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The financial markets are not the whole economy

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daley1686

Good article that doesn't quite get to the center of the issue. Monetary policy these days means using banks' common reserves or powers of seigniorage to support asset prices. It works best during financial crises when asset prices need support. During economic expansions, however, it simply serves to drive a wedge between asset prices and income flows, sustaining zombie assets and companies, undermining productivity and threatening financial stability. That could be avoided if the expansion was fueled by fiscal policy supplements to income flows, but that hasn't been the case for quite some time because of political constraints on fiscal action, and concern about accumulating public debt.

But monetary policy does not have to act through asset markets, and, in fact, shouldn't if the goal is to support an expansion, rather than confront a crisis. At those times, it should mimic fiscal policy by using its powers to supplement income flows, using channels such as tax withholding systems, and leaving asset prices to be determined by income flows. That would ensure that central banks would not -- as they have now -- drive a wedge between asset prices and income flows.

How monetary policy is implemented matters. Central bankers cannot use the same channels to fuel an expansion as they use to meet a crisis. If they try to do so, they will only distort the economy, with all the effects in terms of asset inflation, low productivity and income inequality that we are now seeing.

newphilo

Like casinos, gamblers financiers, banks, speculators do not create money; they dilute the value (purchasing power) of money produced by labor, business.
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All the bets and synthetic paper floating around create a haze of valuable investment but it's only gamble; financiers cash in either direct or gvt. sponsored/subsidized gains while the value of labor wages is stagnant such that inflation appears to be low.

The True Friend of Liberty

If you give a man a fish, he will eat for that day, but if you teach that man to manipulate esoteric financial instruments, he will become enormously rich by impoverishing his fellows.

Ed Zimmer

And I'm just seeing more gobbledegook - from both Buttonwood and WT Economist. I perceive the problem to be much simpler: Corporate earnings are exploding, because the corporations can provide much more output with much less input (due to automation), with no competitive pressures to reduce prices because of the growing monopolization of both production and intellectual property. And the US government - instead of doing what I perceive it should - is doing exactly the opposite: seeking tax reform to allow corporations to grow earnings even more - which it sees as creating jobs, but which I see as more likely, accelerating investment in automation, thereby accelerating job loss. If my perception is wrong, PLEASE show me where!

WT Economist

"We are better at creating new claims on wealth than at creating wealth itself."
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Actually, a lot of the pieces of paper (or electronic records) that the wealthy have piled up are claims on poverty, not on real wealth.
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Nothing more than promises by consumers to live poorer in the future in exchange for having lived richer (or at least avoided becoming poorer as their incomes fell) in the past. That's credit card and auto debt and cash out refinancing mortgage debt. (And inadequate retirement savings)
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And promises by Generation Greed to make their poorer children and grandchildren worse off in the future in exchange for lower taxes and/or more government services and benefits in the past. Federal, state and local debt.
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There are no income producing assets that were created with that debt, only past consumption. That's the problem. That's what made rising inequality possible -- paying workers less and selling them more -- and 35 years of massive trade deficits possible.
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This isn't just showing up in financial figures, or even economic figures. It is showing up in falling life expectancy for the generations born after 1957 or so, relative to the privileged and entitled generations who went before.
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If and when Americans can no longer sell off their individual and collective futures to consume now, the global crisis of demand will resume. And more debt -- in the current proposal to fund tax cuts for the rich -- is the only solution those who benefit from current arrangements have for it.

guest-theritz

QE was a desperate attempt to compensate for the firm stand of the Republicans in Congress against increased deficit spending, who ignored the needs of the economy.
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Now we see another firm Republican stand, but in favor of increased deficit spending, again without regard for the needs of the economy.
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The Fed's job is to try to clean up whatever mess the pols leave behind.

