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They are intentional and the direct effect of raising interest rates (aka: sucking up liquidity). Liquidity has to come from somewhere and since it's the intere

by csomar 3y ago

They are intentional and the direct effect of raising interest rates (aka: sucking up liquidity). Liquidity has to come from somewhere and since it's the interest rate being raised here, it comes up from everywhere it can come up (ie: SVB bank blowing up). But I guess 401K holders don't have Janet Yellen to help bail them out. By the way, since people are pulling money of their retirement accounts, this is new liquidity hitting the market or, essentially, inflation. The deflation, in this case, will happen at the people's retirement time; or on a very long-term interval (people trying to raise their 401k again by spending less). The only positive outlook is that this can convince paper holders that the Fed is strict and disciplined and ask them to trust the paper a little more. The damage of the Covid liquidity package will be felt for years, if not decades.

theironhammer 3y ago
What about all the QE printing post 2008 crisis? Didn't that have a lot to with the present house price inflation? Not all of course but shouldn't that QE printing share some of the inflation blame?
- csomar 3y ago
  It does. But in 2008 there was some buffer (GDP/Debt ratio) and the amount was smaller and the interest rates went down. Now the GDP/Debt ratio is dangerous, the amounts are higher and the interest rates are up and so servicing the debt is more expensive. It's a funny mix.
  - somenameforme 3y ago
    There's also shifting global factors that look to be permanent. The US' ability to export its inflation, as well as guaranteed dollar supremacy have played a major role in the general stability of our economy. Now you have a multipolar world imperiling dollar supremacy, and China becoming the world's largest consumer economy imperiling the ability to export our inflation. It's so weird. Life went from so boring and predictable to 'may you live in interesting times' [1] in like 10 years. 2013 feels like a century ago, not a decade. In some ways it makes one have some degree of empathy for what those living around the turn of the 20th century might have felt. There's no way they could have known the ride they were about to step onto, especially as they started off living through the advent of the automobile, dramatic improvements in labor conditions, etc.. [1] - https://en.wikipedia.org/wiki/May_you_live_in_interesting_times https://en.wikipedia.org/wiki/May_you_live_in_interesting_ti...
  - theironhammer 3y ago
    I'll assume you mean govt (public) debt to GDP ratio not private debt to GDP. I'm not sure if private debt to GDP has increased or not since 2008. I would guess it has if mortgages are counted. The problem with QE is it drove up the price of land/housing as I think a lot of it ended up as mortgage loans. Rents rise with land price increases which affects businesses. It would've been better if the QE had gone to business loans not mortgages. But home ownership trumps more businesses when it comes to getting votes so no govt official is going to make a stink if too many loans go out to land asset acquisition vs creating small businesses.
SubiculumCode 3y ago
Or, megacorps collect on debts that they can lend at a premium, or invest in capital, or pay dividends. Investing in capital increases production or market suitability, leading to greater and more innovative capacity. The economy is a dynamic beast: mass multivariate recursion, in dynamic causal networks, or some such hell. We must trust and improve models in order to design public policy, always being aware that when multiple stakeholders disagree, who gets the nod? Who wins in the economy.

by csomar 3y ago

theironhammer 3y ago

What about all the QE printing post 2008 crisis? Didn't that have a lot to with the present house price inflation? Not all of course but shouldn't that QE printing share some of the inflation blame?

csomar 3y ago
It does. But in 2008 there was some buffer (GDP/Debt ratio) and the amount was smaller and the interest rates went down. Now the GDP/Debt ratio is dangerous, the amounts are higher and the interest rates are up and so servicing the debt is more expensive. It's a funny mix.
- somenameforme 3y ago
  There's also shifting global factors that look to be permanent. The US' ability to export its inflation, as well as guaranteed dollar supremacy have played a major role in the general stability of our economy. Now you have a multipolar world imperiling dollar supremacy, and China becoming the world's largest consumer economy imperiling the ability to export our inflation. It's so weird. Life went from so boring and predictable to 'may you live in interesting times' [1] in like 10 years. 2013 feels like a century ago, not a decade. In some ways it makes one have some degree of empathy for what those living around the turn of the 20th century might have felt. There's no way they could have known the ride they were about to step onto, especially as they started off living through the advent of the automobile, dramatic improvements in labor conditions, etc.. [1] - https://en.wikipedia.org/wiki/May_you_live_in_interesting_times https://en.wikipedia.org/wiki/May_you_live_in_interesting_ti...
- theironhammer 3y ago
  I'll assume you mean govt (public) debt to GDP ratio not private debt to GDP. I'm not sure if private debt to GDP has increased or not since 2008. I would guess it has if mortgages are counted. The problem with QE is it drove up the price of land/housing as I think a lot of it ended up as mortgage loans. Rents rise with land price increases which affects businesses. It would've been better if the QE had gone to business loans not mortgages. But home ownership trumps more businesses when it comes to getting votes so no govt official is going to make a stink if too many loans go out to land asset acquisition vs creating small businesses.

SubiculumCode 3y ago

Or, megacorps collect on debts that they can lend at a premium, or invest in capital, or pay dividends. Investing in capital increases production or market suitability, leading to greater and more innovative capacity. The economy is a dynamic beast: mass multivariate recursion, in dynamic causal networks, or some such hell. We must trust and improve models in order to design public policy, always being aware that when multiple stakeholders disagree, who gets the nod? Who wins in the economy.