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What causes interest rates to rise?
Topic Started: 5 Oct 2015, 10:18 PM (3,089 Views)
Sydneyite
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Jimbo
7 Oct 2015, 07:48 AM
Maybe 10 trillion dollars of new sovereign debt since 2007 might have had a hand in it?
So are you arguing that QE/ZIRP actually did work to create employment and GDP growth? And that sovereign debt increasing was/is a consequence of that? Or are you on the side that says it was all waste of time/money and achieved nothing? Ie US employment/growth outcomes would have been the same without ZIRP/QE etc?
Edited by Sydneyite, 7 Oct 2015, 10:06 AM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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peter fraser
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Sydneyite
7 Oct 2015, 09:08 AM
So are you arguing that QE/ZIRP actually did work to create employment and GDP growth? And that sovereign debt increasing was/is a consequence of that? Or you on the side that says it was all waste of time/money and achieved nothing? Ie US employment/growth outcomes would have been the same without ZIRP/QE etc?
Jimbo doesn't seem to ever mention the assets bought by that debt that cancels out the debt in the long term.

A short sighted bookkeeper.

Any expressed market opinion is my own and is not to be taken as financial advice
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Strindberg
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Sydneyite
7 Oct 2015, 09:08 AM
So are you arguing that QE/ZIRP actually did work to create employment and GDP growth? And that sovereign debt increasing was/is a consequence of that? Or you on the side that says it was all waste of time/money and achieved nothing? Ie US employment/growth outcomes would have been the same without ZIRP/QE etc?
QE, in direct terms, is entirely neutral with respect to government debt, although there may be some indirect effect on debt by QE.

The US increase in government debt since 2009 is entirely the product of the US Treasury choosing to borrow and spend more.

If you take the government to be the sum of the Treasury and the FED (which it is for accounting because FED debts and credits are ultimately the Treasury's debts and credits) a QE transaction has no effect on government debt. If the FED buys $1T of Treasury bills it can be said that the government no longer owes that $1T of Treasury Bills since via the FED it has got them back. However, in buying those $1T of Bills the FED had to create a new liability of $1T in currency, effectively for the Treasury, replacing the liability for the Bills. The FED balance (and the Treasury balance) is unchanged by the QE transaction at the time of the purchase.

The borrowing and spending by the Treasury may have reduced unemployment and increased GDP. But there is a price to be paid in the future. The Treasury will be required to extract future private sector money (in the form of taxation or more borrowing) in order to repay the borrowings of the last years and make the interest payments. Is there a long term advantage to the private sector in ever increasing government spending and debt? I doubt there is.
Edited by Strindberg, 7 Oct 2015, 10:22 AM.
Housing costs to Income broadly unchanged since 1994 - re-ratified here
The People of Australia have the highest median wealth in the World
2002-2012 10 year house price growth the SLOWEST since 1952-1962
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deluded
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Sydneyite
7 Oct 2015, 07:31 AM
Stop avoiding the question with gibberish like that please! :re:

My question is a simple one - if there had been no ZIRP and QE, would US unemployment be higher or lower than now? How about GDP growth? The measures are exactly the same in either scenario.
I'm not playing games. Once you've told me what those statistics actually mean to you, then I will try to answer. But I can't just talk about a number that has no meaning attached to it.

For example, take the unemployment figure. One person may say "this statistic shows us that the strength of the labour market has been continually improving since 2008", while another may say "this statistic is uninformative because it does not allow a fine-grained analysis (real wage growth, overall participation rate, employee satisfaction, employee productivity, etc.) of the labour situation in the USA.

I'm assuming you're conclusion runs something along the lines of the former interpretation. But I'd like to be certain before I rush headlong into an answer, only tofind out I was answering the wrong question.

I really hope you're not just looking at those numbers and saying they mean something in and of themselves? Please don't tell me that is the case.
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Strindberg
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peter fraser
7 Oct 2015, 09:59 AM
Jimbo doesn't seem to ever mention the assets bought by that debt that cancels out the debt in the long term.

A short sighted bookkeeper.
What assets are purchased with Treasury spending?

Most Treasury spending is on health, social security and defence.

https://www.nationalpriorities.org/budget-basics/federal-budget-101/spending/
Edited by Strindberg, 7 Oct 2015, 10:13 AM.
Housing costs to Income broadly unchanged since 1994 - re-ratified here
The People of Australia have the highest median wealth in the World
2002-2012 10 year house price growth the SLOWEST since 1952-1962
"There are two kinds of people in this world: ones that fiddle around wondering whether a thing's right or wrong and guys like us." (Hugo to Gagin in Ride the Pink Horse)
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Jimbo
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peter fraser
7 Oct 2015, 09:59 AM
Jimbo doesn't seem to ever mention the assets bought by that debt that cancels out the debt in the long term.

A short sighted bookkeeper.
An asset bought with debt is only worth as much as another buyer can borrow.
Strindberg
7 Oct 2015, 10:05 AM
What assets are purchased with Treasury spending?
QE is nothing to do with government spending.

It is a quality asset swap.

It has nothing to do with governments wasting vast amounts of future taxpayers money on keeping the ball rolling.

