LateMechanic
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User ID: 1841
LateMechanic
3d ago
What are the fiscal problems we're looking to fix? Trying to get inflation back down to roughly 2%, and optimistically try to get unemployment down a bit more, to like 3%?
I would definitely give the neo-fisherians a shot, and try dropping the policy rate to somewhere around 0-1.5%. Cochrane's modeling also supports Bessent's moves to phase out longer-maturity securities in favor of shorter bills, in order for interest rate changes to have fewer conflicting effects. Any debt monetization beyond that is pointless, and under current various rules there are probably enough institutions that prefer/need the bonds that I wouldn't suggest bothering with more QE.
Predictions based on the supposed perpetual dominance of fiscal policy over monetary policy? I guess stuff like the prediction that the eurozone was set up poorly and would dramatically struggle to deal with the first big crisis, that you should prepare for a crash if austerity politicians start winning again and fomenting a fear of large numbers, and that otherwise the US with a demonstrated willingness to keep running large deficits (to supply the desired savings to the domestic private sector and the rest of the world while maintaining solid aggregate demand) is exactly where you want to be for the best economic growth & business investing environment.
No idea about Japanese exchange rates, looks like they started accumulating US treasuries again in '09/10, which would be intentionally devaluing the yen to make their exports more competitive? And this year they finally did a massive sell-off of some of their foreign reserves to push the yen back up? I'm more of a fan of just leaving exchange rates purely floating, but I'm open to some mercantilist wisdom of keeping your industrial base stronger than what might happen naturally.
LateMechanic
3d ago
Same as it ever was, really. People in the last 50 years really wanted to think of central bankers as our modern wizards, fine-tweaking the economy with their monetary policy dials, while we breathlessly hang on every word of their forward guidance. But they've been more accurately caricatured as the kid in the passenger seat with a fisher-price steering wheel & pedals who thinks they're the one driving. The only awkward part is that the adult who is actually driving (fiscal policy of spending & taxing, which have enormous clear 1st-order effects) is often actually looking at the kid and also thinks they're the one controlling the car.
As for "monetization" inflation theories: Anyone who still thinks of interest-bearing government debt in the form of central bank reserves as "money" but interest-bearing government debt in the form of treasury securities as "not-money" has been exposed as having an incoherent understanding of the accounting fundamentals. QE not being stimulative or inflationary broke a lot of those brains awhile back, but people come up with cope or just conveniently forget about it and go back to their old textbook understanding years later ('gasp, you shouldn't monetize the debt, that would be inflationary!'). Some mainstream economists like Summers & Krugman finally came around in the mid/late 2010s to notice that in a zero-rate environment, there is no 'money' difference, and the deficit is effectively printing money regardless of what form it ends up in, be it reserve balances, securities balances, physical coins/notes, etc. They still didn't seem to note that in the post-2008 world, the monetary policy regime switched to hitting their interest rate target by paying interest on reserves directly (a much better & simpler system than using reserve requirements and OMOs to drain all excess reserves all the time from the banking system), so there's no 'money' difference between reserves and securities even if the policy rate isn't zero.
Fiscal dominance for American citizens has been happening for 250 years, so I would anticipate more of that general trajectory. Especially similar is the last 90 years with a central bank that got modernized based on the experience of the great depression, and the introduction of income taxes which are a massive fiscal automatic stabilizer where taxes paid go up & down with the state of the economy without any active intervention needed by congress. Just because it's the water we swim in, doesn't mean it's less important; that's the steering wheel that's actually attached to something.
To the extent that you actually have to check empirically to find that raising the policy interest rate to 50% (meaning the government effectively increases the size of all bank accounts constantly with a bunch of free money), turns out to shocked pikachu drive inflation up to 50% rather than 'taming' it down to 0...well I would say you're learning which 'channels' are more powerful in the real world, free money vs cost-of-borrowing, rather than needing to get too creative speculating about whether we've transitioned between monetary vs fiscal dominant worlds at any given moment. And it starts to click why the Fed couldn't get inflation up to 2% no matter how low they set rates, and now can't get it down to 2% no matter how high they set them. I haven't read the econ blogs in awhile, but I know of at least John Cochrane as still trying to get the 'fisherian' word out that interest rates are positively causally correlated with inflation, as well as MMT's Warren Mosler.
LateMechanic
6d ago
Shit, where's the modern monetary theorists up ins? Aren't we due for a lecture about how the deficit isn't actually a problem, how the National budget isn't actually like a household budget, how debt isn't real?
Most of the rest of them are at least borderline trump-deranged, tribally, but I'll happily accept & promote a random one-off stimulus check to everyone. Though I'll save any attempted lectures (which take too much finesse for me to ever deliver convincingly) for those who seem to be honestly pained by their beliefs I think are mistaken, rather than wheeling one out for OP who is always just looking for a new 'republican bad' angle.
