I for the life of me cannot understand why everyone just rolls over. There is no fight. Media, CEOs, Lawmakers, there’s no protest and no pushback. It’s insanity.
I find it interesting the US has gone so long without trying centralized, state run economic policy. If you think about it, it aligns with a lot of populist movements around the world.
I think we had the boogieman of the Soviet Union to create an elite consensus on how to manage the market, and now that seems old hat. So we will now experiment and likely suffer the consequences.
It sucks Trump is singularly focused on the stock market. The market doesn’t really reflect the downside of a lack of Fed independence. Nor much of the downside of tariffs. Much of this economic policy stabilizes large companies, anligning them with the Govt, penalizing small/medium businesses. So of course the stock market will go up while the rest of the economy suffers. Billionaires have chosen to reign in hell rather than be fairly well off in heaven.
He's going to mortally wound the US economy, which was already precarious.
The US is not competitive with China, absent the USD. The Federal Reserve is a foundational reason why the USD is the most important global currency for trade.
There are nontrivial odds of Venezuela style outcomes for the US. The US media - particularly partisan mainstream conservative sources like FOX and CNBC - is drastically understating the damage this administration is to the US position in the global economic system.
Fed’s independence, IMO is only independent to political officials’ commands, but it still very much listen to some other elites e.g. the banking aristocrats.
If those elites don’t give a fuck about the world, then Populism arises and tries to take them over.
Fact of the matter is that organisations like the US Fed have too much unaccountable power, Trump or no Trump. It was only a matter of time before something like this was bound to happen, notice how no-one is out there in the streets protesting for the Fed's independence because not a single normal (voting) person cares about it.
These critiques of zirp never explain what should have been done differently.
It's very unlikely the Fed kept rates too low because inflation didn't exceed 2% for 12 years from 2008 to 2021. If the Fed had actually made money "too cheap" inflation would have kicked in much earlier.
More likely, we made it very hard to do new stuff in the country, which made the value of borrowed money low.
Congress spent decades adding regulations (often for good reason) that ultimately resulted in it being too expensive to do most things inside the US. If a business is banned from investing in most new things, it won't need to borrow more money.
The Fed just responded to the market's appraisal of money value. You can even see this in the long term charts - interest rates declined almost continuously from 1984 to 2022.
The entire time, inflation stayed at or below 2%. If the Fed had kept rates higher, theory would predict they would have caused a recession (and Scott Sumner has spent more than a decade arguing this is actually what caused the long deep recession of 2008 - money was too expensive, even at 0%).
Ultimately money is neutral in the long run. The things that truly matter for growth are laws, culture, natural resources and education. These are the causes of our present social dysfunction. These are the issues we should focus on fixing. Not fiddling with interest rates.
I would like it if the NYT was willing to be this plain about the news. They have real journalists who do real work searching for the truth and lose our trust with the delivery. Its infuriating to watch Trump use the Cohn, Moses, and fascist playbook and watch the media pretend like his words are anything but a tool toward those ends.
The interesting part, to me, was the disconnect between how the bond market and stock market are reacting. Can anyone predict how this is going to shake out?
Flag it all you want, the writer is correct in their assertions.
ZIRP was an acceptable solution to the problem faced at the time. Its detractors rightly pointed out all the harms that would come from it, especially if it was left in place longer than necessary - and they’re all essentially vindicated in hindsight. Still, it got us out of the immediate hole by kicking the various problems down the road a bit in the hope that regulators and Congress would fix the issues permanently in the long run.
Obviously that didn’t happen, because when you give rich people and their asset managers free debt and government bailouts with no strings attached, they understandably don’t share the wealth (they wouldn’t be rich if they shared, after all). So the best we can do now is simply refuse to return to an era that exacerbated rampant speculation and irresponsible investing into burrito taxis, because we know the harms it will cause.
I also appreciate the callout of the opposing sides that are the present stock and bond markets. Stock market boosters see no end to the good that comes from ZIRP because they don’t ever have to worry about the ten-year outcome when they hold a position for less than a decade; bond holders, on the other hand, absolutely have to worry about these outcomes, and we’re seeing their anxiety in sectors with outsized exposure to bond yields - like the insurance industry dropping customers and raising premiums to offset record property valuations in areas overly exposed to climate change and disaster risks.
