Global real interest rates and the ‘suprasecular’ decline, 1311–2018 (2020)
bankofengland.co.uk
bankofengland.co.uk
As far as a stable society goes, low interest rates are a good sign
Even amidst this terrible pandemic, no country has collapsed, nobody has gone to war, currencies haven't been debased, all protests have more or less been handled, nothing is truly out of control. Mass death and failure, yes, but the banks are still open, the lights are still on, the trash is still going out, your mail is still arriving... Things are more or less still operational
Nobody has seemed to realize that it's the rate of change in interest rates that has an effect, not the absolute level of them (within reason).
The stock market is one giant bubble.
People talk occasionally about negative interest rates, and wonder how A) that might work and B) how not to have people realize what a house of cards it all is.
But sure, rates are low and everything is great!
Devalued currencies tend not to be consistent with historical stability - they tend to arrive around the same time a society "resets".
We’ve printed trillions of dollars and Congress is en route to print trillions more. The price for that has yet to be paid.
Sure, rationality suggests that printing dollars will reduce the value of dollars. But kickstarting inflation is in some ways the entire point, no? And it has remained consistently below FR targets for the past decade (I believe, I'm not an economist and I'm not looking at any charts)
Ten years ago, I bake a loaf of bread, and sell it for a dollar. Then I invent an amazing machine that can produce the same bread more cheaply. I'm about to drop my bread prices, but you mint some new coins and add them into circulation. So I keep the price at a dollar per loaf.
I scrutinize my bread supply chain to the last detail. I optimize the flour, I optimize the temperature. I fire all the workers and replace them with machines. I'm saving every penny I can. Loaves get made faster! Loaves get made cheaper! Bread is flying off the conveyor belt!
You pull a lever and crank up the printing press. Dollars are being added in the millions, in the billions!
The price of bread stays at a dollar; has the currency been debased? I honestly don't know.
i say no it hasn't. Imagine a third person, who mows lawn for $1 an hour. He has not improved his lawn mowing during this time period which the baker has made improvements to bread making. So the work of mowing the lawn for $1 should stay the same regardless of what the bakers did - and therefore, the lawn mower being able to buy bread for $1 is not unreasonable.
The currency has not been debased. However, the potential for it to debase in the future has grown massively.
One day politicians are going to discover sensible policy (maybe Biden will do it, I don't know) and somehow magically increase inflation. That same day will open all floodgates on all dams.
The correct strategy would be to increase taxes and interest rates and cut stimulus spending once that has happened and we'll be fine. Crying hyperinflation is not the right strategy.
Just because cheap, crappy electronics and egg McMuffins don't appreciate in cost and stay crappy and cheap does NOT mean inflation is low. Anyone can play stupid games where you say inflation is low if you only pick certain goods made by robots or poor people overseas.
(As a note, local wages have risen less than the government's calculation of inflation, which is primarily food and secondarily consumer goods)
You're not wrong, but I ran into an interesting observation: yes the prices for many high-end institutions have gone up, but those are 'list' prices.
How many people pay list? How many people get bursaries and offsets from endowments?
I'd be interested in seeing those stats.
By recognizing what the real limits to borrowing are you also gain an understanding of what to spend the borrowed money on.
The equation for inflation is: M x V = P x Q
Everyone talks about "printing money" (money supply: M) with the Fed, but no one seems to pay attention to velocity (V). Which has dropped off a cliff:
> The velocity of money (or the velocity of circulation of money) is a measure of the number of times that the average unit of currency is used to purchase goods and services within a given time period.[3]
* https://en.wikipedia.org/wiki/Velocity_of_money
Good video by a CFA trainer:
* https://www.youtube.com/watch?v=l0mh7cCjwDU
The first 10 minutes (maybe 20) probably has the most pertinent information to this discussion, but I've found the entire video to be interesting on inflation.
The traditional thing to do is raise interest rates when things start getting hot.
But having "too much" economic activity is in some ways better than not enough with people being unemployed and such.
They may at some point become "too confident" and start feeling that the 'party' may never end. So they go out and spend more and more: on new clothes, on renovations, or second (or third) houses, on new cars, boats, etc.
However, there's only so much capacity for (say) manufacturing: only so many cars can be built, and if you really want one, then you'll be will to pay $40K to get the new shiny instead of trying to haggle down to $37K. There's only so many housing builders and lumber that is available: and if you want more square footage, they'll be setting the price that you have to pay.
I'm not sure how old you are, but in the 2006-2007 timeframe there was a lot of "irrational exuberance" before people over-extended themselves.
The movie The Big Short is an entertaining and fairly accurate take.
If there are more jobs than workers those workers will pick the highest paying jobs. That's inflation.
Here, I'll give you a simplified example. There is this game called prosperous universe. You can buy FE (Iron) to make BBH (construction material). People need BBH to build factories or farms or whatever. When everyone is producing BBH the demand for FE goes up. There is only a limited amount of FE on the market. You are buying the cheapest FE first. Eventually all the cheap FE is gone and only the expensive FE remains. The price of FE has risen. That's inflation. How do other players respond? They start investing into production of FE because there is a very clear profit motive.
