'Is monetary policy even working?'
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So what's going to happen when Lagarde decides to lower them? The demand is way to high and the offer is almost non existent.
And it seems that it didn't affect the inflation either. Bad years for everybody who's not getting a 10% raise every year.
This is a side effect of "demand" I think.
Higher interest rates increase mortgage/financing costs. This is supposed to "destroy" demand.
Except, there's so much demand (and so little supply) that it didn't, and we're getting the worst of both worlds.
In the US: A $500k 3/2 house at 2.75% 30-year fixed in 2020 is now $750k at 6.75%
It "shouldn't" have played out that way but my theory is
Home buyers from before ~2015 (random guess) are "up so much" in equity from this quiet "real estate inflation/demand appreciation boom" that they don't care to "overpay" $200k compared to what they would've paid 4 years ago because they were "gifted/given" $200k+ in equity out of the sky. They're just moving the money from one property to the next.
Maybe a bit harder to sell but still they seem to sell. And everybody seems to expect interest rates to decrease soon, which will lead into even higher rise.
But what do you expect - people in Europe generally dont use / trust / understand stock market, and real estate at least in past 5-6 decades was by far the best investment for common folks. Stuff they understand, can use, can physically see and hold.
Plus in at least a bit touristy locations airbnb is helping massively with mortgage payments, and before 'communists' here come again with 'eat the greedy rich because we want our own houses too' - the demand from travellers is there, in past few years massive (and often hotels are simply not good enough for ie families with small kids while being 2-3x more expensive).
Another thing to consider is that counter intuitively higher interest rates might be acting as a form of stimulus for many US households. If you've got a fixed mortgage and the government is now paying you for your savings your total disposable income might actually be increasing with rate hikes.
https://cc.bingj.com/cache.aspx?d=3253415984894&w=vvUrvYG7JT...
Which is another way of saying if there's a link it is very weak, and those not very useful for driving anything behind long-term strategic direction, certainly not day-to-day policy.
If you believe data, monetary policy clearly does not work. We are doing better than ever!
If you do not believe data....
* https://en.wikipedia.org/wiki/Monetary_transmission_mechanis...
Cullen Roche is always worth checking out:
> Monetary Policy is the various set of policies initiated by the Central Bank to try to stimulate or slow the economy. This typically includes changing interest rates, altering the size of the balance sheet and communicating via “open mouth policy”. The transmission mechanism of these policies are controversial and the goal of this post is to add some clarity to the ways in which this works.
* https://www.pragcap.com/monetary-policy-transmission-mechani...
It should also be asked "working at doing what, exactly?". If you have an hot economy because of a lot of demand because of easy credit creation, then clamping down on credit creation can help in slowing things down:
* https://en.wikipedia.org/wiki/Demand-pull_inflation
If however you have (e.g.) a geopolitical event that causes (say) a spike in food and energy prices, then that's not really an issue that is largely controlled through credit creation:
* https://en.wikipedia.org/wiki/Cost-push_inflation
Then there are other scenarios, like sudden changes in consumer behaviours that cause problems:
* https://ritholtz.com/2022/06/goods-versus-services/
* https://www.detroitnews.com/story/business/2021/04/19/global...
* https://www.cnbc.com/2022/02/18/whats-behind-the-congestion-...
* https://www.frbsf.org/research-and-insights/publications/eco...
Some of these things monetary policy can deal with better than others, but a lot of folks expect monetary to do something (anything!), and if it doesn't make an attempt than there's all sort of other drama.
"Higher interest rates have proved a lot less destructive than investors feared in 2022, when the world’s central banks embarked on one of the most aggressive episodes of monetary tightening in history. Nothing has “broken”, contrary to the prevailing view two years ago; and this has even sparked a lively debate about why mainstream macro exaggerated the dangers of higher rates."
Basically, a lot of people assumed (high interest rates = slowing economy), but the current status quo reflects otherwise. Personally, I'm happy that it has now re-incentivized saving, and a much more mercenary and productivity driven outlook.
