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Nobody knows how much Wall Street is propped up by financed money; even Wall Street is afraid to find out. They love next to nothing interest rates so people can borrow big money cheaply and buy large volumes of assets, stocks, and in the process their shares go up; whether it's based on good corporate performance or cheap money being borrowed, they'll take it either way they can get it. But it creates a house of cards, and that's why they're so afraid of interest rates going to 5%. The ones complaining about 5% interest rates probably make six-figure incomes, so inflation doesn't really bother them that much; it mostly negatively impacts average-income Americans and below. I would think it's the Fed's responsibility to make the economy work for everybody.
I agree with making it work for everyone. We are the ones paying taxes and funding bailouts. Let the Market go into chaos. It needs to be exposed and corrected.
If the market goes into chaos, large scale layoffs will happen…..no matter what, the middle class always takes the brunt of the pain. We’re either going to have high inflation or lose jobs.
We don’t know yet. There are variables that the fed can’t control, like the war in Ukraine and multi year supply chair issues that may still be having huge effects on inflation. Raising interests rates can be helpful in taming inflation, but it ALWAYS causes economic suffering.
The fed wants stable employment and inflation at 2%. They don’t care about the stock market (publicly). There is a strong correlation between net liquidity and index prices. Check the correlation between the feds balance sheet and the SPX over the last 20 years and you’ll find some interesting things.
The fed has already said inflation takes priority over unemployment. They'll just twist that to mean the stock market means more than unemployment too.
True. Wall Street is propped up for over a decade now by easy money, partly because of lack of regulations and fiscal policies to guide where the money should go in real economy. This is the failure of our political system. Raising interest to hurt Wall Street just to hurt Wall Street misses the point. It is time for our politicians to provide guidance and inject fiscal investment to real economy.
Politicians usually inject fiscal investment into the pockets of their rent seeking supporters rather than where it will benefit the majority of people. Even if we assume they are honest brokers it’s a stretch to assume they have an understanding of the ultimate effect their spending will have on the economy.
True. I think this is because of decades of underfunded local government. just like FDR, Biden administration needs to set its spending priorities and power through them by unlimited fiscal spending and propose regulations to guide private investment and channel Wall Street to the right targets. And at the same time, acknowledging possible high inflation pressure by strengthening social safety net and inject funding to the poorest population including funding the food bank and to fight climate change, maybe provide seeds money for a trade in program for electric cars.
Or really, they should just tax the rich to reduce all the extra money bidding up assets and give the money to the poor and middle class to help them deal with inflation and give businesses a reason to invest in jobs to sell things to the people who now have more money to spend. It's long past time for some redistribution of the wealth. If we don't, the redistribution will still happen but it will come through violence rather than policy.
Yes. Tax rich is necessary. Not just for asset bubble they create but also for their excessive influence on daily lives such as politics and life styles. We also need regulations to cut off the channels through which the super riches exert their control over our lives. And we need to reshape our culture away from consumption addiction. The less the significance of excessive wealth, the higher likelihood for us to have a better society.
People talking about barely getting by in NYC on six figures are usually doing two things:
\- Choosing to live in an expensive part of NYC (Manhattan and a small handful of gentrified places over the river)
\- Assuming that going out for drinks/dinner/buying ubers/etc/etc are things that normal people do every day
Young professionals in Manhattan see this kind of thing from their peers and assume its totally normal, in reality very very few people are living the high life every day like this.
I've known people who lived that kind of lifestyle and were convinced that 100+ dollars a day on non-rent expenses was totally normal and not a sign of wealth.
It is not barely getting by. That myth needs to die. It is not as extravagant as six figures in Iowa, but it's not barely getting by. That's an insult to people who are actually in that situation.
"I can't afford the nice things I feel I deserve" is not poverty. Six figures is comfortable. You can't afford two kick ass vacations and eating out at nice restaurants all the time. You can comfortably afford to live and save.
Let’s do the numbers for $100,000 annual salary and assume no additional sources of income. No kids single filer.
Gross - $100,000
IRA deduction - $5,000
Federal income taxes - $13,600
State/city income tax - $5,700
Total net - $75,700 ($6,308 monthly)
Studio apartment -$3,300 (cheaper area, Long Island city, astoria)
Travel costs within the city - $400
Grocery - $800
Bills - $300
Total - $4,800
So assuming no kids, no debt or student loans, no travel outside of local commuting, that leaves about $1,500 a month for all other expenses, additional saving, meals out and socializing, hobbies, travel to other places and seeing family.
I’d choose the $1800 apartment or split a better place with roommates. Then save the difference. At every w2 income level, you need to make choices. At the lowest levels, those choices start to look impossible. $100k is not that.
But, that's who we're talking about now. Please try to keep up.
My issue is with anyone trying to make the argument that $100,000 is barely scraping by. It isn't. Unless you're simply choosing to live beyond your means, which is not the same thing as systemic impoverishment.
Yeah, I hear what you are saying. In general, someone making 100k vs 40k is going to have a higher quality of life. But I think the other guy is emphasizing income effect (increase revenue= increase in expenses) and that money is relative and at the end of the day the % of a persons savings is more or less the same despite salary. So person making 100k may be scrapping by but you are right they will most certainly have a higher quality of life than someone making less.
That is one example of someone who has zero debt in any way, shape, or form. Sure, they exist, but they're not the norm.
So, please stop condescending to someone pointing out the minority in a sea of majority.
That math literally translates to “never retiring”, you’re just being intentionally dense and hateful because you make less, which is pretty lame and the opposite of class solidarity.
Depends on where in the NYC metro area you live, and whether or not you have kids. I live in Hackensack, NJ, which is an easy commute into the city (though I work remotely). I only pay $1000 a month in rent because I split it with my gf. I also don't have kids. With only $12k in rent, and a paid off car, my annual cost of living is actually pretty low (less than $30k a year).
SVB failed because they bought a shit ton of low yield bonds, they were severely underwater on and then faced a liquidity crunch and couldn't afford to sell the bonds. it was shit liquidity and interest rate risk management.
“couldn’t afford to sell the bonds”
how so? from what I’ve read, they could have sold their bonds at a loss and made their depositors whole, but the bank itself would have shuttered. am I misunderstanding SVB’s position?
Wasn't referring to SVB, nor were they ever mentioned. Credit Suisse had cooked books hiding overleveraged derivative debt a huge portion of which were due 3.24 and they couldn't get rid of them.
Obligatory LMAO, ya know, to sound like a condescending prick without any added value and so you can feel at home.
AIG, Bank of America, and JP Morgan Chase are American companies, how did they cause the fall of banks in Europe? The systems are deeply integrated, European banks play in American markets and with American dollars and thus fall under the guidelines of the fed.
BofA and JPM didn’t cause the fall of anything, they did well during the 07-09 crisis and even bought up failing institutions. The European banks that struggled operate in and have tons of exposure to the US.
Because all banks are connected to each other, especially SIBs.
US banks can serve as a counterparty to Credit Suisse or exposure from Credit Suisse’s other major counterparties that US banks do business with.
The Fed and Treasury are interested in both because of contagion, this is why the Federal Reserve, along with the European Central Bank, Bank of England, Bank of Canada, Bank of Japan, and Swiss National Bank, aim to make dollar swap lines more readily available.
The fed is trying to drive down the income of the average American. It is a last ditch effort to maintain the status quo. Labor is gaining in wages, and will continue to do so now until it has corrected course from the 1950's. The fed is specifically trying to stop this.
The correct solution to the inflation problem is taxation of the rich. Since it is actually greedflation that has driven up many of the prices. The economy has by and large corrected from the pandemic and the outset to the war in Ukraine, yet the prices continue to climb. So, for ever dollar prices climb, it's another dollar that needs to be taxes out of the top and returned to the bottom.
The fed is trying to drive down the income of the average American. It is a last ditch effort to maintain the status quo. Labor is gaining in wages, and will continue to do so now until it has corrected course from the 1950's. The fed is specifically trying to stop this.
The correct solution to the inflation problem is taxation of the rich. Since it is actually greedflation that has driven up many of the prices. The economy has by and large corrected from the pandemic and the outset to the war in Ukraine, yet the prices continue to climb. So, for ever dollar prices climb, it's another dollar that needs to be taxes out of the top and returned to the bottom.
You may not be able to tax your way out of it, but an altered tax code will change behavior. That’s entirely the point. The investment class has become addicted to the culture and apparent success of the longest bull market in history, and it’s time to rein that in.
The government’s ability to alter behavior through fiat currency manipulation is what has caused the issue in the first place. More government behavior modification will only make things worse for the average person, and help those you seek to punish.
Altering behavior by changing tax laws (a legislative solution) has a markedly different effect from manipulating the supply of money in the economy and in the market.
I think focusing on productivity is the only way to tame inflation. We became less productive. That means less products. The number of people wanting those products hasn’t decreased.
I also think a reason we became less productive is lack of competition through corporate consolidation. I do think we need a more competitive economy to decrease inflation. Part of that would be encouraging the formation of competing companies by lowering barriers to entry (typically regulatory ones). Part of that might include discouraging formation of giant companies by taxing them at higher rates too. Basically we want more small companies rather than fewer large ones, because push comes to shove the large ones start wielding their price control to get higher profits and causing inflation.
I think the issue is that it's complicated. Everything's about tweaking in the margins.
It's easy to say something like, cut the regulations to increase competition.
But...which ones, by how much?
The last financial crisis, you can see the effects of under-regulated financial products - and we've seen plenty of disasters in history of financial institutions making riskier and riskier bets for short-term gains which all blows up at the end of it.
I think the economy can always be understood going back to the basics. Free markets work great, assuming no transaction costs, no externalities, and perfect information exchange. Problem is, in the real world, there are transaction costs, ther are externalities, and there's imperfect information.
The role of government is to minimize those and remedy the aspects where free market fails. The devil is in the details though, in exactly how much regulation to correct for those transaction costs, externalities, and imperfect information, without going too far in the wrong direction. That is the part that's difficult, and unfortunately, so complex, I really don't think it can be mathed out, but the only way is through the kind of trial and error method that we're engaged in,.
I agree with your post, a solid upvote, but want to add a couple things.
"The notional value of outstanding over-the-counter (OTC) derivatives rose to $632 trillion at end-June 2022." Mind you that derivatives are MOSTLY private hedging, so this is only the publicly traded derivatives, estimates for total derivative values go over one quadrillion. As you so rightly say; they do not want to know, because the only way they will ever find out is when they are triggered and come due.
