I'm starting to think that it's time to let the unproductive businesses that have blossomed over the last 12 years go bankrupt and be removed from the system. Unfortunately a lot of productive businesses that are temporarily unproductive had been using their cash for stock buybacks and using easy corp debt to run operations, and so with the pandemic, those wold get washed out too. Maybe the laws banning stock buybacks prior to Reagan weren't such a bad idea?
On the other hand how can the fed buy bonds from the "good" companies worth saving, and not from the "bad" companies that can freeride until "eventual" profitability?
I suppose you let the market decide - let the bonds float, and anything worth saving should be bought back up by the people enriched by the buybacks, right? Isn't that what efficient markets and capitalism are all about?
Save the people (using unemployment) and ditch the hollow husks of marginal companies that have rotted from within?
Dumb idea: maybe if you had a published interest rate schedule that planned out 10 years, 15 years, whatever. So everyone knew what the bond/loan base interest rates would look like for the next 15 years.
years 0 - 7: base interest rate ramps up from 3% now to 10%
years 8 - 15: base interest rate ramps down from 10% to 3%
years 16-21: repeat
years 22-28: repeat
Downside I'm sure is that people who come of age during high-interest-rate periods can't get car loans or education loans that don't eat them alive...
This seems sort of like what the Fed intends to do now, only with maybe lower rates overall - 0 for a few years, ramping to a target of 2 or 3, but I guess no real guidance after that. Unfortunately the Fed has pretty blunt tools, even after their upgrade back in March 2020. Using some of the surplus wealth from the asset holding class (top half of the K) to implement UBI, healthcare education, for the class that has most of it's wealth tied up in future wages (bottom half of the K). This would take congress though, and I'm not confident that we'll see anything recurring after the next round of stimulus.
There is risk here though - bottom up stimulus comes with it's own moral hazard issues, but then again I don't know what the net drag / benefit is compared to zombie companies getting infinite credit moral hazard we have now. I suspect UBI for individuals leads to fewer systemic risk sorts of issues, but I really don't know, it's very hard to envision what actually ends up happening due to lack of having ever experienced anything like that in my lifetime.
It would be nice if we could try it out - but there's probably a momentum term hidden in there somewhere - give an inch take a mile sort of thinking. Is UBI like corporate debt backstopping? Once you get a taste you can never go back?
I really don't see any good answers here other than "try to be on the top half of the K, and also try not to get eaten".
The 30 year rate has been dropping at 2% every decade for the last 5 decades at a steady rate[0]. If the fed attempts to taper inflation by increasing the interest rate above the 30 year, we will hit a yield curve inversion and trigger another recession, just like every previous recession in the past 50 years. So no, we can't go back to 2 or 3. And by 2030, we can't even stay at 0.
The big problem with bottom up is that you need a lot of it to continue the money supply expansion, and money created that is given to spenders as opposed to savers triggers inflation at drastically higher rates.
Yeah, that's sort of the conclusion I keep coming to. If I understand correctly, I'm assuming that when you say that bottom up triggers inflation, you're referring to price inflation / core CPI / any of the other 20 measures of inflation in physical consumable goods required for survival. Whereas top down (as we have been doing because fed and treasury can't seem to work together) tends to keep price levels for core CPI constant, but does lead to monetary expansion, or the multiplier between higher M's like M3 M4 and total assets over base money to grow, putting most of the price inflation into financial assets instead (My house is up 30% compared to bread this year from pre-pandemic prices, my 401(k) is up 80% investing in "low risk equities" compared to the same).
What are other alternatives? More of the same and hope technological multipliers for productivity continue to outpace CPI inflation so that there aren't bread lines? Charity? I suppose you can keep doing monetary stimulus without fiscal, and then increase taxes, and spend it on infrastructure that improves everyones lives?
You don't just have to watch out for CPI inflation to be outpaced by productivity. The money supply needs to also outpace productivity if you want the same status quo.
I've built up an intuition that the money supply should match changes in productivity, and that if it doesn't it will eventually lead to problems. But it's also notable that the trend is extremely important. If you do match, everything should be fine and this can last forever. If the money supply rises faster than productivity, you see what we've seen these past 50 years since we've been off the gold standard, a huge surge in asset prices. And if productivity rises faster than the money supply, people flee assets and into money. This is called a Deflationary Spiral. But the opposite state is basically an Inflationary Spiral, with people unwilling to spend their assets.
Dalio in his "Explaining the Economic Machine" video talks about a "Beautiful Deleveraging". My thought currently is that such a thing isn't possible. If you wait for the debt to get so bad that you have to do something, you can't match productivity anymore. Therefore the only thing you are left to do is grow the money supply less than productivity. And that changes everything. Suddenly the trend is to money. And once the money managers work that out, they all rush out of assets and into cash. This triggers a crash. So it's the trend that dominates, and there is no way to balance the deleveraging.
So the way I see this going is in any of these scenarios
1. Negative rates. All pretext is lost.
2. Repeat of Japan. Government ends up owning half of the stock market.
3. Mild to extreme bottom-up during a planned crash of assets. In this path you will see the stock market crash at the same time inflation soars.
Number three is the hardest but also the one that will end up with the best productivity. When you see stories like Bill Gates being the largest private farmowner[0], you might see it as an ominous warning that the rich are hedging this possibility and are making sure they end up okay.
On the other hand how can the fed buy bonds from the "good" companies worth saving, and not from the "bad" companies that can freeride until "eventual" profitability?
I suppose you let the market decide - let the bonds float, and anything worth saving should be bought back up by the people enriched by the buybacks, right? Isn't that what efficient markets and capitalism are all about?