God help us all if our central bank starts taking cues from the Bank of Japan or the ECB and their zombie economies.

Our inability to suffer short-term consequences for long-term prosperity is a real issue that we as a country need to figure out how to solve. (Can you solve for human nature?) The fed shouldn't have made cuts in 2019 at the height of the market, we should have let failing banks fail, we need to start spending responsibly if we want to remain a reserve currency, and we need to learn that forest fires clear out the undergrowth for new growth.

I think a good start would be if average people were confident that they would take part in the long-term prosperity. Right now, that doesn't seem like such a good bet.

Man, amen. This is the worst one yet because it was clearly political. If this wasnt an election year, theres no way we get a .5% cut

Yes, but God has been helping us all already and it has been going on for decades, through QE and interest rates and bailouts, and a lot of top economists seem to be set on milking this as long as they can and keeping the cow on life support and drugs for a very very long time. And why shouldn't they? Nobody knows how long we can keep the cow alive, there is no real precedent. It can go belly up tomorrow or in 50 years. It works really well right up until the point where it doesn't at all anymore.

You can solve for human nature. 3200 years ago we were all in a Prisoners Dilemma stuck at backstab backstab (literally killing each other). And then Moses came down from Mt Sinai and said Thou Shalt Not Kill, and lo, the solution to the dilemma was coordinated by shared principles. I think the solution to today-era social problems will probably look something like that.

The idea that we should bear short-term consequences for long-term prosperity is the human nature we need to solve for.

The Fed has been much more aggressive than the ECB, and it's why the US recovered faster than Europe.

“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.” ~ Someone, supposedly Thomas Jefferson

Edit: ~ "Thomas Jefferson" changed to "~ Someone, supposedly Thomas Jefferson"

"Spurious"

* No documentation ties it to its putative originator.

* Its earliest known reference did not appear until long after the death of its supposed originator.

* Multiple sources are claimed for its origins.

* Contextual information indicates the words are of more recent origin than claimed. (deflation/inflation)

1. https://www.monticello.org/site/research-and-collections/pri...

2. https://www.snopes.com/fact-check/bank-shot-2/

One of the “Rules of Misquotation” outlined by Ralph Keyes in his 1992 book on that subject is that axiom that “Famous dead people make excellent commentators on current events.” Given the fear and uncertainty engendered by the current economic situation, and the disgruntlement expressed by many Americans at the thought of providing taxpayer-funded government bailouts to financial institutions and other large corporate entities (such as the auto industry), it was only a matter of time until someone trotted out a quotation (apocryphal or otherwise) from a respected, long-dead figure demonstrating that this whole economic mess was both predictable and inevitable. And one could hardly find a more hallowed figure in U.S. history than Thomas Jefferson to deliver this message, warning us from across the centuries that predatory banks and corporations would eventually impoverish us all. [snopes]

To be fair, within the Constitution there is a clause where the Gold standard is required for all debts and tender (https://en.m.wikipedia.org/wiki/Contract_Clause), of which Thomas Jefferson wrote the majority. Even if he didn't say it himself, the sentiment was strong enough between all parties that it was included in the beginning.

It's worth noting here that The Wealth of Nations was published in 1776.

Perhaps the people who drafted the US Constitution would have had a chance to read Smith by 1787, but I can't imagine they would have really had a chance to fully digest and internalize the ideas being presented. They were almost certainly working from a firmly mercantilist mindset.

Benjamin Franklin knew Smith personally, and was present at the drafting of the Constitution, so there is at most one degree of separation. I haven't actually read Wealth of Nations myself, but its worth noting that a lot of compromises had to be made on all sides to encourage states to actually join (IIRC the income tax was originally illegal because the initial wording implicitly said that slavery couldn't be taxed out of existence, and this was intentionally worded to encourage southern states to join).

