Unemployment will stay high, because employment is funded by real savings, which are falling. Real wage rates will fall too–and have been falling–as real savings decline. Shrinking real savings leads inevitably to capital consumption, because depreciating business assets must be funded through real savings. Capital consumption inevitably leads to falling real wage rates, because capital is necessary to the production of goods. So when real production falls in response to capital consumption, money wage rates purchase fewer real goods. Moreover, competition establishes average market clearing wages in accordance with productivity, which falls as capital is de-cumulated.

A considerable slowdown or even a long pause in the rate of new money growth causes a slump in economic activity. In other words, if the money supply grows at a slower rate than before, or the rate of growth stops accelerating for a considerable time, wealth consuming activities will stop making money. Past increases in money bid costs higher, but only after revenues increased. Revenues grew, because the new money funded higher sales. Costs rise, because the new sales fund additional bidding for scarce materials and tools by wealth consumers. Wealth producers can’t afford the higher costs, so they decline. When the rate of money expansion stops rising so fast, the revenues of wealth consumers stop increasing, or even decline. For their customers have been hurt by higher costs. Meanwhile, costs stay high, reflecting scarcity.

Would the unemployment rate decrease if the workers were willing to accept a lower compensation in terms of buying power e.g. accept a lower standard of living? Is that what is happening?

Just looking for a YoYΔ deceleration lag time, just like we have the “12 – 18 months” rule of thumb for monetary pumping.

I’m sure research has been conducted, but I’d be surprised if it was by Austrians. At best, such research might point to some interesting historical similarities; but since economic decisions are made by hundreds of millions of individuals, the past would not necessarily predict the future.

That’s a game played by the Krugmans of the world — with self-evident poor results thus far.

A very clear and concise explanation of how productive and non-productive activities need funding from real savings. Money expansion stimulates non-productive activity and kills wealth-generating activity. The higher GDP numbers are a result of this artificial stimulus. We will feel the pain of such inducement in the future.

Thank you!

What I don’t understand from this article is that if credit is declining, and money supply is declining, how can he conclude that the bump in Q4 was due to money pumping. Doesn’t make sense.

What does make sense is that it was due to fiscal stimulus and normal, organic, business cycle effects (the drive for efficiency, draw down of inventory, etc.). I understand that Clunkers didn’t create wealth, it only redistributed cash. But it will be paid for later by the Treasury deficit financing.

I’m not sure if any empirical or econometric research has been conducted in that field. Theoretically, at least, the bubble will pop at some point soon after the deceleration of credit expansion. So, the YoY Δ does not have to equal any specific amount, so long as the rate of Δ slows or flattens.

The time it takes for malinvestment to reveal itself may also be dependent on when the individual businesses account for losses. So, if financial statements are prepared at point X, but the deceleration in credit expansion occurred at point x-y, then it may take y time for malinvestment to be revealed.

There were signs before the actual official declaration of recession, in any case, like slowing investment, et cetera. The time during which these symptons occurred may also be useful to consider recessionary (departing from the GDP-definition of recession).

Does this make sense, or am I talking out of my rear end?

Jonathan

Thanks — I knew it was about momentum — just couldn’t plot it (I can now).

Does the YoY change in TMS have to revert back to norm (pre-Fall 2008) for the bubble to pop?

Also, has any research been done on the lag time between monetary deceleration and GDP Deceleration? It looks to me like its about 2 years from deceleration to downturn.

Can anybody tell me where Mr. Shostak observed a falling rate of money supply growth? I went to the TMS index and saw no such thing:

Mr. Shostak refers to a fall in the growth momentum; i.e. a deceleration of credit expansion.

Is it ignorance or willful attempt to “get their spot at the trough”?

It’s like asking a murderer to resurrect the dead, it’s just not gonna happen.

What do you make of the argument of some Modern Monetary Theorists that there has been significant growth in real wealth over the past decades and so the money supply should be expanded proportionately? They are apparently not confusing wealth with GDP or so they claim. How can we really measure “wealth”?

Isn’t this exactly what the voting public is asking gov’t to do? Jobs, Jobs, Jobs. Hence the dilema.

“Those commentators who subscribe to the view that an increase in government spending can fix things hold that something can be created out of nothing.”

Actually the truth (as implied by the article) is the opposite:

“… an increase in government spending, in today’s circumstances, will create Nothing out of Something!”

The reason?

Please see Antal E. Fekete’s article titled “The Marginal Productivity of Debt” at http://www.safehaven.com/article-12962.htm