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They have some (much?) control, but moreso on the short end of the curve. And let us not forget that bonds are auctioned, so rates can be controlled by potential buyers.
If there were no buyers for new 10-year debt at 1.6%, what do you suppose would happen? Considering that we are running trillion dollar plus annual deficits and issuing debt accordingly.
The FED mainly controls overnight lending (LIBOR), longer term debt is determined at auction. The FED has not raised rates in a very long time and the 10-year is up over 100% since 3/20/2020 (.82 to 1.69).
They're buying long end but the issuance shifted from short to longer maturities this year with the new administration. Powell also printed far more than necessary last year, anticipating a second stimulus, and the Treasury ended up with 1.8 trillion dollars in excess cash.
They can force long-term yields down by way of the interest rate carry trade. They communicate that short-term rates will stay zero for an extended period. That's why the long bond rallied most of the time from 2009 to 2018.
Their dot plot on the Fed Fund rates is very slowly working higher.
1. Except for brief flashes in time normal little guy savings instruments have been yoy losers net of inflation and taxes since the '50s. IOW, "people get a negative return on their savings" normally.
2. The CDC wrecked any hope of using widespread testing to get ahead of CV-19 last Feb. and March....Trump had nothing to do with that.
3. Speaking of messes you might recall what Nixon, Reagan and Bush II inherited from your party of choice.
No Democratic President has left anything like the Great Depression or the Great Recession, and all the smaller recessions in between. That's a Republican trait. Tax cuts, deregulation, gdp decline, deflation, recession. Rinse and repeat.
No Democratic President has left anything like the Great Depression or the Great Recession, and all the smaller recessions in between. That's a Republican trait. Tax cuts, deregulation, gdp decline, deflation, recession. Rinse and repeat.
Guys like you are a hoot. Basically EVERYONE on either side of the left/right divide in economics blames tax increases under Hoover and FDR for making the first recession of the great depression much worse than it otherwise would have been. I'll save you some time looking any of this up as GDP was falling taxes increased.
You'll blame Bush II's tax cuts for '08 but not mention the Community Reinvestment Act? Funny how that works.
_______
None of that absolves you from not knowing that savers nearly always lose ground to inflation and taxes.
Guys like you are a hoot. Basically EVERYONE on either side of the left/right divide in economics blames tax increases under Hoover and FDR for making the first recession of the great depression much worse than it otherwise would have been. I'll save you some time looking any of this up as GDP was falling taxes increased.
You'll blame Bush II's tax cuts for '08 but not mention the Community Reinvestment Act? Funny how that works.
_______
None of that absolves you from not knowing that savers nearly always lose ground to inflation and taxes.
The Great Depression was bad because they let the banks fail. Tax increases didn't help but they didn't actually affect that many people since most people didn't make enough money to get taxed. It was bank failures that made it bad - basically 45% of the country's capital was deleted between 1929 and 1933, most of them in 1932-33. We learned from that - Ben Bernanke was an expert on the GD. The main lesson is you don't let the banks fail, no matter how politically unpalatable it feels to bail out banks.
Herbert Hoover actually had the right idea with the Reconstruction Finance Corporation, but it needed to be 10x bigger than it was. At that time most of the world was still on a gold standard and it was thought that debt and deficits were bad.
Bush 43's tax cuts didn't cause '08. Bush in general didn't cause that, but he contributed to a relaxed regulatory atmosphere where no one tried to stop what was happening. FWIW many of the Democrats at the time shared his outlook in that area. The Bush tax cuts, and pretty much every Republican administration since Reagan, contributes to a perception of Republicans only caring about the rich since their signature policy every time is to cut taxes for the wealthy. We are already have historically low tax rates for the top earners since the income tax went into effect.
