Maybe around the time all restraint has been abandoned - assets held by the Fed have expanded by 8x in the last 10 years (the story is the same for most large central banks).

https://fred.stlouisfed.org/series/WALCL

We already see the impact in massive asset price inflation over the last decade, a distorted bond market, growing inequality, an inefficient stock market, and a proliferation of scams and fraud. This is not going to end well and MMT is not a panacea.

How do we now leave ZIRP and QE without crashing markets and entering another depression? They have already tried several times to exit and had to abandon it.

Why doesn't the US/EU/UK/Japan all have run away inflation?

And, what is your alternative plan to quantitative easing (QE)?

We could return to the times when governments didn’t buy their own debt using an intentionally convoluted and obscure process involving third parties in order to prop up asset values and suppress risk free yields.

See the linked graph above for evidence of just how abnormal the last decade has been.

QE is a failure on its own terms. It was to be targeted and of short duration and to promote growth and suppress inflation. None of those objectives were achieved and we’re now addicted to it in ever increasing amounts, along with zirp. What do we do when the next crisis hits if we don’t normalise rates and bond buying again? How will the bond market function when the gov owns more than half its own debt? How will stock markets function when governments step in to buy even corporate bonds indiscriminately with new money?

The US does have runaway inflation of financial assets, due to the policies of the Fed. Housing and stock prices have been growing at a ridiculous rate for years. The country hasn't tripled its entire productivity in the past decade, but the stock market has been acting like it.

You raise an interesting point about Fed policies (QE) and housing prices. The UK/EU/Japan all use extensive QE. The wealthiest (per capita) economies of EU (France, Germany, Italy, Belgium, Netherlands, Nordics) are not experiencing huge increases in housing prices. Actually, France, Germany and Italy are not very good places to buy houses from an investment viewpoint. Except for center of most economically important cities, most housing in those countries grows at inflation or less. And Japan certainly does not have run away housing prices. Again, they increase only slightly more than inflation.

My point: I think housing prices in Australia, New Zealand, Canada, US, and UK are "out of control" because we read a lot of English-language media about the richest places in those countries where housing supply is highly constrained. As a result, it seems like housing prices are run-away. But no one is saying that about Perth, Australia, or Leeds, UK, or Minneapolis, Minnesota, US, or Ontario, Canada. Do you see my point?

Another thing to consider, most regions of France and Germany carefully plan how much housing supply is needed, then build it -- public or private. This seems to work very well to keep housing prices very stable and affordable for middle class and below.

And Japan has national and universally applied land usage and building codes. It is almost impossible to practice "NIMBY-ism" in Japan. So plenty of houses get built, even in very crowded places like Tokyo, Nagoya, and Osaka.

That's an interesting perspective with some ideas I wasn't aware of. Thanks for the thoughtful response.

default on the currency and never borrow again. Start following a policy of: Pay for everything this year using last year's tax receipts.

That would neither be necessary nor particularly helpful.

I think you're really talking about a soft default here with 'default on the currency' (normally you default on debts, not currency), which is in fact the current policy of risking inflation to get rid of debts, but then you're following that up by suggesting austerity, which was also tried as a response to 2008 (the UK is a prominent example), and failed miserably as well.

There's nothing wrong with borrowing for counter-cyclical spending, or with borrowing in general IMO. There are other answers than borrowing to pay for everything or never borrowing and during a recession a little government support (monetary and fiscal stimulus) can go a long way.

What is wrong and dangerous IMO is to pretend that we don't need taxes any more and that countries can simply print their way out of any problem (as has become orthodoxy with MMT). This used to be called debt monetisation, and was frown upon as debasing the currency in this way usually eventually ends in financial crisis and/or hyperinflation. We'll see where it leads as this is the policy we've been pursuing since 2008 and supercharged in 2020 as you can see in the graph above.

https://en.wikipedia.org/wiki/Debt_monetization

> There's nothing wrong with borrowing for counter-cyclical spending, or with borrowing in general IMO

1. You're stealing from the poor (via currency devaluation) to give to the rich (via government grants, if you are struggling in the tenderloin you are not getting a SBA)

2. Contemporary ethical government is predicated on the principle that the actions of the government have the consent of the governed. Sure, you can't always have that, but you want to try not minimize not getting the consent of the governed. If government borrows money, then people who could not have voted against the borrowing of that money are enjoined to pay it back (for example, people who became of the voting age after the act of borrowing). If you go to a pay-go system, the voters have approved of the taxation and the voters have approved of the use, and the chain of consent is not broken.

"default on the currency and never borrow again"

I am struggling to believe this is a serious suggestion.

Can you please (oh please HN don't down vote me!) provide more details?

