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The Fed does not have the tools at its disposal that it did in 2008, they have been exhausted. The leadership on either side of the 2008 transition was much bet

The Fed does not have the tools at its disposal that it did in 2008, they have been exhausted. The leadership on either side of the 2008 transition was much better at every level. Also, 2008 was a balance sheet depression that was more tractable to fix with monetary approaches. What is happening, right now, is literally what happened in the Great Depression (with the concurrent reemergence of nationalism) and is what led to two back-to-back world wars https://www.dartmouth.edu/~dirwin/Eichengreen-IrwinJEH.pdf https://www.dartmouth.edu/~dirwin/Eichengreen-IrwinJEH.pdf

adventured 7y ago
> The Fed does not have the tools at its disposal that it did in 2008, they have been exhausted. That hasn't been exhausted even in the slightest. The Fed has the exact same tool at its disposal as it did in 2008: it controls the global reserve currency and can run an annual trillion dollar QE program for years as necessary, forcing the rest of the world to partially foot the bill of that QE program to the benefit of the US economy. The Fed took rates to zero for seven years and utilized multiple QE rounds to reinflate the economy and asset prices. The same exact approach is at its disposal heading into the next recession.
- throwaway5752 7y ago
  Maybe I'm a crazy for taking the state of the fed funds rate, the budget deficit, and the Fed's balance sheet into account? We can print money, but so far the USD hasn't reflected any sort of consequence for that. They can do a QE program, but will other actors accept the implicit loss on their treasury holdings? I can think of one major player there that is a lot less likely to do so now.
  - dageshi 7y ago
    What can the chinese do exactly? Sell all their USD treasuries? Sure, but what do they do with the money then? The only other currency big enough to absorb those kind of flows is the euro which would spike the euro exchange rate with the dollar to extremely painful levels for the EU, probably causing a deep recession in the EU but doing nothing to the US.
    - HillaryBriss 7y ago
      > Sell all their USD treasuries? Last I read they were only holding about 1 trillion in USD treasuries. Selling all of that would not inflict much damage on the US economy or government. If there's one superior skill the US Treasury and US Fed have it's selling/buying even more massive amounts of debt than that. Markets are used to it. So, a $1 trillion dollar bond sale event might hurt for a short while, but it wouldn't really be all that heavy.
  - adventured 7y ago
    The Fed can replace / deal with China's treasury holdings relatively easily at this point, especially given the strength of the dollar. While $15t in global paper is yielding nothing or worse, the US is still yielding something and is still largely regarded as entirely safe by investors. China is no longer a threat to the treasury market re selling, even though more aggressive selling on their part would definitely cause some real short-term turmoil. They can rock the boat, they can't tip it over and the Fed would stabilize things quickly in reaction. Over the next ten years the public US debt will hit $32 trillion give or take (possibly closer to $35t; I'm expecting a +$3.5t deficit in just two years in the next recession), about 1.2x to 1.3x GDP at that point. China's share of that $32-$35 trillion will be a mere 3% or lower. By the day their position becomes less meaningful (at this point the US Government is running up enough new public debt to equal China's treasury holdings every year, and that's before the recession blows out the deficit).
    - sremani 7y ago
      What exactly is wrong with this comment for the kind of downvotes? At personal level, I find adventure one of the most level headed and dispassionate commentators esp. about Finance/Business/Geopolitics. The whole China treasure holdings argument is at the best paper tiger. The argument is debunked by every respectable finance commentator.
    - ethbro 7y ago
      Curious question, because international government currency flows are still something that flumox me. What are China's options if it sells US Treasuries? If it simply parks that money internally, what does that do?
  - taf2 7y ago
    Additionally, most of the corporations are cash rich right now and own much more of their own companies allowing them to both dip into those reserves and sell off more of their companies to stay strong through the recession. I'm not worried... he's not worried either: https://www.youtube.com/watch?v=NJodqhzqPKQ https://www.youtube.com/watch?v=NJodqhzqPKQ
    - gridlockd 7y ago
      Corporate cash is $1.8 trillion, but that's against $2 trillion of debt maturing in the next five years and $15 trillion total. I'm worried... he's probably worried as well https://www.bloomberg.com/news/articles/2019-05-09/corporate-debt-next-pain-point-in-u-s-big-short-s-eisman-says https://www.bloomberg.com/news/articles/2019-05-09/corporate...
  - AnimalMuppet 7y ago