My thing about taxes is that we are not actually taxing where the value is. IMO we should lower payroll and income taxes and create new taxes that tax the wealth of rich Americans where it actually exists - their intangible electronic assets (and to a lesser extent their real estate). We're using 20th century thinking in our tax structure, gaining most of our revenue from payroll taxes. While capitalism is well into the 21st century and the rich don't make money from their salaries. If it were me, I would go after the tech billionaires where it hurts and do some kind of electronic VAT. The wealth of the rich is on the internet. That's where we need to tax. As it stands the bulk of government revenue is coming from the high income "working" class (ie: upper middle class): doctors, lawyers, athletes, people like that.
Last edited by redguard57; 03-23-2021 at 11:34 PM..
Beside gold and silver how do we make money on this?
investing in oil and gas would be one way.It could be a good hedge if we have a lot of inflation but i dont think we will have big time inflation anytime soon.
The structure of currency markets, developing markets and international trade is completely different than it was in 1973-74.
Weimar Republic and Zimbabwe comparisons to the US reveal ignorance: that the economic and military strength of the countries involved matter
In summary, predictions about acceleration of inflation are close to worthless.
Agreed.
Quote:
Originally Posted by lpc123
Inflation can be represented not only in the prices of consumer goods and labor costs, but also in asset prices.
Market participants, economists and others offer varying definitions of inflation.
In my view, inflation in a money system occurs when there is a structural imbalance between the supply of basic goods and services, on the one hand, and money supply on the other.
As you allude to above, the US, and the global economy in general, is far from that situation; if anything, we are awash in cheap, superfluous consumer goods, while - with the exception of war or other disaster zones - food, fuel, electricity, basic housing and money supply are not an issue.
In my view, we have increasing prices mainly in services that cannot be replaced by a reservoir of cheap labor in places like China (e.g. health care, colleges and universities), and asset prices increase at an outsized pace because the domestic economy has accumulated over the years and is generating more wealth annually than it does income annually, especially wage income (see point above about global wage arbitrage).
We already have some wealth tax in the form of property taxes. I pay property taxes and have no objection, no complaint, I pay them in full the very day that the County releases the amount online, takes a few seconds and I'm done for the year.
Outside of propaganda value, wealth taxes on financial assets would be more wasteful (and even income taxes in general already are) than increasing the money supply.
In fact, that has been the policy since at least the 1980s, regardless of political theater.
To be sure, we can talk of a rise in interest rates and inflation compared to the latest bottom reached at the depths of the pandemic, but on a longer-term perspective both are still low and will probably remain low.
Last time I bought bonds for buy-and-hold was December 2018 when 10Y munis were hovering just above 3%, and I would buy some again if we get back to that point, but I'm not holding my breath.
The Great Depression was bad because they let the banks fail. Tax increases didn't help but they didn't actually affect that many people since most people didn't make enough money to get taxed. It was bank failures that made it bad - basically 45% of the country's capital was deleted between 1929 and 1933, most of them in 1932-33. We learned from that - Ben Bernanke was an expert on the GD. The main lesson is you don't let the banks fail, no matter how politically unpalatable it feels to bail out banks.
Herbert Hoover actually had the right idea with the Reconstruction Finance Corporation, but it needed to be 10x bigger than it was. At that time most of the world was still on a gold standard and it was thought that debt and deficits were bad.
Bush 43's tax cuts didn't cause '08. Bush in general didn't cause that, but he contributed to a relaxed regulatory atmosphere where no one tried to stop what was happening. FWIW many of the Democrats at the time shared his outlook in that area. The Bush tax cuts, and pretty much every Republican administration since Reagan, contributes to a perception of Republicans only caring about the rich since their signature policy every time is to cut taxes for the wealthy. We are already have historically low tax rates for the top earners since the income tax went into effect.
