inflation, negative nominal rates (to say nothing of real rates) and if the central banks so much as breath towards tightening the enormous asset bubble they have blown begins imploding...
a lovely job, and well done
a lovely job, and well done
One way or another interest rates will be forced to rise, especially at the longer duration end of the yield curve.
Interest rate are similar: https://fred.stlouisfed.org/series/FEDFUNDS
Europe even worse than these above. We leave us without tools for economic troubles when we are declining to raise interest rate and sell assets on business cycle peak.
See: Japan [1]
1. What is Japanification? It’s a term used by economists to describe a state of chronically anemic economic growth and feeble inflation or even deflation similar to the conditions faced by Japan since a giant real-estate bubble popped in the early 1990s. It’s used to convey the alarming prospect -- often discussed in Europe, which has staggered economically ever since the 2008 financial crisis -- of sluggishness so deep that it is extremely difficult to escape. Even after Japan’s central bank embraced two extraordinary forms of monetary stimulus -- negative interest rates and asset purchases worth more than the entire size of the world’s third-largest economy -- the country has yet to return to a positive growth cycle strong enough to generate 2% inflation after nearly three decades.
2. What is secular stagnation? It’s a term originally coined by the Harvard economist Alvin Hansen in the 1930s to describe the tendency of mature industrial economies to move toward instability in the absence of large amounts of public investment. It echoed the ideas laid out by John Maynard Keynes in his seminal 1936 treatise, “The General Theory of Employment, Interest and Money.” At the time, the global economy was mired in a deep depression, and theories like Keynes’s and Hansen’s offered an explanation and a prescription for the way out. In recent years, amid rock-bottom interest rates in the wake of the biggest global downturn since the 1930s, another Harvard economist -- former U.S. Treasury Secretary Lawrence Summers -- revived the phrase to capture basically the same idea.
3. Are they the same thing? Essentially, yes. Japanification can be seen as a subset of secular stagnation, with characteristics matching those that have specifically plagued Japan. The country’s rapidly aging and shrinking population has contributed to the slowdown of economic activity, and to a high saving-low investment environment despite ultra-low interest rates. The Bank of Japan also complains about a deflationary mindset that has taken hold of consumers and companies that inhibits higher spending or higher prices. Japan’s example offers other countries an unsettling vision of their possible future. “We’re essentially at the Japanese place,” Summers told Bloomberg Television on March 12. “That’s a place that’s very hard to get out of.”
(my note: the future for all developed countries is Japan)
[1] https://www.bloomberg.com/news/articles/2020-01-17/japanific...
You can do this essentially without any inhibitions to growth until inflation hits about 7%.
Downside : it'll get a lot of very wealthy people seeing red and will scare upper middle classes who are more used to their security being provided by assets rather than social services.
The one thing that seems to work surprisingly well is direct subsidies for switching to a better but more expensive product (electrical cars, house insulation).
Personally, I agree that the government should take negative interest rates as a sign to massively invest. But I struggle to find an investment that is both just and sustainable.
There is, for instance a huge pension gap in Germany. It would be wise to borrow money now if we could invest it to mitigate that gap. But how would such an investment look like? Buying children?
However, the idea of stimulus makes basic assumptions that the economy can sustain a higher level. That economic article of faith may inherently be flawed in many cases.
Another option for developed countries is rather than trying to stimulate the economy instead focus on increasing efficiency. Japan’s workforce increased 1% in the last 22 years. Long term stagnation should be expected in countries like Japan with stagnant and aging populations. Even 1% growth assumes the economy will double every 70 years. Relative stagnation isn’t inherently bad as long as the economy is still doing all the things an economy should be doing.
Those are very regressive, you’re taking money away from the less well-off (through higher fuel taxes, for example) and giving it pretty much directly to the way better-off middle-classes who can afford those new EVs and those houses which to insulate. It’s pretty much a return to the 1770s-1780s France, when “la gabelle” was in full force.
Government officials are also talking about using tax money to rebuild all houses for the people affected by the recent floods that were without flood insurance. It's a huge middle finger to all those people who can't afford a house.
There are so many tax exemptions that exclusively apply to the rather well-off that I'm surprised that these issues are not coming up regularly when talking about social issues.
