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Low rates are a result of boomeres all over the world saving for retirement (+ CB manipulation). As soon as they start using that savings, instead of accumulati

by dpc_pw 7y ago

Low rates are a result of boomeres all over the world saving for retirement (+ CB manipulation). As soon as they start using that savings, instead of accumulating them both inflation and yields will tend to naturally raise again. More people to care for, less people to do the work -> inflation. Inflation expectation -> higher yields. That $175T wealth figure is measured at the peak of everything bubble in the US. Real estate, stock market, bonds - everything is at the all time highs, after debt and low yields fueled decade. And yet still, according to the article government would have to confiscate 10% of all wealth in the America to pay the debt. And that's just the official debt. What about unfounded liabilities, which are many, many times higher? https://www.forbes.com/sites/johnmauldin/2017/10/10/your-pension-is-a-lie-theres-210-trillion-of-liabilities-our-government-cant-fulfill/#10169e2d65b1 https://www.forbes.com/sites/johnmauldin/2017/10/10/your-pen... So basically optimists here say, that to pay the debt the government will need confiscate more than a half of all the total wealth in US, at its peak, without causing economic slowdown and without causing inflation (and thus yields) to spike. And that assuming the government doesn't accrue any new debt as it is running a balanced budget. And considering that fiscal spending is an important part of keeping this struggling economy going ... that balanced budget would have to come from the tax... like you would never seen before (basically double?). And again... all these taxation without crippling the economy. And all that inflation and taxation, without people noticing and trying to counteract to preserve their wealth (tax avoidance, running into PM, crypto, foreign assets, whatever.) Yeah... whatever keeps you sleep well at night. :D

plantain 7y ago
>Low rates are a result of boomeres all over the world saving for retirement [citation needed] How did you come to that conclusion?
- dpc_pw 7y ago
  There is 70M of Boomers in US. (Generally) about to end a decade or two of their most productive years: highest skills, highest level jobs, house paid off, kids out, etc. - trying to save and invest enough to give themselves a good retirement. Just yesterday I was listening to some YT podcast and boomers own ~74% of all US economical activity. Many of them accepted low salaries, for the promise of pensions and so on. Paid taxes but were promised medicare and other benefits that they expect to eventually get. They are (in great part) the savings glut: https://www.brookings.edu/blog/ben-bernanke/2015/04/01/why-are-interest-rates-so-low-part-3-the-global-savings-glut/ https://www.brookings.edu/blog/ben-bernanke/2015/04/01/why-a... How else would your explain negative interest rates? That have not happened in the recorded history before and doesn't really make sense. There is a certain CB manipulation involved, sure, but generally - it's the result of many people competing to preserve and invest their savings. This trend will reverse - and then... wow... these Boomers are in for a surprise when it turns out we've spent their money on stuff like WeWork and other huge startups with no positive cash-flow, and rest was spent by the government.
  - yasp 7y ago
    > How else would your explain negative interest rates? Um, central banks that are charging negative interest on reserves.
    - dpc_pw 7y ago
      No. :D
  - ThrustVectoring 7y ago
    The aggregate amount of savings by a generation is almost entirely irrelevant to the aggregate material conditions that generation has in retirement. They're not canning food and stashing it in their basement like a squirrel, they're generally simply acquiring financial claims on future productivity. And this is exactly what a bubble is - higher prices on financial assets, which means more assets per real dollar of future production. >these Boomers are in for a surprise when it turns out we've spent their money on stuff like WeWork and other huge startups with no positive cash-flow, and rest was spent by the government. Current misspending doesn't particularly impact future retirees. It impacts current retirees and workers. Current aggregate retiree spending is always equal to aggregate worker saving plus tax transfers from workers to retirees. This misspending means that material wealth that could have been consumed by either retirees or workers is instead wasted. The only ways for Boomers to be wealthier in retirement, as a class, are for society to be wealthier or for a higher percentage of society's real production to be allocated to Boomers via taxes or sold for their savings.
    - dpc_pw 7y ago
      > And this is exactly what a bubble is - higher prices on financial assets, which means more assets per real dollar of future production. Exactly. Deflation (financial asset cost inflation) now, for inflation (financial asset cost deflation) later, right? > Current misspending doesn't particularly impact future retirees. I agree with everything, except this part. Have we used all this surplus productivity to actually increase future productivity (invented some life changing gene therapy, cheaper transportation methods, better medical treatments, and so forth) and government used that debt to increase productivity as well (better infrastructure etc.), the quality of life would improve for everyone (including retirees), making the society as a whole spend more of their productivity voluntarily giving back more to the investments boomers bought with their savings. It didn't have to be a bubble if it delivered the value. The future inflation and capital reallocation from society to the retired could have been offseted by an increase in productivity, keeping everone's quality of life raise, or at lest not fall. But obviously, you can't pull ground breaking discoveries and great bussinesess out of the hat, and make government more efficient, just because there is more money to be invested. Quite the opposite. Surplus was mostly wasted and reallocation will have to come at the cost of the quality of life.
ThrustVectoring 7y ago
Inflation is basically necessary at this point in order to collapse the various asset bubbles without causing a mass default spiral on the debt issued to finance it. The housing crisis is a good portion of this; we cannot build our way out of housing without putting homeowners underwater on their mortgages en masse, and young people cannot tolerate the current trends of housing prices near areas of economic opportunity indefinitely. The only way out of this double-bind is to inflate away homeowner's mortgage debt as we make more available housing to prevent housing prices from inflating along the general trend.
- dpc_pw 7y ago
  Agreed. But ... can there be A Beautiful Deleveraging https://www.youtube.com/watch?v=wI0bUuQJN3s https://www.youtube.com/watch?v=wI0bUuQJN3s ? I don't think so. It is all a dynamic system. I think there will be no inflation for a while, and when it appears it will be massive and almost uncontrollable. It is hard to "trade" on it, because I could imagine even a decade of politicians and CBs struggling with a deflation, until they winds change, and all their efforts finally start "paying of" and we have a period of a very high inflation. Or alternatively ... a severe stagflation for a decade or two, where it is hard to pay mortgage (afford a new one) despite prices generally falling - because eating comes before investing.

