[eru]

How can the central bank _not_ interfere?

For a central bank there's no such thing as no policy. Even inaction is a policy.

(Of course, there are systems that work without a central bank. And can work very well in fact. But that's not what the Dutch as part of the Euro zone have.)

[01100011]

I don't know, I'm just an idiot on the internet, but it seems like a better solution to monetary stimulus would have been fiscal stimulus. The government could have passed an infrastructure bill 18 months ago and the fed could have backed off.

I'll admit I'm pretty furious at the fed right now though. As someone with a lot of assets in cash who was hoping to buy a house last year, I have been double penetrated by inflation and spiraling home prices. The housing market accelerated just out of my reach before I could make a move and my cash pile is on fire. I'd have moved back into the stock market to protect it, but it seemed risky given historical valuations and such. Now I'm poorer and I can't help but think Powell effectively just stole from me and I've been punished for being defensive and not participating in the fueling of an asset bubble.

[dec0dedab0de]

I've been punished for being defensive and not participating in the fueling of an asset bubble.

Yes, that is exactly it. The economy falls apart if everyone saves too much. Money is an imaginary number designed to facilitate separation of labor, if too many people save and retire early then there won't be enough people working.

FWIW I am the same way, and used to be angry about it, but I have accepted it for what it is. I bought my house 15 years ago at the height of the last housing bubble. I was under water for a while, but I didn't qualify for any of the assistance because I bought a house I could afford. If I had bought a more expensive house, or if I made slightly less money I would have been able to get some money from the government. It was all based on the ratio of income to mortgage payment, which is still kind of annoying.

Only way I could cut my losses in my mind was to pay off the house as quickly as possible, to save money on interest. So now it's paid off, and for the first time since a year after I moved in Zillow has it at a higher price than I paid for it, though just barely.

But back to the point, don't keep your assets in cash, or any one thing for that matter. Index funds, mutual funds, commodities, collectables, anything that is easy to sell and will generally go up in price with inflation. These policies are meant to encourage people with cash to do things with that cash, instead of hoarding it.

[hirvi74]

> The economy falls apart if everyone saves too much.

I have no problem with policies meant to encourage people to do things with their cash, but only if proper social measures are taken to provide safety and well-being for those people if and when unfortunate events strike e.g. encouraging people to not save their money is a little bit more palatable in a country where socialized health care, public transportation, free public education, etc..

In other words, perhaps people wouldn't need to save so much money if more of their basic needs were covered. In my country (USA), not having savings is like playing a game of Russian roulette with one's financial well-being, assuming one is fortunate enough to have enough income to even have savings.

> These policies are meant to encourage people with cash to do things with that cash, instead of hoarding it.

Which cause the rich to get richer, and the poor get poorer.

[betterunix2]

"assuming one is fortunate enough to have enough income to even have savings"

This cannot be overstated enough. In the USA a myth has developed about "personal responsibility" in which people have a choice, they can save for retirement or they can spend their money on other things; we tend to forget that for roughly half the country there is no such choice because just paying for basic living expenses (food, shelter, clothing, and transportation to a job) will leave nothing to save. People bought the myth and allowed defined-benefit pension plans to be replaced by IRAs and 401k plans.

"Which cause the rich to get richer, and the poor get poorer."

The rich should get richer if they are compounding their investment returns over time. The problem is that for more than 40 years America has been in the grip of politicians who have attacked government programs of all kinds, insisting that we cannot afford to pay for anything that benefits the poor while also insisting that we have to cut taxes on the rich (naturally, the tax cuts also benefit those very politicians). The fact that the poor cannot invest (for lack of capital) is not the reason they are getting poorer; they are getting poorer because for decades we have reduced the scale and scope of government programs that benefit the poor (or that benefit everyone equally).

[arcticbull]

> Yes, that is exactly it. The economy falls apart if everyone saves too much. Money is an imaginary number designed to facilitate separation of labor, if too many people save and retire early then there won't be enough people working.

Yes, this I recently learned is called the paradox of thrift. [1]

[1] https://www.investopedia.com/terms/p/paradox-of-thrift.asp

[imtringued]

It's not just the paradox of thrift. The general concept is the paradox of competition. There are macroeconomic statements that always apply but as individuals optimize their local statements they actually end up "deoptimizing" the global statement. Basically a race to the bottom or a continuous form of the prisoners dilemma. In other words, the idea that local decision making will always reach a global optimum, the very foundation of free market economics, isn't even true in theory given our current money system.

