Main menu:

History of RPE Thought

Posts by Tag

RSS New from the CCPA

  • Towards Justice: Tackling Indigenous Child Poverty in Canada July 9, 2019
    CCPA senior economist David Macdonald co-authored a new report, Towards Justice: Tackling Indigenous Child Poverty in Canada­—released by Upstream Institute in partnership with the Assembly of First Nations (AFN) and the Canadian Centre for Policy Alternatives (CCPA)—tracks child poverty rates using Census 2006, the 2011 National Household Survey and Census 2016. The report is available for […]
    Canadian Centre for Policy Alternatives
  • Fossil-Power Top 50 launched July 3, 2019
    What do Suncor, Encana, the Royal Bank of Canada, the Fraser Institute and 46 other companies and organizations have in common? They are among the entities that make up the most influential fossil fuel industry players in Canada. Today, the Corporate Mapping Project (CMP) is drawing attention to these powerful corporations and organizations with the […]
    Canadian Centre for Policy Alternatives
  • Tickets available for Errol Black Chair Fundraising Brunch 2019 June 26, 2019
    You are invited to CCPA-MB’s annual fundraising brunch in support of the Errol Black Chair in Labour Issues.  Please join us to honour: Honoured Guest: John Loxley is Professor of Economics at the University of Manitoba and a Fellow of the Royal Society of Canada. Guest Speaker:  Jim Stanford is Economist and Director of the Centre […]
    Canadian Centre for Policy Alternatives
  • The fight against ISDS in Romania June 24, 2019
    CCPA is proud to co-sponsor this terrific video from our colleagues at Corporate Europe Observatory. It chronicles grassroots resistance to efforts by Canadian mining company Gabriel Resources to build Europe’s largest open-pit gold mine in a culturally rich and environmentally sensitive region of Romania. After this unimaginably destructive project was refused by the Romanian public and courts, the […]
    Canadian Centre for Policy Alternatives
  • A critical look at BC’s new tax breaks and subsidies for LNG May 7, 2019
    The BC government has offered much more to the LNG industry than the previous government. Read the report by senior economist Marc Lee.  
    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.

Write a comment





Related articles