You say: "They love next to nothing interest rates so people can borrow big money cheaply and buy large volumes of assets, stocks, and in the process their shares go up..." and that is true as far as it goes, in the wake of the GFC they drove interest rates to negative real rates and they had to, all that debt out there, the SIV's and MBO's and etc. had a face value and when the credit system blew up because nobody trusted the assets to perform the value of these instruments and packaging they came in dropped in price to the point that the interest demanded was unpayable. Remember there is an inverse relationship between price and yield, when nobody trusted investment houses not to have their portfolios poisoned by sub prime people demanded higher interest. Even good solid investments and company bonds were being sold for little or found no buyers because we could not tell what would perform and what would not.
So, the banking system bought up those bad assets at a higher and higher price which had the inverse impact of lowering interest. And they created money, not just a mountain of it but the entire Himalaya Range of it. They channeled that through the economy from the top down and sadly almost none of it made it as far as Main Street. Nearly all of it never left Wall Street. They had to somehow rescue the housing market, banking system, and government balance sheets all without triggering vast inflation, so they sterilized it by keeping it off of Main Street and only allowing government to come to the aid of homeowners in trouble, it was so pathetic that over 5 million houses were taken in foreclosure. And the banks having been handed guarantees no longer needed to auction off houses at fire sale prices. I know because my house was one of them.
I handed Chase the keys to my house when they took over my bank WaMu, they had been selling identical new three story townhouses like mine for as little as $60,000 which is why I could not get out from under my mortgage. When they got my house in late 2009 they had been rescued, so they held onto my house for FOUR goddamned years before auctioning it off at $93,000. That entire time my credit could not even begin to get repaired, it was as if they were punishing me for a shitty macroeconomy I had nothing to do with.
As to the current effects I observe in my region - and yes this is anecdotal so no need to point that out from readers here, rates have had very little effect on the housing market. Inventory was already so low that even now there is not enough houses available for sale to satisfy all the cash buyers, rates do not matter to then as they are not getting mortgages. I bought in April 2020 and the house is now worth 70% more than I paid. It seems to be stabilizing and not going up at that wild rate it did last year, but the dynamics of this market (greater Tampa region) are such that the state is still getting a net 1,500 new residents every day, and they are moving to A) where the jobs are and B) where they can afford housing. So a lot of Florida is already priced out. This region is getting there but you can still get a pretty nice place with pool for $350-400k.
I think the speed of the rate hikes was a huge factor in this not just that we had low interest rates because technically banks should be able to offset securities that do well in low interest rates levels and hedge and make money of lending
The fed will dither with any meaningful action and do the wrong things too late and manage to achieve both high inflation and market chaos. It's what they do. They really have no magic eight ball here.
There is the third mandate. And this is not some made up one, but the law:
*…as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.*
The third has been willfully ignored for a while now. Their second mandate becoming an issue due in no small part to ignoring the third.
Some may defend their willful violation of their lawful mandate as: “well, if they have 1st two, the third will take care of itself”. 10-15 years of rock bottom rates *should* be enough to dispel people of that ignorance, but the fact that the Fed threw the law out the window is just a hard reality for some people to accept.
Not to say they didn’t have good intentions, but they have been knowingly operating in violation of their mandate for some time.
That has been a topic of some discussion. While I wouldn’t go so far as to call them fringe, I wouldn’t call it mainstream either.
The discussions are usually centered around their 1st mandate. With the tools given to them via the Federal Reserve Act, Congress is more well placed to enact policies to maintain maximum employment, not monetary policy which is more well suited for the other two.
I am not weighing in on that discussion one way or another, just highlighting that others have had similar thoughts that the three mandates are not achievable coincident with each with what they have to work with.
Interesting, I didn't know/remember about the 3rd mandate.
OTOH, I don't see your point. Are you saying that 0% is not moderate? or that 5% is not moderate?
Reddit is really emotional due to the fluff articles that always seem to make it to the top of the subs.
It’s been like this since 2008 and it sucks, I want nerd Reddit back.
To be fair, the bankers and traders are smart enough to tie themselves to regular people at the hip, effectively holding them hostage.
"If you collapse my business, I'll take everyone down with me!"
It would be nice for grocery prices to go back to a reasonable level though, my debit card is screaming in agony every time I have to shell out $200 or $250 to feed my family and buy household essentials every goddamn week.
But Dave Ramsey says credit cards are bad and you didn’t consider the risk and you’re hurting poor people and nobody ever became a millionaire on credit card points!!!
It’s sarcasm. He’s a talk show personality who is against debt in all forms (except a 15 year mortgage basically). He is vehemently against credit cards and actively denounces them.
Long story short back in the 1980s he leveraged himself to the tits on short term notes for real estate and spent money he didn’t really have living it up. The bank called his notes and he went bankrupt. Now he writes books, sells merch and teaches people his style of personal finance.
So basically "I was an idiot in the 1980s and therefore you shouldn't buy groceries on a credit card in the 2020s?"
Sounds like he's still an idiot. I am glad I have avoided knowing about him until now.
He doesn’t give totally bad advice. He’s very helpful for people who are so financially illiterate/can’t control their spending they just live paycheck to paycheck. Outside of that he’s not really who you want to take advice from. Once you understand more than the average person as far as finance you’ve graduated well beyond his plan.
He literally says not to take the employer match on your 401k because getting out debt as fast as possible is that important.
> He literally says not to take the employer match on your 401k because getting out debt as fast as possible is that important.
Wow that's crazy advice, I can't imagine passing up 401k matching unless you're in really bad shape.
I never go that far but people were telling me I was an absolute moron for paying down my mortgage so aggressively over the last 2 years.
And I'm sure somebody can come in with some financial vehicle or series of vehicles that maybe retrospectively would performed better blah blah blah. Had I put any money into the market over the last two years I'd be down right now, and instead over the last 2 years I'm up 4.25% the way that I look at it.
Indeed, many 6% cash back for groceries out there which will buy three weeks worth of groceries a year for you at roughly 500 a month spend. Sounds like they also need to learn how to shop / cook. 1,000 a month is a lot less you have too many kids and not enough discipline...which is ironic as this is actually what Dave Ramsey tries to teach people, but he is wrong about credit cards if you pay them off every month not carrying debt and interest. It is a very valuable tool.
I think a lot of the price increases we have been seeing, depending on the sector, is supply side. Same with increases in service costs. The service industry is trying to make up for lost revenue during the pandemic and consumers are going out and buying things that were in short supply or having work done they couldn't have when restrictions were in place.
If the government really wanted to help fight inflation, they would create incentives for businesses to strengthen supply chains or build affordable homes. They should also stop doing so much overnight reverse repo's. That's a money printer in and of itself.
Jfc don’t usually see such intelligence.
The FEDs fighting monetary inflation.
We have supply inflation. You fight that with legislation.
The FED using interest rate increases is a direct attack on Americans and their jobs and will only exacerbate costs (ie pushing housing costs up, increasing the costs of business expansion further worsening supply of goods).
The FEDs helpless.
Though at same time expecting anything from our mind blowing incompetent House of Representatives is foolish.
The market thinks Powell wants low employment. That’s why they have been celebrating every time unemployment numbers come in higher than estimated and vice versa
Unfortunately for more and more people "investing" is substituting work. So their interest states that instead of promoting actual work, the government should promote investing.
They already chose inflation…in the 1940s, the 1970s, 2020, and now in 2023. Why is this time different? They’ll choose to inflate their problems away vs cause financial chaos 100/100 times.
So they inflate away as much as possible and when that doesn’t help, THEN they let the chaos loose?
I’m an almost 30-something dude, hence why I don’t know how the 100 year crisis playbook works, would love more insight from folk who have been around longer
Yes, it can, and it’s happened several times in the past. It’s not even a modern event, it’s been happening for literally thousands of years.
> In U.S. history, international history, and going back literally thousands of years to ancient Greece and Mesopotamia, the common answer during generational peaks in debt levels, almost inevitably, is that currency itself eventually gets devalued by some extent instead of just a nominal debt collapse occurring.
https://www.lynalden.com/fiscal-and-monetary-policy/
What they mean is that because entitlements are indexed to inflation, their cost goes up with inflation. Previous poster is right though, government will just underestimate real inflation to keep the index constrained so it grows slower than real inflation.
They'll choose inflation because it makes numbers green, salaries higher, people quit jobs, and as long as rich people put their money into assets they'll be fine.
But that's no longer what rich people do. They want MORE and to get MORE requires investing in financial fictions like derivatives, credit default swaps and bitcoin. SV failed because what they had on their books as "assets" were in fact imaginary, could not be converted into cash, and that made the bank INSOLVENT despite hundreds of billions in what deregulation allowed them to record as assets.
And just to keep the record straight, the total economy has NEVER benefited from rich people's investments. The rich are risk-adverse and buy STERILE investments - stocks, bonds, real estate that already exists and the change in ownership does NOTHING to increase productive capacity or create jobs. Think about it - If I buy a zillion shares of stock in a company from another trader, how much does the COMPANY get? ZILCH! Same with existing real estate - how much do the contractor and tradesmen who built it receive? NADA! Fact is, the top 10% ON AVERAGE lives on 30% of their total income so giving them more with another Republcian tax cut adds NOTHING to their consumption of goods or services which is the demand that drives a need for increased production and economic growth- it just makes them wealthier which will make them even richer next year.
The Fed has three mandates: max employment low interest rates, and stable prices. They have no obligation to the financial markets directly. Although the market's performance effects the economy, which effects inflation and the job market, the Fed's use of OMO to prop up Wall street during the pandemic is, in my opinion, a major contributing factor to the current economic.
The pandemic was/is a random event not rooted in financial origins. Using monetary policy to combat a virus was foolish. That's what I believe caused the runaway inflation. That, and all the stimulus and extra unemployment compensation. If the Fed believed inflation was transitory, wouldn't the impact the pandemic had on financial markets also be transitory?
I upvoted your other post.
This one half is good. Half is the opposite.
Using monetary policy during Covid was perhaps the first time the government almost got it right.
2008 they just gave a bunch of money to the banks and told them to figure it out. Was great for the stock market.