My thing about taxes is that we are not actually taxing where the value is. IMO we should lower payroll and income taxes and create new taxes that tax the wealth of rich Americans where it actually exists - their intangible electronic assets (and to a lesser extent their real estate). We're using 20th century thinking in our tax structure, gaining most of our revenue from payroll taxes. While capitalism is well into the 21st century and the rich don't make money from their salaries. If it were me, I would go after the tech billionaires where it hurts and do some kind of electronic VAT. The wealth of the rich is on the internet. That's where we need to tax. As it stands the bulk of government revenue is coming from the high income "working" class (ie: upper middle class): doctors, lawyers, athletes, people like that.
That's an excellent post save some of the tax commentary. I'd add a couple of thoughts in the name of economic precision.
The Fed. nor federal and state governments for that matter, "let the banks fail." Against a backdrop of a system already short of liquidity and over a fairly short period of time.........The equity markets tanked, industrial production fell by ~50%, real estate sales plummeted/prices fell, GDP fell by ~1/3, wholesale prices fell by ~1/3, U/E rose to at least 25%, across all of this banks began to fail in numbers etc. Keep in mind The Fed began increasing rates in 1928 and that continued into 1932. In early '32 rates were decreased (the economy improved almost instantly) later in '32 rates were increased again and the economy tanked hard into '33.
As all that pain set in banks - some still in poor condition left over from the three '20s recessions (I read an estimate that 1/3 of all US banks during that era ran two sets of books) - began to fail. Here is the key point........... The Federal Reserve under extreme pressure from both democrats and republicans to save the banks INCREASED the federal funds rate as noted above. The logic was A). banks would be more picky and selective about lending and the quality of paper would improve B). the banks would make more money and balance sheets would improve.
What really happened..........in an economy starving for money increasing rates slammed the door on new loans and the liquidity trap became a liquidity vacuum. The deep dive from '29 through '31 became much worse from middle '31 through '33.
In efforts to save banks The Fed. likely killed 5,000-7,500 banks unnecessarily.
____________
The definitional read on the era is chapter 7 from the Milton Friedman - Anna Schwartz treatise, "A Monetary History of The United States 1867-1960." Chapter 7, "The Great Contraction" is also a stand alone book, "The Great Contraction 1929-1933."
The Great Depression was bad because they let the banks fail. Tax increases didn't help but they didn't actually affect that many people since most people didn't make enough money to get taxed. It was bank failures that made it bad - basically 45% of the country's capital was deleted between 1929 and 1933, most of them in 1932-33. We learned from that - Ben Bernanke was an expert on the GD. The main lesson is you don't let the banks fail, no matter how politically unpalatable it feels to bail out banks.
Herbert Hoover actually had the right idea with the Reconstruction Finance Corporation, but it needed to be 10x bigger than it was. At that time most of the world was still on a gold standard and it was thought that debt and deficits were bad.
Bush 43's tax cuts didn't cause '08. Bush in general didn't cause that, but he contributed to a relaxed regulatory atmosphere where no one tried to stop what was happening. FWIW many of the Democrats at the time shared his outlook in that area. The Bush tax cuts, and pretty much every Republican administration since Reagan, contributes to a perception of Republicans only caring about the rich since their signature policy every time is to cut taxes for the wealthy. We are already have historically low tax rates for the top earners since the income tax went into effect.
My thing about taxes is that we are not actually taxing where the value is. IMO we should lower payroll and income taxes and create new taxes that tax the wealth of rich Americans where it actually exists - their intangible electronic assets (and to a lesser extent their real estate). We're using 20th century thinking in our tax structure, gaining most of our revenue from payroll taxes. While capitalism is well into the 21st century and the rich don't make money from their salaries. If it were me, I would go after the tech billionaires where it hurts and do some kind of electronic VAT. The wealth of the rich is on the internet. That's where we need to tax. As it stands the bulk of government revenue is coming from the high income "working" class (ie: upper middle class): doctors, lawyers, athletes, people like that.
A lot of good points and perspectives here!
Greenspan may have been the only one that actually took responsibility for his part in things. Most everyone else pointed fingers and attempted to create diversions.
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