Every factory you build in the game needs workers. By building factories you directly decrease unemployment.
I can also give you the opposite example. There is a high end facility that creates ES (Einsteinium) but there is very little demand for it. You run the factory for a month and start stockpiling a months worth of production. Then you demolish the factory because you don't need it anymore. Those workers are now unemployed.
You have to consider that unemployment has a greater impact on your finances than the inability to make money off of a checking/savings account. Actually, the interest rates are generally high enough that your returns cover inflation so in practice you are not losing anything.
That sounds correct, under the assumptions of classical economics.
Inflation is the cost of things going up. Classically, price is considered an equilibrium of supply and demand. If I print money, but don't use it to demand goods, why would the price of goods change?
Reality is more complex than classical economics (and I should note, I'm not an economist). Expectations of inflation (due to say, seeing a giant pile of cash coming off the printing press) can trigger prices to rise.
But hopefully that helps to explain why it's generally accepted that velocity plays an important role in inflation, not simply supply of money.
Ceteris is not paribus at all. If we're complaining about potential inflation rather than worrying about the raging pandemic and a full-blown depression like unto the Great Depression, we're in comparatively good shape!
That is correct. What you're missing is that a large fraction of created money used to come from banks lending money. During a recession, or a pandemic, that lending tightens, which slows the rate at which money is created, and speeds the rate at which money starts getting destroyed.
It's why the fed prints money during recessions, and destroys money during economic booms.
How much house can a dollar buy versus twenty years ago? If the dollar was indeed rising in value over time, a dollar would buy more house today than in 2000. Before we left the gold standard, a dollar indeed held its purchasing power over decades. The price of gold is effectively an inverse measure of the value of a dollar given that the amount of gold is basically fixed.
A better question might be, how much would you have volunteered to pay twenty years ago for the functionality an iPhone gets you today? In 2001, if today's iPhone were being sold, what price would have made it a successful product among average consumers? (Not, say, the military or super-wealthy).
I think... Less than $10,000 for certain, less than $5,000 most likely. In that sense the price has certainly come down, but semiconductors and electronics has obviously gone through rapid technological scaling and deflation is expected in that sector.
Interest rates is the manipulated variable, inflation is the observed.
Appreciate you catching that.
First off: it's not Congress that controls the money supply, it's the Fed. They're independent.
> The price for that has yet to be paid.
What price is that? Inflation? Japan's M2 has risen a lot, and it hasn't seen any for decades:
* https://fred.stlouisfed.org/series/MYAGM2JPM189S
* https://fred.stlouisfed.org/series/FPCPITOTLZGJPN
Japan's interest rate has been below 1% since April 1995:
* https://fred.stlouisfed.org/series/INTDSRJPM193N
From 2002 to 2006 it was 0.1%.
The equation for inflation is: M x V = P x Q
Everyone talks about "printing money" (money supply: M) with the Fed, but no one seems to pay attention to velocity (V). Which has dropped off a cliff:
* https://fred.stlouisfed.org/series/M2V
The Austrian, Milton Friedman Monetarists have been squawking about inflation for ten years:
> We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.
* https://economics21.org/html/open-letter-ben-bernanke-287.ht...
Meanwhile the Keynesians have been saying it wouldn't be a problem. Both sides made predictions, results are in, the experiment is over:
Start listening to Keynesians.
Houses are up massively, land, cars, stocks, crypto, etc.
The inflation measurement is off. But the inflation is here.
* https://awealthofcommonsense.com/2021/01/inflation-truthers/
* https://news.ycombinator.com/item?id=25644580
If you don't believe the government-published CPI you can confirm their work, as others have done:
* https://en.wikipedia.org/wiki/MIT_Billion_Prices_project
For your items:
* Monthly carrying costs haven't changed much: prices up, but mortgage rates are down. Plus average square footage has gone up, so you're getting more.
* Land depends on location, and urban prices have gone up because it's more cool to live in the city now than in the 1970s and 1980s. I live in Toronto, so I know all about land/housing prices over the last 10-15 years.
* Modern cars have more power, while burning less fuel, and being safer, and on average lasting longer, for the same money. I own a 2003 Golf that I paid $30K for (in 2003). What's available for $30K is a lot better, and the equivalent dollars today is closer to $40K—which gets you some sweet things.
* I was invested in 2008: I've seen stocks go up and down.
* Crypto is a Ponzi scheme.
As someone with another couple of decades until retirement I'd love a crash about now so that I could "buy low".
> Is there a framework we should be describing this with besides the broad “inflation” term?
If asset prices are higher than what they "should" be, then one generally calls that a bubble.
Further, the resources needed as raw material are finite (unless we start asteroid mining), as is the energy needed in the process: we have only so many gigawatts we can produce at one time.
More plants can be built, but those take resources as well: some of the very same resources that are needed to build the cars we're talking about.
I've never heard anybody educated on the matter make this statement. It's always from someone that doesn't understand it and therefore thinks it's a scam.
