Some Things never Change

One has to read Tim Duy’s Tour through the economic climate, Thanks to Mark Thoma. It is a particularly good analysis, though it does little to position fund reservoirs within the Inflation Debate, something in which Fed analysis is equally lacking. One has to ask Who has the Money at the end of the Day, and the Stimulus has not translated into loans to Business. The excess funds are sitting in Banks, serving as Reserves to cover their bad loans. This makes much more inflationary pressure than does excess Cash in the hands of Consumers. Bank ability to extend loans without inhibition means a loss of Vetting of new loans in a scarcity environment, which moves into the Resource markets, so Pricing will not reflect the value of the Input and the Product. My Bet is on Inflation, when the Fed eventually tries to contract the Money Supply after unadjusted provision of funds to generate Output which has no Market for its Product.

Stephanie Flanders expresses a British parochialism in concentrating solely on the British economy, but the Work can be extended to the United States and the World. Neither Great Britain or the United States had a clear-cut Boom prior to the latest Recession, both the Boom and resultant Bust did not show the traditional criteria of Boom and Bust. Employment numbers in the Boom were very slow to aggregate, and Job Drops was extremely massive in the Recession. Provision of Product during the Boom consisted of fulfillment of generated Consumer Product Demand; i.e., Business first creating a desire in the Consumer, before satisfying that desire. The Recession implies Consumer abandonment of these artificial desires to Consume, without really abandoning the basic underlying principles. Consumers are not buying the new SUVs, but they are also not buying the economy cars; choosing instead to drive their big SUVs longer, making them less expensive to the Consumer. The entire Process can be extended past the auto industry to all elements of the economy, with Consumers buying the more expensive Product, but far less often to obtain value; be it Homes, Autos, Clothing, Durable Goods, or technical Goods. All of the Economic and Business leadership have been complaining about this lengthened phase of Consumer purchase, even if they did not know it.

There will be some bright Reader out there, who thirsts for knowledge of the Chrysler Bankruptcy, and I will give them this CalculatedRisk Post, which I have not read; at least not the links within. It is sufficient to understand that a Deal has been struck, to force a Deal to be made under the pressure of a Judge. The final Deal will establish who Wins and who Loses, and a Willingness to accept the final decision is the criteria for having a Seat at the Negotiating table. No One can go on Strike, no one can Walk Out (notice this is not a Rant against Labor–Walkouts by Banks, Investors, Stockholders, and Management are equally accompanied with lack of representation in the final Settlement), and the final Deal has implied federal troops backing up the Agreement. A Deal will be struck, on which no one wholeheartedly will support (not even the Government), but it will Write Off bad assets basically through a political decision. It reminds of old-time Political Conventions and religious Revivals, where Promises of future behavior are generated by envelopes of Cash changing Hands. lgl