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Central banks are pumping out new money in form debt of close to zero interest rates. This is below market rate interest rates if the market would freely choose
by acd 8y ago
Central banks are pumping out new money in form debt of close to zero interest rates. This is below market rate interest rates if the market would freely choose the interest rate would be higher. The new money flows to automation in startups that makes processes cheaper. Thus the central banks are not creating inflation through salary inflation they are creating deflation through automation. Robots on average replace 5.7 humans. Software is also a form of automation.
Thus the central banks keep printing new money in hope for inflation but the process where the money flows are creating deflation.
- johnvanommen 8y agoInteresting. I've long thought that the ZIRP policies of the last ten years had the exact OPPOSITE effect of what was intended. The idea of ZIRP was that the Fed would inflate house prices, and this would keep homeowners from defaulting on their mortgages. But the truth was that many homeowners only "owned" a tiny fraction of their home. Often as little as 5-10% of what they paid for it. So if their home price dropped by even 15%, they were underwater. This created a cascade of defaults. Then gasoline was added to the fire, when the government began to forgive the capital gains of walking away from a home that was underwater. This created a scenario where thousands of people walked away from their homes, and then large hedge funds scooped up thousands of properties for pennies on the dollar. Naturally, prices recovered eventually, but then the former homeowners were now renters, and the rent was prohibitively expensive. To a large degre because the value of the dollar had been devalued to prop up prices in the first place.