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I've often held the opinion (and someone argue/correct me if I'm wrong here), that a lot of this artificial demand for growth is a problem due to inflation. I.e

by zo1 12y ago

I've often held the opinion (and someone argue/correct me if I'm wrong here), that a lot of this artificial demand for growth is a problem due to inflation. I.e. Government keeps devaluing the currency and lowering natural interest rates, causing individuals (and banks) to seek riskier returns. This effect is pervasive in the economy. I can't even begin to comprehend what our economy/world would look like if interest rates and inflation weren't controlled/manipulated by state governments. Sustainable companies? Ones that don't chase every tiny increase in short-term profit/gain? I don't know. Would we even have such a huge equity market? Most of everyone's money is in the equity market, and I have no idea why. Everyone is trying to leverage what little they have to "beat inflation" that they only thing they can do is either a risky business venture, or play the equity market. </rant_while_under_the_influence_of_food_poisoning>

jschwartzi 12y ago
The really scary thing is that our leaders talk like this is a good thing. It's as if to them there is no other way to make money but to put your money together with other people's money and hope that someone with real initiative comes along and generates profit with it. In short it seems like they've created a system where the only way to truly be successful is to work in high finance, where you collect 2% of everyone's money as a fee no matter what.
maxerickson 12y ago
The bond market is larger than the stock market (by 2x or more). There's also quite a few people whose primary asset (most of their money) is their house. I think you are also using a different definition of natural interest rates than is typical in economics jargon, in the jargon, the natural interest rate is approximately the rate at which the economy is growing (it isn't particularly likely that easy money is restraining economic growth, so low central bank rates shouldn't lower it; if anything, they would tend to push them higher). Poorly structured regulations are probably a bigger problem for the economy than easy money. An example would be regulation that appears to approve of the activities of a company that is giving derivatives high ratings when they know it is bullshit. That regulation either needs to be effective or to not exist. Another example would be the tax incentives surrounding mortgage interest, combined with pseudo-governmental programs to lower the interest rates on mortgages. It turns out that people don't buy a house based on some carefully estimated value of the house, they buy the house based on the payments they think they can afford to make. Given that psychology, the tax incentives lead people to pay a higher price for a house, and the lower interest rates lead them to pay a higher price for a house. What do you get? Skyrocketing housing prices that don't particularly benefit anybody.
nickbauman 12y ago
Lower inflation favors those with lots of capital parked in low productivity growth, high output sectors like resource extraction (oil, logging and mining). It makes it harder for sectors with intense R&D and complicated LoB like aerospace and other tech. A good sampling of some big national success stories exist over the last half century or more where inflation was over 4% where economies grew and diversified much faster than the US in the same period. Up to a point, inflation alone is not a very insightful indicator of economic health. Lots of other factors have to be compared, too.

by zo1 12y ago

jschwartzi 12y ago

The really scary thing is that our leaders talk like this is a good thing. It's as if to them there is no other way to make money but to put your money together with other people's money and hope that someone with real initiative comes along and generates profit with it. In short it seems like they've created a system where the only way to truly be successful is to work in high finance, where you collect 2% of everyone's money as a fee no matter what.

maxerickson 12y ago

The bond market is larger than the stock market (by 2x or more). There's also quite a few people whose primary asset (most of their money) is their house. I think you are also using a different definition of natural interest rates than is typical in economics jargon, in the jargon, the natural interest rate is approximately the rate at which the economy is growing (it isn't particularly likely that easy money is restraining economic growth, so low central bank rates shouldn't lower it; if anything, they would tend to push them higher). Poorly structured regulations are probably a bigger problem for the economy than easy money. An example would be regulation that appears to approve of the activities of a company that is giving derivatives high ratings when they know it is bullshit. That regulation either needs to be effective or to not exist. Another example would be the tax incentives surrounding mortgage interest, combined with pseudo-governmental programs to lower the interest rates on mortgages. It turns out that people don't buy a house based on some carefully estimated value of the house, they buy the house based on the payments they think they can afford to make. Given that psychology, the tax incentives lead people to pay a higher price for a house, and the lower interest rates lead them to pay a higher price for a house. What do you get? Skyrocketing housing prices that don't particularly benefit anybody.

nickbauman 12y ago

Lower inflation favors those with lots of capital parked in low productivity growth, high output sectors like resource extraction (oil, logging and mining). It makes it harder for sectors with intense R&D and complicated LoB like aerospace and other tech. A good sampling of some big national success stories exist over the last half century or more where inflation was over 4% where economies grew and diversified much faster than the US in the same period. Up to a point, inflation alone is not a very insightful indicator of economic health. Lots of other factors have to be compared, too.