> ... central banks across the world that lowered interest rates, way too long.

Why "way too long"? Inflation was not a problem so why exactly did rates need to rise to cool things down?

The ECB did in fact raise rates at one point... and the EU recovery stalled. Krugman for one was very critical of raising them too soon, and he turned out to be correct.

I think measures like the CPI are a woefully incomplete view of inflation. I'm not sure what would be a good alternative metric, but it seems clear from the stock market average that stock prices have been growing much faster than the historical average for the past 5 years. Unless we have good reason to believe actual growth/productivity has accelerated significantly in that time span, this suggests that things are becoming increasingly overvalued, which only ends in reversion to the mean. Maybe another way of looking at this is that inflation is affecting stocks but not consumer goods for one reason or another.

It’s kinda easy to see why inflation is limited to certain sectors — “trickle down” isn’t working! CPI rises only if the money reaches the hands of poor(er) consumers who spend all their money on essentials. But currently the money is being made available largely to large corporations (etc) who can borrow at low interest rates — and they’re choosing to spend on financial assets — which is where we note the “inflation”.

Exactly. I have a blogpost about this https://dpc.pw/my-view-on-macroeconomy

> ... but it seems clear from the stock market average that stock prices have been growing much faster than the historical average for the past 5 years.

Where does cash have to go? In Germany/Europe you have a culture of saving, so everyone stashes in "safe" accounts, and so government bond yields are at zero or even negative. Those folks would do better, both financially and for the health of the economy, to go with equities. German/EU governments would do well to spend more as well.

In the US people seem to be more culturally tuned to spending, and is "the" market to invest in world-wide, so a lot of folks are putting their money there. Potentially bidding up prices.

This is why Krugman is calling for a "permanent stimulus":

> OK, if you’re still with me: I hereby propose that the next U.S. president and Congress move to permanently spend an additional 2 percent of GDP on public investment, broadly defined (infrastructure, for sure, but also things like R&D and child development) — and not pay for it.

> The starting point for my argument is the astonishing drop in interest rates over the past few weeks. They were historically very low even a year ago, but at the time of writing the 10-year rate was only 0.76 percent. That’s below the rates on Japanese debt during the Lost Decade:

* https://www.nytimes.com/2020/03/07/opinion/the-case-for-perm...

* https://archive.is/Z2TMK

Borrowing is cheap, so if the US is going to run deficits anyway, instead of 'tax cuts for the rich', there's a lot of infrastructure that's aging that could be rebuilt.

Interest rates are close to zero because everybody wants to save and nobody wants to borrow. It's the working of supply and demand.

Savers deserve nothing special. Nobody is owed a safe investment vehicle with a positive return. If the market dictates that you have to pay people to take your money and hold it for you, then that's how it should work.

i agree with that, if it were determined by market forces. But, when the feds of the world are subsidizing low rates and flooding printing money to buy up bonds, that's not the workings of supply and demand.

I mean, it's like if you have a bananna stand, and the gov prints billions of dollars to buy banannas on the open market, and now you have to sell your bananas for 5c a piece.

If the government printed billions of dollars to buy bananas, it would show up in prices all around the economy as the money circulated.

At full employment -- which we were at up until a week ago -- the only thing flooding the market with money can do is cause inflation. We didn't have an inflation, and interest rates were still incredibly low.