8 ms·

This is being practiced successfully throughout the world since the Great Depression times. Would love to hear when do you expect this system to collapse?

klipt 5y ago
How far negative can you go before it becomes ridiculous? If your bank has -50% interest, is that not effectively the same as hyperinflation?
- lifty 5y ago
  But we don't need money, the government can tell us exactly what to do and where to go work, so that way we can run the economy at 100% efficiency. /s
- throwaway2037 5y ago
  Considering that central banks for highly industrialised, wealthy nations normally move in 25bp increments, moving from -50bp to -50,000bp seems... well, a lot of central bank meetings. Are you proposing run away deflation? We have never seen it since the industrial revoluation stated. If the risk is real, why aren't we seeing more academic papers about this subject?
- wcoenen 5y ago
  It can continue until people start withdrawing physical cash in large amounts, which will happen when the negative rate starts outweighing the cost and risk of storing cash. After that, further decreases of the interest rate can only work if cash withdrawals are restricted to prevent bank runs, or alternatively if the value of physical cash and digital deposits are decoupled. The IMF has posted something about the latter option[1]. [1] https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-negative-interest-rates-work/ https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-nega...
- imtringued 5y ago
  If interest is -50% those bonds must truly be worthless. Seriously, if you can't find solvent borrowers at -49% something is really wrong with your economy.
eloff 5y ago
With interest rates trending ever lower since then. The only reason to hold government debt right now is to park large amounts of cash that can't otherwise be parked. Bonds are a terrible investment now. What happens when the only way the state can sell debt is to print the money and buy it itself? What happens in the next crises when we need to stimulate the economy and rates are still negative? At some point you can't keep kicking the can down the road. When do we reach that point? Are we there now? I'm not a doom and gloom kind of fellow, but this does not appear to be sustainable to me. As with climate change, destruction of ecosystems, and draining groundwater reserves, all unsustainable practices come to an end. Abruptly if not planned for. It looks like we're nearing that point with monetary policy.
- davidgay 5y ago
  >With interest rates trending ever lower since then. Clearly not, the peak was in 1981 which is more than 50 years after the Great Depression: https://advisor.visualcapitalist.com/us-interest-rates/ https://advisor.visualcapitalist.com/us-interest-rates/
  - vineyardmike 5y ago
    >>>With interest rates trending ever lower since then. We are at crazy lows compared to most of this time frame.
  - eloff 5y ago
    That's missing the forest for the trees. No, it's not a continuous straight line down. But the trendline is, which is what I talked about.
grey-area 5y ago
Maybe around the time all restraint has been abandoned - assets held by the Fed have expanded by 8x in the last 10 years (the story is the same for most large central banks). https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL We already see the impact in massive asset price inflation over the last decade, a distorted bond market, growing inequality, an inefficient stock market, and a proliferation of scams and fraud. This is not going to end well and MMT is not a panacea. How do we now leave ZIRP and QE without crashing markets and entering another depression? They have already tried several times to exit and had to abandon it.
- throwaway2037 5y ago
  Why doesn't the US/EU/UK/Japan all have run away inflation? And, what is your alternative plan to quantitative easing (QE)?
  - dnautics 5y ago
    default on the currency and never borrow again. Start following a policy of: Pay for everything this year using last year's tax receipts.
    - throwaway2037 5y ago
      "default on the currency and never borrow again" I am struggling to believe this is a serious suggestion. Can you please (oh please HN don't down vote me!) provide more details? Almost all highly industrialised, wealthy nations are heavily dependent upon trade. If you default on your national debts to foreigners, they are very unlikely to want to trade with you in the (near) future. How to do you propose to overcome this issue? See Argentina!
      - dnautics 5y ago
        oh there is no doubt that everyone will be pissed off at the US for defaulting on the dollar since debts are denominated in it. But honestly, TINA. Due to demographics (we had milennials) the US is one of a few robust, rich, markets where you can sell your sh*t, so people will still want to trade with americans, regardless of what the government does. Finally, the US is not as dependent on foreign trade as you think. It has the lowest GDP:trade ratio of any country in G20 (worldwide it is in the very bottom: less than cuba and more than pakistan, and only above nigeria, afghanistan, ethiopia, and sudan). The US is even a net food and energy exporter, so it could probably survive a lowered trade volume. Everyone else would "be rekt", though. It would really suck for ecuador. > See Argentina! Perfect example. The country defaulted and it's honestly not a terrible place to be, considering what it's been through. Not everything is an exact parallel, but compare it to Brazil, where the country inflated instead of defaulted.
istingray 5y ago
This is the equivalent of saying: This is being practiced successfully throughout the world for the last 80 years Does that give you confidence? 80 years doesn't seem long to me.
- ashtonkem 5y ago
  80 years is short enough that we can’t be confident that it’s some rule of human societies, but it’s also much longer than any other recorded bubble has ever lasted. At 80 years the burden of proof is beginning to shift from those who think the system will work tomorrow the same as it worked today, and onto those that are predicting doom and sudden change. I’d also like to point out that prior to the current system, market panics occurred significantly more often than once in 80 years. So if we’re comparing the system we have today and the system that existed 80 years before it, the current system seems measurably more stable.
- throwaway2037 5y ago
  80 years is longer than the average life span of most highly developed economies. In short: It is a lifetime. It seems long to me. And 80 years is roughly 50% of all years of industrialised economies that started around 1850. Recall that the world economy had zero growth per capita until the industrial revolution started around 1850.
  - ashtonkem 5y ago
    80 years is longer than most constitutions. The current French Republic was created in 1958, 63 years ago. In fact 80 years covers three French constitutions. China’s constitution is from 1982, and Finland redid theirs in 2000. Of the countries part of the UN, only 14 countries have a constitutions older than 80 years. The oldest is the US in 1788, and the youngest is Ireland in 1937.
dnautics 5y ago
what is your definition of "success"? Is the divergence between productivity and wage growth success? Also, over and over countries have tried to stimulate their economy with the printing press and had some rather... unsucessful experiences, with extreme examples being yugoslavia, zimbabwe, venezuela. And some more mild but still painful experiences including brazil and argentina. Predicting timeframes is tricky. An inflationary spiral by its very nature is an exponential process, so you can seem fine for a while and then all of a sudden there's no way out except through a singular process and things are really bad.
StanislavPetrov 5y ago
Just because you can't be sure when a ponzi scheme will collapse doesn't mean its not a ponzi scheme.

