[HN Gopher] Entire German bond yield curve back in sub-zero terr...
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Entire German bond yield curve back in sub-zero territory
Author : nabla9
Score : 163 points
Date : 2021-08-03 12:19 UTC (10 hours ago)
(HTM) web link (www.reuters.com)
(TXT) w3m dump (www.reuters.com)
| bruce343434 wrote:
| I'm a bit of a layman when it comes to financial stuff like this.
| Is there any place I can go to really understand what this
| headline actually means and what the implications are?
| belter wrote:
| In simple words, this means you lend me 100 bucks, and you
| agree that I will pay you much, much later...And only 90 bucks.
| [deleted]
| Phelinofist wrote:
| Why should I do this?
| agilebyte wrote:
| Individuals: Your mattress is not big enough for all your
| cash and your neighbors are eyeing it too...
|
| Institutions: requirements that they hold a % of their
| portfolio in safe assets like bonds.
| treis wrote:
| Because the government provides the strongest guarantee of
| that money being there in the future. Banks can go bust or
| your money can get embezzled and so on.
| mjn wrote:
| In particular for larger amounts of money. Many countries
| have deposit guarantees for smaller amounts, so for most
| individuals it wouldn't make any sense to buy negative-
| interest bonds. For example, someone in the U.S. who
| wants to store $250k with a government guarantee can
| simply put it in an FDIC-insured bank account. I believe
| Germany is similar, though with a lower EUR100k guarantee
| per account. You can go a little higher by having
| multiple accounts at different banks (at least for FDIC
| insurance, the first $250k at each separate bank is
| covered). But if you have $10m or $100m to store,
| government bonds become the only practical way to get a
| similar level of insurance.
| missedthecue wrote:
| Because you might be running a central bank that's yield
| insensitive and has literally unlimited buying power. If
| that's not you, there's not much point.
| rossdavidh wrote:
| Well it is very odd that you should want to do this, which
| is why it is notable. It means something odd is happening
| in the bond market. What, is up for debate.
| hnarn wrote:
| The price of anything is what two people agree upon, right?
| So if you pay me 10 dollars to get 9 dollars in 30 years,
| that means we're betting against eachother: you think the
| economy is going to tank and _only_ losing 1 dollar will be
| a good deal, which is of course why these bond prices worry
| people, because in any normal situation you 'd expect some
| positive return on your investment, not just a small loss.
| UncleOxidant wrote:
| And the implication is that bond markets don't expect our
| current inflation to last very long and that growth will also
| likely be below par for a long time.
| MichaelMoser123 wrote:
| I wish that I could get negative interest on my mortgage; guess
| that only central banks can get away with this practice.
| HWR_14 wrote:
| Put all the ideas together. A negative-interest, infinite
| duration fixed rate mortgage. That's what I want!
| MichaelMoser123 wrote:
| In Israel we have had hyperinflation in the early eighties, I
| was told that some people got lucky on their mortgage, but
| only if it was an old deal that was not adjusted for
| inflation. (don't know if it is true, actually)
| deegles wrote:
| Essentially: basic income!
| hnarn wrote:
| We already have basic income, it's just reserved for the
| rich.
| recursivedoubts wrote:
| inflation, negative _nominal_ rates (to say nothing of real
| rates) and if the central banks so much as breath towards
| tightening the enormous asset bubble they have blown begins
| imploding...
|
| a lovely job, and well done
| nabla9 wrote:
| > inflation
|
| Inflation is the only good thing in this. It's finally close to
| Euroarea target. Unfortunately it wild likely slow down within
| a 12 - 18 months again.
| toomuchtodo wrote:
| I don't see an alternative for managing secular stagnation and
| growth traps. Metaphorically, you're essentially guiding and
| supporting someone passing out to the floor so they don't get a
| concussion when they hit their head ("soft landing"). You're
| (or rather, your macro economy is) headed to the floor no
| matter what.
|
| See: Japan [1]
|
| 1. What is Japanification? It's a term used by economists to
| describe a state of chronically anemic economic growth and
| feeble inflation or even deflation similar to the conditions
| faced by Japan since a giant real-estate bubble popped in the
| early 1990s. It's used to convey the alarming prospect -- often
| discussed in Europe, which has staggered economically ever
| since the 2008 financial crisis -- of sluggishness so deep that
| it is extremely difficult to escape. Even after Japan's central
| bank embraced two extraordinary forms of monetary stimulus --
| negative interest rates and asset purchases worth more than the
| entire size of the world's third-largest economy -- the country
| has yet to return to a positive growth cycle strong enough to
| generate 2% inflation after nearly three decades.
|
| 2. What is secular stagnation? It's a term originally coined by
| the Harvard economist Alvin Hansen in the 1930s to describe the
| tendency of mature industrial economies to move toward
| instability in the absence of large amounts of public
| investment. It echoed the ideas laid out by John Maynard Keynes
| in his seminal 1936 treatise, "The General Theory of
| Employment, Interest and Money." At the time, the global
| economy was mired in a deep depression, and theories like
| Keynes's and Hansen's offered an explanation and a prescription
| for the way out. In recent years, amid rock-bottom interest
| rates in the wake of the biggest global downturn since the
| 1930s, another Harvard economist -- former U.S. Treasury
| Secretary Lawrence Summers -- revived the phrase to capture
| basically the same idea.
|
| 3. Are they the same thing? Essentially, yes. Japanification
| can be seen as a subset of secular stagnation, with
| characteristics matching those that have specifically plagued
| Japan. The country's rapidly aging and shrinking population has
| contributed to the slowdown of economic activity, and to a high
| saving-low investment environment despite ultra-low interest
| rates. The Bank of Japan also complains about a deflationary
| mindset that has taken hold of consumers and companies that
| inhibits higher spending or higher prices. Japan's example
| offers other countries an unsettling vision of their possible
| future. "We're essentially at the Japanese place," Summers told
| Bloomberg Television on March 12. "That's a place that's very
| hard to get out of."
|
| (my note: the future for all developed countries is Japan)
|
| [1]
| https://www.bloomberg.com/news/articles/2020-01-17/japanific...
| MomoXenosaga wrote:
| Japan is still one of the safest and politically the stablest
| places to live on this godforsaken planet. These economists
| however try to convince us it's Mad Max.
| Pokepokalypse wrote:
| > Japan is still one of the safest and politically the
| stablest places to live on this godforsaken planet.
|
| Unfortunately, racism in Japan is rampant.
|
| If racism wasn't a problem, then immigration wouldn't be
| seen as a problem either.
|
| The real problem will be: when the rest of the "undeveloped
| world" becomes developed, and the need to migrate is
| relieved. Then we're ALL "Japan" economies. Oh wait, I
| don't see a problem with that.
| d6ba56c039d9 wrote:
| >> Japan is still one of the safest and politically the
| stablest places to live on this godforsaken planet.
|
| >Unfortunately, racism in Japan is rampant.
|
| Any chance that that has something to do with it?
| majormajor wrote:
| Some of the negative effects of racism can't manifest
| themselves much if you don't have any immigration. (They
| did in war, of course, but that's a different
| discussion.)
|
| Certainly if the US hadn't racistly enslaved, imported,
| and then continued to commit violence towards Africans
| for centuries, we wouldn't have as many people living now
| in such violence-fostering situations.
|
| So the US hit the bad-outcome jackpot of being racist AND
| having forced immigration (or, in other parts of the
| country, conquest)!
|
| But Japan's lack of immigration hardly forgives the
| racism - and to the extent that it relates to it, it
| causes its own problems: they've also missed out on some
| of the wealth created by various immigrants and
| descendants of immigrants in the US.
| tbihl wrote:
| Total fertility for Japan as a whole is 1.4; in Tokyo it's
| 1.09. There is very limited immigration.
|
| That's not stable.
| toomuchtodo wrote:
| What's not stable about your population safely and
| comfortably declining over decades? Low crime and low
| unrest seems like metrics worth optimizing for. If
| increased immigration were to increase those metrics,
| what is the value? Economic growth that has proven
| unnecessary?
| Archelaos wrote:
| > high saving-low investment environment
|
| How can such an environment be so stable? If people put their
| savings into a bank account, then this savings would
| nevertheless be available for investments via the banks,
| arn't they?
| DasIch wrote:
| > If people put their savings into a bank account, then
| this savings would nevertheless be available for
| investments via the banks, arn't they?
|
| No, those two things have nothing to do with each other.
| When you ask a bank for credit to invest into something,
| the bank just creates money they don't take money from
| other customers.
| tenuousemphasis wrote:
| The amount of deposits puts an upper bound on the amount
| of loans due to the 10% reserve requirement, but
| otherwise yes.
| fuoqi wrote:
| I wouldn't be so sure that EU and US will follow the Japanese
| scenario. In many regards Japan is a special case. On this
| subject I recommend reading Lyn Alden [0] and Princes of the
| Yen [1].
|
| [0]: https://www.lynalden.com/economic-japanification/
|
| [1]: https://www.amazon.com/Princes-Yen-Central-Bankers-
| Transform...
| selimthegrim wrote:
| Exactly what qualifications does Alden have?
| pydry wrote:
| The alternative is extremely straightforward - ramp up public
| spending on infrastructure and social services and increase
| the minimum wage.
|
| You can do this essentially without any inhibitions to growth
| until inflation hits about 7%.
|
| Downside : it'll get a lot of very wealthy people seeing red
| and will scare upper middle classes who are more used to
| their security being provided by assets rather than social
| services.
| d6ba56c039d9 wrote:
| > The alternative is extremely straightforward - ramp up
| public spending on infrastructure
|
| Hang on. Isn't that essentially what the Japanese did?
|
| I wonder which domestic investments turned out to be the
| smart move in Japan.
| jdhn wrote:
| By this logic, shouldn't Europe be growing at much faster
| rates than the US? Their social services are more
| extensive, I believe the minimum wage is higher, and they
| spend more on infrastructure.
| throw0101a wrote:
| > _Their social services are more extensive, I believe
| the minimum wage is higher, and they spend more on
| infrastructure._
|
| They have to spend _on top of_ what they already do,
| because the current level is the baseline and is
| generally priced into market expectations.
|
| As the original article is about Germany, in 2020 they
| had their first budget deficit in a decade:
|
| * https://www.politico.eu/article/coronavirus-pushes-
| germany-t...
|
| To put it bluntly: the Germans don't spend s--t.
| da_big_ghey wrote:
| Germany tax burden on consumption is over 18% against
| less then 7% in America:
| https://www.chicagofed.org/publications/chicago-fed-
| letter/2...
|
| A first deficit meaning Germany spend ordinarily all that
| and then also more. This is showing Germany spend
| significantely more for economy size.
|
| Evidence is in need for supporting an idea that only
| spending above and beyond usual have an effect on
| markets.
| stuaxo wrote:
| This is not like-with-like. Spending on health should be
| lumped in with taxes to get a real picture.
| da_big_ghey wrote:
| Disagree, not all German health spending are in that
| figure. We have different social program as well that
| might cause change in figure, so such argument make any
| comparison meaningless.
| WanderPanda wrote:
| Public spending in Germany is about the same as in the
| US, no deficit needed, because taxes are so damn high.
|
| https://en.m.wikipedia.org/wiki/List_of_countries_by_gove
| rnm...
| pjc50 wrote:
| The EU imposes strict fiscal discipline. That basically
| prevents the possibility of taking advantage of Keynsian
| fiscal expansion. In other words, to the extent that
| greater spending causes growth, it's cancelled out by the
| matching taxes that reduce growth.
|
| https://www.ecb.europa.eu/mopo/eaec/fiscal/html/index.en.
| htm...
|
| > Compliance with this rule is to be examined on the
| basis of reference values for the general government
| deficit (3%) and gross debt (60%) in relation to GDP,
| whereby a number of qualifications can be applied.
