13 March 2015

New Gold, Part The First

As has been discussed in these various endeavors over the last couple of years, the US Buck is the globe's New Gold. There just isn't enough of the yellow stuff to go around. And what with Apple figuring out how to make 18k with less than 75% Au, one wonders how the gold bugs are sleeping at night? As always with Apple, and its cabal of knuckleheads with more money than brains, "cheap goods sold dear". Apple is a marketing machine, pure and simple.

Once again, we see an object lesson in the conflict twixt the macro-quant and the micro-quant. What's good for Apple isn't necessarily good for the USofA. Or anyone else, for that matter.

Which brings us to today's Krugman installment. He isn't as forthright as I've been on the subject of New vs. Old Gold, but today's musing gets closer to the bone. The bone being: in order for the globe's commerce to move forward, and avoid that deflationary trap, the value of US Bucks has to keep expanding out in Those Other Countries.
We've been warned over and over that the Federal Reserve, in its effort to improve the economy, is "debasing" the dollar. The archaic word itself tells you a lot about where the people issuing such warnings are coming from. It's an allusion to the ancient practice of replacing pure gold or silver coins with "debased" coins in which the precious-metal content was adulterated with cheaper stuff. Message to the gold bugs and Ayn Rand disciples who dominate the Republican Party: That's not how modern money works. Still, the Fed's critics keep insisting that easy-money policies will lead to a plunging dollar.

Well, as already pointed out, Timmy has no problem debasing Old Gold if it makes him a couple of extra bucks.

And, in order to keep good order in international commerce, this means the US has to run trade deficits each and every year.
Who wins from this market move? Europe: a weaker euro makes European industry more competitive against rivals, boosting both exports and firms that compete with imports, and the effect is to mitigate the euroslump.

Well, German luxury goods exporters, in particular. The 1% get a break on the next Mercedes or Audi. How thoughtful.

Readers may have noticed that the financial services industry, insurance and brokerage in particular, have gone on an advert blitz in the last couple of years. Scaring the non-wealthy into thinking like the truly wealthy; toss more moolah to the financial services mega-corps and quit buying stuff. Two problems with that are immediate:
1) the tsunami of moolah that moved into US (and Spain and ...) real estate due to no demand from industry is still out there looking for above average returns with below average risk; add in Ma and Pa Kettle's nest egg, and one gets yet lower interest return -- that ol' supply and demand canard.
2) the current US and global malaise is directly the result of over supply of (or, slack demand for) consumer goods due to slack growth, if at all, in median income

In the end, real return is a measure of real improvement in production. We know, right wingnuts excepted, that production gains over the last few decades have flowed to the 1%, rather than the rest of us. When you've got more moolah than you can spend, getting more won't appear in real demand. Surprise: it hasn't. D'oh!

As described before, paying interest for the use of moolah without better productivity from the "investment" is just forgone consumption. There won't be any real return generated. This is the primary reason for the Great Recession: paying the vig on house mortgages comes out of the incomes of the "owners" of said houses. And, increasing incomes of those holders aren't generated by the houses, of course. And those incomes weren't, and aren't, increasing. Eventually, 2 + 2 = 4 couldn't be denied.

The new "Housing Bubble"? Sub-prime used car loans.

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