4 ms·

So my vague understanding is that QE and stuff is technically printing money, but the resulting money isn't really being used for anything. Is a bubble a bubbl

by rtpg 10y ago

So my vague understanding is that QE and stuff is technically printing money, but the resulting money isn't really being used for anything. Is a bubble a bubble if the extra bubbly-ness is from stuff that doesn't get used? EDIT: actually, answered my own question. QE raises asset prices (even if the sellers aren't really doing anything with the money), and at one point people will be like "wait, none of this is worth the price it's at" and then panic (unless QE Infinity).

benmarten 10y ago
Yes, i feel the same when I look at houses in San Francisco. The shittiest houses are valued at almost 1mio. I'm just saying, nope, I'm not buying that. ;)
- trapperkeeper79 10y ago
  Same here. The QE+low interest rates have delayed our home purchase perhaps indefinitely. We feel a bit like migrants .. can't afford homes in the city we grew up. It used to feel very miserable ... I'm looking at it positively now that I don't have "roots" that take away my job mobility. This also means we just have cash for retirement .. no housing at all. I suspect we'll end up moving to an ultra-low cost location when that time comes , and try to stretch out our savings + social safety net. It is a raw deal people of my generation got .. but I guess it could be a lot worse when we look at history (wars, famine, etc). As an aside, it is just sad that the only popular politician calling out the Fed is Trump :/
  - CalRobert 10y ago
    Add it being nearly illegal to build a home in the bay area for the last several decades to the list of reasons. The supply is grossly, artificially constricted.
  - hibikir 10y ago
    I'd not blame QE+low interest rates for this, because the problem is not national, but limited to very few markets. Almost anyone can afford a house in most US cities. Changes in QE wouldn't magically change demand in SF and NY. When we look at SF, what we see is a city that has A LOT more people wanting to live there than there are houses: Heck, I'd move there if the prices weren't insane. Investors/speculators are just a sliver of demand, and they only invest there precisely because the real demand to live there is that high. When there's high demand, and no increase in supply, prices go up to the levels we see now. If the only people that wanted to buy a house in SF were software developers, prices would still be high, and we'd have enough of those that we'd see prices go up so that mortgages are about 50% of household income, just like in every other place, ever, that had high demand. And guess what? that's the current prices already. So while I am sure the fed would be able to lower prices across the board by doing something that craters the economy, housing prices in desirable places to live are not the problem. As far as retirement goes, it doesn't really matter if you own a house, or the equivalent in stocks. I can't tell you if you are saving enough, you are living beyond your means, or should just move somewhere else, as I have no details in your situation. All I can say is that it's a wonderful time to be a software developer in the US, economically speaking. It's pretty possible to work remote or at a satellite office of a big tech employer and save crazy amounts of money.
- icantdrive55 10y ago
  But the wealthy, who are the one's who have really benefitted from this free money will buy these chit boxes, and rent them out at outragious ROI. And so will the wealthy foreigner--with a lousy phone call. I've given up on more building. I think we need to open up areas where people can camp without breaking the law. Or, at least allow people to legally sleep in their vehicles. The fines/fees for breaking over stringent municipal laws are just not fair. (I don't believe lightening up municipal laws will cause the average person to sleep on the sidewalk to save money. Yes, we will always have homelessness. I have known two people who were between rentals, and were ticketed for sleeping in their cars. It's just not--what's the word--the America I thought I was proud of.)
  - CalRobert 10y ago
    It's really a shame that we've coerced people into earning an income to live, because the means of living that don't require money are largely becoming illegal. Where are you allowed to sleep for free in the US? You could perhaps get a wilderness permit and live in a national park for a time, but I'm not sure what the maximum period of validity is on them. Cities will cite you under anti-camping rules. There isn't really a frontier to go to where a person can live off the land, at least so far as I'm aware. People who do not find the system of "I have to work because I have to have money because I have to pay rent/own a home because I have to have somewhere to sleep" satisfactory no longer have a frontier to which they can escape. This is worrying if you like the idea of preserving liberty, and especially worrying if (as this article suggest) the whole monetary system on which our civilization is built rests on weak foundations. At least prison's still more or less free. http://www.alternet.org/civil-liberties/us-laws-criminalizing-sleeping-public-have-grown-much-60-percent-just-few-years http://www.alternet.org/civil-liberties/us-laws-criminalizin...