|
| The simple key to understanding what can and cannot be
| done with printing money is to understand that you can
| redirect activity _inside_ the country almost at will by
| printing, a pseudo command economy; but you can 't print
| (a) foreign currency or (b) oil, steel, vaccines, or
| other constraints of physical production.
|
| Worked example? If you print money and the citizens spend
| it on imported goods, that depreciates the currency and
| is usually Bad. Currency depreciation against hard
| currency (USD) usually shows up as inflation.
|
| Weimar prints money to buy up domestic gold to ship to
| France for reparations => hyperinflation.
|
| Zimbabwe prints money but is unable to subsidize kerosene
| in shops at any price because the country doesn't export
| enough value to import fossil fuels => hyperinflation.
|
| US prints money for domestic stimulus while being oil
| producer and having labour slack and a generation of
| anti-wage-rise policy => almost nothing happens except
| asset inflation.
| tbihl wrote:
| What in the US economy isn't inflated? The only thing I
| can think of in my life is utilities.
|
| Everyone knows housing has gone way up. As I go about
| trying to do work on my house, it's very clear that the
| price of getting work done when you want it is not what
| it was in 2019, because I pay those same prices in order
| to be in a line. I haven't needed anything enough to
| figure out what the price of prompt work is.
|
| Food prices have gone up. Cars have increased in price
| significantly.
| da_big_ghey wrote:
| > What in the US economy isn't inflated?
|
| wages in many circumstance, though growth in low-skill
| labor wages from supply shortage we are seeing the same
| as other supply shock from corona.
| nradov wrote:
| Europe is a big place. There are huge variations in
| social services, minimum wages, and infrastructure
| spending. In general though building infrastructure is
| more expensive in the US.
|
| https://nymag.com/intelligencer/2019/07/why-we-cant-
| figure-o...
| eli_gottlieb wrote:
| Or if you _really_ want the wealthy to see red, just
| deflate the damned asset bubbles. Cancel the underlying
| debts. Just null the whole damn thing. If you bet on real-
| estate prices or bank stocks or whatever rising 15% per
| annum when the economy was growing at 2.1% per annum, you
| eat the loss.
| frockington1 wrote:
| How would you cancel the underlying debts and maintain
| any semblance of order?
| eli_gottlieb wrote:
| Honestly? I'd just void them, nationalize any banks that
| go under, and give everyone who's actually _using_ the
| underlying assets free-and-clear ownership. If you bought
| a house in the middle of a bubble in 2020, good job, you
| get a house and your mortgage is cancelled. The Sunk Cost
| Fallacy is a _fallacy_ for a reason: there is always
| ultimately _someone_ who pays for a speculative bubble
| out of their own use-values, and that 's the someone who
| should be made whole, _not_ the speculators.
|
| And again, I don't mean to be inflammatory (well ok, I
| do), but I really feel that constantly reflating asset
| bubbles for the rest of time, rather than accepting a
| one-time _severe_ penalty whose moral hazard applies
| _only_ to people who need things for their use-value,
| _really is_ a Sunk Cost Fallacy that amounts to throwing
| good money after bad.
| betterunix2 wrote:
| The result would be an almost immediate spike in interest
| rates charged to whoever benefited most from the debt
| cancellation, as lenders would be forced to compensate
| for the risk of additional cancellations in the future.
| Worse still, it would create a massive moral hazard as
| (some) people start to take on loans they know they
| cannot afford long-term in anticipation of more debt
| forgiveness (this often happens after bail-out programs
| and is one of the major arguments for the "too big to
| fail is too big to exist" philosophy). Since retirees
| often live on income from loan interest (through pension
| funds or personal retirement accounts), much of the
| burden would be borne by retirees and many of them would
| be forced back into the labor force (crowding out the
| younger generations who are trying to find their first
| job; see e.g. Japan for a manifestation of this problem).
|
| Debt forgiveness is not nearly as simple and positive as
| people believe. It often winds up hurting the people it
| was meant to help and having long-term negative
| consequences.
| frockington1 wrote:
| I'm down, I have a few properties. No mortgage and
| inflationary rent means I wouldn't have to work anymore
| eli_gottlieb wrote:
| I mean, I'd be fine with screwing homeowners too, and I
| _am_ a homeowner. The Zillow estimate of how much I could
| charge in rent is _several times over_ my mortgage and
| HOA payments. The estimate for how much I could sell for
| is $25k over what I paid, _two years ago_. You can 't
| tell me my house is making $12.5k/year for _literally
| nothing_ , while I live in it and repairs accumulate, and
| tell me that's a sensible way to run an economy.
| kazen44 wrote:
| also, the rising real estate prices have detrimental
| second and third order effects.
|
| For instance, birth rates are dropping because young
| adults cannot afford a house, which in term means they
| have to rent against higher prices which means they have
| less income to actually put into the economy.
|
| What will we do once we have a generation which doesn't
| have any wealth and doesn't own a place to live? People
| who have little to show for it after a lifetime of
| working while subsidizing those who own the properties
| they live in is not a situation you want society to be
| in.
| EVa5I7bHFq9mnYK wrote:
| Don't forget that those young people have parents and
| will eventually inherit their real estate, so they will
| have something to show for it after a lifetime of
| working.
| pydry wrote:
| Only some of them. And many of those houses will be sold
| to pay for healthcare.
| Rodeoclash wrote:
| Maybe. Remember that the house can be:
|
| 1. Split multiple ways due to multiple children. 2. Sold
| to finance retirement living.
| frockington1 wrote:
| Low interest rates and high inflation will pump those
| numbers up even more. I don't see a way to stop the
| increase without the debt imploding on itself which the
| government would never let happen (I'm personally in
| favor)
| betterunix2 wrote:
| Do you like the idea of insolvent pension funds that
| suddenly lose their debt assets? Moral hazards from
| people who start taking on loans they cannot afford under
| the assumption that more cancellations will happen?
| Higher interest rates and more aggressive
| collections/foreclosure efforts from lenders that must
| now account for debt cancellation?
|
| Canceling debt does not make wealthy "see red." Long-term
| it would harm those who initially benefit from the
| cancellation by leaving less credit to go around and
| forcing people at the lower end of the income scale to
| accept less favorable loans.
|
| If you want to upset the wealthy, you can do any or all
| of the following:
|
| 1. End stock buybacks. These sound nice in theory but in
| practice they have promoted short-term thinking and have
| disproportionately benefited the wealthy.
|
| 2. Eliminate the long-term capital gains tax rates and
| treat all capital gains as income (perhaps with some
| provisions for retirement income).
|
| 3. Treat cash loans backed by financial assets (stocks,
| bonds, investment properties, etc.) as income (many
| wealthy people use loans backed by their investment
| portfolios to avoid paying income tax, and their heirs
| pay no capital gains tax because of cost-basis
| adjustments), with possible exceptions for loans that are
| immediately invested (to allow for leveraged investment
| strategies) and exceptions for mortgages that pay for a
| personal residence.
|
| 4. Eliminate the various industry-specific carve-outs
| introduced in e.g. the Tax Cuts and Jobs Act (which were
| nothing more than a corrupt way to buy votes from various
| senators).
|
| and so forth. We have accumulated decades of policies
| that favor the wealthy, and as a result the income and
| wealth gaps have exploded.
| labawi wrote:
| If you want to upset the wealthy, institute a wealth tax
| (and redistribute as UBI).
|
| If you want to decrease asset prices, tax them (without
| loopholes) and see their valuation drop real fast, or
| slow - depending on tax rate.
|
| Just remember to equitably distribute a part of proceeds
| so you're helping, not hurting the poor.
| krrrh wrote:
| I don't want anyone to see red, but this is probably the
| better path forward. OP's suggestion amounts to an
| official policy of stagflation, and that has huge
| drawbacks. If we let inflation run away eventually we're
| going to need another Volker to break its back.
| listenallyall wrote:
| Cancelling debts will only make asset prices skyrocket.
| Why worry about paying $400k, $600k, or $1 million for a
| house, if you anticipate that a few years from now the
| govt will wipe away all your debt?
| toomuchtodo wrote:
| I agree with increasing minimum wages and creating robust
| social services (universal healthcare, mental health
| support, the elimination of homelessness and enough food
| support no one goes hungry) in order to set a really solid
| floor for all. With regards to infrastructure, we have to
| be exceptionally mindful to not build for a future that
| doesn't use or need infrastructure that has a lifetime
| measured in decades (or, wishfully thinking, 100+ years).
| To see the peril, witness the rapid decline in need for
| commercial real estate with the very speedy transition to
| remote work, real estate which is very expensive to convert
| to other purposes. We don't want to be building "bridges to
| nowhere." for the sake of economic activity.
|
| > Downside : it'll get a lot of very wealthy people seeing
| red and will scare upper middle classes who are more used
| to their security being provided by assets rather than
| social services.
|
| Change is hard, but inevitable.
| pydry wrote:
| If you treat infrastructure as a special kind of
| investment that requires a guaranteed return you will
| likely end up with shitty infrastructure.
| toomuchtodo wrote:
| I'm not suggesting traditional financial return on
| infrastructure, but genuine demonstrated need and use
| regardless of return. If you build an unprofitable but
| highly utilized HVDC transmission line to avoid CO2
| emissions for somewhere than can't generate their own
| clean energy (ie the Faroe Islands, for example, which
| hovers constantly at ~40MW of electrical generation using
| oil with occasional reliance on pumped storage), that
| would be a win imho. Japan's rail infrastructure is
| another prime example (although profitable if I recall).
| Avoid boondoggles, avoid status seeking projects, avoid
| nepotism and corruption, but deliver value.
|
| Edit: As someone else in thread pointed out, renewables
| should be invested in.
| jason0597 wrote:
| > witness the rapid decline in need for commercial real
| estate with the very speedy transition to remote work
|
| Is this actually happening? Feels like a tech only
| phenomenon, and tech workers are only a small slice of
| the US office labour force...
| toomuchtodo wrote:
| https://news.ycombinator.com/item?id=28012896
| throwaway20875 wrote:
| I don't think it's as straightforward as you propose. Debt
| is itself deflationary and dampens growth. Public and
| private debt are already at global highs. Every dollar of
| debt is far less effective at stimulating the real economy
| than in decades past. Further, how much infrastructure
| spending would stay in a local economy without a
| significant manufacturing base?
|
| I don't have the answers, but this seems to be borrowing
| from a playbook written for a different era.
| pydry wrote:
| _Private_ debt is deflationary as people prioritize
| paying it off, reducing the velocity of money that would
| otherwise be spent.
|
| The causality is reversed for public debt though -
| governments react to deflationary environments by
| increasing public spending to compensate for the private
| sector's propensity to save - as a "spender of last
| resort" as it were.
|
| That's how Japan ended up the way it did.
|
| Arguably it should have spent even more to offset
| deflation in the 90s.
| throwaway20875 wrote:
| >The causality is reversed for public debt though -
| governments react to deflationary environments by
| increasing public spending to compensate for the private
| sector's propensity to save - as a "spender of last
| resort" as it were.
|
| Again, we're at levels record levels of global public
| debt. There is no free lunch. Debt financed spending is
| only possible through financial repression (real default
| through inflation in this case and in the 1940's
| following WWII, the last time US debt reached 130% of
| GDP) which ultimately drives speculation as capital
| searches for yield. Rinse repeat deflationary shock as a
| result.
| Pokepokalypse wrote:
| The data and financial instruments available to investors
| is a completely different universe than what they had in
| the 1940's. It's very unlikely that history will repeat
| itself.
| pydry wrote:
| All this speculation and capital going a little crazy
| searching for yield are side effects of an overabundance
| of capital.
|
| We are seeing this now thanks to wealth inequality
| brought on by capital being given preferential tax status
| to labor for decades and stagnant wage growth again for
| decades.
|
| This wasnt a problem following WW2 - wage growth was high
| and given vastly preferential tax treatment to labor.
| throwaway20875 wrote:
| >All this speculation and capital going a little crazy
| searching for yield are side effects of an overabundance
| of capital.
|
| The stock market is where savers have been forced to.