Almost all highly industrialised, wealthy nations are heavily dependent upon trade. If you default on your national debts to foreigners, they are very unlikely to want to trade with you in the (near) future. How to do you propose to overcome this issue? See Argentina!

oh there is no doubt that everyone will be pissed off at the US for defaulting on the dollar since debts are denominated in it. But honestly, TINA. Due to demographics (we had milennials) the US is one of a few robust, rich, markets where you can sell your sh*t, so people will still want to trade with americans, regardless of what the government does. Finally, the US is not as dependent on foreign trade as you think. It has the lowest GDP:trade ratio of any country in G20 (worldwide it is in the very bottom: less than cuba and more than pakistan, and only above nigeria, afghanistan, ethiopia, and sudan). The US is even a net food and energy exporter, so it could probably survive a lowered trade volume. Everyone else would "be rekt", though. It would really suck for ecuador.

> See Argentina!

Perfect example. The country defaulted and it's honestly not a terrible place to be, considering what it's been through. Not everything is an exact parallel, but compare it to Brazil, where the country inflated instead of defaulted.

The problem with austerity is that it is incompatible with everything else. You have to sacrifice something to obtain it. Either reducing global trade or increasing regulation (primarily more taxes on bad behavior) to keep companies in check.

Usually austerity is coupled with drastic reductions in expenditures, both for infrastructure and things like social welfare. This kind of stuff regularly drives ruling parties out of power and leads to protest and revolt.

Not a good choice if you can avoid it!

The problem with austerity is that most countries implemented it were forced into doing it and, due to the particulars of that political relationship, chosen to cut social services instead of cutting cronyism, which is also politically calculated to cause as much pain as possible for the poor and create an unpopular sentiment against austerity and coerce the entity imposing the austerity into ending it.

With interest rates trending ever lower since then. The only reason to hold government debt right now is to park large amounts of cash that can't otherwise be parked. Bonds are a terrible investment now.

What happens when the only way the state can sell debt is to print the money and buy it itself? What happens in the next crises when we need to stimulate the economy and rates are still negative?

At some point you can't keep kicking the can down the road. When do we reach that point? Are we there now?

I'm not a doom and gloom kind of fellow, but this does not appear to be sustainable to me. As with climate change, destruction of ecosystems, and draining groundwater reserves, all unsustainable practices come to an end. Abruptly if not planned for. It looks like we're nearing that point with monetary policy.

>With interest rates trending ever lower since then.

Clearly not, the peak was in 1981 which is more than 50 years after the Great Depression: https://advisor.visualcapitalist.com/us-interest-rates/

>>>With interest rates trending ever lower since then.

We are at crazy lows compared to most of this time frame.

That's missing the forest for the trees. No, it's not a continuous straight line down. But the trendline is, which is what I talked about.

How far negative can you go before it becomes ridiculous? If your bank has -50% interest, is that not effectively the same as hyperinflation?

It can continue until people start withdrawing physical cash in large amounts, which will happen when the negative rate starts outweighing the cost and risk of storing cash.

After that, further decreases of the interest rate can only work if cash withdrawals are restricted to prevent bank runs, or alternatively if the value of physical cash and digital deposits are decoupled. The IMF has posted something about the latter option[1].

[1] https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-nega...

If interest is -50% those bonds must truly be worthless. Seriously, if you can't find solvent borrowers at -49% something is really wrong with your economy.

Considering that central banks for highly industrialised, wealthy nations normally move in 25bp increments, moving from -50bp to -50,000bp seems... well, a lot of central bank meetings. Are you proposing run away deflation? We have never seen it since the industrial revoluation stated. If the risk is real, why aren't we seeing more academic papers about this subject?

But we don't need money, the government can tell us exactly what to do and where to go work, so that way we can run the economy at 100% efficiency. /s

This is the equivalent of saying: This is being practiced successfully throughout the world for the last 80 years

Does that give you confidence? 80 years doesn't seem long to me.

80 years is short enough that we can’t be confident that it’s some rule of human societies, but it’s also much longer than any other recorded bubble has ever lasted. At 80 years the burden of proof is beginning to shift from those who think the system will work tomorrow the same as it worked today, and onto those that are predicting doom and sudden change.

I’d also like to point out that prior to the current system, market panics occurred significantly more often than once in 80 years. So if we’re comparing the system we have today and the system that existed 80 years before it, the current system seems measurably more stable.

80 years is longer than the average life span of most highly developed economies. In short: It is a lifetime. It seems long to me.

And 80 years is roughly 50% of all years of industrialised economies that started around 1850. Recall that the world economy had zero growth per capita until the industrial revolution started around 1850.

80 years is longer than most constitutions. The current French Republic was created in 1958, 63 years ago. In fact 80 years covers three French constitutions. China’s constitution is from 1982, and Finland redid theirs in 2000.

Of the countries part of the UN, only 14 countries have a constitutions older than 80 years. The oldest is the US in 1788, and the youngest is Ireland in 1937.

what is your definition of "success"? Is the divergence between productivity and wage growth success? Also, over and over countries have tried to stimulate their economy with the printing press and had some rather... unsucessful experiences, with extreme examples being yugoslavia, zimbabwe, venezuela. And some more mild but still painful experiences including brazil and argentina.

Predicting timeframes is tricky. An inflationary spiral by its very nature is an exponential process, so you can seem fine for a while and then all of a sudden there's no way out except through a singular process and things are really bad.

Just because you can't be sure when a ponzi scheme will collapse doesn't mean its not a ponzi scheme.