Predicting the future of policy making

Predicting the future of policy making has been and will continue to be key to understanding where this economy is headed – and by extension what your investment portfolio will do

Chart of the day: Hours of work needed to buy an ounce of gold

Central banks have done a great job at driving up the price of gold but a horrible job at creating wage inflation. If it now takes 88 hours to buy an ounce of gold versus 20 hours in 2000, hasn’t that grossly deflated real wages in a strict monetary sense? Just askin’

Warren Mosler’s Big Fat Greek MMT Exit Strategy

It is beginning to look like a Greek exit is ever more likely, which means that the end of the EMU could be near.

Even if exits and a break-up are not inevitable, countries should have a plan on the shelf. It is clear that Germany is going to insist on the maximum austerity it can squeeze from nations facing a run on their debt. Hence, if nothing else, an exit strategy is required for negotiations. The best strategy would be for all the so-called PIIGS to band together with a believable threat to exit together. That could finally break the logjam.

I’m not optimistic about that. In any event, it is time to examine proposals for dissolution. Warren Mosler has formulated what looks like a nice, clean exit strategy that EMU members can adopt. I am reprinting here with his permission

Key data to focus on in the week ahead

Economic data has been of tertiary concern to the market recently, overwhelmed by the drama in Europe. Given that the drama may die down, with new governments in Greece and Italy, the economic data may become somewhat more important

It must be impossible for the Fed to create inflation

For all practical purposes the Fed has done it all. And yet unemployment remains at depression levels of over 9% (and over 16% the way it used to be calculated not long ago) and the only thing keeping what’s called ‘inflation’ over 1% is a foreign monopolist supporting the price of crude oil.

So if inflation is this ominously lurking around every corner that requires eternal vigilance to keep from suddenly rearing it’s ugly head, why have all the Fed’s horses and all the Fed’s men not been able to inflate again? And why would anyone still think they can? I mean, we’re talking about college graduates with advance degrees and resources and power up the gazoo doing everything they can to reflate, and still failing after 3 long years? Not to mention the same in Japan for going on 20 years, where they have college grads with advanced degrees as well (though pretty much from the same schools)

Argentina Reelects Fernandez, Unorthodox Policies And Peso Weakness To Continue

Fernandez will try to maintain the unorthodox mix of policies for as long as she can, and has shown little willingness to more towards orthodoxy during her first term. Troubles will come both internally and externally, with the growing fear that the exchange rate will bear the brunt of adjustment in the coming months

A Douse of Cold Water

Risk sentiment remains under pressure overnight; global equities lower, dollar mostly higher. European economic data continue to deteriorate; UK September inflation surges to new highs. RBA minutes point to some capacity to lower policy rate; China’s GDP softer than expected

China: Continued Boom or Bursting Bubble?

In a February 2010 Casey Report article titled Is China’s Recovery a Fraud?, my thesis was the $2.1 trillion stimulus package rolled out by Chinese authorities after the 2008/2009 financial crash was leading to enormous malinvestment. As with all monetary and fiscal stimuli, however, the initial high is always followed by a hangover

Manufacturing inflation in a wage deflationary environment

How does manufacturing CPI inflation benefit an economy in which incomes are falling? When inflation rises and incomes are stagnant or falling, the economy rolls over

The Golden Constant

The following is a brief outline of “Gold and the ‘Flations,” published in the April 2005 Gloom, Boom & Doom Report.

General talk has it that gold is a hedge against inflation. We might take this a step further and conclude that a unit of gold will purchase a constant basket of goods when prices are inflating. Standard advice does not include gold in one’s asset mix during non-inflationary periods. The evidence presents a more complicated picture

Currency Sovereignty

This week we will begin to examine our next topic: government spending, taxing, interest rate setting, and bond issue. We will examine fiscal and monetary policy formation by a government that issues its own currency. We will bear in mind that the exchange rate regime chosen does have implications for the operation of domestic policy. We will distinguish between operational procedures and constraints that apply to all currency-issuing governments and those that apply only to governments that allow their currency to float

Continued Policy Mistakes in Brazil

BRL is one of the worst EM performers today, and continues a string of underperformance (-10.8% vs. USD) that began with the unexpected 50 bp rate cut August 31. Since then, only HUF has done worse at -11.5%. It’s really a confluence of factors, but markets are clearly punishing Brazil for its continued efforts to weaken the currency, which have distorted markets there. Besides the countless FX measures, of which Friday’s was only the latest in a long line of poorly communicated policy shifts, we are now seeing even more distortions added into the economy with the imposition of import tariffs to help protect domestic manufacturers. Not only is this inefficient from pure trade theory, but it will also likely add to already high price pressures