4 ms·

If it's a bubble how do you see it crashing? Would a move from asset prices to inflation of everyday goods do it?

dlkmp 6y ago
Increasing interest rates. I don't know enough to estimate the likelihood of that happening but it seems like the obvious danger.
- pirate787 6y ago
  Higher rates are the solution, not the danger. The danger is the economic waste from artificially lowering rates, causing bubbles and massive misallocation of resources.
bko 6y ago
That's a tough question to answer. I think it will come down to consumer prices but there are a lot of other things that can skew that. For instance, businesses don't want to raise prices so sometimes they'll cut corners to reduce costs. You've seen this in chocolate bars where the typical bar shrinks over the year and then eventually introduce king size to allow for some price inflation. Measuring cpi is also incredibly complicated. I was shocked it's been so low forever considering over 50% of the index is housing, healthcare and education, three products for which we've seen high price growth for decades. So the official number may be "managed" especially considering that trillions in pensions and social security cost depends on it's reporting. But the money supply grew so fast, i don't think any massaging of the data will be able to hide it indefinitely There's no political will for things like higher interest rates or reduced spending, among either political party. The new generation has never seen mortgage rates in double digits I see future price controls and other draconian measures to try to deal with the fallout. Example is gas lines in 1970s. It'll eventually hurt the real economy as artificial scarcity from price controls hurts business. Only thing is somewhat certain about is something will happen. This seems insane that a unit of account can just grow 25% in one year with no signs of stopping with no consequences
- prichino 6y ago
  Bitcoin will happen. This injection of money can be seen as a cashout of the current system, selling as much USD as the market can take while it is still possible.
- quickthrowman 6y ago
  > This seems insane that a unit of account can just grow 25% in one year with no signs of stopping with no consequences The equation of exchange is MV=PQ, not M=PQ. The velocity of money (V) is falling right now as the money supply (M) is growing, that’s why increasing the money supply hasn’t had consequences (yet). https://en.m.wikipedia.org/wiki/Equation_of_exchange https://en.m.wikipedia.org/wiki/Equation_of_exchange
  - risk000 6y ago
    https://www.reddit.com/r/mmt_economics/comments/mi2jl0/thoughts_on_a_voluntaryist_blogpost_defending_the/gt3p1ou/ https://www.reddit.com/r/mmt_economics/comments/mi2jl0/thoug...
- semi-extrinsic 6y ago
  It's not just politicians and "the new generation" who don't want double-digit mortgage rates. Surely it is also regarded as a present impossibility by the banks. I mean, barring massive inflation, a double-digit mortgage rate would put so many home owners in default that it would make the global financial crisis of 2008 look like a birthday party for small children. The "something will happen" part I agree with. I think we will need to come to terms with the fact that our world has crossed the inflection point on the S-curve that all growing populations are confined to. And that will mean dismantling current financial mechanisms such as "interest rates". I'm dead serious - I don't know how the financial system will look like in 2100, but I'm convinced that "interest rates" as we know and use them today will be something taught only in "history of economics" class.
  - lotsofpulp 6y ago
    Most US mortgages are fixed rate mortgages, so increasing mortgage rates would not affect the monthly payments people have to make for their homes, therefore it would not cause home owners to default (in the US). In May 2019, adjustable rate mortgage applications were only 6.2%: https://www.mba.org/2019-press-releases/may/mortgage-applications-decrease-in-latest-mba-weekly-survey https://www.mba.org/2019-press-releases/may/mortgage-applica...
akomtu 6y ago
Owners of the stores that sell everyday goods compete for the same housing.
Guest42 6y ago
My opinion is that the stock market is setting the tone for what is going on and that at some point the major players might want to cash out their position causing stock prices and consumer sentiment to drop. Although I wonder if it’s more profitable for them to cash out slowly as prices keep getting pushed up thanks to the relative lack of a bond market and other manipulations.

Increasing interest rates. I don't know enough to estimate the likelihood of that happening but it seems like the obvious danger.

pirate787 6y ago
Higher rates are the solution, not the danger. The danger is the economic waste from artificially lowering rates, causing bubbles and massive misallocation of resources.

bko 6y ago

That's a tough question to answer. I think it will come down to consumer prices but there are a lot of other things that can skew that. For instance, businesses don't want to raise prices so sometimes they'll cut corners to reduce costs. You've seen this in chocolate bars where the typical bar shrinks over the year and then eventually introduce king size to allow for some price inflation. Measuring cpi is also incredibly complicated. I was shocked it's been so low forever considering over 50% of the index is housing, healthcare and education, three products for which we've seen high price growth for decades. So the official number may be "managed" especially considering that trillions in pensions and social security cost depends on it's reporting. But the money supply grew so fast, i don't think any massaging of the data will be able to hide it indefinitely There's no political will for things like higher interest rates or reduced spending, among either political party. The new generation has never seen mortgage rates in double digits I see future price controls and other draconian measures to try to deal with the fallout. Example is gas lines in 1970s. It'll eventually hurt the real economy as artificial scarcity from price controls hurts business. Only thing is somewhat certain about is something will happen. This seems insane that a unit of account can just grow 25% in one year with no signs of stopping with no consequences

prichino 6y ago
Bitcoin will happen. This injection of money can be seen as a cashout of the current system, selling as much USD as the market can take while it is still possible.
quickthrowman 6y ago
> This seems insane that a unit of account can just grow 25% in one year with no signs of stopping with no consequences The equation of exchange is MV=PQ, not M=PQ. The velocity of money (V) is falling right now as the money supply (M) is growing, that’s why increasing the money supply hasn’t had consequences (yet). https://en.m.wikipedia.org/wiki/Equation_of_exchange https://en.m.wikipedia.org/wiki/Equation_of_exchange
- risk000 6y ago
  https://www.reddit.com/r/mmt_economics/comments/mi2jl0/thoughts_on_a_voluntaryist_blogpost_defending_the/gt3p1ou/ https://www.reddit.com/r/mmt_economics/comments/mi2jl0/thoug...
semi-extrinsic 6y ago
It's not just politicians and "the new generation" who don't want double-digit mortgage rates. Surely it is also regarded as a present impossibility by the banks. I mean, barring massive inflation, a double-digit mortgage rate would put so many home owners in default that it would make the global financial crisis of 2008 look like a birthday party for small children. The "something will happen" part I agree with. I think we will need to come to terms with the fact that our world has crossed the inflection point on the S-curve that all growing populations are confined to. And that will mean dismantling current financial mechanisms such as "interest rates". I'm dead serious - I don't know how the financial system will look like in 2100, but I'm convinced that "interest rates" as we know and use them today will be something taught only in "history of economics" class.
- lotsofpulp 6y ago
  Most US mortgages are fixed rate mortgages, so increasing mortgage rates would not affect the monthly payments people have to make for their homes, therefore it would not cause home owners to default (in the US). In May 2019, adjustable rate mortgage applications were only 6.2%: https://www.mba.org/2019-press-releases/may/mortgage-applications-decrease-in-latest-mba-weekly-survey https://www.mba.org/2019-press-releases/may/mortgage-applica...

akomtu 6y ago

Owners of the stores that sell everyday goods compete for the same housing.

Guest42 6y ago

My opinion is that the stock market is setting the tone for what is going on and that at some point the major players might want to cash out their position causing stock prices and consumer sentiment to drop. Although I wonder if it’s more profitable for them to cash out slowly as prices keep getting pushed up thanks to the relative lack of a bond market and other manipulations.