BoJ resorts to negative interest rates. The desperation is real.

[dullard]

It's kind of hard to understand how he could still be arguing this. I have a house on a 4.5% loan, the payment is almost $1,400. If I drop the rate to 3% my payment goes down to $1250 and I have an extra $150/month to spend. Now multiply that by every mortgage holder in the country.

I am arguing that it is dependent on the situation. Eskimospy is essentially arguing that low interest rates always lead to high inflation and high interest rates always lead to low inflation. My dispute is the "always" word. "Sometimes" is a much more appropriate word there. And in fact, the best word may be "occasionally".

You are correct that if interest rates go down, and you refinance your loan, then yes, you have more money to spend (minus the refinance fees/costs). But you are not correct that you can multiply that by every mortgage holder. Because, not everyone can refinance. Plus, that is a bit tangential to the argument anyways.

Suppose the interest rate is 4.5% on mortgages right now. Suppose people in your area can afford $1000/month for the mortgage principal + interest. Then they could afford $197,361 houses. Now suppose the interest rates drop to 3.0%. Then people can afford $237,189 homes with that same money. The house price can increase but it doesn't have to (people could instead decide to pocket the difference and not spend the full $1000/month). So, all things equal, the lower rates may lead to higher prices. This is where Eskimospy's argument ends. And it is valid up to that point.

But, my argument is that things aren't always equal. What if that low 3% mortgage came from a very low fed rate (probably near 0%)? What if a big home builder sees that low interest rate, comes in and decides that it will take out a massive low interest loan to build new homes, maybe even a whole new subdivision? And what if the fed rate is low because the economy sucks and the population doesn't want to invest in buying new homes for themselves? None of those are far fetched possibilities. Now, you are left with a glut of homes and few buyers. Does a supply gut and low demand raise housing prices? No. The low interest rate can and does lead to lower prices (situation dependent and in this example the situation is that homebuyers are nervous). It could also lead to higher prices (if the situation was that homebuyers were thrilled to buy especially with the lower interest rates).

That is all that I'm arguing is that Eskimospy's generalization isn't a guaranteed thing. This isn't econ 101, not all things are equal. Low interest rates actually can lead to low inflation. It has over and over again. Name one period in the history of the US where low interest rates lead to massive inflation in the coming years. You can't, it doesn't exist. Now do the opposite and name a time where high interest rates lead to low inflation in the coming years. Again, you can't, it hasn't happened. The concept that lowering interest rates will spur inflation is naive at best. It may spur inflation.

Just look at the fed reserve minutes. Our top economists can't even predict what will happen with inflation. All they state is that there will be great uncertainty around inflation. It isn't a direct link like the Bank of Japan hopes there will be when they lower interest rates even further. The fed's official policy even states that Eskimospy is correct, if all things were equal. There is that nagging "all things equal" qualifier though. Things rarely are always equal. The supply side of the equation matters a lot. In the housing example, if the home builder was the nervous person and didn't build a new subdivision, then housing prices would probably climb in that example with the low interest rates.

 

[fskimospy]

My exact statement you quoted was "that's why we saw huge inflation in food and other non-capital goods," are you're going to argue that the costs of the non-capital goods components of the CPI didn't experience inflation? Hell, basically everything but housing went up, some like medical care, energy, and education went up hugely. You can refer to DMcOwen's "$5 gasoline" or "$10 milk" threads if you want to refresh your memory.

Yes, I'm going to argue that the non capital parts of CPI did not experience inflation that was outside of normal levels despite the monetary base tripling.

Funny you mention health care. Medical cost inflation has been dramatically lower in recent years than it was before all this stimulus. Oops.

Funny you mention gas prices. Despite all that money floating around gas prices averaged lower prices after the crash than before it. Oops.

Funny you mention education, tuition inflation long predates any stimulus measures.

This is ridiculous. Literally every example you tried to use is easily, probably wrong. Maybe you should start thinking about why.

 

[fskimospy]

I am arguing that it is dependent on the situation. Eskimospy is essentially arguing,that low interest rates always lead to high inflation and high interest rates always lead to low inflation. My dispute is the "always" word. "Sometimes" is a much more appropriate word there. And in fact, the best word may be "occasionally".

