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What if your entire worldview was just because of near-zero interest rates?

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Re: What if your entire worldview was just because of near-zero interest rates?

#311

Post by notahacker »

boppo1 wrote: post #289
notahacker wrote: post #246

Earlier quoted context omitted.

Because there's no such thing as a 'natural equilibrium' interest rate[1]. The base interest rate is an equilibrium, which regardless of monetary policy regime is influenced by something completely artificial (the quantity of base money in an economy) and lending activity. The Fed deciding to set the quantity of base money added to an economy 'no more ever' or 'x% per year' or 'in proportion to stocks of some shiny m…

I mean, if we didn't interfere with the buying/selling of treasuries, wouldn't that be equilibrium?

It'd just be a considerably less stable equilibrium than the one we have now.

It's not like treasuries and dollar reserves a central bank put into circulation before a certain date are natural things emerging out of a market demand and the ones after they put into circulation after a certain date are "interference". There is a market for credit and a dependency of that market on artificial things called dollars the Fed conjured from thin air regardless, the only question is whether the Fed's policy on artificially created dollars is to continue to attempt to supply them in quantities necessary to maintain a stable economy or not.

Re: What if your entire worldview was just because of near-zero interest rates?

#312

Post by mitthrowaway2 »

neilwilson wrote: post #206
mitthrowaway2 wrote: post #115

Earlier quoted context omitted.

For what it's worth, I don't fundamentally disagree with the MMT viewpoint that you're coming from. But it's not so clear cut. > gives free government money to financial institutions By this, the parent means that nonzero interest rates on government debt represents "free money" that the government pays voluntarily even though it doesn't have to. I'm not so sure. First of all, most of the institutions getting these p…

"That's exactly the point, because it's an attempt to encourage people to save money when they'd rather spend it because inflation is high." Except that can't happen can it. If Loans create deposits, then to get more savings, you need more loans. You can't have one without the other. What they are trying to do its get people to pay off loans. How many people do you know who pay off loans in the middle of an inflation…

Paying off loans is equivalent to saving! As long as you aren't taking on new debt to pay off the old one.

> How many people do you know who pay off loans in the middle of an inflation?

If interest rates are low, nobody. If they are high, lots. Go look at r/personalfinancecanada and there's been a huge shift from "taking out a line of credit at 2% when inflation is 6% is practically free money!" to "which should I repay first, my mortgage, my credit card, or my HELOC?"

Re: What if your entire worldview was just because of near-zero interest rates?

#313

Post by prewett »

geysersam wrote: post #178
qaq wrote: post #174

Earlier quoted context omitted.

Sure you can if people take individual action based on their honest believes a lot can change. If people simply virtue signal without taking basic actions that are available to them then there is 0 chance something will change.

I'm not suggesting virtue signaling. Paying your maid more than market wage is virtue signaling. Voting for a party working to increase her bargaining power is not. We need both individual action and political reform.

I assert that you have it backwards. Virtue only exists in interactions with actual people, not with abstract people. Paying a maid more than market value is putting his money where his mouth is, because he believes the maid should be paid more is actual virtue. (Paying the maid more so that he could boast to his friends about resourcing the underprivileged/oppressed-group would be virtue signaling, but at least it would still have the virtue of some amount of self-sacrifice) Voting for politicians is the abstract. Not necessarily virtue signaling, if you actually believe the cause, but how is that likely to help the maid? Even if the party succeeds in doing something effective, how long will it take before the maid is actually better off? And is anyone going to evaluate whether the changes are actually effective in making people better off?

Or consider two scenarios: 1) someone claims maids should be paid more but pays them market rate and votes for politicians who claim to be changing the world to make maids better off, or 2) someone else pays the maid 3X the going rate (which he appears to be doing, see other thread) and does not vote for politicians who claim to be making maids better off (to be clear, this is hypothetical, I doubt he does this). Person 2 has made the maid actually better off. Person 1's maid is not better off, and any impact on maids (if any) is disconnected, and conveniently does not require any sacrifice on the part of Person 1. Person 2 has made the maid better off at the expense of themselves; this is the opposite of virtue signaling.

Re: What if your entire worldview was just because of near-zero interest rates?

#314

Post by spaceman_2020 »

machiaweliczny wrote: post #296
spaceman_2020 wrote: post #234

Earlier quoted context omitted.

I’m based out of India. Doctors from top colleges after a decade of effort in their 20s start off at around Rs. 80,000-100,00 per month (many even lower in smaller towns) Starting salaries for 21-22 year old engineers from top colleges is approximately Rs 120,00-200,000 per month. By the time they hit their 30s, their salaries usually balloon to Rs 350,000-500,000 per month. Doctors don’t catch up until they’re well…

This is arbitrage of digital work, not unfair society. USA has big demand for software and simply imports work. The problem is that india is poor. I agree though that it’s skewed because USA is at top of demand chain and could generate debt/demand in low interest rates environment.

Digital work arbitrage jobs don't actually pay that much.

The biggest source of wage inflation in the last few years has been domestic startups, all fueled by VC money from low interest rate regimes (Softbank, Tiger, Sequoia being the biggest culprits).

