19 ms·

There seems to be significant disagreement over how robust this recovery is. It’s hard to separate out political posturing from rational economic argument, but

by zaroth 8y ago

There seems to be significant disagreement over how robust this recovery is. It’s hard to separate out political posturing from rational economic argument, but the macro indicators certainly seem powerfully positive. People can’t seem to figure out why inflation is so low with employment so high. The Fed is doing what they do when unemployment drops this low, despite the fact that inflation isn’t knocking at the door. It seems like the best assessment is that as long as the macro indicators stay strong, we might as well dry out some powder for a rainy day. But I personally worry about knocking the legs out from under the strongest bull cycle we’ve ever seen when the next few years seem poised to deliver very strong gains, particularly to disadvantaged populations which are the hardest to bring into full employment, and for whom better paying jobs are life changing.

gnarbarian 8y ago
well, for better or worse Fed rate hikes have less of an affect on the money supply when banks can loan each other money more cheaply than getting it from the FED (ICE LIBOR [1]). But regardless of the money multiplier, raising rates does still have a negative impact on market outlook and optimism. Not too much to worry about probably. unless you are looking to buy or sell a house with a low down payment. 1 https://en.wikipedia.org/wiki/Libor https://en.wikipedia.org/wiki/Libor
cinquemb 8y ago
> People can’t seem to figure out why inflation is so low with employment so high. Probably because of the methodical changes that have happened to how employment is calculated post 2009 compared to before…
- swampthinker 8y ago
  Could you elaborate on this? I'm not familiar with the changes made.
  - cinquemb 8y ago
    Take the time to read through the posts here[0] and you'll see. [0] https://www.alhambrapartners.com/category/markets/ https://www.alhambrapartners.com/category/markets/
    - thx4allthestuff 8y ago
      I didn't downvote you (I don't really downvote, thank you for those who do though), but I think the reason this was voted down is because you didn't provide any substance in your answer, and put a potentially large burden on those who were curious (how much shit will we have to wade through to get to your point). I would suggest giving a brief overview of your point before sending people down a rabbit hole. We just don't have time for that. As a semantic aside, the index call to the single reference was unnecessary, lol. Just trying to help.
      - cinquemb 8y ago
        Fair enough. For those of you who have other mindless things you would prefer to spend hours on in your life and have no interest outside of wanting a quick fix: ~17,000,000 million disappeared[0] from the numerator since there is a lot of flexibility in ("People are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work."). People are fooling themselves if they think the employment rate is relevant signal anymore for determining the strength of the economy, it hasn't been in 10 years. [0] https://www.alhambrapartners.com/wp-content/uploads/2018/09/ABOOK-Sept-2018-CBO-2007.png https://www.alhambrapartners.com/wp-content/uploads/2018/09/...
        thx4allthestuff 8y ago
        Thank you for taking the effort to clarify your point. I think you would be received more openly if you approached it with a bit less passion. I know what it's like to be a passionate person though, so I can relate with that.
duxup 8y ago
The lack of inflation has been a "mystery" since even the stimulus time during the recession wasn't it? Even optimistic / supporters of the stimulus / spending way back then were sure we'd see some inflation we could tie to that whole thing, and others predicted lots of inflation, as far as I know they never did see much. I think the lack of inflation has been a mystery for a long while now.
- maxxxxx 8y ago
  Do houses, health and education just eat up any surplus money that could cause inflation?
  - paulsutter 8y ago
    Or how is it that houses, health and education don’t count as inflation?
    - chongli 8y ago
      Aye, there's the rub. Inflation has more to do with its measurement than it does with the economy. Measure it a different way and you can tell a different story.
- dmurray 8y ago
  I don't know why this is downvoted. Inflation in the USA absolutely is mysteriously low right now. It's a lot easier to explain 5% growth and 3% inflation than 2% growth and zero inflation, even if they work out the same for the median (average?) worker who has no assets and no debt.
  - 0x8BADF00D 8y ago
    Only because of the relative strength of the dollar. We are literally living off the backs (labor) of Chinese workers. Once it plunges, you'll see the real reckoning at hand. It will be stagflation, and people will dump dollar denominated assets faster than you can say BOOYAH! Inflation always lags.
pcwalton 8y ago
> But I personally worry about knocking the legs out from under the strongest bull cycle we’ve ever seen Because when the tide goes out—and it will—the Fed needs to be in a position to reinvigorate the economy. It's standard mainstream economic theory. We're already in a precarious position, with the Tax Cuts and Jobs Act doing precisely the opposite of what we should be doing. Thank goodness the Fed has so far managed to remain sensible. I would be far more worried if they were not continuing to raise rates.
- SubiculumCode 8y ago
  Even at zero percent, there is always the helicopter drop, as non-conventional as that is.
  - cirgue 8y ago
    As has been noted elsewhere on HN, helicopter money isn’t actually that non-conventional: tax breaks/rebates are a pretty standard way to goose the economy, but you’re right in that anything past that is sort of terra incognita in the US.
    - tabtab 8y ago
      Tax breaks mostly flow to the wealthy, since the poor pay very little income tax. And the wealthy tend to sit on cash during slumps. Thus, tax-cuts are not the best stimulus. The best stimuli are those that flow to the middle and lower classes, who are more likely to re-spend any gains, cycling money quicker into the economy.
    - SubiculumCode 8y ago
      Tax breaks are different as they do not create new money. Tax refunds can however.
    - SubiculumCode 8y ago
      The problem with zero percent is that it allows corps money too easily, which can lead to sloppy capitalism.
mr_toad 8y ago
One argument is that all the easy money is going into housing.
mattnewton 8y ago
I am not an economist but I think we’re just measuring inflation wrong: anecdotal, but I have noticed for my peers housing and education is now expensive to the point where there aren’t many dollars left to participate in other economic activity.
- virmundi 8y ago
