Sunday, July 14, 2024

Advancing Time: Velocity Of Money Is No Longer A Huge Inflation Fa...

Advancing Time: Velocity Of Money Is No Longer A Huge Inflation Fa...: Let's talk about the velocity of money! The speed at which money flows through the economy is often tied to speculation about the future...

Velocity Of Money Is No Longer A Huge Inflation Factor

Let's talk about the velocity of money! The speed at which money flows through the economy is often tied to speculation about the future of inflation. It may be important, but it is no longer a big factor when it comes to inflation. We have entered a cost-push inflationary cycle and these tend to be self-feeding. This translates in to more inflation ahead.

Today, small businesses are suffering the most pain of cost increases since larger enterprises have a lot more ability to get cheap funding. More small businesses forced to close may result in stagflation in this economic cycle rather than deflation which is normally associated with downturns. This is a reason for concern on both the employment and inflationary front. Not only do small businesses employ a huge number of people but they generally resist raising prices due to close relationships with their patrons.

 

As for the velocity of money;

 

Velocity is the speed in combination with the direction of motion of an object. Velocity is a fundamental concept in the branch of classical mechanics that describes the motion of bodies.

The scalar absolute value (magnitude) of velocity is called speed.

The faster money moves through the economy is sometimes tied to demand in that John or Jo will take all their money on payday and spend it immediately if their demands are high. In such a situation, retailers and vendors will rush to replenish goods to refill shelves. During low demand, they will spend the money slowly over time and the vendor will pull from inventory rather than place new orders.

Please consider the possibility that what is considered a "slowing in the velocity of money" is rooted in where money or wealth is being placed. Another factor could be who holds the bulk of money in circulation. As inequality has grown and more wealth shifted into the hands of a few, the idea these few will park their wealth and money for long periods of time feeds into why velocity is falling. Then, please consider, that a shift in investor attitudes causing a shift away from intangible to more tangible investments could spark a surge in both velocity and inflation. 

Over time, changes in the way people handle transactions, such as using more or less charge cards or debit cards as well as the way financial institutions facilitate such transactions may affect how velocity is viewed. Still, how much the velocity of money affects inflation is difficult to assess. This leads us to the question of whether inflation is being driven by demand factors or simply increases in cost being passed along. 

Much of the inflation we have witnessed in recent years has been attributed to supply chain shock as well as a large increase in the money supply. Huge government deficits and spending as a result of Covid and efforts to get the economy moving post Covid have acerbated the situation. This brings up the question of what we should expect going forward. Demand-pull inflation, cost-push inflation, or if the economy continues to fall, stagflation. 

Mixed into this brew is the idea trade is good for all parties concerned, trade deficits, the value of fiat currencies, and tariffs. Several flaws regarding the idea that "free trade" is the answer to many of our problems have revealed themselves in recent years. In short, it is time to honestly look at the role of trade and why it should be considered a double-edged sword. While the idea behind trade has a great deal of merit it is often given far more credit for economic growth than it should. 

With government spending predicted to grow in coming years, and a continued debasement of fiat currencies, deflation is unlikely. No matter how those in the know or in charge of such policies seek to spin it, they can’t lead countries out of what appears to be persistent economic trends. While the rate of price inflation is easing, core inflation remains stubbornly high.

The problem is continued government spending. The Fed’s efforts to ease inflation and the easing rate of inflation are both about to run into major resistance. A recent article published in The Daily Signal told how The Tax Relief for American Families and Workers Act of 2024 is nothing of the kind. Instead, it is a mixed bag that includes welfare expansions, corporate windfalls, and inflationary deficits.

It is logical to envision that huge government deficits will result in further inflation and increasing interest rates as the government generates new money without increases in real productive capacity. such spending tends to crowd out private borrowing. In short, bigger government acts as an impediment or roadblock to increasing supply while increasing demand. While the velocity of money does affect inflation, government spending is where economist should center their focus.

