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Isn't that inevitable with any sort of plan to stimulate the economy? Seems like there will always be some sort of bubble(s), and that it is impossible to ever

Isn't that inevitable with any sort of plan to stimulate the economy? Seems like there will always be some sort of bubble(s), and that it is impossible to ever reach equilibrium or a smooth state.

AnimalMuppet 11y ago
No. The Fed buying stocks and bonds doesn't increase the price of anything else very much. Not very many people buy cars because the stock market went up. But if you hand out money to actual people (basic income, maybe?), then some will pay down debt, and some will buy stuff, and some will do some of both. But those who buy stuff increase the demand for stuff, which means people have to make more stuff, which increases the number of jobs, which means that more people have money to spend, and hopefully the economy improves on a sustained (non-bubble) basis. (It also cuts down on the amount of bad debt, which is helpful to the economy as well.) The Fed buying stocks, on the other hand, does not increase jobs in any meaningful way. It just raises the prices of stocks. People with money then want to be in stocks, because the prices are going up. But they aren't buying stocks because the fundamentals are better; they're buying only because the price is going up. And their buying pushes the price up further, so more people see the price going up, so more people buy, and away we go. "Price going up disconnected from the fundamentals": that's a basic definition of a bubble. Add in the positive feedback loop of people wanting to buy because the price is going up, and it's definitely a bubble.
- toomuchtodo 11y ago
  I'm very interested how bad the fallout is going to be on the S&P when the Fed ticks up interest rates. If today's market activity was any indicator, hold on tight.
  - shostack 11y ago
    Seconding this, but for the Bay Area real estate market. My theory is that raising rates will reduce the number of people in the market because money won't be as cheap, however what I'm not sure of is the sheer massive amount of demand from people with money (investors and highly-paid techies) and whether it will be enough to cancel it out. As someone who bought earlier this year I guess I'll see. Sure as heck hope it keeps going up for a bit more.
    - deleted 11y ago
      [deleted]

Isn't that inevitable with any sort of plan to stimulate the economy? Seems like there will always be some sort of bubble(s), and that it is impossible to ever reach equilibrium or a smooth state.

AnimalMuppet 11y ago

No. The Fed buying stocks and bonds doesn't increase the price of anything else very much. Not very many people buy cars because the stock market went up. But if you hand out money to actual people (basic income, maybe?), then some will pay down debt, and some will buy stuff, and some will do some of both. But those who buy stuff increase the demand for stuff, which means people have to make more stuff, which increases the number of jobs, which means that more people have money to spend, and hopefully the economy improves on a sustained (non-bubble) basis. (It also cuts down on the amount of bad debt, which is helpful to the economy as well.) The Fed buying stocks, on the other hand, does not increase jobs in any meaningful way. It just raises the prices of stocks. People with money then want to be in stocks, because the prices are going up. But they aren't buying stocks because the fundamentals are better; they're buying only because the price is going up. And their buying pushes the price up further, so more people see the price going up, so more people buy, and away we go. "Price going up disconnected from the fundamentals": that's a basic definition of a bubble. Add in the positive feedback loop of people wanting to buy because the price is going up, and it's definitely a bubble.

toomuchtodo 11y ago
I'm very interested how bad the fallout is going to be on the S&P when the Fed ticks up interest rates. If today's market activity was any indicator, hold on tight.
- shostack 11y ago
  Seconding this, but for the Bay Area real estate market. My theory is that raising rates will reduce the number of people in the market because money won't be as cheap, however what I'm not sure of is the sheer massive amount of demand from people with money (investors and highly-paid techies) and whether it will be enough to cancel it out. As someone who bought earlier this year I guess I'll see. Sure as heck hope it keeps going up for a bit more.
  - deleted 11y ago
    [deleted]