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Because arrogant people think they can steer entire global economy with a single parameter - money supply.

by eddd 9y ago

dragonwriter 9y ago
> Because arrogant people think they can steer entire global economy with a single parameter - money supply. Which arrogant people? Usually, central bankers I've heard seem to think that monetary policy is useful for smoothing around the edges, but more than that requires fiscal policy, and that monetary policy can't make up for next neglect of fiscal policy (or unwarranted active fiscal interventions.)
- eddd 9y ago
  Fiscal policy depends mostly on monetary policy I think. The amount of money government can borrow is bound by central banks. But, central bankers don't respond to voters, so basically they can do whatever servers the financial system and it stability. Of course I am joking, they simply have no idea what they are doing, since it is virtually impossible. I grew up in post communism country and I have cold sweat when I hear about price control. And somehow price of the money is centrally managed.
  - AnimalMuppet 9y ago
    > Fiscal policy depends mostly on monetary policy I think. The amount of money government can borrow is bound by central banks. I'm not sure that either of those statements is true. It could be, in some situations in some countries. As a general statement? No, because most government borrowing is not borrowing from the central bank. > And somehow price of the money is centrally managed. Empirically, that has worked out rather well - far better than "centrally managed" would lead you to expect. In particular, it has dramatically cut the number of severe downturns (which used to occur whenever the price of money became too high).
    - eddd 9y ago
      > No, because most government borrowing is not borrowing from the central bank. To be precise, it almost always against the constitution. The problem is, the amount of money the government can borrow is tied to the money supply. If FED raised rates a couple percent, US would bankrupt in a few days after. > Empirically, that has worked out rather well . That's arguable, since we don't know what would happen if we didn't intervene with artificial interest rates.
      - torstenvl 9y ago
        I'm reading your comment to mean that you think federal debt is unconstitutional. Is that your position? If so, do you have any support for that position?
        eddd 9y ago
        https://www.investopedia.com/articles/bonds/09/bond-market-interest-rates.asp https://www.investopedia.com/articles/bonds/09/bond-market-i... Sorry to leave you with a link, bed time ;)
      - daxorid 9y ago
        > If FED raised rates a couple percent, US would bankrupt in a few days after. Setting aside the fact that the fed funds rate can only wag the short end of the yield curve, I'd like to point something out. If the coupon on ALL issued Treasury debt suddenly went to 10% overnight, then yes, we would be looking at possible solvency issues. But that's not how it works. The coupon the US pays to creditors is fixed until the maturity date of the bond. The average maturity on issued bonds and bills is 69 months. Meaning that open market yields would need to remain at (2*(10-current average yield))% for nearly six years in order to get to that point.
        eddd 9y ago
        That's true. But Treasury issues bonds quite often, partially to cover interest on existing bonds. So, the day rates raise to high, treasury is insolvent.
  - dragonwriter 9y ago
    > Fiscal policy depends mostly on monetary policy I think. Monetary policy might arguably set (and certainly effects) the outer bounds of fiscal policy, but it doesn't control fiscal policy.
AnimalMuppet 9y ago
In addition to what dragonwriter said: Even if arrogant people think that, in what way does that mean that there is no natural business cycle?
- eddd 9y ago
  I could try answering to that in detail, but others (smarter than me) did that already. https://link.springer.com/article/10.1007/BF00843932 https://link.springer.com/article/10.1007/BF00843932
  - AnimalMuppet 9y ago
    As much as I could read of that without a login sure didn't say that there was no business cycle. And, for that matter, observation of the last century or two certainly leads on to think that there is a business cycle. Maybe, instead of a login-required paper, you could just state a position, and state what evidence you think makes that position reasonable?
    - eddd 9y ago
      I don't deny, there is no business cycle. My point is, that a handful of people decide when the cycle should have it peeks and bottoms. To me it is like: "We don't like winter, so let's warm up the entire planet. And if there is a problem we can always cool it down a bit". There are 7 billions participants in the global economy and somehow FED pretends it has this magic ball that predicts what will happen in upcoming months. And even if it had, they have no proper tools to react on it properly.
      - AnimalMuppet 9y ago
        So there's a business cycle, but it's not "natural". Or at least the one we have now is not natural. I can agree with that, actually. The difference is, I think that what we have now is an improvement on the natural business cycle. That thing was vicious.
- deleted 9y ago

Because arrogant people think they can steer entire global economy with a single parameter - money supply.

by eddd 9y ago

Because arrogant people think they can steer entire global economy with a single parameter - money supply.

