patrick.net

aka the Japan Trap.

When money collects with the rich, interest rates have to fall to keep the game going.

Macro economics is weird and I can't pretend to understand what is going on or try to figure out how/when/why the current regime will end.

ISTM our modern economy can provide for all our wants and needs fine. "We" here being the top 10% of the global population ($45,000 for a family of 4).

Latin America has 600M people, Africa has 1.1B (!), China, India are around 1.3B ( +/- 50m) each now.

Going by our NIIP the USA can't actually pay its way in the world. That is troubling to me and is driving a lot of Trump's appeal I think.

Perhaps he's right that American wages have to be $5/hr or whatever.

I do feel we should just print USD until our trade deficit goes to zero -- basically print the deficit in goods each year. Use the funds for capital projects.

https://research.stlouisfed.org/fred2/series/BOPGSTB

shows this is $45B/mo now. At $4,500 per job that's 1 million jobs we could create immediately, plus the 2nd-order service-sector jobs this new demand would induce.

Japan is a good analogy, and so is the US housing bubble and other US bubbles. Interestingly, the author Edward Chancellor in his current article is focusing on China as the main current example, but mentions US, Japan and Europe as well.

I shortened the thread intro to get to the point more quickly:

The Fed, BoJ and ECB are doing exactly what Banque Royale did in 1716-1720, and by exactly the same mechanisms, namely flooding the markets with cheap debt.The result is stagnation, increased inequality of wealth, and endless assflation (asset inflation), at the expense of the working class. Assflation is a pun on stagflation, a popular word from the 1970s made from stagnation+inflation. Assflation not matched by Wagflation (*)(heh) means that the rich get richer and the middle class get more debt and less wealth.

I don't intend to discourage people from reading the whole article about Banque Royale. It is well worth 10 minutes do so.

I also cannot help but wonder whether 1716-1720 bubble was one of the precursors of the French Revolution of 1789-1799. The debt buildup continued, and It appears that royal debt and food inflation was a big factor, 60 years later.

https://en.wikipedia.org/wiki/Timeline_of_the_French_Revolution

(*) Wagflation also not to be confused with Vagflation, another well-known economic problem and indeed perhaps the underlying cause of the great appetite for Assflation.

I can't believe people are not more interested in this topic. 300 years have passed by, and the SAME scam is being perpetrated upon us over and over and over again. Because SOMEONE benefits from the scam, and the rest of the population is in a daze.

justme says

I can't believe people are not more interested in this topic. 300 years have passed by, and the SAME scam is being perpetrated upon us over and over and over again. Because SOMEONE benefits from the scam, and the rest of the population is in a daze.

I disagree with the conclusion and find the logic less than compelling, but we've had this discussion before (several times) and I didn't feel it worth arguing again.

As Logan said on another thread--low rates don't cause a bubble. Excess money doesn't cause a bubble. Bubbles are irrational behavior.

anonymous says

Can we apply that logic to guns then and do away with all the calls for gun control ? Guns don't cause crime/murder, excess guns to not contribute to the same.

Not really. I would expect that you could correlate number of gun accidents with number of guns.

tatupu70 says

low rates don't cause a bubble. Excess money doesn't cause a bubble. Bubbles are irrational behavior.

I agree with you that bubbles are result of human irrational behavior.
But how can exponential credit growth fueled by low rates go on forever in a finite world?

-- the low hanging fruit in fossil fuels is gone - the net energy of the new resources (tar sands, deep ocean drilling) is substantially lower.
-- climate change is real with significant amplifying feedback processes and has serious implications to the global economy.
-- increase in credit is not leading to an increase in velocity as asset price inflation does not trickle down to the spending class. i.e. the economy is in gridlock due to monopolization of wealth by the rentier class.

anonymous says

If guns, excess money, low rates, religions etc. are all inanimate objects, how can any of them do anything in and by themselves without "irrational behavior" by humans ?

I would call an accident different than irrational behavior.

uomo_senza_nome_0 says

But how can exponential credit growth fueled by low rates go on forever in a finite world?

It cannot. Unless we elect Sanders or Liz Warren, another Great Depression is coming. It's not if, it's when.

anonymous says

So automobile "accidents" for example do not have irrational behavior as a root cause or underlying cause of the event ?

I would imagine some do and some don't.

anonymous says

tat - I am prone to "irrational behavior/thinking" regardless if the "cause" was deemed mechanical but then I spent a lot of time doing "root cause analysis" studies on accidents and events.

Not sure exactly what you're saying here.

Risky behavior isn't always irrational.

tatupu70 says

As Logan said on another thread--low rates don't cause a bubble. Excess money doesn't cause a bubble. Bubbles are irrational behavior.

Not exactly what logan said. Low rates and excess money combined with events that creates an opportunity to profit from them causes bubbles. Law's actions beyond expanding the money supply created the opportunity that inflated the mississippi bubble. Mainly swapping mississippi company shares for government debt creating a high artificial demand. Allowing banks and credit ratings companies the opportunity collude in order to sell garbage as AAA investments with no one looking over their shoulder created the latest meltdown. There needs to be an opportunity event.

