3 ms·

The shock of the onset and "anti"-shock of the fizzling of the pandemic must be the most dramatic economic experiment for some time. Its like throwing a stone

The shock of the onset and "anti"-shock of the fizzling of the pandemic must be the most dramatic economic experiment for some time. Its like throwing a stone in a stagnant pond and watching the waves go up and down. Except the economic fluid is far more complex, full of lags and hysteresis. E.g. shipping rates have gone down but not the costs (indicated as fuel and labor). Why not? Nobody wants to leave a crisis go to waste (i.e. groups of people will try to maximize and make their monetary gains permanent) but there are restoring forces towards the underlying equilibrium supply and demand balances.

Culonavirus 3y ago
Speaking of economic fluid, here's a fun fact: Value of assets on the balance sheet of the Federal Reserve in 2007: 0.9 trillion Value of assets on the balance sheet of the Federal Reserve in 2022: 9 trillion
- gambiting 3y ago
  I don't really understand what this implies?
  - nologic01 3y ago
    Refers to excess liquidity (which may have played a role in inflation but may also have saved the day from the deepest depression) The anti-liquidists (also gold bugs or digital gold bugs) never came to terms with the fact that the human economy - like the human body - is mostly made out of water. There is a goldilocks hydration level but its not a simple thing to identify as there are countless other complex things going on.
  - atomicnumber3 3y ago
    It's a combination of the federal reserve both having bought lots of assets and also made a lot of money on the assets it's holding. It's a bit weird. The federal reserve made money on the assets it held in the 2008 crisis. (Buy low, sell high!)
    - eru 3y ago
      Though more properly, you would need to look at the risk adjusted returns, instead of just the absolute returns.
      - atomicnumber3 3y ago
        Further weird because the federal reserve issues the currency in which the assets are marketed... so was there really any risk, in the usual sense?
        eru 3y ago
        Yes, there was a risk. You can say that borrowing from the markets is riskless for the Fed, because it can always pay back with the printing press. But lending to the markets is still risky: because market participants don't have a printing press to help fall back on. (In this case, the Fed often also bought some assets and later sold them; that's financially equivalent enough to lending that it doesn't make a difference here. Especially if the assets you are buying and selling are bonds.)
  - dkjaudyeqooe 3y ago
    Some people reflexively blame everything bad that happens in the economy on the Fed's QE, usually because they're outraged by it though they have no reasoned justification for feeling that way. It's like a conspiracy theory, except the "conspiracy" part is actually true (the Fed was exactly trying to create inflation), but the consequences are fanciful and legion.
    - eru 3y ago
      Well, I blame a lot of bad things that happened, specifically the slow recovery from the 2008 recession, on the Fed not doing enough QE! (Seemingly) paradoxically, the big Fed balance sheet is also a consequence of not doing enough QE fast enough. Of course, the Fed isn't responsible for everything. For example, the Fed has nothing to do with the Jones Act.
- eru 3y ago
  Interest on excess reserves explains much of that change. In the olden days of 2007, banks would only hold as many reserves at the Fed as they legally needed. They would instead invest any extra (or make their deposits less attractive, so that they have fewer excess reserves). In 2008 the Fed started paying interest on reserves above the legally minimum (so called excess reserves). Excess reserves parked at the Fed don't contribute to the economy, but are still counted in the Fed balance sheet. You can see on https://fred.stlouisfed.org/graph/?g=15mr6 https://fred.stlouisfed.org/graph/?g=15mr6 how the level of reserves at the Fed shot from about 0.050 trillion USD in 2007 to about 3 trillion USD today.
eru 3y ago
> Except the economic fluid is far more complex, full of lags and hysteresis. E.g. shipping rates have gone down but not the costs (indicated as fuel and labor). Why not? It's much weirder. Economics is even fuller of anti-lags, ie clever economic actors are constantly planning for the future and anticipating. Eg if the Fed announces today, that they are going to run the printing presses red-hot next year, you'd already see inflation starting now. That anticipation is why stock prices started to recover when we were still in the very middle of the pandemic. Contrary to popular opinion, investors are rather long sighted and forward looking. (They just don't always believe managers when they say 'trust me bro, our long term plan might lose money now, but it's totally gonna pay off anytime soon'; and that's why they demand regular quarterly profits from run-of-the-mill management, but let Bezos run Amazon for decades without anything in the way of dividends.)
- nologic01 3y ago
  > Contrary to popular opinion, investors are rather long sighted and forward looking Contrary to popular opinion investors are a very inhomogeneous crowd: From real economy investors, like the shipping company that tries to anticipate long-term global economic supply and demand patterns and orders massively expensive ships that will only be delivered years down the line, to bloomberg types or crypto speculators or HFT algos, that basically just look at financial timeseries going up or down, detached from any economic, environmental or social reality. To abuse the liquid analogy just bit more, the fluid is composed of all sorts of molecules. Heavy ones with lots of inertia but also lots of small scale noise. As things are, the incoherent noise sometimes turns coherent (hypes, manias and other delusions) and then the tail wags the dog (to finally switch metaphor :-)
  - eru 3y ago
    Yes, there's all kinds of people in the market. But those that anticipate the future correctly get rewarded with more money, so that over time the average dollar belongs to a smarter investor.
- dkjaudyeqooe 3y ago
  I'm sure some are profiting handsomely, but as a whole the last 3 years has made business in general look pretty incompetent. They all seemed to zig when they should have zagged and vice versa. It makes you think the professionals are not all they're cracked up to be. I know the pandemic was new and disorienting, but do these people have no contrarian instincts at all? They just look at what everyone else is doing and do that, lest they stand out and be singled out? If you're in a leadership position and you play the "everyone thought X so you can understand why I did too" card you should be fired.
visarga 3y ago
> Except the economic fluid is far more complex, full of lags and hysteresis. You mean it is learning? Hysteresis is "local learning".
- peepeepoopoo6 3y ago
  That's not what that word means. https://en.wikipedia.org/wiki/Hysteresis https://en.wikipedia.org/wiki/Hysteresis
  - nologic01 3y ago
    There is probably some remote connection at the mathematical level but it is fair to say that the amount of "learning" happening in the economy is nowhere close to the amount of brain cells available.
globalise83 3y ago
Yes, the demand shocks of the pandemic restriction and easing of restrictions, combined with the bullwhip effect (https://en.wikipedia.org/wiki/Bullwhip_effect https://en.wikipedia.org/wiki/Bullwhip_effect) have created a very interesting case study in industrial dynamics