You are correct that if interest rates go down, and you refinance your loan, then yes, you have more money to spend (minus the refinance fees/costs). But you are not correct that you can multiply that by every mortgage holder. Because, not everyone can refinance. Plus, that is a bit tangential to the argument anyways.

Suppose the interest rate is 4.5% on mortgages right now. Suppose people in your area can afford $1000/month for the mortgage principal + interest. Then they could afford $197,361 houses. Now suppose the interest rates drop to 3.0%. Then people can afford $237,189 homes with that same money. The house price can increase but it doesn't have to (people could instead decide to pocket the difference and not spend the full $1000/month). So, all things equal, the lower rates may lead to higher prices. This is where Eskimospy's argument ends. And it is valid up to that point.

But, my argument is that things aren't always equal. What if that low 3% mortgage came from a very low fed rate (probably near 0%)? What if a big home builder sees that low interest rate, comes in and decides that it will take out a massive low interest loan to build new homes, maybe even a whole new subdivision? And what if the fed rate is low because the economy sucks and people don't want to invest in homes? None of those are far fetched possibilities. Now, you are left with a glut of homes and few buyers. Does a supply gut and low demand raise housing prices? No. It can and does lead to pricing crashes. So, the low interest rate can lead to lower prices.

That is all that I'm arguing is that Eskimospy's generalization isn't a guaranteed thing. This isn't econ 101, not all things are equal. Low interest rates actually can lead to low inflation. It has over and over again. Name one period in the history of the US where low interest rates lead to massive inflation in the coming years. You can't, it doesn't exist. Now do the opposite and name a time where high interest rates lead to low inflation in the coming years. Again, you can't, it hasn't happened. The concept that lowering interest rates will help spur inflation is naive at best.

Just look at the fed reserve minutes. Our top economists can't even predict what will happen with inflation. All they state is that there will be great uncertainty around inflation. It isn't a direct link like the Bank of Japan hopes there will be when they lower interest rates even further.

I have never argued that low interest rates always lead to high inflation, ever. I have always said that low interest rates are inflationary after controlling for other factors that affect inflation.

I remember you attempted to say the same thing in our previous discussion and I repeatedly corrected you. Please stop claiming this.

 

[nextJin]

Yes, I'm going to argue that the non capital parts of CPI did not experience inflation that was outside of normal levels despite the monetary base tripling.

Funny you mention health care. Medical cost inflation has been dramatically lower in recent years than it was before all this stimulus. Oops.

Funny you mention gas prices. Despite all that money floating around gas prices averaged lower prices after the crash than before it. Oops.

Funny you mention education, tuition inflation long predates any stimulus measures.

This is ridiculous. Literally every example you tried to use is easily, probably wrong. Maybe you should start thinking about why.

Gas prices have nothing to do with the stimulus though, that's due to fracking and higher production which led to OPEC drastically increasing production to lower cost to put the hurt of US production. These low gas cost are awesome yet those companies have already been laying off Americans thanks to the down turn.

Also earlier you mention the 1929 crash, could you elaborate on that comment? The Fed took almost no action during that situation and we rebounded in 6-8 months.

 

[dullard]

I have never argued that low interest rates always lead to high inflation, ever. I have always said that low interest rates are inflationary after controlling for other factors that affect inflation.

I remember you attempted to say the same thing in our previous discussion and I repeatedly corrected you. Please stop claiming this.

You should try to step back then and really read your posts from a different vantage point. There isn't a lot of leeway in equal signs in math:

Higher interest rates = less borrowing = lower money supply = lower prices.

I don't see any "may", "might", "possibly", or any other helpful qualifiers. Over and over you keep posting equal sign type arguments that one thing equals the other. Maybe in your mind you are trying to type something else, something more nuanced, but what comes to other readers is very black/white and thus very incorrect in many situations.

 

[shady28]

There is only two ways to get out of the problem Japan and to a lesser extent the entire western world + china are in and that is to either write off debt (default aka jubilee) or print fiat money - NOT FIDUCIARY money!

The problem is too much debt with is the inevitable consequence of a debt based monetary system. Most people think we have either a groundless monetary system (fiat money) or a gold backed system (we left the gold standard long ago). We do not. We have a debt based monetary system (fiduciary money). We literally cannot create new money units without creating it as debt via the origination of new loans. Eventually everyone has too many loans and the system fails. Only mass default or true money printing can solve this problem. QE is only debt based money printing and has to be repaid by the central bank to itself which is deflationary.

