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inflation, negative nominal rates (to say nothing of real rates) and if the central banks so much as breath towards tightening the enormous asset bubble they ha

inflation, negative nominal rates (to say nothing of real rates) and if the central banks so much as breath towards tightening the enormous asset bubble they have blown begins imploding... a lovely job, and well done

toomuchtodo 5y ago
I don't see an alternative for managing secular stagnation and growth traps. Metaphorically, you're essentially guiding and supporting someone passing out to the floor so they don't get a concussion when they hit their head ("soft landing"). You're (or rather, your macro economy is) headed to the floor no matter what. See: Japan [1] 1. What is Japanification? It’s a term used by economists to describe a state of chronically anemic economic growth and feeble inflation or even deflation similar to the conditions faced by Japan since a giant real-estate bubble popped in the early 1990s. It’s used to convey the alarming prospect -- often discussed in Europe, which has staggered economically ever since the 2008 financial crisis -- of sluggishness so deep that it is extremely difficult to escape. Even after Japan’s central bank embraced two extraordinary forms of monetary stimulus -- negative interest rates and asset purchases worth more than the entire size of the world’s third-largest economy -- the country has yet to return to a positive growth cycle strong enough to generate 2% inflation after nearly three decades. 2. What is secular stagnation? It’s a term originally coined by the Harvard economist Alvin Hansen in the 1930s to describe the tendency of mature industrial economies to move toward instability in the absence of large amounts of public investment. It echoed the ideas laid out by John Maynard Keynes in his seminal 1936 treatise, “The General Theory of Employment, Interest and Money.” At the time, the global economy was mired in a deep depression, and theories like Keynes’s and Hansen’s offered an explanation and a prescription for the way out. In recent years, amid rock-bottom interest rates in the wake of the biggest global downturn since the 1930s, another Harvard economist -- former U.S. Treasury Secretary Lawrence Summers -- revived the phrase to capture basically the same idea. 3. Are they the same thing? Essentially, yes. Japanification can be seen as a subset of secular stagnation, with characteristics matching those that have specifically plagued Japan. The country’s rapidly aging and shrinking population has contributed to the slowdown of economic activity, and to a high saving-low investment environment despite ultra-low interest rates. The Bank of Japan also complains about a deflationary mindset that has taken hold of consumers and companies that inhibits higher spending or higher prices. Japan’s example offers other countries an unsettling vision of their possible future. “We’re essentially at the Japanese place,” Summers told Bloomberg Television on March 12. “That’s a place that’s very hard to get out of.” (my note: the future for all developed countries is Japan) [1] https://www.bloomberg.com/news/articles/2020-01-17/japanification-secular-stagnation-and-bad-bad-news-quicktake https://www.bloomberg.com/news/articles/2020-01-17/japanific...
- pydry 5y ago
  The alternative is extremely straightforward - ramp up public spending on infrastructure and social services and increase the minimum wage. You can do this essentially without any inhibitions to growth until inflation hits about 7%. Downside : it'll get a lot of very wealthy people seeing red and will scare upper middle classes who are more used to their security being provided by assets rather than social services.
  - eli_gottlieb 5y ago
    Or if you really want the wealthy to see red, just deflate the damned asset bubbles. Cancel the underlying debts. Just null the whole damn thing. If you bet on real-estate prices or bank stocks or whatever rising 15% per annum when the economy was growing at 2.1% per annum, you eat the loss.
    - krrrh 5y ago
      I don't want anyone to see red, but this is probably the better path forward. OP's suggestion amounts to an official policy of stagflation, and that has huge drawbacks. If we let inflation run away eventually we're going to need another Volker to break its back.
    - frockington1 5y ago
      How would you cancel the underlying debts and maintain any semblance of order?
      - eli_gottlieb 5y ago
        Honestly? I'd just void them, nationalize any banks that go under, and give everyone who's actually using the underlying assets free-and-clear ownership. If you bought a house in the middle of a bubble in 2020, good job, you get a house and your mortgage is cancelled. The Sunk Cost Fallacy is a fallacy for a reason: there is always ultimately someone who pays for a speculative bubble out of their own use-values, and that's the someone who should be made whole, not the speculators. And again, I don't mean to be inflammatory (well ok, I do), but I really feel that constantly reflating asset bubbles for the rest of time, rather than accepting a one-time severe penalty whose moral hazard applies only to people who need things for their use-value, really is a Sunk Cost Fallacy that amounts to throwing good money after bad.
paulpauper 5y ago
People have been saying this since 2010. I think it's much more likely that negative yields are the new normal. I expect <10yr yields to go negative in the US eventually. The fed was able to tighten rates in 2016-2017 without anyting bad happening. Everyone keeps thinking things will end badly. Maybe they won't. My $ is on the latter.
- deleted 5y ago
  [deleted]
- da_big_ghey 5y ago
  Because it never has made an full recovering. 2016 fed only started on making lower balance sheet but never making much progress: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... Interest rate are similar: https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/FEDFUNDS Europe even worse than these above. We leave us without tools for economic troubles when we are declining to raise interest rate and sell assets on business cycle peak.
  - dsomers 5y ago
    How does Europe have it worse when the debt to GDP ratio of the combined Eurozone federal governments for example is lower than the US fed? Further, most eurozone countries, like Italy don’t have sub national debt(its regions and cities can’t legally have debt), where as states like California are massively in debt, but that sub national debt in the US is never calculated in debt ratios. Further, the last time I checked, debt held by private households in the US is also much higher on average.
    - da_big_ghey 5y ago
      In time of an economic crises, Municipality have a much simpler making of bankruptcy than national government. Same on household. But I call Eurozone worse because ECB have less room on moving interest rate so fewer tools. My above point more was that both are in badly because of never recovering after the previous issues.
nabla9 5y ago
> inflation Inflation is the only good thing in this. It's finally close to Euroarea target. Unfortunately it wild likely slow down within a 12 - 18 months again.

