And, the same could be said for other "entities" or "infrastructure", that, when things are fine no kudos; or worse, complaints asking "Why do we have X?", but then whining when something is not in place. :-)
- wasn't the instability for banks also partly caused by the sharp changes in interest rates, and perhaps for that reason should have been predicted rather than just reacted to?
- didn't we also learn that not only were these banks not required to participate in stress-testing, but that the recent stress tests hadn't exercised the kind of scenario that the Fed has been creating?
- it seems like a substantial portion of inflation was triggered by excessively generous government programs like PPP which gave a bunch of money to businesses that weren't even impacted
- reaction to inflation was kinda late, and Powell gave repeated claims that it was transitory
So ... is cleaning up messes (or preventing the spread of messes) that government created a sign of competence in government?
Without irony, yes. Ideally we would like governments not to create messes. But we can’t prevent that, and even if we could, messes will be created by other entities and other governments.
Case in point, you mention the PPP loans, which were signed into law by a previous administration. Today with a new administration and a new situation, it doesn’t make sense to complain too hard about that. We should point it out the next time PPP-like loans are suggested, but we shouldn’t chide the current government for cleaning up a mess of its own making, because that’s really not what happened here.
So yes, governments that are good at cleaning up messes are competent governments. Ideally they should also be good at not making messes, but the us government is an incredibly large entity, so messes are going to happen.
The CARES act passed 96-0 in the Senate, and in the House was an overwhelming voice-vote. The large majority the house members and senators which voted for it are still in office, and Biden signed the PPP extension act of 2021. To pretend that this was a choice made by people no longer in government seems misleading.
> Today with a new administration and a new situation, it doesn’t make sense to complain too hard about that. We should point it out the next time PPP-like loans are suggested ...
Because a large majority were forgiven, these were mostly effectively grants, not loans. And after a bunch of people take your money, of course it's to their benefit if we all stop talking about that fact. But I don't think this is any more appropriate here than if a mugger tells you that their misdeeds are in the past and you should just move on and focus on other things despite the fact that they still have your wallet.
> So yes, governments that are good at cleaning up messes are competent governments. Ideally they should also be good at not making messes, but the us government is an incredibly large entity, so messes are going to happen.
I don't think this is more convincing than when a large tech service has a major outage and their ops team is competent in investigating and resolving the incident -- but that fact doesn't on its own mean that the organization is especially competent.
I mean... it literally is though. You're quibbling around the margins about how there was a degree of holdover from one government to the next, which of course there always is. But it was in fact a new government, and you don't disagree.
I chose the PPP example because it's recent, not to mislead. The HN guidelines implore you to be charitable in your interpretations.
FDIC/FED/Treasury perhaps did the best thing now, but it's still because of a previous mistake.
I'm not saying your wrong, but there are a lot of people who see it differently, and I also don't think that "the smooth running of the financial system" is the most important responsibility of the government.
Anyone old enough to live through the financial institutions collapsing, one after another, like dominoes would probably at least concede that it is an important responsibility. No one likes to see those responsible get rewarded for their actions, but it sure is important to not let the patient bleed out on the table.
Honestly, things would've been rough, but I think they would've been better if we would've let the economy and the extra waste it has bleed like a stuck pig.
Who are these people? This describes a small number of people and they are not in power.
The volatility can cause political blowback as people’s expectations are not met.
This isn't seeing things differently, it's seeing them incorrectly. Yes, there are zip codes and metropolitan areas with higher than median inflation, but that's also true for the reverse. Someone missing the forest for the trees isn't seeing things differently, they're misattributing their problems.
The first is ambiguous; I assume this is the usual inflation definition misunderstanding. TL; DR There are a number of measures of inflation because there are an infinite number of possible baskets of goods and services; they're adversarially generated by a number of agencies and private organizations.
The second is just sour grapes. Did SVB's depositors deserve a bailout? No. Was its bailout infinitely better than the '08 bailouts, which bailed out the banks themselves? Yes. Was not bailing out SVB's depositors worth a recession? No. As another comment mentioned [1], misanthropy and catastrophism isn't a productive policy preference.
Since we don't live in the timeline where rate increases were less aggressive, we don't know exactly how the economy would have reacted. But seeing as inflation was largely attributed to lack of supply and buyers' willingness to pay higher prices (see: corporate profits rising), I think it's safe to think inflation would have come under control if rates hikes were less aggressive.
I disagree. Yes, there were inflation signs that they didn’t act on, but that’s because the exceptionally sharp and deep recession being over and securely so in unprecedented time wasn’t clear except in retrospect. Fed policy isn’t driven by a unitary mandate.
No, it wasn't, and protecting banks from bad gambles isn’t either side of the dual mandate.
Were they supposed to invest in stocks, options, or real estate instead? The answer is complicated, but calling bonds a "bad gamble" is weird
Protecting banks at all is not part of the Fed’s monetary policy mandate, so the “bag gambles” was surplus verbiage, ultimately.
Price stability and employment are; protecting banks from failure is a non-goal except insofar as it might instrumentally serve the actual dual mandate goals, and there are mechanisms in place to protect the economy from bank failure impacts, and if the people responsible for them (which include the Fed, but in a supporting rather than leading role, abd outside of monetary policy) are on the ball, the impact of such failures on the things that are in the monetary policy mandate are minimal.
It was also irresponsible of them to have the rates near zero in the first place. It's one huge whiplash, and the low before the high is all part of it.