It's more like they were familiar with the Theory of Moral Sentiments^. This work lays out the foundation of the Wealth of Nations and lays out an explanation of The Invisible Hand. From the Section 'Sixth Sense':

"Hutcheson had abandoned the psychological view of moral philosophy, claiming that motives were too fickle to be used as a basis for a philosophical system. Instead, he hypothesised a dedicated "sixth sense" to explain morality. This idea, to be taken up by David Hume (see Hume's A Treatise of Human Nature), claimed that man is pleased by utility. "

I think this is one of the first places to move away from a labor theory of value to a utility theory of value. I'm a dummy though so who knows.

Edit: Publication on or before 12 April 1759 should have had plenty of time to be read and discussed before the Contract Clause?*

^https://en.wikipedia.org/wiki/The_Theory_of_Moral_Sentiments

The trouble is that the nominally risky thing -- allowing banks to create a lot of money -- has already happened. Consumer debt is very high. Most of the borrowed cash is now in the coffers of corporations that never spend it, which keeps inflation low, but also keeps anyone from using that money to pay back what they borrowed. So they just pay the interest. Which they can do as long as rates are low.

The only way out of this is to get enough cash into the hands of regular people that they can use it to pay down their debts at the same time as interest rates increase to provide the incentive to do that. Either that means the money corporations are warehousing has to somehow get paid out as wages (which would require some kind of major e.g. tax policy change), or some other new money has to be created by the government and not banks (by fiat rather than as debt) and then transferred to regular people via a UBI or similar.

In the meantime we can pretty much keep kicking the can down the road by keeping interest rates low for an arbitrarily long period of time. We could even go further into it, because the lower interest rates are the more debt load people can carry. But that keeps increasing the amount of idle cash in the corporate coffers. Something something wealth inequality.

That is an amazing quote. It seems that the attribution to Thomas Jefferson is a little off though.

https://www.snopes.com/fact-check/bank-shot-2/

> For those saying the Fed is running out of ammunition, study what the Bank of Japan has done.

Oh you mean the economy that has been stagnate for 20 years?

GDP per capita doesn't look stagnant: https://tradingeconomics.com/japan/gdp-per-capita

This is about 1.2% annual growth fro 2010 to 2018.

Over that time, the population has also shrunk from 128 million to 126.3 million [1], so the per capita isn't as relevant. Japan's total GDP has pretty stagnant since 1995 [2].

[1] https://tradingeconomics.com/japan/population [2] https://tradingeconomics.com/japan/gdp

Capita is decreasing thanks to demographic trends, and gdp had flat lined

The US is also moving into a demographic downturn, thanks to republican policies.

Not really. The entire first world is suffering a demographic crisis but the US is doing slightly better than Europe and Japan with population set to keep increasing for the foreseeable future.

The population is only increasing due to an immigration flow that the Trump administration is busily shutting off or disincentivising in every way possible.

> The US is also moving into a demographic downturn, thanks to republican policies.

Please don't post partisan political comments without a source.

Edit: I appreciate the downvotes for kindly asking people to follow HackerNews' guidelines

Since when are sources required for basic observations on reality? Thanks to Republican opposition to providing first-world amenities to U.S. citizens (universal health care access, education access, childcare access, etc.) new generations of Americans are finding it increasingly difficult to start families. The evidence for this is multitudinous and moments away via any search engine...

Well, for starters it is against this site's guidelines

> Please don't use Hacker News for political or ideological battle. That destroys the curiosity this site exists for.

Fertility rates are equally low in other developed countries that offer universal healthcare, subsidized childcare, etc.

https://ourworldindata.org/fertility-rate

I plugged in Denmark and Portugal, and both show lower fertility rates than the US.

The unstated conclusion of your response seems to be that the absence of basic social service rights has no impact on rate of demographic change in developed countries; however, your comment appears to be focused on current measurements, and not rate of change. Keep in mind that the average American's economic position has been degrading for decades now, while the same cannot be said (to the same extent) for the citizens of the European countries you mentioned. Your source only has data through the year 2015, so I have supplemented it with projection data for the year 2020 from the CIA World Factbook [1] to more clearly illustrate the trend; the earlier date for each example I cite below is sourced from your link [2]. I've also included data for several other major countries (and the EU as a whole) that offer basic social safety rights to their citizens.