For this thread, I would just note that we had frequent economic depressions until FDR, and none since. So not only am I aboard the FDR & trump trains, I'm looking for which party will angle for that 'socially conservative, fiscally liberal' winning side in the post-trump future, and am happy to see others affirming that position now. I think the economic Charybdis looming serious disaster isn't being negligently forestalled at all, and is merely a mirage. To the extent that nationalists and reds at least go with your logic of not playing the losing game one-sidedly, then there's some hope of using the economy as a tool to fight off the actual cultural looming disaster.
LateMechanic
16d ago
Like I said, just an offered suggestion. If you don't actually feel any cognitive dissonance with any outcomes or past predictions, then fully ignorable, my mistake. I can then instead just offer my own prediction for the next few years, of no austerity, no demand-pull inflation (could get cost-push from oil prices, certainly up in the air right now), and no loss of control of interest rates (indeed at some point the Fed will likely do their job and exercise more yield curve control instead of having the treasury attempting to do it alone).
Yes its true that technically, the "government" can set its own base rate. But even modern monetary theorists understand that this rate is constrained by inflation. Otherwise we can just set the rate to zero, negative even, and all problems are solved.
Well the chosen interest rate isn't constrained. What's constrained by inflation is the stimulative effect of increased deficit spending, but note that raising the interest rate directly increases government deficit spending. So as an economic tool, whether you're moving the rate up or down with monetary policy, you're pressing both the gas & brake pedal at the same time, and just hoping to correctly predict which channels will have a stronger effect. Currently most central bankers still use a rough reaction function where they hope the net effect of raising rates cools the economy on balance, fighting inflation, and lowering rates stimulates the economy / causes inflation, but the evidence is just getting murkier for that hope (so they're thankfully getting away from anything close to a rigid taylor-rule style). There's no evidence that leaving the rate at 0% causes inflation, and a mountain of evidence to the contrary. So personally I do think they should set it to 0-1% and leave it alone. As for solving all problems, surely not, but maybe a lot of the problems you were bringing up.
Furthermore, banks cannot bring infinite money into existence.
They could, via the core accounting and economic logic, as well as having access to the reserve banking system with a permanently available lender of last resort. But indeed you noted the real restraint, government regulation, with current rules requiring those commercial bank members to stay profitable and thus well capitalized, or else face reprimand & closure. So sure, Charter can't walk up and get another $90B tomorrow. But if we accidentally just 'shiv' a super productive & profitable economy by having over-tight regulation that prevents lending to credit-worthy borrowers, that would be a failure of policy & imagination, not any kind of inevitable 'crowded out by tech' story.
Companies generally borrow money from the bond market not banks.
Fair, I don't know enough about the appetite of retail & institutional investors for corporate bonds. I would have guessed it was effectively limitless at the right price, with the market being tens of trillions in size, where a company's finances & fundamentals would dwarf any effect from competition between issuers.
Either way, the federal government is definitely not playing in that same game as a competitor that could crowd anyone out. Their 'borrowing' consists of mopping up the exact reserves that they just injected into the system with the prior deficit spending. As for the chosen monetary policy risk-free rate being the starting point for all other interest rates, which get priced at some spread above it, I wouldn't find it very illuminating to use 'competition' terminology for that. That's just always how it works, regardless of the level of government spending. It's more aptly seen as a subsidy: the government chooses to give out money to those who have money, which obviously sets a base opportunity cost. As for long-term treasury price floating, that's still a choice of monetary policy to allow some market participation in setting the price, based on predictions about future inflation and rate-changes. I don't know how valuable they really find that information gathering from the market, and they could definitely choose to control the yield curve with any durations having any prices they want.
Charter Communications
Looking into it briefly, it seems like a pretty interesting and extraordinary case study, rather than some joe schmoe typical avatar of the non-AI 'regular economy'. I'm paying them every month myself, but never knew about their prior bankruptcy & recent debt shenanigans with the mergers.
LateMechanic
16d ago
excessive government spending increases the price of debt
It's actually kind of surprising that the 30 year yield is only 5%.
Something has to break.
I can merely suggest that any cognitive dissonance you're experiencing with real world outcomes could also be solved a different way, with an acknowledgement that your understanding/intuitions were mistaken.
It sounds like your model is one where 'finance' is quantity-constrained with floating price. That could be a hypothetically-used system, and the gold-standard-era sort of tried to mimic that at one level of the money hierarchy. But our current system, from the top to the bottom, is one where finance is infinitely-elastic, floating quantity, based on set prices. If you're credit-worthy, you can always borrow money into existence at a rate that gives the bank a margin. If the government has their own currency and their own central bank, they choose their own interest rates to pay as a matter of policy, setting the base rate for everyone else. If anything breaks in the near-future, it would be due to a similar inept policy choice, rather than any fundamental economic gravitational pull. It would be like giving up on building a house because you ran out of inches.