klipt 5y ago

How far negative can you go before it becomes ridiculous? If your bank has -50% interest, is that not effectively the same as hyperinflation?

lifty 5y ago
But we don't need money, the government can tell us exactly what to do and where to go work, so that way we can run the economy at 100% efficiency. /s
throwaway2037 5y ago
Considering that central banks for highly industrialised, wealthy nations normally move in 25bp increments, moving from -50bp to -50,000bp seems... well, a lot of central bank meetings. Are you proposing run away deflation? We have never seen it since the industrial revoluation stated. If the risk is real, why aren't we seeing more academic papers about this subject?
wcoenen 5y ago
It can continue until people start withdrawing physical cash in large amounts, which will happen when the negative rate starts outweighing the cost and risk of storing cash. After that, further decreases of the interest rate can only work if cash withdrawals are restricted to prevent bank runs, or alternatively if the value of physical cash and digital deposits are decoupled. The IMF has posted something about the latter option[1]. [1] https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-negative-interest-rates-work/ https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-nega...
imtringued 5y ago
If interest is -50% those bonds must truly be worthless. Seriously, if you can't find solvent borrowers at -49% something is really wrong with your economy.

eloff 5y ago

With interest rates trending ever lower since then. The only reason to hold government debt right now is to park large amounts of cash that can't otherwise be parked. Bonds are a terrible investment now. What happens when the only way the state can sell debt is to print the money and buy it itself? What happens in the next crises when we need to stimulate the economy and rates are still negative? At some point you can't keep kicking the can down the road. When do we reach that point? Are we there now? I'm not a doom and gloom kind of fellow, but this does not appear to be sustainable to me. As with climate change, destruction of ecosystems, and draining groundwater reserves, all unsustainable practices come to an end. Abruptly if not planned for. It looks like we're nearing that point with monetary policy.