See this in the case of Greece vs Germany. Germany is trying to boost exports by cutting back on imports. If Greece would retaliate by following the exact strategy there would be less trade between them overall. Meanwhile if both countries tried to boost imports, then both of them would be better off.

How exactly does Germany do it? The government is simply enacting policies to destroy the bargaining power of labor. Yes, Germany is trying to compete with Greece based on labor costs. It's trying to pass off a questionable economic policy that destabilizes the eurozone as strength because of moral attachments to export industries and saving money while blaming the other side for importing its products and borrowing to pay for them. This is why the eurozone is a failure and every country should have its own currency.

https://en.wikipedia.org/wiki/Paradox_of_competition

[eru]

Yeah, it's not actually real.

The central bank can always just keep printing enough money to keep nominal GDP stable, if they want. No matter how much people want to save.

[arcticbull]

They can’t actually, GDP is a function of supply and velocity. If you increase supply and it’s saved, velocity drops commensurately. This yields no change in nominal GDP.

[eru]

In that case, just keep printing money and buy up all assets in the world.

[arcticbull]

> I'll admit I'm pretty furious at the fed right now though.

I suspect you would have been a lot more furious at the Fed in the event they had sat back during COVID and presided over a deflationary spiral triggered by the lockdowns. Can't get a mortgage if you're out of work, ya know?

> As someone with a lot of assets in cash who was hoping to buy a house last year...

Let me stop you right there. Generally speaking, you shouldn't hold cash. Nobody should hold cash. Nobody should have ever held cash because even at the baseline expectation 2% inflation that's still a loss.

> I have been double penetrated by inflation...

Inflation is somewhere between 2 and 5%. That's not what I would call "penetration." Mild discomfort maybe.

> ...and spiraling home prices.

Housing affordability hasn't really changed on a monthly basis, because on a 30-year fixed rate mortgage the drop in interest rates from 4.xx% to 2.xx% means that a monthly payment two years ago on a $1M property is the same as it would be today on a $1.2M property. That's napkin math, I believe the spread is even larger IRL.

In fact, if you can lock in a 2.xx% mortgage in a 2-5% inflationary environment then it is in real dollar terms a zero-interest loan. Before factoring in tax deductions.

What's become more painful is making the down-payment.

> Now I'm poorer and I can't help but think Powell effectively just stole from me and I've been punished for being defensive and not participating in the fueling of an asset bubble.

You're not poorer, you're not as rich as you thought you'd be.

[landemva]

OP said he or she is upset with price inflation and now has a pile of cash losing purchasing power.

arcticbull said '... you would have been a lot more furious at the Fed in the event they had sat back during COVID and presided over a deflationary spiral ...'

Deflation makes cash have more purchasing power, so arcticbull your speculation is wrong. Completely backwards.

[arcticbull]

I'm aware, however a mortgage also requires a job to obtain, which was what I was pointing to in the statement. Unless we saw truly spectacular deflation, I'm talking 500% year over year, it wouldn't have mattered. I suspect OP would have lost their job well before their admittedly less than 20% down-payment amount deflated enough to buy a house outright.

I suspect anything in between would have led to a huge spike in interest rates making borrowing yet less affordable no?

> Deflation makes cash have more purchasing power, so arcticbull your speculation is wrong. Completely backwards.

>> Can't get a mortgage if you're out of work, ya know?

So no, not really... unless you stopped reading before you got to that sentence ;)

[dnautics]

why do you assume a deflation will cause job loss, in particular for the poster? Maybe they have a deflation-proof job (most jobs that aren't a result of malivestment). Deflation is not a magic wand where "boom, it happens, and people lose their job". Just as, much as the central bank might wish it to be, inflation is not a magic wand where "boom it happens, and jobs are created" (hence the word "stagflation").

[deelowe]

There is a gigantic difference between inflation and deflation from a policy perspective. Deflection has a positive feedback loop which does tend to cause situations where liquidity dries up literally overnight and then "boom, it happens, and people lose their jobs." Inflation tends to happen more gradually. It's manageable as long as people don't lose confidence in the currency. The fed generally wants to avoid deflation if at all possible. As people leave the job market due to automation and median age trends higher, this because more and more difficult. Japan has had serious struggles fighting off deflation for decades now.

"stagflation" is simply what happens when inflation keeps up with deflationary trends. It doesn't mean monetary policy is doing nothing. It likely means it's working as intended.

[landemva]

'spectacular deflation, I'm talking 500% year over year ...'