  I’m waiting for housing to drop in price over the next few years. The boomers are dying. Their houses, and I mean all those investment properties as well as their private homes, will hit the market when their kids don’t want them. The price of education will only decrease when more people take up manual labor jobs. You can get paid 24$ here in Florida if you’re willing to work on a ladder.
  - fiter 8y ago
    It looks like the US population is expected to increase [0]. If the boomers are dying, it looks like we're going to have people to replace them. [0] https://www.statista.com/statistics/183481/united-states-population-projection/ https://www.statista.com/statistics/183481/united-states-pop...
    - toasterlovin 8y ago
      In theory housing prices could still go down if the people replacing dying boomers have less money to spend on housing.
      - toasterlovin 8y ago
        Just to follow up on this thought: in theory this would not be a departure from the historical norm unless boomers are more wealthy in comparison to incoming people than previous generations of older folks were.
  - codebook 8y ago
    It won't happen within a few years. Boomers are still relatively healthy thanks to improved health care. If you count on that, then you should expect at least decades more.
neom 8y ago
Not trolling: Do you believe the fundamentals of the measurements are correct?
mayukh 8y ago
>> " knocking the legs out from under the strongest bull cycle we’ve ever seen ..." What was the last bull cycle that delivered life changing jobs to those who were low/mis-matched skilled and how sustainable was that? The tail end of most expansionary cycles I've seen are just speculative blow-offs. Also where's the inflation ? Equity Markets are up over 130% since 2010, while earnings are up ~ 50%. These are some of the most expensive markets we have seen (barring the dot-com boom which was more large cap centric) QE and the various central bank interventions I'd argue have elevated equity market prices (asset inflation) while increasing income disparity and delivering disproportionate gains to those invested in stock markets -- (not saying there were better alternatives in the years following the 2008 crash, but here we are).
AnthonyMouse 8y ago
> People can’t seem to figure out why inflation is so low with employment so high. It's all the debt. Wages are going to paying interest instead of driving price growth. And as the Fed raises rates, the amount of cash going to pay interest increases in proportion to the outstanding debt, which means a little increase currently goes a long way against inflation. Especially because it's a double effect -- as interest rates increase, money goes from buying things to paying interest, but it also encourages people to take money they would have bought something with and use it to pay down principal to avoid paying the higher interest rates. This is a good thing in the right amount -- it should encourage a reduction in the total outstanding debt -- but they need to go slow because of the proportionally large effect of a small interest rate hike against the unusually large amount of existing debt.
- taysic 8y ago
  You're saying the cause is an increase in household debt? That would seem to cause inflation, not keep it low?
  - AnthonyMouse 8y ago
    It isn't new debt, the increase in debt already happened when interest rates were at zero. Suppose you have an existing $500K variable rate mortgage. Interest rates increase by 0.5%, you have to transfer $2500/year from buying stuff to paying interest, reducing inflation. If you had had a $200K mortgage it would only have been $1000/year for the same rate increase. The high level of existing debt has made the rate increases unusually powerful at fighting inflation.
    - lottin 8y ago
      Technically it's not new debt. It's the cost of servicing an already existing debt. Then there's another question, if someone is paying more, it means someone else is getting paid more. So, while some have less disposable income, others have more. The overall net effect on spending can still be negative, but it's not an automatic conclusion that one can simply jump to.
saosebastiao 8y ago
> People can’t seem to figure out why inflation is so low with employment so high. Because "inflation" only exists in the sense that someone has arbitrarily decided what to measure, how to measure it, how to add or remove items from lists, and how to weight everything...and the cranky codger economists that decided to create the index as it is are obviously not experiencing price inflation. It is not uncommon for an older person who is 30 years into his career and 25 years into a mortgage to be paying less than 5% of his income in housing costs. Recent college grads in this economy have faced what could probably be called hyperinflation...my own rent prices have increased 3x from less than a decade ago, and while I'm relatively well off, rent is still 30% of my income. For some of my peers, it's closer to 50%. If rent goes up 4 percent again, some of those people will have outpaced the CPI on just their housing alone! Young people have seen their health care expenses skyrocket as well. Old people, thanks to various legislative ways to spread costs around, haven't. Same goes for education: older people don't need it anymore, young people are breaking their backs trying to get it. I think it would be fair to say that in terms of what the working population is experiencing, our official inflation figures are severely understated. Inflation is legitimately hard to measure. The fact that we take a handful of metrics that only a few people can barely understand, and we base our entire monetary policy off of it should be alarming to everyone. But it's not, and it won't change until long after it has broken an entire generation of voters.
- repolfx 8y ago
  Hedonic adjustment as it's called and the weird games governments play over housing is a part of it, but not as impactful as you'd think (I looked into this some time ago). There's unfortunately a simple reason why costs like housing and education can explode without triggering inflation - if everyone reallocates their spending to these two areas, they are buying less in other areas. Less demand = lower prices. That is, a rise in prices in some areas does not imply inflation goes up even if those areas are very important. That said I do think the "mystery" of where the inflation went is easier explained in other ways. It's not housing or education necessarily. It's debt and stocks. The bulk of the money poured into investment assets that aren't counted in inflation stats at all.
rafaelc 8y ago
There are two major levers to recover from a down turn - monetary policy and fiscal policy. In the last downturn, 2008, both were heavily pulled - most people forget this but monetary policy was (rightly in hindsight) a near instant drop and fiscal policy was all the hundred billion programs like TARP. Raising rates in good times means more of a lever to pull in bad times. Letting the credit bubble continue to inflate, while keeping rates arbitrarily low to let a bull market run for benefiting the wealthiest, makes little sense historically.

