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This is ridiculous. It illustrates that most central banks’ primary mission has become asset price inflation (primarily the stock market) more than anything el

by poof131 10y ago

This is ridiculous. It illustrates that most central banks’ primary mission has become asset price inflation (primarily the stock market) more than anything else. Pension funds, retirement savings, the top 1%’s majority of assets, and so on are all in the market so governments of the world have decided that the market shouldn’t go down, at least not very much. So we are stuck at zero percent interest rates going negative. Give out the money to keep the party going. Any hiccup in the markets and banks cut rates. Our economies will continue to struggle with malinvestments until interest rates are in a more reasonable long-term range and all the zombie businesses can die and free up resources for stronger players. Amazing how supposed proponents of ‘free markets’ try to micromanage entire economies.

msellout 10y ago
The government does have a responsibility to alleviate the pain of economic dislocation. The nation might gain as companies fail and jobs are lost, but individuals are hurt. Unfortunately, the best solutions -- unemployment insurance, free education, free healthcare, or basic income -- are politically unpalatable (for the strange ethics of "fairness"), so we end up with awkward compromises that set us up for catastrophic failures.
SilasX 10y ago
> Pension funds, retirement savings, the top 1%’s majority of assets, and so on are all in the market so governments of the world have decided that the market shouldn’t go down, at least not very much. Yeah, that's kind of my worry with the move to long-term wide-spread stock investing for retirement. Ostensibly, that strategy has done well, but once everyone does it, that prods massive political favor toward propping up the largest companies (that are getting this investment).
sitkack 10y ago
I also enjoy the side effect of keeping the rate of return for savings accounts at zero.
- TheCowboy 10y ago
  This is a frequent misguided criticism. The job of central banks isn't to ensure that savings accounts have a high rate of return. They're not robbing virtuous savers. It is the nominal rate of return which we are talking about too, which means that the rate reflects the low rate of inflation. An increase as a result of inflation would amount to no long-term gain for savers. Real returns result from real investments, not fluctuations in the money supply.
  - cloudjacker 10y ago
    Which means that savings accounts give zero return or negative return to force you to make real investments. The person above you wasn't wrong, and what you described is the entire point of the operation.
    - toomuchtodo 10y ago
      > force you to make real investments. There lies the problem. Real investments aren't made, unless pushing the price of housing stock to extract more from renters and to-be homeowners, as well as stock buybacks in large corporations, are the "real investments" central banks are preferring.
      - cloudjacker 10y ago
        Although that is what is happening, I think it will take quite a while for people's investment profiles to change. Right now there are people that think "I can't keep my money in the bank without it loosing money, let alone keep up with inflation, what am I supposed to do put it under a mattress!?" It will be quite a while before people become corporate bond investors as commonplace (which would put money back into the economy). In Switzerland, for example as a nation of savers, the corporate bond market has basically dried up. Because even higher risking bonds have too low yields to be attractive for the risk. (Although the Swiss National Bank hasn't prompted bank savings account interest rates to go negative.. yet).
kingkawn 10y ago
All true but done in light of the historical record of every other time the party crashed to a halt suddenly. They're trying to not let everything go to shit while a solution is prayed for.
- tomp 10y ago
  Actually, every other time after the Great Depression (which was arguably different, because there was still the gold standard), markets rebounded quite quickly after a crash; you could say that each crash was a "clean cut", while what we have now is a "botched surgery massacring the patient".
  - billmalarky 10y ago
    Why did the gold standard cause the depression to linger? Because the standard meant less financial tools available to policy makers?
    - ArkyBeagle 10y ago
      Theories vary. It's believed in some theories that some nations "cheated" and held more gold than the currency offered would imply. Historically, things are just as unstable with gold as without it. And if you have productivity rises and inadequate increase in gold supplies, you get deflationary effects. This being said, fiat seems just as capable of that.
- randomname2 10y ago
  Just as an example, the Swiss National Bank notoriously took a $120M+ loss on Valeant. [1] [1] http://www.fuw.ch/article/die-angst-der-snb-vor-dem-eigenen-reichtum-2/ http://www.fuw.ch/article/die-angst-der-snb-vor-dem-eigenen-...
KKKKkkkk1 10y ago
Tangential question: One of HN's frequent subjects is the rapid rise in Bay Area housing prices. Since real estate is an asset like any other, how does the Fed's policy of inflating asset prices contribute to this phenomenon?
- ArkyBeagle 10y ago
  Real estate price rises at that level imply the pursuit of land rents. This doesn't happen in Texas. Compare and contrast.
- rhino369 10y ago
  Low interest rates means you can afford to borrow more money to buy a house. 3000 dollars a month payment radically changes based on how much the interest changes.
- nickles 10y ago
  Real estate prices, as with all other assets, are a function of supply and demand. In the case of San Francisco, supply has remained relatively constant (due to stability in the housing stock) and demand has increased. Without looking at the data, I'd imagine the recent explosion of the technology industry in the Bay Area has been the largest driver of demand for houses. An increased number of people moving to the area for employment will naturally increase the demand for houses. However, Fed policies also contribute to the demand for housing. As the Fed has kept interest rates close to 0%, it is much easier to finance mortgages for houses, so the housing becomes more affordable (when considering amortization). Additionally, these policies have also driven investment into higher yielding assets, such as equities, in search for greater return. This has had the effect of increasing many individuals' wealth, making them more capable of purchasing houses. With increases in the ability to pay for housing (assuming housing is a normal good), there will be an increase in demand for housing.
  - usefulcat 10y ago
    "... it is much easier to finance mortgages for houses, so the housing becomes more affordable ..." Not necessarily. Widespread access to greater amounts of affordable credit also means that more people can afford to buy more expensive houses, which puts upward pressure on housing prices. So sure, you might get a better rate, but that better rate may well be negated by a higher purchase price.
wahsd 10y ago
I am constantly reminded of that 90's movie Weekend at Bernie's where, in order to keep the party going, two guys drag a rich dead guy around and make it appear as though he's still alive in order to keep the party going and have access to all his stuff and wealth.
- Uhhrrr 10y ago
  - and stay out of trouble.

by poof131 10y ago

msellout 10y ago

The government does have a responsibility to alleviate the pain of economic dislocation. The nation might gain as companies fail and jobs are lost, but individuals are hurt. Unfortunately, the best solutions -- unemployment insurance, free education, free healthcare, or basic income -- are politically unpalatable (for the strange ethics of "fairness"), so we end up with awkward compromises that set us up for catastrophic failures.

