
Monetary Policy Is the Root Cause of the Millennials’ Struggle - joshuafkon
https://www.cassandracapital.net/post/monetary-policy-is-the-root-cause-of-the-millennials-struggle
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tryitnow
I think this gets a lot right, but it's poorly reasoned.

For example, the author talks about a "massive labor supply shock", but
doesn't really address why this massive increase in labor supply wasn't offset
by an equivalent increase in demand for labor. That's crucial. Otherwise, the
labor supply shock would not put downward pressure on wages.

He also mentions the effect of floating exchange rates but doesn't bother to
write even a single sentence on why that's directly relevant (maybe because it
increases global competition driving down wages and driving up expected
profits? I honestly don't know).

The author also conflates asset inflation with consumer inflation, implying
that moderate consumer inflation somehow helps the rich at the expense of
everyone else, when in fact, it's just the opposite.

In general, I would say that monetary stimulus does increase inequality, but
fiscal stimulus can have the opposite effect.

However, the author mysteriously doesn't question why governments have
preferred monetary stimulus over fiscal stimulus. That would be far more
revealing.

This analysis is superficial at best. It gets enough right to be mildly
interesting, but misses some pretty key points.

Nice to have a reminder why I don't waste my time reading financial analysis
newsletters.

~~~
blevo
>implying that moderate consumer inflation somehow helps the rich at the
expense of everyone else, when in fact, it's just the opposite.

it is?

so: Moderate consumer inflation helps 'everyone else' at the expense of 'the
rich?'

How?

I always figured:

1\. inflating the money supply[0] has a usual consequence of price
inflation[1].

2\. rising prices disproportionately affects the poor who must spend a greater
percentage of their income on needed goods.

\--- to sum: Monetary Stimulus = highly regressive tax \---

[0] "monetary stimulus"

[1] assets and consumer goods

 _edited_ : formatting

~~~
gnode
> rising prices disproportionately affects the poor who must spend a greater
> percentage of their income on needed goods.

Inflation has a cause, and often that cause is beneficial to the working
class. For instance, a rise in the minimum wage or increased workers' union
power would increase prices, and disproportionately benefit the poor. If
assets don't increase in value, inflation erodes the wealth of the investor
class.

~~~
mindslight
> _Inflation has a cause, and often that cause is beneficial to the working
> class_

While what you are saying might be applicable at other times, it does not
follow that inflation can only be caused by things good for the working class.

Current inflation seems to be the result of an ongoing housing bubble, and
other mandatory finance-based expenses. This is decidedly _bad_ for the
working class, or really everybody who doesn't already own the inflating
assets.

This inflation also seems like the direct result of the overt policy to erase
the natural deflation of manufacturing and technology to keep everyone working
"full time", when human labor is needed less and less.

~~~
gnode
> This inflation also seems like the direct result of the overt policy to
> erase the natural deflation of manufacturing and technology to keep everyone
> working "full time", when human labor is needed less and less.

A low minimum wage combined with in-work welfare benefits essentially
subsidises labour for employers, and is deflationary. Inflation would be
naturally higher if not for such government policy.

------
joshuafkon
Short version of the argument:

The constant low (but steady) inflation that we now see as normal under the 2%
inflation targeting in a major contributor to the significant rise in prices
for interest-rate sensitive assets. (Interesting tangent: John Taylor on why
he selected 2% as a target: [https://economicsone.com/2018/01/09/the-feds-
inflation-targe...](https://economicsone.com/2018/01/09/the-feds-inflation-
target-and-policy-rules/) )

~~~
rdtwo
Except inflation is actually significantly higher the basket is just poorly
assembled and exclude major drivers like food gas real rent and most
importantly medical costs