by zaroth 8y ago

gnarbarian 8y ago

well, for better or worse Fed rate hikes have less of an affect on the money supply when banks can loan each other money more cheaply than getting it from the FED (ICE LIBOR [1]). But regardless of the money multiplier, raising rates does still have a negative impact on market outlook and optimism. Not too much to worry about probably. unless you are looking to buy or sell a house with a low down payment. 1 https://en.wikipedia.org/wiki/Libor https://en.wikipedia.org/wiki/Libor

cinquemb 8y ago

> People can’t seem to figure out why inflation is so low with employment so high. Probably because of the methodical changes that have happened to how employment is calculated post 2009 compared to before…

swampthinker 8y ago
Could you elaborate on this? I'm not familiar with the changes made.
- cinquemb 8y ago
  Take the time to read through the posts here[0] and you'll see. [0] https://www.alhambrapartners.com/category/markets/ https://www.alhambrapartners.com/category/markets/
  - thx4allthestuff 8y ago
    I didn't downvote you (I don't really downvote, thank you for those who do though), but I think the reason this was voted down is because you didn't provide any substance in your answer, and put a potentially large burden on those who were curious (how much shit will we have to wade through to get to your point). I would suggest giving a brief overview of your point before sending people down a rabbit hole. We just don't have time for that. As a semantic aside, the index call to the single reference was unnecessary, lol. Just trying to help.
    - cinquemb 8y ago
      Fair enough. For those of you who have other mindless things you would prefer to spend hours on in your life and have no interest outside of wanting a quick fix: ~17,000,000 million disappeared[0] from the numerator since there is a lot of flexibility in ("People are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work."). People are fooling themselves if they think the employment rate is relevant signal anymore for determining the strength of the economy, it hasn't been in 10 years. [0] https://www.alhambrapartners.com/wp-content/uploads/2018/09/ABOOK-Sept-2018-CBO-2007.png https://www.alhambrapartners.com/wp-content/uploads/2018/09/...
      - thx4allthestuff 8y ago
        Thank you for taking the effort to clarify your point. I think you would be received more openly if you approached it with a bit less passion. I know what it's like to be a passionate person though, so I can relate with that.