As to your original posting, yes central banks are making some of the same mistakes Law made for the same reasons. But they haven't all created bubbles.. There needs to be another factor that sets off the irrational behaviour.

bob2356 says

Mainly swapping mississippi company shares for government debt creating a high artificial demand.

Yes---I think this is much more important. Similar to the abandonment of underwriting standards created a high artificial demand during the housing bubble.

I'm totally in agreement with what anonymous has been saying. In fact, I might go even farther (I think) and say that low interest rates is a root cause of irrationality.

Look , this is how a housing bubble works:

1. low (lowered) interest rates,
leading to
2. an opportunity for wannabe landlords with a small amount of capital to front-run people who really need a house for their own use, and turn said people into renters-by-necessity,
leading to
3. a rush of other wannabe landlords that copycat the original group,
leading to
4. bankers and brokers seeing further profit opportunities by increasing the amount of debt and volume of real-estate transactions,
leading to
5. bankers and brokers pushing for lax regulation, lax underwriting, and engaging in outright fraud,
leading to
6. people who need a house to engage in desperate borrowing and bidding to get a house,
leading to
7. flippers that use previously accumulated profits as capital to buy lesser houses in lesser areas and superficially making them more attractive,
leading to
8. desperate renters and desperately greedy existing and wannabe landlords competing for increasingly crappy houses at increasingly higher prices,
leading to
9. a giant bubble that eventually bursts,
leading to
10. huge losses for banks and mortgage bond holders
leading to
11. a complete meltdown in jobs and total wages (the REAL economy),
wrongly justifying
12. the Federal Reserve doing what it always does: Trying to save the banks at the expense of everyone else,
leading to
12. The Fed lowering short-term (=depositor) interest rates so that banks(/bondholders) get a better profit margin(/valuation) on their remaining still-performing loans(/bonds),
leading to
13. No "improvement" in asset prices just yet, so the Fed starts buying crappy bonds from banks, and crediting them as "reserves" at the Fed (This is what QE/Quantitative Easing is),
leading to
14. A flood of liquid money equivalents, and lower long-term interest rates,
leading to
15. GOTO STEP 1, BUT (very important) keep in mind that the bubble may also spread or move between housing, stocks, bonds and other "assets", like commodoties.

justme says

I'm totally in agreement with what anonymous has been saying. In fact, I might go even farther (I think) and say that low interest rates is a root cause of irrationality.

Here are bond rates over time. Tell me at what level low rates cause bubbles to form. Why isn't it happening now?

justme says

2. an opportunity for wannabe landlords with a small amount of capital to front-run people who really need a house for their own use, and turn said people into renters-by-necessity,

leading to

3. a rush of other wannabe landlords that copycat the original group,

leading to

That would lead to lower rents as there is more and more supply of rental houses. Lower rents lead to low profits on landlords. It's self correcting. No bubble.

justme says

bankers and brokers seeing further profit opportunities by increasing the amount of debt and volume of real-estate transaction,

leading to

None of 1-3 are required for 4.

justme says

people who need a house to engage in desperate borrowing and bidding to get a house

Why don't they just get a cheap rental? All those front running landlords are surely trying to rent those houses now. Should be very cheap.

tatupu70 says

Why don't they just get a cheap rental? All those front running landlords are surely trying to rent those houses now. Should be very cheap.

No, you dumbass. The greedy landlords locked in their costs by frontrunning and displacing the people who really needed the house, and these people have no choice but to rent. The rents did not go down, at least not much.

justme says

tatupu70 says

Tell me at what level low rates cause bubbles to form. Why isn't it happening now?

Your blindness is self-serving and astounding. After March 2009, a massive stock bubble started. In 2011-2012, the housing bubble started reinflating. Yes, there is a stock and bond and housing bubble, all at the same time, right now. It IS happening right now, and has been for several years. Asset inflation is rampant.

So where was the stock, bond, and housing bubble in the 1950's when rates weren't very much higher? What is missing? Sorry, but bubbles have been around a long time and cannot be explained by simply pointing out one factor. Each one is unique.

justme says

No, you dumbass. The greedy landlords locked in their costs by frontrunning and displacing the people who really needed the house, and these people have no choice but to rent. The rents did not go down, at least not much.

lol--I'm not the one who doesn't understand supply and demand. If there's a dumbass here, it sure as hell ain't me.

If prices are rising because houses are being pulled from the available supply to purchase and being used to rent--rents will fall as well. And if people who used to own their house are turned into renters, then house prices won't rise because demand is reduced.

You are missing the big picture here.

justme says

Your blindness is self-serving and astounding. After March 2009, a massive stock bubble started. In 2011-2012, the housing bubble started reinflating. Yes, there is a stock and bond and housing bubble, all at the same time, right now. It IS happening right now, and has been for several years. Asset inflation is rampant.

Given that what you posted was just a graph of interest rates, and not of asset prices, how do you expect to see asset inflation (assflation for short) on the plot? Also, I did not say that it is a certain interest rate level that ignites assflation, it is the reduction.

Low interest rates will cause the price of productive assets to rise. That is NOT a bubble. It is entirely rational economic behavior.

Your problem is you see a bubble every time an asset rises in price.