SilasX 10y ago

> Pension funds, retirement savings, the top 1%’s majority of assets, and so on are all in the market so governments of the world have decided that the market shouldn’t go down, at least not very much. Yeah, that's kind of my worry with the move to long-term wide-spread stock investing for retirement. Ostensibly, that strategy has done well, but once everyone does it, that prods massive political favor toward propping up the largest companies (that are getting this investment).

sitkack 10y ago

I also enjoy the side effect of keeping the rate of return for savings accounts at zero.

TheCowboy 10y ago
This is a frequent misguided criticism. The job of central banks isn't to ensure that savings accounts have a high rate of return. They're not robbing virtuous savers. It is the nominal rate of return which we are talking about too, which means that the rate reflects the low rate of inflation. An increase as a result of inflation would amount to no long-term gain for savers. Real returns result from real investments, not fluctuations in the money supply.
- cloudjacker 10y ago
  Which means that savings accounts give zero return or negative return to force you to make real investments. The person above you wasn't wrong, and what you described is the entire point of the operation.
  - toomuchtodo 10y ago
    > force you to make real investments. There lies the problem. Real investments aren't made, unless pushing the price of housing stock to extract more from renters and to-be homeowners, as well as stock buybacks in large corporations, are the "real investments" central banks are preferring.
    - cloudjacker 10y ago
      Although that is what is happening, I think it will take quite a while for people's investment profiles to change. Right now there are people that think "I can't keep my money in the bank without it loosing money, let alone keep up with inflation, what am I supposed to do put it under a mattress!?" It will be quite a while before people become corporate bond investors as commonplace (which would put money back into the economy). In Switzerland, for example as a nation of savers, the corporate bond market has basically dried up. Because even higher risking bonds have too low yields to be attractive for the risk. (Although the Swiss National Bank hasn't prompted bank savings account interest rates to go negative.. yet).

kingkawn 10y ago

All true but done in light of the historical record of every other time the party crashed to a halt suddenly. They're trying to not let everything go to shit while a solution is prayed for.

tomp 10y ago
Actually, every other time after the Great Depression (which was arguably different, because there was still the gold standard), markets rebounded quite quickly after a crash; you could say that each crash was a "clean cut", while what we have now is a "botched surgery massacring the patient".
- billmalarky 10y ago
  Why did the gold standard cause the depression to linger? Because the standard meant less financial tools available to policy makers?
  - ArkyBeagle 10y ago
    Theories vary. It's believed in some theories that some nations "cheated" and held more gold than the currency offered would imply. Historically, things are just as unstable with gold as without it. And if you have productivity rises and inadequate increase in gold supplies, you get deflationary effects. This being said, fiat seems just as capable of that.
randomname2 10y ago
Just as an example, the Swiss National Bank notoriously took a $120M+ loss on Valeant. [1] [1] http://www.fuw.ch/article/die-angst-der-snb-vor-dem-eigenen-reichtum-2/ http://www.fuw.ch/article/die-angst-der-snb-vor-dem-eigenen-...

KKKKkkkk1 10y ago

Tangential question: One of HN's frequent subjects is the rapid rise in Bay Area housing prices. Since real estate is an asset like any other, how does the Fed's policy of inflating asset prices contribute to this phenomenon?

ArkyBeagle 10y ago
Real estate price rises at that level imply the pursuit of land rents. This doesn't happen in Texas. Compare and contrast.
rhino369 10y ago
Low interest rates means you can afford to borrow more money to buy a house. 3000 dollars a month payment radically changes based on how much the interest changes.
nickles 10y ago
Real estate prices, as with all other assets, are a function of supply and demand. In the case of San Francisco, supply has remained relatively constant (due to stability in the housing stock) and demand has increased. Without looking at the data, I'd imagine the recent explosion of the technology industry in the Bay Area has been the largest driver of demand for houses. An increased number of people moving to the area for employment will naturally increase the demand for houses. However, Fed policies also contribute to the demand for housing. As the Fed has kept interest rates close to 0%, it is much easier to finance mortgages for houses, so the housing becomes more affordable (when considering amortization). Additionally, these policies have also driven investment into higher yielding assets, such as equities, in search for greater return. This has had the effect of increasing many individuals' wealth, making them more capable of purchasing houses. With increases in the ability to pay for housing (assuming housing is a normal good), there will be an increase in demand for housing.
- usefulcat 10y ago
  "... it is much easier to finance mortgages for houses, so the housing becomes more affordable ..." Not necessarily. Widespread access to greater amounts of affordable credit also means that more people can afford to buy more expensive houses, which puts upward pressure on housing prices. So sure, you might get a better rate, but that better rate may well be negated by a higher purchase price.

wahsd 10y ago

I am constantly reminded of that 90's movie Weekend at Bernie's where, in order to keep the party going, two guys drag a rich dead guy around and make it appear as though he's still alive in order to keep the party going and have access to all his stuff and wealth.

Uhhrrr 10y ago
- and stay out of trouble.