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The fear in the markets is due to the long systemic propping up of asset values. COVID19 is the pin pricking the balloon. Fundamentally, COVID isn't the problem

The fear in the markets is due to the long systemic propping up of asset values. COVID19 is the pin pricking the balloon. Fundamentally, COVID isn't the problem, it's the Fed. My favorite analogy is forest fires: they're healthy for the environment on occasion. When you stop them from happening indefinitely, bad things happen. In terms of markets, that means people taking on debts when they should not do so. People getting funded for fundamentally unprofitable business ventures. It is healthy for an economy to clean house on economically inefficient ventures from time to time.

OscarCunningham 7y ago
What would you suggest to replace the Fed's 2% inflation target?
- dv_dt 7y ago
  Instead of the fed injecting money to stimulate loans, government should spend money on necessary future investments and fund it with issue of a ratio of treasury bond and direct monetary creation
  - OscarCunningham 7y ago
    Then what would you do when you needed to reduce inflation? The Fed can sell of the assets it's bought, but the government can't sell the roads it's built.
    - dv_dt 7y ago
      You change the ratio independently of the budget timeline just like the fed adjusts the it's rates. BTW you seem scared of inflation, inflation has been running low except the upper areas of the economy where the Fed has over low rates - so stock prices are inflated. What is really needed is injection of easier flowing money from below the economy. If you invest in good programs then they deliver a positive benefit to the economy over time. Like more roads means easier connectivity, less time spent in traffic, or increased network flow. I'd suggest the biggest bang for the buck is universal healthcare and paying public college for all.
- ac29 7y ago
  The problem is that they are measuring inflation of things like consumer goods, but where inflation ended up occurring was in the stock market - it costs substantially more to buy a given percentage of a companies stock now than it did 5 or 10 years ago. Plus, some common expenses like health care, college education, and housing have been increasing by way more than the Fed's target as well, and credible arguments have been made that the official inflation numbers don't take this into effect appropriately.
  - thu2111 7y ago
    Yes! I've been saying this for years, so nice to see it just pop up here as a matter of fact statement. Central banking is central planning. Central planning has a bad name because it's so hard for planners to pick the right targets, fully understand the economy and not create side-effects worse than whatever problem they're trying to solve. Economists have been penning articles for years about the 'mystery' of why inflation remains low despite high rates of money printing, whilst mortgages bonds and stocks soar around them. Well, CPI/RPI aren't complete measures of prices. They are excluding prices that matter a lot to companies, like the prices of financial instruments. CPI does take into account healthcare and education costs, however. And some countries try to include house prices, albeit sometimes via indirect proxies of questionable utility like modelled "rent levels we think would be charged if people were renting instead of buying". I think there's a lot of great economics journalism to be done on the exact nature of the inflation time series, because so many things are tied to it and there's just so much largely unexamined complexity sitting behind it.

OscarCunningham 7y ago

What would you suggest to replace the Fed's 2% inflation target?

dv_dt 7y ago
Instead of the fed injecting money to stimulate loans, government should spend money on necessary future investments and fund it with issue of a ratio of treasury bond and direct monetary creation
- OscarCunningham 7y ago
  Then what would you do when you needed to reduce inflation? The Fed can sell of the assets it's bought, but the government can't sell the roads it's built.
  - dv_dt 7y ago
    You change the ratio independently of the budget timeline just like the fed adjusts the it's rates. BTW you seem scared of inflation, inflation has been running low except the upper areas of the economy where the Fed has over low rates - so stock prices are inflated. What is really needed is injection of easier flowing money from below the economy. If you invest in good programs then they deliver a positive benefit to the economy over time. Like more roads means easier connectivity, less time spent in traffic, or increased network flow. I'd suggest the biggest bang for the buck is universal healthcare and paying public college for all.
ac29 7y ago
The problem is that they are measuring inflation of things like consumer goods, but where inflation ended up occurring was in the stock market - it costs substantially more to buy a given percentage of a companies stock now than it did 5 or 10 years ago. Plus, some common expenses like health care, college education, and housing have been increasing by way more than the Fed's target as well, and credible arguments have been made that the official inflation numbers don't take this into effect appropriately.
- thu2111 7y ago
  Yes! I've been saying this for years, so nice to see it just pop up here as a matter of fact statement. Central banking is central planning. Central planning has a bad name because it's so hard for planners to pick the right targets, fully understand the economy and not create side-effects worse than whatever problem they're trying to solve. Economists have been penning articles for years about the 'mystery' of why inflation remains low despite high rates of money printing, whilst mortgages bonds and stocks soar around them. Well, CPI/RPI aren't complete measures of prices. They are excluding prices that matter a lot to companies, like the prices of financial instruments. CPI does take into account healthcare and education costs, however. And some countries try to include house prices, albeit sometimes via indirect proxies of questionable utility like modelled "rent levels we think would be charged if people were renting instead of buying". I think there's a lot of great economics journalism to be done on the exact nature of the inflation time series, because so many things are tied to it and there's just so much largely unexamined complexity sitting behind it.