The USA fertility rate in 1990 was 1.98; in 2020 it is projected to be 1.84 (a delta of -.14).

The fertility rate in Denmark in 1990 was 1.65; in 2020 it is projected to be 1.78 (a delta of +.13).

The fertility rate in Portugal in 1990 was 1.52; in 2020 it is projected to be 1.41 (a delta of -.11).

The fertility rate in Germany in 1990 was 1.36; in 2020 it is projected to be 1.47 (a delta of +.11).

The fertility rate in Canada in 1990 was 1.66; in 2020 it is projected to be 1.57 (a delta of -.09).

The fertility rate in France in 1990 was 1.75; in 2020 it is projected to be 2.06 (a delta of +.31).

The fertility rate in Norway in 1990 was 1.85; in 2020 it is projected to be 1.84 (a delta of -.01).

The fertility rate for Europe in total in 1990 was 1.70; in 2020 it is projected to be 1.62 (a delta of -.08).

This is obviously not a thorough (or even statistical) analysis of the situation, but a cursory look at the data from the perspective of multi-decade trends does not lend credence to the notion that the availability of social safety nets has no impact on demographic rate of change in a developed country.

[1] https://www.cia.gov/library/publications/the-world-factbook/...

[2] https://ourworldindata.org/fertility-rate#the-global-decline...

Data shows [1] educated, empowered women with access to contraceptives have less children overall, and defer having children until later in life, full stop.

I also argue it is a net positive, regardless of the underlying mechanism(s), that the fertility rate is declining across the world considering the unsustainable consumption rate per capita of the first world.

[1] https://ourworldindata.org/fertility-rate#empowerment-of-wom...

This is a good point. A lower fertility rate will probably result in a better quality of life for people in the long run since there is less competition for resources

I agree with those points but I have not seen evidence for the idea that the availability of social safety nets is not also a significant factor in fertility rate trend, which I took to be the thrust of your original post.

Conversely, I haven't seen evidence that the availability of social safety nets is a significant factor. More data is required, but I still believe my theory is on sound footing based on existing fertility data.

You didn't state a theory; to the extent that you implied a theory similar to the one I described the available data does not support it at all...

I am fine with this. Bernie Sanders once said mass immigration was a "koch brothers scheme." I agree with this sentiment. Increases in GDP don't seem to help the lower class. As GDP has risen, inflation adjusted income has flatlined. As population has increased, and as housing investment gone higher, housing prices have skyrocketed.

I think you are confusing Sanders position against fully open borders vs an allowed, but controlled immigration process.

Allowed but controlled immigration is what I believe the result of Republican efforts has been. Sure, they probably want to decrease immigration even further, but they haven't gotten policy that far yet.

Looks like the population of Japan is falling faster than the GDP of Japan. So "per capita" is kinda misleading here.

I think GDP is pretty much meaningless and GDP per capita is a much more useful statistic.

These things are coupled, if GDP/capita is going up it means individuals are producing more. If this were just declining populations then per capita measures would be flat.

That's probably much more to do with their population pyramid than their monetary policy...they are a rapidly aging, insular society. If your working age population is decreasing, it's going to be nearly impossible to grow your economic output, especially when you turn away all immigrants.

If I were a Japanese retail investor in 1990 in his 30s, what would have been the best strategy? Just stay out of domestic markets and focus on areas with potential for growth?

> what would have been the best strategy?

Put your money into the USA.

Buy as many levered Japanese Government Bonds (JGBS) as possible!

0.67 Sharpe Ratio from government bonds in local currency from 1990 to 2000.

Stagnant or not the real question is what would have happened if the bank wasn't holding all those stocks? That is did buying all those stocks/ETFs successfully prop up the economy that would have otherwise gone into a recession or worse or did it cause the stagnation?