Viewed through that lens, and it’s the equivalent of a Doctor warning the patient that if they don’t start exercising and eating healthier today, they’ll be dead in a decade - and the patient figuring that’s tomorrow’s problem, then fucking off to McDonald’s for a large combo meal and a sundae.
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[ 0.26 ms ] story [ 29.8 ms ] threadI don't really understand this causal link. Can someone enlighten me?
I think we had the boogieman of the Soviet Union to create an elite consensus on how to manage the market, and now that seems old hat. So we will now experiment and likely suffer the consequences.
It sucks Trump is singularly focused on the stock market. The market doesn’t really reflect the downside of a lack of Fed independence. Nor much of the downside of tariffs. Much of this economic policy stabilizes large companies, anligning them with the Govt, penalizing small/medium businesses. So of course the stock market will go up while the rest of the economy suffers. Billionaires have chosen to reign in hell rather than be fairly well off in heaven.
The US is not competitive with China, absent the USD. The Federal Reserve is a foundational reason why the USD is the most important global currency for trade.
There are nontrivial odds of Venezuela style outcomes for the US. The US media - particularly partisan mainstream conservative sources like FOX and CNBC - is drastically understating the damage this administration is to the US position in the global economic system.
supporting evidence: https://www.yahoo.com/news/articles/south-korea-tells-china-...
If those elites don’t give a fuck about the world, then Populism arises and tries to take them over.
Exactly what’s happening right now.
And that's very apparent even in this article which leads with the logical fallacy of moral equivalence
". . . and America’s preeminent real estate fraudster who bankrupted six rigged businesses is all of a sudden concerned with supposed mortgage fraud"
BOTH are guilty, BOTH are crooked!
This directly leads to a lot of "the whole system is broken, may as well get mine"
It's very unlikely the Fed kept rates too low because inflation didn't exceed 2% for 12 years from 2008 to 2021. If the Fed had actually made money "too cheap" inflation would have kicked in much earlier.
More likely, we made it very hard to do new stuff in the country, which made the value of borrowed money low.
Congress spent decades adding regulations (often for good reason) that ultimately resulted in it being too expensive to do most things inside the US. If a business is banned from investing in most new things, it won't need to borrow more money.
The Fed just responded to the market's appraisal of money value. You can even see this in the long term charts - interest rates declined almost continuously from 1984 to 2022.
The entire time, inflation stayed at or below 2%. If the Fed had kept rates higher, theory would predict they would have caused a recession (and Scott Sumner has spent more than a decade arguing this is actually what caused the long deep recession of 2008 - money was too expensive, even at 0%).
Ultimately money is neutral in the long run. The things that truly matter for growth are laws, culture, natural resources and education. These are the causes of our present social dysfunction. These are the issues we should focus on fixing. Not fiddling with interest rates.
https://www.orwellfoundation.com/the-orwell-foundation/orwel...
But ideological consistency is, I guess, not his concern.
The interesting part, to me, was the disconnect between how the bond market and stock market are reacting. Can anyone predict how this is going to shake out?
ZIRP was an acceptable solution to the problem faced at the time. Its detractors rightly pointed out all the harms that would come from it, especially if it was left in place longer than necessary - and they’re all essentially vindicated in hindsight. Still, it got us out of the immediate hole by kicking the various problems down the road a bit in the hope that regulators and Congress would fix the issues permanently in the long run.
Obviously that didn’t happen, because when you give rich people and their asset managers free debt and government bailouts with no strings attached, they understandably don’t share the wealth (they wouldn’t be rich if they shared, after all). So the best we can do now is simply refuse to return to an era that exacerbated rampant speculation and irresponsible investing into burrito taxis, because we know the harms it will cause.
I also appreciate the callout of the opposing sides that are the present stock and bond markets. Stock market boosters see no end to the good that comes from ZIRP because they don’t ever have to worry about the ten-year outcome when they hold a position for less than a decade; bond holders, on the other hand, absolutely have to worry about these outcomes, and we’re seeing their anxiety in sectors with outsized exposure to bond yields - like the insurance industry dropping customers and raising premiums to offset record property valuations in areas overly exposed to climate change and disaster risks.
Viewed through that lens, and it’s the equivalent of a Doctor warning the patient that if they don’t start exercising and eating healthier today, they’ll be dead in a decade - and the patient figuring that’s tomorrow’s problem, then fucking off to McDonald’s for a large combo meal and a sundae.