3 ms·

I can't help but wonder if the decoupling is a result of the money printing that Greenspan started around that same time (2000-2001ish) and that Bernanke has co

I can't help but wonder if the decoupling is a result of the money printing that Greenspan started around that same time (2000-2001ish) and that Bernanke has continued. You're looking at replacing a $50k/year worker with a system that costs $1mm in NRE and negligible ongoing cost. If interest rates are at 8% you're a fool. With interest rates at 3% you're a genius. http://research.stlouisfed.org/fred2/series/FEDFUNDS http://research.stlouisfed.org/fred2/series/FEDFUNDS

adventured 13y ago
It's the result of the Fed's policies. They kicked us into two massive recessions in a mere 10 years, two stock market crashes, and one giant real estate crash, destroying trillions in wealth through malinvestment. If the Fed severely distorts the economy - which it has been doing frequently (currently 'printing' 6% of the entire economy) - it leads Jane to appraise her financial surroundings incorrectly, inevitably leading to disaster. Try figuring out a way to get minimum wage to keep up with even just 3% to 4% real annual inflation over 40 years. Impossible. Try figuring out how to get Americans to make sound financial decisions with 3.x% mortgage rates. Impossible. Try figuring out which stocks to buy, when everything is going up courtesy of easy money policies. When will the party stop? Only Bernanke & Co. know. It's not earnings growth driving the stock market, it's pure PE expansion. Try keeping the savings rate up, when your dollar loses value every day that you attempt to hold onto it. So you spend it today when it has maximum purchasing power. Wait 10 years and it'll lose half of its purchasing power. The Fed spurs an anti-savings culture through inflation. Ever since Nixon unlocked the dollar from the gold standard, the savings rate has been in a death spiral, to the point where now America has an extreme negative savings rate when all debt is accounted for (and nearly everything priced in dollars has soared in price since 1971; from health care to education to commodities to stocks to housing, meanwhile the real standard of living is lower than it was 50 years ago). At a time when America is creating more oil than nearly any other time in its history, oil prices are at $106+. See this USA today story from just a decade ago by comparison: http://usatoday30.usatoday.com/money/industries/energy/2003-12-31-oil-prices-2003_x.htm http://usatoday30.usatoday.com/money/industries/energy/2003-... "Instability in oil producing nations like Iraq, Venezuela and Nigeria helped boost U.S. crude oil prices to an average of $31 a barrel in 2003, the highest yearly average in more than 20 years, energy experts said Wednesday." Global commodities are of course priced in dollars primarily. As the Fed debases the dollar, the input cost of goods soars. The Fed's policies affect every single aspect of the US and global economy. Their policies are extreme by any US historical measure, and the consequences are guaranteed to be extreme accordingly.
- dragonwriter 13y ago
  > It's the result of the Fed's policies. They kicked us into two massive recessions in a mere 10 years, two stock market crashes, and one giant real estate crash, destroying trillions in wealth through malinvestment. I think there's a much better case to be made that Congress' fiscal policy (and financial industry deregulation ) did that than that the Fed's monetary policy did. > At a time when America is creating more oil than nearly any other time in its history, oil prices are at $106+. Oil prices are driven by global supply and demand , not US production in isolation.
- tedsanders 13y ago
  Your post is full of assertions, but empty of evidence. I disagree with almost every hyberbolic point you make: -There is NOT consensus that the Fed's creation of money caused the last two crashes. In fact, market monetarists argue the last recession was exacerbated by how LITTLE the Fed did. http://www.themoneyillusion.com/?page_id=3443 http://www.themoneyillusion.com/?page_id=3443 -Inflation is not 3%-4%. It has been very low since 2008. http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1&year1=2008&year2=2013 http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1&year1=2008&ye... -Stock market gains have not been due to pure PE expansion. This is demonstrably untrue. http://www.multpl.com/ http://www.multpl.com/ -Inflation does not, by itself, hurt savings rates. A world with 1% inflation and 1% interest should be identical to a world with 2% inflation and 2% interest (this is not strictly true, but the simple toy model is a good thought experiment to see where your reasoning fails.) -American oil production has almost NO impact on global prices. In fact, causation works the other way around. High oil prices make more American oil fields profitable, and drives production. (Even OPEC has very little market power. Saudi Arabia arguably has the most market power.) -The Fed was more aggressive than the central banks of most countries in the last recession (compare to BoE or ECB or whoever). The USA has recovered better than most other countries with passive central banks. There's not consensus, but many economists believe there is a causal connection. Your theory does not fit these data.
  - msandford 13y ago
    I think the argument goes like this: 1. There's a crash (cause unspecified) 2. The Fed creates money to smooth things out 3. This new money eventually gets things going, but it comes at a price: the way it gets things going isn't sustainable 4. Once people (traders/investors/general public) realize it is/was unsustainable, they begin to unwind everything 5. This unwinding is a new crash (cause specified) 6. The Fed creates money to smooth things out 7. Rinse and repeat
tedsanders 13y ago
Since 2008, money has been tight and inflation has been low. Yet the decoupling has continued. I think your implied hypothesis is very unlikely. However, I agree that interest rates play a large role in the decision of whether a company invests in capital.