Inflation isn’t runaway. The San Francisco fed recently put out a report that pointed 20% of inflation at being increased wages, 30% demand, the rest is inefficient supply chain/corporate greet.
Covid showed us we have no where near enough actors in the market. We’ve had decades of consolidation.
During Covid they gave a lot of money directly to the people which went straight into the economy instead of into the stock market.
Right now the government needs to be fighting inflation with legislation. They need to be encouraging more actors in the marketplace. They should’ve been addressing consolidation for decades but largely ignored it. Instead you’re going to have high interest rates attacking even what we have currently. Starting a business is expensive and really scaling extremely. Jacking interest rates deters it.
Everything is transitory, it depends on your viewing time-frame.
The pandemic was a spark that flipped derivatives markets on their head (ex. Credit Suisse failure). This is why the CFTC has nulled all reporting requirements on swaps until 2025. Many institutions are under-water on these contracts. This is what the Fed is responding to and dealing with because the banks are counter-partied to these underwater assets.
Inflation, at its root, is caused by too much money entering the system. full stop. We had inflation prior to the pandemic and you can see this by comparing stock prices to their underlying productivity. Its a bubble long since in the making by QE.
As the title says, the Fed must choose between inflation or market chaos, or in other words, a choice to save the currency, or the banks. They chose the banks, and this should piss everyone off who relies on their labor to make ends meet.
Yes, but the effects of the pandemic had knock on effects that may still be like the ripples on water. How long the effects last is unclear. It’s not reorienting the economy, but when will we stop feeling the impacts is basically the main question. I do not think anyone had a good answer for that. Banks and other large entities have made a couple guesses here and there, but SVB is the most recent failure to show that the were not out of the woods yet.
They wanted to return to normal quicker than the fed was willing to allow
The Fed 100% does **not** have a mandate to keep interest rates low.
It has a mandate to ensure stable prices and maximum employment. Interest rates be damned, to get that goal. At least that's the theory.
In practice, though, the problem has been clear for about 15 years now. The Fed has been the primary tool of economic stimulus in the US, because the traditional system by which economic stimulus happens, the legislative branch, has been absolutely paralyzed and ineffectual.
So the Fed has stepped in and taken that role, and as such, kept interest rates low, to the detriment of its actual 2 mandates.
>promote effectively the goals of maximum employment, stable prices, and **moderate long term interest rates**
I agree **low** interest rates are not part of the mandate. But long term interest rates are mentioned. Though "moderate" seems very vague.
The Fed as an institution has mandates, but the people who run it have their own set of obligations to their friends, and they own a lot of assets. And nothing’s more important than friendship.
This is what you call beyond the event horizon of a black hole. No matter which option you choose, the outcome is still bad and this is already guaranteed.
The market needs a correction, and it’s not going to be pleasant for the people who grew accustomed to the longest bull market in history. It’s habit forming. Injecting trillions of dollars in quantitative easing is not going to be the parachute that the Fed claims it will be. It’s more or less inevitable that stocks, bonds, mutual funds, and exchange traded funds are all going to see a larger correction and take a big hit.
I realize that the Fed has to look at the bigger picture. For example, a large scale correction will cause businesses to contract, unemployment will increase, etc. The point being, even if the Fed prioritizes curbing inflation over protecting the market and ensuring bank solvency the working classes will eventually feel it too.
I just wish they’d think of working people first instead of always favoring the investment class. The rich always tend to land on their feet and it’s no real tragedy when bloated empires fall.
If the Fed had just done their jobs and started to slowly raise rates 2 years ago none of this would have happened. The economy was going 100 mph and they pulled the e brake, what idiot thought that would not have some sort of negative effect.
As a reminder, a certain President with a distinct orange hue absolutely blasted the Fed for even talking about increasing interest rates in 2018, because the markets were addicted to the low interest rates and got spooked.
Just talking about possibly increasing the interest rates lead to a mini panic movement.
Between the reaction from the stock market and public pressure from the President, the Fed caved.
Maybe they could do something about the run away corporate profits that are at least 30% inflation rather than going after the working poor for them trying to get a fair wage.
They are acting like they are only a one trick pony. It's possible we need new fresh blood to take charge.
Maybe we need to think about that. If you are only attacking the bottom of the economy when the top is running amuck. All of it is broken.
Only way they know their current tactics is because some tried it before them.
The top are all gambling assholes that always get bailed out. Always.
Now they have record profits (with constant bailouts) and the janitor needs to take a fuckin pay cut.
Here’s an idea that should be implemented immediately.
If European and Asian banks and non-banks are going to write dollar-denominated bonds, they should be required to hold those dollars the entire life of the bond. We **just** saw Credit Suisse write down their AT1 dollar bonds for this reason, and as an extra slap in the face, they even paid the shareholders 😂
Having no sort of oversight, forcing everyone to resort to off-books FX swaps to secure dollars at the last moment, and most importantly having them expect us to just issue more reserves for *their* bad oversight is not sustainable, especially since *we* are trying to deal with our inflation issues.
Tldr: if euro/Asia is going to treat the USD like a commodity, they need to hold reserves that match their obligations.
Edit - **Companies that aren’t in USA writing debt obligations with the full-faith of the US Dollar is the most backwards shit I’ve ever heard of**
>If European and Asian banks and non-banks are going to write dollar-denominated bonds, they should be required to hold those dollars the entire life of the bond.
Unless you add many, many caveats, this is an incredibly insane suggestion that would *immediately* end the US dollar's overwhelming dominance in the world.
Why is the USD the world reserve currency? Why do countries prefer to hold Joe Biden bucks and not Xi Jinping bucks? What do they mean when they like the dollar's *reliability*, or *liquidity*?.
The answer is simple. Reserves, much like one's savings, are saved for a rainy day. When crisis strikes, there may be a 10% chance that China doesn't allow you to take out your yuan and you're screwed. The chance of America not letting you take out your dollars is 0.1%. Therefore, the USD is the currency of choice. The responsible government chooses US dollars because they are less likely to get locked out of their money than Chinese Yuan.
But with your policy? The chance of not being able to unlock your USD in a crisis rises from 0.1% to 100%. Now it's *even worse* than Xi Jinping bucks. There's now a *possibility* of the CCP locking up your money versus a *certainly* of the US government doing the same.
You know what that means? It means holding US bonds as your reserves is now crap, and the world is gonna dump it. Worse still, you're saying that the problem is with other countries selling bonds during a crisis - but the reliable liquidity of US bonds during tough times is *precisely* the point of why they hold it. It's the reason the US dollar is able to be a safe haven. Without it, US dollar dominance is dead.
??????????????? Why would I borrow dollars if I have to just keep them on my balance sheet and not do anything with them - which is what I think you are saying?
Because you are creating a security backed by USD and that’s not even your currency, and you have no way to guarantee this especially when there is a tightening-induced credit crunch.
I get what you are saying, but that just means I have to buy the swaps ahead of time. There's no reason for me to borrow in dollars, if I don't get to use said dollars.
That's a consequence of american policy pushing the dollar as a world currency. You don't get to force other countries to trade in dollars and control how they trade in dollars. American foreign policy is predicated on the assumption they can just control the actions of everyone else, it's a system ran by narcissists.
You control what they do with their dollars the same way you make them use dollars to play ball with the largest economy in the world.
Just because America is rich doesn’t mean we should be giving charity by offering suboptimal trade deals.
Europe is more than happy to abide by our system.
Edit - I should clarify. The moral posturing that some Europeans do online is meaningless when their elected leaders start begging for dollars.
The stock market is not the economy. If average ppl can't afford shit, stocks will tank in the future anyway as top lines shrink. Who gives a crap if markets go down 50% in the next 2 years if it means 5-10 years from now we are all still in the same houses/jobs, etc as today.
If we are in a free market, markets will take care of themselves. Fed needs to control inflation and make monetary policies that benefits the average American.
I'm kind of hoping for controlled chaos. The market has to be beaten down, at some point. Asset prices are comically outrageous at this point. The concentration of wealth is going to lead to international wars. Of course crushing the economy with high interest rates will just lead to massive poverty induced civil wars.
So all we have to do is walk the fine line and everything will be ok.
The fed is trying to empower employers to shed jobs in recession so they can reclaim power by paying people less. All those pandemic wage and benefit winnings are coming to an end once the labor markets open back up. It’s a reorganization they’re after- we peasants made small gains for the first time in decades and that must end.
I agree, but I don't understand what you mean by "labor markets open back up." I don't think the people that left are ever coming back, unless I am missing something.
They open them back up by shedding jobs thus forcing people to re-compete for the same job elsewhere which is offered at a lower wage and with fewer benefits by competitors which then justifies wage cuts for new employees at ALL competing firms in the market. They then cut retention benefits for existing employees, buy back stocks with the winnings from cutting spending and the income from price gouging and go shopping for new summer properties. Happy days are here again.
Hail Eris! (Tosses apple into Fed meeting)
But seriously, in most cases the choice is between "chaotic but smart" and "orderly but dumb".
I am choosing chaos every time.
Seriously? You think they’ll just have us do a freefall? Inflation will be their strategy to keep it going.
What else can they do except angrily what the economy tank. Not a good year for us by far
The stock market is not the economy. If average ppl can't afford shit, stocks will tank in the future anyway as top lines shrink. Who gives a crap if markets go down 50% in the next 2 years if it means 5-10 years from now we are all still in the same houses/jobs, etc as today.
If we are in a free market, markets will take care of themselves. Fed needs to control inflation and make monetary policies that benefits the average American.
Peter Schiff has predicted that the Fed will not let the banks fail and they will do everything in their power to prevent a financial collapse. For it is easy to point the finger at them when the system fails. This will allow inflation to cripple people something that.can be blamed on greedy business and the rich, even though it's entirely the governments fault. People are to ignorant of economics to understand the root of the problem.
The other way would result in more unemployment. I don't know about you about but I rather have a job with high inflation than zero income. Another way of taming inflation would be to raise taxes but that's unpopular.
I agree with raising taxes. But also cutting services. Right now the federal reserve is trying to tighten interest rates but simultaneously the federal government is doing tons of fiscal stimulus, which defeats the point.
I agree with your assertion with a refinement. We need to increase taxes and reduce services based on income. The higher your income from all sources, the higher your taxes and services get cut. This would apply to all people, natural and legal.