Examples include offices at home are only deductable if they have a door (applies to larger-than-necessary apartments or houses), you get money for driving to work rather than living nearby and walking (0.35€/km), a more expensive hybrid company car costs the employee a lot less than a privately owned ICE car, and many more.
Also, building a modest-sized house in Germany costs about 200k€ - this sum is affordable by the average German couple (average income is around 36k€ per year).
Germany is not California and especially not the Silicon Valley. Just because you may have chosen to rent an extremely expensive, 130 year old apartment 5min from your workplace that does not mean it is the lifestyle for the majority in the country.
The Arbeitszimmerregelung is only valid for 2020 and 2021 and only up to 120 days/year. You typically work 220 days a year. In 2022 it's back to door-or-bust.
I live in a big city, I can walk to work and pay a relatively high rent for a small apartment, I can claim 0.35€ per day, about 77€/year. Meanwhile a friend of mine commutes over 50km, living in a big house. They are quite happy each year to get about 4,000€ back. It's government funded pollution.
Please don't tell me I spread misinformation when you yourself claim things that aren't true.
Also, again, your friends do not "get" anything. They pay way more than that for getting to work. They recover some of the financial burden of commuting, while you don't pay that in the first place and safe the time. Why should society help you in your insane quest to live in an ever denser environment, compete for square cm and minutes of time with literally hundreds of competitors while the countryside just rots away?
Your singular perspective about the big city life being the only true path is exactly what makes the city so expensive. If one day you cannot pay the rent anymore this has been partly because of this ideology. Don't complain when you have to move into some crappy apartment in nowhere when you retire and the young guns with 15times your income just pay ridiculous rents for your apartment.
This must be very modest and without any special necessities like a cellar. Current prices for a cold cellar alone are already 80k.
More realistic construction costs currently are rather between 300k and 400k - for a modest house. You'll only come down to 200k if you do lots of the work yourself.
Source: I'm currently trying to build a house and have gathered bids for weeks now.
We have roads, bridges, and buildings that were built decades ago, then the funds that should have gone for their maintenance spent on tax cuts instead, so they're limping along with stopgap solutions.
To close the pension gap, Germany could also buy ETFs on borrowed money, or borrow to create a national investment fund, but that would be much too eccentric for an extremely risk-averse country.
Is there a good way to measure what potential productive capacity of infrastructure investment is? I wonder what percentage of the limit we're at right now? Could the market efficiently react to a doubling or even 10x-ing of federal infrastructure investment?
https://www.ecb.europa.eu/mopo/eaec/fiscal/html/index.en.htm...
> Compliance with this rule is to be examined on the basis of reference values for the general government deficit (3%) and gross debt (60%) in relation to GDP, whereby a number of qualifications can be applied.
The simple key to understanding what can and cannot be done with printing money is to understand that you can redirect activity inside the country almost at will by printing, a pseudo command economy; but you can't print (a) foreign currency or (b) oil, steel, vaccines, or other constraints of physical production.
Worked example? If you print money and the citizens spend it on imported goods, that depreciates the currency and is usually Bad. Currency depreciation against hard currency (USD) usually shows up as inflation.
Weimar prints money to buy up domestic gold to ship to France for reparations => hyperinflation.
Zimbabwe prints money but is unable to subsidize kerosene in shops at any price because the country doesn't export enough value to import fossil fuels => hyperinflation.
US prints money for domestic stimulus while being oil producer and having labour slack and a generation of anti-wage-rise policy => almost nothing happens except asset inflation.
Everyone knows housing has gone way up. As I go about trying to do work on my house, it's very clear that the price of getting work done when you want it is not what it was in 2019, because I pay those same prices in order to be in a line. I haven't needed anything enough to figure out what the price of prompt work is.
Food prices have gone up. Cars have increased in price significantly.
wages in many circumstance, though growth in low-skill labor wages from supply shortage we are seeing the same as other supply shock from corona.
They have to spend on top of what they already do, because the current level is the baseline and is generally priced into market expectations.
As the original article is about Germany, in 2020 they had their first budget deficit in a decade:
* https://www.politico.eu/article/coronavirus-pushes-germany-t...
To put it bluntly: the Germans don't spend s--t.
https://en.m.wikipedia.org/wiki/List_of_countries_by_governm...