| Pensions included. ZIRP/negative real rates have
| consequences. There "isn't too much capital". It's being
| misallocated due to misguided policy. It will get worse.
|
| You need to start thinking in second and third order
| effects.
| nerbert wrote:
| Yeah once one realizes that yields are directly influenced
| by supply and demand, then that is the right conclusion.
| Political irrationality and specific interests are what's
| holding us down. It is said that one day, if the CCP has to
| choose between relaxing power or scarifying economic
| growth, they would sacrifice economic growth without
| blinking. The same can be said about the 1% in western
| countries.
| Pokepokalypse wrote:
| I agree with this, but if you merely throw money at the
| economy without resolving supply chain issues, (which is
| the case we have now) - we get inflation. Because it's more
| money chasing after fewer (available) goods.
|
| The previous US administration basically created supply
| chain problems with it's Hooverian trade policies. (ie.
| doing the same thing over and over and expecting different
| results. Nope. We got the same results we got in the late
| 1920's + COVID).
|
| It's going to be hard to unwind that. I think the central
| bank has done a pretty good job making arguments that
| sustained low interest rates are a necessary evil.
| Unfortunately, the government (ie. aggregate of congress,
| senate, SCOTUS, and POTUS) are having a hard time
| swallowing that we need a looser fiscal policy. All because
| of political idiocy.
|
| I feel like Keynes should be taught to all children in
| primary school.
| AnimalMuppet wrote:
| You can leave out SCOTUS. They don't have much impact on
| fiscal or monetary policy.
| betterunix2 wrote:
| They have the power to kill major initiatives; see e.g.
| how SCOTUS curtailed some of the New Deal programs (and
| how it took the extraordinary threat of court packing to
| stop them from going further).
| ikerdanzel wrote:
| Previous admin brought the economy up. A lot of people
| getting jobs in those 4 years compare to Barry's
| lacklustre 8 years and near zero interest. I suggest you
| check back with historical data before association with
| Hoover. Wuhan virus bought it down. We will see the the
| old guy can do anything with suppose more popularity
| votes than Barry.
| choeger wrote:
| Not quite as straightforward. Infrastructure comes with
| maintenance costs. These costs can tie you down in the next
| decades. But even worse, you literally cannot spend an
| arbitrary amount of money even for absolutely obvious
| ideas. Try to renovate or rebuild all schools in one state
| at once. Or create new bike lanes. You will soon see that
| there's only a limited amount of companies that actually
| _can_ do what you want.
|
| The one thing that seems to work surprisingly well is
| direct subsidies for switching to a better but more
| expensive product (electrical cars, house insulation).
|
| Personally, I agree that the government should take
| negative interest rates as a sign to massively invest. But
| I struggle to find an investment that is both just and
| sustainable.
|
| There is, for instance a huge pension gap in Germany. It
| would be wise to borrow money now if we could invest it to
| mitigate that gap. But how would such an investment look
| like? Buying children?
| paganel wrote:
| > electrical cars, house insulation).
|
| Those are very regressive, you're taking money away from
| the less well-off (through higher fuel taxes, for
| example) and giving it pretty much directly to the way
| better-off middle-classes who can afford those new EVs
| and those houses which to insulate. It's pretty much a
| return to the 1770s-1780s France, when "la gabelle" was
| in full force.
| foepys wrote:
| That's one of the main complaints I have about all those
| measures that are being taken currently to become green.
|
| Government officials are also talking about using tax
| money to rebuild all houses for the people affected by
| the recent floods that were without flood insurance. It's
| a huge middle finger to all those people who can't afford
| a house.
|
| There are so many tax exemptions that exclusively apply
| to the rather well-off that I'm surprised that these
| issues are not coming up regularly when talking about
| social issues.
|
| Examples include offices at home are only deductable if
| they have a door (applies to larger-than-necessary
| apartments or houses), you get money for driving to work
| rather than living nearby and walking (0.35EUR/km), a
| more expensive hybrid company car costs the employee _a
| lot_ less than a privately owned ICE car, and many more.
| choeger wrote:
| Please stop spreading misinformation. Yes, the classical
| "Arbeitszimmer" must be a separate room and, by the
| letter of the law, must have no private function. No,
| that does not apply for 2020-style home office. And no,
| you don't "get" 0.35EUR/km. You can deduct that amount
| from your income taxes. And that's totally in line with
| everything else you can deduct because you do it to earn
| the money in the first place.
|
| Also, building a modest-sized house in Germany costs
| about 200kEUR - this sum is affordable by the average
| German couple (average income is around 36kEUR per year).
|
| Germany is not California and especially not the Silicon
| Valley. Just because _you_ may have chosen to rent an
| extremely expensive, 130 year old apartment 5min from
| your workplace that does not mean it is the lifestyle for
| the majority in the country.
| foepys wrote:
| Ha, 200,000EUR, you'd be lucky to get even land for that.
| Have you looked at housing prices recently? You can maybe
| get this in Saxony in a village somewhere where you need
| to drive 20km to the next supermarket or doctor. In my
| city you don't even get a 60m2 apartment for that.
|
| The Arbeitszimmerregelung is only valid for 2020 and 2021
| and only up to 120 days/year. You typically work 220 days
| a year. In 2022 it's back to door-or-bust.
|
| I live in a big city, I can walk to work and pay a
| relatively high rent for a small apartment, I can claim
| 0.35EUR per day, about 77EUR/year. Meanwhile a friend of
| mine commutes over 50km, living in a big house. They are
| quite happy each year to get about 4,000EUR back. It's
| government funded pollution.
|
| Please don't tell me I spread misinformation when you
| yourself claim things that aren't true.
| choeger wrote:
| I don't think so. First and foremost, house insulation
| can also be done when you rent out the apartments (but
| often the landlord has little incentive to do it).
| Second, electrical cars are expensive, yes, but they
| don't subsidize the well-off because they would have
| bought expensive gasoline cars otherwise. Who really
| profits from the subsidies is the middle class: You can
| lease small electric vehicles quite cheaply and if I am
| not completely mistaken, you can buy an electric Dacia
| for 10kEUR after subsidies. So yes, this is not for the
| working poor. But the working poor hardly invest anyways,
| so it is really difficult to setup an incentive program
| for them.
| cwkoss wrote:
| > you literally cannot spend an arbitrary amount of money
| even for absolutely obvious ideas.
|
| Is there a good way to measure what potential productive
| capacity of infrastructure investment is? I wonder what
| percentage of the limit we're at right now? Could the
| market efficiently react to a doubling or even 10x-ing of
| federal infrastructure investment?
| danaris wrote:
| One thing worth noting in this is that, at least in the
| US, a lot of the "infrastructure spending" that has been
| talked about recently is, in fact, maintenance.
|
| We have roads, bridges, and buildings that were built
| decades ago, then the funds that should have gone for
| their maintenance spent on tax cuts instead, so they're
| limping along with stopgap solutions.
| MomoXenosaga wrote:
| The US talks about infrastructure and then nothing
| happens because of political impasse on Capitol Hill.
| Biden is no Deng Xiaoping and the Democrats are no CCP.
| jason0597 wrote:
| Maybe it's time for radical political reform to end these
| deadlocks?
|
| https://www.youtube.com/watch?v=0ySL82WbcvU
| iSnow wrote:
| Germany is one example where a long-term infrastructure
| investment strategy makes a lot of sense as the
| infrastructure is crumbling:
| https://www.dw.com/en/german-infrastructure-begging-for-
| over.... Not all could be spent in a short time as you
| mention, but for economic recovery, long-term funding is
| probably better anyways.
|
| To close the pension gap, Germany could also buy ETFs on
| borrowed money, or borrow to create a national investment
| fund, but that would be much too eccentric for an
| extremely risk-averse country.
| Retric wrote:
| Renewables are one option for massive investments without
| massive long term costs. The important thing is to
| subsidize them upfront rather than subsidizing their
| income stream or you get high electricity prices.
|
| However, the idea of stimulus makes basic assumptions
| that the economy can sustain a higher level. That
| economic article of faith may inherently be flawed in
| many cases.
|
| Another option for developed countries is rather than
| trying to stimulate the economy instead focus on
| increasing efficiency. Japan's workforce increased 1% in
| the last 22 years. Long term stagnation should be
| expected in countries like Japan with stagnant and aging
| populations. Even 1% growth assumes the economy will
| double every 70 years. Relative stagnation isn't
| inherently bad as long as the economy is still doing all
| the things an economy should be doing.
| frockington1 wrote:
| I just bought a few rental properties hoping this comes
| true. Lock in 2% mortgage for 30 years while inflation
| ramps up to 7% is free money. Open up the border and I
| might not have to work any more
| dougmwne wrote:
| Japan is also in a very interesting situation where their
| public debt is 266% of GDP with no end in sight of the debt-
| financed spending. And yet, there is still no inflation. Can
| they spend forever? Can the central bank just write off the
| debt without anyone taking notice? It will likely be
| prophetic for the West either way.
| AnimalMuppet wrote:
| No, the central bank can't just write off the debt, because
| that's so many peoples' retirement. The government has been
| able to create that much debt without causing too many
| other problems _because_ people keep investing their money
| in the debt.
| dougmwne wrote:
| No, the Bank of Japan holds almost half of the debt, not
| just retirees. A write off has been suggested in the
| past:
|
| https://www.forbes.com/sites/stephenharner/2016/02/22/wil
| l-b...
| LudwigNagasena wrote:
| I have spent 2 years studying economics learning about Arrow-
| Debreu theorem, Hausman test and so on, and I still don't
| understand why can't Japan just print money and give them to
| people if they want 2% inflation.
| throw0101a wrote:
| > [...] _and I still don't understand why can't Japan just
| print money and give them to people if they want 2%
| inflation._
|
| Political will.
|
| This is not a 'technical' issue, but a social/behavioural
| one.
| LeanderK wrote:
| just a random thought....wouldn't this also increase
| equality? I essentially devalues the currency by increasing
| supply, but distributing the supply evenly across the
| population. Maybe that's a problem for the rich and
| influential, although that sound too much like a
| conspiracy.
| bluecalm wrote:
| Rich people don't hold much of their wealth in cash and
| would hold even less if such policy were in place. You
| would just inflate asset prices (what rich people hold)
| and dilute cash (what poorer/less educated people hold).
|
| If you give everyone a million dollars and it doesn't
| mean everyone can now afford a house in a sunny state. It
| just means houses will be more expensive as no one is
| going to give them away for worthless cash.
| Pokepokalypse wrote:
| The way housing supply seems to be a major driver here,
| has me pretty well convinced that the only way out of
| this, eventually, is a stable population growth. (ie.
| restrictions on reproduction). (Not like China - but this
| implies apocalyptic levels of resistance from groups that
| traditionally don't like people being able to choose
| their reproductive habits).
| AnimalMuppet wrote:
| Some people _like_ being able to choose their
| reproductive habits, and like being able to choose
| _differently_ than you think they should. You 're right
| that you should expect apocalyptic levels of resistance
| from them, though.
| imtringued wrote:
| > Rich people don't hold much of their wealth in cash and
| would hold even less if such policy were in place. You
| would just inflate asset prices (what rich people hold)
| and dilute cash (what poorer/less educated people hold).
|
| Please explain how this works. If I buy stocks then the
| money goes to the seller of the stock. Most of the time
| that is another rich person because rich people own a lot
| of stocks. Then it's companies issuing new shares and
| finally it's some retail investor owning an irrelevant
| fraction of a company.
|
| So, how do I as the class of rich people protect myself
| against inflation/negative interest rates/wealth tax on
| money? I can't.
|
| Rich person -> Rich person is net zero.
|
| Rich person -> company is net zero because I own the
| company and thereby own the money it has in its bank
| account. Worse, if that company employs people the
| peasants get my money.
|
| Rich person -> retail investor. I lose every time.