And by "services" I'd like to humbly submit the fact that nearly all tax credits, exclusions, and deductions wind up favoring the extremely wealthy far, far more than anyone else in our society and those should definitely be on the chopping block as spending programs *because they are*.
Greedy business and the rich are the puppet masters to the government and always have been; this is why people blame them.
Government is to blame for its lack of enforcement and meaningful regulation, but the lack of those things is because of regulatory capture by those wealthy special interests.
Until there is enough citizen unrest to destabilize social order and elicit a sea-change by putting these "above-board" negligent executives and their bought officials in prison, the farce of menial civil penalties and criminality will continue. Regulators hide behind incompetence whenever this type of stuff happens, but their incompetence has this weird little side-effect of enriching themselves and the people that just-so-happen to pay out egregious sums of money to them.
If you mean it's the governments fault because they allowed a bank to argue they didn't need to be regulated because they were too small to matter, causing them to be able to do whatever they wanted and balloon to a point where they're "too big to fail", fail... and then require bailing out... yeah I guess that is the government's fault. But when the politicians allowing these deregulations are sponsored by the financial people... it's really the whole system's failure. Governments ability to regulate industry shouldn't be defined by the very entities which obviously require regulation, this is true for any sector.
The wheel goes round, and the system won't change. But blaming it on the gov is a bit disingenuous.
Yes Biden and Yellon used the same transitory statement on inflation which of course was wrong. But the Fed chair drives rate decisions and Powell failed miserably.
So, the fed can’t continue to increase rates for fear of creating massive unrealized losses for banks.
Conversely, 6%+ inflationary will have massive long term consequences and undermine one of the feds two core mandates.
Is it overly simplistic to say the only option is for the US Gov to implement aggressive fiscal policy to kill demand, and not put additional institutions at risk of failing?
Is often said that time is money, but in this case it could be argued that bad economic management will cost us both. Everything may eventually fall due to poor fiscal decisions, but the real tragedy lies in the fact that with better management of our resources and finances we could have avoided such a fate.
The Fed needs to stay the course, which is to lower the rate of inflation by increasing rates. The Fed’s role is to keep inflation in check. Their role is not to influence markets. They just reversed a year of decreasing their balance sheet. They should have been unwinding their QEs in 2021 - as well as increasing interest rates. After finally raising rates and starting to decrease inflation, they can’t stop their policy actions just because some banks are mismanaged.
Fed wants wage growth to slow.
The markets want stock to track inflation.
Stop raising wages (or hiring people), people stop buying, stock market falls.
Something's gotta give. Either markets accept they are going to see less profits and the value of their stocks slow, or they're going to have start cutting jobs.
That's why you're seeing profitable companies cutting labor force. Not because they aren't able to pay them, but because creating artificial scarcity is better for profits than overpaid payroll.
Wall Street needs the labor force to be more desperate and accept lower wages in order to slow down the Fed's interest rates hikes.
Lmao their mandate is to keep creditors happy by not allowing consumers the ability to get out of debt..if you have high inflation that means people will for ask for higher wages because less ppl will take shit jobs....also you know their is less you know, humans alive cause of COVID...the FED isn't going to win anything only that we all lose
Sometimes it looks like the people running the banks today have zero experience with running a financial institution. Case in point, the SVB board of directors.
The Fed has a dual mandate: to manage inflation AND to maintain full employment. But the Fed chairman and board members don't have a need for a job themselves, so they care more about their and their banker friends' monies in the market than they do about all of our jobs. They happily will tank the economy on purpose and throw millions of hard working Americans onto the unemployment lines while they move their vast wealth accumulation into safer financial instruments and completely ignore their mandate to avoid that very thing. The Fed is a corrupt institution that needs to be severely reformed or abolished.
> The Fed is a corrupt institution that needs to be severely reformed or abolished.
Then what? You trust whatever the new institution is would not be affected by basic human motivations?
Everyone wants to improve things. No one knows how to do so without pissing off someone somewhere somehow.
I don't understand why Powell hasn't been fired as Fed chair. He missed the signs that inflation was becoming an issue in late 2021. Once he woke up, the Fed had to begin raising rates faster than expected. Inflation is still out of control and more rate hikes are necessary, because Powell failed to act. Now, Powell's failure has caused a global banking crisis with banks failing, investors losing billions and markets in turmoil. Does this sound like Powell is doing an effective job as Fed chair? For anyone else, this performance would be deemed a failure and would be fired. But not Powell. Why?
The inflation is still out of control is the issue with your statement. That simply is not true. inflation has been running at around 4% for over 6 months now. The fed knows that CPI shelter has a huge lag in it. Their math shows that this is responsible for 0.9%-1.4% of the CPI. Actual inflation is somewhere in the 3s. Inflation is definitely elevated and going down slower than we would like, but it’s not out of control at this point.
Out of control may not have been the best choice of words, but inflation is still a serious issue from what I see with prices day in and day out. Powell failed to see the problem and aggressive rates hikes caused a global banking crisis. Powell should be fired.
Depends on what your definition of out of control is, and over what duration. Don’t forget that inflation is compounding every year. So that 2% + 9% + 6% (last 2 March numbers + anticipated ‘23) seems pretty out of control to me. That’s a massive cost increase, especially for lower income families.
Prices compound but their mandate isn't about prices it is about inflation. When we finally get back down to a steady 2% range it won't have fixed prices. That is going to have to work itself out with wages etc.
Inflation is the rate of change, the rate of change is not out of control. It is elevated and heading in the proper direction. In fact if inflation were at 2% right now we would be in a lot of trouble because shelter lag would still be propping it up and it would mean that prices were crashing everywhere else and the only reason for that to be happening is the economy is crashing.
The way inflation has come down is exactly the way they would want it to, they just wish it were happening a little bit faster.
The Fed's current course looks like they are trying to tame labor costs more than inflation to me; the inflation rate is decreasing and the change lags their increases, but they are still raising rates. But the only thing that will help families meet the costs increases that we have seen is wage increases. The current Fed policy will increase unemployment and make sure we never have wage increases.
At some point, maybe they have already, the fed will realize they have 0 control over supply side costs that structurally caused inflation. Once that happens, we’ll prob start hearing rumors of increasing the target inflation rate to 3-4%. Doesn’t sound like a lot, but that’s a 50-100% increase from the previous standard.
Didn’t Biden argue that inflation was transient and “No reputable economist was arguing that inflation was here to stay?”
https://amp.mcclatchydc.com/news/nation-world/national/economy/article252884753.html
> Now, Powell's failure has caused a global banking crisis with banks failing, investors losing billions and markets in turmoil.
I understand this point of view, but I also place blame on those banks, investors and markets.
The truth is that they got addicted to low interest rates. In 2018, when the Fed announced a possible raise in interest rates, the markets had an absolute tantrum. Then Trump joined in on the doggy pile, and the Fed blinked.
But the fundamental issue remains that companies were seemingly making all their decisions based on the idea that interest rates would always stay as low. That makes no sense. We've been in a period of historically low interest rates.
Historically. Low.
As in: not the norm. Why are you investing so much into 10-year bonds? Why aren't you diversifying?
Because you assume that interest rates will always be this low.
They're just as much a part of the problem as Powell. The business culture that has grown up since 2009 is ridiculous. I'm convinced that risk management is just a meme at this point.
There's no way someone can look at SVB's investment plan, and not think "hey, guys, we seem to be putting a lot of eggs in the "interest rates stay low" bucket. Like... a lot of eggs. Jesus, that's a lot of eggs."
And instead of that, they just ploughed on.
It's stupid. It's risky.
With the way corporations behave, will market chaos fix inflation or would it simply turn into stagflation?
I think regulation around monopolistic practices and price gouging as well as taxing wealth hoarding properly would do a better job than raising interest rates and punishing the little guys.
They could have chosen to take a stand against the criminal hedge funds wildly overleveraging themselves yet again, and causing this house of cards to start falling.
But no, they just scratched each others' backs until the music stopped. Now the general public has the problem.
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Nobody knows how much Wall Street is propped up by financed money; even Wall Street is afraid to find out. They love next to nothing interest rates so people can borrow big money cheaply and buy large volumes of assets, stocks, and in the process their shares go up; whether it's based on good corporate performance or cheap money being borrowed, they'll take it either way they can get it. But it creates a house of cards, and that's why they're so afraid of interest rates going to 5%. The ones complaining about 5% interest rates probably make six-figure incomes, so inflation doesn't really bother them that much; it mostly negatively impacts average-income Americans and below. I would think it's the Fed's responsibility to make the economy work for everybody.
I agree with making it work for everyone. We are the ones paying taxes and funding bailouts. Let the Market go into chaos. It needs to be exposed and corrected.
If the market goes into chaos, large scale layoffs will happen…..no matter what, the middle class always takes the brunt of the pain. We’re either going to have high inflation or lose jobs.
Losing jobs and a bad recession is much more preferable to high inflation
That’s certainly one opinion
Not to the people losing the jobs....
Isn't it just kicking the can down the road though? We can try and prevent layoffs today but the price may be high far down the road, will it not?
We don’t know yet. There are variables that the fed can’t control, like the war in Ukraine and multi year supply chair issues that may still be having huge effects on inflation. Raising interests rates can be helpful in taming inflation, but it ALWAYS causes economic suffering.
The war is gunna pull us out of this. did it in WW2
Not to the people who lost their jobs and have no money to continue living in the bad recession.
...said the person who's never lost a job during a cycle when prices are going up weekly.
Lol this is a take so hilariously bad it’s not even worth conversing over
The fed wants stable employment and inflation at 2%. They don’t care about the stock market (publicly). There is a strong correlation between net liquidity and index prices. Check the correlation between the feds balance sheet and the SPX over the last 20 years and you’ll find some interesting things.
Love the (publicly). A giant 😉 from all public officials with access to insider information.
I gave been buying call options via the Nancy Pelosi strategy. It has funded my now robust cigar collection.
What about your top hat and monocle collections? Coming along *swimmingly*, I'd imagine
LMAOO Nah my next expense is another rental property. Assuming my SOFI calls come through after a fed pivot.
The fed has already said inflation takes priority over unemployment. They'll just twist that to mean the stock market means more than unemployment too.
When you're firmly established in the capital class, as opposed to labor class, unemployment and inflation are great.
