Remember 20% of Americans own ~80% of all the wealth in the US. So if your looking for sloshing money you should look at what they’re doing, not what “most” people are doing.
I think it’s fair to say that those a big chunk of those 20% probably have more money than they know what to do with, which probably means money is sloshing somewhere.
Probably the top 5-6%. The numbers are lower but the behavior is similar. You’d be surprised how soon you hit the “More money than I know what to do with” line.
Make 150 to 200k/year (not uncommon on HN) and what are you gonna do, buy a new car every year? Rent is paid, food is paid, clothes are good, 1 or 2 vacations per year, go out to eat whenever you want, one-off nice purchases aren’t a big concern ... it’s cushy. Not enough to buy real estate cash or anything like that, but def more slosh than you need.
I've been petty conservative about doing that and living below my means since the start of my career. In the beginning I was saving 80% of my income. That dropped over time as I got married and had to accept ramping up my expenses, but I've saved enough over the years to be about halfway to financial independence by my mid thirties. I strongly recommend intensely saving as the only fiscally responsible way to live. I don't think it's affected my happiness negatively at all. I couldn't buy everything I wanted, but having that safety net was well worth it in exchange.
As an aside, it's very odd to me that we have so much money sloshing around, and yet we're not spending it on infrastructure that would help us get off the fossil fuel treadmill and towards a more sustainable system.
Real-estate, private jets, yachts, trophy cars, trophy alimony payments, security, art collections, horse breeding, interior design, fashion, private islands, expensive educations for the kids, bequests, public philanthropy, legal fees covering both public and personal disputes, investment management fees, political sponsorship and activism...
I'm not suggesting anyone needs this level of spending - just pointing out that the people who operate in that bracket wouldn't necessarily consider themselves completely secure and comfortable, even though they're spending sums that are unimaginably huge for most of the population.
So what do you do? Personally I’m dumping it into index funds and business ideas. Maybe thinking about buying a house soonish.
Elsewhere, yeah - you’d be fine if you don’t spend stupidly.
Exactly. You save the money you don’t know how to meaningfully use right now.
(1) Adding stocks to one's portfolio makes it easier to succeed with a 4% withdrawal rate in very low interest-rate environments: https://thepoorswiss.com/updated-trinity-study/
(2) Life expectancy. People who retire at a young age, should use a lower withdrawal rate. But a person age 75, expecting to die before age 100, could have a withdrawal rate of roughly 4% (reciprocal of 100-75) in a zero-interest-rate environment.
There are a lot of places where this money has gone that are illiquid though. One would be American property; for most households a good chunk of their wealth is their house. In high-COL, high-property areas the main thing preventing a fall in house price is the lack of supply.
Another part of it is China and other countries with large amounts of USD. China has tight capital controls though so none of that money is about to leave suddenly any time soon. but if a big chunk left at once it would probably make the 1998 Asian capital flight look like child's play. Some countries like Saudi Arabia are trying to figure out how to spend it; Vision Fund literally created (and destroyed) very big companies in very short order. When Japan had this problem the hangover lasted for a decade, and depending on your view may even be continuing to this day.
Of course, the market can stay irrational longer than you can stay solvent, so these things are mostly theoretical until they're not. But no use holding your breath trying to wait for it.
A lot of people (myself included) are just kind of nervously waiting for the other shoe to drop. That the money exists but isn’t moving through the economy means that we’re essentially building more pressure in a system that is already at 0% interest rates. This should be concerning to everyone.
The absence of velocity will encourage central banks to print more money in the belief that it will encourage spending when it clearly hasn’t done that.
If in the future we start exiting our homes and going on vacations again the velocity could shoot up sharply - at which point a lot more money is moving into the system all at once. By then, there’s a good chance the horse has bolted for capping inflation.
You're not wrong, but it's a problem I'd "like" to have: too much economic activity. I'd rather worry about inflation and things running hot, with low unemployment (or high participation rate), than the opposite.
Remember late 2019, when the US unemployment rate was 3.5%?
* https://fred.stlouisfed.org/series/UNRATE
> The absence of velocity will encourage central banks to print more money in the belief that it will encourage spending when it clearly hasn’t done that.
When the central bank's rate is zero, they're flooding the market with liquidity, and bond yields are zero (or negative), then that's a signal for governments to open the taps:
> I would summarize the Keynesian view in terms of four points:
> 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.
> 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain.
> 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down.
> 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.
* https://krugman.blogs.nytimes.com/2015/09/15/keynesianism-ex...
When rates are non-zero and bond yields are high(er), then it is dangerous to print money, and government spending could 'crowd out' private economic activity.
I use a carbon / global warming metaphor instead of pressure, but same intuition. You're taking actions today that will play out in the future.
Assuming most excess money supply has gone into (a) stocks, pushing valuations up, & (b) real estate, pushing valuations up, what would cause a freeing of that money? Because until it's liquified, it's not impacting inflation.
The only way substantial amounts of money move out of stocks is if the Fed raises rates and bond yields improve. It has to go somewhere, and that's the only sink big enough to swallow the flow.
Real estate is trickier. There's only so much volume that the (at least in the US) inefficient process can handle, which means there's a fundamental process against a flash liquidation.
Heck, I'm sure if they could Switzerland and Japan would like to cease being a safe haven currency overnight; the role comes with a lot of things that have lots of downside and no upside domestically.
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The other thing might be an increase in housing supply. Housing supply increases are now firmly out of the realm of wonky think-tank policy with real advocacy happening at a grassroots level. Already Minneapolis has removed exclusive single family zoning. But this would probably take the better part of a decade or two to start showing real progress.
Supply shock inflation (oil embargo) is a different matter.
Ultimately, it's trust. As long as the market and economic suppliers believe the Fed might do that, it wouldn't be a problem.
Hence why the Fed does most of its important work through telegraphing rather than policy changes
Granted he never hiked above 20% but that was still extremely high.
https://data.bls.gov/timeseries/CUUR0000SA0?output_view=pct_... (see: 1969 - 1985)
The Fed had twiddled it's thumbs with half measures to let it get that way. So while not hyperinflation, I'd say it supports the Fed usually being cautious.
Now that we have pretty much direct cause and effect of what such a rate hike in the US would do, we probably wouldn't spend a decade and a half waffling on it.
Problem is the wealth is mostly house. Once you hit the groove, house value keeps you going. Those folks get derailed by layoffs at the wrong time or divorce.