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Exactly all of this. A lot of people (myself included) are just kind of nervously waiting for the other shoe to drop. That the money exists but isn’t moving th

Exactly all of this. A lot of people (myself included) are just kind of nervously waiting for the other shoe to drop. That the money exists but isn’t moving through the economy means that we’re essentially building more pressure in a system that is already at 0% interest rates. This should be concerning to everyone. The absence of velocity will encourage central banks to print more money in the belief that it will encourage spending when it clearly hasn’t done that. If in the future we start exiting our homes and going on vacations again the velocity could shoot up sharply - at which point a lot more money is moving into the system all at once. By then, there’s a good chance the horse has bolted for capping inflation.

throw0101a 6y ago
> That the money exists but isn’t moving through the economy means that we’re essentially building more pressure in a system that is already at 0% interest rates. You're not wrong, but it's a problem I'd "like" to have: too much economic activity. I'd rather worry about inflation and things running hot, with low unemployment (or high participation rate), than the opposite. Remember late 2019, when the US unemployment rate was 3.5%? * https://fred.stlouisfed.org/series/UNRATE https://fred.stlouisfed.org/series/UNRATE > The absence of velocity will encourage central banks to print more money in the belief that it will encourage spending when it clearly hasn’t done that. When the central bank's rate is zero, they're flooding the market with liquidity, and bond yields are zero (or negative), then that's a signal for governments to open the taps: > I would summarize the Keynesian view in terms of four points: > 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond. > 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain. > 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down. > 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses. * https://krugman.blogs.nytimes.com/2015/09/15/keynesianism-explained/ https://krugman.blogs.nytimes.com/2015/09/15/keynesianism-ex... When rates are non-zero and bond yields are high(er), then it is dangerous to print money, and government spending could 'crowd out' private economic activity.
ethbr0 6y ago
> That the money exists but isn’t moving through the economy means that we’re essentially building more pressure in a system that is already at 0% interest rates. This should be concerning to everyone. I use a carbon / global warming metaphor instead of pressure, but same intuition. You're taking actions today that will play out in the future. Assuming most excess money supply has gone into (a) stocks, pushing valuations up, & (b) real estate, pushing valuations up, what would cause a freeing of that money? Because until it's liquified, it's not impacting inflation. The only way substantial amounts of money move out of stocks is if the Fed raises rates and bond yields improve. It has to go somewhere, and that's the only sink big enough to swallow the flow. Real estate is trickier. There's only so much volume that the (at least in the US) inefficient process can handle, which means there's a fundamental process against a flash liquidation.
- bobthepanda 6y ago
  At one point China had aspirations to turn CNY into a reserve currency, which would almost certainly necessitate releasing their capital controls. But now I think they've gone back to the viewpoint that there's no safe way to do that (even a trickle of dollars from China would be a deluge elsewhere due to sheer numbers) and that being a reserve currency is more trouble than it's worth. Heck, I'm sure if they could Switzerland and Japan would like to cease being a safe haven currency overnight; the role comes with a lot of things that have lots of downside and no upside domestically. --- The other thing might be an increase in housing supply. Housing supply increases are now firmly out of the realm of wonky think-tank policy with real advocacy happening at a grassroots level. Already Minneapolis has removed exclusive single family zoning. But this would probably take the better part of a decade or two to start showing real progress.
jellicle 6y ago
The Fed can increase its overnight rate to 20% or 200% in one meeting. There is no situation ever where inflation of the sort you're talking about can't be instantly and completely killed. Supply shock inflation (oil embargo) is a different matter.
- ethbr0 6y ago
  That's trusting an inherently conservative body to take unprecedented steps. Ultimately, it's trust. As long as the market and economic suppliers believe the Fed might do that, it wouldn't be a problem. Hence why the Fed does most of its important work through telegraphing rather than policy changes
  - bobthepanda 6y ago
    It's not totally unprecedented, it's the Volcker playbook. Granted he never hiked above 20% but that was still extremely high.
    - ethbr0 6y ago
      By the time he was confirmed as chairman in 1979, inflation was already high. https://data.bls.gov/timeseries/CUUR0000SA0?output_view=pct_12mths https://data.bls.gov/timeseries/CUUR0000SA0?output_view=pct_... (see: 1969 - 1985) The Fed had twiddled it's thumbs with half measures to let it get that way. So while not hyperinflation, I'd say it supports the Fed usually being cautious.
      - bobthepanda 6y ago
        I mean, they were cautious before the first time they ever hiked rates that high, which would make sense; very few people are going to put their neck on the line for novel policy. Now that we have pretty much direct cause and effect of what such a rate hike in the US would do, we probably wouldn't spend a decade and a half waffling on it.