MASTER_OF_UNIVERSE

Derivatives were used to hedge bets on risks that were by no means allocated more efficiently via the ballooning of the Dark Pool Derivatives universe whereby risk cannot be ascertained due to the dark nature of those markets and the lack of regulation of those markets. Brooksley Born attempted to point that out to The Economist when she testified before Congress that the 'Money of the American people was at risk due to the dark unregulated nature of the dark pool derivatives universe.' She testified against Robert Rubin, Alan Greenspan, & Lawrence Summers before Congressional committees investigating the risk associated with derivatives. Today, the Dark Pool Derivatives universe is at a bloated $1.8 quadrillion and counting. Suffice to say that swapping short term risk for long term systemic risk is by no means an efficient means to allocate Finance risk generated by the Central banks and bankers of the world. Warren Buffet likened derivatives to be 'financial weapons of mass destruction' because Warren Buffet knows that risk travels to those that least understand it and not those that analyse risk like Brooksley Born who was the only individual out of many that actually told the finance world that the Global banking system was at risk due to derivatives.

MOU

guest-theritz

What could be easier than sitting at a table, handing out IOUs?
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Remember Zero Mostel and Gene Wilder in "Producers"?

guest-aaawwwmj

The financial markets are part of Consumption when totaling up GDP
(only newly issued shares and non-rolled over bonds are counted towards Investment).
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People can choose to consume depreciating items, whether immediate - food, clothing, etc. -
long term depreciating items - vehicles, white goods - or can consume stocks/bonds.
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I love this country!
We have the freedom to choose what we want to consume!
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And the freedom to choose which politician will put the country
deeper into debt for the reasons WE want.
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And if we don't save for retirement, we can get on Social Moron Media
and blame everybody else for our predicament!
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NSFTL
Regards

guest-aaawwwmj in reply to Ed Zimmer

Toss in that more people have full-time jobs, which leads to spending their paycheck
and a larger credit limit to max out.
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with no competitive pressures to reduce prices because of the growing monopolization of both production and intellectual property.
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We will see if consumers feel the same way, and don't buy
Apple's new $1,000 phone.
Or pull the plug on Netflix - which just raised prices.
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My guess is that they won't.
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Gotta keep up with the Jones' ya know, their thinking is:
"we just got a new credit card that we can max out!"
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seeking tax reform to allow corporations to grow earnings even more - which it sees as creating jobs,
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But people here talk of recession and a market pull-back.
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NSFTL
Regards

guest-aaawwwmj in reply to WT Economist

And promises by Generation Greed to make their poorer children and grandchildren worse off in the future in exchange for lower taxes and/or more government services and benefits in the past. Federal, state and local debt.
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Yep! And all of the members of Generation Greed DID NOT spend one cent of their tax cut on their kids/grandkids.
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And yes, the extra gov't services/benefits benefitted ONLY Generation Greed.
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There are no income producing assets that were created with that debt, only past consumption. That's the problem.
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Isn't there an app for that?
To fix the problem?
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And those Angels - GenXcess and GenYners DON'T and WILL NOT be a drain of Fed, State, and Local coffers.
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Summit County Declares an Opioid State of Emergency, Prepares to Sue Drug Companies and Distributors
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At her state of the county address, county Executive Ilene Shapiro announced the plans to file the suit in a few weeks. She says the opioid epidemic has cost local taxpayers nearly $112 million over the last five years, and is likely to cost as much as $165 million over the next five.
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Shapiro said the state of emergency will allow the county to be prepared when more federal money becomes available.
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Summit County also plans to allow two nonprofits to build an inpatient and aftercare facility on the now vacant land that was Edwin Shaw Rehabilitation Hospital.
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http://wksu.org/post/summit-county-declares-opioid-state-emergency-prepa...
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Plenty of future jobs will be created.
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BTW... My math shows and average $22.2 million/year over the last 5 years and $33.0 million over the next 5.
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A 50% growth rate!
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And that's just ONE of 88 counties in Ohio.
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BTW, you somehow seemed to have missed the MASSIVE college debts that GenXcess and GenYners have piled up.
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Nor did you mention which generation benefitted the most from the housing bailout/refinance gov't programs.
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NSFTL
Regards