A first deficit meaning Germany spend ordinarily all that and then also more. This is showing Germany spend significantely more for economy size.
Evidence is in need for supporting an idea that only spending above and beyond usual have an effect on markets.
https://nymag.com/intelligencer/2019/07/why-we-cant-figure-o...
The previous US administration basically created supply chain problems with it's Hooverian trade policies. (ie. doing the same thing over and over and expecting different results. Nope. We got the same results we got in the late 1920's + COVID).
It's going to be hard to unwind that. I think the central bank has done a pretty good job making arguments that sustained low interest rates are a necessary evil. Unfortunately, the government (ie. aggregate of congress, senate, SCOTUS, and POTUS) are having a hard time swallowing that we need a looser fiscal policy. All because of political idiocy.
I feel like Keynes should be taught to all children in primary school.
I don't have the answers, but this seems to be borrowing from a playbook written for a different era.
The causality is reversed for public debt though - governments react to deflationary environments by increasing public spending to compensate for the private sector's propensity to save - as a "spender of last resort" as it were.
That's how Japan ended up the way it did.
Arguably it should have spent even more to offset deflation in the 90s.
Again, we're at levels record levels of global public debt. There is no free lunch. Debt financed spending is only possible through financial repression (real default through inflation in this case and in the 1940's following WWII, the last time US debt reached 130% of GDP) which ultimately drives speculation as capital searches for yield. Rinse repeat deflationary shock as a result.
We are seeing this now thanks to wealth inequality brought on by capital being given preferential tax status to labor for decades and stagnant wage growth again for decades.
This wasnt a problem following WW2 - wage growth was high and given vastly preferential tax treatment to labor.
The stock market is where savers have been forced to. Pensions included. ZIRP/negative real rates have consequences. There "isn't too much capital". It's being misallocated due to misguided policy. It will get worse.
You need to start thinking in second and third order effects.
Canceling debt does not make wealthy "see red." Long-term it would harm those who initially benefit from the cancellation by leaving less credit to go around and forcing people at the lower end of the income scale to accept less favorable loans.
If you want to upset the wealthy, you can do any or all of the following:
1. End stock buybacks. These sound nice in theory but in practice they have promoted short-term thinking and have disproportionately benefited the wealthy.
2. Eliminate the long-term capital gains tax rates and treat all capital gains as income (perhaps with some provisions for retirement income).
3. Treat cash loans backed by financial assets (stocks, bonds, investment properties, etc.) as income (many wealthy people use loans backed by their investment portfolios to avoid paying income tax, and their heirs pay no capital gains tax because of cost-basis adjustments), with possible exceptions for loans that are immediately invested (to allow for leveraged investment strategies) and exceptions for mortgages that pay for a personal residence.
4. Eliminate the various industry-specific carve-outs introduced in e.g. the Tax Cuts and Jobs Act (which were nothing more than a corrupt way to buy votes from various senators).
and so forth. We have accumulated decades of policies that favor the wealthy, and as a result the income and wealth gaps have exploded.
If you want to decrease asset prices, tax them (without loopholes) and see their valuation drop real fast, or slow - depending on tax rate.
Just remember to equitably distribute a part of proceeds so you're helping, not hurting the poor.
And again, I don't mean to be inflammatory (well ok, I do), but I really feel that constantly reflating asset bubbles for the rest of time, rather than accepting a one-time severe penalty whose moral hazard applies only to people who need things for their use-value, really is a Sunk Cost Fallacy that amounts to throwing good money after bad.
Debt forgiveness is not nearly as simple and positive as people believe. It often winds up hurting the people it was meant to help and having long-term negative consequences.
For instance, birth rates are dropping because young adults cannot afford a house, which in term means they have to rent against higher prices which means they have less income to actually put into the economy.
What will we do once we have a generation which doesn't have any wealth and doesn't own a place to live? People who have little to show for it after a lifetime of working while subsidizing those who own the properties they live in is not a situation you want society to be in.
1. Split multiple ways due to multiple children. 2. Sold to finance retirement living.
> Downside : it'll get a lot of very wealthy people seeing red and will scare upper middle classes who are more used to their security being provided by assets rather than social services.
