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Articles by John Balder
Financialization: Explaining The Disconnect Between Financial Markets And The Real Economy, Part 3
Parts I and II (see here and here) have provided a detailed description of the financialization process and how it impacted the US economy, even before the arrival of COVID-19. The key event was the turn toward the “market knows best” (financialization) ideology that unfolded during the 1980s and 1990s, with the decisions to deregulate and liberalize financial markets.
Financialized COVID-19 Economy: Helicopter Money, Anyone? Part 2
As described in Part 1 (see here), the financialization of the US economy created a fragile economy well ahead of the arrival of COVID-19. The turn toward finance (financialization) began during the 1980s and matured during the 1990s and 2000s, as constraints were removed from financial markets. In response to the increase in financial instability, the Federal Reserve responded with the "Fed Put," an asymmetric monetary policy that protected investors from downside risk.
Investing In A Financialized COVID-19 World, Part 1
The COVID-19 pandemic has revealed the fragility of the US economy. For forty years, most US households (the bottom 90%) have endured stagnant wages, rising debt loads and generalized economic insecurity. More than 50% of all US households live paycheck to paycheck and the majority are unable to afford to live for three months without any income.
Deflation Or Inflation: That Is The Question
The full impact of the COVID-19 pandemic will likely become clear by the end of the second quarter. The unemployment rate is already an astounding 14.7% (and in reality closer to 20%). Initial claims remain at stratospheric levels, though they have come down in recent weeks. GDP growth fell to -4.8% in Q1, mostly given that the pandemic did not take hold until mid-March. Estimates for Q2 growth range from -20% to -30%.
Financing The New Deal And World War II: Lessons For COVID-19
There is no question that the spread of the coronavirus pandemic has elevated other sources of market uncertainty for the foreseeable future (if not beyond). If the consequences of the pandemic are as severe as many expect, there will be an enormous need to rebuild infrastructure and the US economy. And these efforts, if properly managed, would reduce levels of income inequality and restore a stronger foundation for real GDP growth (at the expense of finance-led growth or financialization).
The Next Recession: Is MMT Inevitable?
In 2019, virtually every asset class around the globe added value. The S&P 500 returned a stunning 31.5%, the highest return since 2014, despite numerous headwinds that included fears of recession, negative interest rates in Europe, repo market disruption, record levels of debt, an inverted yield curve and the slowdown in global growth.
Financial Crisis, QE And Pointing The Way To Recovery: Part III
Part I (see here) addressed the decision by mainstream macroeconomics to ignore the role of credit. Part II (see here) linked credit creation to financial crises, by distinguishing credit creation that facilitates production of goods and services (productive circuit) from credit that finances asset transactions (financial circuit). When the vast majority of credit is allocated to boost asset prices (since the early 1980's), financial crises are an inevitable result.
Linking Credit Creation And Financial Crises, Part II
Part I of this article (see here) examined the decision by mainstream macroeconomics to ignore the role of credit. Based on research by the Bank of England and other sources, the article concluded that "lending creates deposits" and thus, money. In fact, money (e.g., bank deposits) is nothing more than a universally acceptable form of credit. Part I concluded with an alternative “real world” approach to examining these issues. Part II will link this analysis to financial crises and credit.
SPDR S&P 500 ETF (ETF:SPY) - Populism: Response To Declining Wages And Rising Income Inequality, Part II
Last week, I published an article (see here) examining the links between financialization, income inequality and the recent emergence of populism. In a nutshell, my argument is that the turn toward neoliberal (“free market”) policies beginning in the 1980’s, notably the financialization of US economic activity, has contributed to rising income (and wealth) inequality and ultimately triggered the recent emergence of populist movements. A couple of charts will underscore this argument.
A Proposal to Reverse the Populist Tide
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives. The rise in income inequality is closely linked to the financialization of U.S. economic activity that began during the 1980s.
Populism: Response To Declining Wages And Rising Income Inequality
Earlier this week, I published an article (see here) examining the links between financialization, income inequality and the recent emergence of populism. In a nutshell, my argument is that the turn toward neoliberal (“free market”) policies beginning in the 1980s, notably the financialization of US economic activity, has contributed to rising income (and wealth) inequality and ultimately triggered the recent emergence of populist movements. A couple of charts will underscore this argument.
