Relevant and even prescient commentary on news, politics and the economy.

Dow near 16,800 again


Back in April, I wrote that the Dow Jones would rise to 16,800 and then revolve around that point and then eventually come down from there.

My view now is that the Dow Jones will make a publicity effort with hopes to get back up to 16800, then come down from there.” (link)

I first mentioned it here on Angry Bear on June 10.

“I have seen the top of the Dow Jones index as 16,800, but when the ECB loosened monetary policy to an extent never before seen last week, the Dow Jones lofted over 16,800. It is now hovering below 17,000, but there are concerns that it should not loft higher.” (link)

The extra accommodative monetary policy from the ECB and the Fed have lifted the Dow above 17,000. But today the Dow is back close to 16,800 again. As I write, it is at 16,811. There are concerns over earnings & profits, which we already know are vulnerable. (link to yesterday’s post)

I see that the end of the business cycle is trying to make itself known, but there are optimisms and expectations trying to push beyond the natural end. The economy is hitting its effective demand limit. The reality of the market will make itself known as data comes out over the next 6 months.

We have seen this coming since last year according to the calculations I am developing for effective demand. The global economy is hitting the effective limit all over the place, Europe, China, Japan and the US. The effective demand limit that I now see for the US is a real GDP around $16.250 trillion.

Note: Remember that this plateauing of the stock indexes will mean that capital income will cut back its consumption.

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Again: Saving Does Not Increase Savings

I’m reprising a previous (and longer) post here in hopefully simplified and clarified form, for a discussion I’m in the midst of.

“Saving” and “Savings” seem like simple concepts, but they’re not. They have many different meanings, and writers’ different usages and definitions (often implicit or even unconscious) make coherent understanding and discussion impossible — even, often, in writings by those who have otherwise clear understandings of the workings of financial systems.

I’m going to talk about a particular meaning of Saving here: Personal Saving (by households) as defined in the NIPAs. Quite simply, it’s household income minus spending on newly produced goods and services. (It doesn’t include so-called spending to buy already-existing assets like deeds, stocks, bonds, or collectibles like art.) It’s a very different measure from household-sector Gross or Net Saving, which I won’t describe here.

Now think this through with me:

Your employer has $100K in its bank account. You have zero.

Your employer transfers $100K from its bank account to yours to pay you for work. You’ve saved (in the Personal Saving sense).

But is there more Savings in the banks? Obviously not.

Now you buy $100K in goods from your employer, transferring the money from your account to its. You’ve dissaved (spent).

Is there more or less Savings in the banks? Obviously not.

Now say instead that, being frugal, you only transfer $75K to your employer for goods. You’ve “saved” $25K. That’s “Personal Saving” in the NIPAs.

Is there more or less Savings in the banks compared to the first scenario? Obviously not.

When households save money, that (non-)act doesn’t add to the stock of monetary savings (the mythical stock of “loanable funds”).

Thinking about the accounting entries may help explain this. “Saving” is a flow, as opposed to a stock. Every accounting measure must be one or the other. (A flow is measured over a period; a stock is measured at a particular moment.) Saving is an accounting “flow” in that sense, but it doesn’t represent an actual transfer of funds from one account to another. It’s an accounting residual of two sets of actual transfers: income minus expenditures. You could say it’s nothing more than an artificial accounting construct — though a useful one for thinking about balance sheets and flow-of-funds and income statements.

The very essence of Personal Saving, its sine qua non, is that it’s not a transfer of funds between accounts. It’s leaving your money sitting where it is, instead of spending it by transferring it to others. It’s not-spending. (Your transfers between your checking and brokerage account, or your portfolio rebalancing, notwithstanding.)

Since Personal Saving doesn’t transfer anything anywhere, it can’t increase the stock variable, Savings.

What does cause Savings to increase? Spending.

Cross-posted at Asymptosis.

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The Pernicious Myth of “Patient Savers and Lenders”

Banks are obviously different from households. But I think explaining two key differences goes far towards explaining why “endogenous money” theory — often pooh poohed as either confused or obvious — is important to economic thinking.

The first is a dweeby accounting difference. The other, which arises from that, is very, very real.

