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It is a combination of inappropriate fiscal and monetary stimulus that led us to this current predicament. And it is far from over, because inflation is a laggi

It is a combination of inappropriate fiscal and monetary stimulus that led us to this current predicament. And it is far from over, because inflation is a lagging indicator, meaning it will not be fully realized until much much later. The addiction the American economy has to stimulus is not unlike a heroin addict. If you were to cut government spending drastically, or raise interest rates dramatically, the economy would suffer terrible withdrawals and most likely cease to function. Conversely, if you stay the course and continue with both fiscal and monetary stimulus, the economy will overdose, most likely causing it to cease to function. I do not envy our politicians and central bankers. They are screwed either way. And I wouldn’t be surprised if a lot of them flee the country when the US Balkanizes.

imtringued 5y ago
There is no room for moral interpretations in economics. The economy is not a living being. Interest rates are low because investors and savers accept them to be low. If they were truly too low then companies would borrow and invest until full employment happens and wages go up at which point inflation would go up and so would the interest rate. No such thing happens. Germany has a debt brake and low debt to GDP because they are scared of the interest boogeyman and the only thing that happened is that the yield is zero or negative for every duration up to 30 year government bonds. A lot of people want to save money nowadays which puts downward pressure on interest rates. If you were to raise interest rates then savers would save even more and the economy wouldn't die from withdrawal effects, it would die from a plain lack of money in the real part of the economy because saving money would be more profitable than doing real work.
- makomk 5y ago
  Interest rates are low because the Fed has signalled that if the market charges large companies too much to borrow money, they'll just print money and lend it to those companies instead in order to drive interest down to a more acceptable level. Well, that's a bit of a simplification, but it's basically how the Fed's bond-buying program works.

imtringued 5y ago

There is no room for moral interpretations in economics. The economy is not a living being. Interest rates are low because investors and savers accept them to be low. If they were truly too low then companies would borrow and invest until full employment happens and wages go up at which point inflation would go up and so would the interest rate. No such thing happens. Germany has a debt brake and low debt to GDP because they are scared of the interest boogeyman and the only thing that happened is that the yield is zero or negative for every duration up to 30 year government bonds. A lot of people want to save money nowadays which puts downward pressure on interest rates. If you were to raise interest rates then savers would save even more and the economy wouldn't die from withdrawal effects, it would die from a plain lack of money in the real part of the economy because saving money would be more profitable than doing real work.

makomk 5y ago
Interest rates are low because the Fed has signalled that if the market charges large companies too much to borrow money, they'll just print money and lend it to those companies instead in order to drive interest down to a more acceptable level. Well, that's a bit of a simplification, but it's basically how the Fed's bond-buying program works.