Tuesday, February 26, 2013
The new Musical Chairs global economy
Today, El Erian posted another analysis that Fed. interventions simply can't continue without serious consequences for markets and economic health. See here: But with all due respect, no, it won't all crash down. In a new, postmod age now. Erian still thinking old skool modern production model where firms invest in plant, produce, and then profit. Who does that? That economics model is over. We are in speculations mode of competitive uncertainty. The certainty of productive investment has been replaced by the productive investment of uncertainty. The markets can now profit from it, e.g. mulling over Fed minutes or gauging Israeli threats to stop Persian oil flows. But it happens competitively, which after all is what capitalism has always said it was about. One month commodities markets do well. The next they don't. Then bonds lose value, now they are in again. Equities drop but then find something to cheer about. The euro falls then it is the yen's turn, etc., etc. This is musical chairs economics. And so long as no one sector nor region is permanently left out of the flows, this new global system can, over the long term, stay in balance. So stop the nostalgia and let's develop new models (besides the let's raise global growth model) from this situation that are sustainable.