Thread

1. tokioyoyo · 1790821191 · focus · HN ↗

   My knowledge of new-gen-econ is pretty subpar, but isn't the strategy of US "don't dare to bet against us, we're writing new rules of the game"? It feels like all governments are acknowledging "letting it rip will suck for everyone, so why would we even bother". Normal monetary policy has been thrown out of the window, and every large state bank has stated it very openly throughout the wars that have started in this decade. And this leads to a lot of state-level financial backdoor discussions, deals and "stuff" that I'm not knowledgeable enough to even think about.

   Wild times. Maybe it's information overload, since it probably happened in the past as well. But being bombarded with implications of these changes left and right is kinda weird.

   1. bobthepanda · 1790821579 · focus · HN ↗

      Normal economic policy hasn’t really been true since the 2007 financial crisis. Rates were kept at historically low rates because growth was anemic and everyone had seen Japan fail to pump up its economy. To some degree there was also thinking that countries in this situation should provoke inflation to get the growth flywheel growing again; at least the fixes to inflation are known vs deflation.

      Well, it turns out that we did it with the COVID economic shocks, and for a while there was talk of a “soft landing” but that’s all but disappeared from the conversation.

      1. tokioyoyo · 1790821843 · focus · HN ↗

         I agree, 2007 definitely changed a lot of "assumptions". But there were no "every main bankman stating out loud that aight, we're playing a new game now". Maybe 2007 started it, but 2020s, I'd say, is where everyone publicly acknowledged it?

         > everyone had seen Japan fail to pump up its economy

         Agreed about this, but I feel like everyone is watching Japan right now again. And I fear people will make wrong assumptions, given how its "economy is growing right now".

         1. to11mtm · 1790822792 · focus · HN ↗

            I'll posit that the 'crypto/blockchain-whatever' caused some curiosity in the market (both before and during COVID), COVID messed up everyone's plans for the recovery (recoveries take a long time without stuff like WW2 that cause other economical imbalances) and other political factors played in.

            Not saying you're wrong about anything you're saying, to be clear.

            Even songs we don't like have a lot of 'poetry' in their notes...

         2. bobthepanda · 1790838799 · focus · HN ↗

            No, out of 2007 we had stuff like negative interest rates and MMT and helicopter money.
      2. derf_ · 1790825003 · focus · HN ↗

         I don't think it's correct to say "rates were kept low" as if the Fed had a choice in the matter. All the Fed can really do is respond to market conditions. It can be slow to react, and it could in theory be wrong about the market in a way that causes economic damage (in one direction or the other), but it can't really do better than the implied market rate.

         Interest rates were kept at historic lows for a decade because the 2008 crisis caused available credit to absolutely implode, which destroyed a huge swath of the effective money supply. Leverage ratios at banks went from north of 40:1 to closer to 10:1. Without ZIRP and QE and all of the rest, we would have had outright deflation, kicking off the kind of deflationary debt spiral that made the Great Depression so bad.

         That kind of dramatic destruction of credit did not happen during the pandemic. The banks were fine [0]. What happened was that the economic output of actual goods and services collapsed. So high levels of stimulus led to more money chasing fewer real resources, and you got inflation instead.

         This should not have been a surprise.

         [0] Modulo a few like SVB that blew up a couple of years later because they had forgotten that interest rates could also go up.

         1. bobthepanda · 1790838519 · focus · HN ↗

            Well also at some point QE would have to unwind, and no one had ever attempted an unwinding of such loose balance sheets before
   2. tokioyoyo · 1790821691 · focus · HN ↗

      I'll comment under my own post about "why i think this is happening" - it's the fact that the average age of the population in the world is higher than it has ever been, especially in richer countries. Just like the "housing theory of everything" posts that circulated around some time ago, I think that is the core reason why so many illogical decisions are being thrown around.

      I don't have deep knowledge, other than a bunch of "pattern matchings" I've done throughout my readings, but as people get older, on average, their wants/needs change over time. Older people, especially as they get closer to retirement age, have more free time as well. Implicitly, these desires eventually bubble up into economic/political action, that's more or less unprecedented. It would be very cool to research this more in depth, but unfortunately i'm in the wrong field.

   3. to11mtm · 1790822477 · focus · HN ↗

      Well, it's still complicated because of the global economy.

      - Most of the AI Companies are HQed in the US, and that's the 'hot thing' for the market overall

      - Google and Apple have enough presence (i.e. some may be doing tax things but...) in the US and at least one of them has gotten 'too big to properly antitrust'.

      - If we look deep enough, even some of the fanciest ASML tech is a result of IP sharing from US companies that are almost certainly government backed (i.e. ASML might be the ones working with other companies to help make it useful/scalable, but the tech is invented here.)

      Ironically, something I would have listed at the top 10-15 years ago but is now last on the list...

      - For the last (well, now) 80 years the US has been able to project an outward image of overall economic stability and relative growth; The closest it came to a crisis in the past was when the Bretton-Woods system collapsed and France came over and collected their gold.

      On the flip side, there is the 'guard'.

      - Any current bondholders have to choose between holding at the current rate, or selling at a discount. It becomes a 'Well do we really thing it will all fall apart before then or do we just hold?'. Because any new bonds, even at the current rate, would be carrying that risk on the open market if a sell-off occurred. IOW 'Is a bond I have now less the arbitrage cost going to be worth more than just holding it'.

      What's important is what happens next. If we look at the Bretton-Woods collapse, there were a number of actions taken, many (most?) of them questionable, however it was pulling a bunch of levers at once and unpulling versus debating which lever to pull.

      There is the confounding factor where parties are arguing that there is market manipulation going on, that changes the question of whether to hold onto existing bonds rather than making other options. After a certain maturity percentage one has to ask whether you hold or sell based on climate.

      1. tokioyoyo · 1790823099 · focus · HN ↗

         I guess all you said makes sense.

         > There is the confounding factor where parties are arguing that there is market manipulation going on

         My understanding is, it’s not even an argument anymore. Like the latest Yen intervention from the states was basically a state level manipulation, no? I mean there’s nothing really illegal. And it makes sense, and very much public. But one can assume there are just many more behind-the-scenes activity going on as well.

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