SPDR S&P 500 ETF (ETF:SPY) - Reversing The Tide Toward Populism: New Ideas Needed
A number of articles have appeared in recent months that examine the rise in income and wealth inequality. In my opinion, the rise in income inequality was closely linked with the financialization of US economic activity that began during the 1980s.
Understanding Financial Instability: 'Show Me The Money! (I Mean Credit),' Part I
It is well past time to reconnect the dots between macroeconomics and money/credit. The decision by mainstream macroeconomics to ignore credit certainly explains why so few saw the crisis coming when it arrived in 2007-2008. The Queen of England raised the penultimate question when she asked “why did no one see it coming?” Fortunately, some did and an alternative paradigm is available that integrates credit and money with macroeconomics.
Reversing The Tide Toward Populism: New Ideas!
A number of articles have appeared in recent months that examine the rise in income and wealth inequality (for more discussion of this topic, see here and here). In my opinion, the rise in income inequality was closely linked with the financialization of US economic activity that began during the 1980s.
Financial Crisis: Money And Credit Paradigm Shift, Part II
Part I of this article (see here) provided an alternative view of the role of money and credit in the economy today, noting that commercial bank loans create deposits (which are money), not the other way around. In Part II, we will examine the implications of this factual finding for inflation, risks of another financial crisis and US equity prices.
Money And Credit: Paradigm Shift Is Overdue, Part I
Fed Chair Janet Yellen recently stated that the reasons for the decline in the rate of inflation this year is a “mystery.” In my opinion, her comment reflects the wrong-headed decision of current mainstream macroeconomic theory to ignore the role of money and credit. This lapse also explains why no one at the Fed saw the crisis coming in 2007-2008. In my view, a paradigm shift in the way money and credit are integrated in thinking about macroeconomics is long overdue.
Preparing For A Financial Crisis: Thinking About The Risk Of Being 'Wrong And Alone'
A number of articles have been written recently that outline the case for a financial crisis (this morning William Koldus wrote an article entitled “Be Prepared for a Crash” (see here), citing work by GMO, John Hussman, et al). I agree with Koldus, GMO and Hussman that this financial cycle cannot end well, given current valuations, high debt levels, unwinding of QE, etc. (For more about this, see here). Specific asset classes, especially US equities, today are vulnerable.
PowerShares QQQ Trust, Series 1 (NASDAQ:QQQ), SPDR S&P 500 ETF (ETF:SPY) - The CAPE Is Extreme, Should You Reduce Exposure To The S&P 500 Now? Part II
A previous article examined the relationship between the S&P 500 and the cyclically-adjusted price/earnings ratio (CAPE) for the S&P 500. The ratio today is at a stratospheric level that has only been reached twice since 1871, first in September 1929 before the Great Depression, and again in December 1999, before the tech bubble burst. In the previous article, we stated that the CAPE provides useful information when it is extremely high or low.
Should We Reduce Exposure To The S&P 500 Now, Part II
A previous article examined the relationship between the S&P 500 and the cyclically-adjusted price/earnings ratio (CAPE) for the S&P 500. The ratio today is at a stratospheric level that has only been reached twice since 1871, first in September 1929 before the Great Depression, and again in December 1999, before the tech bubble burst. In the previous article, we stated that the CAPE provides useful information when it is extremely high or low.
PowerShares QQQ Trust, Series 1 (NASDAQ:QQQ), SPDR S&P 500 ETF (ETF:SPY) - The CAPE Is Extreme Again, Should You Reduce Exposure To The S&P 500 Now?
Cyclically Adjusted Price/Earnings ratios or CAPE, may not be a particularly useful tool when it comes to market timing, but there is one very important exception – namely when it is at extreme levels. For example, when it is at an extreme low, as it was in August 1982, it may be a very good time to invest. And conversely, when it approaches an extreme high, as it did in September 1929, December 1999 and once again today, it makes sense to reduce exposure.