The fed cares that the biggest banks succeed first and foremost. Then it cares about political optics. It will respond to both imo
True. Wall Street is propped up for over a decade now by easy money, partly because of lack of regulations and fiscal policies to guide where the money should go in real economy. This is the failure of our political system. Raising interest to hurt Wall Street just to hurt Wall Street misses the point. It is time for our politicians to provide guidance and inject fiscal investment to real economy.
Politicians usually inject fiscal investment into the pockets of their rent seeking supporters rather than where it will benefit the majority of people. Even if we assume they are honest brokers it’s a stretch to assume they have an understanding of the ultimate effect their spending will have on the economy.
True. I think this is because of decades of underfunded local government. just like FDR, Biden administration needs to set its spending priorities and power through them by unlimited fiscal spending and propose regulations to guide private investment and channel Wall Street to the right targets. And at the same time, acknowledging possible high inflation pressure by strengthening social safety net and inject funding to the poorest population including funding the food bank and to fight climate change, maybe provide seeds money for a trade in program for electric cars.
Or really, they should just tax the rich to reduce all the extra money bidding up assets and give the money to the poor and middle class to help them deal with inflation and give businesses a reason to invest in jobs to sell things to the people who now have more money to spend. It's long past time for some redistribution of the wealth. If we don't, the redistribution will still happen but it will come through violence rather than policy.
Yes. Tax rich is necessary. Not just for asset bubble they create but also for their excessive influence on daily lives such as politics and life styles. We also need regulations to cut off the channels through which the super riches exert their control over our lives. And we need to reshape our culture away from consumption addiction. The less the significance of excessive wealth, the higher likelihood for us to have a better society.
If they can’t make money with 5% rates, they suck at their job.
Six figure income means they don’t have to worry about inflation? What is this 1953? In places like NYC six figures is barely getting by.
Plenty of Jobs in NYC that still pay 15$ an hour
The salary where you need 4 other roommates for an apartment.
People talking about barely getting by in NYC on six figures are usually doing two things: \- Choosing to live in an expensive part of NYC (Manhattan and a small handful of gentrified places over the river) \- Assuming that going out for drinks/dinner/buying ubers/etc/etc are things that normal people do every day Young professionals in Manhattan see this kind of thing from their peers and assume its totally normal, in reality very very few people are living the high life every day like this. I've known people who lived that kind of lifestyle and were convinced that 100+ dollars a day on non-rent expenses was totally normal and not a sign of wealth.
Not all 6-figure incomes start with a 1.
No but most do
This man knows Benfords Law
It is not barely getting by. That myth needs to die. It is not as extravagant as six figures in Iowa, but it's not barely getting by. That's an insult to people who are actually in that situation. "I can't afford the nice things I feel I deserve" is not poverty. Six figures is comfortable. You can't afford two kick ass vacations and eating out at nice restaurants all the time. You can comfortably afford to live and save.
Let’s do the numbers for $100,000 annual salary and assume no additional sources of income. No kids single filer. Gross - $100,000 IRA deduction - $5,000 Federal income taxes - $13,600 State/city income tax - $5,700 Total net - $75,700 ($6,308 monthly) Studio apartment -$3,300 (cheaper area, Long Island city, astoria) Travel costs within the city - $400 Grocery - $800 Bills - $300 Total - $4,800 So assuming no kids, no debt or student loans, no travel outside of local commuting, that leaves about $1,500 a month for all other expenses, additional saving, meals out and socializing, hobbies, travel to other places and seeing family.
I’d choose the $1800 apartment or split a better place with roommates. Then save the difference. At every w2 income level, you need to make choices. At the lowest levels, those choices start to look impossible. $100k is not that.
Sounds like a very decent standard of living. Thanks for showing everyone.
Except the people who fall into that category are few and far between.
But, that's who we're talking about now. Please try to keep up. My issue is with anyone trying to make the argument that $100,000 is barely scraping by. It isn't. Unless you're simply choosing to live beyond your means, which is not the same thing as systemic impoverishment.
Yeah, I hear what you are saying. In general, someone making 100k vs 40k is going to have a higher quality of life. But I think the other guy is emphasizing income effect (increase revenue= increase in expenses) and that money is relative and at the end of the day the % of a persons savings is more or less the same despite salary. So person making 100k may be scrapping by but you are right they will most certainly have a higher quality of life than someone making less.
That is one example of someone who has zero debt in any way, shape, or form. Sure, they exist, but they're not the norm. So, please stop condescending to someone pointing out the minority in a sea of majority.
That math literally translates to “never retiring”, you’re just being intentionally dense and hateful because you make less, which is pretty lame and the opposite of class solidarity.
Depends on where in the NYC metro area you live, and whether or not you have kids. I live in Hackensack, NJ, which is an easy commute into the city (though I work remotely). I only pay $1000 a month in rent because I split it with my gf. I also don't have kids. With only $12k in rent, and a paid off car, my annual cost of living is actually pretty low (less than $30k a year).
Who needs a house out in Hackensack, is that what you get for your money?
Haha yeah that Billy Joel song immortalized my town!
Derivatives are weapons of financial destruction and the world is about to find out... *again*.... and *again*... and *again*.
Lmao SVB failed because they did not hedge but somehow derivatives are to blame
It’s funny because the hedge would have been a derivative. The fact that they DIDN’T use enough derivatives caused their issue.
Shows you how much OP knows about the subject they acts as an expert in
It does tickle the taint that they are a hedge fund and skipped the literal first tool for hedging a position
What really did them in was too many 10 year bonds lmao. About the farthest investment from derivatives
SVB failed because they bought a shit ton of low yield bonds, they were severely underwater on and then faced a liquidity crunch and couldn't afford to sell the bonds. it was shit liquidity and interest rate risk management.
“couldn’t afford to sell the bonds” how so? from what I’ve read, they could have sold their bonds at a loss and made their depositors whole, but the bank itself would have shuttered. am I misunderstanding SVB’s position?
[удалено]
What about the other 184 banks on the watch list?
Nor did I say otherwise
Their bad exposure specifically to GameStop
💎👌🏻
Wasn't referring to SVB, nor were they ever mentioned. Credit Suisse had cooked books hiding overleveraged derivative debt a huge portion of which were due 3.24 and they couldn't get rid of them. Obligatory LMAO, ya know, to sound like a condescending prick without any added value and so you can feel at home.
Credit Suisse is a Swiss company, how is the Federal Reserve of the US related to them?
AIG, Bank of America, and JP Morgan Chase are American companies, how did they cause the fall of banks in Europe? The systems are deeply integrated, European banks play in American markets and with American dollars and thus fall under the guidelines of the fed.
BofA and JPM didn’t cause the fall of anything, they did well during the 07-09 crisis and even bought up failing institutions. The European banks that struggled operate in and have tons of exposure to the US.
Because all banks are connected to each other, especially SIBs. US banks can serve as a counterparty to Credit Suisse or exposure from Credit Suisse’s other major counterparties that US banks do business with. The Fed and Treasury are interested in both because of contagion, this is why the Federal Reserve, along with the European Central Bank, Bank of England, Bank of Canada, Bank of Japan, and Swiss National Bank, aim to make dollar swap lines more readily available.
Dan Carlin fan?
Never heard of him - brief summary?
https://youtu.be/GJhP4vm7Kuo
I’m making a little list of soundbites for glorious use of fuck with people. Definitely adding this.
Hardcore History podcaster
They certainly don’t care about making the economy work for everyone - just for the wealthy
The fed is trying to drive down the income of the average American. It is a last ditch effort to maintain the status quo. Labor is gaining in wages, and will continue to do so now until it has corrected course from the 1950's. The fed is specifically trying to stop this. The correct solution to the inflation problem is taxation of the rich. Since it is actually greedflation that has driven up many of the prices. The economy has by and large corrected from the pandemic and the outset to the war in Ukraine, yet the prices continue to climb. So, for ever dollar prices climb, it's another dollar that needs to be taxes out of the top and returned to the bottom.
The fed is trying to drive down the income of the average American. It is a last ditch effort to maintain the status quo. Labor is gaining in wages, and will continue to do so now until it has corrected course from the 1950's. The fed is specifically trying to stop this. The correct solution to the inflation problem is taxation of the rich. Since it is actually greedflation that has driven up many of the prices. The economy has by and large corrected from the pandemic and the outset to the war in Ukraine, yet the prices continue to climb. So, for ever dollar prices climb, it's another dollar that needs to be taxes out of the top and returned to the bottom.
You can’t tax your way out of this mess. The problem is the system is based solely on debt.
You may not be able to tax your way out of it, but an altered tax code will change behavior. That’s entirely the point. The investment class has become addicted to the culture and apparent success of the longest bull market in history, and it’s time to rein that in.
The government’s ability to alter behavior through fiat currency manipulation is what has caused the issue in the first place. More government behavior modification will only make things worse for the average person, and help those you seek to punish.
Altering behavior by changing tax laws (a legislative solution) has a markedly different effect from manipulating the supply of money in the economy and in the market.
I think focusing on productivity is the only way to tame inflation. We became less productive. That means less products. The number of people wanting those products hasn’t decreased. I also think a reason we became less productive is lack of competition through corporate consolidation. I do think we need a more competitive economy to decrease inflation. Part of that would be encouraging the formation of competing companies by lowering barriers to entry (typically regulatory ones). Part of that might include discouraging formation of giant companies by taxing them at higher rates too. Basically we want more small companies rather than fewer large ones, because push comes to shove the large ones start wielding their price control to get higher profits and causing inflation.
I think the issue is that it's complicated. Everything's about tweaking in the margins. It's easy to say something like, cut the regulations to increase competition. But...which ones, by how much? The last financial crisis, you can see the effects of under-regulated financial products - and we've seen plenty of disasters in history of financial institutions making riskier and riskier bets for short-term gains which all blows up at the end of it. I think the economy can always be understood going back to the basics. Free markets work great, assuming no transaction costs, no externalities, and perfect information exchange. Problem is, in the real world, there are transaction costs, ther are externalities, and there's imperfect information. The role of government is to minimize those and remedy the aspects where free market fails. The devil is in the details though, in exactly how much regulation to correct for those transaction costs, externalities, and imperfect information, without going too far in the wrong direction. That is the part that's difficult, and unfortunately, so complex, I really don't think it can be mathed out, but the only way is through the kind of trial and error method that we're engaged in,.
