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> The fed is literally giving asset holders free money at the expense of people trying to save in traditional ways (savings accounts). If you believe this, isn

> The fed is literally giving asset holders free money at the expense of people trying to save in traditional ways (savings accounts). If you believe this, isn't the rational thing to use your dollars to buy assets? I think you're betraying a deep mis-understading of how money works. QE has been raging for 10 years, but inflation is incredibly low (2.5% US, 1.5% EU). In other words, even though you claim that the FED "gives asset holders free money", when you hold cash you're not really losing purchasing power. How do you square the two things?

freejulian 9y ago
Absolutely, had I realized what the fed was doing when QE was happening I would have definitely done that. And a lot of people smarter than myself did do precisely that! Inflation is only “incredibly low” if you cherry pick the basket of goods used to measure it.
- fwdpropaganda 9y ago
  So. No need for bitcoin. You're just running away from a complex thing you don't understand but has a lot of traction, to a simple thing which you understand but has no traction. My strategy is stick with the former and educate myself more. Different strategies.
  - whytaka 9y ago
    I think an alternate money system that works alongside government issued currencies would be a huge boon to society.
    - _jal 9y ago
      Long term, you will either have government as we know it now, or an alternate currency, but not both. The monopoly on currency is closely related to the monopoly on force. I generally think a lot of anarcho-capitalist theory to be obvious nonsense, but on that, they have a point.
      - whytaka 9y ago
        I agree that governments will try but there are already plenty of countries where merchants will accept USD as well as their local currency.
    - fwdpropaganda 9y ago
      It already exists https://en.wikipedia.org/wiki/Complementary_currency https://en.wikipedia.org/wiki/Complementary_currency The reason why you've never heard of it it's because it's not a huge boon to society. In the vast majority of cases it's an entirely pointless thing that you do just because you can.
      - whytaka 9y ago
        I think that's a weak argument. All of the currencies listed in the article are limited to local purchases. At first glance they all seem to be paper money as well. They clearly solve none of the problems that concern crypto-enthusiasts/non-keynesians. No, the reason I never hear about them is because they are limited in scope and simply defer power to another authority.
- nopriorarrests 9y ago
  It's amazing that you are being downvoted for explaining exactly what Ben Bernanke himself said back in 2010. [0]. "This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate this additional action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion". [0] https://www.federalreserve.gov/newsevents/other/o_bernanke20101105a.htm https://www.federalreserve.gov/newsevents/other/o_bernanke20...
  - freejulian 9y ago
    Pretty common for me to get downvotes for making a statement that goes against the hackernews groupthink. Then their comment throttle kicks in and I can’t post for a few hours and the groupthink can continue without interruption.
  - yxhuvud 9y ago
    I downvoted him for the conspiracy claim that the inflation numbers are intentionally kept lower than they should.
    - freejulian 9y ago
      Why do you think they aren’t?
    - fwdpropaganda 9y ago
      I have noticed a great overlap between crypto-fundamentalists and conspiracy theorists.
whytaka 9y ago
> If you believe this, isn't the rational thing to use your dollars to buy assets? If you have leftover capital after consumption, then yes. >I think you're betraying a deep mis-understading of how money works. QE has been raging for 10 years, but inflation is incredibly low (2.5% US, 1.5% EU). In other words, even though you claim that the FED "gives asset holders free money", when you hold cash you're not really losing purchasing power. How do you square the two things? Housing affordability crisis in nearly every urban centre.
AnimalMuppet 9y ago
It's not that simple. The word "assets" is the wrong word (and I know, you didn't pick it). What actually happened was that there were two kinds of assets, safe and... not so safe. And when the bottom fell out on housing, people got out of the stock market too. Where did the money go? Some evaporated, as people found out that their assets weren't worth as much as they thought they were. A bunch of the rest went into bonds, especially US Treasuries, which were regarded as the safest asset out there. The Fed responded by buying a bunch of treasuries (QE). That drove the price up. If you happened to hold treasuries when the Fed did this, you made money. On the other hand, everyone else on the planet was also buying treasuries, so the price was going up anyway - the Fed just made it go up more. So some people sold, because the price was high. Some did it to cash in the price rise. Others did it because, going forward, the rate of return was dismal for the next X years. Those who sold had to put their money somewhere. Where would they put it. Not in treasuries - that was what they were selling. So they were getting out of treasuries, and had money to buy other things. That's what the Fed intended. But it's not just QE. It has always been a good strategy to hold bonds when interest rates fall, because the price of the bond moves in the opposite direction of interest rates, and the longer the bond duration, the further the price moves. Why did the Fed do this? A few paragraphs ago, I said that some money just evaporated. Well, "some" here means four trillion dollars. So the Fed used QE to create four trillion dollars and pump it back into the economy, which kept the whole thing from seizing up in a real Great Depression. Whether people holding treasuries at the time made a bit more money than they would have is beside the point. So freejulian is wrong in what he's implying, that there was some conspiracy of evil bankers to transfer money to the rich. But he's right that, when this came down, holding bonds was the right move. (But by the time QE started, the big gains had already happened.)
nopriorarrests 9y ago
>How do you square the two things? Very simple. For everything that could be produced in China or, say, Vietnam, you have, essentially, a deflationary backstop. No matter how many mp3 players you want to buy, chinese will deliver without rising prices, since they have a capacity and happy to utilize it. For stuff like real estate, or stocks... bloomerg reported yesterday that "FANG Rally Is Outpacing the Heyday of the Tech Frenzy" [0]. Stock market was and still is a good place to be for last 9 years, and while economic recovery was slowest since Great Depression [1], stock market roared for some reason. Hmmmmm.. [0] https://www.bloomberg.com/news/articles/2018-03-15/looking-like-bubble-fang-rally-outpacing-heyday-of-tech-frenzy https://www.bloomberg.com/news/articles/2018-03-15/looking-l... [1] http://money.cnn.com/2016/10/05/news/economy/us-recovery-slowest-since-wwii/index.html http://money.cnn.com/2016/10/05/news/economy/us-recovery-slo...
pjmorris 9y ago
In my view, QE's inflation happened before QE started. A significant purpose of QE was to prop up the loans made before the financial crisis. The inflation happened with the creation of trillions of dollars of securitized sub-prime housing loans. Rather than allowing those loans to default, the Fed is acting as a buyer of last resort through QE MBS purchases [0]. Without the Fed, much less money would be available for housing loans, and their prices would return to historical ratios to income [1, 2]. [0] https://fred.stlouisfed.org/series/MBST https://fred.stlouisfed.org/series/MBST [1] https://archive.nytimes.com/www.nytimes.com/imagepages/2006/08/26/weekinreview/27leon_graph2.html https://archive.nytimes.com/www.nytimes.com/imagepages/2006/... [2] Blue line in http://www.econ.yale.edu/~shiller/data/Fig3-1.xls http://www.econ.yale.edu/~shiller/data/Fig3-1.xls

