5 ms·

> 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 nee

> 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.
stickfigure 8y ago
A corollary to this is the theory that the bull cycle may actually be what causes the bear cycle. Irrational exuberance and all that. Best to pour water on the flames, not gasoline.
- benjaminjackman 8y ago
  For some reason the notion of Economists “Pour[ing] water on the flames” of a bull economy made me think of the doctors “bleeding out the bad humors” from the front page story here a couple days ago about the techniques used in treatment of George Washington’s final illness.
ryanmarsh 8y ago
The Feds balance sheet is nuts. We all knew they’d need to deleverage at some point.
- alecco 8y ago
  I'm no republican, heck not even close to US. But the timing of it raises eyebrows.
  - ryanmarsh 8y ago
    Well I wasn’t going to go there, but yah. The timing does smell a little.
- ataturk 8y ago
  This whole bull market was built not on growth but on stock buybacks by the companies themselves, using free money printed by the Fed. There has not been any real growth. I hate to sound gloomy, but the more I look around, the more I see the swindle, the bezzle, and the veneer rather than real value and real wealth creation. I also see a lot of cheapening of formerly great products--Macbook Pro newer models come immediately to mind. But of course, hardly the only example! The Fed operates on a razor thin ledge and is right to be putting rates back to normal levels vs. the 0.01% or whatever we dropped to--they were even working on how to operate at negative rates, and some bonds (Swiss?) actually paid negative coupons for awhile. Maybe they still do? Anyhow, I am in favor of reasonable interest rates because that is a major lever that controls price inflation. People think very one-dimensionally about interest rates, as in, how much they are paying to maintain their ridiculous debt loads. Me, on the other hand, I have no such debts to pay off. Freedom is not being a debt slave, being able to walk away from any job at any moment and not suffer a bit for it. I would like to see banks pay savings interest rates again. They cranked them down very fast, but have never restored them to anywhere close to where they should be right now. My checking account pays a paltry .25%, my bank acct, maybe .7%. Meanwhile, even 3-months CDs are in the 2-2.5% range right now and longer term CD rates are halfway decent again. Long term T-Bonds are up around 3%. You can find Munis and other riskier bonds with decent coupons as wells.
tabtab 8y ago
Low interest rates are no longer a very good stimulus during slumps because few want loans then anyhow. We are no longer a capital intensive economy. It's better to pay down debt during high points so that say infrastructure projects can be created and paid for during slumps. Infrastructure wages flow quickly into the the "99%" economy, unlike many alternative stimuli.

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.

stickfigure 8y ago

A corollary to this is the theory that the bull cycle may actually be what causes the bear cycle. Irrational exuberance and all that. Best to pour water on the flames, not gasoline.

benjaminjackman 8y ago
For some reason the notion of Economists “Pour[ing] water on the flames” of a bull economy made me think of the doctors “bleeding out the bad humors” from the front page story here a couple days ago about the techniques used in treatment of George Washington’s final illness.

ryanmarsh 8y ago

The Feds balance sheet is nuts. We all knew they’d need to deleverage at some point.

alecco 8y ago
I'm no republican, heck not even close to US. But the timing of it raises eyebrows.
- ryanmarsh 8y ago
  Well I wasn’t going to go there, but yah. The timing does smell a little.
ataturk 8y ago
This whole bull market was built not on growth but on stock buybacks by the companies themselves, using free money printed by the Fed. There has not been any real growth. I hate to sound gloomy, but the more I look around, the more I see the swindle, the bezzle, and the veneer rather than real value and real wealth creation. I also see a lot of cheapening of formerly great products--Macbook Pro newer models come immediately to mind. But of course, hardly the only example! The Fed operates on a razor thin ledge and is right to be putting rates back to normal levels vs. the 0.01% or whatever we dropped to--they were even working on how to operate at negative rates, and some bonds (Swiss?) actually paid negative coupons for awhile. Maybe they still do? Anyhow, I am in favor of reasonable interest rates because that is a major lever that controls price inflation. People think very one-dimensionally about interest rates, as in, how much they are paying to maintain their ridiculous debt loads. Me, on the other hand, I have no such debts to pay off. Freedom is not being a debt slave, being able to walk away from any job at any moment and not suffer a bit for it. I would like to see banks pay savings interest rates again. They cranked them down very fast, but have never restored them to anywhere close to where they should be right now. My checking account pays a paltry .25%, my bank acct, maybe .7%. Meanwhile, even 3-months CDs are in the 2-2.5% range right now and longer term CD rates are halfway decent again. Long term T-Bonds are up around 3%. You can find Munis and other riskier bonds with decent coupons as wells.

tabtab 8y ago

Low interest rates are no longer a very good stimulus during slumps because few want loans then anyhow. We are no longer a capital intensive economy. It's better to pay down debt during high points so that say infrastructure projects can be created and paid for during slumps. Infrastructure wages flow quickly into the the "99%" economy, unlike many alternative stimuli.