Those tech bodyshop jobs that cater to the US market still pay a small fraction of what a startup that targets the domestic Indian market, such as Cred, pays.

The point stands: digital work arbitrage has been around for three decades and didn't really create a massive income disparity. The bulk of recent income disparity has come through absurd tech startup valuations, all made possible because borrowing money was dirt, dirt cheap.

Re: What if your entire worldview was just because of near-zero interest rates?

#315

Post by mitthrowaway2 »

neilwilson wrote: post #207
mitthrowaway2 wrote: post #115

Earlier quoted context omitted.

For what it's worth, I don't fundamentally disagree with the MMT viewpoint that you're coming from. But it's not so clear cut. > gives free government money to financial institutions By this, the parent means that nonzero interest rates on government debt represents "free money" that the government pays voluntarily even though it doesn't have to. I'm not so sure. First of all, most of the institutions getting these p…

"But with a jobs guarantee, who decides what the job is in service of? " Doesn't matter (ultimately it is a political choice). The point of the job is to use up hours so you can't use them yourself. It forces the spending of time - which is the actual underlying exchange amount. If you give up your time for others, then others will give up their time for you.

The purpose of jobs isn't to kill time, but to produce things like food, shoes, and soap. It's important that it accomplishes that.

Re: What if your entire worldview was just because of near-zero interest rates?

#316

Post by howinteresting »

marvin wrote: post #140
howinteresting wrote: post #125

Earlier quoted context omitted.

Isn't the EU lagging due to post-GFC austerity?

It’s much more than that. EU policies stunt growth on a structural level. The tax system and other incentives lead people to not really work their hardest and best, and this propagates all the way to the stock indexes.

I can't find a good chart for this but the GDP of the EU and the US were almost at par until 2008, after which there was a massive decoupling. The main difference in the EU's and US's response is the level of austerity each engaged in. The US's response, while certainly not ideal, was significantly better than the EU's response.

edit: https://www.businessinsider.com/austerity-has-damaged-europe...

Re: What if your entire worldview was just because of near-zero interest rates?

#317

Post by smitty1e »

thebradbain wrote: post #160
AnthonyMouse wrote: post #34

Earlier quoted context omitted.

The issue is it's not just the Fed, it's the administrative state as a whole. The President appoints the Fed board and the FCC commissioners and the DoJ and the FDA, and then they make policy though nobody elected them. The rulemaking role of these agencies should be a subset of the legislature and the Congress should have to vote on their proposals before they become law.

Congress can barely agree on a debt ceiling without playing football every year. Having them vote on the price tiers of postal service package weights or Amtrak route schedules seem like a surefire way to bring the management of every public agency to a standstill. In fact, the only example we really have of our congress being in charge of setting rules for a public agency is the tax code— and its a mess of carve-out…

Great thoughts, but you invite the question: should techies like the readers of this site attempt to offer a more coherent system?

People seem to scale poorly, and the US government needs reform.

What to do?

Re: What if your entire worldview was just because of near-zero interest rates?

#318

Post by awinder »

antonomon wrote: post #14
awinder wrote: post #11

“All of this has led to weird idiosyncrasies, euphoria, and contradictions. Stocks ballooned, tripling in value since 2009” This is like 9% compounded for 13 years, which is in line with historic averages.

It continuing unabated for 13 years is a historical anomaly, however

We’ve had 3 bull cycles that lasted around 13 years covering periods in the 50s, 80s and 90s.

https://www.uidaho.edu/-/media/UIdaho-Responsive/Files/Exten...

The +9% average is long-lived and covers periods with drawdowns so no abnormality there.

Re: What if your entire worldview was just because of near-zero interest rates?

#319

Post by heartbeats »

landemva wrote: post #301
heartbeats wrote: post #280

Earlier quoted context omitted.

Real interest rates have been positive. Unless you were saving in a mattress, your purchasing power increased.

Not where I have been living in USA. Food and energy and rent in USA far outstripped interest rates on savings accounts or government bonds.

But for how long? Past year? Ten years? Century?

Re: What if your entire worldview was just because of near-zero interest rates?

#320

Post by boppo1 »

notahacker wrote: post #311
boppo1 wrote: post #289

Earlier quoted context omitted.

I mean, if we didn't interfere with the buying/selling of treasuries, wouldn't that be equilibrium?

It'd just be a considerably less stable equilibrium than the one we have now. It's not like treasuries and dollar reserves a central bank put into circulation before a certain date are natural things emerging out of a market demand and the ones after they put into circulation after a certain date are "interference". There is a market for credit and a dependency of that market on artificial things called dollars the F…

The market for treasuries would exist exist without theed, since they're issued by the treasury. Why not set a limited quantity of dollars and have that be that, or a quantity that strictly grows at some pre-defined and predictable rate?

I'm familiar with the argument that people would theoretically hoard deflationary currency, I'd counter that people will always spend to eat and purchase shelter.

Calling shots like we are obviously isn't working and the only 'stability' seems to be a nominal one in asset prices. Everyone is otherwise bemoaning how broken the economy is. Great, we kept boomer pensions safe and quietly watched wage/salary earners' purchasing power erode. Seems like a false 'stability' to me.

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