Friday, 3 July 2015

Homemade Economics

PPI in China is currently running at 5.8% which means with growth running at 7.1% the real rate of growth when discounted by nominal USD funding costs is pretty close to 4%. Which is all well and good in a period of cyclical normality but in the current phase of endogenous credit bipolarity makes the outlook extremely vulnerable. 

In fact looking back over the last ten periods we can see just how divergent it has become, as this chart clearly shows

Exhibit 1
Chinese growth during periods of endogenous credit bipolarity

But China isn't the only problem. With growth slackening in developed nations, despite strong housing data (Bulgaria's housing index was up 84% last year) and demographics pointing towards a bulge bracket of 27yr olds taking up cycling, the Johnson rule would suggest policy makers are in no hurry to re-adjust the base level measurements we have experienced since 2008. 

 Exhibit 2. 
Base level adjustment discounted by Johnson rule

Austrians would naturally argue that such a case is experiencing unstable equilibrium with monetary inputs dragging E to the left and P to the right leaving a widening gulf of O. But no evidence of such can be found in recent sample sets. Even when adjusted for circular deformity, we can clearly see that O is regular and remains unwidened. 

Exhibit 3 
Regular and unwidened O

Which brings us back to exemplary dysphasia in unemployment. Whilst unemployment amongst 12 year olds remains stubbornly high in developed nations, partly due to domestic education policies and partly though wheat prices, it can be argued that a 6.8% carry on invoice defaults and credit tightening across the whole parabola induces slowdowns in raw material consumption where Yx = Dx /&.T$ + (JP@. (9)). Which is not at all intuitive, 

Exhibit 4 
Not at all intuitive 

If we are to see any form of resolution to Europe's distagflationary epaulettes, they will have to come from the supply side. As Mikany and Jelb have shown (Distillation of Postulates N.Mikany and B.Jelb 2001) upswing delays in offsetting inventory cannot be expected to serve as the moment around which growth will pivot. 

Exhibit 5 
Growth not pivoting 

In conclusion, the mesoform displasticine payoff between domestic policy adjustment and bank liquidity is unlikely to change in the near future. It does, however, imply that shocks to demand in overweighted bilateral economies should be expected. Unfortunately, through experience and the application of Newtonian fluid mechanics we see little that can be done to circumvent such exogenous shocks. 

Exhibit 6 
Newtonian fluid mechanics failing to prevent exogenous shocks

This post is, of course, all completely made up bullsht, but probably not that much more so than half the stuff we have to read from some esoteric sources and probably just as helpful. More fun to write though. As it's holiday time for our American cousins Happy Holiday and may your Greek vote go with you!

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