If currency loses 100% of value, it will be worth zero. A complete, 100%, total loss.

A 500% loss would be spectacular! And not possible using commonly accepted laws of the universe such as math.

[pvitz]

You are confusing deflation with inflation.

[betterunix2]

The economic consequences of deflation are very destruction. Cash may become more valuable, but a prolonged economic contract will leave you with less to buy with that cash.

[01100011]

> I suspect you would have been a lot more furious at the Fed in the event they had sat back during COVID and presided over a deflationary spiral triggered by the lockdowns.

No, what I'm saying is the government failed to act sufficiently and forced the fed to act when they shouldn't have(or at least to the level they have).

> Generally speaking, you shouldn't hold cash.

Now come on that's not really true in the short term. Generally speaking, you shouldn't put your money in the market if you need it in the next 5 years. Sure I could have bought CDs but have you looked at rates lately? That wouldn't have helped. My only option would have been to pile into an asset, and by the time I needed to park my money assets had already appreciated above historical norms. I'd be gambling against a reversion to the mean.

> Housing affordability hasn't really changed on a monthly basis

The market I am familiar with and was planning on going back into is up about 35% from late 2019. You're also then gambling that these historically high valuations will hold going forward. Homebuyer sentiment has plummeted because folks like me no longer think paying these high prices(https://fred.stlouisfed.org/series/CSUSHPINSA) makes sense.

[godot]

> Generally speaking, you shouldn't put your money in the market if you need it in the next 5 years.

Did you really mean 5 years, or 5 months, or something else? I'm not sure if I can take this statement seriously, or if it's meant to be a joke. 5 years is a long time.

[niij]

Asset prices don't always go up. The downturns have lasted much longer than 5 years. So if you want relative certainty you'll have $X at a certain date then you need to be in cash years beforehand. Otherwise you're gambling or have a backup source of cash.

[01100011]

Yes, 5 years. http://nerdwallet.com/article/investing/where-to-put-short-t...

If you're young and you've only seen the market go up you need to familiarize yourself with normal volatility patterns. The market can easily take a dump at any time and fail to provide a positive return for years.

[ant6n]

> The market can easily take a dump at any time and fail to provide a positive return for years.

...or decades: "Nikkei index hits 30,000 for first time in three decades"

https://asia.nikkei.com/Business/Markets/Nikkei-index-hits-3...

[icedchai]

Do you remember the lost decade? 2000-2009-ish... the markets went no where for almost 10 years.

[eru]

> No, what I'm saying is the government failed to act sufficiently and forced the fed to act when they shouldn't have(or at least to the level they have).

What should the government have done?

[01100011]

Fiscal stimulus. More jobs programs. More infrastructure. Put people in affected industries to work doing something productive.

[quickthrowman]

> Generally speaking, you shouldn't put your money in the market if you need it in the next 5 years.

According to whom? Right now, nothing pays out any yield, it’s stocks or lose to inflation.

[arcticbull]

BDCs are paying ~10%. It’s not without risk, of course, they saw large drawdowns in 2020 but have recovered alongside the rest of the economy. I personally generate income borrowing on margin to purchase the Goldman Sachs BDC (GSBD) and using a risk reversal (selling a call, using the premium to buy a put) to hedge against a large draw down. NFA.

I’ve followed ARCC, MAIN and GSBD for years, and there’s the more diversified Van Eck Vectors BDC ETF (BIZD), with an 8.5% yield. But I digress.

[eru]

You can try real estate as well. Or junk bonds.

[eru]

> Let me stop you right there. Generally speaking, you shouldn't hold cash. Nobody should hold cash. Nobody should have ever held cash because even at the baseline expectation 2% inflation that's still a loss.

Nah, holding cash is fine under some circumstances.

Yes, the 2% inflation that the Fed chose to aim for makes holding cash costly.

But everybody holds cash. It's just that higher inflation expectations makes people hold less cash in real terms.

But then, you can be angry at the Fed for choosing that particular inflation target. The Fed could just as well go for 0% inflation. Or even go for a stable nominal GDP 65,000 USD per year per capita in perpetuity. (The latter would basically automatically ensure its dual mandate. Though most of the proponents of nominal GDP level targeting suggest to target a slight increase over time.)

In such a stable nominal-GDP system, holding cash would be rational in many more circumstances than today, because in general cash would slowly increase in real value as productivity and thus real GDP improved.