duxup 8y ago

The lack of inflation has been a "mystery" since even the stimulus time during the recession wasn't it? Even optimistic / supporters of the stimulus / spending way back then were sure we'd see some inflation we could tie to that whole thing, and others predicted lots of inflation, as far as I know they never did see much. I think the lack of inflation has been a mystery for a long while now.

maxxxxx 8y ago
Do houses, health and education just eat up any surplus money that could cause inflation?
- paulsutter 8y ago
  Or how is it that houses, health and education don’t count as inflation?
  - chongli 8y ago
    Aye, there's the rub. Inflation has more to do with its measurement than it does with the economy. Measure it a different way and you can tell a different story.
dmurray 8y ago
I don't know why this is downvoted. Inflation in the USA absolutely is mysteriously low right now. It's a lot easier to explain 5% growth and 3% inflation than 2% growth and zero inflation, even if they work out the same for the median (average?) worker who has no assets and no debt.
- 0x8BADF00D 8y ago
  Only because of the relative strength of the dollar. We are literally living off the backs (labor) of Chinese workers. Once it plunges, you'll see the real reckoning at hand. It will be stagflation, and people will dump dollar denominated assets faster than you can say BOOYAH! Inflation always lags.

pcwalton 8y ago

> But I personally worry about knocking the legs out from under the strongest bull cycle we’ve ever seen Because when the tide goes out—and it will—the Fed needs to be in a position to reinvigorate the economy. It's standard mainstream economic theory. We're already in a precarious position, with the Tax Cuts and Jobs Act doing precisely the opposite of what we should be doing. Thank goodness the Fed has so far managed to remain sensible. I would be far more worried if they were not continuing to raise rates.

SubiculumCode 8y ago
Even at zero percent, there is always the helicopter drop, as non-conventional as that is.
- cirgue 8y ago
  As has been noted elsewhere on HN, helicopter money isn’t actually that non-conventional: tax breaks/rebates are a pretty standard way to goose the economy, but you’re right in that anything past that is sort of terra incognita in the US.
  - tabtab 8y ago
    Tax breaks mostly flow to the wealthy, since the poor pay very little income tax. And the wealthy tend to sit on cash during slumps. Thus, tax-cuts are not the best stimulus. The best stimuli are those that flow to the middle and lower classes, who are more likely to re-spend any gains, cycling money quicker into the economy.
  - SubiculumCode 8y ago
    Tax breaks are different as they do not create new money. Tax refunds can however.
  - SubiculumCode 8y ago
    The problem with zero percent is that it allows corps money too easily, which can lead to sloppy capitalism.

mr_toad 8y ago

One argument is that all the easy money is going into housing.

mattnewton 8y ago

I am not an economist but I think we’re just measuring inflation wrong: anecdotal, but I have noticed for my peers housing and education is now expensive to the point where there aren’t many dollars left to participate in other economic activity.

virmundi 8y ago
I’m waiting for housing to drop in price over the next few years. The boomers are dying. Their houses, and I mean all those investment properties as well as their private homes, will hit the market when their kids don’t want them. The price of education will only decrease when more people take up manual labor jobs. You can get paid 24$ here in Florida if you’re willing to work on a ladder.
- fiter 8y ago
  It looks like the US population is expected to increase [0]. If the boomers are dying, it looks like we're going to have people to replace them. [0] https://www.statista.com/statistics/183481/united-states-population-projection/ https://www.statista.com/statistics/183481/united-states-pop...
  - toasterlovin 8y ago
    In theory housing prices could still go down if the people replacing dying boomers have less money to spend on housing.
    - toasterlovin 8y ago
      Just to follow up on this thought: in theory this would not be a departure from the historical norm unless boomers are more wealthy in comparison to incoming people than previous generations of older folks were.
- codebook 8y ago
  It won't happen within a few years. Boomers are still relatively healthy thanks to improved health care. If you count on that, then you should expect at least decades more.

neom 8y ago

Not trolling: Do you believe the fundamentals of the measurements are correct?

mayukh 8y ago

>> " knocking the legs out from under the strongest bull cycle we’ve ever seen ..." What was the last bull cycle that delivered life changing jobs to those who were low/mis-matched skilled and how sustainable was that? The tail end of most expansionary cycles I've seen are just speculative blow-offs. Also where's the inflation ? Equity Markets are up over 130% since 2010, while earnings are up ~ 50%. These are some of the most expensive markets we have seen (barring the dot-com boom which was more large cap centric) QE and the various central bank interventions I'd argue have elevated equity market prices (asset inflation) while increasing income disparity and delivering disproportionate gains to those invested in stock markets -- (not saying there were better alternatives in the years following the 2008 crash, but here we are).

