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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)

#141

Post by imtringued »

deepnotderp wrote: post #94
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…

CPI has been kept down because of electronics and other manufactured goods like automobiles, things like healthcare, college education and textbooks and real estate have increased dramatically.

If that money was used to build new housing then it would drive economic growth. I'm still split on college education. In theory professors should see higher salaries and thus drive up CPI inflation. In practice universities overproduce professors and can hire them for the lowest salary possible.

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

#142

Post by throw0101a »

imtringued wrote: post #133
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 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.

> I agree but that doesn't explain why Bitcoin had multiple bubbles and survived all of them.

For the same reason people still go to astrologers or think that during the playoffs the can't shave or their favourite team will lose: cognitive biases and wishful thinking.

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

The fact that the bubbles happen so often and and so drastically is another reason that I avoid it: volatility is generally a proxy measurement of risk, and what reward am I gaining by taking on this risk?

Everyone is bullish on it at >US$ 40K, but people seem to have forgotten that it dropped by half in two days in March 2020:

* https://www.cnbc.com/2020/03/13/bitcoin-loses-half-of-its-va...

If someone wants to have it in their 'portfolio' at some small percentage as part of their "play money" that's one thing, but to make it a significant portion seems foolish to me.

I do feel a bit of FOMO, and may eventually create a trading account with like 5% of my portfolio for playing around in WSB and Crypto and such, but right now I'm fully invested in index and bond funds (80/20), so don't really have spare cash available for any of these temptations.

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

#143

Post by imtringued »

bertjk wrote: post #67
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.

The price is paid every time someone has to overpay for housing, and every time someone deposits money into their 401K which will invariably be invested chasing riskier and higher priced assets, whose future returns increasingly depend on stock appreciation, and less on dividend yields which will never catch up. Consider for a moment the common advice to just "buy and hold the SP500", and then the recent news that TS…

Yes, this is why I always say that capital gains taxes should be increased and dividends taxes decreased.

It discourages hoarding. You can make capital gains off of so many different reasons that have nothing to do with the performance of the stock. It's insane.

Meanwhile dividends are entirely dependent on the income of a company. You can't cheat dividends because it's the company that has to pay them, not other investors that can drive irrational behavior.

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

#144

Post by imtringued »

throw0101a wrote: post #74
Gatsky wrote: post #71

Earlier quoted context omitted.

But what if you had an artificial cessation of economic activity which then suddenly resumed in the midst of a massive fiscal stimulus, unprecedented supply chain disruption and geopolitical manipulation of free trade?

We're about to find out. The traditional thing to do is raise interest rates when things start getting hot. But having "too much" economic activity is in some ways better than not enough with people being unemployed and such.

The big problem with too much economic activity is that there is too much economic activity in the wrong places. After WW1 that meant lots of basic needs could not be met because the economic focus was on war reparations. I don't think we are going to lack those basic needs this time around.

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

#145

Post by throw0101a »

deepnotderp wrote: post #94
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…

CPI has been kept down because of electronics and other manufactured goods like automobiles, things like healthcare, college education and textbooks and real estate have increased dramatically.

The Bloomber Commodity Index (BCOM) is at the same level now as it was in 1990:

* https://www.marketwatch.com/investing/index/bcom?countryCode...

Real estate is an asset: the CPI measures carrying costs, and those are fairly level. You get more automobile now for your money than in the past: I paid $30K for my 2003 Golf, and for the same $30K I get more safety, more horsepower, and better mileage.

I agree that health care and education (in the US) are the main areas where costs have risen.

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

#146

Post by imtringued »

hanniabu wrote: post #92
throw0101a wrote: post #56

Earlier quoted context omitted.

Economic activity: > The velocity of money (or the velocity of circulation of money) is a measure of the number of times that the average unit of currency is used to purchase goods and services within a given time period.[3] * https://en.wikipedia.org/wiki/Velocity_of_money Good video by a CFA trainer: * https://www.youtube.com/watch?v=l0mh7cCjwDU The first 10 minutes (maybe 20) probably has the most pertinent inform…

What's the logic behind economic activity leading to inflation? That seems very counterintuitive. From that equation, if you were to look at the extreme and print a ton of money and have zero usage there would no inflation. I would think the opposite would be true.

Inflation happens when demand outstrips supply. This not only applies to consumer goods but also to labor.

If there are more jobs than workers those workers will pick the highest paying jobs. That's inflation.

Here, I'll give you a simplified example. There is this game called prosperous universe. You can buy FE (Iron) to make BBH (construction material). People need BBH to build factories or farms or whatever. When everyone is producing BBH the demand for FE goes up. There is only a limited amount of FE on the market. You are buying the cheapest FE first. Eventually all the cheap FE is gone and only the expensive FE remains. The price of FE has risen. That's inflation. How do other players respond? They start investing into production of FE because there is a very clear profit motive.

