pandemic but came roaring back. As of December 2022 the growth rate of wages started outstripping revenue. As of February the gap widen even farther. We are going to see profits (which have flatlined) start going down and there doesn’t seem to be an end in sight.
Xi Jinping really changed things up, the massive success of the anti poverty campaign speaks to his domestic popularity domestically. The CPC is structurally changing the economy and the bureaucratic system closer to the US bureaucracy and the technological system in the 1930s to 1970s and research capabilities are following suit with a growing economy.
Regardless of what's happening with the sanctions regime it's already hit a tipping point where it's impossible to stop technological, economic, and military progress in the PRC.
This rapid development is moving much that than I could ever anticipated, I guess once you build out the pillars of a modern industrial economy the advancement is no longer linear. With the advent of the mass production of the J-20 this changes a lot in forms of force projection. Sudden innovations like this also have massive repercussions for the civilian industries as well.
I think the main points are that there's massive technological innovations occurring while running a very pro-labor policy so that the majority of the advancements are accrued to the general public and not corporates. Real wage gains are accruing to the regular man on the street which improves consumption power and increasing savings to regular people allows for household capital formation. This is effectively a transfer of wealth from Elites and Corporates to the public, both in the PRC's case of mass public infrastructure spending, technological advancement, and rising wages.
The only time period I can think of that bears any similarity to what's currently going on is the US from the 1920s to the 1970s. Similar to what Russell is talking about with FDR and the policies of that era, tax rates for the rich surged from the 1930s onwards, unions became empowered and there was massive infrastructure spending and huge funding for research institutes, like jet propulsion labs and the manhattan project.
In regards to tax rates in the USA in the 1930s reference:
I’m only a midwit on these issues but wouldn’t increasing exports drive commodity prices at least. So you could have weak domestic demand and increasing commodity prices at the same time?
I’ve looked at it in Michael Pettis terms. China has such weak domestic demand that if they devalue, it would plummet even further. Seems like a sign of weakness more than anything else.
not sure how this tallies with the USA $ and the NOK. in theory the $ is very strong and therefore in your thesis labour has the upper hand over equity. Think the last 15 years the workers would say that wages have been suppressed. Norway god knows what is going on!!
Sounds like you might agree with what Vivek Ramaswamy wrote about in his recent WSJ Opinion piece: https://www.wsj.com/articles/prosperity-requires-a-stable-dollar-federal-reserve-fomc-rates-easing-2024-vivek-bdfed87b
Essentially, he thinks that monetary policy should target a stable currency rather than inflation and employment. he argues that the Fed's dual mandate leads to a lot of incorrect price signals, which leads to misallocation of capital of economic inefficiency, whereas targeting currency stability would give the correct market signals, leading to a more prosperous economy.
Leudwig Von Mises had a great piece about what happens when you keep low-interest rates too low. To paraphrase badly, artificially low-interest rates send entrepreneurs a price signal that there is a glut of savings and that entrepreneurs should go invest in capital equipment. However, there is no savings glut so after investing in capital equipment by the time production comes on there are no buyers for the products which end up causing the need to liquidate all the malinvestment. It's hard not to see that cycle repeating with all the zillions of start-ups AND all the asset managers that have shown up the last 20-years.
Regarding negative real rates - any thoughts as to whether or not western central banks are doing this *intentionally* with the goal of shrinking (inflating away) national debts?
To your point about the flip from capital to labor in the west. I did a webinar yesterday with Greg Crabtree. He does small biz outsourced CFO work and has been creating a model aggregating 100 of his clients for 5 years or so. All different industries and geographies in the US. He showed that we hit an employee shortage in 2019 which reversed in the pandemic but came roaring back. As of December 2022 the growth rate of wages started outstripping revenue. As of February the gap widen even farther. We are going to see profits (which have flatlined) start going down and there doesn’t seem to be an end in sight.
Xi Jinping really changed things up, the massive success of the anti poverty campaign speaks to his domestic popularity domestically. The CPC is structurally changing the economy and the bureaucratic system closer to the US bureaucracy and the technological system in the 1930s to 1970s and research capabilities are following suit with a growing economy.
Regardless of what's happening with the sanctions regime it's already hit a tipping point where it's impossible to stop technological, economic, and military progress in the PRC.
https://twitter.com/Nickatgreat1220/status/1639985254600687619
This rapid development is moving much that than I could ever anticipated, I guess once you build out the pillars of a modern industrial economy the advancement is no longer linear. With the advent of the mass production of the J-20 this changes a lot in forms of force projection. Sudden innovations like this also have massive repercussions for the civilian industries as well.
I think the main points are that there's massive technological innovations occurring while running a very pro-labor policy so that the majority of the advancements are accrued to the general public and not corporates. Real wage gains are accruing to the regular man on the street which improves consumption power and increasing savings to regular people allows for household capital formation. This is effectively a transfer of wealth from Elites and Corporates to the public, both in the PRC's case of mass public infrastructure spending, technological advancement, and rising wages.
The only time period I can think of that bears any similarity to what's currently going on is the US from the 1920s to the 1970s. Similar to what Russell is talking about with FDR and the policies of that era, tax rates for the rich surged from the 1930s onwards, unions became empowered and there was massive infrastructure spending and huge funding for research institutes, like jet propulsion labs and the manhattan project.
In regards to tax rates in the USA in the 1930s reference:
https://www.taxpolicycenter.org/statistics/historical-highest-marginal-income-tax-rates
I’m only a midwit on these issues but wouldn’t increasing exports drive commodity prices at least. So you could have weak domestic demand and increasing commodity prices at the same time?
I’ve looked at it in Michael Pettis terms. China has such weak domestic demand that if they devalue, it would plummet even further. Seems like a sign of weakness more than anything else.
not sure how this tallies with the USA $ and the NOK. in theory the $ is very strong and therefore in your thesis labour has the upper hand over equity. Think the last 15 years the workers would say that wages have been suppressed. Norway god knows what is going on!!
China's anti cartel policies are not good for equity holders at all, just look at 0700 HK 9988 HK