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Totally agree about the moral hazard problem. And I'll have to research how direct price inflation is going to prevent the fed from being able to continue to lo

• mindslight 5y ago
  It's straightforward. One of their chief mandates is to keep the CPI at a specific level of price inflation (2%). But their chief tool of lowering interest rates doesn't directly affect the CPI, as all the new money goes to the financial industry rather than to consumers. The CPI only goes up after that new money gets divvied up and spent on new ventures, and after asset valuations finally make it into the monthly cost of housing (which only occurs after they've raised the rates for other reasons, as (new) mortgage payments stay the same until then).
  • fzzzy 5y ago
    But don't they want the cpi to go down right now? They can only do that by shredding dollars right?
    • mindslight 5y ago
      But they don't want it to go up much more than 2% either. So when it does, they'll have to stop lowering rates as they've been doing over the past three decades. They have been able to keep lowering rates because technology and offshoring make real prices ever cheaper, while faux austerity keeps the newly printed money out of the hands of consumers. This has allowed them to point to the CPI and say that inflation is still low, despite higher asset inflation. Direct consumer stimulus stops their ability to keep ignoring inflation, by causing CPI inflation instead of asset inflation.