It has failed as a payment system, as a currency, as a reserve currency, a remittance channel, a timestamping service, a settlement layer, a bank for the "unbanked", a cypherpunk liberator, a money laundering tool, a drugs-by-mail tool, a unit of accounting, a store of value, and as a "disruptive" fintech technology.
What exactly is the value in holding Bitcoin (or whatever)? My only hope is having someone in future come along and take it off my hands at a higher value than I bough it.
When I think of crypto/Bitcoin, I am reminded of Warren Buffett's view on gold:
> Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.
> Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?
[…]
> A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
It is more akin to tulip mania, dependent on inflated futures with diminishing utility.
Presently though, it's better than cash, which finds itself in a similar position.
I bought it when I graduated and my first job was in an office park with little transit. Since then I've mostly worked in more urban areas, so I've been able to take transit or pedal, and so mostly use the car on weekends.
I agree but that doesn't explain why Bitcoin had multiple bubbles and survived all of them. Bitcoin is highly deflationary. Bitcoins are lost all the time. The supply is only growing very slowly. It's also an "immature" asset compared to gold so a large influx of a new class of investors can drive the price up.
For the same reason people still go to astrologers or think that during the playoffs the can't shave or their favourite team will lose: cognitive biases and wishful thinking.
* https://en.wikipedia.org/wiki/List_of_cognitive_biases
The fact that the bubbles happen so often and and so drastically is another reason that I avoid it: volatility is generally a proxy measurement of risk, and what reward am I gaining by taking on this risk?
Everyone is bullish on it at >US$ 40K, but people seem to have forgotten that it dropped by half in two days in March 2020:
* https://www.cnbc.com/2020/03/13/bitcoin-loses-half-of-its-va...
If someone wants to have it in their 'portfolio' at some small percentage as part of their "play money" that's one thing, but to make it a significant portion seems foolish to me.
I do feel a bit of FOMO, and may eventually create a trading account with like 5% of my portfolio for playing around in WSB and Crypto and such, but right now I'm fully invested in index and bond funds (80/20), so don't really have spare cash available for any of these temptations.
A lot of younger people don't seem to realize that this is new. That you used to be able to put your money in a bank and not lose it. While rock-bottom interest rates are good in some ways, I don't see this as a positive trend overall, especially given how shark-filled the financial waters are for most people. I'm a big fan of the Vegas dictum - "there's a patsy at every table, and if you don't know who the patsy is, it's you". As a retail investor, you're pretty much always the patsy.
Unfortunately we're seeing land prices and stock prices and crypto (etc) bid up instead of, say, a massive build out of factories and solar farms and multistory houses. (EDIT: We are seeing lots of houses being built, actually. Lumber is near all-time highs.)
But why did this apparently only become the case after 2008? Positive real returns without gambling were acceptable before that, and we still got a gigantic speculative bubble, so why does it suddenly become reasonable to encourage bubbles even more? Was it just a coordination problem? An initial panic reaction to slash to zero, and then no central bank being willing to go first and unwind it?
As you say, the other major part of this problem is the inability or unwillingness to steer money toward productive investment rather than speculation. Here in the UK it's housing that's the killer; my suspicion is that governments have become addicted to the jam-today enabled by the money created for mortgage loans, which will then have to be paid off on some other poor sucker's watch.
The Fed provides loans to banks who then provide loans to companies so that they can grow faster. It's about increasing efficiency, not about total possible upside.
However, there is a point after which businesses have enough loans for all the investments they have planned. Every single dollar after that is too much and does nothing.
The next step is to spend money in a way that creates more investment opportunities for those companies. In short you want to balance supply and demand.
The simplest spending target would be to pick a industry that is not in competition with private industry. My personal favorite are renewables and other infrastructure because you will not displace existing companies through government spending.
Carbon taxes also create an incentive to borrow more money and do productive work but they do gnaw at CO2 spewing private industry which is the entire point but there are vested interests that don't want to lose their money.
What you are calling inflation is actually the opposite. It's deflation. When hoarding assets becomes more profitable than working, the real world economy starts dying and CPI reflects that very well.
Workers benefit from inflation because inflation is generally followed by productive investments. Driving prices of consumer goods up makes it profitable to produce them which makes it profitable to employ people to produce them.
Deflation makes it harder to run a profitable business but it also makes it easier to run a non profitable business (that also includes overvalued businesses that do not earn enough to justify their valuation).
Velocity of money is a measure of economic activity. If Q is the GDP and constant, prices will go up if economic activity goes up. So only if economic activity does not pick up, will the prices not go up.
* https://www.marketwatch.com/investing/index/bcom?countryCode...
Real estate is an asset: the CPI measures carrying costs, and those are fairly level. You get more automobile now for your money than in the past: I paid $30K for my 2003 Golf, and for the same $30K I get more safety, more horsepower, and better mileage.
I agree that health care and education (in the US) are the main areas where costs have risen.
The only group I have seen making predictions over the last 10+ years who seem to be successful are the people suggesting that central banks do NGDP level targeting instead of what they're doing right now.
> I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.”
* https://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithm...
Austerity does hurt economic growth:
* https://krugman.blogs.nytimes.com/2012/04/24/austerity-and-g...