^^^^^^^


That is exactly right.

But letting loose with a "true" money press is extremely dangerous. Such things can be addictive, especially to a bureaucracy and populace addicted to spending with very partisan views. Where such money is to be 'spent' is likely to be a very corrupt power grab.

 

[Kwatt]

Anyone can be wrong about anything, it's all a question of what is probable.

So, this is testing a theory. Unless someone can show me where a multi-year ZIRP. Has been shown to work without a currency or asset revaluing/repricing.

I can understand a desire to test a theory.

If you think an appeal to all of the experts is unconvincing let me tell you how convincing an appeal to geocentrism is, haha.

I want you know I was not appealing geocentrism.


.

 

[fskimospy]

You should try to step back then and really read your posts from a different vantage point. There isn't a lot of leeway in equal signs in math:

I don't see any "may", "might", "possibly", or any other helpful qualifiers. Over and over you keep posting equal sign type arguments that one thing equals the other. Maybe in your mind you are trying to type something else, something more nuanced, but what comes to other readers is very black/white and thus very incorrect in many situations.

First of all, we have had exactly this conversation before so I don't k ow how you could possibly be confused.

Secondly, my statement was perfectly clear. Lower interest rates DO equal higher inflation. Period. They DO NOT necessarily equal HIGH inflation as other things affect inflation as well. This is the exact same thing you tried to pull last time.

It's as simple as addition. If I give you a dollar that doesn't mean that you are a dollar richer today than you were yesterday because other things affect how much money you have. It does mean you're a dollar richer than you would have been otherwise.

 

[dullard]

First of all, we have had exactly this conversation before so I don't k ow how you could possibly be confused.

I flat out catch you in a lie, in the same thread and with quotes, and now you come back asking why I am confused by your posts.

 

[fskimospy]

I flat out catch you in a lie and now you come back asking why I am confused by your posts.

Lol wut. Please feel free to point out this imagined lie. I'll be waiting for your eventual apology.

 

[dullard]

Lol wut. Please feel free to point out this imagined lie. I'll be waiting for your eventual apology.

I quoted it above.

 

[Spungo]

Lowering interest rates increases inflation in the aggregate. This is a point of basically universal agreement among economists.

Except in Japan where interest rates have been 0 for the past 2 decades and they've seen deflation that entire time.
Interest rates have also been 0 in Europe for the past half decade, and they've been complaining about deflation that whole time.

I'm not sure how many real world examples we need to show before Keynesians admit their policies don't work at all. Japan's stimulus projects over the years were so extreme that Japan is essentially bankrupt. More than 100% of the government's new bonds are monetized by the central bank. About 40% of Japan's tax revenue goes to interest payments on their debt, and that's when rates are almost 0%. For whatever reason, the fed and ECB look at Japan and say "Hey, let's follow that model! It clearly doesn't work, but fuck reality!"

 

[fskimospy]

I quoted it above.

Well then I'm confused, where's the lie? Higher interest rates = lower prices. This is simply true. It doesn't mean that other things couldn't raise prices as well.

I'll be waiting for your apology.

 

[dullard]

Except in Japan where interest rates have been 0 for the past 2 decades and they've seen deflation that entire time.
Interest rates have also been 0 in Europe for the past half decade, and they've been complaining about deflation that whole time.

Last time I posted peer reviewed journal articles from all over the world, data, blogs, etc and Eskimospy brushed them all aside with comments bashing their English or saying that Eskimospy just doesn't like the author.

He'll just say that your examples of Japan and Europe are exceptions and that he is always right, with no exceptions.

 

[fskimospy]

I am arguing that it is dependent on the situation. Eskimospy is essentially arguing that low interest rates always lead to high inflation and high interest rates always lead to low inflation.

Speaking of lies however, I've caught you in one here. Unless you can point me to a post where I have said low interest rates always lead to high inflation (and I know you can't), you've been caught red handed.

 

[dullard]

Speaking of lies however, I've caught you in one here. Unless you can point me to a post where I have said low interest rates always lead to high inflation (and I know you can't), you've been caught red handed.

Below is your post. You are trying to pick words by swapping the direction of the interest rates, but that won't help you.

Higher interest rates = less borrowing = lower money supply = lower prices.