> Because arrogant people think they can steer entire global economy with a single parameter - money supply. Which arrogant people? Usually, central bankers I've heard seem to think that monetary policy is useful for smoothing around the edges, but more than that requires fiscal policy, and that monetary policy can't make up for next neglect of fiscal policy (or unwarranted active fiscal interventions.)

eddd 9y ago
Fiscal policy depends mostly on monetary policy I think. The amount of money government can borrow is bound by central banks. But, central bankers don't respond to voters, so basically they can do whatever servers the financial system and it stability. Of course I am joking, they simply have no idea what they are doing, since it is virtually impossible. I grew up in post communism country and I have cold sweat when I hear about price control. And somehow price of the money is centrally managed.
- AnimalMuppet 9y ago
  > Fiscal policy depends mostly on monetary policy I think. The amount of money government can borrow is bound by central banks. I'm not sure that either of those statements is true. It could be, in some situations in some countries. As a general statement? No, because most government borrowing is not borrowing from the central bank. > And somehow price of the money is centrally managed. Empirically, that has worked out rather well - far better than "centrally managed" would lead you to expect. In particular, it has dramatically cut the number of severe downturns (which used to occur whenever the price of money became too high).
  - eddd 9y ago
    > No, because most government borrowing is not borrowing from the central bank. To be precise, it almost always against the constitution. The problem is, the amount of money the government can borrow is tied to the money supply. If FED raised rates a couple percent, US would bankrupt in a few days after. > Empirically, that has worked out rather well . That's arguable, since we don't know what would happen if we didn't intervene with artificial interest rates.
    - torstenvl 9y ago
      I'm reading your comment to mean that you think federal debt is unconstitutional. Is that your position? If so, do you have any support for that position?
      - eddd 9y ago
        https://www.investopedia.com/articles/bonds/09/bond-market-interest-rates.asp https://www.investopedia.com/articles/bonds/09/bond-market-i... Sorry to leave you with a link, bed time ;)
    - daxorid 9y ago
      > If FED raised rates a couple percent, US would bankrupt in a few days after. Setting aside the fact that the fed funds rate can only wag the short end of the yield curve, I'd like to point something out. If the coupon on ALL issued Treasury debt suddenly went to 10% overnight, then yes, we would be looking at possible solvency issues. But that's not how it works. The coupon the US pays to creditors is fixed until the maturity date of the bond. The average maturity on issued bonds and bills is 69 months. Meaning that open market yields would need to remain at (2*(10-current average yield))% for nearly six years in order to get to that point.
      - eddd 9y ago
        That's true. But Treasury issues bonds quite often, partially to cover interest on existing bonds. So, the day rates raise to high, treasury is insolvent.
- dragonwriter 9y ago
  > Fiscal policy depends mostly on monetary policy I think. Monetary policy might arguably set (and certainly effects) the outer bounds of fiscal policy, but it doesn't control fiscal policy.

AnimalMuppet 9y ago

In addition to what dragonwriter said: Even if arrogant people think that, in what way does that mean that there is no natural business cycle?

eddd 9y ago
I could try answering to that in detail, but others (smarter than me) did that already. https://link.springer.com/article/10.1007/BF00843932 https://link.springer.com/article/10.1007/BF00843932
- AnimalMuppet 9y ago
  As much as I could read of that without a login sure didn't say that there was no business cycle. And, for that matter, observation of the last century or two certainly leads on to think that there is a business cycle. Maybe, instead of a login-required paper, you could just state a position, and state what evidence you think makes that position reasonable?
  - eddd 9y ago
    I don't deny, there is no business cycle. My point is, that a handful of people decide when the cycle should have it peeks and bottoms. To me it is like: "We don't like winter, so let's warm up the entire planet. And if there is a problem we can always cool it down a bit". There are 7 billions participants in the global economy and somehow FED pretends it has this magic ball that predicts what will happen in upcoming months. And even if it had, they have no proper tools to react on it properly.
    - AnimalMuppet 9y ago
      So there's a business cycle, but it's not "natural". Or at least the one we have now is not natural. I can agree with that, actually. The difference is, I think that what we have now is an improvement on the natural business cycle. That thing was vicious.
deleted 9y ago