Once we get idealogues or charlatans or just outright corrupt people in positions of power, you'll find out very quickly that politics has a lot to do with the economy as it comes crashing down all around us.
That being said, the president and Congress do have some levers to pull to effect the economy. That can be anything from bad transportation policy (like the overbearing federal highway system) which lowers entrepreneurship and increases death rates and obesity (less fit workers, fewer businesses, etc.) to seemingly good policy like the Inflation Reduction Act which is building and repairing infrastructure, etc.
While most assumed nothing would come of it, the hostage taking of the debt ceiling specifically whenever a Democrat is president is another way in which Congress can have a direct effect on the economy.
Biden kept Powell and resisted calls to politicize the Fed. Contrast that with e.g. Latin America. It's absolutely credible to comment favorably on the American political system in this one respect.
Why in organizations without rewards for big wins, the correct course of action is often to do nothing because the penalty for failure is always there.
To be fair it was different parts of the government, but the comparison sure doesn’t favor the elected officials.
If so, which government was in power for the start and height of covid?
I also think avoiding the gyrations in the first place might have been a better outcome.
So your policy position is pining for catastrophe?
Upon successfully mitigating a forest fire, the conclusion that conditions are ripe for more forest fires does not equate to wishing for more forest fires.
Fair enough. Rising rates make a stable state more viable. In a very real sense, that's what rates are: patience in terms of money. We're conditioned to thinking of all markets like tech, but most businesses happily chug along growing alongside the economy while spitting out wages and profits. Amidst all of that, the carbon and material intensity of advanced economies keeps falling, alongside their birth rates. Fundamentally, I don't see what's forcing unsustainaibilty to the point of necessitating collapse.
(I know we're supposed to make a distinction between the Fed and the Gov, but I don't really)
Your point on FDIC is well taken though. That worked as intended and maintains my faith in the banking system.
If by “problems” you mean the strong rapid recovery from the sharpest recession in quite a while, yes, Fed policy (and rare strong fiscal policy response) contributed to that, but, so that’s actually a good thing.
And yeah, recovering from a recession is good, but the crazy positive stock market growth after recovering, in a country that isn't really growing it's production or population, should tell you that a comeuppance was on the horizon.
btw: That "If by X you mean Y" type of statement... It's snarky and sarcastic. I wish people could just talk without being jerks.
Not exactly -- it was left to the judiciary to end the unconstitutional and inflationary student loan repayment pause. Otherwise, yes, pretty good state of affairs by the executive.
But regardless, this isn't even true on issues of fact. Federal student loans are still in forbearance, and will be until October.
In a world without these protections the interests of student loan lenders and students would be strongly aligned. And the greater restraint in lending would also likely drive down education costs, as well as help push students from poor families more towards majors that can help them become successful adults - a push those students might not otherwise get from their families or even school councilors.
As for where the now literally trillions of dollars of lending is having an impact on inflation, it'd depend on what that money was doing beforehand and what it would have done if not lent. Inflation comes down to monetary velocity, which is largely (though not inherently) driven by monetary supply. If trillions of dollars in student loans are increasing these factors then it will drive inflation, the only question being to what degree.
The complaint that lender incentives are broken with guaranteed loans is true enough, but it's not remotely a new effect. These banks have been issuing high risk loans (students almost literally can't fail to qualify) for decades without being an inflation driver. Arguing that they are now, just because it confirms your priors about a (now receding) burst of transient inflation is magical thinking.
You can see the data quite clearly here [1]. I do wish the data went further back, but it's clear enough as is. In 2006 the total debt from student loans was less than $500 billion. Today it's $1.7 trillion. That's a huge chunk of money which is going to have meaningful economic effects. On the plus side, the numbers have finally slowed but it remains to be seen if that was just an effect of COVID.
"Meaningful" seems irrefutablely vague, but certainly not "significant". The numbers you point may look big as single sums, but they come out to ~$70B of spending per year. That's noise. It's absolutely not causing "inflation".
Also the numbers fail to show the "recent multiplicative exponential effects" at all. The slope of that curve has been dropping (because of covid, obviously). We issued fewer loans in 2020-22 than we did previously!
Again, it doesn't work. Your conclusion is wrong. You need to revisit your priors about why you're so sure about inflation and student loan assistance.
"As for where the now literally trillions of dollars of lending is having an impact on inflation, it'd depend on what that money was doing beforehand and what it would have done if not lent. Inflation comes down to monetary velocity, which is largely (though not inherently) driven by monetary supply. If trillions of dollars in student loans are increasing these factors then it will drive inflation, the only question being to what degree."
What I was alluding to there is that lending tends to increase both monetary velocity, and the monetary supply. This is what makes lending so much different than normal spending.
You can clearly see it rocket upwards in 2020 due to the all the covid assistance (of which student loan forbearance was one item), and then begin to fall as the inflation stabilizes. The crest of the peak is six trillion dollars higher than the pre-pandemic starting point.
Sorry, but a mere $70B loan program just doesn't figure in that enormous signal. It doesn't. It's not doing what you think it's doing. I'm begging you to take off the political/ideological glasses and look at the real numbers here.
As one other aside, inflation doesn't drive monetary supply. It's the other way around.
Keeping a pause on them and trying to cancel a significant portion of debt while inflation was high just to buy votes? The media should have absolutely ripped into him on that. It certainly didn't help.
It's also a far smaller price tag than the regressive tax cuts of 6 years ago and far less egregious than the previous president threatening the independence of the Fed if they didn't push rates below zero.