throw0101a 6y ago

> That the money exists but isn’t moving through the economy means that we’re essentially building more pressure in a system that is already at 0% interest rates. You're not wrong, but it's a problem I'd "like" to have: too much economic activity. I'd rather worry about inflation and things running hot, with low unemployment (or high participation rate), than the opposite. Remember late 2019, when the US unemployment rate was 3.5%? * https://fred.stlouisfed.org/series/UNRATE https://fred.stlouisfed.org/series/UNRATE > The absence of velocity will encourage central banks to print more money in the belief that it will encourage spending when it clearly hasn’t done that. When the central bank's rate is zero, they're flooding the market with liquidity, and bond yields are zero (or negative), then that's a signal for governments to open the taps: > I would summarize the Keynesian view in terms of four points: > 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond. > 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain. > 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down. > 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses. * https://krugman.blogs.nytimes.com/2015/09/15/keynesianism-explained/ https://krugman.blogs.nytimes.com/2015/09/15/keynesianism-ex... When rates are non-zero and bond yields are high(er), then it is dangerous to print money, and government spending could 'crowd out' private economic activity.

ethbr0 6y ago

> That the money exists but isn’t moving through the economy means that we’re essentially building more pressure in a system that is already at 0% interest rates. This should be concerning to everyone. I use a carbon / global warming metaphor instead of pressure, but same intuition. You're taking actions today that will play out in the future. Assuming most excess money supply has gone into (a) stocks, pushing valuations up, & (b) real estate, pushing valuations up, what would cause a freeing of that money? Because until it's liquified, it's not impacting inflation. The only way substantial amounts of money move out of stocks is if the Fed raises rates and bond yields improve. It has to go somewhere, and that's the only sink big enough to swallow the flow. Real estate is trickier. There's only so much volume that the (at least in the US) inefficient process can handle, which means there's a fundamental process against a flash liquidation.

bobthepanda 6y ago
At one point China had aspirations to turn CNY into a reserve currency, which would almost certainly necessitate releasing their capital controls. But now I think they've gone back to the viewpoint that there's no safe way to do that (even a trickle of dollars from China would be a deluge elsewhere due to sheer numbers) and that being a reserve currency is more trouble than it's worth. Heck, I'm sure if they could Switzerland and Japan would like to cease being a safe haven currency overnight; the role comes with a lot of things that have lots of downside and no upside domestically. --- The other thing might be an increase in housing supply. Housing supply increases are now firmly out of the realm of wonky think-tank policy with real advocacy happening at a grassroots level. Already Minneapolis has removed exclusive single family zoning. But this would probably take the better part of a decade or two to start showing real progress.

jellicle 6y ago

The Fed can increase its overnight rate to 20% or 200% in one meeting. There is no situation ever where inflation of the sort you're talking about can't be instantly and completely killed. Supply shock inflation (oil embargo) is a different matter.

ethbr0 6y ago
That's trusting an inherently conservative body to take unprecedented steps. Ultimately, it's trust. As long as the market and economic suppliers believe the Fed might do that, it wouldn't be a problem. Hence why the Fed does most of its important work through telegraphing rather than policy changes
- bobthepanda 6y ago
  It's not totally unprecedented, it's the Volcker playbook. Granted he never hiked above 20% but that was still extremely high.
  - ethbr0 6y ago
    By the time he was confirmed as chairman in 1979, inflation was already high. https://data.bls.gov/timeseries/CUUR0000SA0?output_view=pct_12mths https://data.bls.gov/timeseries/CUUR0000SA0?output_view=pct_... (see: 1969 - 1985) The Fed had twiddled it's thumbs with half measures to let it get that way. So while not hyperinflation, I'd say it supports the Fed usually being cautious.
    - bobthepanda 6y ago
      I mean, they were cautious before the first time they ever hiked rates that high, which would make sense; very few people are going to put their neck on the line for novel policy. Now that we have pretty much direct cause and effect of what such a rate hike in the US would do, we probably wouldn't spend a decade and a half waffling on it.