Forums

[sebastian_dangerfield]

Its really not. Your savings are only being debased if you've got them tied up in long term fixed-rate investments, or they are in cash. Anything earning a variable return should also benefit from higher rates of growth and employment that are associated with higher inflation.

You're aware how the old invest, right?

Will that be enough to fully offset the inflation? Who knows. But it's not a simple story that savers lose from inflation, and right now we really should be more concerned about getting the debtors (basically all of us) to a healthier place.

Yes it is. We've been coddling investors for four years at cost to youth and workers. The disequilibrium needs to be corrected. If you're an investor and haven't built back up decently from 2008 by now, and aren't prepared to shield your money, you deserve to lose when the second wall of the hurricane comes through.

I'll argue that we can go right back to tighter money and higher unemployment if we start heading down the path of higher than desired inflation.

The best we can get with blunt monetary policy is selective inflation. Essentials will spike. Housing? Not a fucking chance... and that's the stone around our necks

Because it's nearly impossible. Who do you get in a room to shrink the nation's collective mortgage debt?

Allow bkcy modification of mortgages. The banks will start writedowns and modification in earnest very quickly after that.

I know you're fixated on certain inter-war economists who thought Depressions served a purpose, but that's an attitude the profession abandoned long ago. First and foremost because the Great Depression proved them wrong.

No I'm not. They don't serve a purpose. But they happen for a reason, and when they occur, to fight them endlessly with monetary policy is simply to prolong the things.

Accepting for the sake of argument that this is a good thing, you seem to be ignoring the tremendous cost of going this. You're talking about making many individuals permanently poorer (some never recover from long term unemployment) and potentially also the nation as a whole. If those costs can be avoided, why wouldn't we?

This is different from the current situation how? I'm arguing for accelerating the process we're already following. All those horrible things are happening anyway. On Hayek's timetable, it'll go faster.

Yes, and that's why we need looser money. Lenders need to have enough base money to be comfortable lending.

We need jobs. Credit is not jobs. Unless you believe in "job creators." The notion we'd fix unemployment if only businesses could borrow to hire, or consumers could borrow to spend, is nonsense. We need wage-created economic activity. And we can't get it because labor here is too expensive, and more and more, what we want is made elsewhere, or delivered via digital means. Stimulus is a cure for yesterday's depression. Even Rogoff, who wrote about why it's never different, is admitting this time it actually is different.

What's your proposal and how can we make it work? Assume that no one is going to advocate purposely inflicting a ton of pain to get there.

For starters:

1. Allow bkcy modifications of primary residence mortgages;
2. Allow bkcy discharge of student loan debt to 50% of face;
3. Expand HARP to cover all underwater homeowners with closing costs capped at $1000;
4. Reduce bankruptcy refiling bar from 7 to 5 years.

This will drive a shitload of lower middle class to middle class money into the economy, spurring demand. It's not a huge wave of money, but it's substantial. And it'll be natural. It'll be borrower driven, on a case by case basis.

ETA: I think what's missing in your thinking is that one person's debt is another person's asset.

I get that. You're missing my point, which is an investor in a bad risk deserves to lose. If you can't see the current rally is build on quicksand, and the last few years were a gift from Uncle Sam - a respite in which to rebuild your portfolio and prepare for the next wall of the storm - shame on you.