From what I've read on the topic, it's hardly ever been a good idea, especially in depressed economies:
* https://en.wikipedia.org/wiki/Austerity:_The_History_of_a_Da...
> That is, Keynsians tend to over-focus on fiscal policy and ignore the monetary side
AFAICT, Keynesians are both-and thinkers. Monetary is done first, but once you hit zero rates, then what more can you do from that angle? Printing money is only useful when you also have velocity, which has at first decreased and lately fallen off a cliff:
* https://fred.stlouisfed.org/series/M2V
At that point you have to move to fiscal. Krugman examined this in 1998 when Japan entered the quagmire before everyone else:
* https://www.brookings.edu/bpea-articles/its-baaack-japans-sl...
> are the people suggesting that central banks do NGDP level targeting instead of what they're doing right now.
Who is writing publicly on this topic, either in weblogs, articles, or Tweets?
See, this is one of those claims that is interesting to me because I never see anyone proposing what a "non-anemic" level would look like. No matter what gets proposed for fiscal spending, the response is "that won't be enough; we should spend more", without quantifying more.
As a scientific claim, it's unfalsifiable, fundamentally, which makes it hard to work with usefully.
> Austerity does hurt economic growth:
First off, there's a lot of cherry-picking going on. The US did "austerity" things, people claimed the result would be disastrous.... and it wasn't. Europe did austerity, but _also_ very tight central bank policy at the same exact time; results were not great, but it's hard to blame this on just "austerity" given the central bank behavior.
Just to be clear, I am not claiming that austerity _improves_ economic growth, which seems to be what the wikipedia link you post is about. I'm claiming that the specific predictions made about austerity by adherents of specific economics intellectual movements in the last 10-15 years did not in fact match what actually happened.
> but once you hit zero rates, then what more can you do from that angle?
Tons, if you want to, because you are not limited to short-term rates as your policy instrument. Those rates are correlated with monetary policy (in the short term; anti-correlated in the long term), not causative.
Note that at the point when we hit "zero rates" central banks were doing all sorts of monetary tightening (positive interest rates on reserves!, the Fed raising its policy rate 9 times over the course of a few years and consistently missing its inflation target on the low side in the process, etc).
https://en.wikipedia.org/wiki/Negative_interest_on_excess_re... is absolutely a thing you can do to increase V when you hit "zero rates". But more importantly, a large part of monetary policy is expectations management. If people expect you to undershoot your inflation targets, they act accordingly and it actually gets harder to hit the targets.
> Who is writing publicly on this topic, either in weblogs, articles, or Tweets?
https://www.themoneyillusion.com/ has been writing about it for a while now. Less recently, as the idea has gained more widespread traction; a lot more around the 2008 financial crisis and aftermath.
Is the real question here "what is this and why is it supposed to be a good idea" or "who are these people who are making better predictions"?
They are slowly making it a foregone conclusion that any policy that favors companies with actual operating returns over inflating ratios will necessarily crush everyone's retirement portfolios, and therefore any such move would be politically untenable.
It discourages hoarding. You can make capital gains off of so many different reasons that have nothing to do with the performance of the stock. It's insane.
Meanwhile dividends are entirely dependent on the income of a company. You can't cheat dividends because it's the company that has to pay them, not other investors that can drive irrational behavior.
But this is only the beginning: If the US gets that $1 trillion debt, that money didn't just vanish. It gets spent in the economy, people consume things, stay employed etc., infrastructure gets developed and so on. ROI is usually there after only a few years: "Research [...] showed that one dollar of public money spent during the 2007-09 crisis could generate 2.5 dollars of output in five year’s time." https://theconversation.com/how-much-bang-for-a-buck-working...
So for every $100 the country borrows in the current climate, it only has to pay back a $37 in 50 years while getting returns of over $200 in 10 years.
The majority of dollars in existence do not come from the printing presses of the Fed.
The majority of dollars in existence appear from thin air on the balance sheets of fractional reserve banks, when they lend money, for business loans, personal loans, and mortgages.
During a recession, people borrow less money, and businesses tighten their belts. In order to prevent the monetary supply from shrinking (thus causing deflation[1]), the fed generally needs to start printing money.
Now, we may say that they printed too much money, or that the money did not go to the best possible places for it, but from 30,000 feet, turning on the printing presses was a sound move.
[1] Deflation is utterly horrible, and should be avoided at all costs.
“Risk” has excited forever. Risk is not a new recognition!
This is what pretty much every economist has said about market behavior. Participants don't need to understand theory for the markets to work. In fact, things get weird when participants DO understand it. Humans set prices long before written language was developed to describe supply and demand.
The danger that things might not work out had to be thought out since you had societies of moderate levels of complexity.
See: https://en.wikipedia.org/wiki/History_of_insurance#Ancient_e...
I wouldn't be surprised to find such relationships chiseled in ancient tablets. Trust, risk and reward among groups is a topic that animal behaviorists study. I'm certainly not in that field but I believe they claim it's a common evolutionary trait and have done experiments with children and primates to show primates lacking this intuition wherein 2-year old humans don't.