And the fact that nothing has broken indicates that they didn't go overly aggressive. They stopped inflation from getting worse without driving the country into a recession. That's a pretty decent balancing act.
But yea I agree with ya on the 2nd half.
A fair assumption. It is extremely likely that the economy is slower than it would have been if interest rates remained low. Things were starting to get extremely hot – which is why we saw higher interest rates arrive in reaction.
There was a lot of concern floating around that rates would overcorrect (which, to be fair, may still prove to be the case – it is still early days), leading to an economy slowing more than needed, but the so-called "soft landing" was always the goal. Explicitly so. The status quo is in quite in line with what we were hoping to see come out of the higher rates, slowing the economy just enough, but not too much.
If we weren't so indebted, interest rates could indeed stay high for a long time without much concern. But there's a point in the not-so-distant future where our government will need to print even more money to pay the debt (which will spark more inflation) or we'll need to cut all spending that isn't interest on the debt.
It may be a reasonable advice when isolated from complexity of reality, but at the end its a bit like saying for example: solve all evil by separating / killing all evil people.
edit: Oh, and the Summeers did manage to scare enough people to rescue SVB so that impact was absorbed, amusingly, by other banks via extraordinary FDIC fee ( most banks have it listed now on their quarterly statement in case you are inclined to check ).
If that's the cost to fight a proxy war, it's fairly cheap.
That's how much it costs to build a highway from Pittsburgh to Morgantown (Mon–Fayette Expressway).
> managed to pass some corporate stimulus
This is the key point, and a critical one at that. That corporate stimulus suddenly made swathes of American manufacturing, construction, etc cost effective again.
We could run several states for a year with what we’ve sent them.
$75 billion: https://www.cfr.org/article/how-much-aid-has-us-sent-ukraine...
I’d be willing to bet 5% or less of total aid falls in the category you mention.
At most 37% of all aid was no strings attached cash.
Everything else was either Military Gear, Training from American professionals, or Loans to purchase weapons systems.
Since we are running historic Federal deficits, every dollar we agree to send them comes at the expense of decreasing the purchasing power of Americans.
Government spending at these levels contributes to inflation and makes Americans worse off. Enough is enough.
Ie most of Africa already currently is anti-US (and anti-european) if you didnt notice and welcoming China and russia like long lost brothers, and its progressing.
If US will give us big FU, we will manage russian expansionism on our own, with heavy losses, eventually, despite mostly pathetic leadership (ie germans really know how to put clueless folks sabotaging their own countries into leadership). But we wont ever be friends like we are now.
Magas or similar fringe folks need to put together way more coherent arguments than these, since they dont make any sense from any rational point of view, even if completely US-centric and selfish.
edit: I will make a less convoluted statement. Ideally, the amount of that small 5b donation abroad would be zero.
Over a decade of unchecked Russian aggression before the 2022 Russian escalation in Ukraine made constraining that aggression more expensive, but still less so than it would be with additional Western appeasement.
Guaranteeing the security of volatile third rate countries you don't really care about is a sure fire way of avoiding war, as we saw in WW1.
For mutual defense against outside aggressors and to coordinate regional security efforts, same as every other NATO member.
The fact that the Russians were clearly in 2008 (and have demonstrated that even more clearly since) the most likely and dangerous outside aggressors facing Georgia and Ukraine doesn't mean the purpose is to piss off Russia, though, to be fair, pissing off someone who w is inclined to aggression against you because you've made that less easy is not a bad thing.
> Should we put Uganda and Congo in NATO?
Uganda and the DRC have expressed no interest, that I know of, in NATO membership or partnership, and are rather distant from the explicit geographic focus of NATO as specified in the treaty (Europe and North America) [0], as well as having political issues (like Russia when it tried to jump ahead of the readiness process and join) that would require, at best, a long onramp leaving geography aside. They'd probably be better candidates for NATO global partner status if they decidedto pursue a NATO affiliation than membership any time in the forseeable future.
