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I've been saying this for the last 5 years. People don't realize how powerful the 'money printer' is. All the money which exists in the system was created out o

I've been saying this for the last 5 years. People don't realize how powerful the 'money printer' is. All the money which exists in the system was created out of nothing and injected into the economy through a few specific channels (mostly as credit backed by debt). IMO, everything in modern society is influenced in some way by interest rates; even culture and morality. Money printing can distort the market pricing mechanism and distort all economic activities. IMO, a low interest rate environment is about luck, first mover advantage and media exposure. A high interest rate environment is about value creation. IMO, as interest rates increase, many successful people of the past decade are going to wake up to a new reality; those who have the humility to understand that they were lucky will be able to adapt their strategy to suit the new environment but most will go out of business. I believe that in this new high interest environment, some people who were previously unsuccessful will thrive while some who used to be successful will start failing. The majority of investors will not be able to escape the mindset that they should only invest in successful people (since that has worked consistently in the past) and they will end up chasing loss after loss and not understand why their proven strategy of track-record-based investing is no longer working.

benjaminwootton 4y ago
I agree with your thesis that genuine value creation will become more important. I think this is a more exciting market to operate in as opposed to one where we simply need to raise and spend cash as quickly as possible.
- jongjong 4y ago
  For the first time in my career I'm also feeling cautiously optimistic about the future. I'm one of these people who was absolutely terrible in this low-rate environment. At least I got to learn about some of the reasons why I absolutely suck at it. One of my worst character traits is that I'm missing the hair-trigger opportunist factor (AKA "you've got one shot" factor) and this is precisely one of the traits which was rewarded heavily by the low-rate environment since it tends to reward first movers disproportionately.
  - prox 4y ago
    What are some the skills or things you know that make you successful in this new environment, if I may ask? I think I might be one of those, but I lack the contextual information/knowledge to act on it.
    - jongjong 4y ago
      Well I can't be sure I will be successful in this new environment. Surely there's always luck involved. But I suspect that I will benefit from an environment where capital is spent more carefully. As someone who always bootstraps, it's been tough to compete against large amounts of capital. Too much capital flowing into an industry creates competition which drives up advertising CPC and crushes profit margins in that industry... Especially if those well-funded competitors aren't looking to make a profit themselves. If your competitor is willing to blow all their cash on advertising and allow their profit margins to shrink down to 0, you will also be forced to drop your margins down to 0 in order to remain competitive. If you're bootstrapped and rely on profit margins to sustain yourself, you simply cannot stay afloat in such competitive low-margin environment. With high interest rates, there is an increased incentive for investors to just park their money into savings accounts instead of putting it to work (competing against small businesses) in the markets.
      - abnercoimbre 4y ago
        Are we saying there's a new era of small businesses thriving in the tech / software industry? God I hope so!
- boppo1 4y ago
  > genuine value creation But how do we even know what this is anymore? With more than half the wealth accumulated by the top fraction of society it seems like ultra-luxury goods are going to be the most profitable, but surely that's not actually genuine value creation. And have we strayed too far to achieve that without austerity? How will we pay interest on the national debt?
  - hoseja 4y ago
    Does the top fraction of society ever actually spend significant amounts though. No. Trickle-down has never worked.
    - heartbeats 4y ago