    What consequence would you expect? Inflation? The Fed would probably welcome inflation right now. And, how does QE cause other players to lose their treasury holdings?
    - fuzz4lyfe 7y ago
      >The Fed would probably welcome inflation right now. I feel like this while correct will look funny in the context of history. I believe inflation will explode in the next 5 years with near zero interest rates and the fed printing money for all the programs we hear about during the recent debates.
      - ethbro 7y ago
        Inflation is a consequence of money spent foolishly. The same arguments were made against the New Deal. Time will tell whether recapitalizing the American educational system and/or cost-limiting health care is wise or foolish.
        pdonis 7y ago
        > Inflation is a consequence of money spent foolishly No, it's a consequence of printing money as soon as the newly printed money gets out into the economy. The only reason the previous rounds of QE in the last decade didn't cause inflation was that practically all of it stayed in the banks' accounts at the Fed and never got loaned out, so it never actually got into the economy. > The same arguments were made against the New Deal. Yes, and they were valid then too. The New Deal didn't work; what restarted the US economy was World War II.
        ethbro 7y ago
        Inflation is size of economy / money supply. Printing more money doesn't inexorably produce inflation, for a lot of reasons. If the money printed is used unwisely, in ways that do not grow the economy, then it certainly does.
- cestith 7y ago
  Oil prices are lower and the euro is looking good as a second reserve currency.
  - ethbro 7y ago
    That's a big chunk of pie to remove without some turmoil. If Brexit were behind us, no doubt. But that's a lot of uncertainty tainting the euro. https://upload.wikimedia.org/wikipedia/commons/thumb/5/5f/2015_GDP_%28nominal%29_in_EU.svg/1280px-2015_GDP_%28nominal%29_in_EU.svg.png https://upload.wikimedia.org/wikipedia/commons/thumb/5/5f/20...
- pessimizer 7y ago
  > The Fed took rates to zero for seven years And it can't do that as effectively again. Treasury bonds were at 8% back then, now they're at 4%.
- Ericson2314 7y ago
  IMO QE is insanely regressive because of most people's non participation in the financial system, and thus is a "supply side wolf in keynsian clothing". Looking at all the unprofitable startups and other investment vehicles of the current cycle, combined with uneven increases in productivity and tenuous shitty jobs being the bulk of job growth shows how we've clearly don't have the demand and the money isn't trickling down enough to make it. With interest rates near zero, and the old monitarist avenues generally exhausted with this procyclic hangover, we have nothing left to do but the real ask fiscal shit jobs guarantee or UBI. Hopefully people realize work sucks and it would be nice if computers were used to their full potential so we get UBI instead and then we can write expert systems and reduce meanial labor and other useful shit.
cr0sh 7y ago
> What is happening, right now, is literally what happened in the Great Depression (with the concurrent reemergence of nationalism) and is what led to two back-to-back world wars Note: I understand that "yield curve inversion" does not mean "recession, depression, war" is inevitable or likely - only that these things are indicators at best. That said and understood... Either our society is the dumbest there is (in aggregate - but possibly in general, too - with small pockets of intelligence, just not enough - and they are under constant attack) - or "someone" (not saying an individual or a group - or even planned for that matter) is wanting us to "go to war" - which if the past is any example, could very well be - or turn into - "the final war" (hah - who am I kidding - any survivors would probably battle each other with sticks and stones). It's like were either really, really stupid in some regard - or there is this almost innate need by some portion of the species (or at least our American society) that desires and needs mass death and tragedy on a worldwide scale. If either is true, it points to a vast failing of our own making. The sad thing? I can see it, others see it or have seen it; heck, those who were leaders and/or have been in "large-scale combat" have seen it up close and personal and don't want it. This isn't a new observation at all; it is thousands of years old: "War is Hell" is a recent colloquial form of the message, and nobody (sane?) wants it. So why, why, why do we keep doing it? Seriously - why? I'm not expecting an answer; the possibilities and such are vast, likely rooted in various philosophical reasonings, etc - but seriously - all we have to do is...stop. Stop doing it. Stop being...dumb. Education, even from an early age, does not seem to work - or at least, it doesn't seem to work on everyone. Many internalize the message, the idea, that "violence is bad" - and try their very best to avoid it. The "reptilian brain" keeps trying to reassert itself - but with some minor effort, we can avoid the issue mostly. I'm not sure what its going to take for it to really stop. The Star Trek universe was built on the idea that humans had to first go through a massively devastating war before they would finally stop. Nice idea, but I think even that wouldn't be enough. We seem to be a species that constantly performs a "tragedy of the commons" experiment - and ultimately this need for "war" won't be won until only 0 to 1 humans are left. Even with only a single human around, I'm sure it would find a way to war...
