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Fed Ends Zero-Rate Era

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Re: Fed Ends Zero-Rate Era

#171

Post by scarletham »

kasey_junk wrote: post #19
chollida1 wrote: post #15

Nanex, an account that follow market micro-structure, had an interesting tweet that showed how the liquidity on 10 year Treasuries just dried up prior to the announcement. https://twitter.com/nanexllc/status/677202959030083584 I'm surprised this story has gotten so many votes so fast. This rate hike was widely predicted, as intentionally as the fed could by law so that they don't impact the markets too much. Alot of…

Treasuries always dry up in front of fed announcements. It's marked on the calendar like job numbers and other macro items that can cause wild swings. Its much cheaper to just not trade during those times than it is to build out the models/risk management components for most market makers.

Equities dry up as well. Pretty much everything dries up before FOMC announcements.

Re: Fed Ends Zero-Rate Era

#172

Post by ap22213 »

vezzy-fnord wrote: post #74
toomuchtodo wrote: post #51

Earlier quoted context omitted.

Exactly correct. The Federal Reserve has the knobs and levers to create asset bubbles, but not to stoke consumer demand. Only Congress can do that with legislation increasing the minimum wage, changing corporate taxes so it behooves companies to pay employees more, or legislation increasing entitlements such as social security. Those in lower and middle classes are the ones who govern the velocity of money through th…

increasing the minimum wage Be careful what you wish for: http://marginalrevolution.com/marginalrevolution/2015/03/how... legislation increasing entitlements such as social security Expected to run structural deficits by a certain point. Theoretically speaking, an endogenously determined fiat money system doesn't really have "government debt" what with it being the sovereign issuer of debt to begin with, but in reali…

So, the alternative is what? Allow wages to move toward zero? Then what?

Re: Fed Ends Zero-Rate Era

#173

Post by wildmusings »

jbooth wrote: post #105
zeveb wrote: post #102

Earlier quoted context omitted.

> We need the Federal government to stimulate aggregate demand at the consumer level. Investing tax dollars in a smarter manner. Isn't it highly unlikely that tax dollars will be spent or invested more wisely than the original owners of those dollars would have spent or invested them, since no-one would have known the owners' preferences as well as the owners themselves? Keynesian pump-priming ends up thinking it mak…

It's not about 'wisely' in terms of returns to the individual who invested, it's about 'wisely' in terms of creating aggregate demand. For example, funding a bunch of national infrastructure projects would have horrible returns, being a 100% loss to the person who spent the money. But that money circulates in the economy, creating demand, and we get the infrastructure afterwards as well. That's speculation, of course…

There are very respected economists and historians on all sides of debate as to whether the New Deal programs were effective, not effective, or if they actually prolonged the depression. Also, the New Deal was multi-faceted, so any analysis of its effectiveness needs to be specific. What parts were effective? Giving legal privileges to labour unions? Infrastructure investment? Social Security? Tax changes? You also have to consider the political side. Some of the New Deal proponents claimed that they saved capitalism, by preventing the crisis from boiling over to revolution. If they're right, there's certainly value in that. Now apply any lessons learned to today, a very different set of economic, social, and political circumstances.

Also, beware of the broken window fallacy. Unproductive make-work is of no net benefit to society, and if foregone productive work is the opportunity cost, it's a net loss. Obviously, infrastructure investment is ideally productive, but the government has a pretty terrible track record for effectively spending money.

Re: Fed Ends Zero-Rate Era

#174

Post by jacquesm »

SapphireSun wrote: post #166
brc wrote: post #114

Earlier quoted context omitted.

Consumer demand is meaningless. Trying to push it is like trying to push a string. Demand is an artefact of production. Unless your economy is producing, you won't increase quality of life and wealth for all citizens. This point is obvious, but gets completely lost in all the frenzy around 'stimulating demand'. To buy something, first you have to produce something worthy of exchange. Everyone has to start from this p…

Sort of.... you want more stuff if you have more money, but if you have little money, at one point, your propensity to save increases to avoid poverty, whereas below some point I imagine you spend everything you have (not much) as fast as it comes in.

> you want more stuff if you have more money

I don't think that's a valid statement. There is only so much 'stuff' that you can use. Beyond a certain level more money does not translate into a better quality of life or more 'stuff' for most people, there are a few outliers but lots of very wealthy people are actually quite modest. They're so modest you won't read about them in the newspapers.

Re: Fed Ends Zero-Rate Era

#175

Post by dragonwriter »

bpodgursky wrote: post #158
Frondo wrote: post #145

Earlier quoted context omitted.

Nah, it's actually pretty easy. The 535 people just need to assign general priorities, like spend a third our country's money on health care and education, a third of it on infrastructure, a little bit on funding pure research, and whatever's left over, the military can have. They're not in charge of deciding how each individual dollar is spent, and they shouldn't be.