There was a lecture about this I saw recently. I'll have to dig it up
edit: here: https://www.lse.ac.uk/Events/2020/11/202011191630/cooperatio... links at the bottom
Wars, disease, and poverty have been on the decline [0], which is great and makes things more stable and predictable, and therefore debt is less risky and less expensive.
It would be great if these trends continue and don’t reverse. However I can’t help but think of the risks climate change will introduce to our world. A world with more extreme weather events is going to chip away at all this stability we have and push us into a less predictable world again [1].
[0] Is the world getting better or worse? A look at the numbers https://m.youtube.com/watch?v=yCm9Ng0bbEQ
[1] How climate change threatens to wreck the economy https://m.youtube.com/watch?v=SMBNWmQcRAc
Covid has killed a lot of people and created a lot of heart-break, and it would be heartless to try and minimise that or to view it in purely economic times in this moment.
However, I think that in 100 years, future historians will describe the effect of the deaths itself as being pretty negligable: maybe 10% over the expected rate without Covid in 2020 and 2021, maybe 5m people in each year total, against an expected death rate of 50-60m. Many of these deaths were people outside of the primary workforce, unlike say WW2 which killed off many of the young able-bodied men the mid 1900s economies primarily relied on.
I guess all I'm really trying to say is that when the story of Covid is written in 100 years time, "mass death" probably won't get much of a look-in vs economical and mental-health costs of lockdown, disruption to business, and so on.
In NY State and NYC in particular its closer to 30%. Counting total “excess mortality” in NYC is closer to 60% on the year. Note that we’ve annualized here and ~90% of the death in NY took place in about an 8 week period, where the daily death ratepeaked closer to 500-1000% of normal for a week or two. So yes, there was mass death.
There are many similar stories in areas of California, Italy, England, etc.
This has been a terrible and tragic event for millions of people. The worst is it was completely avoidable if some of our governments had only valued proper planning for such a predictable event
I can’t get over the techbro straw man of the “lockdown” I’ve seen thrown around a lot. First, compared to most of Asia that actually got this virus under control, we have never really had much of a true lockdown here. Second, it’s not the lockdown, its the pandemic. In most areas economic activity dropped off well before any lockdowns and has remained subdued regardless of lockdown duration as long as the virus remains active.
That is - the economic activity drop is more correlated with level of virus outbreak than with any government orders.
In NYC, everyone I know got sent home a week or more before any city/state lockdowns started.
The only time offices were mandated to be closed in NYC was about 8 weeks when we had refrigerated trucks parked outside hospitals acting as mobile morgues, and the National Guard picking up 100s of bodies per day of those who died at home.
For the most part companies have kept people WFH because they can get close to 100% productivity with close to 0% absences due to disease & death.
The mental health angle of more time spent at home, I still think is a wash. For every extrovert craving lording over a conference room of coworkers, there’s an introvert enjoying reduction in forced social interactions. Lots of people actually like their family & enjoy spending more time with them.
Even introverts can miss going outside or seeing their family.
A counterfactual: how many people would be affected if their spouse/parent died without the lockdown? These tragedies are unfolding in many countries, and by this misfortune we'll be able to see, in retrospect, the impact of government interventions vs outcomes in a pandemic.
Groceries restricted number of simultaneous customers, but I could go anytime and as many times as I wished. Restaurants were open for takeout. Parks were open, and capacity was not enforced. Transit was operational. I could get in my car and drive wherever, Uber was running, etc. I’m fairly certain flights were running through this. So people were socializing indoors with friends&family obviously.
Many singles in their 20s I knew went back home to mom&dad, especially if they lived alone.
No curfew. In fact the only curfew we had was a few days during BLM rallies.
[1] https://www.theage.com.au/national/victoria/suicides-in-vict...
And parts of europe had more of a lockdown than the US and the population fatality rate is worse. I wonder if covid just doesn't care about lockdowns; the countries that haven't gotten hit badly are 1) an island. 2) an isolated continent. 3) an island 4) a country that sits on a peninsula that has a hugely militarized impermeable border. and 5) a group of islands. Even within the US, the state that has the lowest per capita covid rate... Is an island. Even at the micro level, the city in the bay area that is one of the least affected... Is an island.
On the other hand the UK has a higher CFR and a higher per population mortality than the US, so...
Lockdowns seemed to work in my country early in the pandemic. But in my country many covid measures are reliant on goodwill and voluntary compliance, so if morale drops (as you'd expect with extended lockdown), you expect lockdown effectiveness to drop as well.
It’s clear to me that keeping us out of offices and trains stopped the spread. Unfortunately it had been in the city for 2+ months prior and then ravaged the elderly & medical&front line workers who were out there dealing with it while we got to WFH.
Close, especially indoor contact, without masks, in cooler dry weather appears to be the recipe for disaster here.. ‘ We are seeing it play out in Wave 2 (or 3?) here as people have all gotten very sloppy, even if they are WFH.
From March-October in my social/family circle I knew 0 people with COVID. We were all at home, and people got scared straight pretty quick. Come summer things opened and cases dropped..
