Timing is everything. In which phase are we, now? Is the current global economic environment expansionary or contractionary?
Monetary policy is only viable to the extent that currencies can attain equilibrium with assets and output. If equilibrium is not attained, then neither is the purpose of monetary policy. Currency is just an implied measuring stick for the promise - and the ability - to pay.
Global monetary policy is printing promises; QE, stimulus and deficit spending are flooding economies with liquidity. Everyone is getting promises, but how can we measure what's really happening?
Here's a metric: the kilojoule. Without kilojoules, no economy can survive. If the currency measures an economy that can buy more kilojoules than it spends, then the currency will be strong. Some countries will do better, others worse. Currently none are doing well, even those with an abundance of kilojoule assets - because they can't unlock the asset value without purchase.
The number of kilojoules that can be purchased with any US asset, or for which any US asset can be sold is declining, and will continue to decline. That's also true in Germany, the UK and Japan.
By that measurement, we are entering a deflationary phase. At some point - I don't know the timing - global economics will redefine itself. Using the kilojoule metric, many countries, their economies, their currencies and relative valuations are badly distorted at present. They must, and will reset.
Valueless financial transactions, and the crisis they caused robbed many - but after their impact has been mitigated comes a greater realization: we can't go back.
The world has changed. The dynamic of export-led economies functioning with unlimited access to cheap energy is over. Regardless of currency fluctuations, contraction is inevitable.
JMO,
Jim |