Should We Reduce Exposure To The S&P 500 Now?: Decisions, Decisions, Part I
Six months ago (see here), I examined then-current U.S. equity valuations, while proposing that, given high valuations, investors might want to consider whether they were over-exposed to the US market. Since then, US equities have continued to rise, proving once again that I do not have a crystal ball. However, my perspective remains unchanged -- if anything, downside risks have further increased, relative to potential upside. And so we should ask ourselves.
US Equities: 'Dancing While The Music Plays?'
In July 2007, as the global financial crisis was in its early stages, Chuck Prince, CEO at Citigroup, was quoted by the Financial Times as having stated: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” In retrospect, Prince’s comments pointed to the typical role of an agent (firm) acting on behalf of a principal (client).
3 Decades Of Monetary Policy And Financial Instability: The Wonders Of Cash
For several decades, the Fed has conducted monetary policy while keeping an eye closely attuned to the financial markets. In our view, this shift away from the Fed's focus on the real economy was a direct consequence of the decision to deregulate and liberalize financial markets.
The S&P 500 versus Cash Decision
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives. Investment opportunities are quite limited, in part due to the legacy of quantitative easing (QE) engineered by central banks in response to the 2008 crisis. Those actions lowered costs of borrowing and boosted asset prices, especially for U.S. equities.
What Income Inequality Means for Economic Growth
Nearly a decade after the onset of the global financial crisis, real economic growth remains constrained by high levels of household debt, particularly for those at the lower end of the income and wealth distributions. The build-up of indebtedness in these households prior to the onset of the crisis continues to cast a shadow over the real economy.
Asset Allocation, Real Growth And Income Inequality: Tying Up Loose Ends
In a previous article (see here), we argued that rising income and wealth inequality have slowed the rate of real growth in the US economy since the crisis “ended” in 2009. Inequality between the bottom 90% and the top 10% of the distribution has risen persistently over the past thirty years, but for a time this trend was obscured by the rising tide of debt and asset prices. Then the crisis hit.
Slow Economic Growth: To Build Or Not To Build A Cash Reserve, That Is The Question (Part II)
In Part I of this article, we argue that weak balance sheets in the bottom 80% of the income and wealth distributions have slowed growth in the post-crisis period, while tracing the origins of this situation back to the liberalization of credit during the 1980s. The explosive growth of credit from 1983 to 2007 generated paper wealth for the bottom 80%, mostly tied to equity in their homes. However, much of this equity was wiped out during the crisis in 2008.
Macro Models And Black Swan Risk: Financial Market Conundrum
(MENAFN - ValueWalk) Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives. The devastating crisis in 2008 provided clear evidence that mainstream macroeconomic models ignored risks associated with debt and the financial cycle and were rendered moot when the crisis hit. In recognizing these endogenous risks, an investment framework should integrate financial cycle and macroeconomic risk.
Retirement Update
Financial professionals provide a retirement update as they share perspectives on emerging trends and conditions affecting older individuals and their advisors.
Monetary Policy And Financial Imbalances: Is Transparency Virtuous?
In Saturday's Wall Street Journal, Sebastian Mallaby has authored an intriguing article entitled: "The Fed Should Surprise Us." The thesis of the article is that Fed "transparency is not always virtuous." He argues that by being less transparent, the Fed "could discourage traders from taking on too much risk." According to Mallaby, central bank transparency works until it does not. He cites the 1999 and mid-2000s as periods during which transparency "appeared" to be working.
The Role Of Money In Financial Crises
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives. Get Our Activist Investing Case Study! Get the entire 10-part series on our in-depth study on activist investing in PDF. Save it to your desktop, read it on your tablet, or print it out to read anywhere! Sign up below! What causes financial crises?
Adaptive regime-based approach to multiasset class investing
Rules-based adaptive approaches to multiasset-class investing can be designed that protect investors from potentially devastating losses while participating when market conditions are more favorable. Such an approach is intended to adapt to shifts in risk appetite, financial markets and the real economy. Based on history, all of us know that markets do not behave “efficiently” at all times.
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