Comment by schmidtleonard
1 year ago
You talk about low rates like they are a choice. That's mostly not true. A better way to think about it is that low rates are a consequence of "lots of savings chasing few investment opportunities."
Sure, the fed can buy and sell treasuries and use its magical balance sheet to push/pull on treasury yields, and these in turn are the lowest risk and most liquid mechanism for duration transformation so they tend to serve as a baseline / comparison point for every other kind of investment, transmitting monetary policy into the real economy. However, the fed's magical balance sheet has limits: if they push or pull on treasury yields too hard for too long, people will stop using them as a default point of comparison and put their money somewhere else. See: Bank of Japan and the JPY Carry Trade that everyone became an expert in about 3 weeks ago. Point is: the fed can push and pull, but it can't fight the market-determined macro and win. Not for long, anyway.
Low rates are inevitable between growth sigmoids. Unless you think we can exponentially grow forever, we need to figure out how to cope. What would that look like? How could we possibly cool off the economy without paying people to not invest? Well, I mean, we could raise taxes and spend that on the people who got left behind on the last growth sigmoid, but I can hear the "boos" and "hisses" already. Hey! Tomatoes are for eating, not throwing! Guys, come on! You know it's true.
> Well, I mean, we could raise taxes and spend that on the people who got left behind on the last growth sigmoid, but I can hear the "boos" and "hisses" already.
I mostly agree. The issue comes from how the money gets spent. It costs money to collect money, it costs money to spend money. Most of the spent money is used to "buy solutions" from private industry, so the rich still get richer, and nothing really changes.
Baltimore, MD, USA, spends more per student [1] than almost any other city in the country, and nothing changes. Oh well actually, there is a lot of corruption in the city council and I think over half of the past few mayors have been arrested on criminal charges.
[1] https://foxbaltimore.com/news/project-baltimore/in-baltimore...
> Baltimore, MD, USA, spends more per student [1] than almost any other city in the country, and nothing changes. Oh well actually, there is a lot of corruption in the city council and I think over half of the past few mayors have been arrested on criminal charges.
I'm not connected to Maryland, but is there a reason, other than history that the school board is appointed by the mayor and not elected? Everywhere I've lived, school districts have been independent from the cities they operate in, and supervised by a state education organization and perhaps mildly supervised by the county board of supervisors in the counties they operate in (or city councils when operating in cities that are counties). Then you could have corrupt city governance without necessarily having corrupt school governance; although you could still have both if that's what your local electorate chooses.
The gov. of maryland at the time of the freddy gray riots had the national guard on standby for HOURS before the mayor finally permitted the state to assist.
It is a horribly fucked up city, corrupt from top to bottom, rampant crime, murder, fraud, etc.
But no worries, residents of the city pay an ADDITIONAL tax beoyo9nd federal and state taxes to ensure things stay exactly the way they are. Baltimore city could triple their tax rates and nothing would change.
This is a microchasm of the entire US. One of if not the wealthiest country in the world cannot figure out that throwing money at problems DOESN'T FIX THEM. It is a rich-person way of thinking: "something broke, I'll pay someone to fix it" but thr "someone" lines their pockets, pays lip service, does the least costly "fix" possible, and laughs all the way to the corvette store.
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> if they push or pull on treasury yields too hard for too long, people will stop using them as a default point of comparison and put their money somewhere else.
Isn't the US kind of protected against this since the US is the global reserve currency?