guest-aawosajl

Georgi FED , ECB munitions end...FED last bluff is nearly over. For the last 2 months FED made a last attempt to bluff by printing illegally money and donating them to the commercial banks to invest in shares for a bubble , simultaneously intervening on the dollar market with commercial banks and FED currency reserves to keep the dollar nearly stable. All central banks in the world understood and returned currency reserves that puts the dollar vs the stock exchange. Before the last two months there was increase in New York Composite index for NYSE of some 10 % from the beginning of the year 2017 reciprocal to some 10 % decline of dollar ,so there is no profit in local or foreign currencies while foreigners move a lot of capital in and out of USA , and the second element is some increase in NASDAQ from FAANG mainly for 1 or 2 trillions that sets ten and more time higher PE ratios for companies as Amazon and Netflix. This is not tulip from tulip mania someone to gamble with small amount risking times of decline vs small chance for profit, nobody puts a lot of money in such a gamble , but only manipulate stock indexes. The USA banks got some bail out in advance with fed illegally printed money . This bubble was obviously not stable and doomed after some 3 years lost without growth of NYSE and some 7 trillions buyback wasted by organized as crime companies in USA for an illegal collision bubble. The situation is similar for EU and ECB , probably UK. ECB bluffed growth as fake correlated news for stock exchange increase and retaining leaving deposits. FED , ECB munitions for printing illegally money and currency reserves for interventions are ending soon as the bubble of shares and there is no more room for bluffing.

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Georgi EU USA hyperinflation , currency crises for bubble… with the illegally printed money to prop the share market for a bubble fed provided a lot of liquidity on the market that is kept in jars. That liquid money reduce the price of the dollar and create avalanche effects of returned currency reserves. Last one two months fed is printing money to intervene on stock exchange , but also spends the currency reserves hold by the commercial and fed banks to hold the price of dollar stable for a while. The criminal policy of ECB is similar. There is also increase in inflation in US and EU for this reason though the growth is manipulated data to stop outflow of deposits in EU seen in Target 2 loans among eu countries with this bluff , while usa Is bluffing growth for stock exchange bubble correlated news. When the truth is revealed the money from the jars that may be by trillion for eu and usa only from the quantitative easing will be added as liquidity to new illegally printed money straight donated to banks by you public to create inflation. This policy usually ends with hyperinflation as currency crises as social costs cannot be postponed and money will be printed to cover them. Follow uk for similar story not to be happening there for printed money for a bubble that create inflation and reduce currency on your account.

FED in urgent bluff by Georgi . . . There is no enough growth for bubble in the USA , also the money mass should start to decline soon. Earnings sp 500 for Q3 2017 show increase of 4.7 % according to free online to search factset earning insight survey mainly driven by energy due to oil price increase. There is definitely not enough earnings growth for over 10% increase in sp 500 index and economic growth in Q4 is expected to decline some 0.5 to 1% due to hurricanes . . . the stock indexes are correlated with main central bank balances. The decision for FED balance decline seems to started decline on USA market as markets envisage change. Fed reacted with continuing to print money as a last bluff until all central banks realize the cheating and dollar declines again due to avalanche returned reserves, there is even an intervention by fed to keep the value of the dollar that is about to lose currency reserve function. The hopes for share bubble and irrational exuberance are not strong as all agents know fed is cheating them. The increase so far is from high pe ratios of amazon and netflix sort that nobody rationally will risk and an increase in all shares nearly equal to dollar decline in 2017.

Yep!
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GenYners out number the Boomers but don't vote.
It's their own damn fault.
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But WT Economist always blames the Baby Boomers for every ill
in the world.
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Millennials match Baby Boomers as largest generation in U.S. electorate, but will they vote?
http://www.pewresearch.org/fact-tank/2016/05/16/millennials-match-baby-b...
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Combined with GenXcess, they outvoted the Boomers for the 1st time.
Maybe that's why Trump got elected?
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Millennials and Gen Xers outvoted Boomers and older generations in 2016 election
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http://www.pewresearch.org/fact-tank/2017/07/31/millennials-and-gen-xers...
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NSFTL
Regards

To be fair, voter turnout from younger age groups are bad. The age group that should be voting to protect their interests are not voting enough. As a 40 year old person who take the effort to vote in US elections despite residing in the U.K., I feel depressed. The Twitter and FB generation didn't have to post Trump hating meme if they had voted!