Earlier quoted context omitted.
If you mean the money the Fed printed as part of QE, no, it went into the banks' reserve balances at the Fed, where it has been ever since.
Which frees up other money for other things.
What other money?
What Economists Still Don’t Get About the 2008 Crisis
231–240 of 247 posts
Re: What Economists Still Don’t Get About the 2008 Crisis
#232To me the biggest mystery about the 2008 crisis is why so much QE has resulted in so little inflation. The only convincing arguments I have heard so far is that: 1. at the same time banks were forced to significantly deleverage, so while the fed was pouring money into the systems, banks were effectively pouring money out of the system. 2. inflation happened but it was all concentrated into financial assets, real esta…
"To me the biggest mystery about the 2008 crisis is why so much QE has resulted in so little inflation."
Because what you call money is just a 0% permanent bearer bond to anybody not in your currency area.
QE is just a swap from interest paying savings to non-interest paying savings. If you're scared, you don't need paying interest to save, and anybody without a good index linked state pension to look forward to is scared.
Re: What Economists Still Don’t Get About the 2008 Crisis
#233Re: What Economists Still Don’t Get About the 2008 Crisis
#234Earlier quoted context omitted.
Physics was able to go on from the simplistic models, refine and extend them to both a wide scale and very high quality of theoretical and empirical concurrence in exquisite detail and generality. On the other hand, economics goes on from Homo economicus into a mass of mathiness with very poor empirical correlation except perhaps in very very narrow circumstances.
The second part of your analogy is off. It's not billiard physics to general relativity, it's billiard physics to fluid dynamics and predicting the exact route of a stick through a set of rapids. In economics our biggest complaints are around failure to determine that we're near a singularity and failure to predict behaviour through singularities (in a signal processing sense). It's understandable, as we all strongly…
Fluids is a pretty good metaphor, but I would say that today we have sufficiently good reproducible physical understanding of fluids that we can generally fly airplanes at a high level of certainty (e.g. turbulence on the wings is both predictable and controlled in the correct ways that the plane does not crash). In comparison we crash the economy and even sub portions of markets periodically (and the last general crash was worse than many previous recessions) - we don't even have a complete picture of which turbulent areas to be wary of economically.
Or to maybe to a more human point, we can carry humans around on airplanes just fine, but don't know how to carry a payload of a nation of humans on a stable and healthy economic vehicle.
Re: What Economists Still Don’t Get About the 2008 Crisis
#235To me the biggest mystery about the 2008 crisis is why so much QE has resulted in so little inflation. The only convincing arguments I have heard so far is that: 1. at the same time banks were forced to significantly deleverage, so while the fed was pouring money into the systems, banks were effectively pouring money out of the system. 2. inflation happened but it was all concentrated into financial assets, real esta…
> To me the biggest mystery about the 2008 crisis is why so much QE has resulted in so little inflation.
The IS-LM model has a phenomenon called the "(Hicksian) liquidity trap"
* http://people.ds.cam.ac.uk/mb65/library/boianovsky-2004.pdf
How it applies to quantitative easing (QE):
* https://pro.creditwritedowns.com/2010/10/on-liquidity-traps-...
Basically, as the the rate of interest goes down, the demand for money increases (because it becomes cheap(er) to borrow). This is why when the economy tanks, central banks lower interest rates: cheap money encourages people / business to borrow and spend (thus increasing demand, and stimulating the economy).
However, at a certain point the demand for money becomes perfectly elastic. This is the generally when the interest rate is zero, which is where we were at from 2008 and for some years. The interest rates can't go negative (well, mathematically they can, but practically they generally don't (with some exceptions)).
This is called the zero lower bound, and once you're here, IS-LM says that you can print money without worrying about inflation too much:
* https://en.wikipedia.org/wiki/Zero_lower_bound
Once you do see the economy recovering (through un/employment rates and inflation), you stop printing money and start increasing interest rates.
I know some people on HN like to rag on Krugman, but he was saying all of this over the last ten years, and has generally been correct. All of the above is fairly straight forward IS-LM (which he exposes).
The Great Recession has been pretty good as a "scientific" experiment to see whose predictions were accurate: turns out the demand-side Keynesians were pretty good, and the Chicago-school supply-side folks were not.