Change is hard, but inevitable.
Is this actually happening? Feels like a tech only phenomenon, and tech workers are only a small slice of the US office labour force...
Edit: As someone else in thread pointed out, renewables should be invested in.
Hang on. Isn't that essentially what the Japanese did?
I wonder which domestic investments turned out to be the smart move in Japan.
Political will.
This is not a 'technical' issue, but a social/behavioural one.
If you give everyone a million dollars and it doesn't mean everyone can now afford a house in a sunny state. It just means houses will be more expensive as no one is going to give them away for worthless cash.
Please explain how this works. If I buy stocks then the money goes to the seller of the stock. Most of the time that is another rich person because rich people own a lot of stocks. Then it's companies issuing new shares and finally it's some retail investor owning an irrelevant fraction of a company.
So, how do I as the class of rich people protect myself against inflation/negative interest rates/wealth tax on money? I can't.
Rich person -> Rich person is net zero.
Rich person -> company is net zero because I own the company and thereby own the money it has in its bank account. Worse, if that company employs people the peasants get my money.
Rich person -> retail investor. I lose every time.
If anything, rich people massively benefit from 0% inflation or even deflation. As a millionaire you can afford to throw $100k into Bitcoin and get another million out of it with zero work done, meanwhile those stupid stocks have to employ peasants and pay them.
Here is another paradox: If the rich have very little money and the poor have most of it, why are they poor?
I am not rich but quite well off. What has recent policy of pumping cash as loans and handouts done to me? My assets (mainly stocks) skyrocketed. My less fortunate friends complaining that prices of everyday items has gone up? I haven't noticed, I can buy more fresh produce or housing or electronics with my Google or Amazon stock that I could have before the pandemics and way way more than a few years ago.
It seems to me you're confusing money with wealth. Money doesn't matter, assets do. It's just convenient to price assets in money as long as the currency is stable. If you give everyone a house you solve a huge problem. If you give everyone a freshly printed million dollars you don't solve anything. Rich people still live in big houses and own companies. It will just be a temporary inconvenience to find some way to trade. No one is buying anything of value with that million.
There are a lot more poor people than there are rich people. Collectively they have most of the cash, but no one individual has very much. More importantly, though, one's wealth is not dictated by the amount of cash one owns. If you're rich and in need of cash you have plenty of assets you can trade for it. If you're poor then cash makes up a larger portion of your assets, and the part that isn't cash (your home, car, etc.) is both non-liquid and painful to part with.
The first bit, incidentally, is part of the reason why redistribution doesn't help: there are a lot fewer rich than there are poor, and even if you seized all the assets of the rich and spread them around it wouldn't add up to much on an individual basis. (And then secondary effects kick in: production capacity collapses due to consuming capital, prices skyrocket, etc.) And then you have the fact that the rich end up rich as a result of various combinations of preferences, habits, and connections which distinguish them from the general population—not merely their bank accounts—and since those underlying factors shaping the flow of wealth aren't likely to change you'll soon end up back where you started.
Btw, the point with 2% inflation is rising wages which then causes rising prices.
Furthermore, prices of much stuff is held down by productivity (hours per widget).
That's not stable.
Unfortunately, racism in Japan is rampant.
If racism wasn't a problem, then immigration wouldn't be seen as a problem either.
The real problem will be: when the rest of the "undeveloped world" becomes developed, and the need to migrate is relieved. Then we're ALL "Japan" economies. Oh wait, I don't see a problem with that.
https://www.forbes.com/sites/stephenharner/2016/02/22/will-b...
[0]: https://www.lynalden.com/economic-japanification/
[1]: https://www.amazon.com/Princes-Yen-Central-Bankers-Transform...
How can such an environment be so stable? If people put their savings into a bank account, then this savings would nevertheless be available for investments via the banks, arn't they?
No, those two things have nothing to do with each other. When you ask a bank for credit to invest into something, the bank just creates money they don't take money from other customers.
Would it be fair to say simply, “eternal growth is not sustainable”?
Can we get out of the growth-focused finance system and use some other metric such as “well-being”?
Inflation is the only good thing in this. It's finally close to Euroarea target. Unfortunately it wild likely slow down within a 12 - 18 months again.