by dpc_pw 7y ago

plantain 7y ago

>Low rates are a result of boomeres all over the world saving for retirement [citation needed] How did you come to that conclusion?

dpc_pw 7y ago
There is 70M of Boomers in US. (Generally) about to end a decade or two of their most productive years: highest skills, highest level jobs, house paid off, kids out, etc. - trying to save and invest enough to give themselves a good retirement. Just yesterday I was listening to some YT podcast and boomers own ~74% of all US economical activity. Many of them accepted low salaries, for the promise of pensions and so on. Paid taxes but were promised medicare and other benefits that they expect to eventually get. They are (in great part) the savings glut: https://www.brookings.edu/blog/ben-bernanke/2015/04/01/why-are-interest-rates-so-low-part-3-the-global-savings-glut/ https://www.brookings.edu/blog/ben-bernanke/2015/04/01/why-a... How else would your explain negative interest rates? That have not happened in the recorded history before and doesn't really make sense. There is a certain CB manipulation involved, sure, but generally - it's the result of many people competing to preserve and invest their savings. This trend will reverse - and then... wow... these Boomers are in for a surprise when it turns out we've spent their money on stuff like WeWork and other huge startups with no positive cash-flow, and rest was spent by the government.
- yasp 7y ago
  > How else would your explain negative interest rates? Um, central banks that are charging negative interest on reserves.
  - dpc_pw 7y ago
    No. :D
- ThrustVectoring 7y ago
  The aggregate amount of savings by a generation is almost entirely irrelevant to the aggregate material conditions that generation has in retirement. They're not canning food and stashing it in their basement like a squirrel, they're generally simply acquiring financial claims on future productivity. And this is exactly what a bubble is - higher prices on financial assets, which means more assets per real dollar of future production. >these Boomers are in for a surprise when it turns out we've spent their money on stuff like WeWork and other huge startups with no positive cash-flow, and rest was spent by the government. Current misspending doesn't particularly impact future retirees. It impacts current retirees and workers. Current aggregate retiree spending is always equal to aggregate worker saving plus tax transfers from workers to retirees. This misspending means that material wealth that could have been consumed by either retirees or workers is instead wasted. The only ways for Boomers to be wealthier in retirement, as a class, are for society to be wealthier or for a higher percentage of society's real production to be allocated to Boomers via taxes or sold for their savings.
  - dpc_pw 7y ago
    > And this is exactly what a bubble is - higher prices on financial assets, which means more assets per real dollar of future production. Exactly. Deflation (financial asset cost inflation) now, for inflation (financial asset cost deflation) later, right? > Current misspending doesn't particularly impact future retirees. I agree with everything, except this part. Have we used all this surplus productivity to actually increase future productivity (invented some life changing gene therapy, cheaper transportation methods, better medical treatments, and so forth) and government used that debt to increase productivity as well (better infrastructure etc.), the quality of life would improve for everyone (including retirees), making the society as a whole spend more of their productivity voluntarily giving back more to the investments boomers bought with their savings. It didn't have to be a bubble if it delivered the value. The future inflation and capital reallocation from society to the retired could have been offseted by an increase in productivity, keeping everone's quality of life raise, or at lest not fall. But obviously, you can't pull ground breaking discoveries and great bussinesess out of the hat, and make government more efficient, just because there is more money to be invested. Quite the opposite. Surplus was mostly wasted and reallocation will have to come at the cost of the quality of life.

ThrustVectoring 7y ago

Inflation is basically necessary at this point in order to collapse the various asset bubbles without causing a mass default spiral on the debt issued to finance it. The housing crisis is a good portion of this; we cannot build our way out of housing without putting homeowners underwater on their mortgages en masse, and young people cannot tolerate the current trends of housing prices near areas of economic opportunity indefinitely. The only way out of this double-bind is to inflate away homeowner's mortgage debt as we make more available housing to prevent housing prices from inflating along the general trend.

dpc_pw 7y ago
Agreed. But ... can there be A Beautiful Deleveraging https://www.youtube.com/watch?v=wI0bUuQJN3s https://www.youtube.com/watch?v=wI0bUuQJN3s ? I don't think so. It is all a dynamic system. I think there will be no inflation for a while, and when it appears it will be massive and almost uncontrollable. It is hard to "trade" on it, because I could imagine even a decade of politicians and CBs struggling with a deflation, until they winds change, and all their efforts finally start "paying of" and we have a period of a very high inflation. Or alternatively ... a severe stagflation for a decade or two, where it is hard to pay mortgage (afford a new one) despite prices generally falling - because eating comes before investing.