[aksss]

> you shouldn’t hold cash

I don’t think they intended to be holding cash, they were setting up for a large purchase and the timing was bad. But yeah, arguably when there’s no immediate prospect of the opportunity resurfacing, probably reinvesting that paper would be more congruent with the system we have before us.

[divbzero]

> In fact, if you can lock in a 2.xx% mortgage in a 2-5% inflationary environment then it is in real dollar terms a zero-interest loan. Before factoring in tax deductions.

This is a factor worth considering for anyone who is currently looking to buy a home. As long as you can afford the downpayment, you could lock in a fixed-rate mortgage while your earnings or other savings could grow at a higher rate. This is analogous to what some companies have done in recent years, loading up on low interest debt.

[frockington1]

I did this a month ago. 2.3% interest on a second home, refinanced the other for close to that. Assuming (big assumption) this transitory inflation doesn't go away it's stupid not to load up on debt.

If the Fed and the government are going to reward those who leverage up on risk, might as well. As '08 shows you'll even be rewarded when the crash happens

[hirvi74]

When interest rates on mortgages are lower, doesn't the prices of homes increase to compensate (like what's happening right now)?

If interest rates decrease and home prices increase vs. interest rates increase but home prices decrease, then there is a point where the two will intersect, and there are many points around the intersection where the difference between the two is fairly insignificant.

How does the common expression go -- "The house always wins?"

[dpweb]

A $2000 mortgage payment at 4% interest is not equivalent to a $2000 payment at 2%.

That money that would have gone towards your equity, is being spent in interest. This is why people making 60k/yr. buy $65,000 trucks. Interest rates drop and they only look at the monthly payment amount.

You don’t always get the full tax deduction on a first home either. In high tax states the 10k deduction limit kicks in when your paying high state taxes + mortgage interest.

[SilasX]

People absolutely should be holding cash if, as in the parent’s case, they’re looking for a home to buy :-p

Also, “don’t worry, just look at the monthly payment” is something that should only ever be said by a car salesman.

[arcticbull]

On a 30 year fixed mortgage what else matters? That’s your monthly payment. Taxes I guess?

Depends how long you’re planning to save. You can hold treasuries or risk parity adjusted pairings. Or CDs ladders. Lots of stuff!

[SilasX]

As above, the same reasons why it’s bad to think of a car purchase purely in terms of the monthly payment.

> Depends how long you’re planning to save. You can hold treasuries or risk parity adjusted pairings. Or CDs ladders. Lots of stuff!

You don’t know how long the search for a home will take. That’s the point.

[wahern]

>> Also, “don’t worry, just look at the monthly payment” is something that should only ever be said by a car salesman.

> On a 30 year fixed mortgage what else matters?

I think the general criticism regarding monthly payments is more targeted at products like interest-only mortgages, which were hot in the early oughts. Those aren't as common these days. Maybe some people have 10/1 ARMs and similar in mind, but that's a stretch. (Anyhow, today the spreads between ARMs and 30-year are ridiculously small.)

[majormajor]

The people who outbid you for those houses could have outbid you without any monetary stimulus too, yes?

[nostrademons]

Not if he has a large pile of cash, which the OP said it did.

Say that he's got $500K in cash but can put only $3.8K/month toward the mortgage, while the average person around him has $250K but can put $5K/month toward a mortgage. Average housing prices are $1.25M, so at 4.5% interest rates he's competitive. He puts down $500K and borrows $750K @ $3.8K/month for a $1.25M house, while the average borrower puts down 20% ($250K) and borrows $1M @ $5K/month.

If interest rates go down to 2.5% like they did now, the average borrower can now borrow $1.25M, so home prices go up to $1.5M. His cash stash still would require a $1M loan, which would cost around $4K/month, so he has been priced out.

If interest rates go up to 20% like in 1980, then the average borrower can only borrow $300K to maintain $5K/month, so home prices drop to around $550K and he can purchase with cash, or a tiny mortgage. All of the homes between $550K-730K (previously, roughly $1.25M-$1.7M) are now unaffordable to the average mortgage buyer, but are well within OP's range.

Inflation acts as a tax on savers and a subsidy for debtors.

[hirvi74]

> Inflation acts as a tax on savers and a subsidy for debtors.

Slightly tangental, but you piqued my interest. If it's clear the Fed can print more money, which causes inflation, which is a tax on savers. Then why do savers or anyone need to pay taxes? Could the Fed just not use inflation as a form of taxes in general? Instead of taking x% of people's income, the dollar could just print the money they need, and inflate the dollar's value to recoup their costs.

