5 ms·

Correction is way overdue. Problem is, Fed has no ammo left with interest rates at near zero. We're in for rough days, people.

rtkwe 7y ago
Only if restricted to the relatively arms length levers like interest rates. There's still plenty of room for more drastic measures like buying stock directly in companies like Japan has done or huge prop ups like a new WPA.
adventured 7y ago
The Fed has as much ammo as there is wealth held in dollars. Which is to say, a lot. First, there is negative rates. Punishing people for holding cash. The ECB and Bank of Japan have done a lot of pioneering work there, the Fed will have already extensively studied what they did, what worked, what didn't work. Second, they have QE, monetizing debt & debasing dollar wealth, which is exactly what they'll unleash for the next recession. Inflation isn't much of a concern right now, so they'll feel free to 'print' rather wildly. Annual budget deficits will blowout, probably up to $2 trillion or more, with the next recession, so the Fed will have to print dramatically to fund that regardless.
- steveeq1 7y ago
  I can practically just smell the inflation.
  - Majromax 7y ago
    > I can practically just smell the inflation. Then the Fed isn't out of ammunition. The purpose of Fed easing would be precisely to generate/maintain target levels of inflation. The idea that the "Fed is out of ammunition" is that its conventional policy tool (rate changes) is seen as near a limit, such that the Fed can't generate further inflation if it wants to. But here, you "smell the inflation," so by definition the contemplated actions are in fact ammunition.
- take_a_breath 7y ago
  ==First, there is negative rates. Punishing people for holding cash. The ECB and Bank of Japan have done a lot of pioneering work there, the Fed will have already extensively studied what they did, what worked, what didn't work. Second, they have QE, monetizing debt & debasing dollar wealth, which is exactly what they'll unleash for the next recession. Inflation isn't much of a concern right now, so they'll feel free to 'print' rather wildly.== I'm not sure I see where either of these options has worked. Can you share the successes of either of these measures? In option 1, you have a stagnant Japan with a lost generation. Option 2, is what we have been doing for 12 years and has led us to this point. The inflation seems to be hiding in asset prices (housing, stocks) not household items. Since 2007, there has been one year with GDP growth [1] above the annual deficit as % of GDP [2]. That was 2015, with 2.4% deficit and 2.9% GDP growth. 2018 saw the US spending 3.8% of GDP in deficits to generate 2.9% GDP growth. Does that sound like a "strong" economy? [1] https://www.macrotrends.net/countries/USA/united-states/gdp-growth-rate https://www.macrotrends.net/countries/USA/united-states/gdp-... [2] https://fred.stlouisfed.org/series/FYFSGDA188S https://fred.stlouisfed.org/series/FYFSGDA188S
  - lotsofpulp 7y ago
    Housing is not a household item?
    - take_a_breath 7y ago
      No, it's not. You can't buy houses at WalMart or Costco because they sell household goods, not housing. [1] [1] https://en.wikipedia.org/wiki/Household_goods https://en.wikipedia.org/wiki/Household_goods
  - vanniv 7y ago
    I love how everyone uses Japan as an example of central bank success. Their economy crashed in the 1980s and still hasn't recovered. If that "success", I'll stick with failure.
aaronblohowiak 7y ago
The yield on the 10 year... Now is the perfect time to finance a bunch of govt spending (not that I expect this admin to embrace fiscal policy)
- dylan604 7y ago
  This administration has a single minded project that has been a struggle to get financed. It would be a huge coup for them to use this downturn to get it financed without borrowing from Peter to pay Paul. Then again, this is all probably just fake news.
- travisoneill1 7y ago
  Right. Borrow $5 trillion for infrastructure and pay <$50 billion / year. That's a positive ROI for sure. Only issue is you would flood the markets and raise those rates, so you wouldn't get all of it, but still a lot. I have always though that the government should act strategically and take advantage of low rates like other market participants.
- mech1234 7y ago
  Trump runs huge deficits during boom times. He'll probably run even huger deficits during bust times.
azhenley 7y ago
It is possible for interest rates to be negative. Not that I'm recommending that to happen!
- Insanity 7y ago
  Something that actually happened in Sweden! Although it seems like it's not like that anymore: https://www.thelocal.se/20191219/sweden-abandons-negative-interest-rate-after-almost-five-years https://www.thelocal.se/20191219/sweden-abandons-negative-in...
  - sschueller 7y ago
    It's still negative but less than others: https://en.wikipedia.org/wiki/List_of_countries_by_central_bank_interest_rates https://en.wikipedia.org/wiki/List_of_countries_by_central_b...
  - frandroid 7y ago
    Interest rates have been negative on deposits at the European Central Bank since 2014 ... The rate currently sits at -0.50%
- 0xcafecafe 7y ago
  Real rates are (and have been) negative. :/
ngcc_hk 7y ago
It is not a problem with correction or even recession. Without one you cannot eliminate those weak and continue the rich as rich. You need some cycle. Desperately need it.

