I think that in the fullness of time, it will be seen that today’s high asset prices were directly and unambiguously a consequence of extremely low interest rates and the creation of money by central banks and nothing more than that. When returns on lending are low, investors have to switch to riskier asset classes in order to generate the returns that they need to service their future cash flow requirements. For example, pension funds have to generate a certain amount of cash flow to cover their future pension liabilities, which are fixed and unchangeable. When central banks make money cheaper by lowering interest rates, pension funds have to shift to classes of assets that generate higher cash flow, even if that means taking on more risk. They don’t really have a choice in the matter.

There is a positive feedback loop here. Low interest rates cause large investors like pension funds to shift to riskier assets. This stimulates the risk appetite of retail investors, who pile in when they see the trend of increasing prices in these riskier assets, such as stocks and houses. The increase in asset prices reduces the effective returns on those assets, forcing pension funds another large investors to shift to even riskier things, like venture capital. Rinse and repeat.

I suppose nobody can say for sure that there hasn’t been some kind of long-term shift in global economic growth because of changes in technology, but it sure seems to me like cheap money is a more reasonable explanation for all of the craziness we have been seeing in the past year or two.

I'm not so sure - it depends on how heavily leveraged buyers are and what % of them have used price increases to secure more capital. If your home has significantly appreciated in value but you haven't taken equity out of it, it could be said that you were leaving money on the table but only if you knew of a better investing opportunity. If you just let the property appreciate and didn't securitize that gain, a decline from peak values doesn't hurt because you have no loan to service.

This source [1] also says HELOCS or 2nd mortgages are only 8% of owners, 1/2 of what they were in 2009. But that was 2018 maybe pandemic upped the %.

So to get another 2007 meltdown this thesis would be that a lot of people would have to lose their jobs first. Interest rates going up wouldn't matter if they make the same (or more) money.

But could argue collapsing real estate values would cause weak job market.

[https://www.socialexplorer.com/blog/post/once-viewed-as-easy...]

The problem with this is in what the Fed does with the new money. They currently use it to buy back government debt, which goes to the rich, i.e. existing bondholders. What they should do is to give it out to all citizens equally, which is the opposite of screwing the poor.

By magical means of course.

Inflation is a sneaky way to give the poor a wage cut. How else do you suppose the fed is supposed to be able to increase employment using inflation?

Edit: down voted, ok here is a citation from an economics Nobel laureate:

https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...

> when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation would lead to lower unemployment

By its very nature, giving laborers inflation-matching pay raises counters the explicit, intended policy effect of using inflation to increase employment. Or, your employment model could be relying on "let's use increasing prices to light a fire under people's asses to get them to look for jobs". Which, if you ask me, as a neoliberal programme is far crueler, far more pernicious, than any slash-public-services scheme that fiscal conservatives dream up.

Suppose we print a bunch of new money and hand it out to everybody. Now people have money in their pockets and want to spend it, so demand goes up, so prices go up, and we get inflation.

But most goods and services have elastic supply. We can make more of most things given higher demand. So companies make more of stuff and have to hire more people to do it; unemployment goes down. Hiring people is supply and demand again. Demand goes up, wages go up.

Then, if you stop printing money, the demand (in real dollars) goes back to the original level once prices and wages have both increased. If you continue to do so (i.e. a constant rate of inflation), the extra demand is sustained by the continuous infusion of money.

Now suppose you do the same thing, but instead of giving the new money to individuals, you give it to the rich, or to borrowers in the form of low interest rates. They use it to bid up housing prices. Then people have to work more to afford the same house or apartment, which lowers unemployment. This is obviously bad and screws the poor.

The most important thing is who gets the new money. It needs to go to individuals, not borrowers, not institutions.

Government by its very nature must generally give out newly created money to the wealthy (handing out money to the public directly does not get low income housing built, or highways, or military bases, or warships, or scientific research... To "get shit done" you must give it to already-wealthy contractors), and by its current construction, the interest payments to create that money goes to banks. Now if you want to argue that "government maybe should not be doing a lot of that shit", perhaps you do have a concrete proposal for reducing the wealth divide.

Why?

Last year they sent everyone a check. They could do that.

Sure, they can do that sort of thing from time to time to make people like you happy, but the primary spending of government, as in, "to do shit", cannot be structured like that.

