Comments on this post reminded me that I need to re-read Fischer Black’s famous address, Noise. He writes,
The costs of shifting real resources are clearly large, so it is plausible that these costs might play a role in business cycles. The costs of putting inflation adjustments in contracts or of publicizing changes in the money stock or the price level seem low, so it is not plausible that these costs play a significant role in business cycles.
Tyler Cowen and I both credit Fischer Black with influencing our views on macro. More from Black:
I cannot think of any conventional econometric tests that would shed light on the question of whether my business cycle theory is correct or not. One of its predictions, though, is that real wages will fluctuate with other measures of economic activity. When there is a match between tastes and technology in many sectors, income will be high, wags will be high, output will be high, and unemployment will be low. Thus real wages will be procyclical.
I am pretty sure that the ratio of wages to nominal GDP has been falling as the labor market has weakened over the past dozen years. So procyclical real wages are still with us.
And then:
I believe that monetary policy is almost completely passive in a country like the U.S. Money goes up when prices go up or when incomes goes up because demand for money goes up at those times. I have been unable to construct an equilibrium model in which changes in money cause changes in prices or income, but I have not trouble constructing an equilibrium model in which changes in prices or income cause changes in money.
Similarly, I also think that it is at least as plausible that causality runs from the long-term bond market to the Fed funds market as the reverse.
Finally:
I think that the price level and the rate of inflation are literally indeterminate. They are whatever people think they will be. They are determined by expectations, but expectations follow no rational rules.
Keep in mind that he is talking about a country without an insane fiscal/monetary nexus. I am sure he would grant that you can have hyperinflation by running ridiculously large deficits and printing money to fund them.
Both the fiat asset inflation and economic expansion part of the business cycle ended Friday September 20, 2013, with Aggregate Credit, AGG, having fallen strongly in value since May 2013, and now with the weekly jobless claims report heralding the reality that the economy is failing to produce new jobs, as Andrew Klips reports in Equities.com reports. In August, the U.S. only added 169,000 new jobs and June and July figures underwent sharp revisions, including July’s figure plunging to only 104,000 new jobs. The unemployment rate ticked down to 7.3 percent, but only because more people gave up actively seeking employment.
Please consider that Friday, September 20, 2013, was liberalism’s day of investment instability that marked an inflection point that transitioned the world from the paradigm of liberalism into the paradigm of authoritarianism, and from a moral hazard based prosperity into a debt servitude based austerity. Volatility, ^ VIX, rose, with the Volatility ETN, XVZ, trading higher and the financial markets turned from risk-on to risk-off, with the Market Off ETN, OFF, trading higher, as the US Dollar, $USD, rose slightly to close at 80.56.
Currency Carry Trades unwound worldwide with the Japanese Yen, FXY, trading higher and individual currencies such as the India Rupe, ICN, and the Euro, FXE, trading lower. Major World Currencies, DBV, and Emerging Market Currencies, CEW, traded lower, causing investors to derisk and deleverage out of World Stocks, VT, and Global Industrial Producers, FXR, such as BA, UTX, DOW, EMR, GE, ROK, F, GM, MT, CRH, BUD, SAP, CNH, COV, CRH, MHK, HON, MMM.
With Jesus Christ at the helm of the Economy of God, Ephesians 1:10, World Stocks, VT, and Nation Investment, EFA, traded lower, with the Emerging Markets, EEM, and Asia Excluding Japan, EPP, leading, the way lower. South Africa, India, INP, Thailand, THD, The Philippines, EPHE, Indonesia, IDX, Malaysia, EWM, Turkey, TUR, and Chile, ECH, traded lower, on the the exhaustion of the US Fed’s monetary policies of easing, as the provision of QEternity marked the crossing of the Rubicon of sound monetary policy, and destabilized global economics pivoting the world from liberalism’s banker regime of democratic nation states into authoritarianism’s beast regime of regional governance and totalitarian collectivism.
Liberalism was defined by what Doug Noland terms wildcat finance, where bankers of all types fiercely outdo one another to generate the greatest investment gains, and where Ben Bernanke fathered credit easing; but authoritarianism is defined by wildcat governance, where leaders bite, rip and tear one another apart in their struggle to become top dog leader, and where Angela Merkel fathered debt servitude.
Perhaps one might consider reading Steve Midkiff A Sovereign Encounter … http://tinyurl.com/mao5jjl … describing “those things which must shortly come to pass” as presented in Revelation 1:1, and in this manner develop an apocalyptic vision.
[sorry. I don’t want personal attacks here–ed.]