Gamesmith94134: The Problem With Secular Stagnation

Many may identified the wrong problem for secular-stagnation hypothesis, but more would agree on the inequality that caused secular stagnation, and aggregate-demand framework ended the perpetual growth even for China and India. Especially, when real capital saved could also be depreciated by the real interest without inflation adjust, it reflected in the ten-year bond of 1.88% or 0.7% in euro bond. It may not be the same as Bernanke’s hypothesis that slow growth reflected a “global saving glut”; I think he may mislabel it on the saturated price on the assets and stock prices. If he put those credits or savings as commodity with no value added; since the secular growth came before consumption; he may see the margin of affordability and those practice of pricing was not consumed in the secular or population with no-growth.

Perhaps, we take an example in the real estate average sale price in $700,000 of San Francisco and its median earning of $80,000 who will pay about 40% of their income for their home. Are all San Franciscans are IT people or government workers like police and fireman? Of course not. The current home purchasers are corporate and foreigners, since there are few making $80,000 a year. The trend will go on as corporate and foreigners seek depreciation and monetary leverage on their depreciated currencies; the homeowner changed to renter principle that asset took away the revenue from the government and the middle class pays more; so is the cost for business; and the secular stagnation is inevitable and the equity is not consumed. It is because real estate turn into corporate assets and leverage for the currency exchange. Perhaps, This is how DoubleLine Capital’s Jeffrey Gundlach, the bond manager, said the full impact of the Federal Reserve’s “extreme policies” have yet to be felt in the market; and real estate is in a “dead spiral”.

And, I also believe the 9 trillion foreign loan and bonds is coming back to haunt us once the leverage turn negative once we raise the nominal interest rate at its minimum, or the rising cost of business will do its job as the leverage is no longer relevant even for M&A. Currently, the wave of layoff is beginning to roar, that balance sheet follow the outflow of cash will give American business a hard landing because of the low revenues from competitors from oversea; and low dividends from lesser investment off the currency leverage. Scarcity rules since Mr. Summer lost his bid in being the underwriter of all assets even from the oil glut. Some foreigners may think of pay off the loan or retrieve the bonds to set off the negativity but who is selling its assets worth $9 trillion to US on its dollar?

Perhaps, we should go back to the basic of economic in deeper search of sustainability that we live on the margin of affordability in balance with both the aggregated demand and diminishing return to implement growth. Perpetual growth may cause secular-stagnation since one may price it, and it must process through the margin of affordability; and it is the gate to other in consumption that adds value if only renewal is demanded; It is not just one paid in full means how much it is worth if such property or asset means to be publicly reckoned and consumed. Demand cannot be just priced without justification; after the margin of affordability that adds value to the process in the full cycle of consumption and demand. Otherwise, profit to return is undercut by saturation or over supply. Eventually, prices are fallen or currency is depreciated in its liquidity trap. Perhaps, we better understand now recession is not evitable without inflation or deflation because the ends of aggregated demand and diminishing return will meet and tested in the command of the margin of affordability.

And, I insist on 1% in tax or insurance in creating the FDIC on continental transfer because currency is a mechanism of transfer to price and it is just another commodity with no value added till consumed and demanded in its economical cycle and we develop in multi-polar speed and environment in dissolving the liquidity traps. After all, regardless how many policymakers would fantasize how they would globalize or standardize the trade; they must know the basic of economics that supply and demand. In addition, the margin of affordability is where they may put their foot in other’s shoe; it is better to fit. As in lubrication to growth, think of default and sovereign immunity; think three times by the margin of affordability and how aggregated demand and diminishing return are tested in booms and recessions.

“Don’t run. It is lubricated.”

May the Buddha bless you?