- flycaliguy 7y ago
  This is the best we can do. We aren't perfect but perfect is the enemy of good.
quotemstr 7y ago
The great depression was after one of those wars. I think you can make a case that the global economic and social excesses of the 1920s led to a hard crash, the rise of aggressive ideological movements, and, eventually, the second world war. The first world war was something else entirely, the last gasp of the old "Concert of Europe" balance of power stuff. After the first world war, the world was a completely different place and different rules applied.
- aalleavitch 7y ago
  All of these things were the result of the second industrial revolution.
- Ericson2314 7y ago
  The 20s weren't great economically in Europe. In Germany the 30s were better economically I'm afraid to say.
  - quotemstr 7y ago
    Weimar Germany had a bout of hyperinflation early on, but between 1924 and 1929, the country was stable and prosperous.
paganel 7y ago
Back in 2008, just after the Lehman collapse had happened and when money-market funds had gone bellow 0 (I think in late October), I predicted that there was a very great chance to have a world war in the next decade because of that ongoing crisis. Fortunately it looks like I was wrong, but it also looks that “liberal democracy” is on its way out in many former bastions of said democracy. I fear that a new nasty recession right now will throw us out directly into a war, we’re at the 1937-1938 moment when almost all of Europe had gone the wrong way in the previous decade (politically speaking).
- 0xffff2 7y ago
  War with whom over what exactly? Maybe it's just a failure of imagination on my part, but I really can't picture a scenario that leads to another world war, even in today's relatively unstable political climate.
  - paganel 7y ago
    I don't know, just war. > but I really can't picture a scenario that leads to another world war, even in today's relatively unstable political climate. Ten years ago I bet almost no-one was picturing the late-1980s anti-nuclear treaties going the way of the Dodo bird. Or a land war in Europe (Ukraine is indeed in Europe). Or German politicians being shot for their political beliefs. Or British politicians being shot for their political beliefs. Ten years ago I wasn't seeing US soldiers and their trucks almost every time I take the highway in order to visit my parents in the countryside (I live in an Eastern-European country and NATO member, a geo-political stone's thrown away from Russia). Ten years ago Russia wasn't testing a nuclear-fueled rocket.
    - 0xffff2 7y ago
      How do any of those meaningfully point to a war though? Again a war between whom? Assuming you're talking about the US pulling out of the INF treaty, that's not really a meaningful change. The Russians and various other countries were already largely ignoring it. Russia's territorial shenanigans are what really cemented the idea that we're not fighting a major super-power to super-power war ever again. The West has largely let it happen, and while I don't understand why, at this point it's hard to see why that would change. US troops have been in Europe for a long time. Whether you saw them more or less in the past, troop levels there haven't changed that much.
ianai 7y ago
Dates for WW1: 7/28/1914-11/11/1918 Dates for WW2: 9/1/1939-9/2/1945 Dates for Great Depression: 10/29/1929 to 1939
- throwaway5752 7y ago
  I know when major historical events happened, thanks. Sorry if I did not state my case clearly enough. What I was saying was the underlying currents in the economy and politics are similar to the ones that led to those 3 events separately, not necessarily in the causal order in which they happened.
  - aalleavitch 7y ago
    Right, all three of these things were a direct result of the second industrial revolution, as was the rise of communism. The first industrial revolution was punctuated with the American civil war. The second industrial revolution was punctuated with the great depression and World War 2. Just imagine what the digital revolution is going to be punctuated with. We are in for a hell of a bumpy ride.
    - eclipxe 7y ago
      Memes and shitposts?
      - aalleavitch 7y ago
        Memes and shitposts were funny right up until they started motivating mass murders.
        ianai 7y ago
        Good connection. The world wars can also be perceived as points where humanity invented new, more “wholesale” ways of murdering ourselves. Their end is also punctuated with the creating of the atomic bomb. We’ve just started to uncover the ways to use the internet as a weapon and haven’t invented any real countervailing forces to it.

