They are economies where the pricing mechanism can uncover new gains or new losses and adjust in time. This includes the price of financial reserves. The banking system will always be the most accurate sector by far. Money is designed that way, it needs to adapt much faster than good because it measures good. Hence,m banker imbalances get uncovered first, then goods imbalances.
When the economy suffers a consistent consumer price rise relative to producer prices, then the economy is continuing to uncover unexpected losses, and charging the cost to the consumer.
Government in the USA operates with continuing losses, these losses are uncovered at the rate of about 2% a year. The number is found in the differential between produce and consumer price changes. I should be money neutral.
The way the financial system adapts is it looks farther back to try and uncover potential gains from government that are offsetting. Hence, the financial system grows in depth and breadth to the extent that government is operating which a much longer cycle. When the financial system cannot uncover any long term gains , all the current losses are consider permanent and the consumer gets a big price hike. The consumer reduces goods and increases cash.
That is what happened to us. Housing and oil gave up looking for long term gains and just started raising prices. The impossibility of finding long term gains to cover recurring, unexpected costs means we are no longer an optimum currency zone. Government inaccuracy has trashed the economy. It is not that the consumer cannot pay for government losses, its that long term losses are uncovered all at once.
I have the accuracy of the financial system as 3%. The general economy about 12%. Government about 25%. Combining all the accuracies, without fallacy of composition, but with fallacy of rough estimes; I get an economy accurate to 4 or 5 %. Which is to say, money will describe the imbalances of government to 5%. Government will be slightly better balanced to 15%, the real economy to about 8%.
That is a damn accurate look at 15% dysfunctional government. Government has very accurate eyes watching, predicting its very blunders before government discovers them. These are relative losses and the consumer get the charge.
Look how fast the economy uncovered Obamacare costs. It took much longer to uncover NCLB csts. We will see consumer price rises and producer price drops and a large class of consumers will dissappear.
Government will shrink, get efficient, and borrow long; in some proportion.
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