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It looks like the FED figured out how to conquer deflation and showed that it would do whatever it takes to defeat it. The amount of money printing earlier was

It looks like the FED figured out how to conquer deflation and showed that it would do whatever it takes to defeat it. The amount of money printing earlier was a demonstration. In a sense they are fighting the last war. 2008 was all about deflation. Inflation could help in some ways because the economy is over leveraged and inflation is a transfer from lenders to borrowers. I recently refinanced my mortgage and would really not want to be on the other side of that transaction. On the other hand the government is spending money without even a thought of how to pay for anything, deficits are huge and the only reason it all works is because interest rates are low. Higher rates due to inflation could stop this. Historically governments tend to choose inflation over deflation. Interest rates rising due to inflation could stop the government from spending without constraint, but then again government is 35% of GDP(in the US), so perhaps consumer choice making a greater impact on an economy might be ok.

starbugs 6y ago
Interest rates cannot rise significantly anymore or the debt will become uncontrollable. On the other hand, I'd say it's very likely that a continued low interest rate environment will drive the societal divide even further and won't be politically sustainable in the long run. Exciting times we live in.
- effie 6y ago
  Indeed. With the recent course of US gov./FED decisions, debt seems pretty much already uncontrollable, it just keeps soaring and current powers at helm won't touch that problem with a ten foot pole. However, it seems to me that as long as US gov. is maintaining world dominance of US dollar and the US population is kept disorganized to prevent a major coherent political action, this can probably go on indefinitely. I would like to know what has to happen for the US gov. to change its fiscal behaviour. Maybe the internal turmoil like we see these months is what eventually breaks the camel's neck. What do you think will happen then? Maybe we will see some extraordinary government actions reforming debt/currency or work/incorporation laws to start over? Or maybe the situation will be managed by spraying little money to the poor people to keep up? I can imagine with some helicopter money the current mess can go on for next 100 years...
  - starbugs 6y ago
    It can go on for a really long time unfortunately. Impossible to predict timing. And I don't think the social unrest will change the US's fiscal behavior unless it's really getting messy (civil war messy). When looking at history, debasing the currency has always produced inflation at a certain point, which then usually leads to the downfall of the predominant power structure. This then causes things to reset and start over eventually. It's highly likely it will be the same again. Hypothetically, if China was to decide it wouldn't export anything to the US anymore tomorrow, we could see inflation pretty quickly. The same is true for the USD as the reserve currency. Hypothetically, if other nations were capable of organizing a viable alternative, that would be the end for the current fiscal behavior. Both are highly unlikely to occur anytime soon... A major supply shock seems to be the biggest real risk in the short and medium term, as demand issues can easily be controlled with "Money printer go brrrr" again and again if you are in control of the planetary reserve currency, but supply issues cannot.

starbugs 6y ago

Interest rates cannot rise significantly anymore or the debt will become uncontrollable. On the other hand, I'd say it's very likely that a continued low interest rate environment will drive the societal divide even further and won't be politically sustainable in the long run. Exciting times we live in.

effie 6y ago
Indeed. With the recent course of US gov./FED decisions, debt seems pretty much already uncontrollable, it just keeps soaring and current powers at helm won't touch that problem with a ten foot pole. However, it seems to me that as long as US gov. is maintaining world dominance of US dollar and the US population is kept disorganized to prevent a major coherent political action, this can probably go on indefinitely. I would like to know what has to happen for the US gov. to change its fiscal behaviour. Maybe the internal turmoil like we see these months is what eventually breaks the camel's neck. What do you think will happen then? Maybe we will see some extraordinary government actions reforming debt/currency or work/incorporation laws to start over? Or maybe the situation will be managed by spraying little money to the poor people to keep up? I can imagine with some helicopter money the current mess can go on for next 100 years...
- starbugs 6y ago
  It can go on for a really long time unfortunately. Impossible to predict timing. And I don't think the social unrest will change the US's fiscal behavior unless it's really getting messy (civil war messy). When looking at history, debasing the currency has always produced inflation at a certain point, which then usually leads to the downfall of the predominant power structure. This then causes things to reset and start over eventually. It's highly likely it will be the same again. Hypothetically, if China was to decide it wouldn't export anything to the US anymore tomorrow, we could see inflation pretty quickly. The same is true for the USD as the reserve currency. Hypothetically, if other nations were capable of organizing a viable alternative, that would be the end for the current fiscal behavior. Both are highly unlikely to occur anytime soon... A major supply shock seems to be the biggest real risk in the short and medium term, as demand issues can easily be controlled with "Money printer go brrrr" again and again if you are in control of the planetary reserve currency, but supply issues cannot.