freejulian 9y ago

Absolutely, had I realized what the fed was doing when QE was happening I would have definitely done that. And a lot of people smarter than myself did do precisely that! Inflation is only “incredibly low” if you cherry pick the basket of goods used to measure it.

fwdpropaganda 9y ago
So. No need for bitcoin. You're just running away from a complex thing you don't understand but has a lot of traction, to a simple thing which you understand but has no traction. My strategy is stick with the former and educate myself more. Different strategies.
- whytaka 9y ago
  I think an alternate money system that works alongside government issued currencies would be a huge boon to society.
  - _jal 9y ago
    Long term, you will either have government as we know it now, or an alternate currency, but not both. The monopoly on currency is closely related to the monopoly on force. I generally think a lot of anarcho-capitalist theory to be obvious nonsense, but on that, they have a point.
    - whytaka 9y ago
      I agree that governments will try but there are already plenty of countries where merchants will accept USD as well as their local currency.
  - fwdpropaganda 9y ago
    It already exists https://en.wikipedia.org/wiki/Complementary_currency https://en.wikipedia.org/wiki/Complementary_currency The reason why you've never heard of it it's because it's not a huge boon to society. In the vast majority of cases it's an entirely pointless thing that you do just because you can.
    - whytaka 9y ago
      I think that's a weak argument. All of the currencies listed in the article are limited to local purchases. At first glance they all seem to be paper money as well. They clearly solve none of the problems that concern crypto-enthusiasts/non-keynesians. No, the reason I never hear about them is because they are limited in scope and simply defer power to another authority.
nopriorarrests 9y ago
It's amazing that you are being downvoted for explaining exactly what Ben Bernanke himself said back in 2010. [0]. "This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate this additional action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion". [0] https://www.federalreserve.gov/newsevents/other/o_bernanke20101105a.htm https://www.federalreserve.gov/newsevents/other/o_bernanke20...
- freejulian 9y ago
  Pretty common for me to get downvotes for making a statement that goes against the hackernews groupthink. Then their comment throttle kicks in and I can’t post for a few hours and the groupthink can continue without interruption.
- yxhuvud 9y ago
  I downvoted him for the conspiracy claim that the inflation numbers are intentionally kept lower than they should.
  - freejulian 9y ago
    Why do you think they aren’t?
  - fwdpropaganda 9y ago
    I have noticed a great overlap between crypto-fundamentalists and conspiracy theorists.