From early November to Christmas I knew 30+ people with COVID. Where did they get it? Kids came home from college with it. They went to bars indoors for hours. They dined indoors at restaurants.
B.1.1.7 variant. Coming (already in) the US.
Japan and South Korea had relatively big late December/early January waves. Not US-big, but enough that I wouldn't call it "under control."
China is controlling it, but with another round of strict lockdowns.
Taiwan is doing well. So is Singapore. I'm sure their policies are part of the reason, but I suspect the climate helps, too.
Let's not forget that there are a lot of people who don't live with families or in couple. For them (I am in this case too), most of social interactions are with colleagues during the day and friends in evenings or weekends. Both of these options are at minimum severely hindered.
The U.S. Civil War 150 years ago is a good benchmark. We look back now at the level of death with horror, especially deaths among those receiving what passed for medical treatment back then. But of course back then, that was how medicine worked and it was not remarkable that so many people died after surgery.
Or if you want to look back closer to 100 years, look back on the level of death and disease related to World War I or the Spanish Flu.
The benchmark for evaluating our response to COVID-19 will not be some percentage over the death rate we expect today, but the optimum that people 100 years from now think we could have achieved with a competent response. Historians will be in a better position to judge the details than we are (for example, by having full access to the collected archives of various national governments of today).
But it's clear even now that the U.S. could have had far fewer deaths than we did, with a better response. Look at how well we did against SARS and MERS, or how well some other nations did against COVID-19.
The Trump administration failed to staff, fund, and prioritize that work at the same level.
There is tremendous leverage at the beginning of a pandemic, but it dissipates quickly. That’s why continuous planning and preparation are so important.
By the time the Trump administration got serious about the response, it was too late, they had lost most of that leverage. Most of the things people argue about now—lockdowns, school closures, mask mandates, etc.—happened well after that point.
The sheer incompetence, misinformation, petty squabbling within and between countries is going to make it to the history books. Disruption to business won't even be a footnote.
Encephalitis lethargica killed 500,000 people and overlapped with the influenza of 1918, as it preceeded and continued afterwards and disappeared as quickly as it came. Subsequently many of the Encephalitis Lethargica patients developed coma-like states in the decades to come, and stayed that way for the rest of the century until they died.
We already know COVID is a neurological disease too, which is why taste and smell get disrupted. So we'll see as time goes on.
Now WW1 with Spanish flu killed high percentage of prime of age people.
Not a localized famine or war, but a global thing.
What can it compare to? The number of dead is remarkable.
With the growing antivax movement making herd immunity less certain...this will surely be known for the number of our dead
Zero are even better. We've known for literally thousands of years that interest (usury) is parasitic, immoral, and dangerous. Islam, Judaism, and Christianity all outlaw it. Yet we continue to engage in it and wonder why we end up in mess after mess.
My opinion of “usury” is that it refers to loans where the interest continues to accumulate if the debt is not paid. I think this can be solved by considering the contract to be a thing that terminates at a specified price.
We're not going to have any meaningful progress if this issue is not tackled. Any talk of "equity" is nonsense until then.
> setting it to zero causes all sorts of distortions
It doesn't, because under Islamic law, loans are purely an act of charity. That's how the Islamic world has operated for a very long time now, until relatively recently where some people have succumbed to the Western economic practices post WWII. If you want to make money, you invest it, where the investor and invetee both take on risk, not like the basically one-sided interest contract where the lender is all but guaranteed to profit.
Thank God and all His angels that I’m not Muslim then.
> We're not going to have any meaningful progress if this issue is not tackled.
Exactly, however tackling it is going to include educating people on the time value of money.
> It doesn't, because under Islamic law, loans are purely an act of charity.
Fortunately I don’t abide by Islamic law.
> If you want to make money, you invest it, where the investor and invetee both take on risk, not like the basically one-sided interest contract where the lender is all but guaranteed to profit.
Lenders are not even close to guaranteed to profit, and a loan is a type of investment.
Which Islam acknowledges. As a matter of fact, the borrower is encouraged to return more than the amount he borrowed as a show of gratitude, but it cannot be in the loan contract nor implied or enforced in any way.
> Fortunately I don’t abide by Islamic law.
Yet people keep crying at the wealth gap and inflation rates and the government printing money and only a tiny percentage at the top benefits at the misery of everyone else. Islamic law is there to make a stable and just society, not for us to be wolves and destroy one another, which humans have done time and time again and it's never going to change.
> Lenders are not even close to guaranteed to profit
They are contractually owed a profit. They can go after the borrower in case of default with the full support of the law and take not only the principal, but the interest on top. This would never happen if the loan were an act of charity. The fact that the entire banking industry exists is proof that it's a very lucrative business to be in.
> and a loan is a type of investment
This isn't a strong argument because hiring a hitman is also an "investment" or "business transaction". Islam places restrictions on investments. For instance, investing in a tobacco company or a casino is prohibited. Lending money with interest is another prohibited investment.
If people are free to practice Islam then they must also be free to choose not to practice Islam and require interest on loans.
> Islamic law is there to make a stable and just society, not for us to be wolves and destroy one another, which humans have done time and time again and it's never going to change.