    - MaxfordAndSons 10y ago
      Actually, prison is far from a free shelter for the imprisoned, at least in the US: https://www.brennancenter.org/states-pay-stay-charges https://www.brennancenter.org/states-pay-stay-charges
    - deleted 10y ago
ddeck 10y ago
QE is effectively creating money, which is then used to purchase financial assets in the hope that the person selling it will use the proceeds for something that is economically stimulative. It also reduces borrowing costs along the way. Most central banks buy government bonds. As a result of this buying, the returns on these bonds are reduced and supposedly less attractive to the investors that previously would have bought them (or did buy them and then sold them to the central bank). The issue is that an investor that previously would have bought a government bond, doesn't suddenly decide to spend that money in the general economy because government bond returns went down. They instead put it into other financial assets, like corporate bonds, the stock market, or perhaps real estate, thus driving a bubble in these asset classes. In places like Japan, the central bank buys nearly all bonds issued by the government (effectively financing the government deficit). This distorts markets tremendously. Japan is the most indebted developed government in the world with close to zero GDP growth for 20 years and yet you need to pay them to loan them money for 10 years (i.e. negative return on their bonds). As an investor, you currently have to pay the governments of most Western European countries to loan them money. In Switzerland for example, if you loan them $100 today, you'll get back $98 in 2 years and no interest. Even Spain and Italy which are in terrible shape fiscally, have a negative return on their 2 year bonds [1]. We now have extremely distorted markets. Heavily indebted governments around the world are borrowing money for free, enabled by their "politically independent" central banks. Some central banks are purchasing equities outright (Bank of Japan announced last month they would double their purchasing of equity ETFs). There's also a great deal of research indicating that such QE policies increase wealth inequality, by driving up the price of financial assets (which are owned by the rich) and increasing the cost of living for everyone else that needs access to these assets (rent etc.) [2] To most laymen, the idea that creating money and buying financial assets will somehow stimulate spending and inflation is clearly flawed. Central banks by design however, have few other options. [1] https://twitter.com/MktOutperform/status/773577673587105792 https://twitter.com/MktOutperform/status/773577673587105792 [2] http://www.bloomberg.com/news/articles/2016-03-10/how-central-banks-have-made-wealth-inequality-worse http://www.bloomberg.com/news/articles/2016-03-10/how-centra...
- rtpg 10y ago
  Well TARP worked out pretty well, right? I think there's a logic to QE in scenarios like the credit crunch, since suddenly banks need cash and there's a bunch of illiquid assets on everyone's balance sheets. But I do agree that owners of treasury bonds aren't really going out and spending their proceeds at Wal-Mart for a while.
pjc50 10y ago
QE is an anti-deflation programme. Governments are very keen to avoid real deflation because it kills investment stone dead, leading to loss of jobs and a real recession. The reason why I think a panic is unlikely is that the current bubble is a "search for safety" rather than a "search for return". That's why the Swiss central bank can get away with negative rates - they are charging a premium for asset safety of the CHF. It also compensates Switzerland from the negative effects of its currency appreciating. Previous asset bubbles burst when the second derivative goes down: when the returns go down, the rush to buy the asset stops and the price collapses. The rush for safety is different. There's nowhere else to go but other, riskier asset classes. Even trying to hold it as cash has problems when done on that scale. Negative rates are also I think your leading indicator for the net asset loss that's going to come from global warming. Not just "unburnable" fuel and lost investment in industries that must be transitioned away from, not just the sunken beachfront property, but the requirement to build new renewable infrastructure just to maintain our current standards. There's a huge investment needed, but since the return it offers is collective and can't easily be captured by the investor it's not going to come from the private sector. Wealth can only be preserved in the context of preserving society, so the wealthy are going to have to take a small haircut in order to preserve the whole.
crimsonalucard 10y ago
If printed money doesn't get used it's as if it was never printed. It is the action of using this money that causes prices to rise. Nobody will just print money and leave it in a vault.

