Main menu:

History of RPE Thought

Posts by Tag

RSS New from the CCPA

  • Charting a path to $15/hour for all BC workers November 22, 2017
    In our submission to the BC Fair Wages Commission, the CCPA-BC highlighted the urgency for British Columbia to adopt a $15 minimum wage by March 2019. Read the submission. BC’s current minimum wage is a poverty-level wage. Low-wage workers need a significant boost to their income and they have been waiting a long time. Over 400,000 […]
    Canadian Centre for Policy Alternatives
  • CCPA-BC joins community, First Nation, environmental groups in call for public inquiry into fracking November 5, 2017
    Today the CCPA's BC Office joined with 16 other community, First Nation and environmental organizations to call for a full public inquiry into fracking in Britsh Columbia. The call on the new BC government is to broaden a promise first made by the NDP during the lead-up to the spring provincial election, and comes on […]
    Canadian Centre for Policy Alternatives
  • Income gap persists for racialized people, recent immigrants, Indigenous people in Canada October 27, 2017
    In the Toronto Star, CCPA-Ontario senior economist Sheila Block digs into the latest Census release to reveal the persistent income gap between racialized people, recent immigrants, Indigenous people, and the rest of Canada.
    Canadian Centre for Policy Alternatives
  • CCPA in Europe for CETA speaking tour October 17, 2017
    On September 21, Canada and the European Union announced that the Comprehensive Economic and Trade Agreement (CETA), a controversial NAFTA-plus free trade deal initiated by the Harper government and signed by Prime Minister Trudeau in 2016, was now provisionally in force. In Europe, however, more than 20 countries have yet to officially ratify the deal, […]
    Canadian Centre for Policy Alternatives
  • Twelve year study of an inner-city neighbourhood October 12, 2017
    What does twelve years of community organizing look like for a North End Winnipeg neighbourhood?  Jessica Leigh survey's those years with the Dufferin community from a community development lens.  Read full report.
    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