rtkwe 7y ago

Only if restricted to the relatively arms length levers like interest rates. There's still plenty of room for more drastic measures like buying stock directly in companies like Japan has done or huge prop ups like a new WPA.

adventured 7y ago

The Fed has as much ammo as there is wealth held in dollars. Which is to say, a lot. First, there is negative rates. Punishing people for holding cash. The ECB and Bank of Japan have done a lot of pioneering work there, the Fed will have already extensively studied what they did, what worked, what didn't work. Second, they have QE, monetizing debt & debasing dollar wealth, which is exactly what they'll unleash for the next recession. Inflation isn't much of a concern right now, so they'll feel free to 'print' rather wildly. Annual budget deficits will blowout, probably up to $2 trillion or more, with the next recession, so the Fed will have to print dramatically to fund that regardless.

steveeq1 7y ago
I can practically just smell the inflation.
- Majromax 7y ago
  > I can practically just smell the inflation. Then the Fed isn't out of ammunition. The purpose of Fed easing would be precisely to generate/maintain target levels of inflation. The idea that the "Fed is out of ammunition" is that its conventional policy tool (rate changes) is seen as near a limit, such that the Fed can't generate further inflation if it wants to. But here, you "smell the inflation," so by definition the contemplated actions are in fact ammunition.
take_a_breath 7y ago
==First, there is negative rates. Punishing people for holding cash. The ECB and Bank of Japan have done a lot of pioneering work there, the Fed will have already extensively studied what they did, what worked, what didn't work. Second, they have QE, monetizing debt & debasing dollar wealth, which is exactly what they'll unleash for the next recession. Inflation isn't much of a concern right now, so they'll feel free to 'print' rather wildly.== I'm not sure I see where either of these options has worked. Can you share the successes of either of these measures? In option 1, you have a stagnant Japan with a lost generation. Option 2, is what we have been doing for 12 years and has led us to this point. The inflation seems to be hiding in asset prices (housing, stocks) not household items. Since 2007, there has been one year with GDP growth [1] above the annual deficit as % of GDP [2]. That was 2015, with 2.4% deficit and 2.9% GDP growth. 2018 saw the US spending 3.8% of GDP in deficits to generate 2.9% GDP growth. Does that sound like a "strong" economy? [1] https://www.macrotrends.net/countries/USA/united-states/gdp-growth-rate https://www.macrotrends.net/countries/USA/united-states/gdp-... [2] https://fred.stlouisfed.org/series/FYFSGDA188S https://fred.stlouisfed.org/series/FYFSGDA188S
- lotsofpulp 7y ago
  Housing is not a household item?
  - take_a_breath 7y ago
    No, it's not. You can't buy houses at WalMart or Costco because they sell household goods, not housing. [1] [1] https://en.wikipedia.org/wiki/Household_goods https://en.wikipedia.org/wiki/Household_goods
- vanniv 7y ago
  I love how everyone uses Japan as an example of central bank success. Their economy crashed in the 1980s and still hasn't recovered. If that "success", I'll stick with failure.

aaronblohowiak 7y ago

The yield on the 10 year... Now is the perfect time to finance a bunch of govt spending (not that I expect this admin to embrace fiscal policy)

dylan604 7y ago
This administration has a single minded project that has been a struggle to get financed. It would be a huge coup for them to use this downturn to get it financed without borrowing from Peter to pay Paul. Then again, this is all probably just fake news.
travisoneill1 7y ago
Right. Borrow $5 trillion for infrastructure and pay <$50 billion / year. That's a positive ROI for sure. Only issue is you would flood the markets and raise those rates, so you wouldn't get all of it, but still a lot. I have always though that the government should act strategically and take advantage of low rates like other market participants.
mech1234 7y ago
Trump runs huge deficits during boom times. He'll probably run even huger deficits during bust times.

azhenley 7y ago

It is possible for interest rates to be negative. Not that I'm recommending that to happen!

Insanity 7y ago
Something that actually happened in Sweden! Although it seems like it's not like that anymore: https://www.thelocal.se/20191219/sweden-abandons-negative-interest-rate-after-almost-five-years https://www.thelocal.se/20191219/sweden-abandons-negative-in...
- sschueller 7y ago
  It's still negative but less than others: https://en.wikipedia.org/wiki/List_of_countries_by_central_bank_interest_rates https://en.wikipedia.org/wiki/List_of_countries_by_central_b...
- frandroid 7y ago
  Interest rates have been negative on deposits at the European Central Bank since 2014 ... The rate currently sits at -0.50%
0xcafecafe 7y ago
Real rates are (and have been) negative. :/

ngcc_hk 7y ago

It is not a problem with correction or even recession. Without one you cannot eliminate those weak and continue the rich as rich. You need some cycle. Desperately need it.