1. When the banks lend to households, the banks expand their collective balance  sheet. New assets (loans due) and new liabilities (deposits payable).

When households “lend” (deposit their currency in a bank, buy bonds), they do not expand their balance sheets. They just shift the composition of their asset portfolios (currency traded for deposits, deposits traded for bonds).

(Of course if households were lending directly to other households, that would expand household balance sheets. But they don’t, hardly at all.)

Unlike banks, households only expand their balance sheets by borrowing. New liabilities (loans payable) and new assets: houses residable, cars drivable, food eatable, education usable, health livable. The stuff of life.

This points to the other key difference:

2. Households consume their assets. They have to, in order to live. The very necessary business of living constantly pushes their balance sheets towards imbalance — topped up, for most households, only through labor.

Not so banks. They don’t consume their assets. They don’t have to, in fact can’t. Financial assets (claims against real assets) can’t be consumed.

Banks’ assets are never diminished through consumption, or through use, decay, illness, obsolescence, or death. Excepting borrowers’ payoffs or default, banks’ assets are eternal and immortal (as are the banks, for all intents and purposes).

Which exposes the whole notion of “patient lenders” and “impatient borrowers” as the wholesale claptrap that it is. When the banks expand their balance sheets by lending, they are not displaying “patience.” They are not “saving” in any sense of the word, and they are certainly not “patiently foregoing current consumption.” When a household displays “impatience,” it is the inevitable and inexorable impatience of life, passing.

Bankers face very little or no personal risk from expanding their balance sheets; it’s just how they make money. Households, quite otherwise.

Do with this reality what you will, but don’t tell me that the “patient savers and lenders” construct describes any real world that any of us lives in, or the incentives of the lenders in that world.

Cross-posted at Asymptosis.


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Sadly, Ed Yardeni is the Wanker of the Day – wage stagnation edition

by New Deal democrat         (re-posted with permission from Bondadd blog)

Sadly, Ed Yardeni is the Wanker of the Day – wage stagnation edition

Dr. Ed Yardeni has some clickbait up at his blog titled, The Wage Stagnation Myth.

Yardeni is a highly-regarded financial markets analyst, but this is just sad.

He writes that

There is a widespread myth that real incomes have been stagnating for many years.  That’s apparently true based on real median income for households…. [but]

real pre-tax compensation per payroll employee (including wages, salaries, and supplements) is up … 16.8% since the start of 2000.

Real wages and salaries in personal income is … up 14.6% since the start of 2000.  Real average hourly earnings of production and nonsupervisory workers i sup … 13.4% since the start of 2000.

In the first place, like so many others, he starts by conflating wages and income, setting up a straw man.  No, Dr. Ed, the fact of wage stagnation is not based on income metrics, but on wage metrics.  To give you a head start, here are 7 of them I helpfully catalogued in a post only one month ago.

Secondly, note that all of Yardeni’s metrics appear to be mean, not median, measures.  You remember the old saw about Bill Gates walking into a bar, and now the mean wealth of the patron is $1 billion.  That’s what Yardeni does. When you measure in median, not mean terms, wage stagnation is blazingly apparent.

The only measure he cites which might possibly be a median measure (“real pre-tax compensation,” he doesn’t name the data series), includes “supplements.” Whether these are management bonuses or e.g., health benefits, they hardly are contrary evidence.  We know that health cost inflation has soared for several decades.  That companies may have picked up some of these has nothing to do with actual wages.

That a premier Wall Street analyst is so blind to the blazingly bright evidence is, sadly, not shocking at all.

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by Dale Coberly



The Committee for a Responsible Federal Budget has issued a “call for
papers” with suggestions for “fixing” SSDI. I expect that by
“fixing” they mean cutting people off and getting them back to work.
After all, even people on IV’s could work as telephone solicitors.

But I would like to contribute my own observation:

SSDI could be put into “actuarial solvency” for the next seventy five
years… according to current Trustees Report projections…. by
raising the SSDI share of the payroll tax by two tenths of one
percent for each the worker and the employer. This would be an extra
dollar-sixty per week for each. This amount would NOT grow over
time. In fact it could be reduced (that’s the surprise) by about
half a tenth of a percent each after ten years… when the SSDI
trust fund begins to overshoot it’s target reserve.

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