~~~
toomuchtodo
I am curious what inflation would be with universal healthcare, a healthy
amount of affordable housing, primarily renewables for energy, and EVs
negating the need for gas/oil. It feels like central banks are going to lose
against technology deflation, but I'm not an economist so I can't say for
sure.

~~~
blevo
I suppose it depends on how those programs are funded/achieved. If they are
funded via something that acts as monetary stimulus (just print the money to
pay for it) then I imagine there would be a heavy burden of resulting
inflation.

------
westurner
Volatility works out for people who save (who park capital in liquid assets
that aren't doing work in order to have wheat for the eventual famine). These
guys. They save, short like heck when the market is falling, and swoop in to
save the day. What a great time to be selling 0% loans.

Personal Savings Rate (PSR) stratified by greatest generation and not greatest
generation is also relevant. Are _relatively_ fixed living expenses higher
now? Yes. Is _my generation_ just blowing what they could invest into
interest-bearing investments on unnecessary stuff from Amazon? Yes. And
expensive meals and drinks.

How have corporate profits and wages changed?

In their day, you put you gosh-danged money aside. For later. So that you have
money later.

And that is why you should buy my book, entitled: "Invest in things with long
term returns: don't buy shtuff you don't f need, save for tomorrow; and other
financial advice"

Which brings me to: the cost of college textbooks and a college education in
terms of average hourly wages.

By the way, over the longer term, index funds are likely to outperform funds.
Gold may be likely to outperform the stock market. And, over the recent term
-- this is for all you suckers out there -- cryptocurrencies have outperformed
all stock and commodities markets. How much total wealth is being created on
an annual basis here?

Payday loans have something like 300% APY.

How does 2% inflation affect trade when other central banking cabals haven't
chosen the same target? "Devaluation"! "Treachery"!

------
thedudeabides5
Kinda.

It's true that monetary policy is pushing up asset prices, so that while there
is little to no inflation in consumer goods and wages, the real costs of
education and housing have increased.

This is kinda like a pincer movement on the well being of the millenial
generation.

That being said, being part of a depression isn't that great for welfare
either.

At the moment, there just aren't many credible alternatives to 'zero interest
rates forever' monetary policy, and so the phenomena described in this article
is likely to get worse before it gets better.

------
plaidfuji
> This constant inflation helps to explain much of the rising inequality in
> the United States, as well as the rising costs for interest-rate-sensitive
> assets like education and housing.

This goes against my current understanding of inflation. I thought that high
inflation benefits _borrowers_ (ie not the upper class) because it reduces the
effective interest rate of loans. Is this taking that a step further and
saying that the reduced cost of borrowing money actually increases asset
prices because of inflated demand, resulting in increased wealth for asset-
holders and unobtainable prices for asset-purchasers?

~~~
pram
It only benefits borrowers with outstanding loans, created prior to the
inflationary period. Most of what would be considered the millennial
generation most likely didn’t buy houses and such prior to the recession and
the start of quantitative easing etc.

~~~
wahern
s/housing/college/

Millennials would benefit from higher inflation, so long as that inflation was
reflected in wages.

~~~
blevo
wages seem to be the last thing that rise with general inflation, and as such
don't rise as much as other prices, especially the ones mentioned: housing,
schooling.

I think the data bears this out, looking at 'real wages' vs inflation-adjusted
cost of housing/schooling.

I could see how other sorts of stimulus would be preferable in this case
though. All depends on who gets the benefit of spending new money on old
prices.

Going back a comment, it depends on if you got into the loan (school, house)
before the inflation. Or locked in a low rate. Always nice to pay back money
that's worth much less.

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bwanab
It's worth pointing out that concurrently with the breakdown of Bretton Woods
agreements were the OPEC oil price hikes. The change in price of energy
contributed a huge amount to the change in price of everything else.

In addition, in the US, we had the "guns and butter" years of the Great
Society and the Vietnam war. One can only pump so much fiscal stimulus into an
economy before one gets inflation.

All these things mattered.

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mywittyname
The USA benefited economically by taking over from Great Britain & France
control of world trade, then economically subjugated the other countries
involved in the agreement. It was going to break down eventually. The fact
that Bretton Woods lasted as long as it did is rather impressive. The USA was
the only country to benefit from the agreement. It was only begrudgingly
signed by the other participates.

~~~
lazerpants
Bretton Woods ended in 1971.

Edit: More info:
[https://www.imf.org/external/about/histend.htm](https://www.imf.org/external/about/histend.htm)

------
zcw100
There are a massive number of boomers who saved a big ol’ pile of money. You
can’t save money without someone else willing to borrow it and they still want
it to be worth something when they go to retire. They are a large voting block
so they pushed policies to make that happen.

My guess is that boomers on the tail end are going to get screwed when they no
longer have the political power to support those policies and the millennials
cast off the yoke but the boomers on the leading edge will do fantastic.

