FT interview with Google co-founder and CEO Larry Page (
LINK)
Related books: How Google Works, In The Plex
Henry Blodget sits down with Clay Christensen (
LINK)
Related books: HERE
Hussman Weekly Market Comment: Losing Velocity: QE and the Massive Speculative Carry Trade (
LINK)
What central banks around the world seem to overlook is that by changing the mix
of government liabilities that the public is forced to hold, away from
bonds and toward currency and bank reserves, the only material outcome
of QE is the distortion of financial markets, turning the global
economy into one massive speculative carry trade. The monetary base,
interest rates, and velocity are jointly determined, and absent some exogenous
shock to velocity or interest rates, creating more base money simply
results in that base money being turned over at a slower rate.
Economic growth and inflation do not arise from
changing the mix of these government liabilities. Growth arises
primarily from a) the channeling of scarce saving to productive
investment that b) generates useful goods and services that c) can be
purchased because the income paid to factors of production can – in a
circular flow – be used to pay for that output. QE does nothing to aid this dynamic unless scarce bank liquidity is a binding constraint
on productive investment or spending, which it presently is not. QE
does not spur new demand in an environment where productive investment
opportunities are satiated by the existing availability of loanable
funds. It just provides cheap finance for speculative carry trades in
the financial markets.
Meanwhile, inflation and hyperinflation typically do not arise from simply from changing the mix
of government liabilities toward more currency. Inflation emerges
primarily from supply constraints or an exogenous shock that reduces
supply, coupled with fiscal policy where large government deficits are
being used to finance consumption and transfer payments. In that
environment, the marginal value of goods surges relative to the
marginal value of a currency unit, and the mix of government
liabilities held by the public doesn’t particularly matter. Financing
the deficits with debt instead of money still results in exogenous
upward pressure on interest rates and monetary velocity. Hyperinflation
results when there is a complete loss in the confidence of currency to
hold its value, leading to frantic attempts to spend it before that
value is wiped out. I expect we’ll observe significant inflationary
pressures late in this decade, but present conditions aren’t conducive
to rapid inflation without some shock to global supply.
With regard to the recent move by the Bank of
Japan, seeking to offset deflation by expanding the creation of base
money, the move has the earmarks of a panic, which is
counterproductive. The likely response of investors to panic is to seek
safe, zero-interest money rather than being revolted by it. The result
will be a plunge in monetary velocity and a tendency to strengthen
rather than reduce deflationary pressures in Japan. In our view, the
yen has already experienced a dramatic Dornbusch-type
overshoot, and on the basis of joint purchasing power and interest
parity relationships (see Valuing Foreign Currencies),
we estimate that rather than the widely-discussed target of 120
yen/dollar, value is wholly in the other direction, and closer to 85
yen/dollar (the current exchange rate is just over 112). The Japanese
people have demonstrated decades of tolerance for near-zero interest
rates and the accumulation of domestic securities without any material
inclination to spend them based on the form in which those securities
are held. Rather than provoking strength in the Japanese economy, the
move by the BOJ threatens to destroy confidence in the ability of
monetary authorities to offset economic weakness – in some sense
revealing a truth that should be largely self-evident already.