I'm not saying this is a good idea or anything. I am not knowledgable enough in economics to argue for/against this. It's just a food for thought kind of thing.

[eru]

> Could the Fed just not use inflation as a form of taxes in general?

In some sense, they already do that.

But it's more complicated than it first appears.

First, most of the money the Fed+government makes from issuing money comes from seigniorage, not from inflation.

Simplified a bit, seigniorage just means that the cash people hold in their wallets (and bank accounts) took the government pennies to print, but the people offered real goods and services in exchange to acquire it.

Second, higher inflation makes people hold less cash in real terms. A simple illustration: when Germany had hyperinflation in the early 1920s, some people might have carried cash by the wheelbarrow, but even a whole wheelbarrow would only be worth eg a few apples and potatoes.

In contemporary Germany with a stable currency, it's not too unusual to carry enough cash in a slim wallet to be able to afford wheelbarrows full of apples and potatoes.

So if the government+central bank want to maximize how much real benefit they get from printing money, they can't just crank up inflation. In fact, lower inflation is probably better, if you want to maximize this.

[mosburger]

I'm not even close to an expert on economics, either... but I think what you're describing sounds similar to what's called "Modern Monetary Theory" or MMT.

If I understand the very basic gist of MMT correctly, it's basically that the government "invents" currency simply by spending. If the government wants to finance, e.g., an enormous infrastructure project, all it has to do is will it into existence and the money will get printed - mostly because the full faith in credit of the United States Treasury will make sure the right people are paid.

If this is true, what then is the point of taxes? Taxes are a buffer to "sop up" excess cash in the economy to keep inflation under control.

Another central tenet of MMT is that the end goal of tuning these knobs should be 0% unemployment, because that's when your economy is producing maximally.

I'm sure I got a lot of that wrong, because (like I said) I'm not an expert, but what you described reminded me of the MMT Wikipedia rabbithole I ended up in a few years back.

[eru]

Yes, you described MMT about right.

Unfortunately, MMT is either a meaningless tautology that doesn't change anything about our understanding of the world. Or, it's wrong. Depending on what definition the MMT people use at any one point in time during a discussion.

[nostrademons]

Heh, you've asked an eternal question which I asked in my intro macroeconomics class, and which I suspect is being asked at the Presidential/Prime Minister and Central Bank levels in many developed countries now. I'll give you both the macroeconomic answer and the historical answer.

The macroeconomic answer is yes, assuming that you can control inflation and spend your money in a wise disciplined manner, you can do this. An inflation rate of 10% is basically a wealth tax on currency-denominated assets of 1/1.1 ~= 9%, collected implicitly. And it has many benefits. Administration cost is near-zero, the government just needs to print money and let price levels do the rest. As a wealth tax, it's progressive. It encourages consumer spending, and encourages people to hold productive assets rather than currency-denominated financial instruments. Aside from land & externality taxes, it's one of the best types of tax.

The historical reality is much nuanced, and negative. In reality, you never get uniform inflation across all prices; instead you get something called Cantillon Effects [1], where money pools at the places it's injected within the economy and at monopolies, and never makes it to ordinary consumers. This ruins a lot of the progressiveness of inflation: Google and Facebook shareholders will enjoy higher ad prices (which is happening now), but the ordinary service worker on the street still lacks the bargaining power to get a raise. And it's also easier to dodge than governments believe: instead of holding wealth in cash, wealthy individuals will simply hold stocks, cryptocurrency, art, NFTs, and other "floating" assets whose value rises along inflation (this is also happening now). Inflation also acts on a tax on the economic efficiency of businesses and consumers - instead of the government collecting the tax, businesses simply have to re-price all of their items, and consumers may need to find alternate sources if relative prices change.

The worst case, though, is that it's unclear whether it's possible to maintain steady, government-controlled inflation at appropriate tax levels (which would have to be about 50% to maintain government spending levels of about 35% of the economy). Looking at incidents of high & hyperinflation [2], it's very difficult to find time periods where inflation exceeded 20% but then did not go on to exceed hundreds of percent. Businessmen seem to have a binary approach to inflation - either they can think of a world of stable prices (where maybe they give 2-3% CoL increases each year), or they must grab all the money they can right now because all their costs are going up too and if they don't they'll go out of business. There are many historical examples where governments thought "Okay, we can tolerate just a few percent higher inflation to fund this one war, and the spoils will pay it back later" and instead they found themselves tipped into hyperinflation and unable to rein the economy back in.