adventured 7y ago

> The Fed does not have the tools at its disposal that it did in 2008, they have been exhausted. That hasn't been exhausted even in the slightest. The Fed has the exact same tool at its disposal as it did in 2008: it controls the global reserve currency and can run an annual trillion dollar QE program for years as necessary, forcing the rest of the world to partially foot the bill of that QE program to the benefit of the US economy. The Fed took rates to zero for seven years and utilized multiple QE rounds to reinflate the economy and asset prices. The same exact approach is at its disposal heading into the next recession.

throwaway5752 7y ago
Maybe I'm a crazy for taking the state of the fed funds rate, the budget deficit, and the Fed's balance sheet into account? We can print money, but so far the USD hasn't reflected any sort of consequence for that. They can do a QE program, but will other actors accept the implicit loss on their treasury holdings? I can think of one major player there that is a lot less likely to do so now.
- dageshi 7y ago
  What can the chinese do exactly? Sell all their USD treasuries? Sure, but what do they do with the money then? The only other currency big enough to absorb those kind of flows is the euro which would spike the euro exchange rate with the dollar to extremely painful levels for the EU, probably causing a deep recession in the EU but doing nothing to the US.
  - HillaryBriss 7y ago
    > Sell all their USD treasuries? Last I read they were only holding about 1 trillion in USD treasuries. Selling all of that would not inflict much damage on the US economy or government. If there's one superior skill the US Treasury and US Fed have it's selling/buying even more massive amounts of debt than that. Markets are used to it. So, a $1 trillion dollar bond sale event might hurt for a short while, but it wouldn't really be all that heavy.
- adventured 7y ago
  The Fed can replace / deal with China's treasury holdings relatively easily at this point, especially given the strength of the dollar. While $15t in global paper is yielding nothing or worse, the US is still yielding something and is still largely regarded as entirely safe by investors. China is no longer a threat to the treasury market re selling, even though more aggressive selling on their part would definitely cause some real short-term turmoil. They can rock the boat, they can't tip it over and the Fed would stabilize things quickly in reaction. Over the next ten years the public US debt will hit $32 trillion give or take (possibly closer to $35t; I'm expecting a +$3.5t deficit in just two years in the next recession), about 1.2x to 1.3x GDP at that point. China's share of that $32-$35 trillion will be a mere 3% or lower. By the day their position becomes less meaningful (at this point the US Government is running up enough new public debt to equal China's treasury holdings every year, and that's before the recession blows out the deficit).
  - sremani 7y ago
    What exactly is wrong with this comment for the kind of downvotes? At personal level, I find adventure one of the most level headed and dispassionate commentators esp. about Finance/Business/Geopolitics. The whole China treasure holdings argument is at the best paper tiger. The argument is debunked by every respectable finance commentator.
  - ethbro 7y ago
    Curious question, because international government currency flows are still something that flumox me. What are China's options if it sells US Treasuries? If it simply parks that money internally, what does that do?
- taf2 7y ago
  Additionally, most of the corporations are cash rich right now and own much more of their own companies allowing them to both dip into those reserves and sell off more of their companies to stay strong through the recession. I'm not worried... he's not worried either: https://www.youtube.com/watch?v=NJodqhzqPKQ https://www.youtube.com/watch?v=NJodqhzqPKQ
  - gridlockd 7y ago
    Corporate cash is $1.8 trillion, but that's against $2 trillion of debt maturing in the next five years and $15 trillion total. I'm worried... he's probably worried as well https://www.bloomberg.com/news/articles/2019-05-09/corporate-debt-next-pain-point-in-u-s-big-short-s-eisman-says https://www.bloomberg.com/news/articles/2019-05-09/corporate...
- AnimalMuppet 7y ago
  What consequence would you expect? Inflation? The Fed would probably welcome inflation right now. And, how does QE cause other players to lose their treasury holdings?
  - fuzz4lyfe 7y ago
    >The Fed would probably welcome inflation right now. I feel like this while correct will look funny in the context of history. I believe inflation will explode in the next 5 years with near zero interest rates and the fed printing money for all the programs we hear about during the recent debates.
    - ethbro 7y ago
      Inflation is a consequence of money spent foolishly. The same arguments were made against the New Deal. Time will tell whether recapitalizing the American educational system and/or cost-limiting health care is wise or foolish.
      - pdonis 7y ago
        > Inflation is a consequence of money spent foolishly No, it's a consequence of printing money as soon as the newly printed money gets out into the economy. The only reason the previous rounds of QE in the last decade didn't cause inflation was that practically all of it stayed in the banks' accounts at the Fed and never got loaned out, so it never actually got into the economy. > The same arguments were made against the New Deal. Yes, and they were valid then too. The New Deal didn't work; what restarted the US economy was World War II.
        ethbro 7y ago
        Inflation is size of economy / money supply. Printing more money doesn't inexorably produce inflation, for a lot of reasons. If the money printed is used unwisely, in ways that do not grow the economy, then it certainly does.
cestith 7y ago
Oil prices are lower and the euro is looking good as a second reserve currency.
- ethbro 7y ago
  That's a big chunk of pie to remove without some turmoil. If Brexit were behind us, no doubt. But that's a lot of uncertainty tainting the euro. https://upload.wikimedia.org/wikipedia/commons/thumb/5/5f/2015_GDP_%28nominal%29_in_EU.svg/1280px-2015_GDP_%28nominal%29_in_EU.svg.png https://upload.wikimedia.org/wikipedia/commons/thumb/5/5f/20...
pessimizer 7y ago
> The Fed took rates to zero for seven years And it can't do that as effectively again. Treasury bonds were at 8% back then, now they're at 4%.
Ericson2314 7y ago
IMO QE is insanely regressive because of most people's non participation in the financial system, and thus is a "supply side wolf in keynsian clothing". Looking at all the unprofitable startups and other investment vehicles of the current cycle, combined with uneven increases in productivity and tenuous shitty jobs being the bulk of job growth shows how we've clearly don't have the demand and the money isn't trickling down enough to make it. With interest rates near zero, and the old monitarist avenues generally exhausted with this procyclic hangover, we have nothing left to do but the real ask fiscal shit jobs guarantee or UBI. Hopefully people realize work sucks and it would be nice if computers were used to their full potential so we get UBI instead and then we can write expert systems and reduce meanial labor and other useful shit.

