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Sure but China inflated its currency, that's a redistribution to asset holders. The acomplishments are admirable all the same, but the accelerated climb is prob

Sure but China inflated its currency, that's a redistribution to asset holders. The acomplishments are admirable all the same, but the accelerated climb is probably boosted by inflation. I predict a correction in next year's list.

BenoitEssiambre 8y ago
It's not really a redistribution to asset holders. These people get about the same in the long run. It's more like the removal of a subsidy on government paper. This promotes private asset creation. https://medium.com/@b.essiambre/the-world-deserves-a-pay-raise-302f25efd82a https://medium.com/@b.essiambre/the-world-deserves-a-pay-rai... There is no reason for a correction if they continue running a sufficiently inflationary monetary policy.
- RA_Fisher 8y ago
  That's a great article! I read about 3/4 and I'll come back for the rest. Your arguement is the ying to my yang. Where I depart is: wages adjust much more slowly than assets. Wages are negotiated over long spans of time vs. liquid assets. Wage holders think they're negotiating for real value X but it's eroded. Just look at baby boomers. Their wage flows are ~ fixed. Sure many get the benefit of asset appreciation but the ones that don't (get word) are crushed.
  - RA_Fisher 8y ago
    The assertion that the gov has the equilibrium interest rate (price of money) set too high is unsubstantiated in the article. We've just been through quantitative easing, so it seems unlikely we're above equilibrium. If only we'd let the market choose!
    - BenoitEssiambre 8y ago
      The natural rate is hard to measure so this is a difficult one to answer. And right now, in the US, my argument probably no longer holds that well (I wrote the post a while back). It looks like the uncertainty surrounding the aftermath of the 2008 crisis finally dissipated and unprecedented government deficit spending has pushed the equilibrium up, making it easier to follow for the Fed. This means there is enough private investment to keep the economy running well and people employed. Europe and Japan are still very problematic however. The simple fact that people, businesses and banks hoard cash and government bonds instead of doing sufficient investment to keep people employed is strong evidence to me that the returns on government paper is above market. Excess reserves are high into these parts of the world. A more widely recognized sign is that they keep undershooting their inflation target. For arguments from real economists, look around these parts https://www.davidbeckworth.com/popular https://www.davidbeckworth.com/popular, https://worthwhile.typepad.com/worthwhile_canadian_initi/nick-rowe/ https://worthwhile.typepad.com/worthwhile_canadian_initi/nic... or https://faculty.insead.edu/fatas/ https://faculty.insead.edu/fatas/ One thing you can't rely on is the fact that central bank rates are zero in the problematic places. Zero is a high, above market rate when the equilibrium is negative. As I tried to emphasize in my medium post, negative rates can be quite normal and natural. If marginal private assets don't have a positive real rate on a risk adjusted, liquidity adjusted basis, the government shouldn't provide an artificial substitute. If they do, it puts a gridlock in large parts of the economy.
seanmcdirmid 8y ago
> Sure but China inflated its currency China inflated the value of its currency, they didn't inflate it by printing more (quite the opposite actually). This makes it harder for Chinese companies to do trade, not easier, so I don't see what your point is.
- RA_Fisher 8y ago
  Considering the huge flows into SF, Vancouver and Sydney real estate, that doesn't seem likely. They even institute capital controls to prevent capital flight. That's a sign that the printer is running at a high speed!
  - seanmcdirmid 8y ago
    If the RMB free floated on the market, it wouldn’t matter how fast they were running the printer since supply and demand would do its thing. However, if the RMB is overvalued (meaning they say it is worth more than it is actually), then capital controls are very necessary. If the RMB was undervalued, then you would need more controls in the opposite direction (for money coming in) to prevent arbitrage. Right now the RMB is overvalued, but not by much. Maybe it should be 7 or 7.5 RMB/dollar.

BenoitEssiambre 8y ago

It's not really a redistribution to asset holders. These people get about the same in the long run. It's more like the removal of a subsidy on government paper. This promotes private asset creation. https://medium.com/@b.essiambre/the-world-deserves-a-pay-raise-302f25efd82a https://medium.com/@b.essiambre/the-world-deserves-a-pay-rai... There is no reason for a correction if they continue running a sufficiently inflationary monetary policy.

RA_Fisher 8y ago
That's a great article! I read about 3/4 and I'll come back for the rest. Your arguement is the ying to my yang. Where I depart is: wages adjust much more slowly than assets. Wages are negotiated over long spans of time vs. liquid assets. Wage holders think they're negotiating for real value X but it's eroded. Just look at baby boomers. Their wage flows are ~ fixed. Sure many get the benefit of asset appreciation but the ones that don't (get word) are crushed.
- RA_Fisher 8y ago
  The assertion that the gov has the equilibrium interest rate (price of money) set too high is unsubstantiated in the article. We've just been through quantitative easing, so it seems unlikely we're above equilibrium. If only we'd let the market choose!
  - BenoitEssiambre 8y ago
    The natural rate is hard to measure so this is a difficult one to answer. And right now, in the US, my argument probably no longer holds that well (I wrote the post a while back). It looks like the uncertainty surrounding the aftermath of the 2008 crisis finally dissipated and unprecedented government deficit spending has pushed the equilibrium up, making it easier to follow for the Fed. This means there is enough private investment to keep the economy running well and people employed. Europe and Japan are still very problematic however. The simple fact that people, businesses and banks hoard cash and government bonds instead of doing sufficient investment to keep people employed is strong evidence to me that the returns on government paper is above market. Excess reserves are high into these parts of the world. A more widely recognized sign is that they keep undershooting their inflation target. For arguments from real economists, look around these parts https://www.davidbeckworth.com/popular https://www.davidbeckworth.com/popular, https://worthwhile.typepad.com/worthwhile_canadian_initi/nick-rowe/ https://worthwhile.typepad.com/worthwhile_canadian_initi/nic... or https://faculty.insead.edu/fatas/ https://faculty.insead.edu/fatas/ One thing you can't rely on is the fact that central bank rates are zero in the problematic places. Zero is a high, above market rate when the equilibrium is negative. As I tried to emphasize in my medium post, negative rates can be quite normal and natural. If marginal private assets don't have a positive real rate on a risk adjusted, liquidity adjusted basis, the government shouldn't provide an artificial substitute. If they do, it puts a gridlock in large parts of the economy.

seanmcdirmid 8y ago

> Sure but China inflated its currency China inflated the value of its currency, they didn't inflate it by printing more (quite the opposite actually). This makes it harder for Chinese companies to do trade, not easier, so I don't see what your point is.

RA_Fisher 8y ago
Considering the huge flows into SF, Vancouver and Sydney real estate, that doesn't seem likely. They even institute capital controls to prevent capital flight. That's a sign that the printer is running at a high speed!
- seanmcdirmid 8y ago
  If the RMB free floated on the market, it wouldn’t matter how fast they were running the printer since supply and demand would do its thing. However, if the RMB is overvalued (meaning they say it is worth more than it is actually), then capital controls are very necessary. If the RMB was undervalued, then you would need more controls in the opposite direction (for money coming in) to prevent arbitrage. Right now the RMB is overvalued, but not by much. Maybe it should be 7 or 7.5 RMB/dollar.