adventured 13y ago

It's the result of the Fed's policies. They kicked us into two massive recessions in a mere 10 years, two stock market crashes, and one giant real estate crash, destroying trillions in wealth through malinvestment. If the Fed severely distorts the economy - which it has been doing frequently (currently 'printing' 6% of the entire economy) - it leads Jane to appraise her financial surroundings incorrectly, inevitably leading to disaster. Try figuring out a way to get minimum wage to keep up with even just 3% to 4% real annual inflation over 40 years. Impossible. Try figuring out how to get Americans to make sound financial decisions with 3.x% mortgage rates. Impossible. Try figuring out which stocks to buy, when everything is going up courtesy of easy money policies. When will the party stop? Only Bernanke & Co. know. It's not earnings growth driving the stock market, it's pure PE expansion. Try keeping the savings rate up, when your dollar loses value every day that you attempt to hold onto it. So you spend it today when it has maximum purchasing power. Wait 10 years and it'll lose half of its purchasing power. The Fed spurs an anti-savings culture through inflation. Ever since Nixon unlocked the dollar from the gold standard, the savings rate has been in a death spiral, to the point where now America has an extreme negative savings rate when all debt is accounted for (and nearly everything priced in dollars has soared in price since 1971; from health care to education to commodities to stocks to housing, meanwhile the real standard of living is lower than it was 50 years ago). At a time when America is creating more oil than nearly any other time in its history, oil prices are at $106+. See this USA today story from just a decade ago by comparison: http://usatoday30.usatoday.com/money/industries/energy/2003-12-31-oil-prices-2003_x.htm http://usatoday30.usatoday.com/money/industries/energy/2003-... "Instability in oil producing nations like Iraq, Venezuela and Nigeria helped boost U.S. crude oil prices to an average of $31 a barrel in 2003, the highest yearly average in more than 20 years, energy experts said Wednesday." Global commodities are of course priced in dollars primarily. As the Fed debases the dollar, the input cost of goods soars. The Fed's policies affect every single aspect of the US and global economy. Their policies are extreme by any US historical measure, and the consequences are guaranteed to be extreme accordingly.

dragonwriter 13y ago
> It's the result of the Fed's policies. They kicked us into two massive recessions in a mere 10 years, two stock market crashes, and one giant real estate crash, destroying trillions in wealth through malinvestment. I think there's a much better case to be made that Congress' fiscal policy (and financial industry deregulation ) did that than that the Fed's monetary policy did. > At a time when America is creating more oil than nearly any other time in its history, oil prices are at $106+. Oil prices are driven by global supply and demand , not US production in isolation.
tedsanders 13y ago
Your post is full of assertions, but empty of evidence. I disagree with almost every hyberbolic point you make: -There is NOT consensus that the Fed's creation of money caused the last two crashes. In fact, market monetarists argue the last recession was exacerbated by how LITTLE the Fed did. http://www.themoneyillusion.com/?page_id=3443 http://www.themoneyillusion.com/?page_id=3443 -Inflation is not 3%-4%. It has been very low since 2008. http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1&year1=2008&year2=2013 http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1&year1=2008&ye... -Stock market gains have not been due to pure PE expansion. This is demonstrably untrue. http://www.multpl.com/ http://www.multpl.com/ -Inflation does not, by itself, hurt savings rates. A world with 1% inflation and 1% interest should be identical to a world with 2% inflation and 2% interest (this is not strictly true, but the simple toy model is a good thought experiment to see where your reasoning fails.) -American oil production has almost NO impact on global prices. In fact, causation works the other way around. High oil prices make more American oil fields profitable, and drives production. (Even OPEC has very little market power. Saudi Arabia arguably has the most market power.) -The Fed was more aggressive than the central banks of most countries in the last recession (compare to BoE or ECB or whoever). The USA has recovered better than most other countries with passive central banks. There's not consensus, but many economists believe there is a causal connection. Your theory does not fit these data.
- msandford 13y ago
  I think the argument goes like this: 1. There's a crash (cause unspecified) 2. The Fed creates money to smooth things out 3. This new money eventually gets things going, but it comes at a price: the way it gets things going isn't sustainable 4. Once people (traders/investors/general public) realize it is/was unsustainable, they begin to unwind everything 5. This unwinding is a new crash (cause specified) 6. The Fed creates money to smooth things out 7. Rinse and repeat

tedsanders 13y ago

Since 2008, money has been tight and inflation has been low. Yet the decoupling has continued. I think your implied hypothesis is very unlikely. However, I agree that interest rates play a large role in the decision of whether a company invests in capital.