It's all too little too late. Considering the scale of monetary easing in the last 2+ years, this is like pissing in desert. Quite frankly, I can't blame the market for being skeptical of Powell's "resolve." He did an about face in 2019 with the taper tantrum.
The 10 year breakeven inflation rate is below 2.5%, showing the market does not agree with you on how one successfully fights inflation and expects inflation to plumit.
With massive deficits and public/private debt, raising more would cause a chain reaction of defaults. I wouldn't like to be in Powell's shoes. Can't control spending, can't control war, can't control commodities, can only raise rates but not too much. And will be the scapegoat, for sure.
As he should be, in my opinion. We should've entered a mild recession in 2018 but because of TPTB he went whole hog on cutting rates as low as possible. We didn't enter the recession, and as luck would have it a global catastrophe happened. This resulted in more rate cutting to the point the rates could not be cut anymore.
He could've avoided some of this by just intelligently working the market. It is, in my eyes, entirely his fault.
TPTB was discussing firing Powell following the rate hikes. Not clear if it would have been possible, not clear that it wouldn't. "Entirely [Powell's] fault" may be the right diagnosis, but I'd say political leadership matters a lot here.
Yes, the IMF exemplifies the folly of global institutions. How long have they propped up kleptocracies like Argentina? "Democracy" is just a nice coat of paint over unbelievably corrupt countries where citizens will never see a dime of those loans yet will have to bear the burden of paying them back.
Yeah, that's the consensus among most prominent economists and by extension politicians. It's based on the flawed assumption that consumption is automatically good and savings is automatically bad. Saving money isn't just going scrooge mcduck and holding it in a vault. Saving money is investing it, which funds innovations and investments. That could be via stocks, bonds, bank deposits (which get loaned out), etc.
I have yet to see a single compelling argument as to why an arbitrary 2% target is superior to say just a 0% target. Macroeconomics is basically a pseudo science anyways.
> Saving money is investing it, which funds innovations and investments. That could be via stocks, bonds, bank deposits (which get loaned out), etc.
I'm not an economist, but I think the Fed distinguishes between these activities: "saving" means holding money in accounts that are subject to the FDIC's reserve requirements, which in turn means that banks can't use (all of) that money for investments. "Investing" means circulating money in instruments that aren't generally subject to reserve or similar requirements, meaning that it's supplying liquidity to the larger market.
I agree with your broader point about consumption (we really need to correct our infinite-growth mindset), but an economy that encourages excessive savings is about as bad long-term as one that encourages people to shove all of their money into the market.
Yeah. My operating assumption was that the 0% rate was an emergency maneuver by the Fed to increase liquidity at the very beginning of COVID, but it's not clear when (if at all) they plan on returning to a nonzero reserve rate.
OTOH, the Fed has other mechanisms for encouraging bank reserves -- I believe they still pay interest on any excess reserves that banks hold at the end of each day. That rate (the "IOER rate") is (still) significantly higher[1] than the federal funds rate[2], so banks can essentially collect free money by keeping any reserves at all.
>It's based on the flawed assumption that consumption is automatically good and savings is automatically bad.
There is no such assumption. We have interest rates that moderate the imbalance between saving and investing. Low interest rates indicate a lack of investments. If there were investments, companies would scoop up 0% interest loans until rates must rise again.
If there were too many investments interest rates have to cut funding for the least worthwhile investments.
>Saving money is investing it
As I said above, the interest rates indicate otherwise. 0% interest rates only happen because people aren't investing the savings.
>That could be via stocks, bonds, bank deposits (which get loaned out), etc.
Those are not savings.
>I have yet to see a single compelling argument as to why an arbitrary 2% target is superior to say just a 0% target.
Because people age and die. Gold is just a shiny token representing an imagined ledger. If you have gold from 1000 years ago someone in 2021 owes you a debt. For the sake of the argument lets say the economy today was still the same as 1000 years ago. You decide to "save" your gold and spend it 1000 years later via a time machine. The person that owes you one ounce worth of work is long dead and he stayed unemployed for a month because of you. The physical asset that is represented by the ledger is gone but there are still workers alive in 2021. Even though they have nothing to do with the old dude 1000 years ago, they are the ones who owe you a debt now.
It's absurd. One month of work was lost to unemployment but gold is supposed to keep its value by demanding one month of work from an unrelated person.
>I have yet to see a single compelling argument as to why an arbitrary 2% target is superior to say just a 0% target. Macroeconomics is basically a pseudo science anyways.
Because deflation is horrible and inflation targets are just targets, it's impossible for the central bank to know exactly what will happen. If they target 0 there will be some years with deflation which destroys liquidity.
Saving is investing only from the accounting perspective. In finance and economics we also care about how capital is invested, not merely that it is invested.
I've covered insurance companies for a number of years, and here's the rundown:
- Like any other financial services company, insurers' primary concern is risk management. In contrast, a retailer knows exactly what its profit margins are before the product is sold - its primary concern is to sell as many products as possible profitably. However, insurers and banks can sell infinite policies/loans so long as the price is low enough. They also don't know their margins for sure until the policy/loan is complete.
- The average insurer makes more than half their profits from investment income. Most insurers are garbage at writing policies, with the P&C industry averaging around mid-single digit ROE in a year with average catastrophe losses. When I checked a few years ago, aggregate combined ratio (sum of losses & expenses divided by premiums) is in the high 90's percentage.
- Loss costs are getting ridiculous these days (trial lawyers, social inflation), almost across the board, so you're seeing insurers start raising prices across the board. Add to that zero interest rate policy courtesy of our unaccountable central bankers, and insurers are forced to push premium hikes.