whytaka 9y ago

> If you believe this, isn't the rational thing to use your dollars to buy assets? If you have leftover capital after consumption, then yes. >I think you're betraying a deep mis-understading of how money works. QE has been raging for 10 years, but inflation is incredibly low (2.5% US, 1.5% EU). In other words, even though you claim that the FED "gives asset holders free money", when you hold cash you're not really losing purchasing power. How do you square the two things? Housing affordability crisis in nearly every urban centre.

AnimalMuppet 9y ago

It's not that simple. The word "assets" is the wrong word (and I know, you didn't pick it). What actually happened was that there were two kinds of assets, safe and... not so safe. And when the bottom fell out on housing, people got out of the stock market too. Where did the money go? Some evaporated, as people found out that their assets weren't worth as much as they thought they were. A bunch of the rest went into bonds, especially US Treasuries, which were regarded as the safest asset out there. The Fed responded by buying a bunch of treasuries (QE). That drove the price up. If you happened to hold treasuries when the Fed did this, you made money. On the other hand, everyone else on the planet was also buying treasuries, so the price was going up anyway - the Fed just made it go up more. So some people sold, because the price was high. Some did it to cash in the price rise. Others did it because, going forward, the rate of return was dismal for the next X years. Those who sold had to put their money somewhere. Where would they put it. Not in treasuries - that was what they were selling. So they were getting out of treasuries, and had money to buy other things. That's what the Fed intended. But it's not just QE. It has always been a good strategy to hold bonds when interest rates fall, because the price of the bond moves in the opposite direction of interest rates, and the longer the bond duration, the further the price moves. Why did the Fed do this? A few paragraphs ago, I said that some money just evaporated. Well, "some" here means four trillion dollars. So the Fed used QE to create four trillion dollars and pump it back into the economy, which kept the whole thing from seizing up in a real Great Depression. Whether people holding treasuries at the time made a bit more money than they would have is beside the point. So freejulian is wrong in what he's implying, that there was some conspiracy of evil bankers to transfer money to the rich. But he's right that, when this came down, holding bonds was the right move. (But by the time QE started, the big gains had already happened.)

nopriorarrests 9y ago

>How do you square the two things? Very simple. For everything that could be produced in China or, say, Vietnam, you have, essentially, a deflationary backstop. No matter how many mp3 players you want to buy, chinese will deliver without rising prices, since they have a capacity and happy to utilize it. For stuff like real estate, or stocks... bloomerg reported yesterday that "FANG Rally Is Outpacing the Heyday of the Tech Frenzy" [0]. Stock market was and still is a good place to be for last 9 years, and while economic recovery was slowest since Great Depression [1], stock market roared for some reason. Hmmmmm.. [0] https://www.bloomberg.com/news/articles/2018-03-15/looking-like-bubble-fang-rally-outpacing-heyday-of-tech-frenzy https://www.bloomberg.com/news/articles/2018-03-15/looking-l... [1] http://money.cnn.com/2016/10/05/news/economy/us-recovery-slowest-since-wwii/index.html http://money.cnn.com/2016/10/05/news/economy/us-recovery-slo...

pjmorris 9y ago

In my view, QE's inflation happened before QE started. A significant purpose of QE was to prop up the loans made before the financial crisis. The inflation happened with the creation of trillions of dollars of securitized sub-prime housing loans. Rather than allowing those loans to default, the Fed is acting as a buyer of last resort through QE MBS purchases [0]. Without the Fed, much less money would be available for housing loans, and their prices would return to historical ratios to income [1, 2]. [0] https://fred.stlouisfed.org/series/MBST https://fred.stlouisfed.org/series/MBST [1] https://archive.nytimes.com/www.nytimes.com/imagepages/2006/08/26/weekinreview/27leon_graph2.html https://archive.nytimes.com/www.nytimes.com/imagepages/2006/... [2] Blue line in http://www.econ.yale.edu/~shiller/data/Fig3-1.xls http://www.econ.yale.edu/~shiller/data/Fig3-1.xls