Every factory you build in the game needs workers. By building factories you directly decrease unemployment.

I can also give you the opposite example. There is a high end facility that creates ES (Einsteinium) but there is very little demand for it. You run the factory for a month and start stockpiling a months worth of production. Then you demolish the factory because you don't need it anymore. Those workers are now unemployed.

You have to consider that unemployment has a greater impact on your finances than the inability to make money off of a checking/savings account. Actually, the interest rates are generally high enough that your returns cover inflation so in practice you are not losing anything.

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

#147

Post by imtringued »

ahepp wrote: post #27
kangaroozach wrote: post #24

Earlier quoted context omitted.

Printing money is debasing currency, no? We are stealing purchasing power from every holder of dollars.

Only if the purchasing power of a dollar goes down. I know MMT is controversial, but I think of it more as a focus on empiricism. Sure, rationality suggests that printing dollars will reduce the value of dollars. But kickstarting inflation is in some ways the entire point, no? And it has remained consistently below FR targets for the past decade (I believe, I'm not an economist and I'm not looking at any charts)

From what I can tell MMT is about carefully choosing the right place and strategy to print money.

By recognizing what the real limits to borrowing are you also gain an understanding of what to spend the borrowed money on.

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

#148

Post by imtringued »

jbay808 wrote: post #44
ahepp wrote: post #27

Earlier quoted context omitted.

Only if the purchasing power of a dollar goes down. I know MMT is controversial, but I think of it more as a focus on empiricism. Sure, rationality suggests that printing dollars will reduce the value of dollars. But kickstarting inflation is in some ways the entire point, no? And it has remained consistently below FR targets for the past decade (I believe, I'm not an economist and I'm not looking at any charts)

If I run a bakery and you run, say, the Mint... Ten years ago, I bake a loaf of bread, and sell it for a dollar. Then I invent an amazing machine that can produce the same bread more cheaply. I'm about to drop my bread prices, but you mint some new coins and add them into circulation. So I keep the price at a dollar per loaf. I scrutinize my bread supply chain to the last detail. I optimize the flour, I optimize the…

You are building pressure into the system. It's like letting a dam fill up. That water is not circulating (please bear with tiny mistakes in my analogies). It's staying somewhere and it is ready to be deployed at any given time. If there is a natural disaster or any other kind of pressure to empty the dam then there is a very real risk of a flood.

The currency has not been debased. However, the potential for it to debase in the future has grown massively.

One day politicians are going to discover sensible policy (maybe Biden will do it, I don't know) and somehow magically increase inflation. That same day will open all floodgates on all dams.

The correct strategy would be to increase taxes and interest rates and cut stimulus spending once that has happened and we'll be fine. Crying hyperinflation is not the right strategy.

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

#149

Post by imtringued »

pishpash wrote: post #40
ahepp wrote: post #21

Earlier quoted context omitted.

Yet interest rates have yet to respond (unless I have missed some major news). You are correct to point out the risk, but I don't think we can call it currency debasement yet.

Interest rates have yet to respond because they are being held down actively by central banks. Those are not market forces.

I agree. The interest rates should be mildly positive and go up over time. Inflation is almost on track in the US. The only missing piece is a public declaration that there will be no more easy money in the future. That will drive up inflation to slightly above 2% because everyone will be scrambling to do productive work.

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

#150

Post by steveBK123 »

strken wrote: post #89
steveBK123 wrote: post #76

Earlier quoted context omitted.

Also, I’m not sure exactly how you meant it, so I won’t direct this at you, just generally... I can’t get over the techbro straw man of the “lockdown” I’ve seen thrown around a lot. First, compared to most of Asia that actually got this virus under control, we have never really had much of a true lockdown here. Second, it’s not the lockdown, its the pandemic. In most areas economic activity dropped off well before an…

Can't speak to the US lockdown, but Melbourne, Victoria, Australia had restrictive lockdowns (1 hour outdoor exercise with up to 2 people together, 1 daily trip to the supermarket per household, couldn't travel more than 5km from your house, police roadblocks out of the city and out of the state, non-essential industries shut down and some essential ones operating at significantly reduced capacity, 8pm-5am curfew) an…

Even when NYC was at 500% daily death rate, there was nothing resembling that level of lockdown. I cannot stress enough how much the US lockdowns resembled nothing like what some of the countries that got the virus under control did.

Groceries restricted number of simultaneous customers, but I could go anytime and as many times as I wished. Restaurants were open for takeout. Parks were open, and capacity was not enforced. Transit was operational. I could get in my car and drive wherever, Uber was running, etc. I’m fairly certain flights were running through this. So people were socializing indoors with friends&family obviously.

Many singles in their 20s I knew went back home to mom&dad, especially if they lived alone.

No curfew. In fact the only curfew we had was a few days during BLM rallies.

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