On 02-10-2023 19:06, John Clark wrote:
On Mon, Oct 2, 2023 at 9:26 AM smitra <smi...@zonnet.nl> wrote:
_> Productivity increase due to AI has yet to materialize. Systems
like ChatGPT are not all that useful for the economy_
That's because GPT-4 was only introduced a few months ago, and right
now it's as stupid as it's ever going to be. But it's inevitable that
a machine that is as smart as a man is going to make a huge impact on
the economy.
Yes, I agree. But I do think that making progress in automatizing
hands-on work is going to prove more difficult than letting an AI do
purely digital tasks. There is 100% freedom in the virtual environment
an AI has to operate in, but the real world is what it is.
The reason why there has been no recession so far is because the
Biden Administration has been spending massive amounts of money to
stimulate
the economy:
Then why is the rate of inflation coming down so fast? And why is the
market telling us it expects inflation to stay low for the next few
years at least?
I do agree with what you wrote below about the way the GOP has an is
causing trouble. The reason why inflation is coming down fast now is a
combination of lower energy prices plus also the FED hikes starting to
have an effect. The stock market and the bond market are telling
different things about what to expect, and the bond market tends to be
right most of the time. The stock market has moved into a bubble due to
the fast FED hikes and the fact that the FED is never going to return to
the previous policy of zero interest rates (ZIRP) and quantitative
easing (QE) on a permanent basis outside of a recession.
The fundamental problem was that after the 2008 financial crisis,
central banks ended up not just temporarily implementing a ZIRP + QE
policy, but that this became a permanent measure. Many economists had
warned that this was bound to go wrong Sooner or later a problem would
occur for which you would normally require a stimulus in the form of
ZIRP and QE and because we would already be doing that, other measures
that are much more inflationary would be require. And then curbing the
inflation that would inevitably crop up would be extremely painful
because that would require reversing ZRP + QE under more difficult
conditions.
And that's pretty much what happened in the aftermath of Covid. The
economy is now in trouble because interest rates are now much higher and
will be kept high with only moderate rat cuts next year. Particularly
the smaller cmpanies have lots of debt and many of them need to
refinance next year.
Doing ZIRP + QE for over a decade has forced many smaller companies to
take on lots of debt due to competition. A company cannot just decide to
not take on lots of debt at low interest rates to boosts profits,
because they would end up outcompeted by competitors who then would do
that. If ZIRP + QE would be a short term policy to get the economy out
of recession then this dynamics would not be in play. But because it was
done permanently under good economic conditions, this has caused a
significant part of the economy to be no longer profitable without ZIRP
+ QE.
This has then caused the stick market to move into a bubble. The stock
market reached its peak in late 2021 early 2022. The valuation of stocks
is basically an extrapolation of where the economy is expected to be in
the future. And that was the based on the expectation that ZIRP and QE
would continue to be the FED's policy indefinitely. But the FED hiked
rates very fast and realistically the FED is never going to return to
ZIRO + QE. Tis means that the stock market is enormously overvalued. It
did correct down on 2022 but then later rise sharply to current levels.
Investors don't what to lose their money, the recession didn't come as
fast as was expected. Many traders who were short became wrong footed,
the market was pumped up and they had to cover their shorts. But now
reality is slowly sinking in, companies will not make the sort of
profits that can justify the current valuation of stocks, and the market
will end up going down. As long as the market is overvalued, all the
investors taken together make less money per invested dollar. So, after
some ups and downs, the market will end up going down to a low enough
level from which it can generate reasonable returns for investors. But
the problem is that it has to sink to very low values for that to
happen:
https://www.youtube.com/watch?v=j-9yz_1mJME&t=1085s
This means that either the stock market has to crash, or it will end up
going sideways for a very long time. I think the latter scenario is more
likely, but ether way this does have consequences for the real economy,
because the value of pensions are going to go down if the stock market
goes down, or doesn't grow as it normally does for a long period of
time, which then affects spending.
Saibal
By the way, under the Trump administration the
national debt increased by $7.8 trillion, so far the Biden
administration has increased it by 4.7 trillion. And the recent
ridiculous stunt about extending the debt limit and shutting down the
government is proof that Republicans like buying expensive things
just as much as the Democrats do, the only difference is the Democrats
are willing to pay for the things they buy but the Republicans refuse
to pay when the bill comes due and then they call that fiscal
responsibility. The USA is the only country in the world where the
legislature has the vote twice, first they have to vote if they wanna
buy something, and then if they decide to buy it they have to vote
again about if they're going to pay for it when they get the bill.
That's nuts.
_> the hammer will still come down, it will only take a bit
longer._
Economists have predicted 15 of the last 5 recessions, and the record
politicians have about predicting recessions caused by the economic
policies of the other political party is not any better.
ChatGPT s not replacing people at the factory floor, at least not
yet.
I agree, but it's only a matter of time, and I'm not talking about
centuries or even decades.
John K Clark See what's on my new list at Extropolis [1]
h6g
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