Rabo: We Are Edging Closer To A Biblical Commodity Price Increase Scenario
We Need Some Serious Remodelling
Yesterday’s Daily saw me float the model hypothesis that the Fed would like everyone to have all their money in stocks, so they would have a practical mechanism for inflating and deflating the economy above and beyond the need to mess around with interest rates or QE. Of course, this was a huge over-simplification. In particular, it overlooked housing: why bother only inflating stocks when not everyone holds them, when you can do the same to housing, which everyone needs? Lo and behold, yesterday’s S&P/CoreLogic 20-city prices were up 11.9% y/y. (A figure the RBA will look at with smug contempt: “That’s all you got?”)
Presumably the matching rise in US consumer confidence was driven more by stimulus checks in the mail than rent checks going out the door, or chats with realtors about affording a home in a country not exactly famous for its lack of available land. Yet surely the Fed is still missing a trick? Just switch to a digital currency, like China, and assets can be turned on and off at will, and there is no need to go through with the pretense of inflating asset markets in lieu of the general economy.
Yesterday’s Daily was also a vowel-less attempt to emphasize what is missing from the macro-models the Fed uses to form the view it will share with the world later today – in-between pushing up stock and house prices:
- Functioning banks and credit are not part of it. Professor Steve Keen’s ‘Minsky’ software is unlikely used in the Eccles Building to spit out hockey-stick recoveries; or, if it is, the users really don’t understand what it implies is going to happen next;
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