|
| If anything, rich people massively benefit from 0%
| inflation or even deflation. As a millionaire you can
| afford to throw $100k into Bitcoin and get another
| million out of it with zero work done, meanwhile those
| stupid stocks have to employ peasants and pay them.
|
| Here is another paradox: If the rich have very little
| money and the poor have most of it, why are they poor?
| nybble41 wrote:
| > If the rich have very little money and the poor have
| most of it, why are they poor?
|
| There are a lot more poor people than there are rich
| people. Collectively they have most of the cash, but no
| one individual has very much. More importantly, though,
| one's wealth is not dictated by the amount of _cash_ one
| owns. If you 're rich and in need of cash you have plenty
| of assets you can trade for it. If you're poor then cash
| makes up a larger portion of your assets, and the part
| that isn't cash (your home, car, etc.) is both non-liquid
| and painful to part with.
|
| The first bit, incidentally, is part of the reason why
| redistribution doesn't help: there are a lot fewer rich
| than there are poor, and even if you seized all the
| assets of the rich and spread them around it wouldn't add
| up to much on an individual basis. (And then secondary
| effects kick in: production capacity collapses due to
| consuming capital, prices skyrocket, etc.) And then you
| have the fact that the rich end up rich as a result of
| various combinations of preferences, habits, and
| connections which distinguish them from the general
| population--not merely their bank accounts--and since
| those underlying factors shaping the flow of wealth
| aren't likely to change you'll soon end up back where you
| started.
| bluecalm wrote:
| Cash is just means to provide liquidity when trading
| assets for assets. When someone sells stocks it's almost
| always to quickly spend it on something else.
|
| I am not rich but quite well off. What has recent policy
| of pumping cash as loans and handouts done to me? My
| assets (mainly stocks) skyrocketed. My less fortunate
| friends complaining that prices of everyday items has
| gone up? I haven't noticed, I can buy more fresh produce
| or housing or electronics with my Google or Amazon stock
| that I could have before the pandemics and way way more
| than a few years ago.
|
| It seems to me you're confusing money with wealth. Money
| doesn't matter, assets do. It's just convenient to price
| assets in money as long as the currency is stable. If you
| give everyone a house you solve a huge problem. If you
| give everyone a freshly printed million dollars you don't
| solve anything. Rich people still live in big houses and
| own companies. It will just be a temporary inconvenience
| to find some way to trade. No one is buying anything of
| value with that million.
| eli_gottlieb wrote:
| Japanese Boomers don't want their savings to lose its
| value.
| yobbo wrote:
| Because they need people to work in cheap restaurants
| (etc.)
|
| Btw, the point with 2% inflation is rising _wages_ which
| then causes rising prices.
|
| Furthermore, prices of much stuff is held down by
| productivity (hours per widget).
| dougmwne wrote:
| They are already at 266% of public debt to GDP, so they
| have been aggressively doing exactly that.
| newaccount2021 wrote:
| Japan is the _exception_ , not the _rule_. When the Japanese
| were left with a stagnant economy, they slowed down but didn
| 't fall apart as a society.
|
| In the US, when stagnation becomes unavoidable, downtowns
| will burn and cities will become no-go zones. We are not
| Japan.
| throwaway20875 wrote:
| Though there are similarities, the US and Japan have very
| different circumstances. The US runs twin deficits, has
| extreme inequality compared to its peers, and extremely high
| costs for healthcare and education. This is not a recipe for
| stability.
| paulpauper wrote:
| People have been saying this since 2010. I think it's much more
| likely that negative yields are the new normal. I expect <10yr
| yields to go negative in the US eventually. The fed was able to
| tighten rates in 2016-2017 without anyting bad happening.
| Everyone keeps thinking things will end badly. Maybe they
| won't. My $ is on the latter.
| [deleted]
| betterunix2 wrote:
| Negative yields will not last forever, because negative
| yields do not really make economic sense. Right now it is
| propped up by institutional rules and pressures, but those
| institutions will eventually become antiquated if they have
| to accept negative real rates of return. Keep in mind that
| prior to COVID-19 interest rates were rising in the US, and
| it is nearly certain that interest rates will continue rising
| (we are seeing a short-term decline in rates now because of
| market forces, but the longer term trend is upward) for the
| next decade. Either Congress is going to work through its
| seemingly endless gridlock and start funding long-term
| solutions to problems (e.g. infrastructure) and inflation
| will accelerate as a result, or the gridlock will lead to a
| default on the debt and interest rates will spike.
|
| One way or another interest rates will be forced to rise,
| especially at the longer duration end of the yield curve.
| da_big_ghey wrote:
| Because it never has made an full recovering. 2016 fed only
| started on making lower balance sheet but never making much
| progress: https://www.federalreserve.gov/monetarypolicy/bst_r
| ecenttren...
|
| Interest rate are similar:
| https://fred.stlouisfed.org/series/FEDFUNDS
|
| Europe even worse than these above. We leave us without tools
| for economic troubles when we are declining to raise interest
| rate and sell assets on business cycle peak.
| dsomers wrote:
| How does Europe have it worse when the debt to GDP ratio of
| the combined Eurozone federal governments for example is
| lower than the US fed? Further, most eurozone countries,
| like Italy don't have sub national debt(its regions and
| cities can't legally have debt), where as states like
| California are massively in debt, but that sub national
| debt in the US is never calculated in debt ratios. Further,
| the last time I checked, debt held by private households in
| the US is also much higher on average.
| da_big_ghey wrote:
| In time of an economic crises, Municipality have a much
| simpler making of bankruptcy than national government.
| Same on household. But I call Eurozone worse because ECB
| have less room on moving interest rate so fewer tools. My
| above point more was that both are in badly because of
| never recovering after the previous issues.
| nabla9 wrote:
| Euro area yield curves
| https://www.ecb.europa.eu/stats/financial_markets_and_intere...
| steve76 wrote:
| How stimulus spending can go wrong:
|
| People get the job done without buying. All that inflation just
| sits there and rots.
|
| Entities backed by the full faith and credit of the taxpayer,
| such as GNMA, keep their rates the same. Treasury rates now are
| meaningless.
|
| People start dying gracefully at home. $4 trillion of medicare
| and medicaid spending goes away no matter what laws are passed.
|
| People find the luxury of hands off free markets. Laws serve only
| to limit the violence, not add to it. Leadership stops using
| power for their own personal quest for celebrity.
| aazaa wrote:
| > Falling U.S. Treasury yields were adding to pressure, she said,
| adding: "If U.S. Treasury (yields) were much higher... we would
| have been talking about a different kind of level."
|
| This is a global phenomenon. Real 30-year yields are steeply
| negative in the US as well, with nominal yield at 1.85% and year-
| over-year CPI above 5%.
|
| But it helps to zoom out. This is part of a multi-decade trend in
| ever lower 30-year yields stretching back to the Regan
| administration.
|
| https://fred.stlouisfed.org/series/DGS30
|
| I challenge anyone to find a channel that long and that
| persistent (except for possibly the CPI). Keep following and you
| make the prediction of nominal 30-year yields touching zero
| within 3 years.
|
| Somebody is on the wrong side of this trade in a big way.
|
| Those who say the inflationary spike is temporary and will mean
| revert are buying bonds with wild abandon because once you break
| zero, you can always go deeper negative. And as yields fall, bond
| prices rise.
|
| Those who say we're on the road to permanent inflation and
| possibly more are looking for inflation hedges. The odd thing
| about this is that gold, the traditional inflation hedge has gone
| nowhere fast.
|
| It's also possible that both sides are wrong and what will
| actually happen will be unlike anything that has come before in
| terms of the ferocity and diversity of forces at work and
| ultimate pain/suffering.
|
| For right now, both extreme sides can point to data supporting
| their outlook. But for how long?
| quickthrowman wrote:
| One of the losers in the short bonds trade is Alphadyne, a
| hedge fund that lost 1.5B shorting bonds:
| https://www.streetinsider.com/dr/news.php?id=18762011&gfv=1
| hogFeast wrote:
| > Somebody is on the wrong side of this trade in a big way.
|
| The reason why European yields are so low is because financial
| institutions are forced to own govt bonds. That is it.
|
| Europe is one of the only markets where you really see this,
| yields in the US could certainly move higher or lower but they
| trade at a rational level. In Europe, the price is just wrong
| (because no-one is doing the trade to be right or wrong, they
| are doing the trade because of regulations).
|
| Also, making some kind of linear prediction for rates based on
| the drop over the last 40 years makes no sense. Rates are
| actually stationary, but the reason they have trended strongly
| over the past four decades is because of changes in inflation
| expectations and aging of society which has brought down the
| natural rate of interest significantly. Outside of this, the
| underlying properties of rates are stationary...the same as
| every other valuation measure.
| ProjectArcturis wrote:
| Can you expand on that? What regulations require European
| banks to hold government bonds? If it's obvious to everyone
| that Euro bonds are too expensive, why don't American hedge
| funds short them?
|
| I was under the impression that Euro-zone bond rates were so
| low mainly because the market is expecting economic
| stagnation and a too-hawkish ECB.
| hogFeast wrote:
| Why would you short them? That sounds like a terrible
| trade. I am not sure why they would have to be "American"
| either.
|
| Hawkish??? The ECB? They own 50% of the govt bond market.
| They have been throwing literally trillions at banks.
| Because of the Draghi "whatever it takes", they are the
| most dovish central bank in the world by far, it isn't
| close. They were doing massive QE worth trillions when
| growth was 2-3%, permanent QE. Definitely, the ECB is a big
| reason why rates are low though, because they have removed
| 50% of the supply of risk-free assets ("risk-free"...some
| European govts are obviously insolvent so..."risk-free" is
| a somewhat unclear concept).
|
| And no, Europe isn't economically stagnant...it is a
| difficult to be brief but the main issue with any high-
| level comment about Europe is that you have a collection of
| countries that are almost totally economically dissimilar.
| So everything is just totally imbalanced, and there is no
| real way to balance things (the ECB is making this worse).
| So you can't really talk about European growth being
| stagnant or rates being affected by growth...because they
| are just totally separate, ECB policy is appropriate for
| maybe four countries in the EU, and no-one else...so it is
| difficult to apply any kind of logic to that process.
|
| There is no way to be brief. But the EU-level regulations
| are solvency ii, bank capital rules (some of these rules
| are national, but there are EU-level rules too), and the
| saving culture of Europe (i.e. no financial markets,
| suspicion of capitalism, suspicion of decentralization). A
| lot of the rules that relate to pension funds are only
| relevant at the national level (because the structure of
| pension funds/savings vary by country)...again, it is
| tricky to generalise because the economies in the EU are
| generally nothing alike each other.
| dragontamer wrote:
| > The reason why European yields are so low is because
| financial institutions are forced to own govt bonds. That is
| it.
|
| Same in the USA. All bank deposits need to be balanced out
| with a certain number of US Treasury bonds / notes as a
| reserve.
|
| There are also huge institutions, such as the Social Security
| Trust Fund, who was forced to buy US Bonds from the 1980s
| through 2000s to prepare for the baby-boomer retirement
| cycle. So lots of groups are in fact, "forced" to own US
| Treasury bonds.
| hogFeast wrote:
| No, it isn't the same in the US.
|
| Reserves are vault cash plus deposits at the Fed. You
| cannot use USTs to count towards your reserves (and it
| wouldn't matter if you could, the reserve ratio isn't a
| binding monetary policy tool, excess reserves in the US
| banking system are close to $1trn).
|
| You are right that pension funds own a lot of bonds...this
| makes sense because there are very few long-dated
| securities that can be used to match liabilities...but the
| US pension fund system is relatively dynamic, and has a big
| allocation to alternatives. The European savings market is
| also totally different to the US: outside of govt bonds
| their financial markets are essentially non-existent
| relative to the US, lots of people save by putting their
| money into banks who then invest in govt bonds (the reasons
| for this are slightly complex, but loan demand in the US is
| relatively strong in the US, and non-existent in Europe so
| banks own a ton of govt bonds there), insurance sector is
| far larger (and Solvency II means govt bonds...lots of
| them), and there are more DB than DC schemes...so pension
| funds are far smaller proportionally (and the demand for
| non-bond assets is, typically, smaller). Pension funds are
| always going to own a lot of USTs but you just don't see
| the same pressure on US yields.
