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> The economy has also grown drastically since then. No it hasn't. Real GDP: Q4 2019 19.20 Trillion Q2 2022 19.69 Trillion > It doesn't appear that the Fed

> The economy has also grown drastically since then. No it hasn't. Real GDP: Q4 2019 19.20 Trillion Q2 2022 19.69 Trillion > It doesn't appear that the Fed needs to wind down much, if any, of that liquidity at all, since it seems it's been absorbed perfectly by the global economy. This comment is extremely misleading. For starters, I don't know how you can say that. It's obvious it wasn't absorbed perfectly because we experienced bubbles in many markets. And those bubbles have caused harm to large groups of people. For example; crypto, equities, housing, etc. Let's just dive into housing. We have a system that has disproportionately enriched incumbent homeowners at the expense of new entrants. 2 years ago: 30-yr mortgage rate was 2.87% & median existing home price in the US was $310k. Today: 30-yr mortgage rate is 6.02% & median home price is $390k. Increase in monthly payments from $1,029 to $1,872. This is regressive and has exacerbated inequality. The magnitude of this will be lasting. Real wages have not kept pace. I also suspect the fed will reverse course but that's because the American (and the rest of the American led global) system now expect it. Our markets are dysfunctional and depend on this centralized control. It would take too much time and pain to return markets to their natural pricing.

taylodl 4y ago
Your GDP figures are misleading also. Your comparison of Q4 2019 GDP and Q2 2022 GDP doesn't reflect the fact that the measuring stick, the USD, has grown considerably in that timeframe. The USD has been increasing in value and the GDP has increased as measured in USD in that timeframe. The OP's point was the inflation being experienced today isn't primarily due to monetary policy issues but actual supply contraction and the Fed's response of using monetary policy to resolve a supply issue is having several negative consequences, such as making the housing crisis worse as you point out.
ponow 4y ago
What would it take to have "natural pricing"? Short of radical proposals like going back to the gold standard or switching to crypto, what way could the Fed operate that would allow "natural pricing"? What if the Fed targeted 0% inflation, instead of 2%? I realize that inflation has many definitions, but I got the impression that they're reasonably correlated over long periods of time. With a zero-percent inflation target, what consequences would we expect? I think we would need higher interest rates on average, for starters. This would temper the housing problem. It would also reduce total debt, and total debt increases are associated with financial instability.
- IG_Semmelweiss 4y ago
  I dont think parent was making a confused point. Natural pricing simply means whatever the market was prior to COVID , with all its imperfection, including the central banks' 2% inflation target

taylodl 4y ago

Your GDP figures are misleading also. Your comparison of Q4 2019 GDP and Q2 2022 GDP doesn't reflect the fact that the measuring stick, the USD, has grown considerably in that timeframe. The USD has been increasing in value and the GDP has increased as measured in USD in that timeframe. The OP's point was the inflation being experienced today isn't primarily due to monetary policy issues but actual supply contraction and the Fed's response of using monetary policy to resolve a supply issue is having several negative consequences, such as making the housing crisis worse as you point out.

ponow 4y ago

What would it take to have "natural pricing"? Short of radical proposals like going back to the gold standard or switching to crypto, what way could the Fed operate that would allow "natural pricing"? What if the Fed targeted 0% inflation, instead of 2%? I realize that inflation has many definitions, but I got the impression that they're reasonably correlated over long periods of time. With a zero-percent inflation target, what consequences would we expect? I think we would need higher interest rates on average, for starters. This would temper the housing problem. It would also reduce total debt, and total debt increases are associated with financial instability.

IG_Semmelweiss 4y ago
I dont think parent was making a confused point. Natural pricing simply means whatever the market was prior to COVID , with all its imperfection, including the central banks' 2% inflation target