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It's a a long term trend - because the natural rate of interest is zero. Money is a unit of account and therefore costless to produce, which means it has no in

It's a a long term trend - because the natural rate of interest is zero. Money is a unit of account and therefore costless to produce, which means it has no intrinsic value. The value comes when you attach it to something. So in a competitive market the cost of a mortgage is the amortised cost of evaluating the quality of the borrower and their income stream, and is the price of preparing the mortgage, which is a financial derivative asset of a house giving the right to stop the owner selling it without permission. Every interest rate cycle ends with the interest rate peak lower than the previous one, because it rapidly sends the economy into recession when you try to raise interest rates. This is because the belief about how interest rates work doesn't match the reality of how interest rates work. People aren't spending all they earn, which means all asset classes rise in price relative to the indifference level of holding money vs paying off loans and paying taxes. Japan is the canary in the mine and everybody seems to want to believe Japan is somehow 'special'. It isn't. It's a natural result of the reality of banking. Loans create deposits. The cheaper the loan, the more loans are created, the more people downstream from the borrower earn and the more they can save. But those people that earn and save aren't the ones with the loans. And since those who are saving are not spending, the ones with the loans can't earn more to pay off their loans. The result is a long slow credit expansion that interest rate changes cannot halt. And up goes the indifference price of incoming paying assets.

chii 5y ago
> People aren't spending all they earn this is good, because this means productivity is growing, and is outpacing the person's consumption. This allows investments in future productivity to be made - aka, progress. Asset prices reflect this progress.
- neilwilson 5y ago
  "this is good" It means others cannot earn an income, therefore they cannot demand output, therefore it is not produced therefore there is no job for them. Aggregate demand = Aggregate Supply, and there is no such thing as a 'market for loanable funds' because saving is just the accounting record of investment. A historic record, nothing more. Once you start at loans as the starting point and follow the geometric progression of spending and earning you find that saving reduces transaction numbers.
- imtringued 5y ago
  If every single actor is following this strategy then no actor is earning money. Rather than a race to the bottom it is a race into nothing. Emphasis on allows. If nobody is consuming the output of your investments then those investments won't happen. We expect people to provide their time to society through work. Consumerism is just the realization that for every person that provides their time, there must be someone who wants that time. The answer is to create meaningful ways for humans to spend/provide time for money.
  - chii 5y ago
    > every single actor is following this strategy then no actor is earning money surely people will still need to consume. But all future improvements require that one doesn't consume all production today. Investment can drive the economy, creating more efficient production, or more production (of different things), and therefore, grow the pie size.

chii 5y ago

> People aren't spending all they earn this is good, because this means productivity is growing, and is outpacing the person's consumption. This allows investments in future productivity to be made - aka, progress. Asset prices reflect this progress.

neilwilson 5y ago
"this is good" It means others cannot earn an income, therefore they cannot demand output, therefore it is not produced therefore there is no job for them. Aggregate demand = Aggregate Supply, and there is no such thing as a 'market for loanable funds' because saving is just the accounting record of investment. A historic record, nothing more. Once you start at loans as the starting point and follow the geometric progression of spending and earning you find that saving reduces transaction numbers.
imtringued 5y ago
If every single actor is following this strategy then no actor is earning money. Rather than a race to the bottom it is a race into nothing. Emphasis on allows. If nobody is consuming the output of your investments then those investments won't happen. We expect people to provide their time to society through work. Consumerism is just the realization that for every person that provides their time, there must be someone who wants that time. The answer is to create meaningful ways for humans to spend/provide time for money.
- chii 5y ago
  > every single actor is following this strategy then no actor is earning money surely people will still need to consume. But all future improvements require that one doesn't consume all production today. Investment can drive the economy, creating more efficient production, or more production (of different things), and therefore, grow the pie size.