 

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Sunday, July 7, 2024

Advancing Time: Danger Ahead, China Is Pushing, Pushing, Pushing

Advancing Time: Danger Ahead, China Is Pushing, Pushing, Pushing: There is danger ahead and the ramifications have the potential to be massive and devastating. China is pushing to become the automaker of th...

Danger Ahead, China Is Pushing, Pushing, Pushing

There is danger ahead and the ramifications have the potential to be massive and devastating. China is pushing to become the automaker of the world, and this is a game changer. Automobiles are one of the largest and most expensive items that consumers purchase. China's goal translates into putting all competitors in other countries out of business.

In the area of efficient economies, a system of state-controlled markets and subsidies has a strong advantage over market-driven capitalism in the short term. Time and time again, it has been proven that heavy-handed government interference in a market can rapidly ramp up an industry far faster than free market forces. Governments can change rules, expedite approvals, fund, or turn a blind eye to those they favor. 

I contend that China is using Elon Musk and Tesla as a useful pawn to muddy the issue of what is fair in the area of free trade. After all, if Tesla, which is identified as an American company, is allowed to sell cars in China, why shouldn't Chinese companies be allowed to sell their cars in America? Furthermore, isn't Tesla's success an indication or even proof that EVs are the future and best way to avert climate change. These are both conclusions I do not accept.

A CNBC video recently explored how China has the manufacturing capacity to supply half the world's cars. It delves into how China has its eyes on the United States and why insiders say it's only a matter of time until it affects America's auto industry. Even though. President Biden slapped Chinese automakers with stiff tariffs that effectively double the price of an imported EV some insiders warn tariffs may not be that effective in the long run, and may even do more harm than good.

This push to export Chinese cars all over the world is another gambit to expand China's power and decimate its rivals and competition. China has and is playing the same game in a slew of other industries. This has not yet gained the attention it should, and by the time it is obvious to most people, China will be the only go-to option in  many key industries. Sadly, the auto industry is an area where Chinese products can rapidly make major inroads or progress if allowed. This is indeed a gambit that will be difficult to halt because consumers want inexpensive vehicles.

How do people across the world feel about China?

Infographic: China: A Positive or Negative Influence in the World? | Statista

The number of countries looking unfavorably at China has increased since the poll started in 2019. The countries with the most respondents favoring China were Nigeria, Kenya, Thailand, Russia, Egypt, and Saudi Arabia. Still, views of China are broadly negative across most of the advanced economies. Roughly three-quarters of respondents in Japan, Sweden, Australia, Denmark, the United Kingdom, and Germany had a negative view of China. It is important to note these "feelings" are fluid.

We must remember, China's economy is false and manipulated, much of China's growth came from "over-constructing everything," this is equivalent to building bridges to nowhere. Now China wants to, in a predatory manner, take jobs away from other countries to expand its manufacturing away from constructing ghost cities and towards producing high-end items needed across the world.  

To be clear, I do not consider myself a "Chinaphob," or should I say, to be sporting an exaggerated or unfounded fear of China. My concerns are deeply rooted in China's actions over the last several decades. Rather than becoming more open and free, its government has become more controlling and authoritarian. It is far past the time we should be calling a spade a spade. 

 

Footnote: I'm aware that the word "Chinaphob" may or may not exist or be recognized, yet. Below are several links to prior articles related to China. Some focus on its push into various industries.  https://brucewilds.blogspot.com/2024/05/difference-between-fair-trade-and-free.html https://brucewilds.blogspot.com/2021/03/chinas-strength-should-be-evaluated.html https://brucewilds.blogspot.com/2023/09/subsidies-corrupt-economies-china.html https://brucewilds.blogspot.com/2023/04/china-is-staying-afloat-by-flooding-its.html https://brucewilds.blogspot.com/2018/08/china-has-no-intention-of-altering-its.html https://brucewilds.blogspot.com/2023/02/chinas-first-large-homegrown-airliner.htmlhttps://brucewilds.blogspot.com/2022/12/chinas-future-remains-cloudy-and.html

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Saturday, July 6, 2024

Advancing Time: America's Trade Deficit Is Widening Again

Advancing Time: America's Trade Deficit Is Widening Again: While Americans go about their daily life not enough attention is being paid to the trade deficit. It is and has been widening, again. The...