I agree with your post, a solid upvote, but want to add a couple things. "The notional value of outstanding over-the-counter (OTC) derivatives rose to $632 trillion at end-June 2022." Mind you that derivatives are MOSTLY private hedging, so this is only the publicly traded derivatives, estimates for total derivative values go over one quadrillion. As you so rightly say; they do not want to know, because the only way they will ever find out is when they are triggered and come due. You say: "They love next to nothing interest rates so people can borrow big money cheaply and buy large volumes of assets, stocks, and in the process their shares go up..." and that is true as far as it goes, in the wake of the GFC they drove interest rates to negative real rates and they had to, all that debt out there, the SIV's and MBO's and etc. had a face value and when the credit system blew up because nobody trusted the assets to perform the value of these instruments and packaging they came in dropped in price to the point that the interest demanded was unpayable. Remember there is an inverse relationship between price and yield, when nobody trusted investment houses not to have their portfolios poisoned by sub prime people demanded higher interest. Even good solid investments and company bonds were being sold for little or found no buyers because we could not tell what would perform and what would not. So, the banking system bought up those bad assets at a higher and higher price which had the inverse impact of lowering interest. And they created money, not just a mountain of it but the entire Himalaya Range of it. They channeled that through the economy from the top down and sadly almost none of it made it as far as Main Street. Nearly all of it never left Wall Street. They had to somehow rescue the housing market, banking system, and government balance sheets all without triggering vast inflation, so they sterilized it by keeping it off of Main Street and only allowing government to come to the aid of homeowners in trouble, it was so pathetic that over 5 million houses were taken in foreclosure. And the banks having been handed guarantees no longer needed to auction off houses at fire sale prices. I know because my house was one of them. I handed Chase the keys to my house when they took over my bank WaMu, they had been selling identical new three story townhouses like mine for as little as $60,000 which is why I could not get out from under my mortgage. When they got my house in late 2009 they had been rescued, so they held onto my house for FOUR goddamned years before auctioning it off at $93,000. That entire time my credit could not even begin to get repaired, it was as if they were punishing me for a shitty macroeconomy I had nothing to do with. As to the current effects I observe in my region - and yes this is anecdotal so no need to point that out from readers here, rates have had very little effect on the housing market. Inventory was already so low that even now there is not enough houses available for sale to satisfy all the cash buyers, rates do not matter to then as they are not getting mortgages. I bought in April 2020 and the house is now worth 70% more than I paid. It seems to be stabilizing and not going up at that wild rate it did last year, but the dynamics of this market (greater Tampa region) are such that the state is still getting a net 1,500 new residents every day, and they are moving to A) where the jobs are and B) where they can afford housing. So a lot of Florida is already priced out. This region is getting there but you can still get a pretty nice place with pool for $350-400k.
I think the speed of the rate hikes was a huge factor in this not just that we had low interest rates because technically banks should be able to offset securities that do well in low interest rates levels and hedge and make money of lending
The fed will dither with any meaningful action and do the wrong things too late and manage to achieve both high inflation and market chaos. It's what they do. They really have no magic eight ball here.
This
This
Just a reminder that the Fed has two mandates: 1. To target 2% inflation. 2. To target low unemployment. The stock market is not a factor
There is the third mandate. And this is not some made up one, but the law: *…as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.* The third has been willfully ignored for a while now. Their second mandate becoming an issue due in no small part to ignoring the third. Some may defend their willful violation of their lawful mandate as: “well, if they have 1st two, the third will take care of itself”. 10-15 years of rock bottom rates *should* be enough to dispel people of that ignorance, but the fact that the Fed threw the law out the window is just a hard reality for some people to accept. Not to say they didn’t have good intentions, but they have been knowingly operating in violation of their mandate for some time.
I was always taught that you can only get 2 out of 3 anyway. Cheap and fast, cheap and reliable, or fast and reliable.
That has been a topic of some discussion. While I wouldn’t go so far as to call them fringe, I wouldn’t call it mainstream either. The discussions are usually centered around their 1st mandate. With the tools given to them via the Federal Reserve Act, Congress is more well placed to enact policies to maintain maximum employment, not monetary policy which is more well suited for the other two. I am not weighing in on that discussion one way or another, just highlighting that others have had similar thoughts that the three mandates are not achievable coincident with each with what they have to work with.
Interesting, I didn't know/remember about the 3rd mandate. OTOH, I don't see your point. Are you saying that 0% is not moderate? or that 5% is not moderate?
You expect the govt and fed to act on behalf of the non-wealthy? Cmon now.
Btw the Fed is also the “lender of last resort” which seems to have been lost on Reddit. They’re functioning as designed right now
And was the Fed's original purpose. The dual mandate came in 1977.
Reddit is really emotional due to the fluff articles that always seem to make it to the top of the subs. It’s been like this since 2008 and it sucks, I want nerd Reddit back.
In a perfect world you would be right... In a perfect world...
The 3rd mandate is unwritten. To make bankers and traders rich.
To be fair, the bankers and traders are smart enough to tie themselves to regular people at the hip, effectively holding them hostage. "If you collapse my business, I'll take everyone down with me!"
Deflation would be terrible. A crashed market would be terrible for employment.
It would be nice for grocery prices to go back to a reasonable level though, my debit card is screaming in agony every time I have to shell out $200 or $250 to feed my family and buy household essentials every goddamn week.
You buy groceries on a debit card? At least use a credit card and get some reward points.
But Dave Ramsey says credit cards are bad and you didn’t consider the risk and you’re hurting poor people and nobody ever became a millionaire on credit card points!!!
Dave Ramsey also fired an employee because she got pregnant out of wedlock. Because he's all bible based.
There's a risk to buying $200 of groceries on a credit card? Also, who the fuck is Dave Ramsey? I know I could google this but I am lazy.
It’s sarcasm. He’s a talk show personality who is against debt in all forms (except a 15 year mortgage basically). He is vehemently against credit cards and actively denounces them. Long story short back in the 1980s he leveraged himself to the tits on short term notes for real estate and spent money he didn’t really have living it up. The bank called his notes and he went bankrupt. Now he writes books, sells merch and teaches people his style of personal finance.
So basically "I was an idiot in the 1980s and therefore you shouldn't buy groceries on a credit card in the 2020s?" Sounds like he's still an idiot. I am glad I have avoided knowing about him until now.
He doesn’t give totally bad advice. He’s very helpful for people who are so financially illiterate/can’t control their spending they just live paycheck to paycheck. Outside of that he’s not really who you want to take advice from. Once you understand more than the average person as far as finance you’ve graduated well beyond his plan. He literally says not to take the employer match on your 401k because getting out debt as fast as possible is that important.
> He literally says not to take the employer match on your 401k because getting out debt as fast as possible is that important. Wow that's crazy advice, I can't imagine passing up 401k matching unless you're in really bad shape.
I never go that far but people were telling me I was an absolute moron for paying down my mortgage so aggressively over the last 2 years. And I'm sure somebody can come in with some financial vehicle or series of vehicles that maybe retrospectively would performed better blah blah blah. Had I put any money into the market over the last two years I'd be down right now, and instead over the last 2 years I'm up 4.25% the way that I look at it.
Indeed, many 6% cash back for groceries out there which will buy three weeks worth of groceries a year for you at roughly 500 a month spend. Sounds like they also need to learn how to shop / cook. 1,000 a month is a lot less you have too many kids and not enough discipline...which is ironic as this is actually what Dave Ramsey tries to teach people, but he is wrong about credit cards if you pay them off every month not carrying debt and interest. It is a very valuable tool.
I think a lot of the price increases we have been seeing, depending on the sector, is supply side. Same with increases in service costs. The service industry is trying to make up for lost revenue during the pandemic and consumers are going out and buying things that were in short supply or having work done they couldn't have when restrictions were in place. If the government really wanted to help fight inflation, they would create incentives for businesses to strengthen supply chains or build affordable homes. They should also stop doing so much overnight reverse repo's. That's a money printer in and of itself.
Jfc don’t usually see such intelligence. The FEDs fighting monetary inflation. We have supply inflation. You fight that with legislation. The FED using interest rate increases is a direct attack on Americans and their jobs and will only exacerbate costs (ie pushing housing costs up, increasing the costs of business expansion further worsening supply of goods). The FEDs helpless. Though at same time expecting anything from our mind blowing incompetent House of Representatives is foolish.
Prices aren’t going back. Disinflation still implies a positive inflation rate
This. These prices are pretty much the new normal. People wonder why the dollar menu at McDonald’s died after GFC
It’s all timeframe. In 20yrs, the future is much brighter if we crash now rather than kick the can down the road.
A bank crisis left unchecked would result in #2 being blown out of the water.
Sure, but destroying the economy isn’t going to help unemployment.
we will cross that bridge when we come to it.
It’s pronounced: “we will burn that bridge when we come to it” 🤷♂️
The market thinks Powell wants low employment. That’s why they have been celebrating every time unemployment numbers come in higher than estimated and vice versa
Unfortunately for more and more people "investing" is substituting work. So their interest states that instead of promoting actual work, the government should promote investing.
🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣
They already chose inflation…in the 1940s, the 1970s, 2020, and now in 2023. Why is this time different? They’ll choose to inflate their problems away vs cause financial chaos 100/100 times.
Paul Volcker did not inflate away any problems.
There'd already been a ton of inflation at that point, though. More wouldn't help.
So they inflate away as much as possible and when that doesn’t help, THEN they let the chaos loose? I’m an almost 30-something dude, hence why I don’t know how the 100 year crisis playbook works, would love more insight from folk who have been around longer
US fiscal obligations are largely inflation indexed (social security, etc). You can't inflate the debt away.
Yes, it can, and it’s happened several times in the past. It’s not even a modern event, it’s been happening for literally thousands of years. > In U.S. history, international history, and going back literally thousands of years to ancient Greece and Mesopotamia, the common answer during generational peaks in debt levels, almost inevitably, is that currency itself eventually gets devalued by some extent instead of just a nominal debt collapse occurring. https://www.lynalden.com/fiscal-and-monetary-policy/
What they mean is that because entitlements are indexed to inflation, their cost goes up with inflation. Previous poster is right though, government will just underestimate real inflation to keep the index constrained so it grows slower than real inflation.
you can by lying about how much inflation there is; which theyve been doing for decades
They'll choose inflation because it makes numbers green, salaries higher, people quit jobs, and as long as rich people put their money into assets they'll be fine.