|
| Again though, don't take my word for it...look at the
| price. The Italian 10yr has traded under the US for the
| past five years or so...that clearly makes no sense.
| martincmartin wrote:
| > Real 30-year yields are steeply negative in the US as well,
| with nominal yield at 1.85% and year-over-year CPI above 5%.
|
| year-over-year CPI is _backward looking:_ it compares one year
| ago to today.
|
| Treasury yields are _forward looking:_ If I tie up money now,
| how much more will I get one year from now.
|
| Last year was pretty unusual. People expect the next year to be
| different.
| rightbyte wrote:
| > Somebody is on the wrong side of this trade in a big way.
|
| My understanding is that banks get negative interest on
| deposits in the banking system over night from many European
| central banks. So if you pay say -0.x% on deposits then 1.85%
| over 30y is a bargain.
| second--shift wrote:
| The fundamental problem with your hypothesis is the time-
| value of money: overnight deposits can be moved around, well,
| overnight, but a 30yr bond (for the bondholder, ignoring
| secondary markets) locks up capital for decades. A bondholder
| can't take advantage of future preferential interest rates
| when their capital is already locked up in low-yielding
| bonds.
|
| This is why bond price and bond yields have an inverse
| relationship.
| UncleOxidant wrote:
| > Somebody is on the wrong side of this trade in a big way.
|
| There's an old adage that equity traders are the short-bus
| riders and bond traders are riding the long bus. I tend to
| think there's something to this and thus I tend to think the
| bond traders are more likely to be right here.
|
| > The odd thing about this is that gold, the traditional
| inflation hedge has gone nowhere fast.
|
| It's going into real estate.
| w4llstr33t wrote:
| > It's going into real estate.
|
| Some of it is likely going to Bitcoin / crypto as well, even
| if not everyone agrees on the legitimacy of that space.
| UncleOxidant wrote:
| Some is going there too, but it's a much smaller piece of
| the pie. Real Estate also has utility - you can live in it.
| Gold's utility is much lower - sure you can make jewelry
| out of it's used in small amounts in electronics. Crypto
| basically has no utility.
| EVa5I7bHFq9mnYK wrote:
| You could live in the same real estate 10 years ago, when
| its price was 3 times lower. So 1/3 of real estate price
| comes from utility, and 2/3 is pure fiction. More
| precisely, 2/3 of real estate price represents its
| utility as a storage of wealth.
| Geee wrote:
| The utility of money is the ability to trade it for any
| utility that is for sale. Money itself shouldn't have any
| inherent utility, other than being able to reference any
| other utility in the amount that the money holds value.
| It's like a magic wand that can make a wish true. The
| medium of money is just there to store and transfer the
| information for the amount of magic you can wield. This
| is why money is always overvalued compared to the
| medium's inherent utility.
|
| There are many other things that are overvalued, such as
| real estate - because there's an expectation that they
| can be used to trade for something else later. In other
| words, they're bought solely because they're expected to
| hold their buying power, i.e. they're used as money. The
| reason why this happens is because modern fiat money
| doesn't have this property - it's expected to not hold
| its buying power.
|
| Now, there is money that holds its buying power -
| bitcoin. It's expected that in the coming years most of
| the value from real estate and other overvalued assets
| will transfer into bitcoin, because there's no reason any
| more to own them other than for their utility.
| UncleOxidant wrote:
| > There are many other things that are overvalued, such
| as real estate
|
| I'm not sure RE is overvalued. There's a shortage of
| houses at a time when Millennials (the largest
| generational cohort so far) are hitting peak household
| formation.
|
| > Now, there is money that holds its buying power
|
| Bitcoin peaked at around $64K in April 2020. Now it's
| currently at $38K - it was down to about $30K a month
| ago. Seems pretty volatile for something that "holds it's
| buying power".
| w4llstr33t wrote:
| > Crypto basically has no functionality.
|
| Transferring payments across the world is functional, and
| yes, the traditional financial system also does this, but
| it doesn't mean crypto has no functionality.
|
| Edit: Previous statement I was responding to has changed.
| I still don't agree that crypto has no utility though. I
| agree with almost everything I was responding to except
| that part. Yes, real estate has more utility, for sure.
| To me it doesn't matter that crypto has some overlap with
| traditional finance. This is an iteration on technology,
| which has its own pros/cons, but some folks are trying to
| come up with something better. Time will tell if that
| succeeds or not. IMO, it's too early to tell. You can
| also see that I wasn't the only person who responded to
| the parent comment that Bitcoin may be a competitor to
| capital flowing to gold as a potential inflation hedge.
| UncleOxidant wrote:
| Ok, but as you point out it's not a unique in
| transferrability - once you've transferred that crypto in
| the end it's still crypto - you can't live in it or even
| use it to make jewelry. Locking in your mortgage payment
| is an inflation hedge and you get a house to live in.
| Millennials are into the peak home buying years and are
| now the largest generational cohort. Add to this that we
| haven't built enough housing to keep up with population
| growth over the last dozen years or so and this is why
| housing has gone up so much.
| w4llstr33t wrote:
| My understanding is that foreign real estate buyers have
| also pushed real estate prices up. That said I think you
| make a lot of good points and crypto is about the only
| thing I disagree with you on.
| beowulfey wrote:
| Money itself is not "functional" in this sense; the point
| is that real estate provides value _and_ a function other
| than value.
| lottin wrote:
| This is like saying that a rock is functional because it
| can be transferred from one place to another. Sorry,
| "being transferred" is not a function that is performed
| by the object that is being transferred.
| w4llstr33t wrote:
| If you have technology that can transfer a rock across
| the world in seconds then I would be interested in that.
| Same w/ crypto (with the added benefit of crypto not
| requiring a centralized entity to do so).
|
| My main point is let's wait and see how this new
| technology evolves instead of just shooting it down. I
| don't think everything about traditional finance is
| perfect. Negative interest rates in some parts of the
| world are one sign of that.
|
| I think we can iterate on traditional finance as well as
| explore other potential solutions. The aversion to
| cryptocurrency as a technology, when Bitcoin has only
| been around for a bit over a decade, seems premature to
| me.
|
| There have been comparisons of cryptocurrency to the
| internet, which everyone may not agree with, but what if
| we just shut down the internet before it really took off?
| Well, we wouldn't be having this conversation.
| lottin wrote:
| I don't think after a decade it is "premature" to jump to
| conclusions. If someone hasn't been able to figure out
| bitcoin by now, they probably never will (in my opinion,
| it takes about 20 minutes to a person of an average
| intelligence).
| xyzzy123 wrote:
| When something's too big and heavy to move you turn it
| into a financial instrument anyway and change (e.g. yap
| stones) the ownership.
|
| I still think there's something a little bit special
| about bitcoin. It simultaneously has the properties of
| modern electronic currency BUT has some elements of
| "permission-less-ness" like cash or gold.
| cwkoss wrote:
| I use Bitcoin to satisfy my inflation-hedging appetite. I
| wonder to what extent cryptocurrency enthusiasm is suppressing
| gold prices, as increasing number of people view Bitcoin as a
| viable inflation hedging alternative to gold.
|
| If Bitcoin didn't exist, I would probably own more gold.
| asdff wrote:
| Something that might move hundreds of percentage points in
| either direction in a given year seems like a poor hedge
| against inflation to me.
| Geee wrote:
| There are just two years in Bitcoin's history when it had a
| negative return:
| https://stats.buybitcoinworldwide.com/yearly-candles/
| orthros wrote:
| I'll be the pedant to point out it can't move more than
| 100% on the downside. Which since it has risen more than
| 100% in less than a year seems like a decent deal although
| fraught with risk to be sure.
| yaa_minu wrote:
| Yes, in the short term, neither gold nor even gold is a
| good hedge. Cash will always be superior in the short term
| unless we're in a hyperinflationary situation. However, on
| a long enough time scale, gold and bitcoin can function as
| great inflation hedges. I say this with a little bit of
| caution especially for bitcoin because it's only a few
| years old but we know for this short 12 year period that no
| one has lost money by holding bitcoin for more than 4
| years.
| cwkoss wrote:
| I would be very surprised if Bitcoin moved more than 100
| percentage points downwards :-P
|
| But on a more serious note, this bet is based on the idea
| that if/as USD hegemony collapses (in ~decade time scale),
| inflation will accelerate and there is an increased chance
| that Bitcoin becomes world reserve currency. I believe
| Bitcoin volatility will decrease as price grows (it already
| has to an extent), and once it has about one more ~10x
| increase (reaching roughly market cap of total earth gold
| supply) the bubble/bust pattern will break and it'll become
| more stable.
|
| But who knows. I recommend keeping 1-5% of net asset value
| in cryptocurrency (BTC, ETH, _maybe_ ADA if you like risk,
| roughly weighted by market cap and ignoring long tail of
| unproven coins), but it is certainly a very risky
| investment and securing them has unique technical
| challenges that make them less suitable for non-technicals.
| throw0101a wrote:
| > _If Bitcoin didn 't exist, I would probably own more gold._
|
| Do you have any evidence that gold is a hedge against
| inflation, or are you simply following financial folklore?
|
| > _We find little evidence that gold has been an effective
| hedge against unexpected inflation whether measured in the
| short term or the long term. The gold as a currency hedge
| argument does not seem to be supported by the data. The
| fluctuations in the real price of gold are much greater than
| FX changes. We suggest that the argument that gold is
| attractive when real returns on other assets are low is
| problematic. Low real yields, say on TIPS, do not
| mechanically cause the real price of gold to be high. While
| there is possibly some rational or behavioral economic force,
| perhaps a fear of inflation, influencing variation in both
| TIPS yields and the real price of gold, the impact may be
| more statistically apparent than real. We also parse the safe
| haven argument and come up empty-handed. We examine data on
| hyperinflations in both major and minor countries and find it
| is certainly possible for the purchasing power of gold to
| decline substantially during a highly inflationary period.
| When the price of gold is high in one country it is probably
| high in other countries. Keynes pointed out "that the long
| run is a misleading guide to current affairs". Even if gold
| is a "golden constant" in the long run, it does not have to
| be a "golden constant" in the short run. Conversely, current
| affairs are possibly a misleading guide to the long run._
|
| * http://www.nber.org/papers/w18706
| ren_engineer wrote:
| >The odd thing about this is that gold, the traditional
| inflation hedge has gone nowhere fast
|
| my guess would be people are putting that money into bitcoin
| throw0101a wrote:
| > _This is part of a multi-decade trend in ever lower 30-year
| yields stretching back to the Regan administration._
|
| Interest rates have been going down, at least in Western
| countries, with some gyrations, since 1310 AD:
|
| * https://www.bankofengland.co.uk/working-paper/2020/eight-
| cen...
|
| * https://www.visualcapitalist.com/the-history-of-interest-
| rat...
| H8crilA wrote:
| Amateurs. Switzerland has a 50 year bond that was trading as low
| as -0.5%. Imagine that, paying CHF128 to get CHF100 sometime in
| 2070.
|
| This comes with a whole new approach to finance, such as infinite
| duration mortgages (you never pay them back). And they even have
| those with a floating interest rate, in case you would like to
| bet your entire net worth on the idea that rates will stay this
| low till you die (and till your children, who will inherit the
| house with the mortgage, die, and till their children ...). Brave
| new world.
| belter wrote:
| You want more fun? Here is the Portuguese Central Bank, some
| time ago, mandating all banks to apply negative rates to their
| mortgages within 10 days, in case the corresponding Euribor
| happens to be negative.
|
| (link in Portuguese)
| https://www.bportugal.pt/comunicado/instituicoes-obrigadas-r...
| the-dude wrote:
| These mortages have been available in NL and DK as well ( I
| had one in NL ).