Nothing to do with that sort of thing at all......
Edited by Jimbo, 7 Oct 2015, 10:46 AM.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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John Frum
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Sydneyite
7 Oct 2015, 09:08 AM
So are you arguing that QE/ZIRP actually did work to create employment and GDP growth? And that sovereign debt increasing was/is a consequence of that? Or you on the side that says it was all waste of time/money and achieved nothing? Ie US employment/growth outcomes would have been the same without ZIRP/QE etc?
I don't think that QE/ZIRPs effect was negligible.
If you listen to some of what Bernanke has to say you realise that he studied the great depression and observed the dire effects of a financial system locking up. Mass unemployment and poverty. So he really wanted to avoid that.

And in some ways they (central banks) have. Unemployment never rose to the heights of the 30's, the government was solvent enough to distribute food stamps to help ease the pain for those cast into abject poverty.

The problem is they've let it run for too long, way past the point where it has served any useful purpose. QE/ZIRP is palliative medicine, its purpose is to grease the engines of an economy but central banks are using it like fuel, and as a consequence the've created massive inequality within the western world by distorting risk and pushing up asset prices.

People might still have jobs, but for the most part they're shitty menial low paying ones, with little career advancement prospects.

You might call it a pyrrhic victory.
"It were not best that we should all think alike; it is difference of opinion that makes horse races." - Mark Twain on why he avoids discussing house prices over at MacroBusiness.
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Strindberg
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Jimbo
7 Oct 2015, 10:41 AM

QE is nothing to do with government spending.

It is a quality asset swap.

It has nothing to do with governments wasting vast amounts of future taxpayers money on keeping the ball rolling.

Nothing to do with that sort of thing at all......
Exactly.
Housing costs to Income broadly unchanged since 1994 - re-ratified here
The People of Australia have the highest median wealth in the World
2002-2012 10 year house price growth the SLOWEST since 1952-1962
"There are two kinds of people in this world: ones that fiddle around wondering whether a thing's right or wrong and guys like us." (Hugo to Gagin in Ride the Pink Horse)
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Sydneyite
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Strindberg
7 Oct 2015, 10:49 AM
Exactly.
Yes, and that's (part) of the point I was trying to make when sovereign debt was brought into the discussion by Jimbo originally.

My question is raised in the context of those claiming that QE/ZIRP was a "waste of money" and in-effective. Frum just gave what I think is reasonable answer to my question - which i will address next.
John Frum
7 Oct 2015, 10:46 AM
I don't think that QE/ZIRPs effect was negligible.
If you listen to some of what Bernanke has to say you realise that he studied the great depression and observed the dire effects of a financial system locking up. Mass unemployment and poverty. So he really wanted to avoid that.

And in some ways they (central banks) have. Unemployment never rose to the heights of the 30's, the government was solvent enough to distribute food stamps to help ease the pain for those cast into abject poverty.

The problem is they've let it run for too long, way past the point where it has served any useful purpose. QE/ZIRP is palliative medicine, its purpose is to grease the engines of an economy but central banks are using it like fuel, and as a consequence the've created massive inequality within the western world by distorting risk and pushing up asset prices.

People might still have jobs, but for the most part they're shitty menial low paying ones, with little career advancement prospects.

You might call it a pyrrhic victory.
Yes OK. I can at least accept this as a reasonable point of view. Only time will ultimately tell if it really has gone too far and will cause a big blow up as a result. However, I'm glad to see you acknowledge the fundamental reason why Bernanke took the Fed down that path. I agree it was done to avoid the absolute misery of the great depression - and I think he did achieve that. The key was to stop the financial system from freezing up completely for a prolonged period of time - and that did very nearly happen. If it had not been addressed (and quickly) the US would probably have 20% unemployment and 10s of million living in abject poverty even now 6-7 years after the "trigger" event, plus even more sovereign debt, and very little hope for recovery short of starting WWIII or something.

So in that sense, I think it is wrong to claim ZIRP/QE "did not work". But yes, the long term impacts of the policy remain to be seen. While some distortions have been created, I think in the long run the net outcomes in aggregate will prove far better than the awful alternatives that were faced, that seem to be supported (wished for?) as "better" outcomes by many here who see the US response to the GFC as a waste of money and ineffectual.
Edited by Sydneyite, 7 Oct 2015, 11:06 AM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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Strindberg
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We seem to be at cross purposes.

Jimbo wrote "Maybe 10 trillion dollars of new sovereign debt since 2007 might have had a hand in it? "

I understood Jimbo to be suggesting that the unemployment and GDP apparent improvements were perhaps due to the massive increase in government spending rather than QE (which did not increase government spending or debt at all).

I tend to agree with Jimbo on this. Issuing another $10T of debt and pumping the proceeds back into the economy on day to day government spending probably had a much more stimulatory effect than the FED QE action of giving rich people cash for their bonds (which the rich could have converted to cash at any time anyway). That $10T has given the Treasury a future liability to return it to the private sector with interest. The Treasury can, by law, only do that by additional taxation or by issuing more government debt.
Edited by Strindberg, 7 Oct 2015, 11:54 AM.
Housing costs to Income broadly unchanged since 1994 - re-ratified here
The People of Australia have the highest median wealth in the World
2002-2012 10 year house price growth the SLOWEST since 1952-1962
"There are two kinds of people in this world: ones that fiddle around wondering whether a thing's right or wrong and guys like us." (Hugo to Gagin in Ride the Pink Horse)
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