Lot of government spending, sure. How sustainable is it? How sustainable are 0 or negative rates in crisis situations going forward in the context of having had low rates the last 10 years? Can anyone who’s done a bit more research or has thought about the framing here and the kinds of factors big or small that kinda gets the mechanisms here, comment?
Things I wonder: 1) What’s the highest our rates can go with such an involved central bank and fed in non-crisis times? E.g. last ten years we weren’t in ‘crisis’ yet had low rates. Does this mean our cycles will be much shorter (+,- highly sensitive economy, highly volatile norm).
2) What does a recovered economy mean, outside of the more simple metrics? What do you look at for a characteristically strong economy other than employment rates, GDP, inflation, etc. How can you tell when an economy is actually strong vs. just propped up so to speak in a way that can only work for so long? (E.g. can’t look at spreads because investors may be highly influenced, but actual corporate default rates and compare them to how the rates are).
3) Is our economy harboring serious issues that doomsday economists say we are e.g. the real underlying issues haven’t been recovered and only covered with a bandaid eg QE and rates just putting a bubble in the economy and not fixing it (Austrian Economics).
4) What’s up with our economy now and how do you all see the different mechanisms at play? Feel free to get as much or as little in political involvement.
We’re all involved in assessing the micro, what’s the intelligent way to evaluate the macro and tell what really goes on? I do think that things which have a strong upswing have an equal half life the opposite way e.g. will fall just as fast if not twice as. Let me know what you think.
Cool engaging post. I am bored waiting for a turn of comments so I will take a stab.
The last ten years had low rates because of the drastic measures (at the time very drastic) taken by the Fed during the crisis. When you pump all that money into the economy through QE, the Fed knew it would have to take things very slow to get the economy off the drip (like a recovering addict). You saw this in late 2018 when the Fed told everyone it was going to raise rates, then proceeded to raise rates, and the market reacted like it was shocked that the Fed actually followed through. I personally believe that since the financial crisis, the Fed has now added to it's dual mandate. Instead of just focusing on (1) inflation and (2) unemployment, they are focused on the stock market. Some may interpret the stock market as falling under "keeping prices stable" in the inflation part of the dual mandate. Whatever. The point is that the Fed likes to keep tickers green. If we extrapolate from 2008, the actions taken in March of this year (and the actions that will probably continue to be taken as we continue to deal with COVID for the next year(s)) could mean that rates will stay low even longer. So I don't think rates can go any higher than 1.5% for at least another decade if things are somewhat smooth. Doubtful that things will be smooth from now until then, but then the Fed will probably find a new "unprecedented" response to take action when this bubble finally implodes.
I personally think income and wealth distribution are under-appreciated economic indicators. If everyone is receiving paychecks in some form, and wealth is diversified enough that the middle and lower classes feel like they can spend money to live a fulfilling live while having enough leftover to retire, then that is a winning country IMO.
For sure dude. The student debt crisis alone is insane and totally unsustainable. According to the Fed as of Year-End 2019, there is 1.6tn outstanding, over 11% of which is either already in default of beyond 90 days delinquent on payments. Average monthly payments are between $200 - $300 USD. Tuition continues to rise despite COVID (with the exception of a few universities so far). Unless all these grads are breaking into Wall St or Tech, I do not see how they can build lives for themselves and have a net positive contribution to GDP or have any meaningful retirement savings. They will have to be bailed out one way or another.
We are still in an economic crisis. Unemployment is still sitting at levels that were considered "the worst" of the 2008 financial crisis. There are jobs that are being ripped from existence due to COVID, never to be replaced. There are also jobs that COVID is creating, but I think the net job creation will be negative. I feel like COVID has forcefully accelerated automation and industry consolidation, while disproportionately having greater harmful impacts on smaller business and lower income workers. We are in a very bad state. The markets are green because everyone is betting that we will figure it out. I personally think we will because the Fed and government is demonstrating that they are willing to do whatever it takes and print as much money as necessary to keep the US from descending into chaos, but then you could argue that a massive bubble must be forming if asset prices are green despite the disparaging fundamentals we are seeing.
Thanks for asking me to flex my brain this monday morning.
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