cr0sh 7y ago

> What is happening, right now, is literally what happened in the Great Depression (with the concurrent reemergence of nationalism) and is what led to two back-to-back world wars Note: I understand that "yield curve inversion" does not mean "recession, depression, war" is inevitable or likely - only that these things are indicators at best. That said and understood... Either our society is the dumbest there is (in aggregate - but possibly in general, too - with small pockets of intelligence, just not enough - and they are under constant attack) - or "someone" (not saying an individual or a group - or even planned for that matter) is wanting us to "go to war" - which if the past is any example, could very well be - or turn into - "the final war" (hah - who am I kidding - any survivors would probably battle each other with sticks and stones). It's like were either really, really stupid in some regard - or there is this almost innate need by some portion of the species (or at least our American society) that desires and needs mass death and tragedy on a worldwide scale. If either is true, it points to a vast failing of our own making. The sad thing? I can see it, others see it or have seen it; heck, those who were leaders and/or have been in "large-scale combat" have seen it up close and personal and don't want it. This isn't a new observation at all; it is thousands of years old: "War is Hell" is a recent colloquial form of the message, and nobody (sane?) wants it. So why, why, why do we keep doing it? Seriously - why? I'm not expecting an answer; the possibilities and such are vast, likely rooted in various philosophical reasonings, etc - but seriously - all we have to do is...stop. Stop doing it. Stop being...dumb. Education, even from an early age, does not seem to work - or at least, it doesn't seem to work on everyone. Many internalize the message, the idea, that "violence is bad" - and try their very best to avoid it. The "reptilian brain" keeps trying to reassert itself - but with some minor effort, we can avoid the issue mostly. I'm not sure what its going to take for it to really stop. The Star Trek universe was built on the idea that humans had to first go through a massively devastating war before they would finally stop. Nice idea, but I think even that wouldn't be enough. We seem to be a species that constantly performs a "tragedy of the commons" experiment - and ultimately this need for "war" won't be won until only 0 to 1 humans are left. Even with only a single human around, I'm sure it would find a way to war...

