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Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

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Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#131

Post by bildung »

iav wrote: post #78
koolba wrote: post #18

Earlier quoted context omitted.

> ... currencies haven't been debased ... We’ve printed trillions of dollars and Congress is en route to print trillions more. The price for that has yet to be paid.

My estimate is the death toll from Covid is saving trillions in future benefit obligations for the US overall. From a GAAP perspective, the epidemic might come out a wash. This contrasts with the 1918 pandemic, which mainly killed the young and productive.

The US isn't a small business, and as such debt works different. If the US now borrows $1 trillion, it currently pays essentially 0% interest. Assuming 2% inflation that means the whole debt has a value of just 370 billion in 50 years, without paying back a single cent.

But this is only the beginning: If the US gets that $1 trillion debt, that money didn't just vanish. It gets spent in the economy, people consume things, stay employed etc., infrastructure gets developed and so on. ROI is usually there after only a few years: "Research [...] showed that one dollar of public money spent during the 2007-09 crisis could generate 2.5 dollars of output in five year’s time." https://theconversation.com/how-much-bang-for-a-buck-working...

So for every $100 the country borrows in the current climate, it only has to pay back a $37 in 50 years while getting returns of over $200 in 10 years.

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#132

Post by imtringued »

lettergram wrote: post #61
throw0101a wrote: post #49

Earlier quoted context omitted.

> We’ve printed trillions of dollars and Congress is en route to print trillions more. First off: it's not Congress that controls the money supply, it's the Fed. They're independent. > The price for that has yet to be paid. What price is that? Inflation? Japan's M2 has risen a lot, and it hasn't seen any for decades: * https://fred.stlouisfed.org/series/MYAGM2JPM189S * https://fred.stlouisfed.org/series/FPCPITOTLZGJP…

You sure inflation isn’t here? Houses are up massively, land, cars, stocks, crypto, etc. The inflation measurement is off. But the inflation is here.

No, there is no inflation. When the Fed talks about inflation it talks about CPI inflation. Why is the CPI inflation rate important? Because unlike stocks and houses and other assets CPI tracks the real economy. If unemployment or underemployment is high then CPI inflation is low which tells you that the economy is doing very poorly. Most economies had their highest growth during years with moderate inflation. Maybe 4-5%.

What you are calling inflation is actually the opposite. It's deflation. When hoarding assets becomes more profitable than working, the real world economy starts dying and CPI reflects that very well.

Workers benefit from inflation because inflation is generally followed by productive investments. Driving prices of consumer goods up makes it profitable to produce them which makes it profitable to employ people to produce them.

Deflation makes it harder to run a profitable business but it also makes it easier to run a non profitable business (that also includes overvalued businesses that do not earn enough to justify their valuation).

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#133

Post by imtringued »

throw0101a wrote: post #63
lettergram wrote: post #61

Earlier quoted context omitted.

You sure inflation isn’t here? Houses are up massively, land, cars, stocks, crypto, etc. The inflation measurement is off. But the inflation is here.

You list assets, which have generally always gone up in value over time. Inflation, i.e. CPI, is (roughly) about cost of living through a basket of goods: * https://awealthofcommonsense.com/2021/01/inflation-truthers/ * https://news.ycombinator.com/item?id=25644580 If you don't believe the government-published CPI you can confirm their work, as others have done: * https://en.wikipedia.org/wiki/MIT_Billion_Prices_proj…

>* Crypto is a Ponzi scheme.

I agree but that doesn't explain why Bitcoin had multiple bubbles and survived all of them. Bitcoin is highly deflationary. Bitcoins are lost all the time. The supply is only growing very slowly. It's also an "immature" asset compared to gold so a large influx of a new class of investors can drive the price up.

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#134

Post by bildung »

snidane wrote: post #121
perfunctory wrote: post #118

> suggestions about the ‘virtual stability’ of capital returns, and the policy implications advanced by Piketty (2014) are in consequence equally unsubstantiated by the historical record. capital returns != interest rates

> capital returns != interest rates What makes the difference? That one comes from stocks and the other from bonds and loans? Or the amount of risk associated with it? I don't think there is a difference for an investor who just picks whatever instrument yielding higher ROI, whether it is risky tech startups or risk free government bonds. Tech startups have higher return on capital with higher risk, government bonds…

Capital returns is the superset (in the way it is used by Piketty). Capital returns include "profits, dividends, interest, rents and other income from capital" https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#135

Post by imtringued »

ajmadesc wrote: post #119
orasis wrote: post #114

Earlier quoted context omitted.

There is no crypto economy. It doesn’t create value so it should not be considered an asset.

Do contract lawyers add value?

If everyone was honest then no. Unfortunately we don't live in such a world so we have to trust a third party.

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#136

Post by throw0101a »

hanniabu wrote: post #91
throw0101a wrote: post #63

Earlier quoted context omitted.

You list assets, which have generally always gone up in value over time. Inflation, i.e. CPI, is (roughly) about cost of living through a basket of goods: * https://awealthofcommonsense.com/2021/01/inflation-truthers/ * https://news.ycombinator.com/item?id=25644580 If you don't believe the government-published CPI you can confirm their work, as others have done: * https://en.wikipedia.org/wiki/MIT_Billion_Prices_proj…

> Crypto is a Ponzi scheme. I've never heard anybody educated on the matter make this statement. It's always from someone that doesn't understand it and therefore thinks it's a scam.

