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How have interest rates been so super low during the whole economic expansion after the great recession the last 9 years yet we have very low inflation in almost everything except ridiculous run away real estate prices. This is very low inflation despite very low unemployment of like 3.4%
And also it seems the FED is willing to move interest rates lower and even all the way to 0 and/or even possible do quantitative easing at the slightest hint of a regular recession coming?
I mean back in late 2007 and most 2008 when we already entered the great recession (although felt like a normal recession until late 2008 when the bottom really fell out) and contraction was happening, they left interest rates normal. It took all the way until the super worst meltdown in late 2008 (November to December) before they moved interest rates to 0 and then did QE?
I mean if we had a regular recession is it really the end of the world. It probably would not be the great recession and would be more like 2001 or 1991. In 2000, they even raised interest rates which contributed to the ,com NASDAQ bubble burst that lasted until like 2001 or 2002.
Are people so worried another recession would spark a super great recession as bad as 2008-2009 that they lower interest rates where as in the past even during the beginning of the great recession they kept interest rates normal throughout 2008 until like November or December when the bottom fell out on everything and then lowered them to like 0?
And yet how are we able to have such low interest rates during the longest economic growth in history with extremely low unemployment, but yet inflation very low on like almost everything except real estate the last 7-8 years?
Take CB intervention away from the equation and we would have had a depression following 2008-2009. It would have been brutal but it would have cleaned the system out. CB intervention over the past decade has encouraged more bad debt and created more leverage in the system, and has created an economy that is literally dependent on increased CB intervention. The margin for error for central banks is increasingly smaller with all of the leverage that is in the system today. Will all end badly later this year into 2021. Deflationary bust is coming.
And yet how are we able to have such low interest rates during the longest economic growth in history with extremely low unemployment, but yet inflation very low on like almost everything except real estate the last 7-8 years?
The S&P500 was ~700 in 2009, now it’s 4X higher. GDP now is only 1.5X higher than in ‘09. I’d say we had one heck of an inflation rate in equities prices.
Take a look at the cost of colleges or owning a home. I mean a home in civilisation and not in the middle of a desert or swamp land. There had been a GIGANTIC inflation and it is all in DEBT.
What is the Fed doing is very simple to explain. Suppose you are playing a game of Monopoly and the Banker starts giving all of the money in the Bank to one player whenever that player wants some. And when money runs out, the Banker just prints more money for that player. Observe what happens.
The S&P500 was ~700 in 2009, now it’s 4X higher. GDP now is only 1.5X higher than in ‘09. I’d say we had one heck of an inflation rate in equities prices.
Yeah those are stock prices. I mean prices of actual good that consumers buy has had low inflation like cars, food and energy, computers laptops and such.
But you are right real estate prices have had outrageous levels of inflation where in reality it is not healthy for home buyers last 5 yrars and future generation home buyers and they should have only gone up 2-3% per year in nominal terms in all areas from 2012 levels to present so people would not be priced out of the market.
Its a good thing for stocks to rise as companies balance sheets and cash flows are much stringer and people use stocks for retirement funds and such. Real estate prices rising so fast not a good thing at all except for the greedy speculators who hoard real estate hoping to sell for profit a huge later date which prices hard working citizens who save to pay cash or at the very least have a small mortgage they can pay off soon by living with their parents or living minimalist out of the market unfairly.
Take a look at the cost of colleges or owning a home. I mean a home in civilisation and not in the middle of a desert or swamp land. There had been a GIGANTIC inflation and it is all in DEBT.
What is the Fed doing is very simple to explain. Suppose you are playing a game of Monopoly and the Banker starts giving all of the money in the Bank to one player whenever that player wants some. And when money runs out, the Banker just prints more money for that player. Observe what happens.
Absolutely and that is why it feels it is unsustainable and not a real recovery.
The fact we have had to keep interest rates so low for so long has created almost a weird and strange and somewhat fake recovery that may not be sustainable.
I guess the biggest question I have is how come the central bank gets so involved now even before a mild recession, but they did not in early to mid 2008 when we were in a recession already. It took all the way until the severe late 2008 early 2009 meltdown for them to get heavily involved where as today they seemingly get involved at the slightest whiff of a slowdown even with record low unemployment?
I mean would a mild recession be much more dangerous of becoming 2008-2009 all over again in today's age based on the super low interest and debt bubble recovery than it was in like 1991 and 2001 and even early to mid 2008 when the FED never got involved until it got really bad?
... yet inflation very low on like almost everything except real estate the last 7-8 years?
Inflation is an increase in the General Price Level of all goods and services in the economy, and there are several measures used for various purposes.
There has been no inflation in real estate prices; instead, there has been an increase in real estate prices in some geographic locations just as there has been a decrease in the price of many other goods & services such as electronics & technology & oil & gas. Combine them all together and you get the General Price Level.
When you average a bunch of numbers, some will be above average, some will be below average. Pointing to one that is above average doesn't really add clarity, any more than pointing to one that is below average.
I’d say we had one heck of an inflation rate in equities prices.
Inflation is an increase in the General Price Level of all goods and services in the economy, and there are several measures used for various purposes.
There has been no inflation in equity prices. There has been an increase in the price investors are willing to pay for a given level of earnings - and increase in the market P/E ratio.
Take a look at the cost of colleges or owning a home. I mean a home in civilisation and not in the middle of a desert or swamp land. There had been a GIGANTIC inflation and it is all in DEBT.
What is the Fed doing is very simple to explain. Suppose you are playing a game of Monopoly and the Banker starts giving all of the money in the Bank to one player whenever that player wants some. And when money runs out, the Banker just prints more money for that player. Observe what happens.
Rising rates mean losses in a significant portion of portfolios which is now cannibalized because yields are too low.
Low rates are a long term losing proposition for financial markets. You have to do asset purchases to offset the equity withdrawal that's required because of the low yields on investments. There are ways to indirectly purchase US assets and all of it has been tried. Major foreign central banks buying in excess of 100% of their domestic financing needs by mainly Japan and Europe. Get public pension funds to divest domestic bonds and buy US and European financial assets, which was done by Japan. Setting negative deposit rates to force funds into the US markets, which was done in 2018 and 2019. Since some of the European governments have their own currency, their central banks also purchase US equities to keep their currencies competitive with the Euro.
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