[1] https://mattstoller.substack.com/p/the-cantillon-effect-why-...

[2] https://en.wikipedia.org/wiki/Hyperinflation#Examples_of_hig...

[eru]

The problem with inflation as a tax is not so much that you can't target 10% exactly. We could probably do that these days with level targeting.

No, the real problem is the deadweight cost:

The higher your inflation, the less cash people want to hold in real terms. But that amount of cash is what you collect your inflation tax on.

> An inflation rate of 10% is basically a wealth tax on currency-denominated assets of 1/1.1 ~= 9%, collected implicitly.

What makes you say so? Expected inflation would purely be a tax on cash. Currency-denominated assets like loans and bonds would just get a higher interest rate up front.

Your next paragraph describes exactly that 'dodging' of the inflation tax.

Btw, you can also simply dodge eg a USD inflation tax by holding Swiss Franks. No need for NFTs.

(Of course, if you have a capital gains tax levied on nominal gains, then inflation effectively increases the capital gains tax. The solution here is to charge capital gains taxes only on real gains. That's a real problem in the real world.)

> In reality, you never get uniform inflation across all prices; instead you get something called Cantillon Effects [1], where money pools at the places it's injected within the economy and at monopolies, and never makes it to ordinary consumers.

The Cantillon effect is controversial to say the least.

In order to work like Internet Austrians commonly describe the effect, people have to be idiots who act purely on historical data and do not form any expectations.

In the real world, when the Fed announces some future policy in advance (like a taper or a new round of QE), that announcement has effects on eg the stock market right away, even when the Fed hasn't added or removed any money yet.

In contrast, for the Cantillon effect to work as described, money would need to act sort-of like a liquid or gas and 'slosh around the economy' and get stuck in nooks and crannies.

[foepys]

Not necessarily. If the monetary stimulus was like $10,000 per person, it would be totally different than lowering interest rates that mainly benefit the rich that can get even more cheap money now to buy properties off the market.

[dnautics]

Sure, some of them. But others (institutional investors) are basically able to make outrageous bids due to access to easy money.

[raducu]

A lot of those people bid because interest rates are so low or even negative

[majormajor]

So?

If they could afford an X/month mortgage, so bidded a higher total cash price because X/month suddenly was a higher total purchase price due to lower interest rates, and the original poster could only afford a X-$300/month mortage, the original poster isn't beating them anyway.

There has been an extreme shortage of supply due to some combination of people not wanting to move due to Covid because of exposure to lots of people being required, people valuing homes with more space over apartments more than they did in the past, and people not wanting to try to "trade up" because the houses they'd upgrade to were also being hit by the price increase. That shortage is what fucked the original poster here, not stimulus checks.

[fileeditview]

I think one important point is that said people need to invest into properties instead of say government bonds because interest rates are so low or even negative.

[_dain_]

But this article is clearly about the Netherlands, not the USA ...

[MomoXenosaga]

Indeed the Dutch economy is fine. Everyone expected COVID to be some kind of economic disaster but despite heroic efforts by the finance minister to spend money like water the Netherlands still only has a 70% GDP debt ratio and unemployment is at 4%.

There's a lot wrong with the Netherlands and Dutch people but economically everything is still chugging along nicely. Our sole saving grace.

[divbzero]

Not only has the Fed’s endless easing been unfair to many, I fear what will happen next. We will suffer when the bubble pops or inflation worsens or both.

[imtringued]

We'll see about that. I was predicting deflation months ago. Now that the government is cutting back on stimulus the labor market will have to support itself.

[eru]

Do you want to bet on the 'bubble popping' or 'inflation worsening'?

Financial markets don't seem to expect either. Inflation expectations (via TIPS spreads) are where the Fed wants them.

[eru]

Why? Fiscal stimulus is very expensive. Monetary stimulus is basically free.

[01100011]

But it's not free. Idiots like me are paying for it.

[exporectomy]

I can understand your frustration, but you seem to have contradictory feelings. You didn't want to fuel an asset bubble and are unhappy that you didn't?

[01100011]

Are you fueling an asset bubble every time you make a purchase?

[systemvoltage]

Don't forget, our salaries are largely unchanged although the market is finding it out the hard way (employee shortage).

So honest hardworking people got triple-fucked.

I can't imagine how well UBI would ever go. This should be the nail in the coffin for UBI for me, I will never vote for it.