What purpose, exactly, does crypto serve? What problem does it solve?

It has failed as a payment system, as a currency, as a reserve currency, a remittance channel, a timestamping service, a settlement layer, a bank for the "unbanked", a cypherpunk liberator, a money laundering tool, a drugs-by-mail tool, a unit of accounting, a store of value, and as a "disruptive" fintech technology.

What exactly is the value in holding Bitcoin (or whatever)? My only hope is having someone in future come along and take it off my hands at a higher value than I bough it.

When I think of crypto/Bitcoin, I am reminded of Warren Buffett's view on gold:

> Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.

> Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

[…]

> A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

* https://www.berkshirehathaway.com/letters/2011ltr.pdf

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#137

Post by trent_lott »

peteretep wrote: post #47
kristopolous wrote: post #13

This isn't surprising. Risk and rates are related and there's been an increase in stability and decrease in risk throughout the centuries. As far as a stable society goes, low interest rates are a good sign Even amidst this terrible pandemic, no country has collapsed, nobody has gone to war, currencies haven't been debased, all protests have more or less been handled, nothing is truly out of control. Mass death and f…

> Mass death Covid has killed a lot of people and created a lot of heart-break, and it would be heartless to try and minimise that or to view it in purely economic times in this moment. However, I think that in 100 years, future historians will describe the effect of the deaths itself as being pretty negligable: maybe 10% over the expected rate without Covid in 2020 and 2021, maybe 5m people in each year total, again…

It will have an effect on our population to have an additional 0.15% of Americans die in a year, especially in an event that affects countries more or less the same way

Not a localized famine or war, but a global thing.

What can it compare to? The number of dead is remarkable.

With the growing antivax movement making herd immunity less certain...this will surely be known for the number of our dead

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#138

Post by throw0101a »

postingawayonhn wrote: post #100
mxcrossb wrote: post #77

Earlier quoted context omitted.

I think your analysis is right, but if cars and houses are things that people buy with borrowed money, it does seem like interest rates being low would drive prices up. And it might increase the price of inflation proof assets like crypto. Is there a framework we should be describing this with besides the broad “inflation” term?

There's a practically unlimited supply of cars. If people start buying more manufacturers will produce more.

But they can only be produced at a finite rate, which may cause competition amongst buyers in the short term as they bid against each other for the finite number that are on the lot.

Further, the resources needed as raw material are finite (unless we start asteroid mining), as is the energy needed in the process: we have only so many gigawatts we can produce at one time.

More plants can be built, but those take resources as well: some of the very same resources that are needed to build the cars we're talking about.

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#139

Post by saint_abroad »

hanniabu wrote: post #91
throw0101a wrote: post #63

Earlier quoted context omitted.

You list assets, which have generally always gone up in value over time. Inflation, i.e. CPI, is (roughly) about cost of living through a basket of goods: * https://awealthofcommonsense.com/2021/01/inflation-truthers/ * https://news.ycombinator.com/item?id=25644580 If you don't believe the government-published CPI you can confirm their work, as others have done: * https://en.wikipedia.org/wiki/MIT_Billion_Prices_proj…

> Crypto is a Ponzi scheme. I've never heard anybody educated on the matter make this statement. It's always from someone that doesn't understand it and therefore thinks it's a scam.

Since crypto pays no return on profits it cannot meet the definition of a Ponzi.

It is more akin to tulip mania, dependent on inflated futures with diminishing utility.

Presently though, it's better than cash, which finds itself in a similar position.

Re: Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)

#140

Post by imtringued »

mrec wrote: post #99
Robotbeat wrote: post #90

Earlier quoted context omitted.

Money is not supposed to be a "safe" store of value. It's supposed to be a stable one. Too low of inflation is bad because it means less investment in the physical economy. The Fed prints money to try to keep people from just hoarding cash. They want some inflation (and definitely not deflation) because a deflationary spiral means more and more money gets stuffed into mattresses instead of physical investments. Unfor…

> Too low of inflation is bad because it means less investment in the physical economy But why did this apparently only become the case after 2008? Positive real returns without gambling were acceptable before that, and we still got a gigantic speculative bubble, so why does it suddenly become reasonable to encourage bubbles even more? Was it just a coordination problem? An initial panic reaction to slash to zero, an…

You can blame the Fed for one thing, and only one thing. They provided way too much money on the wrong side.

The Fed provides loans to banks who then provide loans to companies so that they can grow faster. It's about increasing efficiency, not about total possible upside.

However, there is a point after which businesses have enough loans for all the investments they have planned. Every single dollar after that is too much and does nothing.

The next step is to spend money in a way that creates more investment opportunities for those companies. In short you want to balance supply and demand.

The simplest spending target would be to pick a industry that is not in competition with private industry. My personal favorite are renewables and other infrastructure because you will not displace existing companies through government spending.

Carbon taxes also create an incentive to borrow more money and do productive work but they do gnaw at CO2 spewing private industry which is the entire point but there are vested interests that don't want to lose their money.

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