[grey-area]

Maybe around the time all restraint has been abandoned - assets held by the Fed have expanded by 8x in the last 10 years (the story is the same for most large central banks).

https://fred.stlouisfed.org/series/WALCL

We already see the impact in massive asset price inflation over the last decade, a distorted bond market, growing inequality, an inefficient stock market, and a proliferation of scams and fraud. This is not going to end well and MMT is not a panacea.

How do we now leave ZIRP and QE without crashing markets and entering another depression? They have already tried several times to exit and had to abandon it.

[throwaway2037]

Why doesn't the US/EU/UK/Japan all have run away inflation?

And, what is your alternative plan to quantitative easing (QE)?

[grey-area]

We could return to the times when governments didn’t buy their own debt using an intentionally convoluted and obscure process involving third parties in order to prop up asset values and suppress risk free yields.

See the linked graph above for evidence of just how abnormal the last decade has been.

QE is a failure on its own terms. It was to be targeted and of short duration and to promote growth and suppress inflation. None of those objectives were achieved and we’re now addicted to it in ever increasing amounts, along with zirp. What do we do when the next crisis hits if we don’t normalise rates and bond buying again? How will the bond market function when the gov owns more than half its own debt? How will stock markets function when governments step in to buy even corporate bonds indiscriminately with new money?

[rurp]

The US does have runaway inflation of financial assets, due to the policies of the Fed. Housing and stock prices have been growing at a ridiculous rate for years. The country hasn't tripled its entire productivity in the past decade, but the stock market has been acting like it.

[throwaway2037]

You raise an interesting point about Fed policies (QE) and housing prices. The UK/EU/Japan all use extensive QE. The wealthiest (per capita) economies of EU (France, Germany, Italy, Belgium, Netherlands, Nordics) are not experiencing huge increases in housing prices. Actually, France, Germany and Italy are not very good places to buy houses from an investment viewpoint. Except for center of most economically important cities, most housing in those countries grows at inflation or less. And Japan certainly does not have run away housing prices. Again, they increase only slightly more than inflation.

My point: I think housing prices in Australia, New Zealand, Canada, US, and UK are "out of control" because we read a lot of English-language media about the richest places in those countries where housing supply is highly constrained. As a result, it seems like housing prices are run-away. But no one is saying that about Perth, Australia, or Leeds, UK, or Minneapolis, Minnesota, US, or Ontario, Canada. Do you see my point?

Another thing to consider, most regions of France and Germany carefully plan how much housing supply is needed, then build it -- public or private. This seems to work very well to keep housing prices very stable and affordable for middle class and below.

And Japan has national and universally applied land usage and building codes. It is almost impossible to practice "NIMBY-ism" in Japan. So plenty of houses get built, even in very crowded places like Tokyo, Nagoya, and Osaka.

[rurp]

That's an interesting perspective with some ideas I wasn't aware of. Thanks for the thoughtful response.

[dnautics]

default on the currency and never borrow again. Start following a policy of: Pay for everything this year using last year's tax receipts.

[grey-area]

That would neither be necessary nor particularly helpful.

I think you're really talking about a soft default here with 'default on the currency' (normally you default on debts, not currency), which is in fact the current policy of risking inflation to get rid of debts, but then you're following that up by suggesting austerity, which was also tried as a response to 2008 (the UK is a prominent example), and failed miserably as well.

There's nothing wrong with borrowing for counter-cyclical spending, or with borrowing in general IMO. There are other answers than borrowing to pay for everything or never borrowing and during a recession a little government support (monetary and fiscal stimulus) can go a long way.

What is wrong and dangerous IMO is to pretend that we don't need taxes any more and that countries can simply print their way out of any problem (as has become orthodoxy with MMT). This used to be called debt monetisation, and was frown upon as debasing the currency in this way usually eventually ends in financial crisis and/or hyperinflation. We'll see where it leads as this is the policy we've been pursuing since 2008 and supercharged in 2020 as you can see in the graph above.

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

[dnautics]

> There's nothing wrong with borrowing for counter-cyclical spending, or with borrowing in general IMO

1. You're stealing from the poor (via currency devaluation) to give to the rich (via government grants, if you are struggling in the tenderloin you are not getting a SBA)

2. Contemporary ethical government is predicated on the principle that the actions of the government have the consent of the governed. Sure, you can't always have that, but you want to try not minimize not getting the consent of the governed. If government borrows money, then people who could not have voted against the borrowing of that money are enjoined to pay it back (for example, people who became of the voting age after the act of borrowing). If you go to a pay-go system, the voters have approved of the taxation and the voters have approved of the use, and the chain of consent is not broken.

[throwaway2037]

"default on the currency and never borrow again"

I am struggling to believe this is a serious suggestion.

Can you please (oh please HN don't down vote me!) provide more details?

Almost all highly industrialised, wealthy nations are heavily dependent upon trade. If you default on your national debts to foreigners, they are very unlikely to want to trade with you in the (near) future. How to do you propose to overcome this issue? See Argentina!

[dnautics]

oh there is no doubt that everyone will be pissed off at the US for defaulting on the dollar since debts are denominated in it. But honestly, TINA. Due to demographics (we had milennials) the US is one of a few robust, rich, markets where you can sell your sh*t, so people will still want to trade with americans, regardless of what the government does. Finally, the US is not as dependent on foreign trade as you think. It has the lowest GDP:trade ratio of any country in G20 (worldwide it is in the very bottom: less than cuba and more than pakistan, and only above nigeria, afghanistan, ethiopia, and sudan). The US is even a net food and energy exporter, so it could probably survive a lowered trade volume. Everyone else would "be rekt", though. It would really suck for ecuador.

> See Argentina!

Perfect example. The country defaulted and it's honestly not a terrible place to be, considering what it's been through. Not everything is an exact parallel, but compare it to Brazil, where the country inflated instead of defaulted.

[imtringued]

The problem with austerity is that it is incompatible with everything else. You have to sacrifice something to obtain it. Either reducing global trade or increasing regulation (primarily more taxes on bad behavior) to keep companies in check.

[ashtonkem]

Usually austerity is coupled with drastic reductions in expenditures, both for infrastructure and things like social welfare. This kind of stuff regularly drives ruling parties out of power and leads to protest and revolt.

Not a good choice if you can avoid it!

[dnautics]

The problem with austerity is that most countries implemented it were forced into doing it and, due to the particulars of that political relationship, chosen to cut social services instead of cutting cronyism, which is also politically calculated to cause as much pain as possible for the poor and create an unpopular sentiment against austerity and coerce the entity imposing the austerity into ending it.