[dec0dedab0de]

That's not fair to UBI.

Not everyone got it, so it wasn't universal.

They shut down most small businesses, so the benefits of the extra income were consolidated in a few major companies.

The housing market went up because people who were previously happy to live in an expensive small apartment in a busy city were suddenly forced to stay inside most of the time, and realized they would rather have a bigger place.

[systemvoltage]

Not convinced. Inflation would skyrocket, asset-holders will get richer and inequality would get worse if it already isn't. The fella working at McDonalds would get shortchanged for not playing the asset-bubble stock-bubble game as he/she is serving $20 burgers to customers.

[dec0dedab0de]

That may be true, but my point was that this is not a good example of UBI. This is a global pandemic, and a bunch of actions around it.

Though since we're talking about it, I think UBI might work if we also outlawed fractional reserve banking.

Currently, new money is created when banks lend out more than they have, I think they like to call it "leverage." This creates a type of inflation, but the only ones benefiting are the banks and the people/businesses they choose to loan money to.

Instead of allowing leveraged bank loans, we could create the same inflation by blatantly printing new money every year and distributing it equally. This would give the benefits of inflation to everyone. If you wanted to start a business, instead of getting a cheap loan you would have to crowd fund it, because all the money(power) that was in the hands of banks is now everywhere. If we needed to control inflation, we could have taxes and remove the money collected from the pool instead of using it.

It would be a bit of a balancing act to make sure enough people keep working, and that prices don't get too high, but I think it's doable.

[dnautics]

I think systemsvoltages' point is that if it's "not a good example of UBI" because not everyone got stimulus, an actual, scotsman UBI would be even worse, precisely because everyone would get stimulated.

[bee_rider]

Was this actually the last nail in the coffin for you? Or had the coffin already been buried?

[vineyardmike]

> Inflation would skyrocket, asset-holders will get richer and inequality would get worse if it already isn't.

1) I don't think UBI would be that much money per person. The UBI proposals are alternatives to food stamps, not jobs.

2) The people with money to burn and buy assets and $20 burgers would lost more than their UBI due to taxes.

Aside, in expensive west coast cities we already have $20 burgers

[systemvoltage]

$20 McDonalds burgers (the point was not about burgers at all but about inflation).

I am fine with providing social services to alleviate homelessness needs. Getting these people jobs would be the way to go. For those that cannot find jobs or are mentally unstable - they can continue to live off welfare.

UBI would go to 99.9% of the polulation that is not homeless.

[01100011]

I think you're getting downvoted for your UBI comment.

> So honest hardworking people got triple-fucked.

You're absolutely right. Real wages are actually down. If I wasn't a relatively rich SW guy and was a laborer I might be out in the streets lighting shit on fire right about now. I feel frustrated because I might not be able to buy a home again for a year or two, but there are people who are seeing their dreams disappear forever in front of their eyes. Imagine being a low-skilled person who was aiming to buy a house in a lower-tier market until outside speculators and investors move in, searching for anywhere they can park their leveraged cash piles before inflation sets them aflame. I can only hope that these piles of capital go up in smoke as the malinvestments driven by fanatical fed policy prove unwise.

[lifty]

You wouldn't vote for the party that promised to implement it you mean. I would love it if more democracies would enable citizens to vote on important issues like this, similarly to what Switzerland does.

[eru]

This sounds noble in theory, but in practice people make awful choices.

[systemvoltage]

I've always been a Democrat but lately, I am reconsidering my position. I am not a single issue voter but UBI might be the reason to not support the Democratic party for me (if it ever gets on the ballot). Thankfully, most Democrats I know oppose UBI. The reason I am reconsidering is to do with how the entire west-coast is run - living in Seattle, Bay Area, LA and Portland feels like a third world nation. I'll probably continue to vote for Democrats in the presidential election, but local and county elections it will be the Republicans or Libertarians.

[bananabreakfast]

You've very clearly never been to an actual third world country.

Having homeless people and a high crime rate does not == 3rd world. In fact, it only means many, many people want to live there due to the overwhelming economic prosperity that is clearly not equitably split.

Also fun fact: the three "third world" states you mention have a combined GDP higher than EVERY OTHER COUNTRY IN THE WORLD after the US, China and Japan.

[systemvoltage]

Hold on a sec, cut down the all caps. No need to shout. I grew up in a third-world nation and it's far better than the feces ridden shithole that is SF and Oakland, largely the bay area. Needles on walkways, crime through the roof, plastic trash on the road sides, feeling terrified of walking on the street at night, car thefts, the whole 9 yards. It is indistinguishable from a third-world country, I'd argue it is worse.