      They don't have to spend it per se; by conventional economic theory, as long as they keep it in the bank, it's enough. Keynes: > Europe was so organized socially and economically as to secure the maximum accumulation of capital. While there was some continuous improvement in the daily conditions of life of the mass of the population, Society was so framed as to throw a great part of the increased income into the control of the class least likely to consume it. The new rich of the nineteenth century were not brought up to large expenditures, and preferred the power which investment gave them to the pleasures of immediate consumption. ... If the rich had spent their new wealth on their own enjoyments, the world would long ago have found such a régime intolerable. But like bees they saved and accumulated, not less to the advantage of the whole community because they themselves held narrower ends in prospect. > Thus this remarkable system depended for its growth on a double bluff or deception. On the one hand the laboring classes accepted ... a situation in which they could call their own very little of the cake that they ... were co-operating to produce. And on the other hand the capitalist classes were allowed to call the best part of the cake theirs and were theoretically free to consume it, on the tacit underlying condition that they consumed very little of it in practice. ... And so the cake increased; but to what end was not clearly contemplated. Individuals would be exhorted not so much to abstain as to defer, and to cultivate the pleasures of security and anticipation. Saving was for old age or for your children; but this was only in theory,—the virtue of the cake was that it was never to be consumed, neither by you nor by your children after you.
nobrains 4y ago
I refer to this as the US 3rd nuclear bomb. Most countries hold USD reserves/bonds. If US prints money, the wealth of all countries holding USD goes down. While the wealth of US increases. Since US started this monetary policy of easy money printing, they have been "bombing" the rest of the world, violence-free, ammunition-free and uranium-free. I am not an American, but if I were, I would be pretty happy about it. Yes, it would affect me and my neighbors, but in the end I would be getting a net benefit. The real beauty is how the other countries don't even fully realize this is happening to them and the people who do realize (finance ministries, central bankers, etc.) are kept rich enough to not talk about it too much.
- bagels 4y ago
  They are trying to replace usd as the reserve currency.
- tomcam 4y ago
  > If US prints money, the wealth of all countries holding USD goes down. While the wealth of US increases. True, yet average Americans lose out because their savings get eaten away by inflation
  - heartbeats 4y ago
    Real interest rates have been positive. Unless you were saving in a mattress, your purchasing power increased.
    - landemva 4y ago
      Not where I have been living in USA. Food and energy and rent in USA far outstripped interest rates on savings accounts or government bonds.
      - heartbeats 4y ago
        But for how long? Past year? Ten years? Century?
tasuki 4y ago
> All the money which exists in the system was created out of nothing People keep saying this. But hasn't it almost always been true, almost everywhere? Apart from some rare exceptions, such as people using livestock as money.
- MomoXenosaga 4y ago
  A bunch of smart Dutch people got the idea of asking people for money which they would pay back with future profits. This managed to fund a war with the Spanish empire that owned almost all silver mines. Paper won against hard currency. And the rest is history.
ngcc_hk 4y ago
You are naive as the m3 is not just m1. The original thinking is that once increase the base it has to cut back. It never did and for some reason (china) the inflation never came! It was until the pandemic underway and masked so much that the world except USA has too late to control the inflation. And putin is not helping. And that firm did not die especially big one does not help, just like russia and later china. The idea that interest rate has to be at least 2% above the inflation will cut and hurt. It is not about the 0 interest rate. But the inflation and the difficulty and having the political will to let the central bank (and they have the clear head) to do the right thing, guy. So far only USA seemed working. And if war in Europe and later in pacific rim ongoing, once again we have USA.
landemva 4y ago
> adapt their strategy to suit the new environment Yes, am raising cash and looking for US government debt to go 10%+ to lock in some sweet risk-free yield.
Eddy_Viscosity2 4y ago
We are barely ticking up to moderate interest rates, I doubt we will ever see high interest rates ever again. Though it'd be interesting to see if your thesis is true.

