Dean's reply:
On 7/3/2021 1:47 PM, Dean Baker wrote:
Asset valuations are definitely very high, but they are not driving
the economy, as they did in the 1990s and 00s. If markets were to
plunge 20-30 percent, with some assets obviously falling much more, I
don't see major economic consequences. Bitcoin investors would
obviously be burned, but the economy could keep going just fine, with
some patchwork to the financial system to limit the damage from failed
lenders. (Yes, Patrick and I go way back)
On 7/3/2021 3:21 AM, Patrick Bond wrote:
On 7/2/2021 10:39 PM, Michael Meeropol wrote:
Dear Comrades --- I was very skeptical of what Roubini wrote --- so
I checked in with Dean Baker...
Here is his short response: "doesn't really have much of a case. If
you pull out food energy there is little inflation anywhere other
than the U.S." ...
On Fri, Jul 2, 2021 at 8:43 AM Louis Proyect <[email protected]
<mailto:[email protected]>> wrote:
By Nouriel Roubini
In April, I warned that today’s extremely loose monetary and
fiscal policies
Fair enough, I always trust Dean (who during college recruited me to
DSA's predecessor DSOC 41 years ago), on the matter of real-sector
price pressures.
In South Africa we've also not witnessed serious inflationary
pressures - as had existed from around 1981-98 - aside from poor
people's access to food and energy (a 7.1% price increase
<https://pmbejd.org.za/wp-content/uploads/2021/06/PMBEJD_June-2021_Media-Statement-30062021.pdf>
in the food basket alone over just the last ten months, as against
CPI of closer to 3%, so the pain is acute given Covid's job massacre).
However, the more general dilemma remains how to interpret
capitalism's displacement of crisis into /financial-asset inflation/,
especially the implications of devalorization when such bubbles burst.
Whether stock market mania, real estate speculation (e.g. Blackrock's
current invasion of residential real estate), or other sites of
out-of-control fictitious capital formation (cybercurrencies are
especially prone), the volatility is extreme. Consider the
roller-coaster from January 2020 through the April 2020 collapse,
followed by the unbelievable revalorization of financial assets
thanks to renewed QE since then. *
*
One compelling data point is the Buffett Indicator: stock market
share valuation over (the highly-flawed measure of) GDP. The World
Bank provides out-of-date data: for South Africa December 2020 but
for the U.S. and world, December 2019. The latter two sites were
already at historic record levels before the 2020 QE kicked in.
(There are a few outliers ahead of SA's 350%, such as Hong Kong which
when conjoined with China falls below SA, and Belgium and Iran had
quirky spikes last year, too.)
Volatility here is crazy. Helping to explain why the Johannesburg
Stock Exchange stands out in the graphic below, my future pension is
heavily exposed to the biggest Asian corporation, Pony Ma's Tencent,
which a South African firm (Naspers/Prosus) bought a third of for
just $35 million in 2001 (lucky bet!) but which soared to $750
billion recently. Yet Trump wiped off $54 bn in one day last August
with his Sinophobia, and the Chinese Communist Party has the
potential to do the same (in 2018 reducing valuation by 20% by
prohibiting import of new mind-bending Japanese video games).
Since two years' work as a "regulator" - haha - at the Federal
Reserve during the Third World Debt Crisis, I've been more
chicken-littleish than even Roubini. But I do think it's useful to
continually point out the insane delinking between the real and
financial sectors, of which the Buffett Indicator is just one
reflection. /Kapital Volume 3 /still has much more to offer on this
(from my vantagepoint
<https://www.springerprofessional.de/en/capital-volume-iii-gaps-seen-from-south-africa-marx-s-crisis-the/15644454>),
as does a critical rereading
<https://www.cadtm.org/Learning-from-Hilferding-s-Finance-Capital-Money-banking-and-crisis-tendencies>
of Hilferding's /Finanz Kapital, /where he downplays the dangers
implied by financialization.
So, when /should /we cry wolf?
*Buffett Indicator (market capitalization/GDP: South Africa, U.S. and
world, 1980-2020)*
https://data.worldbank.org/indicator/CM.MKT.LCAP.GD.ZS?end=2020&locations=ZA-US-1W&most_recent_year_desc=true&start=1980
--
Dean Baker ([email protected])
Senior Economist
Center for Economic and Policy Research 1611 Connecticut Ave., NW
Washington, DC 20009
202-293-5380 (ext 114)
435-644-5746 (H)
www.cepr.net
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