Wednesday, April 15, 2015

Social Events Drive Economics

Demonstrators demand a raise




Economic trends are social phenomenon. At present in the U.S. there is pressure building to raise wages for low income workers. Hardly a week goes by that I don’t see a demonstrators somewhere demanding a rise in the minimum wage. This time to $15. Nearly double what it is now. It is about time that labor woke up. I guess all it took is the stock markets going up for five years and zero interest rates for the same time.

So, it looks like low interest rates will cause inflation, and not just in the asset prices. The social public is not unaware of the rises in stocks and assets in general, and the greater divide between the rich, those who benefit from low interest rates, and the poor who watch the goings on and become increasingly angry. Angry enough to demand a share of the largesse.

Economics is a social phenomenon.

Look for wages to rise over the next couple years. Look for prices of goods to rise moderately as the increased buying power of the lower working classes pushes the cost of basic goods higher. They won’t be buying Tesla cars, they will buy Fords and Hyundai cars, and new cell phones.

Business may see a shrinking of the profit margin, but volumes will increase and this will be the carrot in front of investors who will hope to rein in the labor costs or increase productivity in order to regain the lead in money accumulation.

This is a recipe for inflation. The central banks will be reluctant to kill this golden goose after decades of deflation terror. The Fed will lag the inflation and therefore encourage prices to rise and the Dollar to decline. All the while "keeping their eyes on the data".

Now is the time to look long term at energy, metals and even the banks who will lend as the velocity of money increases with the wealth infusion at the bottom of the pyramid. There will be extra money in the hands of those without debt. They will want to catch up fast.

The next few years may make the 70's look tame.
The trend will change!

gh

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