by rtpg 10y ago

benmarten 10y ago

Yes, i feel the same when I look at houses in San Francisco. The shittiest houses are valued at almost 1mio. I'm just saying, nope, I'm not buying that. ;)

trapperkeeper79 10y ago
Same here. The QE+low interest rates have delayed our home purchase perhaps indefinitely. We feel a bit like migrants .. can't afford homes in the city we grew up. It used to feel very miserable ... I'm looking at it positively now that I don't have "roots" that take away my job mobility. This also means we just have cash for retirement .. no housing at all. I suspect we'll end up moving to an ultra-low cost location when that time comes , and try to stretch out our savings + social safety net. It is a raw deal people of my generation got .. but I guess it could be a lot worse when we look at history (wars, famine, etc). As an aside, it is just sad that the only popular politician calling out the Fed is Trump :/
- CalRobert 10y ago
  Add it being nearly illegal to build a home in the bay area for the last several decades to the list of reasons. The supply is grossly, artificially constricted.
- hibikir 10y ago
  I'd not blame QE+low interest rates for this, because the problem is not national, but limited to very few markets. Almost anyone can afford a house in most US cities. Changes in QE wouldn't magically change demand in SF and NY. When we look at SF, what we see is a city that has A LOT more people wanting to live there than there are houses: Heck, I'd move there if the prices weren't insane. Investors/speculators are just a sliver of demand, and they only invest there precisely because the real demand to live there is that high. When there's high demand, and no increase in supply, prices go up to the levels we see now. If the only people that wanted to buy a house in SF were software developers, prices would still be high, and we'd have enough of those that we'd see prices go up so that mortgages are about 50% of household income, just like in every other place, ever, that had high demand. And guess what? that's the current prices already. So while I am sure the fed would be able to lower prices across the board by doing something that craters the economy, housing prices in desirable places to live are not the problem. As far as retirement goes, it doesn't really matter if you own a house, or the equivalent in stocks. I can't tell you if you are saving enough, you are living beyond your means, or should just move somewhere else, as I have no details in your situation. All I can say is that it's a wonderful time to be a software developer in the US, economically speaking. It's pretty possible to work remote or at a satellite office of a big tech employer and save crazy amounts of money.
icantdrive55 10y ago
But the wealthy, who are the one's who have really benefitted from this free money will buy these chit boxes, and rent them out at outragious ROI. And so will the wealthy foreigner--with a lousy phone call. I've given up on more building. I think we need to open up areas where people can camp without breaking the law. Or, at least allow people to legally sleep in their vehicles. The fines/fees for breaking over stringent municipal laws are just not fair. (I don't believe lightening up municipal laws will cause the average person to sleep on the sidewalk to save money. Yes, we will always have homelessness. I have known two people who were between rentals, and were ticketed for sleeping in their cars. It's just not--what's the word--the America I thought I was proud of.)
- CalRobert 10y ago
  It's really a shame that we've coerced people into earning an income to live, because the means of living that don't require money are largely becoming illegal. Where are you allowed to sleep for free in the US? You could perhaps get a wilderness permit and live in a national park for a time, but I'm not sure what the maximum period of validity is on them. Cities will cite you under anti-camping rules. There isn't really a frontier to go to where a person can live off the land, at least so far as I'm aware. People who do not find the system of "I have to work because I have to have money because I have to pay rent/own a home because I have to have somewhere to sleep" satisfactory no longer have a frontier to which they can escape. This is worrying if you like the idea of preserving liberty, and especially worrying if (as this article suggest) the whole monetary system on which our civilization is built rests on weak foundations. At least prison's still more or less free. http://www.alternet.org/civil-liberties/us-laws-criminalizing-sleeping-public-have-grown-much-60-percent-just-few-years http://www.alternet.org/civil-liberties/us-laws-criminalizin...
  - MaxfordAndSons 10y ago
    Actually, prison is far from a free shelter for the imprisoned, at least in the US: https://www.brennancenter.org/states-pay-stay-charges https://www.brennancenter.org/states-pay-stay-charges
  - deleted 10y ago

