Friday, July 10, 2015

Claims on GDP

I know, I keep coming back to this graph, because it shows it all in a nutshell...



Below the red line is the productive capacity of the United States (for argument sake accept military, government, etc, as "productive") and the blue line is the nominal stock market valuation of the capacity.  "Valuation" is in other words the direct claims on whatever is below the red line.

Note this does not include indirect claims, such as the welfare state, the ginormous derivatives markets. I would be much obliged if someone could come up with a graph illuminating the claims (or burdens) on the USA GDP.  

Thoughts:


A. The GDP and the ownership thereof, as represented in stock prices...  from the graph cited above the notional value also represents the claims of ownership...  more people think either they are wealthier than they are or don't realize how much claim is on X assets, or both.

B. That GDP is what "we" have to work with.... welfare (corporate and personal) depends on that same GDP to produce the transfer payments, something that currently can't be done proven by the fact we borrow 50% of what we spend as a nation.  (Can that be shown in the same graph?)

C. Next, there is the notional value of the derivatives originating in the red-line GDP in the graph, said to be in the hundreds of trillions but unknown.  It probably does not matter really what this number is, since it represent speculative wealth and who gets hurt when it is repudiated is so diffuse no one will care...  except...

D. All of this moving of assets around and accounting for it makes for a massive services industry, which will crash when the markets do... their unemployment will bring new claims on the productive segment.

I wonder if there are any other claims outside of what I have listed...  so the graph would show the various claims on the same asset base: GDP.  the point would be, why even bother trying to "get some" let alone "made whole" when the crash comes (if it comes fast) or even if it is in slow motion...  give it up and create a business that gets you far more far easier and faster rather than fighting over scraps in which bigger dogs will crowd you out anyway.

Further, unemployment, with some 93 million out of work (if true) is obscene, and a result of the policies that give us the above.  Those policies and practices in law provide for misallocation and malinvestment. self-employment when successful is pitch perfect allocation and investment when it proves profitable.

Self employment grows the GDP, but what miniscule contribution is 100% allocated to the entrepreneur.

Anyway, if anyone can come up with a graph, that would be splendid...  this ZIRP and negative interest rate percent is a fascinating development, and very hopeful...  t


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1 comments:

Anonymous said...

Hi John,

Always a pleasure to read your in-depth and insightful thoughts about economic matters.

I live in the city of London. I'm 29 years old. Currently renting a small room for ₤500. I've been living like this for the past two years and it's a little frustrating.

Now I can afford to buy my own flat but I don't know if its the right decision to make right now - or whether I'm better of renting instead.

I'd rather live rough for a few more years if that means I can afford a better life in my middle thirties. My friends, who are all owners, are telling me I'm stupid not to buy.

Regards,
Jim