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Antonomon  1yr ago (novum.substack.com)   1784 thread views

"What if your entire worldview was just because of near-zero interest rates?"

novum.substack.com

Since the Great Recession, the Fed has transformed itself into an entity more and more responsible for asset prices. This was the stated goal since 2009 as the Fed adopted a new philosophy called the "Wealth Effect." The thinking behind it was simple: growth in asset prices would translate to an increase in consumer spending and hence demand itself. It was a 'trickle down' economic philosophy an increasingly financialized economy.

This backdrop has defined our post-2009 era which stirred certain pathologies that were reflected in the greater culture and politics. It was the time when 'finance became a culture' and actual-productivity plummeted across most developed economies, especially the United States. But somehow in spite of the accumulating dysfunction across most key areas, everything kept trudging along, partly thanks to investors being satiated with record returns.

While the near-zero interest rate regime may now be ending, it is worth considering how much of the water we were all swimming in excused poor state capacity, distorted economic fundamentals, and how it even kept a lid on the dysfunction potentially blowing up in our faces. Now that we have to reckon with these realities, it may be wise to ask how many worldviews were simply products of the the cheap money regime - which is now, in a shock to many, coming to a close. Whether or not it will easily be let go, however, is another matter.

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There was comparable excess in the 80s and 90s despite even higher interest rates than now. The greatest asset bubble ever, the late 90s tech boom, was against a backdrop of 5-6% interest rates. High interest rates do not change things much. Yeah, 4% interest rates makes cash more attractive, but this is not going to stop huge tech companies from generating record profits. nor will it stop speculation.

And on the other side, there's all sorts of evidence of other countries & currencies which also set 0% interest rates, that didn't experience any of the same kind of supposed wealth effects / asset bubble frenzy. 'Cheap money' is an attractive concept for building narrative explanations, but there just isn't such a slam dunk case for interest rate policy impact.

yeah you're right. like Japan , the EU, etc.

Am I missing some level of irony or does this comment claim that there aren’t asset bubbles in the EU?

What asset bubbles are in Europe? I don’t even think asset bubbles exists for the most part. There just some guy saying they think the price of something is wrong and claiming there some intellectual bubble spot. And once every 10-16 years a guy whose made a 100 bubble calls gets one right and then he gets to go cnbc for the next decade as the guy who got it right but was just a perma bear who saw bubbles every where.

Real estate?

Why?

The prices in every major city in the EU have gone insane.

Why does that mean bubble?

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