ddeck 10y ago

QE is effectively creating money, which is then used to purchase financial assets in the hope that the person selling it will use the proceeds for something that is economically stimulative. It also reduces borrowing costs along the way. Most central banks buy government bonds. As a result of this buying, the returns on these bonds are reduced and supposedly less attractive to the investors that previously would have bought them (or did buy them and then sold them to the central bank). The issue is that an investor that previously would have bought a government bond, doesn't suddenly decide to spend that money in the general economy because government bond returns went down. They instead put it into other financial assets, like corporate bonds, the stock market, or perhaps real estate, thus driving a bubble in these asset classes. In places like Japan, the central bank buys nearly all bonds issued by the government (effectively financing the government deficit). This distorts markets tremendously. Japan is the most indebted developed government in the world with close to zero GDP growth for 20 years and yet you need to pay them to loan them money for 10 years (i.e. negative return on their bonds). As an investor, you currently have to pay the governments of most Western European countries to loan them money. In Switzerland for example, if you loan them $100 today, you'll get back $98 in 2 years and no interest. Even Spain and Italy which are in terrible shape fiscally, have a negative return on their 2 year bonds [1]. We now have extremely distorted markets. Heavily indebted governments around the world are borrowing money for free, enabled by their "politically independent" central banks. Some central banks are purchasing equities outright (Bank of Japan announced last month they would double their purchasing of equity ETFs). There's also a great deal of research indicating that such QE policies increase wealth inequality, by driving up the price of financial assets (which are owned by the rich) and increasing the cost of living for everyone else that needs access to these assets (rent etc.) [2] To most laymen, the idea that creating money and buying financial assets will somehow stimulate spending and inflation is clearly flawed. Central banks by design however, have few other options. [1] https://twitter.com/MktOutperform/status/773577673587105792 https://twitter.com/MktOutperform/status/773577673587105792 [2] http://www.bloomberg.com/news/articles/2016-03-10/how-central-banks-have-made-wealth-inequality-worse http://www.bloomberg.com/news/articles/2016-03-10/how-centra...

rtpg 10y ago
Well TARP worked out pretty well, right? I think there's a logic to QE in scenarios like the credit crunch, since suddenly banks need cash and there's a bunch of illiquid assets on everyone's balance sheets. But I do agree that owners of treasury bonds aren't really going out and spending their proceeds at Wal-Mart for a while.

pjc50 10y ago

QE is an anti-deflation programme. Governments are very keen to avoid real deflation because it kills investment stone dead, leading to loss of jobs and a real recession. The reason why I think a panic is unlikely is that the current bubble is a "search for safety" rather than a "search for return". That's why the Swiss central bank can get away with negative rates - they are charging a premium for asset safety of the CHF. It also compensates Switzerland from the negative effects of its currency appreciating. Previous asset bubbles burst when the second derivative goes down: when the returns go down, the rush to buy the asset stops and the price collapses. The rush for safety is different. There's nowhere else to go but other, riskier asset classes. Even trying to hold it as cash has problems when done on that scale. Negative rates are also I think your leading indicator for the net asset loss that's going to come from global warming. Not just "unburnable" fuel and lost investment in industries that must be transitioned away from, not just the sunken beachfront property, but the requirement to build new renewable infrastructure just to maintain our current standards. There's a huge investment needed, but since the return it offers is collective and can't easily be captured by the investor it's not going to come from the private sector. Wealth can only be preserved in the context of preserving society, so the wealthy are going to have to take a small haircut in order to preserve the whole.

crimsonalucard 10y ago

If printed money doesn't get used it's as if it was never printed. It is the action of using this money that causes prices to rise. Nobody will just print money and leave it in a vault.