Higher interest rates does not equal lower prices (or low prices either, since you like to try to mince words with different "er" endings it doesn't change the fact that you are wrong). The correct thing to have said is that it can add downward pressure to prices. But it does not equal lower prices. Equals means always. So, yes, you essentially said always.

"x = 3" doesn't mean that x sometimes leads to 3. Or gets you lower to 3, or even that 3 is low. "x=3" means "x" always is "3" in this problem until it is redefined.

 

[fskimospy]

Below is your post. You are trying to pick words by swapping the direction of the interest rates, but that won't help you.

Higher interest rates does not equal lower prices. The correct thing to have said is that it can add downward pressure to prices. But it does not equal lower prices. Equals means always. So, yes, you essentially said always.

No, it most certainly does equal lower prices. This is 100% correct. You are tying your whole idea to the belief that I stated the fed funds rate is literally the only thing in the entire world that affects prices, which is an obviously absurd thing to claim.

To try to claim someone lied by manipulating what they wrote into absurdity is an awfully dishonest thing to do. You claimed I lied, so apologize. There's no way out of this.

 

[fskimospy]

"x = 3" doesn't mean that x sometimes leads to 3. Or gets you lower to 3, or even that 3 is low. "x=3" means "x" always is "3" in this problem until it is redefined.

Exactly! To use your math example, subtracting 1 from something makes the number lower. Always. If you then add two to the number it will then be higher than it was originally, but that in no way means subtracting one didn't make it lower.

Thanks for the helpful example.

 

[fskimospy]

Last time I posted peer reviewed journal articles from all over the world, data, blogs, etc and Eskimospy brushed them all aside with comments bashing their English or saying that Eskimospy just doesn't like the author.

He'll just say that your examples of Japan and Europe are exceptions and that he is always right, with no exceptions.

Haha, I just looked up that thread. You presented a peer reviewed study that was about commodity based currencies, making it irrelevant. You clearly hadn't bothered to read the things you were linking. Then you linked another study that said high inflation leads to high interest rates and tried to argue reverse causality. Nope.

Know what's even funnier? From my post in that other thread telling you why your links didn't say what you claimed:

That was never my original claim. My original claim was that the fed lowering interest rates leads to higher inflation, all else being equal. (and of course they control nominal rates, not real rates) I've stated it repeatedly, so there's really no excuse for you not understanding it.

lol.

 

[dullard]

No, it most certainly does equal lower prices. This is 100% correct. You are tying your whole idea to the belief that I stated the fed funds rate is literally the only thing in the entire world that affects prices, which is an obviously absurd thing to claim.

To try to claim someone lied by manipulating what they wrote into absurdity is an awfully dishonest thing to do. You claimed I lied, so apologize. There's no way out of this.

I only apologize when I am wrong. You said they always lead to lower prices. They don't. Then you said that you never said that they always lead to lower prices. I posted your quote. Now you say that I am lying.

I don't need an apology from you. I would like you to read your posts from all angles so you can realize where you've gone wrong.

 

[fskimospy]

I only apologize when I am wrong. You said they always lead to lower prices. They don't. Then you said that you never said that they always lead to lower prices. I posted your quote. Now you say that I am lying.

I don't need an apology from you. I would like you to read your posts from all angles so you can realize where you've gone wrong.

They do always lead to lower prices, but that doesn't mean that other things don't lead to higher prices. Again, the only way you could come to the conclusion you have would be to think that I believed the fed funds rate was the only thing in existence that affects inflation and we both know you don't actually think that.

Yes, what you're doing right now is pretty transparently dishonest. I hope you have enough self awareness to realize it. You were wrong, you doubled down on it, and then called me a liar when I pointed out how silly you were being. You should apologize for that. I doubt you will, but such is life.

 

[dullard]

They do always lead to lower prices, but that doesn't mean that other things don't lead to higher prices. Again, the only way you could come to the conclusion you have would be to think that I believed the fed funds rate was the only thing in existence that affects inflation and we both know you don't actually think that.

You are posting without mentioning that there are other things in existence. Then you are posting mathematical equality, meaning that there can be no leeway in the final answer. Then you argue later that someone should have known that you really meant that it may not be equal because that other things happen. That is a major problem with your style.

Yes, subtracting 1 in of itself from an item will make something 1 lower. But when you know that there must be other mathematical additions/subtractions/divisions/etc you can't post that the final result is definitely lower. You are skipping all the other steps that must occur and going right to an answer.