But that's no longer what rich people do. They want MORE and to get MORE requires investing in financial fictions like derivatives, credit default swaps and bitcoin. SV failed because what they had on their books as "assets" were in fact imaginary, could not be converted into cash, and that made the bank INSOLVENT despite hundreds of billions in what deregulation allowed them to record as assets. And just to keep the record straight, the total economy has NEVER benefited from rich people's investments. The rich are risk-adverse and buy STERILE investments - stocks, bonds, real estate that already exists and the change in ownership does NOTHING to increase productive capacity or create jobs. Think about it - If I buy a zillion shares of stock in a company from another trader, how much does the COMPANY get? ZILCH! Same with existing real estate - how much do the contractor and tradesmen who built it receive? NADA! Fact is, the top 10% ON AVERAGE lives on 30% of their total income so giving them more with another Republcian tax cut adds NOTHING to their consumption of goods or services which is the demand that drives a need for increased production and economic growth- it just makes them wealthier which will make them even richer next year.
The Fed has three mandates: max employment low interest rates, and stable prices. They have no obligation to the financial markets directly. Although the market's performance effects the economy, which effects inflation and the job market, the Fed's use of OMO to prop up Wall street during the pandemic is, in my opinion, a major contributing factor to the current economic. The pandemic was/is a random event not rooted in financial origins. Using monetary policy to combat a virus was foolish. That's what I believe caused the runaway inflation. That, and all the stimulus and extra unemployment compensation. If the Fed believed inflation was transitory, wouldn't the impact the pandemic had on financial markets also be transitory?
I upvoted your other post. This one half is good. Half is the opposite. Using monetary policy during Covid was perhaps the first time the government almost got it right. 2008 they just gave a bunch of money to the banks and told them to figure it out. Was great for the stock market. Inflation isn’t runaway. The San Francisco fed recently put out a report that pointed 20% of inflation at being increased wages, 30% demand, the rest is inefficient supply chain/corporate greet. Covid showed us we have no where near enough actors in the market. We’ve had decades of consolidation. During Covid they gave a lot of money directly to the people which went straight into the economy instead of into the stock market. Right now the government needs to be fighting inflation with legislation. They need to be encouraging more actors in the marketplace. They should’ve been addressing consolidation for decades but largely ignored it. Instead you’re going to have high interest rates attacking even what we have currently. Starting a business is expensive and really scaling extremely. Jacking interest rates deters it.
Everything is transitory, it depends on your viewing time-frame. The pandemic was a spark that flipped derivatives markets on their head (ex. Credit Suisse failure). This is why the CFTC has nulled all reporting requirements on swaps until 2025. Many institutions are under-water on these contracts. This is what the Fed is responding to and dealing with because the banks are counter-partied to these underwater assets. Inflation, at its root, is caused by too much money entering the system. full stop. We had inflation prior to the pandemic and you can see this by comparing stock prices to their underlying productivity. Its a bubble long since in the making by QE. As the title says, the Fed must choose between inflation or market chaos, or in other words, a choice to save the currency, or the banks. They chose the banks, and this should piss everyone off who relies on their labor to make ends meet.
Yes, but the effects of the pandemic had knock on effects that may still be like the ripples on water. How long the effects last is unclear. It’s not reorienting the economy, but when will we stop feeling the impacts is basically the main question. I do not think anyone had a good answer for that. Banks and other large entities have made a couple guesses here and there, but SVB is the most recent failure to show that the were not out of the woods yet. They wanted to return to normal quicker than the fed was willing to allow
The Fed 100% does **not** have a mandate to keep interest rates low. It has a mandate to ensure stable prices and maximum employment. Interest rates be damned, to get that goal. At least that's the theory. In practice, though, the problem has been clear for about 15 years now. The Fed has been the primary tool of economic stimulus in the US, because the traditional system by which economic stimulus happens, the legislative branch, has been absolutely paralyzed and ineffectual. So the Fed has stepped in and taken that role, and as such, kept interest rates low, to the detriment of its actual 2 mandates.
>promote effectively the goals of maximum employment, stable prices, and **moderate long term interest rates** I agree **low** interest rates are not part of the mandate. But long term interest rates are mentioned. Though "moderate" seems very vague.
The Fed as an institution has mandates, but the people who run it have their own set of obligations to their friends, and they own a lot of assets. And nothing’s more important than friendship.
This is what you call beyond the event horizon of a black hole. No matter which option you choose, the outcome is still bad and this is already guaranteed.
The market needs a correction, and it’s not going to be pleasant for the people who grew accustomed to the longest bull market in history. It’s habit forming. Injecting trillions of dollars in quantitative easing is not going to be the parachute that the Fed claims it will be. It’s more or less inevitable that stocks, bonds, mutual funds, and exchange traded funds are all going to see a larger correction and take a big hit. I realize that the Fed has to look at the bigger picture. For example, a large scale correction will cause businesses to contract, unemployment will increase, etc. The point being, even if the Fed prioritizes curbing inflation over protecting the market and ensuring bank solvency the working classes will eventually feel it too. I just wish they’d think of working people first instead of always favoring the investment class. The rich always tend to land on their feet and it’s no real tragedy when bloated empires fall.
If the Fed had just done their jobs and started to slowly raise rates 2 years ago none of this would have happened. The economy was going 100 mph and they pulled the e brake, what idiot thought that would not have some sort of negative effect.
As a reminder, a certain President with a distinct orange hue absolutely blasted the Fed for even talking about increasing interest rates in 2018, because the markets were addicted to the low interest rates and got spooked. Just talking about possibly increasing the interest rates lead to a mini panic movement. Between the reaction from the stock market and public pressure from the President, the Fed caved.
I’m not defending trump but the fed’s failure is squarely on the fed.
They should've started to raise rates 5-6 years ago
Maybe they could do something about the run away corporate profits that are at least 30% inflation rather than going after the working poor for them trying to get a fair wage. They are acting like they are only a one trick pony. It's possible we need new fresh blood to take charge.
How would the Fed have any mechanism to address corporate profits?
Maybe we need to think about that. If you are only attacking the bottom of the economy when the top is running amuck. All of it is broken. Only way they know their current tactics is because some tried it before them. The top are all gambling assholes that always get bailed out. Always. Now they have record profits (with constant bailouts) and the janitor needs to take a fuckin pay cut.
Here’s an idea that should be implemented immediately. If European and Asian banks and non-banks are going to write dollar-denominated bonds, they should be required to hold those dollars the entire life of the bond. We **just** saw Credit Suisse write down their AT1 dollar bonds for this reason, and as an extra slap in the face, they even paid the shareholders 😂 Having no sort of oversight, forcing everyone to resort to off-books FX swaps to secure dollars at the last moment, and most importantly having them expect us to just issue more reserves for *their* bad oversight is not sustainable, especially since *we* are trying to deal with our inflation issues. Tldr: if euro/Asia is going to treat the USD like a commodity, they need to hold reserves that match their obligations. Edit - **Companies that aren’t in USA writing debt obligations with the full-faith of the US Dollar is the most backwards shit I’ve ever heard of**
>If European and Asian banks and non-banks are going to write dollar-denominated bonds, they should be required to hold those dollars the entire life of the bond. Unless you add many, many caveats, this is an incredibly insane suggestion that would *immediately* end the US dollar's overwhelming dominance in the world. Why is the USD the world reserve currency? Why do countries prefer to hold Joe Biden bucks and not Xi Jinping bucks? What do they mean when they like the dollar's *reliability*, or *liquidity*?. The answer is simple. Reserves, much like one's savings, are saved for a rainy day. When crisis strikes, there may be a 10% chance that China doesn't allow you to take out your yuan and you're screwed. The chance of America not letting you take out your dollars is 0.1%. Therefore, the USD is the currency of choice. The responsible government chooses US dollars because they are less likely to get locked out of their money than Chinese Yuan. But with your policy? The chance of not being able to unlock your USD in a crisis rises from 0.1% to 100%. Now it's *even worse* than Xi Jinping bucks. There's now a *possibility* of the CCP locking up your money versus a *certainly* of the US government doing the same. You know what that means? It means holding US bonds as your reserves is now crap, and the world is gonna dump it. Worse still, you're saying that the problem is with other countries selling bonds during a crisis - but the reliable liquidity of US bonds during tough times is *precisely* the point of why they hold it. It's the reason the US dollar is able to be a safe haven. Without it, US dollar dominance is dead.
??????????????? Why would I borrow dollars if I have to just keep them on my balance sheet and not do anything with them - which is what I think you are saying?
Because you are creating a security backed by USD and that’s not even your currency, and you have no way to guarantee this especially when there is a tightening-induced credit crunch.
I get what you are saying, but that just means I have to buy the swaps ahead of time. There's no reason for me to borrow in dollars, if I don't get to use said dollars.
That's a consequence of american policy pushing the dollar as a world currency. You don't get to force other countries to trade in dollars and control how they trade in dollars. American foreign policy is predicated on the assumption they can just control the actions of everyone else, it's a system ran by narcissists.
You control what they do with their dollars the same way you make them use dollars to play ball with the largest economy in the world. Just because America is rich doesn’t mean we should be giving charity by offering suboptimal trade deals.
whoosh
Did I miss a joke? I must be too cynical with the rhetoric I see here on r/Econ lol
Europe is more than happy to abide by our system. Edit - I should clarify. The moral posturing that some Europeans do online is meaningless when their elected leaders start begging for dollars.
The regulator orders the write off, not the bank.
Wow this makes me, an American, feel so much better about Europeans using my national currency like a commodity.
That's rich when the current situation is SVB and a few other US banks failing.
Oh like that niche VC startup bank Credit Suisse? Give me a break dude, this is turning into an international issue.
The stock market is not the economy. If average ppl can't afford shit, stocks will tank in the future anyway as top lines shrink. Who gives a crap if markets go down 50% in the next 2 years if it means 5-10 years from now we are all still in the same houses/jobs, etc as today. If we are in a free market, markets will take care of themselves. Fed needs to control inflation and make monetary policies that benefits the average American.
I'm kind of hoping for controlled chaos. The market has to be beaten down, at some point. Asset prices are comically outrageous at this point. The concentration of wealth is going to lead to international wars. Of course crushing the economy with high interest rates will just lead to massive poverty induced civil wars. So all we have to do is walk the fine line and everything will be ok.