|
| My mortage did not pay me yet, but the negative rate was
| eating into the markup ( ~1% ). So for years I had a mortage
| with about 0.5% interest. I know of DK people actually got
| money out of their mortage.
| DasIch wrote:
| In Switzerland you pay tax on the rent you could in theory
| receive as a landlord minus maintenance cost and mortgage
| payments. I suspect that this is a far bigger contributor to
| infinite duration mortgages than the bond market.
| H8crilA wrote:
| Ah yes, save a bit on taxes to get the most dangerous form of
| financing ever available to the general public, leverage up
| to your eyeballs. A classic, if something goes wrong the
| government will help us, right? :). And it's not like an
| ordinary person would a) really understand what such a
| mortgage is, b) be able to afford the property without using
| it.
| ComputerGuru wrote:
| I upvoted you for adding context, but I have a question:
| minus mortgage payments or minus _the interest_ on mortgage
| payments? There's a huge difference.
| llampx wrote:
| In an eternal mortgage you are only paying interest, so
| interest on the mortgage I believe.
| w4llstr33t wrote:
| I think it is notable that Switzerland also has very favorable
| capital gains laws though, at least for private investors.
| Could hold stocks, gold / silver or crypto in Switzerland and
| not pay tax on gains as long as you hold them for 6 months or
| more, and didn't make more than 50% of your income from capital
| gains. [1]
|
| [1] https://thepoorswiss.com/capital-gains-switzerland/ (mainly
| talks about stocks but applies to capital gains in general).
| nickpp wrote:
| It's also notable that Swiss cantons impose various levels of
| global wealth tax. Fairly small I believe, around .5% mostly.
| orthros wrote:
| That sounds small but over 40 years that would net a
| portfolio about a quarter smaller than in a country without
| one.
| flerovium wrote:
| An interesting read is https://www.frbsf.org/economic-
| research/files/wp2016-05.pdf
|
| What's often missed in this analysis is population. Interest
| rates are tightly coupled to population growth and even with
| negative interest rates, a country needs to see Japan-scale
| population decline to risk Japanification.
|
| The virus has accelerated EU population decline and exacerbated
| the North/South fertility divide. It's natural to think that as
| the long-term outlook for the virus worsens (over the next
| several years), this would have a non-negligible effect on
| interest rates. https://www.reuters.com/article/us-health-
| coronavirus-eu-bir...
| frockington1 wrote:
| Why is the virus going to worsen? Are Europeans more resistant
| to the vaccine? Death rates in America are almost entirely the
| unvaccinated by now
| rossdavidh wrote:
| Actually, total deaths from all causes (among vaccinated and
| unvaccinated taken together) have been back to near-normal
| levels since March.
|
| https://www.cdc.gov/nchs/nvss/vsrr/covid19/excess_deaths.htm
| hnarn wrote:
| The claim was "death rates in America are almost entirely
| the unvaccinated by now", which is correct. And cases are
| going up. Excess mortality, in the past few months no less,
| is completely irrelevant, not only in scope of time but
| also to the statement being made.
| andi999 wrote:
| So what does this mean?
| AndrewBissell wrote:
| https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit...
| sudosysgen wrote:
| It seems so. An additional tidbit is that stagflation is
| generally considered to be a good indicator that the rate of
| profit may actually be falling.
|
| Beyond that as far as I remember when reading the literature,
| there have been no empirical studies that found that the rate
| of profit was not falling, only inconclusive results or
| positive results.
|
| I personally don't think it's settled yet, though. I think
| empirical evidence is not quite there for now.
| [deleted]
| DasIch wrote:
| It means now is a great time for the German government to make
| some investments into crumbling infrastructure, even if that
| means taking on debt.
| tonyedgecombe wrote:
| It's not that surprising that Germany is reticent to go on a
| spending spree after what happened in the twenties. These
| problems leave scars that last a long time.
| imtringued wrote:
| Well, you can't maintain trade surpluses for all eternity.
| Export champions will become import champions.
| sparsely wrote:
| Someone should go tell the German government this, over
| loadspeakers, outside their homes at all hours until they
| actually get on with it and do it.
| dgellow wrote:
| That's definitely not how German politics work
| andi999 wrote:
| So it is not important for the people?
| NonContro wrote:
| Rebuilding a modern generation of modular nuclear power
| plants would be a good idea. Natural gas prices have just
| spiked in Europe because Russia is limiting supply.
|
| Solar and Wind can work but there are big demand management
| problems, and there doesn't appear to be any progress on
| allowing or requiring EVs to charge smartly (ie. based on the
| prevailing electricity price, including discharging).
| fuoqi wrote:
| >Natural gas prices have just spiked in Europe because
| Russia is limiting supply.
|
| Well, Russia simply plays by the rules Europe promoted
| itself. You don't want stable long term "take or pay"
| contracts with price tied to oil and instead you want to
| tie contracts to spot prices? What you ask is what you get.
| Don't blame others when they start to game those rules in
| their favor when situation is right.
| fundatus wrote:
| > Rebuilding a modern generation of modular nuclear power
| plants would be a good idea.
|
| Never gonna happen in Germany. The last nuclear power plant
| in Germany will shut down for good at the end of next year.
| Last year the share of electricity generated from
| renewables was 46%.
| WanderPanda wrote:
| Don't forget that the remaining 54% (points) will be
| exponentially harder to replace
| imtringued wrote:
| Although in principle that is not a bad idea. Nuclear power
| plants are not a particularly attractive "product".
| hnbad wrote:
| Shame we have the "debt brake" preventing any serious
| investments:
| https://en.wikipedia.org/wiki/Debt_brake_(Germany)
| DasIch wrote:
| Yes, I think the debt brake should be removed. Although one
| could also change the restrictions the debt brake so that
| it allows to take on debt for investments that lead to more
| growth.
|
| The debt brake can be "disable" though, this is the case
| right now for COVID and Peter Bofinger has made an
| interesting argument that one might also be able to do this
| for investments to defeat climate change by declaring this
| is a natural disaster. Although anyone who tries that
| probably has to make that argument to the constitutional
| court.
| Faaak wrote:
| For the curious it's all defined historically here:
| https://eur-lex.europa.eu/legal-
| content/EN/TXT/?uri=CELEX%3A... (Article 1).
| [deleted]
| belter wrote:
| We already knew a couple of things about economists and economic
| forecasting:
|
| - We knew economics can give Nobel prizes even in the same year,
| to practitioners defending absolutely and completely opposite
| theories:
|
| "Nobel prize-winning economists take disagreement to whole new
| level"
|
| https://www.theguardian.com/business/2013/dec/10/nobel-prize...
| https://www.irishtimes.com/business/economy/and-the-nobel-pr...
|
| - Many were also aware that: "The only function of economic
| forecasting is to make astrology look respectable" John Kenneth
| Galbraith
|
| "Despite forecasters' best efforts, growth is devilishly hard to
| predict"
|
| https://www.economist.com/finance-and-economics/2016/01/09/a...
|
| Or we could go less diplomatic :-)
|
| "Joke about 364 Economists" https://youtu.be/XB1ciodyM1w
|
| So these officials were allowed to make decisions under the
| political pressures of the governments that named them. Their
| supposed independence will be used by governments to excuse
| themselves from their responsibilities. Its the usual trick of
| naming a commission with selected experts to get the
| recommendation you want. Then you argue you are just implementing
| the recommendation of the 'independent' commission.
|
| The answer probably is that despite all the data and expertise,
| central banks know less than your average hedge funds or
| economics think-thank. These decisions were done by driving
| blind.
|
| I found this analysis unusually sober and interesting (for JP
| Morgan work...):
|
| "Entering uncharted waters: Understanding negative bond yields"
|
| https://am.jpmorgan.com/sg/en/asset-management/per/insights/...
|
| Some interesting bits: -------------------------------
|
| "Fixed income markets have entered uncharted waters, with over
| USD 17trillion of debt trading with a negative yield."
|
| "The Handbook of Fixed Income Securities by Frank Fabozzi, widely
| considered to be one of the most trusted resources for bond
| investing, has no mention of negative yields in its 1,803 pages.
| And yet today, negative yields are pervasive around the developed
| world..."
|
| "...Forced buyers are profit-agnostic: they are holding the bond
| for a reason other than making a profit. One example of a forced
| buyer is a central bank buying bonds in order to achieve asset
| purchase targets. In places like the eurozone and Japan, for
| instance, central banks own 21% and 48% of their own outstanding
| government debt..."
|
| "Negative-yielding bonds overseas are weighing down yields in the
| U.S. However, without the adoption of NIRP by the Fed it is
| difficult, but not impossible, for bond yields in the U.S. to go
| into negative territory."
|
| -------------------------------
|
| Any analysis of what will happen next cannot be made based just
| on the Economics books sitting on your desk. For sure would
| require a political, sociology and psychology expertise your
| average economist is probably not qualified for. Certainly not
| the ones at your average central bank.
|
| The real fun will probably start if China and US tensions rise.
| The 10 year U.S. Treasury Yields was at 1.75% and its now at
| 1.15% and probably going now:
|
| "10-year Treasury yield drops to 1.15%..."
| https://www.cnbc.com/2021/08/02/us-bonds-treasury-yields-ris...
|
| Hint to Economy academics. Predict US negative interest rates
| now! There is a Nobel prize somewhere waiting for you.
| croes wrote:
| Because it's neither a Nobel Prize nor a science.
|
| It's just the Nobel Memorial Prize, just another bankster trick
| to sound legitimate.
| imtringued wrote:
| Honestly economics is just a crappy branch of politics (and
| politics just a crude form of applied philosophy). It's not
| like the mathematical theories ever get implemented 1:1 as
| the math says.
| HideousKojima wrote:
| The dismal science is poorly named. They can keep the
| dismal part, but it's definitely not science
| alpineidyll3 wrote:
| For all the high class jargon, interest rates are nothing but a
| game of hot potato, with the potato being bad credit to low
| growth corps. If people stopped pretending this is 4d chess, and
| call it like it is, maybe someday it could be fixed.
| IceHegel wrote:
| Beyond the financial implications, I'm always struck by how bad
| the explanations are for secularly low rates. Most never leave
| the financial world.
|
| Unscientifically, it feels like low rates reflect highly
| diminished hopes for the future. F
| throw0101a wrote:
| If anyone is interested in near-real time updates, I've found
| this site to be handy:
|
| * https://www.investing.com/rates-bonds/germany-government-bon...
|
| They have the rates of most countries if you poke around.
| belter wrote:
| Good site.
|
| I recommend also for general stats:
|
| https://tradingeconomics.com/
|
| The 10 year German bond is here:
|
| https://tradingeconomics.com/germany/government-bond-yield
| leereeves wrote:
| Who is buying these bonds with negative returns?
|
| > the European Central Bank's statement that it had bought many
| more bonds in the last two months than the bloc's top four
| countries sold.
|
| Oh.
| lumost wrote:
| I am curious if we're entering a period where western
| governments _must_ run deficits and central banks _must_
| purchase said debt at sub zero interest rates to keep the
| economy running.
|
| In principal this could occur if there were large capital
| "sinks" in the economy where paper money is being removed from
| circulation or it's velocity plummets. This could occur if for
| instance certain economic actors could acquire large cash flows
| that they then deposit into illiquid non productive assets.
|
| E.g. Housing, universities, Large rent speaking corporations
| with offshore accounts, individuals with the same.
| jonkho wrote:
| Cash spent on housing, universities etc doesn't "sink into a
| hole and disappear". Someone else on the other side of the
| transaction got it and can spend it. On the other hand,
| raising taxes to collect said cash to neutralize the debt
| would be a "sink".
| missedthecue wrote:
| Its silly how many otherwise smart people forget that
| income = expenditure. Whatever you spend is someone elses
| income. That money doesn't get incinerated.
