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New Economic Challenges and the Fed's Monetary Policy Review
- deleted 6y ago[deleted]
- shdc 6y agoThe root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.
- trisiak 6y agoIs there an unconventional currency (to contrast your statement) that comes with either inherent value or trustless system? I'm genuinely curious what you meant.
- aww_dang 6y agoAt this point gold and silver could be considered heterodox.
- ivalm 6y agoLots of crypto is trustless, they just don’t have inherent value.
- chrischattin 6y agoIf you consider Bitcoin unconventional (I would), it qualifies as a trustless currency.
- cle 6y agoWhat is meant by "trustless" here?
- solotronics 6y agoYou don't have to trust any counterparty, everything is able to verified checking a hash output or key pair.
- vatican_banker 6y agoFiat currencies are not ideal but are the best known currency tool to date. I commonly hear that blockchain-based currencies can be a good replacement for fiat currencies. But current examples of blockchain-currencies are either company-sponsored or community-based. This again puts a big weight on a single actor. I'd rather trust the admin of money to a government than a company or a community of anonymous economists/technologists. Finally, the ability go debase (I assume you mean devaluating) a currency is (arguably) a desirable characteristic. During crises, responsibly devaluating a currency can help a country's economy.
- logicchains 6y ago> Fiat currencies are not ideal but are the best known currency tool to date. By what metric? >Finally, the ability go debase (I assume you mean devaluating) a currency is (arguably) a desirable characteristic. During crises, responsibly devaluating a currency can help a country's economy. I'm skeptical that any benefit this brings outweighs the catastrophic damage it causes when misused. E.g. Weimar Germany, Zimbabwe.
- tupputuppu 6y agoAs described in the article, we are living in a period known as the Great Moderation, a previously unforeseen time of financial stability, low unemployment, and lack of Major depressions. Bringing up autocratic developing countries isn't a great counterexample to the level of welfare we've been privy to in the developed world.
- TheButlerian 6y agoFinally, the ability go debase (I assume you mean devaluating) a currency is (arguably) a desirable characteristic. During crises, responsibly devaluating a currency can help a country's economy. I've always seen this argument. But is there an example from the last 50 years when this actually worked?
- OnACoffeeBreak 6y ago> We began this public review in early 2019 to assess the monetary policy strategy, tools, and communications that would best foster achievement of our congressionally assigned goals of maximum employment and price stability over the years ahead in service to the American people. As an American who knows nothing about monitor policy or the process by which it is developed, just how much public comment from an average American was considered or even put forward? Could someone comment on that aspect?
- shdc 6y agoThat sentence scored 27 on the 'Gunning Fog Scale Level'. Anything above 20 is considered "very difficult" to understand. Based on this, i think one of the main issues is the 'average american' wouldn't be able to successfully interact with a body that expresses itself in such an obfuscated manner. I'll go as far as saying the obfuscation is utterly deliberate.
- deleted 6y ago[deleted]
- TheAdamAndChe 6y agoWe're talking about the Federal Reserve, not McDonald's. Given the far-reaching repercussions of their policies, it makes absolute sense that they would be extremely explicit in their grammar. While they use big words and it's a long sentence, nothing there is obfuscated.
- shdc 6y agoThe premise of your argument is that explicitness comes at the expense of additional complexity. I believe this premise may be flawed. Let's rewrite it from: > We began this public review in early 2019 to assess the monetary policy strategy, tools, and communications that would best foster achievement of our congressionally assigned goals of maximum employment and price stability over the years ahead in service to the American people. To: """ We began this public review in early 2019. The goal was to assess items relating to monetary policy ("Monetary Policy" has to do with the creation and management of money at a national level). Those monetary policy items under review were the: - strategy. - tools. - communications. The goals of the policy review, which were assigned by congress, were: - maximum employment. - price stability going forward, for years to come, in service to the American people. """ I believe nothing has been lost from the original text, and that this is far easier to read and understand.
- alextheparrot 6y ago> The unemployment rate hovered near 50-year lows for roughly 2 years, well below most estimates of its sustainable level. And the unemployment rate captures only part of the story. Having declined significantly in the five years following the crisis, the labor force participation rate flattened out and began rising even though the aging of the population suggested that it should keep falling. The entire press release is worth a read, but I want to specifically call out the above quote. I think looking into these two statistics can form the basis for useful discussion. Unemployment rate being "below estimated sustainable levels" has multiple interpretations, some charitable, some less so. One is that the current economy is better at allocating people to their jobs. This isn't a theory, just a hypothesis. Gig economy work, increases in highly skilled workers (Who traditionally have had lower unemployment than less-educated cohorts [0]) might be drivers that could reduce the friction of getting a job for contemporary workers. To add another possible hypothesis, it could be that people are just hedging. If a large enough cohort of people feel unsafe or want to adjust their job risk profile, they might choose to commit to employment prior to a downturn. If people are hedging, we might even see a decrease in real wage as people value the (weak, but albeit better than nothing) insurance they get instead of being valued entirely by their market rate wage. The labor force participation component, frankly, I'm confused on. The Bureau of Labor statics release clearly shows labor participation has been and is still falling (Covid blip aside, 5 year time window irrespective) [1]. Their footnote calls out the 25-54 year old bracket, which is apparently participating more. I can see why they say that the labor force participation rising is unexpected, I certainly don't see it. To advance a different thesis, it is entirely possible that as people retire, a less than whole percent of their roles are being filled by people in this younger cohort, who can now more easily participate due to less labor being available for existing companies. This would align more with the BLS and Federal Reserve numbers, as we have, by percentage, more aged individuals (Who are the primary non-participants) in addition to growth in a cohort who we would expect to fill those rolls moving forward. [0] https://www.bls.gov/charts/employment-situation/unemployment-rates-for-persons-25-years-and-older-by-educational-attainment.htm https://www.bls.gov/charts/employment-situation/unemployment... [1] https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm https://www.bls.gov/charts/employment-situation/civilian-lab...
