451–460 of 693 posts
Earlier quoted context omitted.
We'll see. we didn't have inflation like this during the last big downturn in 2008. I also don't think the Fed is going to be able to raise rates as high as they did back in the early 80s.
The economy would collapse, along with the US government, at even moderately-high interest rates. The federal government is $30t in debt. Even a small rise in interest rates would quickly make the entire federal budget servicing the debt.
An interesting aspect of this is that the endless printing of money in the last few years was a sort of stress test of modern monetary theory, which has been seeing lots of discussion in those same years. I never quite understood how this theory would work while avoiding inflation, and what's happening now seems to at least be related - https://www.nytimes.com/2022/02/06/business/economy/modern-m... Conceptually the…
Congress got scared and passed a bunch of pre-written laws.
An interesting aspect of this is that the endless printing of money in the last few years was a sort of stress test of modern monetary theory, which has been seeing lots of discussion in those same years. I never quite understood how this theory would work while avoiding inflation, and what's happening now seems to at least be related - https://www.nytimes.com/2022/02/06/business/economy/modern-m... Conceptually the…
An important point to keep in mind when talking about MMT in a policy setting is that the people who will implement it don't care about theory and will make a series of short-term politically expedient and/or vaguely corrupt decisions. If they implement MMT, there are good odds that it will just look like money printing. It doesn't really matter what the academic plan is, the policy isn't going to follow it. Much lik…
Makes sense in theory, but the second half doesn't always happen b/c politicians like buying votes with govt spending (either via under-taxation or over-spending, to the extent those aren't the same thing).
Rinse and repeat until the peasants have no wealth at all. We're already 60% of the way there—but those are rookie numbers! Look at certain South and Central American countries to see how far we have to go.
Earlier quoted context omitted.
It seems interest rates lower during recessions. Right now we are already low and are raising which seems to be a different pattern. Is lowering interest rates a method to overcome a recession?
Lowering interest rates makes capital cheaper, which does spur investment and thus economic development, so, it can certainly have that effect given the right circumstances. But keep it too low, too long, and you see money start flying around too quickly, getting a little too loose because everyone wants to get theirs, and then they start inventing things like mortgage-backed securities and everyone starts over-lever…
the leverage for nonexistent (or overclaimed) mortgages were
leading to a crisis of confidence where credit dried up because banks didnt trust each other
got to watch for that. know the contents of your securities
We have an inflation which is about 8% while mortage rates on 30 year fixed are just 4.7% (15 year fixed are just 3.8%). So I really do not understand logic here: how can bank give me money at rate 2x times lower than inflation. Seems like free money (and it is no surprise that home prices are going thru the roof). But I’m probably naiive here and do not understand how banking works.
However the value of the asset you’re buying is highly sensitive to interest rates in both directions. It is a bet on decade-long uncontrollable monetary inflation that will also push wages up so you can actually sell or rent the house to someone at the end of it all.
Earlier quoted context omitted.
> "Too much money" is a condition almost always caused by the creation of too much "fiat currency" (ie a currency that is backed by nothing but the good faith and credit of the issuing government) Japan money supply: * https://fred.stlouisfed.org/series/MYAGM2JPM189S Japan inflation: * https://fred.stlouisfed.org/series/FPCPITOTLZGJPN Money supply ≠ inflation. > As we all should know, in the US, on 6/5/1933 FDR took…
> Except for the multiple decades post-WW2 with Bretton Woods. Um, what? The Bretton Woods agreement was part of "the fiat currency situation we now find ourselves in" (just an earlier stage of it where the government was still trying to pretend to some sort of "linkage" with gold, instead of just dropping the pretense altogether as was done in the early 1970s when Bretton Woods fell apart). No US money was backed by…
If USD was not linked to gold, why was a multi-country agreement needed to change the value of the US dollar to gold?
* https://en.wikipedia.org/wiki/Smithsonian_Agreement
> To call the monetary regime in place in the 1920s "the gold standard" is a serious misnomer. The Federal Reserve was created and authorized to print money (Federal Reserve Notes, not backed by gold or anything else) in 1913.
The Federal Reserve was limited to how much money it could "print" by the 1920s, which is why the article explicitly used that time period to make its point:
> It's not clear cut when exactly the U.S. was on or off the gold standard. We suspended it in July 1914 when the onset of World War I precipitated a domestic financial crisis. We then re-established the full gold standard in December 1914 after an aggressive policy response stabilized the financial system. This continued until we entered the war, and subsequently partially embargoed gold exports starting in September 1917. The gold standard was still in effect domestically -- meaning people could trade dollars for specie -- but not internationally. These restrictions on gold exports continued until June 1919, at which point we returned to the full gold standard. I have started from this last date, because there is no question that we were operating under the gold standard at this point. For more, read this superb Federal Reserve paper on the history of the gold standard from World War I through the Great Depression.
* https://www.theatlantic.com/business/archive/2012/08/why-the...
This limitation was one of the contributing factors of turning a market crash and economic downturn into deflation and the Great Depression. See James and Bernanke (1991):
> However, Temin (1989) argues that, once these destabilizing policy measures had been taken, little could be done to avert deflation and depression, given the commitment of central banks to maintenance of the gold standard. Once the deflationary process had begun, central banks engaged in competitive deflation and a scramble for gold, hoping by raising cover ratios to protect their currencies against speculative attack. Attempts by any individual central bank to reflate were met by immediate gold outflows, which forced the central bank to raise its discount rate and deflate once again. According to Temin, even the United States, with its large gold reserves, faced this con- straint. Thus Temin disagrees with the suggestion of Friedman and Schwartz (1963) that the Federal Reserve's failure to protect the U.S. money supply was due to misunderstanding of the problem or a lack of leadership; instead, he claims, given the commitment to the gold standard (and, presumably, the absence of effective central bank cooperation), the Fed had little choice but to let the banks fail and the money supply fall.
* http://www.nber.org/chapters/c11482
The economies of most countries started to recover once they left the gold standard as they could pump money into their systems to generate economic activity.
If there's not enough money in one's economy you can't do business. There are historical periods where economies literally ran out of money:
It's worth noting that this is actually a rate target, not the rate. Previously, the rate floated between 0% and 0.25% based on a market. Now, it is going to be between 0.25% and 0.5%.
Earlier quoted context omitted.
Won't somebody please think of the poor poor boomers with millions of equity in their houses! Cry me a river.
Most "boomers" have a house maybe worth a few 100K, if they even own their own home. Very few live in million dollar homes.
We have an inflation which is about 8% while mortage rates on 30 year fixed are just 4.7% (15 year fixed are just 3.8%). So I really do not understand logic here: how can bank give me money at rate 2x times lower than inflation. Seems like free money (and it is no surprise that home prices are going thru the roof). But I’m probably naiive here and do not understand how banking works.
Have you peeled back the categories measured by the 8% inflation? This is stupid for me to say but, for example... Used car prices factor into that 8% number. But if you aren't shopping for a used car... it doesn't really affect you, right? Housing affects mostly everybody. Same with energy. I don't truly understand the weighting or everything that goes into the 8% CPI getting tossed around and I understand that it c…
Miami is up something absurd like 40% https://theshaderoom.com/major-u-s-cities-experience-drastic...
CPI only shows 5%, due to the lag induced by their rent counting methodology. So inflation as measured by CPI is understated if anything, not overstated.
Using the same formula as was used in the 70s would produce double digit numbers.