America's Trade Deficit Is Widening Again

While Americans go about their daily life not enough attention is being paid to the trade deficit. It is and has been widening, again. The U.S. international trade deficit widened 0.8% in May to $75.1 billion. This is the largest deficit since October 2022. Over all, the trade deficit is up $14.4 billion or 4.2% from the same period last year. These numbers, and those for the last several years highlight that for all the ruckus it created, the trade war failed to bring down the trade deficit.

The world may have already hit peak globalization, much of which was promoted on the idea trade was good for all parties concerned. Several flaws regarding this notion have revealed themselves in recent years calling for a reassessment of this theory. In short, it is time to honestly look at the role of trade and why it should be considered a double-edged sword. While the idea behind trade has a great deal of merit it is often given far more credit for economic growth than it should.

First of all, trade must be fair or it has the potential to damage one party or the other. The promise that increased trade will create new jobs has turned out to be largely a myth. History has shown that trade agreements with low-wage nations are not the great job creators we have been told. Instead, we have experienced a hollowing out of the middle class. This is why AdvancingTime has in the past banged away at the fact that where and what consumers buy matters.

The trade deficit with China continues to weaken America and strengthen our rival. Making your rivals stronger at your expense has always proven to be a mistake in the long run. The belief trade is a huge benefit to the masses is championed by large multinational companies that influence trade policies and have the most to gain. 

 

Many Americans tend to ignore the fact China is rapidly building factories in Mexico to sidestep tariffs. Geopolitics has made Mexico as a trade partner increasingly preferable to China. In 2023, Mexico overtook China as the United States’ largest goods exporter, based on recent trade figures. 

 

The U.S. imported nearly $476 billion from Mexico and shipped roughly $323 billion to its southern neighbor in 2023. Meanwhile, the Bureau of Economic Analysis reported that imports from China to the US fell by approximately 20% to $427.2 billion. This is partly due to American firms seeking to diversify their supply chains due to strained relations between the US and China. Some of this centers around national security worries, particularly in the area of technology.

Once Wealth flows To Asia, It Stays There

 

Even before China started manufacturing in Mexico, much of the money our neighbor to the south received by way of trading with America was quickly passing through Mexico and flowing to Asia. This means it could be argued that when all is said and done we were still transferring our wealth to the far east only by the scenic route. This is not a recent occurrence, numbers indicate that in addition to the United States, Mexico has for years been a huge importer of goods from China. 

 

In 2017 Mexico ran a trade deficit with China of around 64 billion dollars. In 2019, trade between the two countries reached 100 billion dollars with the deficit growing even larger. Mexico recorded exports to the Chinese market worth 7.1 billion dollars while Chinese exports to the Mexican market rose to 93 billion dollars.

 

The question we should ask is whether free trade is really a win-win. The answer probably falls into a grey area based on the terms on which transactions are based. There is a lot to be said for being self-sufficient. A strong case can also be made for favoring trade with nearby friendly neighbors rather than distant countries, such trade can improve the neighborhood. 

 

Those preaching the virtues of globalism and free trade point out that American consumers pay far lower prices because of this but overlook the fact that in the long run, such an imbalance will not end well. The reasoning that we are trading worthless dollars, currency, or paper for goods is a bit misleading. It might be more accurate to say we are trading away jobs, wealth, and even our future.  

 

Footnote; For more on this subject see the link below.
  http://Nafta And Regional Trade Better than Buying From China.html
                                                                              

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Sunday, June 23, 2024