- skybrian 6y agoThat's a lot of words to say that they're going to allow inflation to go above 2%. I guess the rest boils down to "don't panic, we're not getting crazy here."
- CameronNemo 6y agoI read additionally that: * they are not reducing interest rates further below their current levels (although no mention of raising them anytime soon) * they are going to use "other tools" to stimulate the economy (QE?)
- SilasX 6y agoAren’t interest rates already at zero?
- thoughtstheseus 6y agoAre you paying 0% on your mortgage? If not then the Fed has room to lower rates. Joking aside I'd expect the Fed, and former Fed officials, to continue floating this idea into the public discourse over the next 6-18 months. The move into the corporate bond market is a start. QE is not limited treasuries, it is just the most efficent point to start with because all debt is marked off that, or was...
- baskire 6y agoMortgage interest rates are close to yearly inflation. Soon it’ll be free money to own Realestate, even if it’s not cash flow positive. We could see a huge run up of property values as people shift to taking advantage of real estate leverage and tax advantages coupled with literally free money.
- baconandeggs 6y agoLiterally free money only to those with access to cheap credit, increasing the wealth gap even more.
- CyberDildonics 6y agoI think the fed's own graph is the picture worth a thousand words. Don't forget that this is the M1 money supply, which will be expanded by about 8.5x by fractional reserve banking. https://fred.stlouisfed.org/series/M1REAL https://fred.stlouisfed.org/series/M1REAL
- Brett_S 6y agoI understand M1 includes the most liquid portions of the money supply in circulation. When the Fed "prints" money I don't think they are talking about physical money. Can someone explain what this graph tells us?
- aniro 6y ago"The money supply measures reflect the different degrees of liquidity—or spendability—that different types of money have. The narrowest measure, M1, is restricted to the most liquid forms of money; it consists of currency in the hands of the public; travelers checks; demand deposits, and other deposits against which checks can be written. M2 includes M1, plus savings accounts, time deposits of under $100,000, and balances in retail money market mutual funds." From the Fed itself: https://www.newyorkfed.org/aboutthefed/fedpoint/fed49.html https://www.newyorkfed.org/aboutthefed/fedpoint/fed49.html
- R0b0t1 6y agoThe money is physical in the sense that people are able to extract value from it. It is given to a bank to loan out, essentially for free, and they are able to keep the interest. So if you're a bank you basically are given free money by the government.
- cma 6y ago> which will be expanded by about 8.5x by fractional reserve banking. Didn't they remove all reserve requirements back on March 15? I thought a 0 requirement would cause a bigger than 8.5X multiple with enough time (all else equal).
- 6y ago
- CameronNemo 6y ago>Our new statement explicitly acknowledges the challenges posed by the proximity of interest rates to the effective lower bound. By reducing our scope to support the economy by cutting interest rates, the lower bound increases downward risks to employment and inflation. To counter these risks, we are prepared to use our full range of tools to support the economy. What other tools do they have besides setting interest rates? They keep alluding to these tools but do not explicitly say what they are. Should we expect another round of quantitative easing?
- surfmike 6y agoNGDP targeting has been advocated by some as superior to interest rate targeting. https://en.m.wikipedia.org/wiki/Nominal_income_target https://en.m.wikipedia.org/wiki/Nominal_income_target
- alexmingoia 6y ago“Other tools” has previously meant quantitative easing (Newspeak for buying assets with printed money), flash loans, and swap lines. The Fed has been mentioning they want the power to buy stocks: https://www.cnbc.com/2020/04/06/yellen-says-the-fed-doesnt-need-to-buy-equities-now-but-congress-should-reconsider-allowing-it.html https://www.cnbc.com/2020/04/06/yellen-says-the-fed-doesnt-n...
