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Counterpoint: Stability is a critical optimization criteria, but should be balanced with the need to maintain "dynamism". New ideas can't win if any time the

• nickff 5y ago
  >"Maintaining employment is necessary for long-term societal stability, maintaining Goldman Sachs is not." The central banks rely on investment banks and other large institution to translate the low overnight rates into reduced commercial and consumer rates. The low interest rate, high inflation rate policies are extremely beneficial to the Goldmans of the world.
  • oivey 5y ago
    The low interest rate is beneficial to Goldman Sachs, but the high inflation rate is not. They are an investment bank that holds assets, and those assets are devalued by inflation. The the interest rate and inflation may have some correlation, but the last 15+ years have shown the correlation isn’t all that strong.
• jbay808 5y ago
  I fully agree with your counterpoint, except that I don't think it's a counterpoint, because to my mind, such a focus on short-term stability (ie, bailouts) are a major driver of long-term instability! The reasoning for that seems inexorable to me. Once you lop off the deeply negative tail of any risk curve, market actors will gorge themselves on investments that have a positive average payoff but large systemic tail risks, to exactly the degree that they're confident they won't have to bear those costs. (See the Canadian housing market where banks are happy to offer cheap mortgages with just 5% downpayments, a downpayment that represents mere months of price appreciation, knowing that they're government-insured in the event of a widespread market downturn). This will continue until it stops being profitable, which is when the overall level of risk and leverage has increased to the point that even the government can't guarantee those risks anymore. So a small crash gets delayed but magnified into a big one. Long-term stability sacrificed to short term stability. That's the cost of "moral hazard", which is a bad name because it sounds like a random risk that, if we're lucky, we might avoid. But it's actually another costly conserved quantity that accumulates and accumulates.
  • lumost 5y ago
    Tbh I think central bankers were betting that 0 interest rates would have inflated the economy out of bad debts. The pass on effect never materialized and asset managers went crazy. If inflation hit 10% in ‘08 the banks would have been hammered on paper due to fixed income bets, but would never have been in danger of running out of cash due to new deposits.
    • jbay808 5y ago
      I don't think it's as easy as people think to inflate away debts, because you have to do it without incentivizing debt growth at the same time. Maintaining high inflation and low interest rates strongly incentivizes new debt creation, so the debt burden doesn't decrease.
• xapata 5y ago
  The old idea was that corporations should survive at the expense of temporarily high unemployment.