Are you arguing that 100% of government spending should be stimulus checks?

I'd be down. Count me in on your reform program.

In a bout of inflation, not all prices increase at the same rate at the same time; this is known as the Cantillon effect (https://en.wikipedia.org/wiki/Richard_Cantillon).

The rich own assets, they financed these assets with debt. Debt becomes less burdensome with inflation, increasing their equity.

At the same time, lendors lose with inflation. But who are the predominant lendors now? Life insurance companies, pension funds, mutual funds, household / nonprofits, state and local govts., etc.

All of these institutions seem to be an aggregation of middle-class / poorer people vs. elites.

If you're Elon Musk you own Telsa. You're main source of liquidity is likely cash from a revolver[1]. During inflation, your debt becomes relatively smaller to your Tesla equity. Your net equity becomes larger.

I think this just leads to more inequality, more corporate control, and weaker labor bargaining power.

We'll see - hope its ok.

[1] form of debt, where Elon is the lendee and is using Tesla stock as the collateral

This is a pretty bold statement given that it is the opposite of all conventional wisdom, and historically those concerned with the poor have argued that inflation is a way for the rich to rob the poor. For example, the "misery index" in the 70s was the sum of inflation and unemployment, because it tracked how much wages were falling and how much unemployment there was.

So this "new economics" that says inflation is good for the poor is pretty stunning -- is it something you figured out on your own or do you have a reference for statisticians or economists making this case?

> Statistically, the wealthy have way more cash than the poor, while the wage-earning population will get increased income along with inflation.

Let's take a look at what is going on:

Over the past year inflation is up 6.2%, so let's deflate:

    - real SP500: +25% 
    - real bonds: -7.8% (PIMCO total return)[2]
    - real wages: -1.2% (using BLS data)[1]

Now definitions of "rich" are always arbitrary, but if you are rich you have most of your wealth in the form of assets -- stocks, bonds, etc. If you are poor, most of your wealth is your future labor - wages. That's another way of saying that the rich make money from passive income while the poor have to work.

So inflation reduces wages but the effect on passive income is mixed. Stocks go up and bonds go down. A typical wealthy person will own a mix of stocks and bonds and will generally own more stocks than bonds, so on balance their holding of equity protects them and their wealth still increases. But that's not true for the poor, who have only their wages.

This is why conventional wisdom about inflation mostly hurting the poor is correct, and the galaxy-brain takes that inflation helps the poor and hurts the rich is incorrect. Wealthy people can shield themselves from the rising cost of consumption while the poor cannot.

[1] https://www.bls.gov/news.release/realer.htm

[2] https://www.pimco.com/en-us/investments/mutual-funds/total-r...

Also the elephant in the room is that property taxes are a derivative of your net worth, not your income. So if paper wealth (due largely to RE) continues to outpace income then we're in for a big hurting soonTM.

This is the hilarious part about critics against a wealth tax - we already have a wealth tax. I live Texas and people are about to have a brutal wake up call when they can't afford $10k/year in taxes because their $200k ranch they bought 5 years ago (and cost them $40k down) is now worth $500k.

Note - I have mixed feelings about the proposed wealth tax. The proposed implementation was misguided.

I do have a friend that has 100% service-connected disability... And Texas has a 0% property tax for veterans with that categorization. He's thinking about moving

But probably better if they didn't have zoning.

Climate change and sealife collapse is getting pretty serious for SE Asia and I don't know what to believe about India water supply.

These price fluctuations matter for people who either want to invest into real estate or withdraw previous investment, not for people who want to live in their current house.

I'm sure I'm preaching to the choir, but this is a terrible strategy. In a perfect world it cuts the interest payment a lot, but the risks are significant.

a lot of everyday people will tell you that just won’t happen. that governments perceive the risk of falling home values to be so large that they will do everything in their power to prevent that from happening.

That is one of the causes of high asset prices. Another is that cheaper debt allows more people to borrow money to buy assets.

> If paper wealth takes a shit the people that will be impacted will be retirees and the wealthy, not your average joes.

If paper wealth drops average joes will also be affected. Employment depends on consumer spending, and a big drop in asset prices can have a significant impact on spending through wealth effects (https://en.wikipedia.org/wiki/Wealth_effect)