Main menu:

History of RPE Thought

Posts by Tag

RSS New from the CCPA

  • Help us build a better Ontario September 14, 2017
    If you live in Ontario, you may have recently been selected to receive our 2017 grassroots poll on vital issues affecting the province. Your answers to these and other essential questions will help us decide what issues to focus on as we head towards the June 2018 election in Ontario. For decades, the CCPA has […]
    Canadian Centre for Policy Alternatives
  • Does the Site C dam make economic sense for BC? August 31, 2017
    Today CCPC-BC senior economist Marc Lee submitted an analysis to the BC Utilities Commission in response to their consultation on the economics of the Site C dam. You can read it here. In short, the submission discussses how the economic case for Site C assumes that industrial demand for electricity—in particular for natural gas extraction […]
    Canadian Centre for Policy Alternatives
  • Ontario's middle and working class families are losing ground August 15, 2017
    Ontario is becoming more polarized as middle and working class families see their share of the income pie shrinking while upper middle and rich families take home even more. New research from CCPA-Ontario Senior Economist Sheila Block reveals a staggering divide between two labour markets in the province: the top half of families continue to pile […]
    Canadian Centre for Policy Alternatives
  • Join us in October for the CCPA-BC fundraising gala, featuring Senator Murray Sinclair August 14, 2017
    We are incredibly honoured to announce that Senator Murray Sinclair will address our 2017 Annual Gala as keynote speaker, on Thursday, October 19 in Vancouver. Tickets are now on sale. Will you join us? Senator Sinclair has served as chair of the Truth and Reconciliation Commission (TRC), was the first Indigenous judge appointed in Manitoba, […]
    Canadian Centre for Policy Alternatives
  • How to make NAFTA sustainable, equitable July 19, 2017
    Global Affairs Canada is consulting Canadians on their priorities for, and concerns about, the planned renegotiation of the North American Free Trade Agreement (NAFTA). In CCPA’s submission to this process, Scott Sinclair, Stuart Trew and Hadrian Mertins-Kirkwood point out how NAFTA has failed to live up to its promise with respect to job and productivity […]
    Canadian Centre for Policy Alternatives
Progressive Bloggers

Meta

Recent Blog Posts

Posts by Author

Recent Blog Comments

The Progressive Economics Forum

Market Mayhem

The wild swings in the North American financial markets this week serve as yet another reminder of the weakness of  any linkage between levels and changes in financial asset values and levels and changes in real economic variables. This is apparent for both bonds and equities.

In the case of the US and Canada, the rise in government bond prices is surely excessive. As of today, the Government of Canada 10 year bond had a yield of 2.4% compared to a near record low of about 3% a month ago and the US yield is about the same. I certainly buy the argument that their and our economic prospects are not good, but locking in a real return of about 0.5% per year for ten years suggests that investors have panicked.( In Europe they have probably panicked in the opposite direction by demanding excessively high yields for pretty safe debt in the case of the larger economies which have come under attack.)

At the same time, equities are probably under-valued relative to continued high corporate profitability, especially given that (unfortunately) neither real wages nor the wage share are likely to be much of a downward force in the foreseeable future. Dean Baker thinks that the US stock market is significantly under-valued judged by prospective profits – and he has a record of making good calls on these things.   

Volatility driven by fear and greed and the hope of quick short term returns  results in large day to day and week to week swings in financial asset prices. While there may – or may not – be some underlying forces which bring prices back into lines with fundamentals over long (often very long) periods of time, such swings have damaging effects on the real economy.

My bet is that big correction in equity prices over the past little while will increase household and corporate savings, lowering consumption and  investment at just the wrong time. Those saving for retirement will see a need to make up  for losses, and will also have been sharply reminded just how uncertain is the ability of a certain sum of savings to fund a decent retirement. Pension funds already deep underwater will be forced to weather a downdraft in equities, and, more importantly, the sharp plunge in US and Canadian interest rates will  require firms to put much more money into plans to make up for another sharp  increase in the present value of liabilities.

Market over-shooting and excessive volatility likely reflects short-term trading for quick, speculative gains by hedge funds and the investment banks. Once again, the excesses of the markets will damage the real economy.

This should remind us that little or nothing has been done to implement the financial re-regulation agenda which was briefly given serious consideration in the aftermath of the 2008 stock market crash.

There is no shortage of tools to hand to limit speculative trading. We should limit the use of leverage, especially by the hedge funds, and introduce transactions taxes to limit returns from very rapid trading. We could also regulate outright gambling through naked shorts (selling stocks one does not own) as some European governments are now doing, and we could impose higher rates of personal and corporate income tax on short-term capital gains.

Market mayhem continues because governments are still in thrall to a financial sector which profits from patently parasitic and damaging speculation.

Enjoy and share:

Write a comment





Related articles