AnthonyMouse 8y ago

> People can’t seem to figure out why inflation is so low with employment so high. It's all the debt. Wages are going to paying interest instead of driving price growth. And as the Fed raises rates, the amount of cash going to pay interest increases in proportion to the outstanding debt, which means a little increase currently goes a long way against inflation. Especially because it's a double effect -- as interest rates increase, money goes from buying things to paying interest, but it also encourages people to take money they would have bought something with and use it to pay down principal to avoid paying the higher interest rates. This is a good thing in the right amount -- it should encourage a reduction in the total outstanding debt -- but they need to go slow because of the proportionally large effect of a small interest rate hike against the unusually large amount of existing debt.

taysic 8y ago
You're saying the cause is an increase in household debt? That would seem to cause inflation, not keep it low?
- AnthonyMouse 8y ago
  It isn't new debt, the increase in debt already happened when interest rates were at zero. Suppose you have an existing $500K variable rate mortgage. Interest rates increase by 0.5%, you have to transfer $2500/year from buying stuff to paying interest, reducing inflation. If you had had a $200K mortgage it would only have been $1000/year for the same rate increase. The high level of existing debt has made the rate increases unusually powerful at fighting inflation.
  - lottin 8y ago
    Technically it's not new debt. It's the cost of servicing an already existing debt. Then there's another question, if someone is paying more, it means someone else is getting paid more. So, while some have less disposable income, others have more. The overall net effect on spending can still be negative, but it's not an automatic conclusion that one can simply jump to.

saosebastiao 8y ago

> People can’t seem to figure out why inflation is so low with employment so high. Because "inflation" only exists in the sense that someone has arbitrarily decided what to measure, how to measure it, how to add or remove items from lists, and how to weight everything...and the cranky codger economists that decided to create the index as it is are obviously not experiencing price inflation. It is not uncommon for an older person who is 30 years into his career and 25 years into a mortgage to be paying less than 5% of his income in housing costs. Recent college grads in this economy have faced what could probably be called hyperinflation...my own rent prices have increased 3x from less than a decade ago, and while I'm relatively well off, rent is still 30% of my income. For some of my peers, it's closer to 50%. If rent goes up 4 percent again, some of those people will have outpaced the CPI on just their housing alone! Young people have seen their health care expenses skyrocket as well. Old people, thanks to various legislative ways to spread costs around, haven't. Same goes for education: older people don't need it anymore, young people are breaking their backs trying to get it. I think it would be fair to say that in terms of what the working population is experiencing, our official inflation figures are severely understated. Inflation is legitimately hard to measure. The fact that we take a handful of metrics that only a few people can barely understand, and we base our entire monetary policy off of it should be alarming to everyone. But it's not, and it won't change until long after it has broken an entire generation of voters.

repolfx 8y ago
Hedonic adjustment as it's called and the weird games governments play over housing is a part of it, but not as impactful as you'd think (I looked into this some time ago). There's unfortunately a simple reason why costs like housing and education can explode without triggering inflation - if everyone reallocates their spending to these two areas, they are buying less in other areas. Less demand = lower prices. That is, a rise in prices in some areas does not imply inflation goes up even if those areas are very important. That said I do think the "mystery" of where the inflation went is easier explained in other ways. It's not housing or education necessarily. It's debt and stocks. The bulk of the money poured into investment assets that aren't counted in inflation stats at all.

rafaelc 8y ago

There are two major levers to recover from a down turn - monetary policy and fiscal policy. In the last downturn, 2008, both were heavily pulled - most people forget this but monetary policy was (rightly in hindsight) a near instant drop and fiscal policy was all the hundred billion programs like TARP. Raising rates in good times means more of a lever to pull in bad times. Letting the credit bubble continue to inflate, while keeping rates arbitrarily low to let a bull market run for benefiting the wealthiest, makes little sense historically.