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> QE requires low interest rates as I understand it. It’s the other way around. QE lowers interest rates; that’s the main purpose. The idea is that low interes

> QE requires low interest rates as I understand it. It’s the other way around. QE lowers interest rates; that’s the main purpose. The idea is that low interest rates force investment in risky ventures (since safe ones are offering low yields) and those risky investments on net will generate excess economic growth.

nybble41 5y ago
The problem being, of course, that those risky investments were considered "risky" for a reason. A fair assessment, in the absence of forced incentives, would say they're more of a net liability than a net asset. Better than having your funds confiscated, perhaps, but otherwise not worth considering. When they fail (as many of them inevitably will) those failed investments result in waste and economic decline, not growth. And as usual the less-sophisticated investors will bear the lion's share of the losses.
- bradleyjg 5y ago
  I wouldn’t say that people are entitled to a safe investment option that offers a decent yield, but on the other hand I’m also skeptical of more than a decade of what was supposed to be extraordinary intervention.
  - nybble41 5y ago
    I also wouldn't say that anyone is entitled to a safe investment option, but they are entitled to non-interference—which includes the various rules and regulations which keep people (and especially those with less resources) tied to the US Dollar even as it's diluted at an ever-increasing pace. And without those rules and regulations anything remotely like QE would be a quick route to economic (and political) suicide, rather than the slow-but-inevitable decline we see today.
  - hackingforfun 5y ago
    I think it would be great if cash was a safe option. I.e. the rates offered would be higher than inflation, so that the value of cash is not eroded. QE leads to people investing in riskier assets, treating stocks like a savings account, which to me does not seem right.
- hackingforfun 5y ago
  I agree and think the QE from March 2020 only lead people to believe that stocks are safe assets. Then again if The Fed keeps printing, maybe it all just keeps going.
  - lotsofpulp 5y ago
    The QE from multiple times in previous decades should also work to help believe stocks are safe assets. And why wouldn’t it? As long as USA is relatively stable compared to other countries, and USD is desirable relative to other currencies, then I think it is reasonable to consider low cost broad market index funds to be inflation protected savings accounts on a 3+ year investment horizon.
cies 5y ago
> those risky investments on net will generate excess economic growth. Economic growth comes from increased consumer spending. Not from investment. We will all learn that lesson very soon.
- xxpor 5y ago
  This is the most frustrating thing about the current situation. We finally juiced the economy in a way that we've created a supply side constraint for the first time since at least 2000! People finally feel free to quit their jobs and demand higher wages! Of course, if you're a media company owner who's friends with other billionaires, you don't like this. So all of the coverage has been almost exclusively negative. Biden isn't helping himself by appearing to do nothing, but there's a lot of upside here.
- coliveira 5y ago
  That's right, the only thing PE is accomplishing is to inflate asset valuation, but the increase in economic activity is very marginal without robust consumer spending.
- adam_arthur 5y ago
  It's a combination of both. Consider Rivian which just went public at ~80B valuation (on revenue of 0, mind you). They raised ~10B dollars through investor capital and can now use that to create factories, hire employees and so on. Further, they can issue more shares down the line to finance their growth. I agree that consumer demand is required to grow aggregate revenues/earnings, and create a stably higher economy. But in theory using investment capital to invest into productive capacity puts upwards pressure on wages, thus longer term consumption. However, when capital is misallocated it may not result in productive growth.
- bradleyjg 5y ago
  That’s a pretty silly thing to say in such a blanket way. R&D creates entire new segments of the economy.

nybble41 5y ago

The problem being, of course, that those risky investments were considered "risky" for a reason. A fair assessment, in the absence of forced incentives, would say they're more of a net liability than a net asset. Better than having your funds confiscated, perhaps, but otherwise not worth considering. When they fail (as many of them inevitably will) those failed investments result in waste and economic decline, not growth. And as usual the less-sophisticated investors will bear the lion's share of the losses.

bradleyjg 5y ago
I wouldn’t say that people are entitled to a safe investment option that offers a decent yield, but on the other hand I’m also skeptical of more than a decade of what was supposed to be extraordinary intervention.
- nybble41 5y ago
  I also wouldn't say that anyone is entitled to a safe investment option, but they are entitled to non-interference—which includes the various rules and regulations which keep people (and especially those with less resources) tied to the US Dollar even as it's diluted at an ever-increasing pace. And without those rules and regulations anything remotely like QE would be a quick route to economic (and political) suicide, rather than the slow-but-inevitable decline we see today.
- hackingforfun 5y ago
  I think it would be great if cash was a safe option. I.e. the rates offered would be higher than inflation, so that the value of cash is not eroded. QE leads to people investing in riskier assets, treating stocks like a savings account, which to me does not seem right.
hackingforfun 5y ago
I agree and think the QE from March 2020 only lead people to believe that stocks are safe assets. Then again if The Fed keeps printing, maybe it all just keeps going.
- lotsofpulp 5y ago
  The QE from multiple times in previous decades should also work to help believe stocks are safe assets. And why wouldn’t it? As long as USA is relatively stable compared to other countries, and USD is desirable relative to other currencies, then I think it is reasonable to consider low cost broad market index funds to be inflation protected savings accounts on a 3+ year investment horizon.

cies 5y ago

> those risky investments on net will generate excess economic growth. Economic growth comes from increased consumer spending. Not from investment. We will all learn that lesson very soon.

xxpor 5y ago
This is the most frustrating thing about the current situation. We finally juiced the economy in a way that we've created a supply side constraint for the first time since at least 2000! People finally feel free to quit their jobs and demand higher wages! Of course, if you're a media company owner who's friends with other billionaires, you don't like this. So all of the coverage has been almost exclusively negative. Biden isn't helping himself by appearing to do nothing, but there's a lot of upside here.
coliveira 5y ago
That's right, the only thing PE is accomplishing is to inflate asset valuation, but the increase in economic activity is very marginal without robust consumer spending.
adam_arthur 5y ago
It's a combination of both. Consider Rivian which just went public at ~80B valuation (on revenue of 0, mind you). They raised ~10B dollars through investor capital and can now use that to create factories, hire employees and so on. Further, they can issue more shares down the line to finance their growth. I agree that consumer demand is required to grow aggregate revenues/earnings, and create a stably higher economy. But in theory using investment capital to invest into productive capacity puts upwards pressure on wages, thus longer term consumption. However, when capital is misallocated it may not result in productive growth.
bradleyjg 5y ago
That’s a pretty silly thing to say in such a blanket way. R&D creates entire new segments of the economy.