7 ms·

However unlike that period, we won't have to deal with a contracting money supply.

by jdc 6y ago

sigmaprimus 6y ago
It's actually the opposite that will need to be dealt with. How much of the recent stock market gains are due to a hidden inflation thanks to the trillions of dollars being borrowed (or printed) by all the governments around the world? Get ready for 2 dollar eggs and 20 dollar loaves of bread!
- csomar 6y ago
  It’s possible it doesn’t result in inflation if the general public doesn’t benefit from the stock market appreciation. Worse, it might make them poorer if they buy the top. But it probably means hot markets like nyc, sf, la will remain very expensive.
  - danieltillett 6y ago
    I am most sure if NYC and SF are too hot at the moment. It really is hard to say what will happen as the banking system is so different today than in the past. I do think we will see continued leaking of all the new money that is being printed out into hard assets, but beyond that I have no idea.
    - eldavido 6y ago
      Show me another place with 100,000 100k+ jobs. There aren't many markets like this in the US and they're all expensive. NYC, Northern Virginia/DC. Overheated, maybe, but not by much.
      - jrott 6y ago
        Yup and clustering effects are still real. Eventually we'll come out of the pandemic and companies will want to be near there biggest customers.
      - lumost 6y ago
        To the GP's comment, this could be an artifact of a slow-leak inflation. If inflation leaks in some markets faster than others you would see those markets increase in cost and income faster than the average. Boston area condo prices rose 32% from April 2019 to April 2020, at best income increases are keeping pace.
  - almost_usual 6y ago
    > But it probably means hot markets like nyc, sf, la will remain very expensive. All of those cities are seeing price declines. SF will probably bottom out in 6-8 months. Depending on how long these fires burn prices could go down quite a bit.
- api 6y ago
  ... and the $3m starter home?
- greesil 6y ago
  That doesn't seem to be what happens when the interest rate for full employment is below zero. I do think it has some other effects, like hedgefunds can easily leverage themselves to buy up assets that normal people want, like houses.
  - nitrogen 6y ago
    Speaking of houses, I've heard from some local agents that the housing market in my part of Utah is currently dominated by cash offers. They didn't say where the cash was coming from.
    - paulryanrogers 6y ago
      Around my area of the Midwest the cash offers are from investors. Guess the only alternative to equities is real estate.
    - Scoundreller 6y ago
      "Cash" might mean someone with several properties with Equity Lines of Credit on them that they can draw on immediately. E.g. own 5 properties, each 50% mortgage, 50% equity, and 30% of equity immediately available keeping max LTV under 80%. They could immediately buy 1.5 equivalent properties and work out the financing later. They might even get better financing terms because they negotiate without the pressure of "I need you to give me a mortgage, otherwise I can't buy this hot property". If you received two identical offers, 1 contingent on financing, the other cash, you'd take the cash offer.
    - rblatz 6y ago
      We just put in a cash offer on a house, but we fully intend to put a mortgage the property. But we didn’t make the bid contingent on financing going through. We can cover the cost in cash if we have to, but we would rather not.
    - TuringNYC 6y ago
      Cash can also mean that you are selling a home and purchasing a new one with the equity proceeds of the first home (possibly + new savings).
duaoebg 6y ago
The Weimar Republic didn't have a contracting money supply in that period
- rootsudo 6y ago
  Invest in your government. Buy Bonds!
- BenoitEssiambre 6y ago
  What do you think caused the deflation then?
  - ByteJockey 6y ago
    The Weimar Republic didn't experience deflation during that period.
    - BenoitEssiambre 6y ago
      "[Brüning] enacted a draconian policy of deflation and drastically cutting state expenditure.[5] Among other measures, he completely halted all public grants to the obligatory unemployment insurance introduced in 1927, resulting in workers making higher contributions and fewer benefits for the unemployed. Benefits for the sick, invalid and pensioners were also reduced sharply.[52] Additional difficulties were caused by the different deflationary policies pursued by Brüning and the Reichsbank, Germany's central bank.[...]Brüning triggered a deflationary internal devaluation by forcing the economy to reduce prices, rents, salaries and wages by 20%." This made unemployment skyrocket and arguably caused the rise of Hitler. https://en.wikipedia.org/wiki/Weimar_Republic#Br%C3%BCning's_policy_of_deflation_(1930%E2%80%931932) https://en.wikipedia.org/wiki/Weimar_Republic#Br%C3%BCning's... EDIT: I'm not sure why all the downvotes, maybe because it looks like I Godwin-ed the thread? I was just paraphrasing the rest of the wikipedia section: "In 1933, the American economist Irving Fisher developed the theory of debt deflation. He explained that a deflation causes a decline of profits, asset prices and a still greater decline in the net worth of businesses. Even healthy companies, therefore, may appear over-indebted and facing bankruptcy.[57] The consensus today is that Brüning's policies exacerbated the German economic crisis and the population's growing frustration with democracy, contributing enormously to the increase in support for Hitler's National Socialist German Workers' Party"
vaxman 6y ago
Sure we do, it's called AB2088 and it means private equity as we know it is going away in California. There is also the not insignificant risk that we may also face lightweight socialism at the national level in January. Who knows what the Fed will do under pressure from a Left leaning administration in the White House?