Culonavirus 3y ago

Speaking of economic fluid, here's a fun fact: Value of assets on the balance sheet of the Federal Reserve in 2007: 0.9 trillion Value of assets on the balance sheet of the Federal Reserve in 2022: 9 trillion

gambiting 3y ago
I don't really understand what this implies?
- nologic01 3y ago
  Refers to excess liquidity (which may have played a role in inflation but may also have saved the day from the deepest depression) The anti-liquidists (also gold bugs or digital gold bugs) never came to terms with the fact that the human economy - like the human body - is mostly made out of water. There is a goldilocks hydration level but its not a simple thing to identify as there are countless other complex things going on.
- atomicnumber3 3y ago
  It's a combination of the federal reserve both having bought lots of assets and also made a lot of money on the assets it's holding. It's a bit weird. The federal reserve made money on the assets it held in the 2008 crisis. (Buy low, sell high!)
  - eru 3y ago
    Though more properly, you would need to look at the risk adjusted returns, instead of just the absolute returns.
    - atomicnumber3 3y ago
      Further weird because the federal reserve issues the currency in which the assets are marketed... so was there really any risk, in the usual sense?
      - eru 3y ago
        Yes, there was a risk. You can say that borrowing from the markets is riskless for the Fed, because it can always pay back with the printing press. But lending to the markets is still risky: because market participants don't have a printing press to help fall back on. (In this case, the Fed often also bought some assets and later sold them; that's financially equivalent enough to lending that it doesn't make a difference here. Especially if the assets you are buying and selling are bonds.)
- dkjaudyeqooe 3y ago
  Some people reflexively blame everything bad that happens in the economy on the Fed's QE, usually because they're outraged by it though they have no reasoned justification for feeling that way. It's like a conspiracy theory, except the "conspiracy" part is actually true (the Fed was exactly trying to create inflation), but the consequences are fanciful and legion.
  - eru 3y ago
    Well, I blame a lot of bad things that happened, specifically the slow recovery from the 2008 recession, on the Fed not doing enough QE! (Seemingly) paradoxically, the big Fed balance sheet is also a consequence of not doing enough QE fast enough. Of course, the Fed isn't responsible for everything. For example, the Fed has nothing to do with the Jones Act.
eru 3y ago
Interest on excess reserves explains much of that change. In the olden days of 2007, banks would only hold as many reserves at the Fed as they legally needed. They would instead invest any extra (or make their deposits less attractive, so that they have fewer excess reserves). In 2008 the Fed started paying interest on reserves above the legally minimum (so called excess reserves). Excess reserves parked at the Fed don't contribute to the economy, but are still counted in the Fed balance sheet. You can see on https://fred.stlouisfed.org/graph/?g=15mr6 https://fred.stlouisfed.org/graph/?g=15mr6 how the level of reserves at the Fed shot from about 0.050 trillion USD in 2007 to about 3 trillion USD today.

