Financial Bubbles | timiacono.com - Part 3

Secular Stagnation in Economic Theory

Starting at about the 3:40 mark, Kingston University Economist Steve Keen details how the recent Ben Bernanke/Larry Summers debate over secular stagnation is all kind of a waste of time since one of the most important drivers of economic activity – private sector credit creation – is routinely omitted from the discussion.

Future historians are not likely to be kind to the current crop of world-renowned economists who, in the aftermath of the worst financial crisis in 80 years, seem to have made little progress improving the tools of their trade in a manner that might help us all avert another financial crisis in the not-too-distant future.

A Stinker of a Jobs Report

It’s probably a good thing that financial markets are closed today in observance of the Good Friday holiday as today’s big jobs report miss would no doubt have sent traders into a frenzy of some sort, direction of markets unknown. Now they’ll have the long Easter weekend to think about the implications of the data shown below via this story at CNN/Money.

In addition to falling well short of the consensus estimate of nearly a quarter million new jobs, prior months’ labor market gains were revised downward by 69,000. Also, it’s important to remember employment is a lagging indicator that, now, may be confirming what many other indicators are pointing to – sharply slower growth for the U.S. economy.

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A Dearth of First Quarter Economic Growth

As was the case a year ago when harsh winter weather visited the East Coast, the first quarter of 2015 is turning out to be something of a bust GDP growth-wise as evidenced by the Atlanta Federal Reserve’s GDPNow forecast shown below.

Bolstering the argument that this was a weather-related slowdown, about a quarter of the recent decline can be attributed to shrinking fixed investment in structures by businesses (though, countering that argument is the lack of a similar decline in residential building).

A widening trade gap accounts for another quarter of the drop but, despite the conventional wisdom of the impact of sharply lower energy prices, it was consumption – America’s growth engine – that accounted for about half of the overall decline since this data series began in January,  all of which suggests the growth slowdown may not be a transitory.

China Stocks: What Could Go Wrong?

Bloomberg reports that China equity markets have become even bubblier after a wave of new irrationally exuberant “investors” that harken back to the U.S. in the 1920s when Joseph Kennedy purportedly began selling stocks after receiving a hot tip from a shoe-shine boy.

On a positive note, they now appear to have their real estate bubble under control…

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