4 ms·

Inflation is absolutely here. Assets are way up because "safe" stores of value - what money was supposed to be - haven't been keeping pace with inflation since

by mrec 6y ago

Inflation is absolutely here. Assets are way up because "safe" stores of value - what money was supposed to be - haven't been keeping pace with inflation since 2008, so you have to either join the casino or watch your savings erode. A lot of younger people don't seem to realize that this is new. That you used to be able to put your money in a bank and not lose it. While rock-bottom interest rates are good in some ways, I don't see this as a positive trend overall, especially given how shark-filled the financial waters are for most people. I'm a big fan of the Vegas dictum - "there's a patsy at every table, and if you don't know who the patsy is, it's you". As a retail investor, you're pretty much always the patsy.

Robotbeat 6y ago
Money is not supposed to be a "safe" store of value. It's supposed to be a stable one. Too low of inflation is bad because it means less investment in the physical economy. The Fed prints money to try to keep people from just hoarding cash. They want some inflation (and definitely not deflation) because a deflationary spiral means more and more money gets stuffed into mattresses instead of physical investments. Unfortunately we're seeing land prices and stock prices and crypto (etc) bid up instead of, say, a massive build out of factories and solar farms and multistory houses. (EDIT: We are seeing lots of houses being built, actually. Lumber is near all-time highs.)
- mrec 6y ago
  > Too low of inflation is bad because it means less investment in the physical economy But why did this apparently only become the case after 2008? Positive real returns without gambling were acceptable before that, and we still got a gigantic speculative bubble, so why does it suddenly become reasonable to encourage bubbles even more? Was it just a coordination problem? An initial panic reaction to slash to zero, and then no central bank being willing to go first and unwind it? As you say, the other major part of this problem is the inability or unwillingness to steer money toward productive investment rather than speculation. Here in the UK it's housing that's the killer; my suspicion is that governments have become addicted to the jam-today enabled by the money created for mortgage loans, which will then have to be paid off on some other poor sucker's watch.
  - imtringued 6y ago
    You can blame the Fed for one thing, and only one thing. They provided way too much money on the wrong side. The Fed provides loans to banks who then provide loans to companies so that they can grow faster. It's about increasing efficiency, not about total possible upside. However, there is a point after which businesses have enough loans for all the investments they have planned. Every single dollar after that is too much and does nothing. The next step is to spend money in a way that creates more investment opportunities for those companies. In short you want to balance supply and demand. The simplest spending target would be to pick a industry that is not in competition with private industry. My personal favorite are renewables and other infrastructure because you will not displace existing companies through government spending. Carbon taxes also create an incentive to borrow more money and do productive work but they do gnaw at CO2 spewing private industry which is the entire point but there are vested interests that don't want to lose their money.
    - Robotbeat 6y ago
      Yeah, one of the most powerful levers the federal government could have with respect to climate is to provide financing support for renewables. If you reduced the cost of capital for solar, wind, and batteries (or nuclear for that matter) to the price of 30 year US treasuries, it’d crush all fossil fuel power plants and provide a spur to the economy. In addition, cheap electricity would be a huge long-term boost to the economy, it’d drive electrification of transport/heating/industry, and the cost to taxpayers would be almost nil.

by mrec 6y ago

Robotbeat 6y ago

Money is not supposed to be a "safe" store of value. It's supposed to be a stable one. Too low of inflation is bad because it means less investment in the physical economy. The Fed prints money to try to keep people from just hoarding cash. They want some inflation (and definitely not deflation) because a deflationary spiral means more and more money gets stuffed into mattresses instead of physical investments. Unfortunately we're seeing land prices and stock prices and crypto (etc) bid up instead of, say, a massive build out of factories and solar farms and multistory houses. (EDIT: We are seeing lots of houses being built, actually. Lumber is near all-time highs.)

mrec 6y ago
> Too low of inflation is bad because it means less investment in the physical economy But why did this apparently only become the case after 2008? Positive real returns without gambling were acceptable before that, and we still got a gigantic speculative bubble, so why does it suddenly become reasonable to encourage bubbles even more? Was it just a coordination problem? An initial panic reaction to slash to zero, and then no central bank being willing to go first and unwind it? As you say, the other major part of this problem is the inability or unwillingness to steer money toward productive investment rather than speculation. Here in the UK it's housing that's the killer; my suspicion is that governments have become addicted to the jam-today enabled by the money created for mortgage loans, which will then have to be paid off on some other poor sucker's watch.
- imtringued 6y ago
  You can blame the Fed for one thing, and only one thing. They provided way too much money on the wrong side. The Fed provides loans to banks who then provide loans to companies so that they can grow faster. It's about increasing efficiency, not about total possible upside. However, there is a point after which businesses have enough loans for all the investments they have planned. Every single dollar after that is too much and does nothing. The next step is to spend money in a way that creates more investment opportunities for those companies. In short you want to balance supply and demand. The simplest spending target would be to pick a industry that is not in competition with private industry. My personal favorite are renewables and other infrastructure because you will not displace existing companies through government spending. Carbon taxes also create an incentive to borrow more money and do productive work but they do gnaw at CO2 spewing private industry which is the entire point but there are vested interests that don't want to lose their money.
  - Robotbeat 6y ago
    Yeah, one of the most powerful levers the federal government could have with respect to climate is to provide financing support for renewables. If you reduced the cost of capital for solar, wind, and batteries (or nuclear for that matter) to the price of 30 year US treasuries, it’d crush all fossil fuel power plants and provide a spur to the economy. In addition, cheap electricity would be a huge long-term boost to the economy, it’d drive electrification of transport/heating/industry, and the cost to taxpayers would be almost nil.