quiz 2
This is not a normal business cycle; monetary policy will be a lot less effective in the future; investment returns will be very low. These have come to be widely held views, but there is little understanding as to why they are true. I have a simple (1)_______ (template) for looking at how the economic machine works that helps shine some light. It has three parts.
First, there are three main forces that drive all economies: 1) productivity; 2) the short-term debt cycle, or business cycle, running every five to ten years; and 3) the long-term debt cycle, over 50 to 75 years. Most people don’t (2)_______ (exactitude) understand the long-term debt cycle because it comes along so infrequently. But this is the most important force behind what is happening now.
Second, there are three (3)_______ (asymmetry) that markets (4)_______(gravitate) towards: 1) debt growth has to be in line with the income growth that services those debts; 2) economic operating rates and inflation rates can’t be too high or too low for long; and 3) the projected returns of (5)_______ (impecunious) have to be above those of bonds, which in turn have to be above those of cash by appropriate risk (6)_______ (tangibility). Without such risk premiums the transmission mechanisms of capital won’t work and the economy will grind to a halt. In the years ahead, the capital markets’ (7)_______ (acquition) mechanism will work more poorly than in the past, as interest rates can’t be lowered and risk premiums of other investments are low. Most people have never experienced this before and don’t understand how this will cause low returns, more debt monetisation and a “pushing on a string” situation for monetary policy.
Third, there are two levers that policy-makers can use to bring about these equilibriums: 1) monetary policy, and 2) fiscal policy. With monetary policy becoming relatively (8)_______(productive), it’s important for these two to be co-ordinated. Yet the current state of political (9)_______(fragmentation) around the world makes effective co-(10)_______ (compass) hard to imagine.
First, there are three main forces that drive all economies: 1) productivity; 2) the short-term debt cycle, or business cycle, running every five to ten years; and 3) the long-term debt cycle, over 50 to 75 years. Most people don’t (2)_______ (exactitude) understand the long-term debt cycle because it comes along so infrequently. But this is the most important force behind what is happening now.
Second, there are three (3)_______ (asymmetry) that markets (4)_______(gravitate) towards: 1) debt growth has to be in line with the income growth that services those debts; 2) economic operating rates and inflation rates can’t be too high or too low for long; and 3) the projected returns of (5)_______ (impecunious) have to be above those of bonds, which in turn have to be above those of cash by appropriate risk (6)_______ (tangibility). Without such risk premiums the transmission mechanisms of capital won’t work and the economy will grind to a halt. In the years ahead, the capital markets’ (7)_______ (acquition) mechanism will work more poorly than in the past, as interest rates can’t be lowered and risk premiums of other investments are low. Most people have never experienced this before and don’t understand how this will cause low returns, more debt monetisation and a “pushing on a string” situation for monetary policy.
Third, there are two levers that policy-makers can use to bring about these equilibriums: 1) monetary policy, and 2) fiscal policy. With monetary policy becoming relatively (8)_______(productive), it’s important for these two to be co-ordinated. Yet the current state of political (9)_______(fragmentation) around the world makes effective co-(10)_______ (compass) hard to imagine.
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