The argument could (and should more often) be made that recessions are sometimes healthy and that propping up failed or stagnant businesses or industries usually only prolongs the suffering. It also locks up resources that could be invested elsewhere in less entrenched but more promising new growth areas. So I would argue that it is likely to cause the stagnation

To use an analogy from botany, its like how certain types of plants need periods of dormancy, but its actually possible to create or install a given plant into specific environmental conditions where the inducement of dormancy is prevented, for a time... But overtime, without the time to rest and regenerate, the plant will become incredibly weak. It will stop flowering or producing delicious fruit. It will grow frail and live to only a fraction of its potential age limit. Similar to this are how efforts to reduce the spread of wildfires only ends up with a far more dangerous and uncontrollable situation down the road and the 'debt' of uncleared deadwood piles up.

Just a thought.

From a purely macroeconomic sense you're probably right but if we zoom in there's huge amounts of pain that don't go away when the economy turns around. People get worse educations because they can't afford to go to college/university or get sick and can't get treatment and wind up with long term health problems. [0] It's a problem that shows up everywhere in trying to discuss and measure how well the economy is doing, the top level numbers keep going up but it doesn't translate to the kind of generational improvements in wages or standards of living we used to see.

[0] Admittedly this is more of a problem in places without a national health service like the US.

This is a very good and thought-out comment - I don't understand why it was marked as dead.

Better than the hyper growth and subsequent pop they went through in the 80s and 90s

That's just how it is with democracy. You can either be the politician who didn't really do anything for the economy, or you can be the politician who plunged the country into a recession.

Nobody wants to rip off the band-aid, even if it's infected underneath.

Bingo. We have a winner.

> Buy stocks. Buy treasuries. Do so with wild abandon, because the Fed has your back. Just watch out for the moment when the whole thing jumps into reverse and no amount of market manipulation will stop the bleeding.

In other words, buy low sell high. Got it. ;)

It is weird for me to read this. On the surface, it is factually correct, but I am not absolutely certain the conclusions drawn are valid.

Your initial paragraph seeks to address point raised by others that FED is running out of ammunition and you list of Japan as an example with other pointing out the price Japan paid for that pollicy.

I suppose FED could buy all US equities on national credit card ( and if you think about it, something similar to it happened only few months ago ), but do you think it is a prudent move?

Prudent move? It's the only move. If it's either that or a recession, then they will do it, consequences be damned.

I disagree. You can maybe delay the inevitable correction, but it is going to come. And after the sugar rush of easy credit ends, the headache will be that much worse.

Would it not be better to face some of that pain now?

Sure, but it's also a matter of when. If you can delay it for a few decades, that's going to be enough for a lot of people to retire.

The US could just cut interest rates whenever the stock market goes down. There's no real limit to how low they can go, and as long as the investors understand that the Fed is backstopping them they'll contribute in pumping it up.

Not in an election year.

Trump will not let the recession occur, because he's so afraid of losing.

Maybe that is part of the problem. We imbue our leaders with a belief that their will alone is sufficient to stem the tide forgetting that they are only human.

This is the point of the Fed being independent - so that they can ignore Trump's tweets and do what they think the economy actually needs.

Now, they have recently done basically what Trump asks. Are they succumbing to Trump's pressure, or is Trump asking them to do what actually is the right thing?

They are independent, but not imune to pressure from a powerful person who doesn't recognize any boundaries to achieve his personal goals.

This is a problem that the Fed created for itself. In the 20th century, a recession was a normal thing to be expected, even textbooks said this. It seems now that we have a whole generation that is afraid of going through a recession and apparently will do almost anything to avoid one. The Fed created this problem by manipulating the markets to avoid recessions when they should be occurring. Now it seems that the only thing guaranteed is that the country will burst when the next inevitable one happens.

Recessions are not caused by stocks going down in value. Stocks going down in value is an indicator or symptom of a recession. In the same manner, a Coronavirus infection is not caused by a fever.

What would be the endgame here?