benjaminwootton 4y ago

I agree with your thesis that genuine value creation will become more important. I think this is a more exciting market to operate in as opposed to one where we simply need to raise and spend cash as quickly as possible.

jongjong 4y ago
For the first time in my career I'm also feeling cautiously optimistic about the future. I'm one of these people who was absolutely terrible in this low-rate environment. At least I got to learn about some of the reasons why I absolutely suck at it. One of my worst character traits is that I'm missing the hair-trigger opportunist factor (AKA "you've got one shot" factor) and this is precisely one of the traits which was rewarded heavily by the low-rate environment since it tends to reward first movers disproportionately.
- prox 4y ago
  What are some the skills or things you know that make you successful in this new environment, if I may ask? I think I might be one of those, but I lack the contextual information/knowledge to act on it.
  - jongjong 4y ago
    Well I can't be sure I will be successful in this new environment. Surely there's always luck involved. But I suspect that I will benefit from an environment where capital is spent more carefully. As someone who always bootstraps, it's been tough to compete against large amounts of capital. Too much capital flowing into an industry creates competition which drives up advertising CPC and crushes profit margins in that industry... Especially if those well-funded competitors aren't looking to make a profit themselves. If your competitor is willing to blow all their cash on advertising and allow their profit margins to shrink down to 0, you will also be forced to drop your margins down to 0 in order to remain competitive. If you're bootstrapped and rely on profit margins to sustain yourself, you simply cannot stay afloat in such competitive low-margin environment. With high interest rates, there is an increased incentive for investors to just park their money into savings accounts instead of putting it to work (competing against small businesses) in the markets.
    - abnercoimbre 4y ago
      Are we saying there's a new era of small businesses thriving in the tech / software industry? God I hope so!
boppo1 4y ago
> genuine value creation But how do we even know what this is anymore? With more than half the wealth accumulated by the top fraction of society it seems like ultra-luxury goods are going to be the most profitable, but surely that's not actually genuine value creation. And have we strayed too far to achieve that without austerity? How will we pay interest on the national debt?
- hoseja 4y ago
  Does the top fraction of society ever actually spend significant amounts though. No. Trickle-down has never worked.
  - heartbeats 4y ago
    They don't have to spend it per se; by conventional economic theory, as long as they keep it in the bank, it's enough. Keynes: > Europe was so organized socially and economically as to secure the maximum accumulation of capital. While there was some continuous improvement in the daily conditions of life of the mass of the population, Society was so framed as to throw a great part of the increased income into the control of the class least likely to consume it. The new rich of the nineteenth century were not brought up to large expenditures, and preferred the power which investment gave them to the pleasures of immediate consumption. ... If the rich had spent their new wealth on their own enjoyments, the world would long ago have found such a régime intolerable. But like bees they saved and accumulated, not less to the advantage of the whole community because they themselves held narrower ends in prospect. > Thus this remarkable system depended for its growth on a double bluff or deception. On the one hand the laboring classes accepted ... a situation in which they could call their own very little of the cake that they ... were co-operating to produce. And on the other hand the capitalist classes were allowed to call the best part of the cake theirs and were theoretically free to consume it, on the tacit underlying condition that they consumed very little of it in practice. ... And so the cake increased; but to what end was not clearly contemplated. Individuals would be exhorted not so much to abstain as to defer, and to cultivate the pleasures of security and anticipation. Saving was for old age or for your children; but this was only in theory,—the virtue of the cake was that it was never to be consumed, neither by you nor by your children after you.

nobrains 4y ago

I refer to this as the US 3rd nuclear bomb. Most countries hold USD reserves/bonds. If US prints money, the wealth of all countries holding USD goes down. While the wealth of US increases. Since US started this monetary policy of easy money printing, they have been "bombing" the rest of the world, violence-free, ammunition-free and uranium-free. I am not an American, but if I were, I would be pretty happy about it. Yes, it would affect me and my neighbors, but in the end I would be getting a net benefit. The real beauty is how the other countries don't even fully realize this is happening to them and the people who do realize (finance ministries, central bankers, etc.) are kept rich enough to not talk about it too much.

bagels 4y ago
They are trying to replace usd as the reserve currency.
tomcam 4y ago
> If US prints money, the wealth of all countries holding USD goes down. While the wealth of US increases. True, yet average Americans lose out because their savings get eaten away by inflation
- heartbeats 4y ago
  Real interest rates have been positive. Unless you were saving in a mattress, your purchasing power increased.
  - landemva 4y ago
    Not where I have been living in USA. Food and energy and rent in USA far outstripped interest rates on savings accounts or government bonds.
    - heartbeats 4y ago
      But for how long? Past year? Ten years? Century?

tasuki 4y ago

> All the money which exists in the system was created out of nothing People keep saying this. But hasn't it almost always been true, almost everywhere? Apart from some rare exceptions, such as people using livestock as money.

MomoXenosaga 4y ago
A bunch of smart Dutch people got the idea of asking people for money which they would pay back with future profits. This managed to fund a war with the Spanish empire that owned almost all silver mines. Paper won against hard currency. And the rest is history.

ngcc_hk 4y ago

You are naive as the m3 is not just m1. The original thinking is that once increase the base it has to cut back. It never did and for some reason (china) the inflation never came! It was until the pandemic underway and masked so much that the world except USA has too late to control the inflation. And putin is not helping. And that firm did not die especially big one does not help, just like russia and later china. The idea that interest rate has to be at least 2% above the inflation will cut and hurt. It is not about the 0 interest rate. But the inflation and the difficulty and having the political will to let the central bank (and they have the clear head) to do the right thing, guy. So far only USA seemed working. And if war in Europe and later in pacific rim ongoing, once again we have USA.

landemva 4y ago

> adapt their strategy to suit the new environment Yes, am raising cash and looking for US government debt to go 10%+ to lock in some sweet risk-free yield.

Eddy_Viscosity2 4y ago

We are barely ticking up to moderate interest rates, I doubt we will ever see high interest rates ever again. Though it'd be interesting to see if your thesis is true.