Respectfully, I’m not interested in becoming a Muslim.
> They are contractually owed a profit.
They are contractually owed a payment. Its not profit until expenses are subtracted. And there is always the risk that the other party does not return the money.
> They can go after the borrower in case of default with the full support of the law and take not only the principal, but the interest on top.
It seems you may have identified a problems with the law then.
> This isn't a strong argument because hiring a hitman is also an "investment" or "business transaction".
A hitman is not an investment and as a transaction, it is for the performance of a crime (presumably). So it is already prohibited as it is the commissioning of a prohibited act, there is no need to consider it an investment to regulate it. Surely Islam also prohibits murders if they are done for free.
That's not the point of discussion. The argument is that we have known for literally thousands of years that charging interest on loans is a destructive practice. It's banned in Islam, Judaism, and Christianity for a reason. Yet we cry today at the mess we're in, as if we didn't know any better.
> They are contractually owed a payment. Its not profit until expenses are subtracted. And there is always the risk that the other party does not return the money.
They're owed more money than the capital. That's what is prohibited. It doesn't matter if it's profit or revenue. Banks operate and generate ridiculous profits on this basis.
> It seems you may have identified a problems with the law then.
So the law can't protect the contract? What's the point in writing a contract then in the first place? Take that away and no business contract makes sense anymore since it can't be enforced by the law.
We don’t know that, we only know that Abrahamic theocrats have prohibited it.
> They're owed more money than the capital. That's what is prohibited. It doesn't matter if it's profit or revenue.
Yes, this is foolish.
> Banks operate and generate ridiculous profits on this basis.
Banks generate ridiculous profits in fractional reserve banking. In a system where they have to survive on the difference between interest collected and interest paid then they only profit when they make good loans and are able to collect them in a timely manner.
> So the law can't protect the contract? What's the point in writing a contract then in the first place?
How does the law draw blood from a stone? You yourself said the law is wrong for continuously accumulating interest on an unpaid debt. It seems youkve forgotten the problems you already identified.
> Take that away and no business contract makes sense anymore since it can't be enforced by the law.
This only applies to the business contract that we have both identified as problematic.
(1) They're prophets. (2) We know that, look around you at what's happening.
> Yes, this is foolish.
It's not. Look around you at the disasters.
> they only profit when they make good loans
An interest bearing loan is, by definition, not good. It's predatory. So it means that those banks profit most on the most predatory loans, exactly as I was explaining.
> You yourself said the law is wrong for continuously accumulating interest on an unpaid debt
That's part of it. The argument is that the law protects interest bearing loan contracts instead of nullify them.
I'm pretty sure USA will start a new war in 2021-2022. Most probable targets are Iran, Saudi Arabia, Russia.
Russia is the most lucrative target but because of nuclear weapon, most likely more and more protests would be organized to attempt to destroy the country from inside, like they did in Ukraine in 2014.
If this strategy fail or is taking too long time, Iran or Saudi Arabia should be prepared. Saudi Arabia is an ally but it's so rich in resources, that there will be some Casus Belli found.
Besides there's no longer even a need for even remotely plausible explanation to start plundering other country. Facebook, YouTube and Twitter will explain it all and block all the discontent.
Which "they" are you referring to?
Victoria Nuland giving out sandwiches (literally) in Kyiv is not the same as unmarked Russian special forces opening police arsenals and giving out weapons to criminals in Slovyansk.
Also, my initial point wasn't about Ukraine which served it part already - there's almost nothing left to plunder.
I wanted to leave a prediction that in 2021-2022 there will be a new war because USA desperately needs it. For many reasons, mostly economical. I've also named next most probable targets.
Just to say "I said so" when it'll happen and point to the original comment.
I wanted to leave a prediction about approaching war. There will be an attack by USA. What still puzzles me is what would be the casus belli because after this year not many people outside of US believe in democracy in US. So, the usual argument: "We bomb X to bring democracy!" will hardly work.
Maybe there would be some kind of provocation, similar to 9/11. "Russia did it. We found a Russian passport where it happened!"
" Against their long‑term context, currently depressed sovereign real rates are in fact converging ‘back to historical trend’ — a trend that makes narratives about a ‘secular stagnation’ environment entirely misleading, and suggests that — irrespective of particular monetary and fiscal responses — real rates could soon enter permanently negative territory. "
"if historical trends are extrapolated, R-G will soon reach permanently negative territory –a first since at least medieval times."
"Whatever the precise dominant driver – simply extrapolating such long-term historical trends suggests that negative real rates will not just soon constitute a “new normal” – they will continue to fall constantly. By the late 2020s, global short-term real rates will have reached permanently negative territory. By the second half of this century, global long-term real rates will have followed."
Remind me, who was it that wrote about the tendency of the rate of the profit to fall over the long term, until the point it provokes a crisis?
https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit...
This is the first thing that came to my mind as well...the current data on falling rentier rates, crises of political economy etc. makes sense in light of that old model.
I am actually with you on the first sentence but your counterexample is weak at best
The time value of money can be negative: A dollar today can be worth more than a dollar tomorrow.