Just default on the debt far far down the line. Seing as how USD is still the reserve currency and they can still print, very far down the line. Keep borrowing from the future like there is no tomorrow until then, hopelly making sure the music doesn't stop playing during your political mandate period so you can get blamed for it.

I suspect it will nurture a massive structural problem few today would understand or care much about. It will be allowed to grow unabated because, frankly, there will be bigger fish to fry.

Maybe a little like subprime leading up to 2008. The problem was written off by just about everyone who bothered to look, until something snapped and it was the only thing that mattered.

We may be seeing the start of this in the repo market, which once again had a convulsion today. I doubt many care about it or really understand it, and that goes double for policy makers.

What's the term for when the government owns all the industries?

Also, what is it when everyone owns them (in varying ownership percentages of course) via index ETFs?

Marx was wrong not about if, but about how the workers would take control of the means of production!

That's the beauty of it, since the workers still don't control the means of production. But they do depend on the valuation of their "portfolios", so they're invested in the continued existence of the system, and they're pitted against each other as they are both labor and owners. But not enough owners to matter.

FED is not the government

I think there are multiple useful lenses for thinking about this:

- Signaling that the Fed is willing to get involved to stabilize market prices (by making capital cheaper) is meant to calm markets and give participants comfort about making decisions today that they could optionally wait to decide. If everyone goes into a holding pattern, liquidity is impacted, which can cause all sorts of unpredictable price movement.

- it is a wealth transfer from one group to another. The beneficiaries are existing debtors (mostly firms) and firms who benefit most from cheaper capital.

- it gives the Fed slightly more influence over the outcome of the 2020 election, since reversal of the Covid-19 rate decrease can be timed to create desirable optics as the election approaches. Much research has been done about the most critical time period prior to the election when "it's the economy, stupid" is most true.

Stock bubble -> Stock crash -> More QE -> QE fails -> Bond crash & Govt crisis -> Currency crash -> Commodities skyrocket -> Civil chaos

A long-lived Nikkei-style "bull run."

Bank of Japan had been achieving new heights of monetary policy year after year for the last 30 years with little impact on real economy.

BoJ is the biggest proof that the traditional notion that creating money generates inflation is incorrect. The issue is that inflation is narrowly defined, and will only happen when people buy daily commodities. Inflation in stocks is not considered to be inflation, although prices will go up the same way.

Housing costs in big cities keep increasing at very high rates though. Clearly this affects everyone. Food and services (ie: electricity, internet) are also rising in price much faster than the claimed 2-3% a year. Many people (myself included) believe that official inflation rate calculations are fudged (the metrics keep changing). It's in the government's interest to pretend that inflation is low.

To quote this Forbes article[1] : "the way that inflation is measured over the decades has changed numerous times. If it was still measured the same way as it was in 1990, it would be closer to 6%. Which seems a lot more accurate. If inflation was calculated as it was in 1980, it would be closer to 10%."

[1] https://forbeswealthblog.ca/2018/06/are-the-posted-inflation...

Or proof that asset inflation doesn’t trickle down. I bet if they spent the same amount of money giving cash directly to everybody there would be inflation

As he said, here's a chart that shows what's going on: https://seekingalpha.com/article/4253231-japans-stock-market...

This is devastating.

Boj doesn't have the world's reserve currency. Japanese culture allows it as the citizens buy the debt along with large institutions. The whole world owns us debt and base their notion of wealth on it. The us is not a nation of savers The two are not the same

I believe Ray Dalio when he says it's the end of the long term debt cycle and like 1937 again.

I actually think the Fed is kind of happy to have a virus as cover for this move.

What would buying stocks do for the economy?

Artificially propping up pension funds and the like, basically an indirect cash donation from the FED to the middle-class people who are over 40. We’ll see how it goes, because we didn’t really experience capitalism without creative destruction until now (which looks like the path we’re headed on).

this is a good point. there is something deeply disturbing when the Fed manipulates on a scale that controls the pricing of the entire stock market

Print money to then outbid people on price - what could go wrong?