| Proven wrote:
| > I am curious if we're entering a period where western
| governments must run deficits and central banks must purchase
| said debt at sub zero interest rates to keep the economy
| running
|
| It's been that way for 13 years, so you'd better.
|
| There's no money simply because there's too much bad debt and
| all banks and governments that matter are insolvent.
| bit_flip wrote:
| As someone living in Europe, I'm really not sure how to
| financially insulate myself anymore. It's not clear which
| asset class is safest to protect against inflation or a large
| negative economic event
| tormeh wrote:
| I'd go with an ACWI ETF, if you want returns. Gold is also
| an option, I suppose, if you want to hedge against the
| economy and don't really need any returns.
| throw0101a wrote:
| > _It's not clear which asset class is safest to protect
| against inflation_ [...]
|
| The _Rational Reminder_ podcast looking into this and
| basically concluded that there is no hedge:
|
| * https://rationalreminder.ca/podcast/150
|
| * https://www.youtube.com/watch?v=_f0dns9fHFs
|
| The best you can probably do is have some debt which will
| worth less and less over time as its nominal value stays
| the same whereas you get cost of living (CoL) increases
| with your salary so have more money in really terms to pay
| it off.
|
| Other than that equities have (generally, but not always)
| had good enough nominal returns so that you get a real
| return increase in your investments.
| WanderPanda wrote:
| Where did we end up if shorting your currency is the only
| way to go? I could not sleep well with the potentially
| unbounded loss
| imtringued wrote:
| You short the USD by borrowing in USD, spending USD while
| it is still valuable and then wait for it to devalue.
| Deflation is a bad thing so the Fed won't let it happen.
|
| Of course the flaw with this is that I get 4% interest on
| personal loans so I actually can't make money off of this
| strategy.
| AnimalMuppet wrote:
| Gold. Gold essentially functions as a short on paper
| currency. If you're wrong, you'll lose money, but it
| won't be an unbounded loss.
| throw0101a wrote:
| Gold isn't as much of a hedge as most people think. Two
| papers by Erb & Harvey cited in the podcast:
|
| * https://www.nber.org/papers/w18706
|
| * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=263
| 9284
| yann2 wrote:
| Chocolate, Cheese and Wine.
| toomuchtodo wrote:
| Own your home, keep a small emergency savings account (~10k
| EUR), invest outside the bloc (VT, VTI, VEMAX). You've got
| robust social safety nets, any returns are gravy. Some
| currency risk is unavoidable.
|
| (educational purposes only, not investing advice, pay a pro
| a fixed fee for an hour or two of time)
| Deukhoofd wrote:
| > Own your home
|
| Easier said than done.
| pjc50 wrote:
| If you don't own your home, that is a far higher priority
| than trying to protect a comparatively tiny sum of
| savings from inflation hitting the dangerous heights of
| 5%.
|
| Far more important is keeping your _salary_ up with
| inflation, since for most people 1y salary > savings.
| imtringued wrote:
| Yes, you have to switch jobs frequently to get those
| inflation adjusted raises.
| legulere wrote:
| But if the asset bubble bursts and your home loses most
| worth.
| pjc50 wrote:
| Sibling comment gets it: regardless of everything else,
| you _must_ "consume" housing, either as a capital good or
| in rent. Home ownership insulates you from shocks to the
| rental market.
|
| It's possible that the house price falls by 10%. It is
| very, very unlikely that rents will crash by 10%; they're
| sticky, at best you'll see a very slow slide over years.
| est31 wrote:
| Yes, you must consume housing. But if you can't pay off
| your mortgage in a reasonable time frame (10-15 years),
| "owning" it doesn't give you any security, at least
| against sudden job loss. If house prices crash and you
| lose your job, you might be kicked out of your rented
| apartment, but that's it. At least here in Germany, if
| you were in the same situation as home owner, you'd lose
| your house _and_ have to pay back the debt resulting from
| the lower house prices (unless you file for bankruptcy).
| cesarb wrote:
| > But if you can't pay off your mortgage in a reasonable
| time frame (10-15 years), "owning" it doesn't give you
| any security, at least against sudden job loss.
|
| If you're still paying your mortgage, do you really _own_
| your home?
| WanderPanda wrote:
| You're right the bank owns your life, your ability to
| create value. What a terrible place to be in
| wallacoloo wrote:
| > If you're still paying your mortgage, do you really own
| your home?
|
| You own your home in this scenario just as much as the
| entity on the other side of the equation owns the income
| stream from your mortgage.
|
| A mortgage is a collateralized loan. You agree to give up
| ownership of your collateral if you fail to meet the
| terms of you contract. So yes, you own the home now,
| subject to constraints.
|
| Ownership is almost always subject to some constraints.
| Nobody says "do you own your home even though you can be
| taken out of it (and jailed) if you refuse to pay taxes
| on it?" even though that's arguably a more extreme
| condition upon your ownership. While I am sympathetic to
| conversation about the broader meaning of ownership, this
| "mortgage => !ownership" thing is a tired meme.
| poooogles wrote:
| >But if the asset bubble bursts and your home loses most
| worth.
|
| Luckily the primary function of a home is to provide
| shelter. You don't have to worry about being out on the
| street if you're unemployed (pending you can afford local
| taxes).
| csomar wrote:
| > You've got robust social safety nets
|
| Depends which EU country he is living in (though he said
| Europe). Italy pension system is hazardous. Greece is in
| the EU too, by the way.
| toomuchtodo wrote:
| Asking because I don't know: what are the odds Germany
| and France by way of Brussels bail those folks out?
| imtringued wrote:
| Germany will never run an trade deficit out of a stupid
| sense of pride, it's completely irrational, so 99%.
|
| Just think about it. If Greece needs x billion EUR to pay
| its debt off the most logical way to deal with the
| problem would be to just buy a huge amount of Greek
| products rather than send x billion EUR directly.
| csomar wrote:
| My guess is, they'll help it like they did with Greece
| (maybe a bit more generous) but they'll have to pay a big
| part of the bill (ie: austerity)
| BelenusMordred wrote:
| > keep a small emergency savings account (~10k EUR)
|
| Hopefully you don't mean in a bank? If history is any
| guide that's useless with capital controls initiated
| before the public even gets whiff of it, see Greece and
| Cyprus 2008. A bolted-down safe in your house seems to be
| the caveat on such a statement. Money in the bank simply
| isn't yours and far too many people don't realise this.
| pjc50 wrote:
| The Cyprus confiscation had a threshold which was much
| higher than your hypothetical 10k.
|
| It's still wise to at least consider the possibility of a
| bank failure, qv Northern Rock.
|
| Grandparent comment's advice about keeping an overseas
| investment is wise, too; as a Brit I've not regretted
| having US investments.
| throw0101a wrote:
| > _It 's still wise to at least consider the possibility
| of a bank failure, qv Northern Rock._
|
| Most industrialized countries have insurance of bank
| deposits up to a certain point. So even if the bank goes
| _poof_ your savings are still safe.
|
| It would simply be prudent to have money in more than one
| bank (or credit union), as if something bad happens then
| things may get chaotic in the short term.
|
| A second account also helps with IT problems:
|
| * https://en.wikipedia.org/wiki/2012_RBS_Group_computer_s
| ystem...
|
| *
| https://www.theguardian.com/business/2019/aug/27/natwest-
| and...
| Traster wrote:
| A small emergency savings account isn't there to insulate
| you against a sovereign debt crisis. It's there to
| insulate you if you lose your job and need a few months
| to pay your mortgage while you find a new one.
| Uberphallus wrote:
| Most of Europe has enough unemployment benefits to get
| you by for more than a few months, though, sometimes
| years. It better stay invested.
| breakfastduck wrote:
| At least in the UK you are insured up to 80k, so keeping
| 10k in a bank is perfectly safe. You will not lose it if
| the bank crashes.
|
| That advice you're giving there is actually kind of
| dangerous & misleading.
| WanderPanda wrote:
| I don't like these kind of "insurances". It is very
| probable that when multiple banks go belly-up this could
| lead to serious inflation. You will get your money back
| in nominal terms, but what will you be able to buy from
| it? I even think that we should somehow count these
| "insurance" to the central bank balance sheet. If shit
| hits the fan the cb will sure as hell monetise the
| government debt needed to guarantee these amounts.
| toomuchtodo wrote:
| If you're paranoid or live in a country where your risk
| tolerance dictates such a course of action, sure, keep
| notes on hand.
| dragonwriter wrote:
| For inflation, you probably want to diversify broadly among
| productive assets.
|
| For insurance against negative economic events... that's a
| more rapidly evolving, short-term issue. To the extent you
| can do it, it is a matter of identifying near term risk
| sectors, and minimizing exposure to the and/or having
| investments in areas negatively correlated with the at risk
| sector.
| MattGaiser wrote:
| Virtually any asset thats not cash should do given that the
| response to any negative economic event is going to be
| fiscal and monetary stimulus.
| wsc981 wrote:
| I believe you should have some crypto (some percentage of
| your net worth). At the very least Bitcoin, maybe also a
| bit of Ethereum.
| eli_gottlieb wrote:
| Sounds about right. There seems to be little political will
| to actually "euthanize the rentier", or even put a cap on how
| much income rent-seekers can accrue nonproductively. The
| result is that "landlords are eating everything."
|
| https://exponentsmag.org/2019/08/25/software-was-eating-
| the-...
| imtringued wrote:
| Do you remember that MMT thing? That thing that says the
| government can create as much money as it needs and if
| there is inflation (doesn't matter if CPI or not) then you
| tax the part of the economy where inflation happens to
| return the money.
|
| A wealth tax on deposits and land would be ok. The rich can
| buy bonds or stocks if they want. If there is a shortage of
| companies you can always create new ones. If there is a
| shortage of money or land it's much harder.
| missedthecue wrote:
| If you buy a house, that money isn't in a sink. It goes to
| the person that sold it to you. And they spend it on
| something else.
|
| Similar situation for "illiquid nonproductive assets".
| Whoever sells them gets the cash.
|
| If it sits in a bank account, the bank loans it out, where
| the borrowers spend it again.
|
| Bezos isn't keeping $200 billion out of circulation. He owns
| 10% of a $2 trillion company.
| wsc981 wrote:
| _> I am curious if we 're entering a period where western
| governments must run deficits and central banks must purchase
| said debt at sub zero interest rates to keep the economy
| running._
|
| I think that as long as the EU wants to keep the political
| Euro project going, there is no way around such policies,
| since having rates go up could cause Southern European
| countries to default and would cause the EU to implode.
| go_elmo wrote:
| Swiss central bank bonds are negative for decades and seem to
| be popular still. If you're scared of a crisis I bet you're
| interested too.
| [deleted]
| selectodude wrote:
| Modern monetary theory, baby! We'll see if it collapses, but I
| guess it'll be fun to see it in action.
| acover wrote:
| Globally diversified bond funds do. Such as the etf vgro.to
|
| I don't understand the benefit of an individual buying such a
| bond when not forced to. Holding cash seems better than unless
| you think rates will go even more negative!
| hnbad wrote:
| If I remember correctly, the bonds may only be sold by the
| government to a fixed list of banks and those banks can then
| sell them to the ECB or the general public.
|
| The level of indirection serves no practical purpose but is
| ideologically justified with the argument that banks are more
| likely to consider the market when deciding whether to buy the
| bonds or not even though they can just sell to the ECB without
| any losses.
| domano wrote:
| I do think that smart contract based finance on blockchain
| protocols is necessary to stabilize captialism as a whole / to
| have predictable cycles instead of longer cycles with worse
| crashes.
|
| At least you cant change inflation on a whim there (aside from on
| chain governance votes, but at least those are transparent and
| done by holders)
| pjc50 wrote:
| The "hardness" of money is unrelated to the boom/bust cycle,
| which is why the world went off the gold standard and Bretton
| Woods in the first place.
| Hermel wrote:
| By having hard money, the system has one less moving part and
| is a little less complex and less erratic.
| pjc50 wrote:
| A car with no suspension has one less moving part and is
| considerably less comfortable.