davidgay 5y ago
>With interest rates trending ever lower since then. Clearly not, the peak was in 1981 which is more than 50 years after the Great Depression: https://advisor.visualcapitalist.com/us-interest-rates/ https://advisor.visualcapitalist.com/us-interest-rates/
- vineyardmike 5y ago
  >>>With interest rates trending ever lower since then. We are at crazy lows compared to most of this time frame.
- eloff 5y ago
  That's missing the forest for the trees. No, it's not a continuous straight line down. But the trendline is, which is what I talked about.

grey-area 5y ago

Maybe around the time all restraint has been abandoned - assets held by the Fed have expanded by 8x in the last 10 years (the story is the same for most large central banks). https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL We already see the impact in massive asset price inflation over the last decade, a distorted bond market, growing inequality, an inefficient stock market, and a proliferation of scams and fraud. This is not going to end well and MMT is not a panacea. How do we now leave ZIRP and QE without crashing markets and entering another depression? They have already tried several times to exit and had to abandon it.

throwaway2037 5y ago
Why doesn't the US/EU/UK/Japan all have run away inflation? And, what is your alternative plan to quantitative easing (QE)?
- dnautics 5y ago
  default on the currency and never borrow again. Start following a policy of: Pay for everything this year using last year's tax receipts.
  - throwaway2037 5y ago
    "default on the currency and never borrow again" I am struggling to believe this is a serious suggestion. Can you please (oh please HN don't down vote me!) provide more details? Almost all highly industrialised, wealthy nations are heavily dependent upon trade. If you default on your national debts to foreigners, they are very unlikely to want to trade with you in the (near) future. How to do you propose to overcome this issue? See Argentina!
    - dnautics 5y ago
      oh there is no doubt that everyone will be pissed off at the US for defaulting on the dollar since debts are denominated in it. But honestly, TINA. Due to demographics (we had milennials) the US is one of a few robust, rich, markets where you can sell your sh*t, so people will still want to trade with americans, regardless of what the government does. Finally, the US is not as dependent on foreign trade as you think. It has the lowest GDP:trade ratio of any country in G20 (worldwide it is in the very bottom: less than cuba and more than pakistan, and only above nigeria, afghanistan, ethiopia, and sudan). The US is even a net food and energy exporter, so it could probably survive a lowered trade volume. Everyone else would "be rekt", though. It would really suck for ecuador. > See Argentina! Perfect example. The country defaulted and it's honestly not a terrible place to be, considering what it's been through. Not everything is an exact parallel, but compare it to Brazil, where the country inflated instead of defaulted.

istingray 5y ago

This is the equivalent of saying: This is being practiced successfully throughout the world for the last 80 years Does that give you confidence? 80 years doesn't seem long to me.

ashtonkem 5y ago
80 years is short enough that we can’t be confident that it’s some rule of human societies, but it’s also much longer than any other recorded bubble has ever lasted. At 80 years the burden of proof is beginning to shift from those who think the system will work tomorrow the same as it worked today, and onto those that are predicting doom and sudden change. I’d also like to point out that prior to the current system, market panics occurred significantly more often than once in 80 years. So if we’re comparing the system we have today and the system that existed 80 years before it, the current system seems measurably more stable.
throwaway2037 5y ago
80 years is longer than the average life span of most highly developed economies. In short: It is a lifetime. It seems long to me. And 80 years is roughly 50% of all years of industrialised economies that started around 1850. Recall that the world economy had zero growth per capita until the industrial revolution started around 1850.
- ashtonkem 5y ago
  80 years is longer than most constitutions. The current French Republic was created in 1958, 63 years ago. In fact 80 years covers three French constitutions. China’s constitution is from 1982, and Finland redid theirs in 2000. Of the countries part of the UN, only 14 countries have a constitutions older than 80 years. The oldest is the US in 1788, and the youngest is Ireland in 1937.

dnautics 5y ago

what is your definition of "success"? Is the divergence between productivity and wage growth success? Also, over and over countries have tried to stimulate their economy with the printing press and had some rather... unsucessful experiences, with extreme examples being yugoslavia, zimbabwe, venezuela. And some more mild but still painful experiences including brazil and argentina. Predicting timeframes is tricky. An inflationary spiral by its very nature is an exponential process, so you can seem fine for a while and then all of a sudden there's no way out except through a singular process and things are really bad.

StanislavPetrov 5y ago

Just because you can't be sure when a ponzi scheme will collapse doesn't mean its not a ponzi scheme.