However unlike that period, we won't have to deal with a contracting money supply.

by jdc 6y ago

However unlike that period, we won't have to deal with a contracting money supply.

It's actually the opposite that will need to be dealt with. How much of the recent stock market gains are due to a hidden inflation thanks to the trillions of dollars being borrowed (or printed) by all the governments around the world? Get ready for 2 dollar eggs and 20 dollar loaves of bread!

csomar 6y ago
It’s possible it doesn’t result in inflation if the general public doesn’t benefit from the stock market appreciation. Worse, it might make them poorer if they buy the top. But it probably means hot markets like nyc, sf, la will remain very expensive.
- danieltillett 6y ago
  I am most sure if NYC and SF are too hot at the moment. It really is hard to say what will happen as the banking system is so different today than in the past. I do think we will see continued leaking of all the new money that is being printed out into hard assets, but beyond that I have no idea.
  - eldavido 6y ago
    Show me another place with 100,000 100k+ jobs. There aren't many markets like this in the US and they're all expensive. NYC, Northern Virginia/DC. Overheated, maybe, but not by much.
    - jrott 6y ago
      Yup and clustering effects are still real. Eventually we'll come out of the pandemic and companies will want to be near there biggest customers.
    - lumost 6y ago
      To the GP's comment, this could be an artifact of a slow-leak inflation. If inflation leaks in some markets faster than others you would see those markets increase in cost and income faster than the average. Boston area condo prices rose 32% from April 2019 to April 2020, at best income increases are keeping pace.
- almost_usual 6y ago
  > But it probably means hot markets like nyc, sf, la will remain very expensive. All of those cities are seeing price declines. SF will probably bottom out in 6-8 months. Depending on how long these fires burn prices could go down quite a bit.
api 6y ago
... and the $3m starter home?
greesil 6y ago
That doesn't seem to be what happens when the interest rate for full employment is below zero. I do think it has some other effects, like hedgefunds can easily leverage themselves to buy up assets that normal people want, like houses.
- nitrogen 6y ago
  Speaking of houses, I've heard from some local agents that the housing market in my part of Utah is currently dominated by cash offers. They didn't say where the cash was coming from.
  - paulryanrogers 6y ago
    Around my area of the Midwest the cash offers are from investors. Guess the only alternative to equities is real estate.
  - Scoundreller 6y ago
    "Cash" might mean someone with several properties with Equity Lines of Credit on them that they can draw on immediately. E.g. own 5 properties, each 50% mortgage, 50% equity, and 30% of equity immediately available keeping max LTV under 80%. They could immediately buy 1.5 equivalent properties and work out the financing later. They might even get better financing terms because they negotiate without the pressure of "I need you to give me a mortgage, otherwise I can't buy this hot property". If you received two identical offers, 1 contingent on financing, the other cash, you'd take the cash offer.
  - rblatz 6y ago
    We just put in a cash offer on a house, but we fully intend to put a mortgage the property. But we didn’t make the bid contingent on financing going through. We can cover the cost in cash if we have to, but we would rather not.
  - TuringNYC 6y ago
    Cash can also mean that you are selling a home and purchasing a new one with the equity proceeds of the first home (possibly + new savings).

duaoebg 6y ago

The Weimar Republic didn't have a contracting money supply in that period

rootsudo 6y ago
Invest in your government. Buy Bonds!
BenoitEssiambre 6y ago
What do you think caused the deflation then?
- ByteJockey 6y ago
  The Weimar Republic didn't experience deflation during that period.
  - BenoitEssiambre 6y ago
    "[Brüning] enacted a draconian policy of deflation and drastically cutting state expenditure.[5] Among other measures, he completely halted all public grants to the obligatory unemployment insurance introduced in 1927, resulting in workers making higher contributions and fewer benefits for the unemployed. Benefits for the sick, invalid and pensioners were also reduced sharply.[52] Additional difficulties were caused by the different deflationary policies pursued by Brüning and the Reichsbank, Germany's central bank.[...]Brüning triggered a deflationary internal devaluation by forcing the economy to reduce prices, rents, salaries and wages by 20%." This made unemployment skyrocket and arguably caused the rise of Hitler. https://en.wikipedia.org/wiki/Weimar_Republic#Br%C3%BCning's_policy_of_deflation_(1930%E2%80%931932) https://en.wikipedia.org/wiki/Weimar_Republic#Br%C3%BCning's... EDIT: I'm not sure why all the downvotes, maybe because it looks like I Godwin-ed the thread? I was just paraphrasing the rest of the wikipedia section: "In 1933, the American economist Irving Fisher developed the theory of debt deflation. He explained that a deflation causes a decline of profits, asset prices and a still greater decline in the net worth of businesses. Even healthy companies, therefore, may appear over-indebted and facing bankruptcy.[57] The consensus today is that Brüning's policies exacerbated the German economic crisis and the population's growing frustration with democracy, contributing enormously to the increase in support for Hitler's National Socialist German Workers' Party"

vaxman 6y ago

Sure we do, it's called AB2088 and it means private equity as we know it is going away in California. There is also the not insignificant risk that we may also face lightweight socialism at the national level in January. Who knows what the Fed will do under pressure from a Left leaning administration in the White House?