- neffy 6y agoWe should I think take note that the head of the Fed is a Trump appointee, and Trump's definition of a "good economy" is one with a booming stock market. Which is something that pumping $3 trillion into M2 will certainly achieve. https://fred.stlouisfed.org/series/M2 https://fred.stlouisfed.org/series/M2 What else it will achieve is another matter entirely
- beachbau 6y agoI think it’s very unfair to paint trump in that light. Stock market is the main focus for any president, but that’s because companies on the stock market employed A TON of PEOPLE. Of course there are companies who lay-off while stocks go vertical, but in general, stock prices rise allow companies to raise capital and hire more workers. Also, this administration has been very active in getting money into the hands of the consumers directly. And also trying to shift work away from China back to the states
- eyeball 6y agohttps://m.youtube.com/watch?v=WEMCYBPUR00 https://m.youtube.com/watch?v=WEMCYBPUR00
- joshuanapoli 6y ago> the gains began to be shared more widely across society. The Black and Hispanic unemployment rates reached record lows, and the differentials between these rates and the white unemployment rate narrowed to their lowest levels on record. I didn't know this, and it runs against the "growing wealth inequality" narrative. Or maybe it's possible that wealth inequality is increasingly driven by factors other than race.
- deelowe 6y agoI feel that the media narrative is race is what drives inequity, but it certainly feels more like race is just a convenient scapegoat. In the end, it's all about concentration of power.
- joshuanapoli 6y agoI guess that any kind of bail-out (of stocks, or banks, or owners of real estate, or whatever) will inevitably help to sustain and increase concentration of power. If nature took its course, then control of whatever aspect of the world crashed would diffuse across a new set of owners as it rebuilds.
- jonnycomputer 6y agoEmployment rate, not wealth inequality. And if most white people are employed, then you'd expect that most of the employment gains (i.e. increases in percent who are employed) would be in groups that were largely unemployed to before.
- joshuanapoli 6y agoThat makes sense; it's just impossible for the unemployment rate to be so low without leveling across groups that had high unemployment.
- WillPostForFood 6y agoYes, and conversely, during recessions, the poor get it worse. If you look at black poverty rates for the last ~60 years, it has declined overall, from ~55% to ~20%. But you can see every recession or economic dip in the graph as a bump in poverty rate.
- drcode 6y agoIt used to be that the Fed's message was "Keeping low interest rates and doing QE is okay because prices are stable." Now their message is "Keeping low interest rates and doing QE is okay because prices are only a little unstable."
- bitxbit 6y agoI know this is counterintuitive but in order to spur growth, and encourage the right type of risk taking which is how you end up with innovations, I believe you need to have interest rates above a certain threshold. Indefinite ZIRP discourages risk taking and encourages financial growth arrangements.
- ivalm 6y agoCan you elaborate on this? ZIRP encourages people to seek riskier investments, which presumably means to spur growth. Low risk financial arrangements are exactly what suffers.
- nicbou 6y agoBased on my limited observation as a layman, it seems to encourage reckless investments in ideas that seemingly don't work. How many more 100 million quid bike rental schemes does the world need?
- ivalm 6y agoBut that’s not people going to “financial arrangements.” ZIRP does encourage over reckless investment in ventures with low chance of working out, I am just saying it’s different.
- viburnum 6y agoThis article explains the Volcker era and subsequent events in plain language https://nplusonemag.com/issue-34/reviews/other-peoples-blood-2/ https://nplusonemag.com/issue-34/reviews/other-peoples-blood...
- WalterBright 6y agoThe recent huge rise in the stock market suggests it is a sign of inflation to come. I've been noticing a lot of big price increases at the supermarket. All those trillions of dollars are going to show up somewhere.
- skybrian 6y agoThrough July, food prices are up a bit, but energy is way down, over the last 12 months: https://www.bls.gov/news.release/cpi.nr0.htm https://www.bls.gov/news.release/cpi.nr0.htm Inflation happens when people decide to spend and the supply isn't there to support it, but there's nothing inevitable about discretionary spending. In some countries in some crises, people react by spending more (panic buying) but in the US, typical behavior in uncertain times seems to be to spend less. (After stocking up on groceries and toilet paper.) Although, I have read articles that certain real estate markets seem to be hot?
- littlestymaar 6y ago> Inflation happens when people decide to spend and the supply isn't there to support it This is what happens in case of “market equilibrium in perfect competiton”, not IRL because supply is almost unlimited in practice for the US for manufactured goods (because most things are imported, and paid in USD). In practice, inflation happens when retailers decide to raise their prices! It can either be because they must do it (because international currency price variation for instance, or oil market price) or because they see an opportunity to make profits by doing so.
- WalterBright 6y agoOr because their expenses rise.
- littlestymaar 6y agoYes, that's what I meant when I said “because they must do”.
- viig99 6y agoWinter is here, ah damn.
- justanotheranon 6y agoafter hyperinflation finally hits, as the Ron Paulite fringe has been predicting for over 20 years, i hope they put Trump's big beautiful tremendous mug on the $1 trillion dollar bill. i look forward to 2035 and warming myself up by burning trash bags full of trumpbux in an oil drum underneath an empty freeway overpass.
- codecamper 6y agofree money for the billionaires and inflation for the rest. lovely.
- FriendlyNormie 6y agoJews rock!