eru 3y ago

> Except the economic fluid is far more complex, full of lags and hysteresis. E.g. shipping rates have gone down but not the costs (indicated as fuel and labor). Why not? It's much weirder. Economics is even fuller of anti-lags, ie clever economic actors are constantly planning for the future and anticipating. Eg if the Fed announces today, that they are going to run the printing presses red-hot next year, you'd already see inflation starting now. That anticipation is why stock prices started to recover when we were still in the very middle of the pandemic. Contrary to popular opinion, investors are rather long sighted and forward looking. (They just don't always believe managers when they say 'trust me bro, our long term plan might lose money now, but it's totally gonna pay off anytime soon'; and that's why they demand regular quarterly profits from run-of-the-mill management, but let Bezos run Amazon for decades without anything in the way of dividends.)

nologic01 3y ago
> Contrary to popular opinion, investors are rather long sighted and forward looking Contrary to popular opinion investors are a very inhomogeneous crowd: From real economy investors, like the shipping company that tries to anticipate long-term global economic supply and demand patterns and orders massively expensive ships that will only be delivered years down the line, to bloomberg types or crypto speculators or HFT algos, that basically just look at financial timeseries going up or down, detached from any economic, environmental or social reality. To abuse the liquid analogy just bit more, the fluid is composed of all sorts of molecules. Heavy ones with lots of inertia but also lots of small scale noise. As things are, the incoherent noise sometimes turns coherent (hypes, manias and other delusions) and then the tail wags the dog (to finally switch metaphor :-)
- eru 3y ago
  Yes, there's all kinds of people in the market. But those that anticipate the future correctly get rewarded with more money, so that over time the average dollar belongs to a smarter investor.
dkjaudyeqooe 3y ago
I'm sure some are profiting handsomely, but as a whole the last 3 years has made business in general look pretty incompetent. They all seemed to zig when they should have zagged and vice versa. It makes you think the professionals are not all they're cracked up to be. I know the pandemic was new and disorienting, but do these people have no contrarian instincts at all? They just look at what everyone else is doing and do that, lest they stand out and be singled out? If you're in a leadership position and you play the "everyone thought X so you can understand why I did too" card you should be fired.

visarga 3y ago

> Except the economic fluid is far more complex, full of lags and hysteresis. You mean it is learning? Hysteresis is "local learning".

peepeepoopoo6 3y ago
That's not what that word means. https://en.wikipedia.org/wiki/Hysteresis https://en.wikipedia.org/wiki/Hysteresis
- nologic01 3y ago
  There is probably some remote connection at the mathematical level but it is fair to say that the amount of "learning" happening in the economy is nowhere close to the amount of brain cells available.

globalise83 3y ago

Yes, the demand shocks of the pandemic restriction and easing of restrictions, combined with the bullwhip effect (https://en.wikipedia.org/wiki/Bullwhip_effect https://en.wikipedia.org/wiki/Bullwhip_effect) have created a very interesting case study in industrial dynamics