toomuchtodo 5y ago

I don't see an alternative for managing secular stagnation and growth traps. Metaphorically, you're essentially guiding and supporting someone passing out to the floor so they don't get a concussion when they hit their head ("soft landing"). You're (or rather, your macro economy is) headed to the floor no matter what. See: Japan [1] 1. What is Japanification? It’s a term used by economists to describe a state of chronically anemic economic growth and feeble inflation or even deflation similar to the conditions faced by Japan since a giant real-estate bubble popped in the early 1990s. It’s used to convey the alarming prospect -- often discussed in Europe, which has staggered economically ever since the 2008 financial crisis -- of sluggishness so deep that it is extremely difficult to escape. Even after Japan’s central bank embraced two extraordinary forms of monetary stimulus -- negative interest rates and asset purchases worth more than the entire size of the world’s third-largest economy -- the country has yet to return to a positive growth cycle strong enough to generate 2% inflation after nearly three decades. 2. What is secular stagnation? It’s a term originally coined by the Harvard economist Alvin Hansen in the 1930s to describe the tendency of mature industrial economies to move toward instability in the absence of large amounts of public investment. It echoed the ideas laid out by John Maynard Keynes in his seminal 1936 treatise, “The General Theory of Employment, Interest and Money.” At the time, the global economy was mired in a deep depression, and theories like Keynes’s and Hansen’s offered an explanation and a prescription for the way out. In recent years, amid rock-bottom interest rates in the wake of the biggest global downturn since the 1930s, another Harvard economist -- former U.S. Treasury Secretary Lawrence Summers -- revived the phrase to capture basically the same idea. 3. Are they the same thing? Essentially, yes. Japanification can be seen as a subset of secular stagnation, with characteristics matching those that have specifically plagued Japan. The country’s rapidly aging and shrinking population has contributed to the slowdown of economic activity, and to a high saving-low investment environment despite ultra-low interest rates. The Bank of Japan also complains about a deflationary mindset that has taken hold of consumers and companies that inhibits higher spending or higher prices. Japan’s example offers other countries an unsettling vision of their possible future. “We’re essentially at the Japanese place,” Summers told Bloomberg Television on March 12. “That’s a place that’s very hard to get out of.” (my note: the future for all developed countries is Japan) [1] https://www.bloomberg.com/news/articles/2020-01-17/japanification-secular-stagnation-and-bad-bad-news-quicktake https://www.bloomberg.com/news/articles/2020-01-17/japanific...

pydry 5y ago
The alternative is extremely straightforward - ramp up public spending on infrastructure and social services and increase the minimum wage. You can do this essentially without any inhibitions to growth until inflation hits about 7%. Downside : it'll get a lot of very wealthy people seeing red and will scare upper middle classes who are more used to their security being provided by assets rather than social services.
- eli_gottlieb 5y ago
  Or if you really want the wealthy to see red, just deflate the damned asset bubbles. Cancel the underlying debts. Just null the whole damn thing. If you bet on real-estate prices or bank stocks or whatever rising 15% per annum when the economy was growing at 2.1% per annum, you eat the loss.
  - krrrh 5y ago
    I don't want anyone to see red, but this is probably the better path forward. OP's suggestion amounts to an official policy of stagflation, and that has huge drawbacks. If we let inflation run away eventually we're going to need another Volker to break its back.
  - frockington1 5y ago
    How would you cancel the underlying debts and maintain any semblance of order?
    - eli_gottlieb 5y ago
      Honestly? I'd just void them, nationalize any banks that go under, and give everyone who's actually using the underlying assets free-and-clear ownership. If you bought a house in the middle of a bubble in 2020, good job, you get a house and your mortgage is cancelled. The Sunk Cost Fallacy is a fallacy for a reason: there is always ultimately someone who pays for a speculative bubble out of their own use-values, and that's the someone who should be made whole, not the speculators. And again, I don't mean to be inflammatory (well ok, I do), but I really feel that constantly reflating asset bubbles for the rest of time, rather than accepting a one-time severe penalty whose moral hazard applies only to people who need things for their use-value, really is a Sunk Cost Fallacy that amounts to throwing good money after bad.

paulpauper 5y ago

People have been saying this since 2010. I think it's much more likely that negative yields are the new normal. I expect <10yr yields to go negative in the US eventually. The fed was able to tighten rates in 2016-2017 without anyting bad happening. Everyone keeps thinking things will end badly. Maybe they won't. My $ is on the latter.

deleted 5y ago
[deleted]
da_big_ghey 5y ago
Because it never has made an full recovering. 2016 fed only started on making lower balance sheet but never making much progress: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... Interest rate are similar: https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/FEDFUNDS Europe even worse than these above. We leave us without tools for economic troubles when we are declining to raise interest rate and sell assets on business cycle peak.
- dsomers 5y ago
  How does Europe have it worse when the debt to GDP ratio of the combined Eurozone federal governments for example is lower than the US fed? Further, most eurozone countries, like Italy don’t have sub national debt(its regions and cities can’t legally have debt), where as states like California are massively in debt, but that sub national debt in the US is never calculated in debt ratios. Further, the last time I checked, debt held by private households in the US is also much higher on average.
  - da_big_ghey 5y ago
    In time of an economic crises, Municipality have a much simpler making of bankruptcy than national government. Same on household. But I call Eurozone worse because ECB have less room on moving interest rate so fewer tools. My above point more was that both are in badly because of never recovering after the previous issues.

nabla9 5y ago

> inflation Inflation is the only good thing in this. It's finally close to Euroarea target. Unfortunately it wild likely slow down within a 12 - 18 months again.