Sure, GDP is higher, thanks to big corporations and wealthy NIMBYs camping out in their caves, voting for their own demise.

> many people want to live there due to the overwhelming economic prosperity

No one wants to live in Bay Area. In fact, most engineers I've talked to want to leave and they have been leaving in droves.

[vineyardmike]

> living in Seattle, Bay Area, LA and Portland feels like a third world nation

UBI would help a lot with homelessness and blight. Also seattle is not nearly as bad as the rest of those places in 90+% of the area.

[nostrademons]

If it's coupled with actually building houses. Add UBI to existing zoning & construction regulations and you'll just see rent increase.

[WalterBright]

Inflation is a tax on cash. It's how the government can spend money without increasing explicit taxes. I don't hold any cash because of this.

However, asset inflation is not quite the solution it seems, as the government taxes the illusory capital "gains" due to inflation. I suspect the stock market surge over the last year is mostly fake inflation gains.

[arcticbull]

> I suspect the stock market surge over the last year is mostly fake inflation gains.

It's not really possible to make 100% gains out of 5% inflation. Not every price increase is inflation!

The increase in the price of stocks isn't really inflation (except with respect to CPI) because 1 share of AAPL buys you far more CPI goods than 1 share of AAPL bought you 2 years ago. For it to be "inflation" and "entirely illusory" 1 AAPL share, while priced at $150 would have to only buy you as much a 1 AAPL share 2 years ago at $50.

That makes the increase in asset prices "ROI" not inflation.

What you're seeing is a massive increase in personal savings among Americans, recently at near all-time highs. [1] Combined with FINRA margin debt at near all-time highs due to the low-cost and broader availability of loans. [2] That's my theory anyways.

[1] https://fred.stlouisfed.org/series/PSAVERT

[2] https://www.advisorperspectives.com/dshort/updates/2021/08/1...

[WalterBright]

Do you really believe that inflation is only 5%? I don't. I see big price increases across the board.

BTW, what the shares of one company does means nothing in this discussion. What the S&P 500 does means something.

[arcticbull]

(1) well I don’t know what to tell you haha, inflation calculations are public. You can’t just say without citation that ehhh I feel like it’s not though shrug - this is actually something you can calculate! Please, do it, or cite some sources - ideally credible ones! You can’t just make giant claims like that without evidence. Of course certain contributors will be higher than the average weighting - like housing - but that’s how averages work.

(2) ok the same exact thing applies to SPY shares and doubly so when you include dividends. I mean AAPL is 7% of the S&P500 and 12% of the NASDAQ and so is fairly representative but your point is well taken.

[imtringued]

Inflation is a tax on money earned in the past. Money earned in 2011 isn't as good 2021. You can't sit on it. If you actually spend it within a year the impact is barely noticeable.

There are two reasons why stock prices go up. Inflation raises revenue expectations. Lower interest rates raise the value of future cash flows. This is especially bad with land because it can absorb any additional money you get from lower interest rates. Low interest rates make your car cheap but not your house... It's a big problem.

[intothev01d]

Yes, they ultimately act at some point and not at others, and that is their policy or stance (action or inaction). The problem is the actions they've been taking that are leading to the results I'm referencing.

[GDC7]

> Even inaction is a policy

Inaction is the only policy. All the other actions are stuff that these people do to justify their existence .

With all due respect for Jerome Powell, Bernanke etc. these people are kind of frauds.

They are the only academic which are globally known and get all the respect and bows as well as recognition.

But their craft is a pseudoscience. The Nobel committee knows this, in fact the Nobel Prize for Economics is commonly referred as such but in reality it's:

"The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel"

Worlds apart.

If they were real men they'd pick a real science and face real irrelevance like real men if they are wrong or fail to make important contributions. Only in economics people are still around after getting it wrong so many times.

It seems like the more wrong you are , the more recognition you get, as people anticipate that economists who shoot frequently will get it right more than those who shoot infrequently given the randomness of their predictions

[jfengel]

There's no Nobel at all in mathematics. Does that make it pseudoscientific?

[yjftsjthsd-h]

I don't think mathematics is a science at all, nor has it been claimed to be one?

[mpalczewski]

Math isn't a science at all, nor does it pretend to be.

[GDC7]

Math is the foundation of sciences which gets the real Nobel, it would be redundant to have it in there.