LateMechanic
18d ago
Yeah the last 4 minutes definitely subverted all my expectations, based on what they had achieved already. Didn't know if those choices were from a japanese culture angle, or yeah just the allure of making a follow-up. Although I still liked it and would always recommend it, I'm maybe less interested in rewatches.
then the camera zooms into her window for a menacing shot of the same iceberg that sank the ship all those years ago!
As long as this is accompanied by the foreboding godzilla theme playing, I suppose I'd allow it.
I was definitely feeling this when attempting to listen to the gamergate summary posted below. Even though my own take has been pretty consistent now and when living through it, it just feels especially quaint and from a different head-in-sand era to offer any charity to the antics of quinn/sarkeesian and the media figures trying to circle the wagons around them. In comparison, the current popular thing is the asmongold "only accept total chud victory" / "welcome home to mcdonalds" celebrations at all the closures of 'modern' projects/studios/companies, while showing pictures of how much more their staff was now made up of women compared to the good old days, and having zero patience for even the slightest escape-hatch attempt for sympathy for lost jobs.
It definitely looks like the dominance of the "you're debating not to change the mind of your debate opponent, but those of the audience" angle. Once some people start being beyond the reach of shaming & guilting, and just let it rip, only to be met with massive growing popularity like fuentes/asmongold/etc., I think that's certainly showing the new era we're in.
There was a time when most of the popular MRAs on youtube were actually women, like karen straughan, who often had sons or at least positive relationships with their male relatives. I can't recall this ever being treated as a reason to dismiss their takes, or thought of as anything but positive. Meanwhile, we're currently at the point where any adult man who isn't at least vaguely benevolently chauvinistic/sexist is now suspected of simply being a "wifeguy"/"girldad" as an explanation.
You mentioned blaming Marvel fake-outs, but which category do you put Infinity War in? That was pretty shocking in the theater to the audience, and was probably also the franchise high-point (alternatively: final good marvel movie), although that's probably just a timing coincidence.
When I think about my reaction to various things like Godzilla Minus One, Fight Club, Rogue One, Fail-Safe, Dr Strangelove, Outer Wilds, 3:10 to Yuma, Double Indemnity, etc., I can't really pinpoint any consistent personal preference. I guess it probably is when a clear choice is made artistically, either way.
This may be my own semantic skill issue, but it does seem like your shortening of his "state of emergency"ism to just 'emergencyism' loses something (even if you were trying to keep the idea but make the term more usable). It sounded like this concept was actually about there not even really being any emergency at all -- just the existence of political opposition as a boogeyman, which means all times can be characterized as being in a generalized potential state of emergency such that we can't afford to police political allies [right now]. Hence the classic example "this is the most important election of our lifetime, not the time to be overly-principled" every cycle.
Certainly seems like everyone partakes in this to varying degrees, although the anti-Trump era is characterized by a particularly zealous version of it for whatever reason. To find anyone avoiding the brainworm, you'd be looking for the heterodox/heretical people willing to be disagreeable (or at least those willing to talk to them). Or I suppose you'd be looking for a legit emergency, which may subjectively reach the level of being worth piping down and falling in line.
All I would say from my perspective is that I've seen quite a lot of people who don't seem to know or write much about banking/accounting/money, still very much took to the zirp 'free money' story as part of any fun narrative-building they wanted to do. It reminds me of narratives about the falling rate of profit in capitalism or peak oil doomerism, where people work in some kind of questionable economic fudge factor for why some dam hasn't quite broken yet in their story.
In the same way that every random redditor "knows" that the Fed was allowing inflation to stay up in '22 and was screaming at them to raise rates to kill that inflation, similarly tons of people "know" about the distortionary impact of zirp as some story for anything happening in the 2010s. I just don't think the story really works like that. The default neutral state is for the risk-free monetary base to be non-interest-paying. It takes active government intervention to artificially set the base risk-free rate at something above 0%, upon which all other interest rates get set at a spread above. And banks don't just give infinite free money out when the base rate is zero, they take their marginal cut for the service they're providing, do their best to price in the credit risk appropriately, and get closed by the government for failing to be run properly. The economy clearly wasn't exactly turbocharged by 0% or negative interest rates, the way the wizard-believers were hoping.
As for other jobs the Fed does, yeah they have a ton of different roles. In addition to being charged with trying to use monetary policy to achieve stable prices and low unemployment, they also run the payment settlement system, do much of the financial regulatory policing, run the Treasury's books (so technically even treasury securities are a type of account at the Fed), and the branches each do plenty of interesting academic research & paper-writing to different audience levels, etc. If this was stemming from the 'toddler thinks they're driving the car' analogy, that was saying that monetary policy really doesn't drive the economy, compared to the overwhelming dominance of spending & taxing. Not that it has no effects, or that they do nothing useful.
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