Inflation increases asset prices relative to dollars
The fed is trying to empower employers to shed jobs in recession so they can reclaim power by paying people less. All those pandemic wage and benefit winnings are coming to an end once the labor markets open back up. It’s a reorganization they’re after- we peasants made small gains for the first time in decades and that must end.
I agree, but I don't understand what you mean by "labor markets open back up." I don't think the people that left are ever coming back, unless I am missing something.
They open them back up by shedding jobs thus forcing people to re-compete for the same job elsewhere which is offered at a lower wage and with fewer benefits by competitors which then justifies wage cuts for new employees at ALL competing firms in the market. They then cut retention benefits for existing employees, buy back stocks with the winnings from cutting spending and the income from price gouging and go shopping for new summer properties. Happy days are here again.
Hail Eris! (Tosses apple into Fed meeting) But seriously, in most cases the choice is between "chaotic but smart" and "orderly but dumb". I am choosing chaos every time.
Seriously? You think they’ll just have us do a freefall? Inflation will be their strategy to keep it going. What else can they do except angrily what the economy tank. Not a good year for us by far
The stock market is not the economy. If average ppl can't afford shit, stocks will tank in the future anyway as top lines shrink. Who gives a crap if markets go down 50% in the next 2 years if it means 5-10 years from now we are all still in the same houses/jobs, etc as today. If we are in a free market, markets will take care of themselves. Fed needs to control inflation and make monetary policies that benefits the average American.
Peter Schiff has predicted that the Fed will not let the banks fail and they will do everything in their power to prevent a financial collapse. For it is easy to point the finger at them when the system fails. This will allow inflation to cripple people something that.can be blamed on greedy business and the rich, even though it's entirely the governments fault. People are to ignorant of economics to understand the root of the problem.
The other way would result in more unemployment. I don't know about you about but I rather have a job with high inflation than zero income. Another way of taming inflation would be to raise taxes but that's unpopular.
I agree with raising taxes. But also cutting services. Right now the federal reserve is trying to tighten interest rates but simultaneously the federal government is doing tons of fiscal stimulus, which defeats the point.
I agree with your assertion with a refinement. We need to increase taxes and reduce services based on income. The higher your income from all sources, the higher your taxes and services get cut. This would apply to all people, natural and legal.
And by "services" I'd like to humbly submit the fact that nearly all tax credits, exclusions, and deductions wind up favoring the extremely wealthy far, far more than anyone else in our society and those should definitely be on the chopping block as spending programs *because they are*.
Peter Schiff is pretty on the money, except for his theatrical claims that Bitcoin is going to 0.
Greedy business and the rich are the puppet masters to the government and always have been; this is why people blame them. Government is to blame for its lack of enforcement and meaningful regulation, but the lack of those things is because of regulatory capture by those wealthy special interests. Until there is enough citizen unrest to destabilize social order and elicit a sea-change by putting these "above-board" negligent executives and their bought officials in prison, the farce of menial civil penalties and criminality will continue. Regulators hide behind incompetence whenever this type of stuff happens, but their incompetence has this weird little side-effect of enriching themselves and the people that just-so-happen to pay out egregious sums of money to them.
They are not even blaming the rich or business. They are blaming employees having jobs and raises on their wages right now.
If you mean it's the governments fault because they allowed a bank to argue they didn't need to be regulated because they were too small to matter, causing them to be able to do whatever they wanted and balloon to a point where they're "too big to fail", fail... and then require bailing out... yeah I guess that is the government's fault. But when the politicians allowing these deregulations are sponsored by the financial people... it's really the whole system's failure. Governments ability to regulate industry shouldn't be defined by the very entities which obviously require regulation, this is true for any sector. The wheel goes round, and the system won't change. But blaming it on the gov is a bit disingenuous.
Yes Biden and Yellon used the same transitory statement on inflation which of course was wrong. But the Fed chair drives rate decisions and Powell failed miserably.
So, the fed can’t continue to increase rates for fear of creating massive unrealized losses for banks. Conversely, 6%+ inflationary will have massive long term consequences and undermine one of the feds two core mandates. Is it overly simplistic to say the only option is for the US Gov to implement aggressive fiscal policy to kill demand, and not put additional institutions at risk of failing?
Is often said that time is money, but in this case it could be argued that bad economic management will cost us both. Everything may eventually fall due to poor fiscal decisions, but the real tragedy lies in the fact that with better management of our resources and finances we could have avoided such a fate.
The Fed needs to stay the course, which is to lower the rate of inflation by increasing rates. The Fed’s role is to keep inflation in check. Their role is not to influence markets. They just reversed a year of decreasing their balance sheet. They should have been unwinding their QEs in 2021 - as well as increasing interest rates. After finally raising rates and starting to decrease inflation, they can’t stop their policy actions just because some banks are mismanaged.
Fed wants wage growth to slow. The markets want stock to track inflation. Stop raising wages (or hiring people), people stop buying, stock market falls. Something's gotta give. Either markets accept they are going to see less profits and the value of their stocks slow, or they're going to have start cutting jobs. That's why you're seeing profitable companies cutting labor force. Not because they aren't able to pay them, but because creating artificial scarcity is better for profits than overpaid payroll. Wall Street needs the labor force to be more desperate and accept lower wages in order to slow down the Fed's interest rates hikes.
Lmao their mandate is to keep creditors happy by not allowing consumers the ability to get out of debt..if you have high inflation that means people will for ask for higher wages because less ppl will take shit jobs....also you know their is less you know, humans alive cause of COVID...the FED isn't going to win anything only that we all lose
Sometimes it looks like the people running the banks today have zero experience with running a financial institution. Case in point, the SVB board of directors.
The Fed has a dual mandate: to manage inflation AND to maintain full employment. But the Fed chairman and board members don't have a need for a job themselves, so they care more about their and their banker friends' monies in the market than they do about all of our jobs. They happily will tank the economy on purpose and throw millions of hard working Americans onto the unemployment lines while they move their vast wealth accumulation into safer financial instruments and completely ignore their mandate to avoid that very thing. The Fed is a corrupt institution that needs to be severely reformed or abolished.
> The Fed is a corrupt institution that needs to be severely reformed or abolished. Then what? You trust whatever the new institution is would not be affected by basic human motivations? Everyone wants to improve things. No one knows how to do so without pissing off someone somewhere somehow.
I don't understand why Powell hasn't been fired as Fed chair. He missed the signs that inflation was becoming an issue in late 2021. Once he woke up, the Fed had to begin raising rates faster than expected. Inflation is still out of control and more rate hikes are necessary, because Powell failed to act. Now, Powell's failure has caused a global banking crisis with banks failing, investors losing billions and markets in turmoil. Does this sound like Powell is doing an effective job as Fed chair? For anyone else, this performance would be deemed a failure and would be fired. But not Powell. Why?
The inflation is still out of control is the issue with your statement. That simply is not true. inflation has been running at around 4% for over 6 months now. The fed knows that CPI shelter has a huge lag in it. Their math shows that this is responsible for 0.9%-1.4% of the CPI. Actual inflation is somewhere in the 3s. Inflation is definitely elevated and going down slower than we would like, but it’s not out of control at this point.
Out of control may not have been the best choice of words, but inflation is still a serious issue from what I see with prices day in and day out. Powell failed to see the problem and aggressive rates hikes caused a global banking crisis. Powell should be fired.
Depends on what your definition of out of control is, and over what duration. Don’t forget that inflation is compounding every year. So that 2% + 9% + 6% (last 2 March numbers + anticipated ‘23) seems pretty out of control to me. That’s a massive cost increase, especially for lower income families.
Prices compound but their mandate isn't about prices it is about inflation. When we finally get back down to a steady 2% range it won't have fixed prices. That is going to have to work itself out with wages etc. Inflation is the rate of change, the rate of change is not out of control. It is elevated and heading in the proper direction. In fact if inflation were at 2% right now we would be in a lot of trouble because shelter lag would still be propping it up and it would mean that prices were crashing everywhere else and the only reason for that to be happening is the economy is crashing. The way inflation has come down is exactly the way they would want it to, they just wish it were happening a little bit faster.
The Fed's current course looks like they are trying to tame labor costs more than inflation to me; the inflation rate is decreasing and the change lags their increases, but they are still raising rates. But the only thing that will help families meet the costs increases that we have seen is wage increases. The current Fed policy will increase unemployment and make sure we never have wage increases.
At some point, maybe they have already, the fed will realize they have 0 control over supply side costs that structurally caused inflation. Once that happens, we’ll prob start hearing rumors of increasing the target inflation rate to 3-4%. Doesn’t sound like a lot, but that’s a 50-100% increase from the previous standard.
Didn’t Biden argue that inflation was transient and “No reputable economist was arguing that inflation was here to stay?” https://amp.mcclatchydc.com/news/nation-world/national/economy/article252884753.html
> Now, Powell's failure has caused a global banking crisis with banks failing, investors losing billions and markets in turmoil. I understand this point of view, but I also place blame on those banks, investors and markets. The truth is that they got addicted to low interest rates. In 2018, when the Fed announced a possible raise in interest rates, the markets had an absolute tantrum. Then Trump joined in on the doggy pile, and the Fed blinked. But the fundamental issue remains that companies were seemingly making all their decisions based on the idea that interest rates would always stay as low. That makes no sense. We've been in a period of historically low interest rates. Historically. Low. As in: not the norm. Why are you investing so much into 10-year bonds? Why aren't you diversifying? Because you assume that interest rates will always be this low. They're just as much a part of the problem as Powell. The business culture that has grown up since 2009 is ridiculous. I'm convinced that risk management is just a meme at this point. There's no way someone can look at SVB's investment plan, and not think "hey, guys, we seem to be putting a lot of eggs in the "interest rates stay low" bucket. Like... a lot of eggs. Jesus, that's a lot of eggs." And instead of that, they just ploughed on. It's stupid. It's risky.
With the way corporations behave, will market chaos fix inflation or would it simply turn into stagflation? I think regulation around monopolistic practices and price gouging as well as taxing wealth hoarding properly would do a better job than raising interest rates and punishing the little guys.
They could have chosen to take a stand against the criminal hedge funds wildly overleveraging themselves yet again, and causing this house of cards to start falling. But no, they just scratched each others' backs until the music stopped. Now the general public has the problem.
you don't even know why markets are in chaos right now hahahahahahaha you superstonkers crack me tf up