[dalbasal]

So... digitisation certainly has a lot of disruption potential. I would frame it differently though... I also don't think it's the only factor.

First, digitisation has already happened. Most money has been digital for a long time. The full consequences of digitisation just haven't materialised yet. Centralisation of the banking & financial services world, regulation, cascading structure (clearing houses, etc) and general conservatism buffered the change.

I would argue that large parts of the financial system actually failed 13 years ago. Bailouts restored them. Without bailouts, many large institutions would have become defunct and a new generation would have taken their place. This change is occuring regardless, just more slowly. Robinhood's upcoming IPO is an example though possibly a trite example.

Cryptocurrency (also crypto-stocks/bonds/etc.) role is still anyone's guess. I reckon it creates an opportunity to bypass the old, evolved "structure" of the financial industry. How clearinghouses work, who controls them. All that immovable, weird, invisible stuff determining how financial markets work may finally change.

Also... Monetarism seems to have ended. That's a big deal and its hard to guess where this leads. Fiscal and monetary policies are no longer bound by the same constraints, and it's not obvious what the new constraints are. There isn't an obvious monetarism replacement.

The end of monetarism is most alarming for the eurozone. The whole system is basically premised on it. Most plausible successors to monetarism treat fiscal and/or tax policies as part of the monetary system in some way. The eurozone has a hard structural separation between these.

In any case, monetary "revolutions" aren't that uncommon. They happen every couple of generations. We're due.

[roenxi]

> I would argue that large parts of the financial system actually failed 13 years ago. Bailouts restored them.

There are substantial movements in the market that only make sense if the motivation is a straightforward government intervention. It is a mockery of everything the financial system strives to be when we get hit by the worst crisis in around 30-50 years and the response of the stock market is leaping like a well trained puppy to breathtaking all time highs.

The US financial system is starting to flirt with central planning. I'm keeping a weather eye out for the day that the majority of US spending is done by the government.

[dalbasal]

>> everything the financial system strives to be

This is a somewhat "loaded" statement, with assumptions about what the financial system strives to be. Some of that load is, IMO, monetarism. Some of it is adjacent to monetarism.

Though I suspect we have different views on what we're seeing, I reckon we're seeing a lot of the same things.

It's always easier to explain the past, so this is what it is. That said, I reckon these are a few factors that went into asset value appreciation during the crisis:

1 - As you say, a (correct) market prediction of loose fiscal and monetary policies.

2 - A (probably correct) prediction of long term, near-zero interest rates... regardless of inflation. IE, markets directly predict an end to CB monetarism, as it has been practiced for decades.

3 - (more speculative) ...Lockdowns and such accelerate digitisation and its associated centralisation. E Commerce over physical retail. Netflix over theatres. Etrc. Empirically, digital goods, especially in the hands of very large companies, produce much higher profit margins and/or growth rates. This translates directly into market cap. IE, if $10bn of retails spending/revenue moves from traditional retail to amazon, this is a (substantially) plus-sum game in terms of total market cap.

In any case, this isn't unprecedented. Wars & post war demilitarization have played similar, paradoxical roles before. Conclusions in the past have also been similar... that public spending and the health of the private economy are often complimentary, rather than competitive.

Moving forward, whether or not a majority of US spending is done by the government, all USD spending originates in government money printing. That much is no longer deniable. A view of the world where money originates in private markets, funding government spending via taxation is no longer viable.

IMO, a compromise that doesn't involve central planning is redistribution, either directly or via taxation. There just seems to be more reluctance around the latter than the former, once you get into specific policy cases.

[throwaway210222]

> I'm keeping a weather eye out for the day that the majority of US spending is done by the government.

These folk [1] says it was 31% in 2020.

If you subtract the ~$6 trillion of bogus GDP from 'hedonic and imputed' adjustments [2] (as one must), then you are probably already there.

Welcome tovarisch.

[1] https://datalab.usaspending.gov/americas-finance-guide/spend...

[2] unless you thin $6t of home mortgage payments that never happened and improved electronics is describing the same thing as entire GDP of Japan.

[mikem170]

And that doesn't appear to include the spending of state, county, and municipal governments...

[JumpCrisscross]

> Monetarism seems to have ended

Not sure where this is coming from. We're in the prime of expansive monetary policy. As you say, its old constraints have dissolved. That increases its primacy.

> Most plausible successors treat fiscal and/or tax policies as part of the monetary system

The Eurozone was pioneering in decoupling monetary policy from fiscal authority. The status quo being proven isn't exactly revolutionary.

I understand the need to frame everything in terms of generational upheaval and cycles of history. It's tempting and has been since the dawn of written history. But it's largely escapism. A monetary revolution [1] isn't cyclically required any more than Moore's law guaranteed to continue.

At this time, the most likely future appears to be central banks creating, alongside physical and digital money, cryptocurrency money on an authorized ledger. This will re-tool arcane pieces of financial plumbing, but otherwise leave the system untouched.

[1] Note that each of the recent monetary revolutions, from metal to paper to fiat, from free (i.e. de-centralised) to central banked, from national to supranational, increased the power of the state. If you're rooting for a monetary revolution, it's more likely to concentrate power than not.

[dalbasal]

I think we may be using a different definition of monetarism.

I mean the circa 1980-present understanding of money, public debt, and their relationship to inflation, gdp & employment growth. Also, critically, the rules of thumb governing monetary policy. Inflation targets. Interest rates. By "ended" I mean "no longer a consensus opinion, among those that matter."