flycaliguy 7y ago
This is the best we can do. We aren't perfect but perfect is the enemy of good.

quotemstr 7y ago

The great depression was after one of those wars. I think you can make a case that the global economic and social excesses of the 1920s led to a hard crash, the rise of aggressive ideological movements, and, eventually, the second world war. The first world war was something else entirely, the last gasp of the old "Concert of Europe" balance of power stuff. After the first world war, the world was a completely different place and different rules applied.

aalleavitch 7y ago
All of these things were the result of the second industrial revolution.
Ericson2314 7y ago
The 20s weren't great economically in Europe. In Germany the 30s were better economically I'm afraid to say.
- quotemstr 7y ago
  Weimar Germany had a bout of hyperinflation early on, but between 1924 and 1929, the country was stable and prosperous.

paganel 7y ago

Back in 2008, just after the Lehman collapse had happened and when money-market funds had gone bellow 0 (I think in late October), I predicted that there was a very great chance to have a world war in the next decade because of that ongoing crisis. Fortunately it looks like I was wrong, but it also looks that “liberal democracy” is on its way out in many former bastions of said democracy. I fear that a new nasty recession right now will throw us out directly into a war, we’re at the 1937-1938 moment when almost all of Europe had gone the wrong way in the previous decade (politically speaking).

0xffff2 7y ago
War with whom over what exactly? Maybe it's just a failure of imagination on my part, but I really can't picture a scenario that leads to another world war, even in today's relatively unstable political climate.
- paganel 7y ago
  I don't know, just war. > but I really can't picture a scenario that leads to another world war, even in today's relatively unstable political climate. Ten years ago I bet almost no-one was picturing the late-1980s anti-nuclear treaties going the way of the Dodo bird. Or a land war in Europe (Ukraine is indeed in Europe). Or German politicians being shot for their political beliefs. Or British politicians being shot for their political beliefs. Ten years ago I wasn't seeing US soldiers and their trucks almost every time I take the highway in order to visit my parents in the countryside (I live in an Eastern-European country and NATO member, a geo-political stone's thrown away from Russia). Ten years ago Russia wasn't testing a nuclear-fueled rocket.
  - 0xffff2 7y ago
    How do any of those meaningfully point to a war though? Again a war between whom? Assuming you're talking about the US pulling out of the INF treaty, that's not really a meaningful change. The Russians and various other countries were already largely ignoring it. Russia's territorial shenanigans are what really cemented the idea that we're not fighting a major super-power to super-power war ever again. The West has largely let it happen, and while I don't understand why, at this point it's hard to see why that would change. US troops have been in Europe for a long time. Whether you saw them more or less in the past, troop levels there haven't changed that much.

ianai 7y ago

Dates for WW1: 7/28/1914-11/11/1918 Dates for WW2: 9/1/1939-9/2/1945 Dates for Great Depression: 10/29/1929 to 1939

throwaway5752 7y ago
I know when major historical events happened, thanks. Sorry if I did not state my case clearly enough. What I was saying was the underlying currents in the economy and politics are similar to the ones that led to those 3 events separately, not necessarily in the causal order in which they happened.
- aalleavitch 7y ago
  Right, all three of these things were a direct result of the second industrial revolution, as was the rise of communism. The first industrial revolution was punctuated with the American civil war. The second industrial revolution was punctuated with the great depression and World War 2. Just imagine what the digital revolution is going to be punctuated with. We are in for a hell of a bumpy ride.
  - eclipxe 7y ago
    Memes and shitposts?
    - aalleavitch 7y ago
      Memes and shitposts were funny right up until they started motivating mass murders.
      - ianai 7y ago
        Good connection. The world wars can also be perceived as points where humanity invented new, more “wholesale” ways of murdering ourselves. Their end is also punctuated with the creating of the atomic bomb. We’ve just started to uncover the ways to use the internet as a weapon and haven’t invented any real countervailing forces to it.