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. 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

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