A weekly thread to discuss financial matters - from personal all the way up to global.
Ground Rules
*Remember that we're all just Internet randos. Don't bet your life savings on a hot tip from this thread.
- Keep culture war in the culture war thread. Yes, global events may impact our personal finances, but that does not mean we have to incessantly harp on culture war aspects here. If you are going to discuss it, please stick to the practical impacts of it on an individual level.
- Be kind. Remember that everyone here comes from different circumstances. We all have different resources available and different risk tolerances.
- Don't let the perfect be the enemy of the good. Better is better. Celebrate people when they take a step up and work to move their finances in the right direction. Don't flame out because they haven't followed what you consider the optimal path. Everybody has to start somewhere.
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Notes -
I don't think it's accurate to say central bank policies have no effect. I've heard a lot of talk about zero-interest-rate phenomena and its influence on the tech market scene, for example, and I think that has a lot of basis under it. If you give people access to infinite money with the condition on "give it back some time later, maybe" it will have an influence on the economy, how could it not? I do not deny government spending and taxation has its effects too - I mean, we're talking trillions here, how could it not, and I think nobody would ever deny taxation directly influences economic behavior, and so does subsidizing.
That said, I think the idea that the Fed is only interested in pegging inflation to 2% and nothing else matters is naive at best. The Fed is seen as the steward of the economy as a whole, whatever is meant by that - I am sure they have enough charts for everybody - and the government would reach out to them (either quietly or flamboyantly, in Trump's case) if they want some economic policy to happen. I think that has been the case for a long time, one can call it by whatever term they want, but the government and the Fed have some ideas how the economy should look like, and they use all their tools to achieve it, and the inflation is only one measure among many.
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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