This is super naive. For much of the past decade, congress could have removed the entire discretionary budget (yes, including the military) and still had a deficit. The deficit is driven by social security, medicare, and medicaid. If you want to balance the budget, you have to reform those.

> For much of the past decade, congress could have removed the entire discretionary budget (yes, including the military) and still had a deficit.

Two fiscal years in the past decade (2010 and 2011) had deficit exceeding discretionary spending. That's not "much of the past decade". (The highest deficit was in 2009, but discretionary spending was actually higher.)

> The deficit is driven by social security, medicare, and medicaid. If you want to balance the budget, you have to reform those.

The deficit is driven by a shortfall of revenue vs. spending. Even if your portrayal of the spending side was accurate, ignoring the revenue side is not. If you want to balance the budget [0], you probably shouldn't ignore one side of the balance.

[0] The question of whether you should want to is one which is rarely addressed directly, merely assumed.

Re: Fed Ends Zero-Rate Era

#176

Post by daodedickinson »

Need is the construction of the world order; satiety is the universal conflagration. (Kahn translating Heraclitus) If you want to stoke consumer demand in a country where the poor have massive televisions and cable, maybe notch up the bullying of people wearing cheaper brands and carrying fake designer brands and charge 30 grand for VR headsets but advertise them during the Super Bowl? I dunno. I've never even had a real job and there aren't any gadgets I want and I want to get more crap out of my house than I want to add. Eliting schooling for hypothetical kids I'll probably never have is the only big ticket purchase I can seem to summon strong desire for.

Re: Fed Ends Zero-Rate Era

#177

Post by millstone »

brc wrote: post #122
PaulWillis wrote: post #61

Earlier quoted context omitted.

Isn't investing in bonds putting money to work in the economy? And how does the government really stimulate demand? Nobody demanded an IPhone before it existed. Good products stimulate demand.

production creates demand. Not because people want to buy it, but because the act of production gives you something to trade. The people who build iPhones (Apple employees) produce something valuable (iPhones). Everyone else has to produce something to trade for an iPhone - a bushel of wheat, a written work, a clean window, a haircut, a night of entertainment. The act of production and trade is what creates wealth an…

> production creates demand. Not because people want to buy it, but because the act of production gives you something to trade

What are you describing is called Say's Law. There's various ways it can be false, and the US economy experienced lots of them.

An example of how production does not create demand: people can save money for the future. A person who wants to save more will produce more (work harder) and reduce their spending. If everyone does this simultaneously, we get a glut: supply exceeds demand, and real production will fall.

Note the simple remedy: give everyone money, everyone can increase their savings, and resume their old level of demand. Here money did increase real output. And (even in your example) everyone got money, so the Apple employees were not cheated. Lost real income from iPhone sales is compensated by the additional money they received.

https://en.wikipedia.org/wiki/Say%27s_law

Re: Fed Ends Zero-Rate Era

#179

Post by theseatoms »

ap22213 wrote: post #172
vezzy-fnord wrote: post #74

Earlier quoted context omitted.

increasing the minimum wage Be careful what you wish for: http://marginalrevolution.com/marginalrevolution/2015/03/how... legislation increasing entitlements such as social security Expected to run structural deficits by a certain point. Theoretically speaking, an endogenously determined fiat money system doesn't really have "government debt" what with it being the sovereign issuer of debt to begin with, but in reali…

So, the alternative is what? Allow wages to move toward zero? Then what?

A global minimum income. Or the strictly-superior-to-a-minimum-wage Earned Income Tax Credit [1].

[1] https://en.wikipedia.org/wiki/Earned_income_tax_credit

Re: Fed Ends Zero-Rate Era

#180

Post by mindcrime »

jellicle wrote: post #149
zeveb wrote: post #102

Earlier quoted context omitted.

> We need the Federal government to stimulate aggregate demand at the consumer level. Investing tax dollars in a smarter manner. Isn't it highly unlikely that tax dollars will be spent or invested more wisely than the original owners of those dollars would have spent or invested them, since no-one would have known the owners' preferences as well as the owners themselves? Keynesian pump-priming ends up thinking it mak…

There are a vast number of situations where the individual decisions about how to spend money/take action may be the best for the individual, but bad for the society overall. For each and every one of those, it's better for society to act as a unit to make the optimal decision. https://en.wikipedia.org/wiki/Tragedy_of_the_commons

> For each and every one of those, it's better for society to act as a unit to make the optimal decision.

Depends on how you define "better". Who is to say that "better for society" trumps "better for the individual". There's no particular objective reason to take that position over the one favoring individual choice.

https://en.wikipedia.org/wiki/Tragedy_of_the_commons*

If everybody owns something, then nobody owns it. We should probably rethink our notion of what "the commons" means, vis-a-vis property rights.

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