Re: What Economists Still Don’t Get About the 2008 Crisis
#236the post-2009 recovery is now the longest ever ,exceeding the 90's even, and I think it will last much longer given how low interest rates still are and the absence of any problems. I think this calls into doubt business cycles and other concepts economists take for granted. The steady-state economy (similar to that of Australia) where there are few, if any, recessions may be the applicable model. People get too hung…
Australia absolutely has business cycles and recessions. Here's a paper describing them: https://www.imf.org/en/Publications/WP/Issues/2016/12/30/Key-Features-of-Australian-Business-Cycles-15438 Granted, the paper is from 2001, but it describes what's unique about the Australian cycle--symmetry between growth and recession periods. Rather than short, sharp recessions with prolonged growth, Australia has extended peri…
That paper looks at the 41 year period from 1959 to 2000, so the fact that Australia hasn't had a recession for the 17 years after that is fairly significant.
Re: What Economists Still Don’t Get About the 2008 Crisis
#237Earlier quoted context omitted.
Arguing that Australia's 30 year history of no recession is build on 'financial shenanigans and housing' are the arguments of people who defend a theory that is not workable. Even were that so, why can Australia managed this 'shenanigans' but others can not. I agree with the Article, the Australian central bank did its job and they didn't have a crisis, the Fed was a disaster and the US suffered the consequences. The…
My point there was that Australia did not have an economy based on finance and real estate maneuvering, like the US and much of Europe in 2006. If, on the other hand, Australia's rising housing prices are supported by increasingly sketchy loan practices, the Australian central bank will have another opportunity to practice its skills.
This is wrong. Australia didnt have a recession because of its monetary policy.
The economy in the US was not based on real estate manuvering and the US had a recession because of bad monetary policy.
Re: What Economists Still Don’t Get About the 2008 Crisis
#238Earlier quoted context omitted.
Tons of war happen without run up. Even if the run-up happened threw-out a period of months, it would still be shock. A shock is change relative to some trend, not necessarily a fixed thing that happens in the news. > As late as 2006 and 2007, we have economists on record as saying "everything's dandy". This was not due to a lack of data; they had most of the information then that we're arguing about now. Instead, it…
You seem to be asserting that events like 2006-2009 are, in principle, unforeseeable. If so, you are making my point for me.
No. The point is that the recession happen because of monetary policy mistakes in 2008 and the only way to know if it was gone happen would be to have perfect knowlage of how the central bank is was to respond to monetary demand changes in 2008.
Re: What Economists Still Don’t Get About the 2008 Crisis
#239It's a pleasure to read an article by a writer who understands of the history economic thought, though I suspect I will disagree with him on a lot of things. Anyway, this is interesting. I'll look up these economists. On the face of it, I think it's interesting how economists are hesitant to consider money real. Money is fictional to most economists. What's real is consumer surplus, utility or some other abstract way…
I liked Debt until I got up to the chapter on the 20th century where I knew something about the history involved and, well, you have stuff like "Apple Computers is a famous example: it was founded by (mostly Republican) computer engineers who broke from IBM in Silicon Valley in the 1980s, forming little democratic circles of twenty to forty people with their laptops in each other's garages." The whole chapter was fil…
I was going to buy the book but after reading your comment, I wont.
Re: What Economists Still Don’t Get About the 2008 Crisis
#240Earlier quoted context omitted.
> Or money printed to pay ordinary people whose retirement savings had collapsed through no fault of their own. And yes, that would have caused inflation We did exactly that. The Fed orchestrated the greatest ordinary person bailout the world has ever seen: it reinflated the US housing market and salvaged the net worth of the entire middle class in the process. It did cause vast inflation. Just look at the cost of a…
> The Fed orchestrated the greatest ordinary person bailout the world has ever seen: it reinflated the US housing market and salvaged the net worth of the entire middle class in the process. How the the Fed do this? Certainly not by QE, which did none of these things. > Just look at the cost of a house in 2012 vs 2018 What did the Fed do during this time? Most of the money printed by QE happened from 2009-2013, and Q…
QE bought a lot of long term junk-ish bonds (full of "AAA housing"), no?
QE was the bridge between the two sides of the chasm, hence it's not visible on the graph. We see a rapid fall, a smooth bottom and a nice rise, but it could have been simply a big crash at the bottom and nothing for a decade.