Sometime around 2003, inflation reared its head telling the Fed that the current distribution net cannot support current growth rates, the links will be broken sometie in the future. So the Fed raises the nominal against a bloated curve, signaling the need to forego more current consumption and invest in future production. Bit by bit he raises the rate, staying below the real growth rate, catching up. Then at the top, the turn around, when the next increment of foregone consumption is more than the household can stand. So the LM equilibrium changes when whole groups of producers begin exiting and the LM predicts low future growth. The Treasury curve suddenly inverts, as the LM shift happens faster than the Fed is allowed to react, somewhere around 2007.
What caused the jump in the LM curve from high to low growth? Mainly a realization that the current energy distribution network could not be filled with current energy production. The cause of the sudden realization was the web, the better ability to predict future deliveries.
The long term interest rate, the ten year, has been dropping since the 80s. Interpreted as its own LM function, that rate has been telling us that current production in the USA was more than sufficient to meet future growth. No long term investment was needed, mainly because info tech was spreading production know-how around the world.
Long term safety meets short term commodity constraint.
No comments:
Post a Comment