[0] Hence the language in Article 9 that, beyond the founding members which notably include some North American states, “The Parties may, by unanimous agreement, invite any other European State in a position to further the principles of this Treaty and to contribute to the security of the North Atlantic area to accede to this Treaty.”
Containment as a policy worked well enough during the Cold War as the least bad alternative. There's no reason to stop it and allow Russia to reconquer Eastern Europe, which they absolutely would do absent a strong containment policy. The historical record shows that isolationism and appeasement never works in the long run.
The Ukrainians are still willing to fight for their own soil so your point is illogical and irrelevant. They're just asking for weapons, logistics, and intelligence. The more Russian soldiers that they can kill, the less threat that Russia will pose in other areas. It's sad the situation has come to this point and I take no delight in those deaths but there is no realistic alternative.
> The Ukrainians are still willing to fight for their own soil so your point is illogical and irrelevant.
This thread is about bringing Ukraine and Georgia into NATO, which means we would be obligated to fight on the ground to defend those countries. I don't know what you're arguing against, but it seems you didn't read the thread.
Strictly speaking, it obligates the US (like any other NATO member), in the event of an attack on any other member, to “individually and in concert with the other [NATO members], such action as it deems necessary, including the use of armed force, to restore and maintain the security of the North Atlantic area.”
It’s quite plausible the US could do that without deciding to “fight on the ground”.
As for Georgia, they are a sovereign state and can make their own decisions. If they want to join and meet the criteria then let them join. How is Georgia any different from Finland in that regard?
A policy of aggressive containment keeps us safer by wasting Russian resources. When we surround them with hostile powers they have to spend more on defending their homeland and have less for building nuclear weapons or launching invasions. Keep them poor.
And anyway you haven't even proposed a viable alternative. There's no point in negotiating with Putin: he doesn't negotiate in good faith. Even if we gave him huge concessions now he would just come back and demand more in a few years. Nor are we in a position to be able to offer the type of concessions that Russia seems to want. Ukrainian territory and Georgian sovereign freedom of action aren't ours to give away. The citizens of those countries will have to decide for themselves.
Basically there's isn't a difference, Finland shouldn't be in NATO either. Americans have no business defending Finland of all places. Georgia is even less of a concern, it might as well be on the moon for all the national interest we have in Georgia.
> When we surround them with hostile powers they have to spend more on defending their homeland and have less for building nuclear weapons or launching invasions.
Right, the cornered dog theory. Maybe he'll bark himself to sleep before he bites you.
> And anyway you haven't even proposed a viable alternative.
The alternative is that countries negotiate with regional powers and try to maintain friendly relations. The US is not world policeman and we can't afford to play one on TV, because it invites situations like the Ukrainian one.
A very shortsighted view. Norway, Sweden and Finland are currently setting up a joint air force command so that in case of war, they could deliver a fatal blow to the Russian Northern Fleet at Murmansk. The Northern Fleet operates in the Atlantic and is the largest threat to shipping between North America and Europe. They represent the U-boats of the 21st century. Americans get incredible value from closer cooperation with Finland and Sweden.
> The alternative is that countries negotiate with regional powers and try to maintain friendly relations.
And what if it doesn't work out and instead a fascist regime first rolls over the entire Europe again and then starts to threaten rest of the world?
You are not proposing anything new.[1] This line of thought had wide support between the two world wars. The current system of international organizations and alliances is a "lesson learned" from that period.
(1) Other NATO members aren't only in Western Europe. Ukraine borders several NATO members and its Black Sea location positions it to provide support to even more. And it pretty clearly has a lot to offer its neighbors when it comes to mutual defense.
(2) NATO's single deployment under the mutual defense provision (Article 5) included Georgian and Ukrainian troops, even though they were only non-member partners at the time, and Ukraine has greatly increased its capacity in the intervening period, due to grim necessity imposed by Russia.