Public debt, empirically, is not longer thought to be all that inflationary. Low unemployment will no longer be used as a trigger for interest rate increases. Interest rates will no longer be the primary inflation targeting tool. Instead, it will probably be set to zero most of the time. What will be used to impact inflation is still TBD. We might have to wait for actual inflation to occur before we find out. Etc. Monetary policy is built out of such details, and the cascade into a lot more than it may seem at first glance.

A more dramatic change might be issuing currency (eg USD) without issuing an equal and opposite (kinda) number of debt instruments (eg US treasury notes). It's hard to imagine how this would work in a eurozone context. In the US, it would be hugely psychological, but not really that impactful in reality. Likely though, the number of treasury notes held by the fed will just stop being considered important.

>> Eurozone was pioneering in decoupling monetary policy from fiscal authority

Exactly. Monetarism (the monetarism I'm referring to) allows and encourages this.

I'm not predicting or rooting for any kind of institutional "revolution," except perhaps the eurozone/ECB. Institutions (eg ECB, FED, etc) will remain in place. They'll just make their decisions based on a different understanding of macroeconomics. Similar to how the post war Keynsian-Goldbuggish system gave way to monetarism circa 1980.

[JumpCrisscross]

> Interest rates will no longer be the primary inflation targeting tool

Why? We don't have inflation so rates are being kept low. Countries with inflation pressure are raising rates and holding off inflation.

> issuing currency (eg USD) without issuing an equal and opposite (kinda) number of debt instruments

This is how the Federal Reserve has worked for over a century. The Fed doesn't create Treasuries; it absorbs them onto its balance sheet while creating money for the selling bank.

There is theoretically a problem if the Treasury stops issuing debt. This was momentarily considered in the 90s, when the U.S. ran a surplus. But that isn't a problem right now.

> Monetarism (the monetarism I'm referring to) allows and encourages this.

The type of monetarism which encouraged fiscal neutrality was never mainstream. Even in the case of the EU, the presumption was the monetary union would cause fiscal union. A large part of the Eurozone crisis involved recognizing that wasn't a sure thing.

[dalbasal]

So... one at a time.

> Why? We don't have inflation so rates are being kept low. Countries with inflation pressure are raising rates and holding off inflation.

Under monetarism (again, definitions... I mean the Friedman-esque CB norms, circa 1980-present), it's supposed to work the opposite way.

Interest rates are lowered to increase inflation, because low interest is thought to be inflationary. They've been low for a long time. No inflation. Hence why monetarism was lost ground. Both public debt and low interest rates were seen as dangerous, eventually leading to hyperinflation. CB independence was created in order to prevent politicians, who want wage increases, jobs and such from lowering interest rates and crashing the currency.

> Countries with inflation pressure

IDK as much about these, though I am curious. Any explanation would be a macroeconomic theory, and IDK which one is true. That said, I suspect the problem in some/most such countries (eg Russia, Turkey) is a combination of taxation & capital flight. They don't have enough ability to tax, and hence remove "excess" currency from the system. Simultaneously, capital is at risk. If you are the Jeff Bezos of Turkey, you want to keep your money safe by putting it in the (US) S&P 500.

In the US & EU, taxation (of normal people, at least) is easy. How much money Bezos has does not impact his spending in any way, so it doesn't influence the price of goods, so it doesn't really matter (to consumer price inflation) how much tax he pays.

I'm mostly rambling on this one. Haven't read or thought much about these countries/currencies.

>This is how the Federal Reserve has worked for over a century

IDk the full history. Gold reserves were, at least ostensibly, required for much of this period.

Currently, the Fed doesn't technically issue debt instruments besides USD. The Treasury does. It's really a technicality though. That's why they're called treasury notes. The Fed makes USD, gives them to the treasury. The Treasury makes T notes, gives them to the Fed. Treasury spends the USD. Fed keeps the notes, sometimes uses them to manipulate debt markets or trade for foreign ones.

Under a permanent 0% interest regime (I'm not predicting, just projecting), the whole thing becomes quasi-superstitious.

> The type of monetarism which encouraged fiscal neutrality was never more than a fringe theory

This is why I haven't mentioned Milton Friedman until now. I am sure he, and most people who have literally called themselves monetarists would claim that "monetarism has never been tried." He certainly made this point in his lifetime.

So... IDK how to resolve that. Monetary policy has never been not "Pure Monetarism" in a sense that Friedman would have certified. The biggest detours are usually during financial crisis, when "keynsian" concepts like "stimulus" gain ground. That said, I think they've always been restrained by monetarism, and incorporated (IMO catastrophic) bits of monetarism to balance out the expected (under monetarism) inflation of such policies.

Macroeconomics schools, including the education I received circa 2004, CBs, finance ministers, etc. have been more influenced by this theory than any others. I would argue that the eurozone is designed & structured as a Monetarist currency system. I'm not sure what you meant by "fiscal neutrality" (did you mean monetary/CB neutrality?), but it is designed to maintain nation states' fiscal & tax independence while handing over all monetary power to the CB.

The problem (from a non-monetarist) perspective, is that money isn't actually created by the ECB. It's created by government spending regardless of the ECB. The greek crisis taught us that. I didn't understand what was meant, ATT, when officials referred to the risk that "euros in greek banks would trade at a different exchange rate." Now I do. The greek government accumulates debt regardless. If the ECB doesn't back that debt, a euro in a Greek bank account is effectively a separate currency. Governments do monetary policy whether or not they own an CB. It's just messier and more unstable. You can't really sepeare fiscal and monetary controls IRL.

^BTW I could be and probably am wrong about some or all of this. This is all in the spirit of digital pint-talk. I know these topic can get heated. No disrespect meant, regardless of disagreement.

[jonnydubowsky]

> "digital pint talk"

This is a wonderful turn of phrase. Hacker News is my favorite pub.