Jerome Powell is a (Chico) Marxist (Part One)
The flash wobble and the employment conundrum - Part One:- Americana
In the last week or so we witnessed one of the sharpest capital market crashes on record appear as if from nowhere and then equally quickly seem to almost disappear again. This month’s outlook is dedicated to a special report focusing on a key aspect of what happened and what this means going forwards – welcome to the employment conundrum. This is the first in an interminable series exploring the employment conundrum, the winnowing of the US non-financial economy, how that impacted the recent, brief volatility spat and what it all means from here (warning - some parts of this are quite theoretical).
The employment conundrum
Part 1 - The American (stock) dream
For the last 15 years or more, we've been gradually increasing efforts to understand what might be termed the employment conundrum, both globally and also specifically in the United States, the largest global economy by most widely accepted metrics, since the late nineteenth century, having surpassed Great Britain’s industrial capacity in the 1880s and Gross National Product (GNP) in the 1890s.
America remains the world's largest economy in nominal terms, representing over a quarter of global Gross Domestic Product (GDP), a simple if in some ways misleading measure of economic activity. However, when adjusted for so called Purchasing Power Parity to reflect the relative costs of relative cost of local goods, services and inflation rates, it has recently been overtaken by China’s economy. Using this adjustment, the US economy ‘only’ represents between 1/6 to 1/7 of global economic activity. However, US global financial dominance has continued to expand in recent years –
The US Dollar remains the major global transactional and reserve currency, in symbiosis with the Petrodollar and Eurodollar (essentially financial transactions involving US Dollars outside America)
US capital markets have received a disproportionate 1/3 of global capital inflows since COVID (https://www.bloomberg.com/news/articles/2024-06-16/how-the-us-mopped-up-a-third-of-global-capital-flows-since-covid)
The US Treasury Market remains the global reference for ‘risk-free’ investment
The Dollar is still widely used by other countries as their official currency or as a de facto currency by the use of currency pegs or USD reference rates.
US equity markets comprise as much as 42.5% of global stockmarket capitalisation:
https://www.visualcapitalist.com/the-109-trillion-global-stock-market-in-one-chart/
Basically, in the global economy, there’s America and then China and then all the rest (and on an unprecedented scale, in terms of concentration).
https://www.visualcapitalist.com/2000-years-economic-history-one-chart/
In the world of equity markets, nothing comes to Wall Street…(and on an unprecedented scale, in terms of concentration).
Next time, we’ll dig deeper into the role of labour as an economic factor.
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About the Author:
Paul Gambles is licensed by the SEC as both a Securities Fundamental Investment Analyst and an Investment planner.
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