Suppose z = (x - 1) * y. Suppose x = 0. Suppose y = 1. Then the -1 part may make z lower than x. But you can't say that the -1 part equals lower z values. What if y is negative? Then the -1 part equals higher z values. What if y is zero? Then the -1 part actually is meaningless in that situation. Subtracting 1 doesn't always make the math result lower. Yet you are posting as if it will.

Skipping the steps, ignoring the whole picture, posting final results as if the rest of the steps weren't there, and then claiming well you were right but something else got in the way, is academically dishonest.

At the very least, add conditions to your posts. Higher interest rates add downward pressure to prices. But they never equal lower prices, because there is a whole lot more going on. Higher interest rates may result in lower prices, depending on the situation.

 

[fskimospy]

You are posting without mentioning that there are other things in existence. Then you are posting mathematical equality, meaning that there can be no leeway in the final answer. Then you argue later that someone should have known that you really meant that it may not be equal because that other things happen. That is a major problem with your style.

Yes, subtracting 1 in of itself from an item will make something 1 lower. But when you know that there must be other mathematical additions/subtractions/divisions/etc you can't post that the final result is definitely lower. You are skipping all the other steps that must occur and going right to an answer.

Suppose z = (x - 1) * y. Suppose x = 0. Suppose y = 1. Then the -1 part may make z lower than x. But you can't say that the -1 part equals lower z values. What if y is negative? Then the -1 part equals higher z values. What if y is zero? Then the -1 part actually is meaningless in that situation. Subtracting 1 doesn't always make the math result lower. Yet you are posting as if it will.

Skipping the steps, ignoring the whole picture, posting final results as if the rest of the steps weren't there, and then claiming well you were right but something else got in the way, is academically dishonest.

At the very least, add conditions to your posts. Higher interest rates add downward pressure to prices. But they never equal lower prices, because there is a whole lot more going on.

Subtracting 1 from X would make X lower, which is what I said. You're twisting my statements again.

I won't be adding any conditions to my posts as they are perfectly clear as is. If it is helpful for you when you are reading my posts, you can mentally insert 'all else being equal' into literally every single statement of causality I ever make on any subject.

 

[Shaun_Brannen]

The biggest problem is that people don't see economics as a series of cycles even though human activity is highly cyclical.

Bingo. However, they're slowly getting better at this whole macroeconomics thing, considering economics is a fairly recent "science." The move away from basing the growth of entire economy on a single commodity (gold) was an improvement, but you get overconfident fools pulling the levers and writing the laws, and you'll still end up screwing up.

Frankly, the biggest issue is income inequality, particularly for the younger generations. Speaking first-hand, haha. It's tough to get a job, and the jobs you can get don't pay all too well -- and I'm fairly educated and a white male -- you know it's bad when white males can't get jobs, because the projects they were getting hired on for keep getting cancelled.

 

[Exterous]

Interest income provides a very small proportion of overall income, even for seniors. Interest income is only a substantial proportion of overall income for the top 1% or perhaps even the top 0.1%.

Given the role interest rates play in TIPS, bonds, annuities etc and those inclusions in a variety of wrappers including pensions, trusts etc the effect of interest rates reaches much farther than income from 'interest' alone.

There appears to be a very limited impact of a low-yield-rate environment on retirement income adequacy for those in the lowest pre-retirement income quartile, given the relatively small level of defined contribution and IRA assets and the relatively large contribution of Social Security benefits for this group,” said Jack VanDerhei, EBRI research director and author of the study. “However, there is a very significant impact for the top three income quartiles.

https://www.ebri.org/pdf/PR-1031.25June13.Notes-Ret.pdf

Moving from the historical-return assumption to a zero-real-interest-rate assumption results in an 11 percentage point decrease in simulated retirement readiness for Gen Xers with one to nine years of future eligibility, and a 15 percentage point decrease for those with 10 or more years of future eligibility," EBRI said in a study released last month.

The results are even more dramatic using actual interest rates in recent years. For people close to retirement, readiness percentages drop by eight percentage points, the organization projected. EBRI also estimated that there is a 15 percentage point decrease for those with one to nine years until retirement, a 21 percentage point decrease for those with 10 to 19 years and a 22 percentage point decrease for those with 20 or more years.