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03/29/2016

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Hi.

"(...) capital starts consuming its own aggregate income.". Could you please explain what that means ? What are the implications ? I do not understand.


Thank you for your work. Good day.

Hello A. Matthey,
The models that I have looked into show that when capital income starts utilizing labor and capital beyond an effective demand limit, capital income starts to decrease. This happens as further purchases of production must come from capital income. So the return on capital income for production is a zero sum game and capital income stops utilizing more labor and capital so that production stays within limits that labor income will purchase.
I am speaking of aggregate capital income.
Edward

I just stumbled across your site and have been studying it intently. Very nice work!
One of the most reliable recession indicators, the treasury yield spread, has most likely been rendered ineffective by the Fed's zero interest policy. Since your Effective Demand tracks very closely what the Fed interest rate SHOULD BE, I'm wondering if we couldn't subtract Effective Demand from the 10 or 20 Year Treasury Yield to get an approximation of what the Yield spread should be?

Also, is there a way to calculate ED using the charting tools at FRED? If not, is there a place where I can access historical ED values?
Thanks

DV,
Sorry to respond so late.
I will add a graph to the right on this blog for viewing ED with real GDP and potential GDP.

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Data as of 1stQ-2017
Effective Demand = $17.613 trillion
Real GDP = $16.842 trillion
Productive Capacity is rising to next business cycle = $23.285 trillion
UT index is rising = +3.9%
Effective demand limit = 76.2%
TFUR = 72.3%
ED Fed rate rule (down from a peak of 3.8% in 2014) = 1.4%
Estimated Natural Real Interest rate = 2.0%
Short-term real interest rate (fallen from 2.8% peak in 2014) = -0.3%

There is no recession for 1stQ-2017. I am expecting a recession by end of 2017.




Click on Graphs below to see updated data at FRED.

UT Index (measure of slack):

The UT Index

z-vertical:

z-vertical

z derivatives in terms of labor & capital:

z derivatives in terms of labor & capital

Effective Demand, real GDP & Potential GDP:

ED, real GDP & pot rGDP

ED Output Gap:

ED Output gap

Corporate profit rate over real cost of money:

Corp profit rate over real cost of money

Exponential decay of Inflation:

Corporate profits impact Inflation

Measures of Inflation:

Measures of Inflation

YoY Employment change:

YoY employment change

Speed of consuming slack: yoy monthly:

Speed of consuming slack

Speed of consuming slack: quarterly:

Speed of consuming slack quarterly

Real consumption per Employee:

real consumption per employee 2

Will real wages ever rise faster than productivity?:

Productivity & Real Wages

Real Wage Index:

real wage index

Productivity:

Productivity

Productivity against Effective Demand limit:

Prod & ED limit

Bottom of Initial Claims?:

Initial claims

Tracking inflation expectations:

Fisher effect?

M2 velocity still falling:

Measures of Inflation

All in one:

All in one

Double checking labor share with unit labor costs & inflation:

ULC LS CPI
My Photo
Edward Lambert: Independent Researcher on Effective Demand.
Some links for economic analysis
Fed Views - San Francisco Fed, around 10th of each month.
Well's Fargo monthly - around 10th of each month
Well's Fargo weekly
Well's Fargo Interest rate report
Well's Fargo Economic indicators
T. Rowe Price weekly market wrap-up
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