It's not pretty. When the pie is shrinking the incentives get ugly rapidly.
Let's hope this can be a "good" deleveraging, we fix metrics that don't positively correlate with non-zero-sum productivity growth, and on top of that pull the next rabbit out of the hat where we can keep exponential growth happening for another cycle (spacex, EVs, etc).
Otherwise, we'll be fighting over a shrinking pie, which is nature's way of adjusting the population to the modified carrying capacity.
It is generally assumed that in an inflationary economy, a dollar today is worth more than a dollar tomorrow
The post above seems to talk about deflation.
It's possible we're just using a different sign convention (or perhaps I've missed something more fundamental)
If we continue growing the economy at 2-3% YoY we will be extracting all energy from the Milky Way in 1000 years and applying it to the economy. Not probable!
Clearly there is some transition to the upper part of this S-curve and things need to change when we get there. I wouldn't be surprised if we already are there for most sectors.
gdp growth =/= energy consumption growth
Also 1.03^1000 = 6.810^12, but wolframalpha says the number of stars in the milky way is 310^11. Considering that we're nowhere close to capturing even 1% of the energy output of energy that reaches the earth, let alone all the energy that the sun emits, your estimate of 1000 years is probably off by a few orders of magnitude. Finally, if we're actually capturing all the energy of the milky way, presumably we'd be a space faring civilization and can therefore colonize other galaxies, making that a non-issue.
As far as data is concerned, the correlation is pretty big though: https://theshiftproject.org/wp-content/uploads/2020/05/gdp_e...
It's interesting to see how world trends look as more and more of the world ends up in the position the US was in 20 years ago in terms of economic mix.
That argument is built on the fact that we don't find efficiencies. A lot of economic growth is simply much more efficient use of resources, ie less resources and much greater return. A couple of decades ago you needed a lot of expensive copper to connect a city with phone and slow internet access. Now all you need is cheap thin plastic for gigabit+ speeds.
A computer 70 years ago was an enormous contraption made of of literally tons of expensive metal components, while a raspberry pi zero has a tiny bit of copper, resin and silicon. The latter is vastly more powerful and cheaper.
Sure, growth can't last forever, but we have a long way to go.
Put another way, if the number of dollars is constant in your account between today and tomorrow, but you can purchase less with it, you've lost wealth.
The only time I see that it wouldn't be true is if there was risk in carrying it - taxes, negative interest rates, or theft. I could see for example a tonne of gold tomorrow being more valuable than a tonne of gold today since you'd have to deal with storage and security and such.
The time value is positive by definition, unless you somehow get penalized by having money in the future. Inflation and purchasing power is a separate phenomenon.
Negative interest rates is entirely artificial. Not in any way a market phenomenon.
If you would like to learn more: http://anuparty.org/on-interest-slavery/
Effectively, banks can lend on margin. They put 10% down, you pay back 100% of the loan + some little interest. What does that mean? They can loan out 10x the money they have, and people pay it back in full, 10x their return. Each of those have a small bit of interest and fees. Making them a nice cushy income stream.
The FES can also just create money with a click. This devalues all the other dollars slightly, but then those funds can be shared.
Overall, this isn’t surprising.
They have to go almost bankrupt first.
Since there's a very active overnight market for lending excess reserves banks just borrow reserves if they need more to meet the requirements. This is the rate that central banks influence.
In the UK the fractional reserve requirement is 0% for example.
Lending is entirely risk-weighted ROI limited.
Looking at the their data (p. 13), it does not look like a linear trend. There are two obvious change points; 1450 where rates dropped around 5%, and then 1680 it dropped 5%.
Without the extreme outliers in 1905 and 1930, the trend would be constant at 5% from 1680 onwards.
1) The recessions of the 70's and subsequent bumps showed that high interest rates in such times hurt the populas deeply. 2) Lower interest rates enable economic stimulus 3) QE can be used to keep interest rates down and stimulate the money, so it may stimulate the economy.
The future - we are seeing things like negative interest rates come into play.
Personal view is the whole shift to silly low interest rates has driven people away from responsible money management and from a save for a rainy day towards have now pay tomorrow. The real downside is that low interest rates discourage savings and those that do save are now not so well off.
capital returns != interest rates
What makes the difference? That one comes from stocks and the other from bonds and loans? Or the amount of risk associated with it?
I don't think there is a difference for an investor who just picks whatever instrument yielding higher ROI, whether it is risky tech startups or risk free government bonds.
Tech startups have higher return on capital with higher risk, government bonds have low yield but small risk. Risk adjusted those terms seem interchangeable to me.
Them’s fighting words.
I don't follow. Could you explain? If the dollar is losing value, then wouldn't interest rates "really" be lower than they'd appear to be without accounting for the devaluation? Here's my reasoning:
Imagine the dollar loses 50% of its value in the next year. You park $100 in a 1% APY 12 month CD today. After a year, you've earned $1 in interest. But your CD has actually lost value in that time, even accounting for the interest money the bank gave you. In real terms, the interest rate was less than 1%; in fact, it was negative! So the 1% interest rate appeared higher than it "really" was.