Containment worked with the Soviet Union — it can work again with Putin's Russia.
Well then if it might not work, I suppose we should just let Tsar Vladimir — abetted by his kleptocratic henchmen and his millions of state-media-deluded followers — do whatever TF seems good to His Imperial Majesty. Because heaven forbid we should take any risks to try to preserve a rules-based world order.
Here in the US, we view China as the bigger bad. In Europe, it's Russia. And it makes sense. Worst comes to worst, it's going to be Poles, Germans, Turks, etc dying on the battlefields in Eastern Europe, not that many Americans. We'll be dying in the Pacific or North Asia instead.
It'll be for the best if our European allies succeed at taking over continental responsibilities, allowing us to shore up a similar consensus in Asia.
Because I assume you know full well that is is not actually 5b. The amount is much greater[1].
Now, we can talk about priorities, which is fair.
If you were in charge, what aid is fair game for scrapping?
Because US will not be able to support it forever.
[1]https://www.cfr.org/article/how-much-aid-has-us-sent-ukraine...
So you're advocating for fiscal irresponsibility while complaining about it at the same time. How very typical.
> too many dollars of no value in the future
Oh no, not a currency devaluation! You know that not only do many countries intentionally seek to devalue their currency, but there are regular fights in the UN about it. "(Other country) promised to not devalue their currency but did it anyway and now I am upset" is probably one of the top 3 recurring mini-dramas. These generally launch into political grandstanding without covering the macroeconomic basics of why a country might want to devalue their currency because it is such a common occurrence that everyone present is expected to know, and they generally do know, as do I. The way that you bring it up as if it is an unspeakable horror makes me suspect you do not. You might want to fix that.
It's possible that you actually do occupy the parts of the American economy that would be hurt by a currency devaluation, in which case fine, everyone is entitled to their own self-serving opinions, just don't expect me to share them. However, I don't think that's the case -- those parts of the economy generally understand the macro 101 at play. It's a pet peeve of mine when someone who works in an economic sector that would benefit from a currency devaluation recoils from the prospect in horror because all they understand is what they heard on TV and the general principle of "line go down, bad." In any case, my point is: don't threaten me with a good time.
There are negative consequences for fiscal irresponsibility, but that's not the one that keeps me up at night.
Hmm, no. I am advocating for acting in US interest. I am not sure US in currently in a position to throw money around on feel good projects around the world.
<< How very typical.
No need to make a snide remark.
<< You know that not only do many countries intentionally seek to devalue their currency, but there are regular fights in the UN about it.
Sure, when it is to their direct strategic ( and not tactical ) advantage? Pray tell me what advantage would US gain here? Oh wait, is that your argument and the US masterplan ( the reference to: "(Other country) promised to not devalue their currency but did it anyway and now I am upset")?
To make the dollar so worthless that the debt it owes is worth even less? Do you think US can survive that?
<< don't threaten me with a good time.
Will that be a good time?
<< that's not the one that keeps me up at night.
What does then? I am not going to lie. You got me curious.
Think of how many startups only existed to set money on fire until they completely captured a market, or how many got bought by the likes of FAANG+MS just to only kind-of have an integration into products/services that were made.
This has just been a return to the normal rules of business: you need to be able to create a return on investment in a reasonable amount of time, and with a reasonable amount of resources.
"The obvious one is fiscal policy, with governments everywhere using budgetary stimulus more actively since the pandemic. The impact of higher interest rates has been dampened in two ways. First, consumers had high levels of liquid assets (sometimes called “excess savings”) left over from the pandemic, which provided a financial cushion that protected their spending power. Second, governments have been deploying additional funds since COVID-19, such as the large energy support programmes in Europe and Bidenomics in the US (big tax subsidies that encouraged US companies to invest heavily in green energies). These funds have supported incomes and employment, even as monetary policy engineered a squeeze"
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People on here are overstating the impact of a handful of software companies and buzzwords on the larger economy.