cthrow

Good timing actually - a paper came out today from the Federal Reserve Board. Supports the finding that QE1 and QE3 significantly lowered lending standards and increased risk taking among banks:

https://www.federalreserve.gov/econres/feds/files/2017093pap...

It's all a matter of technicalities and definitions :)

You are consuming housing when you pay rent/mortgage. A house is built, and then its owners consume it in "housing units", or rent those "housing units" to other for consumption.

Likewise that ground beef you have in the fridge is an asset - you can sell it to your neighbor at any point before you consume it.

Equity is a claim on a company's assets. If General Electric goes bankrupt and you own GE stock, you will get paid out (after everyone else) a share of the bankruptcy proceeds. So in a way you own some of what GE produces, some of the inputs it consumes, etc.

You can look at literally any transaction as an investment into an asset (generally durable goods) or the purchase of a good for consumption (generally non-durable goods). It depends on how you want to record it on your personal balance sheet...

I think we mostly agree, and I am pretty fed up with the situation too. It is painful to be raised in a system that seems to pride itself on freedom, social mobility, hard work, and meritocracy, and then to get into the labor force in the middle of a great stagnation and discover that reality is much different than the ideals you were raised to believe in.

I just don't have enough economic knowledge to say with confidence that unemployment would have bottomed out without QE2 and QE3, and that monetary policy post QE1 has been bad/unnecessary. I have to defer to CBs judgement on this matter.

If you have studies/data to the contrary I would definitely want to read them.

If you work in embedded, start to shift your focus into IoT. Internet-connected systems are the ones producing and storing the data necessary for data science/ML to happen. Experience with the data ingestion layer IoT cloud platforms (AWS IoT, GE Predix, Azure IoT Hub) could help you transition to higher level data analysis roles, especially if you can demonstrate your domain expertise with embedded systems. If you are working with Matlab along w/ Simulink, you should check out ThingSpeak: https://www.mathworks.com/products/thingspeak.html

If you are working deep embedded/legacy products or purely on the hardware side, you may need to grab an ML course/certificate to signal your interest, or just network really hard. Having embedded engineering skills can't hurt though.

Wages haven't gone up, so while you may have shifted allocation of purchases within the CPI basket, your total spending is probably around the same as it was last year, and the year before that.

EG you buy more electronics and gas (cheaper), and less clothing and food (more expensive), but your overall spending remains ~50% of your income, which hasn't changed.

Wages are usually the primary driver of higher CPI measured inflation.

Inflation has occurred outside of CPI basket, most notably in equity markets and real estate prices in large urban cities - and bitcoin :)

While it's easy to blame CB's for the past 8 years of stagnation in developed economies, I don't think it's their fault. It's also very hard to say what exactly is the right amount of repurchasing through QE (1.3T in QE1 vs. 4.5T total).

CB's just kept repurchasing until unemployment bottomed out, and now that we've hit the bottom, they will start to shrink their balance sheets. That's their mandate - maximize employment, keep consumer prices relatively stable.

All CBs can really do is make sure banks have enough money to lend into the economy by adjusting reserve requirements and interest rates. They could massively screw up the economy by jamming interest rates up right now, or dumping all their purchased QE assets back on the market, but they can't really improve the economy strictly through monetary policy.

That would require better fiscal and regulatory policy, such as tax code reform, increased spending on R&D and infrastructure, spend on education, etc. Even then it's not guaranteed this spending would lead to any technology-advancing breakthroughs that could raise the standard of living across the economy.

Ultimately I believe that low productivity (we've hit a ceiling on the returns to the internet, computer, and smartphone for the moment), plus a lot of the rest of the world catching up in terms of infrastructure, is to blame for the stagnation.

Alternative in 2008 was to let the banking system collapse, then rebuild from scratch.

Personally I believe many older/sick people would have died if central banks hadn't dropped interest rates and embarked on QE asset purchasing schemes to keep the system afloat.

Credit/lending would have all but disappeared for a while, many would have lost access to financial instruments necessary to secure housing, healthcare, insurance.

As a young person I'm not happy that we've propped up the status quo, that my rent is stupidly expensive, and that the majority of recovery has gone to the wealthy/those who owned existing equity/assets/real estate, but I can see why it was necessary.

Quick summary:

Overnight rate directly affects the prime rate, the rate at which commercial banks loan to their least risky customers. In the US, prime rate hovers 3% above overnight rate (federal funds rate). You can see that relationship here: https://fred.stlouisfed.org/graph/fredgraph.png?g=eY9Y

In basic economic theory, when interest rates go up, the economy slows down. Higher interest rates encourage saving/purchasing safe assets, and make lending/investing in risky assets or new business ventures more expensive. Banks generally make less loans that fuel direct economic activity when interest rates are higher.

Context/So What:

Canada's economy showed strong signs of growth and low unemployment, so the central bank decided to bump up the interest rate a bit while the data supported the decision to "cool off" the economy.

OK, so commercial loan interest rates will rise 0.25%. Not a huge deal for majority of the economy.

More importantly, the central bank is slowly gaining back the overnight rate as a tool for monetary policy. Many central banks are unwilling to drop the overnight rate below 0%, effectively taxing banks for the reserves they are usually mandated to hold with the central bank.*

If the Bank of Canada can continue to bump the overnight rate up to traditional 4-5% level, it can then cut the rate again to spur economic activity in the case of a downturn. The closer the overnight rate is to 0%, the less effective the rate is as a monetary policy tool.

Personally I believe it will be a long time before we see 4-5% overnight rates again, but overall this is a reaction to good economic news. It happened before investors expected, so the markets are buzzing about it a bit, even though the small bump will probably not have a large impact on Canada's economy.

*BoC actually has no reserve requirements: http://www.bankofcanada.ca/1997/04/working-paper-1997-8/

I went to babson, took a few classes at olin, my thesis advisor was an olin grad.

Many of the olin students are brilliant, quirky, very progressive, want to give back with their high quality (and what used to be 100% fully funded from endowments and grants, think its 50% now) education. Think this is a large point that gets overlooked - graduate an engineering degree debt free and it is easier to give back through a start up or social venture :)

Huge emphasis on actually building things in capstone classes. Fantastic faculty and amazing machine shop resources for such a small school. Some of the best students in my negotiations and accounting classes were from Olin. Additionally wellesley college is a 10 min bus ride for access to top-notch liberal arts classes. Lucky to have that mixture for sure.