Vera: Our inflation can't erupt as wage inflation because of our record low utilization (high unemployment/high under-employment). With wages suppressed by low utilization, it is difficult for price inflation to widely erupt. Where our inflation is showing up is in grossly inflated stock prices. It's all backwards, not tied to increased circulation of value. Companies are 'valued' in units of $... for sitting on $. Because there is no actual circulation of actual -value- involved. Value proxies are not value; only in thriving economies with real circulation of value is there a proximate equivalence. We don't have that in America these days. We are flooded with value-proxies. Massively flooded. But they are static. Here is an analogy: imagine a loop of pipes. On the left side are pumping stations in parallel. These are value producing jobs. Pumps are built at risk, but when built, they provide an opportunity for people to pull at pump handles and create high pressure water. High pressure water is bled off at the exit of the pumps as taxes, but what is left can be used to fill overhead savings and credit tanks(repay past debt) or spend immediately. Where is high pressure water in the loop spent? At turbine stations on the right. This is where high pressure water is exchanged for value. Where does the value come from? The turbines are actually connected to the pumps-- people create value, not high pressure water; the high pressure water is a value proxy(a modern economic convenience so that we don't have to carry our pump stations around and bolt them directly to other people's turbine stations. That would be painful(and pure barter.) A turbine is just a pump from the other direction; we must put value in at a pump... we extract value out at a turbine. The intermediate medium is fungible value-proxy... high pressure water after tax bypass directly (current spending) or spending from our overhead savings or credit tanks. Our overhead savings tank represents past pulls on the pump handle(deferred spending) and our overhead credit tanks represent future pulls on the pump handle(accelerated spending). All private and government spending converges on the banks of turbines where value is extracted from value-proxy water. The pump stations are our 'jobs.' The turbine stations are 'businesses/vendors'. They are mirror images of the same places, all built at risk by someone. At the exit of the pump stations is a tax bypass; this goes to government. At the exit of the turbine stations is another tax bypass; this is business tax, and it also goes to government. What makes it past the turbine bypass is available to pay wages to ROI guarnateed wage earners (feeding the pumps on the left). Some of the pumps on the left are the pumps being pulled by business owners whose ROI is not guaranteed. They must pay their workers first. To make payroll, they must either spend from their stream of net water after the turbine bypass, or from their personal credit tanks, or from water borrowed from a paralled system based on equity at risk. If they manage that risk well, they earn net spendable water both for themselves and their equity at risk partners. If not, they go out of business. Money is not value; value is what is created at the pump/turbine stations. Money is water in the pipes, not the effort put in at the pump stations nor taken out at the turbine stations. You can see in this model that what drive circulation of -value- is, people pulling at pump handles. Part of the output is bypassed to government(who spends it all at the turbine stations) and part of the turbine outlet is also bypassed to government(who spends all that at the turbine stations, too) and all of it is driven by the willingess of human beings to pull at pump stations, trusting that others arent gaming the system with fake water and or leaky pipes. So what is the FED/central bank? Not our FED, but a functioning central bank. A legitimate central bank is like a boiler feedwater valve. It lets 'new' water into the pipes when needed to enhance circulation of value. It does so by way of the many credit tanks overhead. It accepts promises to pull on the punps in the future, and hands out spendable water in the overhead credit tanks. Folks repay the economic system by .. pulling on pump handles in the future and diverting part of the flow of water past their pump stations back into their finite overhead credit tanks. A legitimate central bank does not directly participate in the circulation; it merely applies the top level discipline to make sure that credit is credit and debt is debt-- that promises to puill on the pump handles in the future are real promises. Unlike the government gaming that has gone on for now a hundred years with our FED. This used to be minor 'leakage' in the pipes. Today, the giant sucking sound from government is doing all it can to game the water system. The miracle is how much abuse the system has absorbed without collapsing. Government also has an overhead credit tank. It is today endlessly big. As big as they want to make it. Government is not bound by the value-value transactions at the pump/turbine stations. They can literally manufacture water, put it into their credit tank, and spend it at the turbine stations. But you can see in this model, the value consumed is not balanced by value created at the pump stations -- but the total value consumed is limited by the total value created at the pump stations. So this extra money 'sloshes' through the turbines, running only downhill. It runs downhill easily. Government vastly overpays for the same value-- there were no additional pulls on any pump handles , now or in the future, associated with this funny water, endemically raising prices at the turbine stations, which results in a tax on those pulling on the pump handles, who over time, complain about 'working harder and realizing less... but not knowing why.' This doesn't result in higher wages at the pump stations, only higher prices at the turbine stations over time, because there are two classes of buyers; government buyers and those who pull on pump handles to create value, both competing for the same pool of value. This is an endemic hidden tax. From the time of JFK's America, endemic government caused inflation is at 0.49/0.06 = about a factor of 8.17 In economies with an abundance of pump pullers and not enough pump stations(jobs), the rates at the pump stations are suppressed. They are like leaky pumps. When you pull on them, you don't get as much high pressure water in return as you once did in vibrant economies with a demand for pump pullers. In economies with increasingly demandful tax bypasses on the outlet of both the pumps and turbine banks, there are not quite as many taking risk and building new pump and turbine stations. According to a Paul Krugman, the solution to this is to make the tax bypass valves open up even more. Government has a theory that if it carts tankcars full of water and just lets it all run downhill, this will 'prime the pumps' and circulation will start again. The trouble is none of these folks with this model have ever primed a pump; priming a pump is not sufficient, it is also necessary to pump the pump. Their model of the economies is that of a series of siphons, not pumps. But siphons only run downhill; they don't circulate water. Water runs downhill; it requires effort to create value. It requires a willingness to pull on pump handles(with either ROI at risk or ROI guaranteed as discounted wages.) To have pump and turbine stations requires a willingness to take on risk. And when risk takers look at the system of pipes and bypasses and specially funded overhead credit tanks, and realize that proximity to the waterfall of easy water is preferable to actually taking on risk and building pump and turbine stations and creating actual value, then that is where human beings are going to congregate and wait... wait for the next tankcar full of valueless water, far from the pump stations, but spendable at the turbine stations. In the old days, the water in the pipes was 'nearly incompressible.' This meant that 'water' was an effective value proxy. But you can see the element of 'time' in the value of 'water' when government is introudcing an equivalent stream of meaningless 'water' into the system. Water is no longer water. The parallel equities at risk loop, otoh, is by design a 'compressible value proxy' marketplace. It is where folks can exchange 'nearly incompressible' water for 'compressible equity.' The incompressible water stays in the original loop; it is an exchange between folks. The 'value' of the compressible equity value proxy is designed to go up or down, based on the 'value' of the pump/turbine station building entities in the primary loop. All those entities 'at risk' will sometimes lose value and sometimes gain value. So now comes all this funny government water just poured into the system, not backed by any circulation demand, and what happens? The water 'pools' in some entities close to the waterfall of falling water, and they are 'valued' in units of valueless water... 0 = 0. Without circulation of actual value (jobs) this is just 0 = 0. Try and spend it. Sure, on what? In what rigged game? Few want to prepay their own ransom. This model, I think, explains why the last half decade of federal 'stimulus' has been a massive going nowhere fail. regards, Fred
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