|
| (I'm slightly surprised that HN isn't amenable to the
| hydraulic control theory of the economy, and the relatively
| simple maths behind central bank control of rates which has
| been _hugely_ successful at driving down inflation)
| jonkho wrote:
| A broken hydraulic if that. Interest rates have been
| pushed down and stayed down over the decades.
| tonyedgecombe wrote:
| Centuries: https://www.bankofengland.co.uk/-/media/boe/fi
| les/working-pa...
| imtringued wrote:
| If you ask me it's the savers that are the weird ones.
| They aren't redeeming their deposits. How do you expect
| debts to be repaid if people insist on holding onto their
| deposits?
| dragontamer wrote:
| The number of boom / bust periods in the 1800s (gold
| standard) are more frequent and more disruptive than the
| modern fiat system Today's system is more complex but is
| way less 'erratic'.
| tastyfreeze wrote:
| Please provide examples tying the gold standard to boom
| bust cycle frequency. Boom and bust in the 1800s was
| largely isolated to locations undergoing new development
| for resource utilization. People moved in to take
| advantage of plentiful resources. When the resources were
| depleted the town went bust. Because of westward
| expansion there were many new resources to take advantage
| of. The frequency of boom bust in the 1800s had nothing
| to do with the gold standard.
|
| We had a boom period with fracking recently. People and
| businesses rushed to get a piece of the action. The
| majority of those people are going to leave and take
| their money with them causing a localized bust.
|
| Boom bust cycles are not related to a gold standard
| existing or not. However, with fiat currency, boom bust
| cycles can apply to the entire national economy, not just
| one location.
| dragontamer wrote:
| > Please provide examples tying the gold standard to boom
| bust cycle frequency.
|
| The Great Depression 1929 (Gold was so blamed for this
| depression, that Roosevelt made it illegal to hold more
| than a few ounces of gold to "solve" the depression).
|
| Moving further back: The Panic of 1873 (which eradicated
| the Silver standard). Panic of 1893 was also tied to a
| gold-panic. Black Friday (1869) was another gold-related
| panic, but luckily the US wasn't on the Gold Standard at
| that time.
| tastyfreeze wrote:
| Thank you for the examples. But, none of those examples
| illustrate your point that boom bust cycles were more
| frequent with a gold standard or even related to a gold
| standard. All of those examples resulted from government
| meddling in the economy.
|
| Black Friday 1869 - This one is funny. A return to a gold
| standard to restore the economy and pay off Civil War
| debt combined with a conspiracy of a few individuals to
| corner the gold market. (https://en.wikipedia.org/wiki/Bl
| ack_Friday_(1869)#History)
|
| Panic of 1873 - result of government subsidizing railroad
| expansion that speculators jumped on to make a buck
| (https://en.wikipedia.org/wiki/Panic_of_1873#Factors)
|
| Panic of 1893 - The economic policies of President
| Benjamin Harrison have been characterized as a
| contributing factor to the depression.
| (https://en.wikipedia.org/wiki/Panic_of_1893#Causes)
|
| Great Depression 1929 - Many hypothesis of cause. One of
| which is the 1920s expansion of money supply and 1928
| contraction of money supply.
| (https://en.wikipedia.org/wiki/Great_Depression#Causes)
|
| In all of these cases people were trying to get out of
| paper and into gold to protect their wealth. That is
| until Roosevelt used the 1929 Depression as an excuse to
| steal the wealth of Americans.
| dragontamer wrote:
| Yes. But all of them have a few common factors.
|
| Noticeably: the Bank Run, which simply doesn't happen
| anymore under our current standards of money. Practically
| speaking, we've solved the traditional bankrun problem.
|
| The issue with Gold is that it is inflexible. Banks will
| take it upon themselves to expand the monetary supply
| (see how Tether, USDC, and other cryptocoins are
| expanding the supply of cryptocoins in the BTC market).
| You don't need a government to inflate the money supply:
| the market actors will do that on their own. Remember
| that "Bank Notes" in the 1800s were non-centralized and
| issued by individual banks (ex: "Canal Bank 5 Dollars")
|
| For you to blame the government for what the market does
| naturally is... a mistake. Banks will be banks: they'll
| hold money, they will reserve some, and try to turn that
| money into more money by lending it out to other parties.
| When done with physical Gold, everything collapses during
| a crisis.
|
| When done with fiat, we have the ability to control the
| money supply as needed, to soften the blow of the crisis.
|
| ---------
|
| These bank-runs of the 1800s and early 1900s on the Gold
| Standard (or Bimetal standard: gold + silver) were both
| solved by the same mechanism. The modern fiat money
| system and fractional reserve banking (where banks are
| regulated to only do this re-lending thing to levels we
| can keep track of).
| tastyfreeze wrote:
| You are changing targets from a claim that a gold
| standard made boom bust cycles more frequent to a gold
| standard causes collapse during crisis.
|
| The benefit of gold is that it is inflexible. To expand
| the monetary supply more gold is required, or debt
| against the stock of gold is taken on. There is a limit
| to the amount of expansion that can happen with a gold
| standard. That is a good thing. It protects the wealth of
| people from inflationary policies of government. With
| fiat we have a dollar that purchases 1/21st of what it
| did in 1933.
|
| Banks will be banks but they also want to keep customers
| and stay in business. A single bank failing due to their
| bad practices is preferable to an entire nation failing
| for the same reasons.
|
| I maintain that government is the cause of these crisis.
| All businesses, including banks, operate in an
| environment created by government. When the government
| removes the risk of a market with subsidies or easy
| credit, businesses and banks make riskier investments.
| When those risky businesses and loans fail a bust
| happens. Can this happen without government? Sure, but
| the scope is limited.
|
| Fractional reserve banking causes collapse during a bank
| run crisis. When all depositors come to collect their
| money the bank just doesn't have it. It doesn't matter
| what the base money is. Had full reserve banking been
| practiced a bank run would not ever have been an issue.
| dragontamer wrote:
| > There is a limit to the amount of expansion that can
| happen with a gold standard.
|
| This is wrong. Banks can issue bank notes that on paper
| say that they're worth gold, but are in actually just
| banknotes.
|
| This expands the monetary supply (or shrinks it, when the
| reverse happens like in 1929). I don't see how there's
| any limit what so ever (today: this still happens with
| stocks like AMC: who are continuing to print AMC stocks
| and raise money as much as they want)
|
| > Banks will be banks but they also want to keep
| customers and stay in business. A single bank failing due
| to their bad practices is preferable to an entire nation
| failing for the same reasons.
|
| Not for the town that Bank was part of. And when many
| small banks fail at the same time (such as in these
| historical "panics" from the 1800s or early 1900s), you
| have a nationwide depression.
|
| Just because they're small doesn't remove the fact that
| they're correlated. Indeed, greater economic trends
| continue to affect small banks: causing all of them to
| surprisingly panic simultaneously across large sections
| of the country.
|
| Again: 1929 disproves your thesis entirely. The US
| banking system wasn't a single entity back then. Lots and
| lots of little banks failed simultaneously. That's why we
| invented FDIC insurance.
|
| https://en.wikipedia.org/wiki/Bank_of_United_States
|
| Note: Bank of United States was a private bank / company.
| Its collapse was one of the biggest, kicking off the
| Great Depression.
| imtringued wrote:
| By having hard money you get predictable decline. It
| honestly doesn't make sense to me. If people want to hold
| onto gold they can just buy it.
| jonkho wrote:
| Which gold standard? Bretton woods wasn't it (only state
| actors could redeem). Literally the history of boom and busts
| are from the excesses of money printing.
| pjc50 wrote:
| You have your causality backwards, check the dates:
|
| https://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929
|
| https://en.wikipedia.org/wiki/Executive_Order_6102
|
| The US went off the gold standard in 1933 because of the
| crash of 1929, which (obviously) happened under the gold
| standard. It was part of an extreme but ultimately
| successful project to re-mobilize the economy. Although the
| dramatic federally-directed transformation seems to have
| left a lot of scars on US politics.
| jonkho wrote:
| 1929 was caused by excess credit issuance. True, that the
| gold standard was in place, but the spirit to keep credit
| in check was not. The federal reserve already existed, so
| this excess was made possible by _their_ control of
| credit.
| WanderPanda wrote:
| Which makes me think that a gold standard has to always
| come with proper education about IoUs etc.
|
| Bubbles are only bad if people are deceived, because the
| proper way of riding a bust out by doing nothing
| (creative destruction) is too painful and may lead to
| political extremism.
| imtringued wrote:
| With a reserve currency like the USD the bust only
| happens in the USA while the boom happens outside of it.
| pyuser583 wrote:
| I'm sorry could expound on the idea that the whole history
| of book and bust isn't because of excess money printing?
|
| That doesn't sound right.
| jonkho wrote:
| I'm saying the history of boom and bust _is_ from
| excessive money printing, and later on from the
| contraction of the money supply.
| pjc50 wrote:
| If you can actually _prove_ this among all the competing
| explanations you can collect your Sveriges Riksbank Prize
| in Economic Sciences forthwith. It 's not as simple as
| that.
|
| https://en.wikipedia.org/wiki/Business_cycle#Proposed_exp
| lan...
| jonkho wrote:
| That's appealing to authority.
|
| "It is difficult to get a man to understand something
| when his salary depends upon his not understanding it."
| sudosysgen wrote:
| You can at least try. My salary doesn't depend on it.
|
| So far no one has been able to provide real proof or
| empirical evidence, only theories from assumptions we
| know are not accurate.
| imtringued wrote:
| Boom and bust is just a product of collective optimism
| and pessimism. It's purely man made. Of course our money
| system is designed to appeal to human irrationality so
| it's part of the problem. A gold standard just makes
| human nature worse for no real reason.
|
| Money is just paper. It holds no intrinsic value. The
| value exists in the economy of the US. Holding onto USD
| does not contribute to the economy of the US. So what's
| wrong with devaluing it? If money were to appreciate you
| would get value out of nothing. People would start
| competing for the value out of nothing until there is no
| real economy anymore.
| te_chris wrote:
| I just can't even being to understand this argument. Just
| because you're internally stable doesn't mean others will deign
| to agree.
| DasIch wrote:
| > At least you cant change inflation on a whim there [...]
|
| You can't change inflation on a whim right now either or put
| another way a government can get rid of a blockchain based
| system just as easily.
| ryanmarsh wrote:
| Can someone explain this like I'm five please? I don't know
| anything about the bond market so the article reads like
| gibberish.
| breakfastduck wrote:
| I see lots of comments like this floating around the internet,
| and while there's nothing wrong with learning, it's a bit silly
| to ask a question like this.
|
| You don't know anything about the bond market, so what is an
| article entirely about bonds going to do for you? A better
| starting point would be to find out what a bond is in the first
| place. I'm sure there's plenty of literature available.
|
| It gives me the same vibe as asking 'How do I build X in C++? I
| don't know how to program' instead of 'How do I learn to
| program C++?'
| ryanmarsh wrote:
| Good point. I guess what I should have asked is "what should
| someone unfamiliar with the bond market understand about this
| article"
| pinum wrote:
| My impression after a few minutes of googling various bond-
| related terms is that this means: "Investors in German
| government bonds can currently expect a negative return on
| their investment, in both nominal and real terms, regardless
| of the bond's maturity date".
|
| which could be simplified further to "If you were to give a
| loan to Germany right now, you would lose money in the end,
| regardless of how long or short a repayment period you
| offer".
|
| Would you say that's close enough for a layperson ELI5?
| ryanmarsh wrote:
| Yes that's exactly what I was looking for. Thank you. So
| then the next question is, what's the broader implication
| for ordinary folks (German citizens even)?
| funemployed wrote:
| Kuai Liang welcomes his German comrades in the fight to destroy
| the corrupt Lin Kuei
| thih9 wrote:
| This is a reference to Mortal Kombat video games, Kuai Liang is
| the name of a character known widely as Sub Zero.
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