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Erm... I think asset price inflation actually did happen. With stock prices (which anti-austerity economists say are "fair" in that you cannot expect P/Es aroun

by _yosefk 11y ago

Erm... I think asset price inflation actually did happen. With stock prices (which anti-austerity economists say are "fair" in that you cannot expect P/Es around 15 under ZIRP, so get used to 20) the result is wealth redistribution from the majority of the population to the richest people, but since rich people don't typically increase consumption that much as a result of extra wealth, this does not affect things like food prices. However, housing, which is also one of the kinds of assets the rich buy as an investment (rather than to "consume" it/live there), had its prices increase around the world as well, which I think hurts most people really bad. Another big issue is all the stuff that got financed that normally couldn't be financed, with investors everywhere willing to buy junk bonds and any imaginable kind of stock. How that works out remains to be seen. (Personally I don't have a firm opinion on stimulus/austerity, apart from it being a far from obvious issue - that I believe rather firmly.)

jbooth 11y ago
I'd agree with your first paragraph and disagree with your 2nd one with the exception of the tech bubble -- it's been really, really hard for normal businesses to get bank loans even when competing with 0.1% interest rates from the fed. My theory is that the administration wanted more stimulus, couldn't make it happen politically in useful ways (infrastructure projects, school building, new nuke plants etc), so the only outlet they had was QE, which did the job somewhat (we're not in a great depression), but did have the negative effects you highlighted. I think we'd be better off had the money been spent on infrastructure projects -- same sugar rush preventing a crash, plus we get a bunch of stuff afterwards. Right now we just have paper assets in the aftermath.
- _yosefk 11y ago
  Just the tech bubble?.. I dunno. I'm not that good at these things, but fracking comes to mind, and subprime auto loans. "Couldn't make it happen politically?!" That part I don't get. You mean they couldn't just give everyone money so they spend it instead of giving money more or less directly to the richest people? You mean the citizens would revolt?! (Actually the possibility of QE on the scale we had in a bunch of democracies left me dumbfounded. Why do people put up with that shit?)
  - jbooth 11y ago
    Fracking is new tech with a ridiculously short path to profitability, you pump the oil and you sell it. It's just good business to pump money into fracking (maybe bad environmentally, but that's beside the point). I wasn't aware of subprime auto loans, I'll have to look into that at some point. But the point about traditional business being really, really tight on credit even during QE still stands. Politically, citizens have nothing to do with it, look at Congress. They're voted in on fears of socialism and kenyans, not like they can turn around and support infrastructure spending.
    - _yosefk 11y ago
      Actually fracking doesn't look like a very good business as long as Saudi Arabia can extract oil from the ground at $6/barrel and thus lower the price of oil to a level where fracking does not pay off. I think a lot of these businesses therefore went belly up recently. But again this stuff is not my thing... so I could be wrong. Also - what do you mean "credit is tight for businesses"? Haven't businesses of all kinds been vigorously buying back their stocks lately, while issuing bonds at the same time? Those bonds having very low yields? Maybe grandma has a problem getting a loan from a bank to run her small shop (why would the bank lend out money when they get risk-free handouts from governments?.. AFAIK banks are actually notoriously bad at credit risk assessment when giving out loans to businesses so they tend to not bother); but definitely a public company issuing bonds has no problem of prohibitively high yields.

by _yosefk 11y ago

jbooth 11y ago

I'd agree with your first paragraph and disagree with your 2nd one with the exception of the tech bubble -- it's been really, really hard for normal businesses to get bank loans even when competing with 0.1% interest rates from the fed. My theory is that the administration wanted more stimulus, couldn't make it happen politically in useful ways (infrastructure projects, school building, new nuke plants etc), so the only outlet they had was QE, which did the job somewhat (we're not in a great depression), but did have the negative effects you highlighted. I think we'd be better off had the money been spent on infrastructure projects -- same sugar rush preventing a crash, plus we get a bunch of stuff afterwards. Right now we just have paper assets in the aftermath.

_yosefk 11y ago
Just the tech bubble?.. I dunno. I'm not that good at these things, but fracking comes to mind, and subprime auto loans. "Couldn't make it happen politically?!" That part I don't get. You mean they couldn't just give everyone money so they spend it instead of giving money more or less directly to the richest people? You mean the citizens would revolt?! (Actually the possibility of QE on the scale we had in a bunch of democracies left me dumbfounded. Why do people put up with that shit?)
- jbooth 11y ago
  Fracking is new tech with a ridiculously short path to profitability, you pump the oil and you sell it. It's just good business to pump money into fracking (maybe bad environmentally, but that's beside the point). I wasn't aware of subprime auto loans, I'll have to look into that at some point. But the point about traditional business being really, really tight on credit even during QE still stands. Politically, citizens have nothing to do with it, look at Congress. They're voted in on fears of socialism and kenyans, not like they can turn around and support infrastructure spending.
  - _yosefk 11y ago
    Actually fracking doesn't look like a very good business as long as Saudi Arabia can extract oil from the ground at $6/barrel and thus lower the price of oil to a level where fracking does not pay off. I think a lot of these businesses therefore went belly up recently. But again this stuff is not my thing... so I could be wrong. Also - what do you mean "credit is tight for businesses"? Haven't businesses of all kinds been vigorously buying back their stocks lately, while issuing bonds at the same time? Those bonds having very low yields? Maybe grandma has a problem getting a loan from a bank to run her small shop (why would the bank lend out money when they get risk-free handouts from governments?.. AFAIK banks are actually notoriously bad at credit risk assessment when giving out loans to businesses so they tend to not bother); but definitely a public company issuing bonds has no problem of prohibitively high yields.