This is a global phenomenon. Real 30-year yields are steeply negative in the US as well, with nominal yield at 1.85% and year-over-year CPI above 5%.
But it helps to zoom out. This is part of a multi-decade trend in ever lower 30-year yields stretching back to the Regan administration.
I challenge anyone to find a channel that long and that persistent (except for possibly the CPI). Keep following and you make the prediction of nominal 30-year yields touching zero within 3 years.
Somebody is on the wrong side of this trade in a big way.
Those who say the inflationary spike is temporary and will mean revert are buying bonds with wild abandon because once you break zero, you can always go deeper negative. And as yields fall, bond prices rise.
Those who say we're on the road to permanent inflation and possibly more are looking for inflation hedges. The odd thing about this is that gold, the traditional inflation hedge has gone nowhere fast.
It's also possible that both sides are wrong and what will actually happen will be unlike anything that has come before in terms of the ferocity and diversity of forces at work and ultimate pain/suffering.
For right now, both extreme sides can point to data supporting their outlook. But for how long?
The reason why European yields are so low is because financial institutions are forced to own govt bonds. That is it.
Europe is one of the only markets where you really see this, yields in the US could certainly move higher or lower but they trade at a rational level. In Europe, the price is just wrong (because no-one is doing the trade to be right or wrong, they are doing the trade because of regulations).
Also, making some kind of linear prediction for rates based on the drop over the last 40 years makes no sense. Rates are actually stationary, but the reason they have trended strongly over the past four decades is because of changes in inflation expectations and aging of society which has brought down the natural rate of interest significantly. Outside of this, the underlying properties of rates are stationary...the same as every other valuation measure.
Same in the USA. All bank deposits need to be balanced out with a certain number of US Treasury bonds / notes as a reserve.
There are also huge institutions, such as the Social Security Trust Fund, who was forced to buy US Bonds from the 1980s through 2000s to prepare for the baby-boomer retirement cycle. So lots of groups are in fact, "forced" to own US Treasury bonds.
Reserves are vault cash plus deposits at the Fed. You cannot use USTs to count towards your reserves (and it wouldn't matter if you could, the reserve ratio isn't a binding monetary policy tool, excess reserves in the US banking system are close to $1trn).
You are right that pension funds own a lot of bonds...this makes sense because there are very few long-dated securities that can be used to match liabilities...but the US pension fund system is relatively dynamic, and has a big allocation to alternatives. The European savings market is also totally different to the US: outside of govt bonds their financial markets are essentially non-existent relative to the US, lots of people save by putting their money into banks who then invest in govt bonds (the reasons for this are slightly complex, but loan demand in the US is relatively strong in the US, and non-existent in Europe so banks own a ton of govt bonds there), insurance sector is far larger (and Solvency II means govt bonds...lots of them), and there are more DB than DC schemes...so pension funds are far smaller proportionally (and the demand for non-bond assets is, typically, smaller). Pension funds are always going to own a lot of USTs but you just don't see the same pressure on US yields.
Again though, don't take my word for it...look at the price. The Italian 10yr has traded under the US for the past five years or so...that clearly makes no sense.
I was under the impression that Euro-zone bond rates were so low mainly because the market is expecting economic stagnation and a too-hawkish ECB.
Hawkish??? The ECB? They own 50% of the govt bond market. They have been throwing literally trillions at banks. Because of the Draghi "whatever it takes", they are the most dovish central bank in the world by far, it isn't close. They were doing massive QE worth trillions when growth was 2-3%, permanent QE. Definitely, the ECB is a big reason why rates are low though, because they have removed 50% of the supply of risk-free assets ("risk-free"...some European govts are obviously insolvent so..."risk-free" is a somewhat unclear concept).
And no, Europe isn't economically stagnant...it is a difficult to be brief but the main issue with any high-level comment about Europe is that you have a collection of countries that are almost totally economically dissimilar. So everything is just totally imbalanced, and there is no real way to balance things (the ECB is making this worse). So you can't really talk about European growth being stagnant or rates being affected by growth...because they are just totally separate, ECB policy is appropriate for maybe four countries in the EU, and no-one else...so it is difficult to apply any kind of logic to that process.
There is no way to be brief. But the EU-level regulations are solvency ii, bank capital rules (some of these rules are national, but there are EU-level rules too), and the saving culture of Europe (i.e. no financial markets, suspicion of capitalism, suspicion of decentralization). A lot of the rules that relate to pension funds are only relevant at the national level (because the structure of pension funds/savings vary by country)...again, it is tricky to generalise because the economies in the EU are generally nothing alike each other.
If Bitcoin didn't exist, I would probably own more gold.
Do you have any evidence that gold is a hedge against inflation, or are you simply following financial folklore?
> We find little evidence that gold has been an effective hedge against unexpected inflation whether measured in the short term or the long term. The gold as a currency hedge argument does not seem to be supported by the data. The fluctuations in the real price of gold are much greater than FX changes. We suggest that the argument that gold is attractive when real returns on other assets are low is problematic. Low real yields, say on TIPS, do not mechanically cause the real price of gold to be high. While there is possibly some rational or behavioral economic force, perhaps a fear of inflation, influencing variation in both TIPS yields and the real price of gold, the impact may be more statistically apparent than real. We also parse the safe haven argument and come up empty-handed. We examine data on hyperinflations in both major and minor countries and find it is certainly possible for the purchasing power of gold to decline substantially during a highly inflationary period. When the price of gold is high in one country it is probably high in other countries. Keynes pointed out “that the long run is a misleading guide to current affairs”. Even if gold is a “golden constant” in the long run, it does not have to be a “golden constant” in the short run. Conversely, current affairs are possibly a misleading guide to the long run.
Seems like they looking at this from an institutional perspective of hedging a single currency, looking for tight correlations over a short time periods. I don't care if there is a year or 5 of lag in either direction, or if gold outperforms currencies in a period in a non-correlated way. Funny that they quote Keynes because it seems like a superlatively Keynesian perspective on gold.
I'm concerned about the simultaneous inflation of all fiat currencies that arises from adversarial currency wars to game trade flows and reckless Fed policy devaluing what's in my bank account as a hidden tax on saving.
I want an asset that is resistant to devaluation of money and the historical examples of governments leaving the common man as bag-holders when a currency fails. I want something I could bury in the ground and feel confident that it'll be worth more when my grandchildren dig it up.
Maybe in a pedantic sense, "gold is a hedge against inflation" is "folklore" because the correlation is loose over short time periods, but over long time scales it works pretty well. Until asteroid mining is prevalent (and possibly beyond that) an ounce of gold will likely continue being enough to buy a good suit.
IMHO you have the burden of proof backwards. Gold being a good hedge against inflation has been (hard money) dogma that's been repeated over and over, but what examination of this claim has there been?
> I want an asset that is resistant to devaluation of money and the historical examples of governments leaving the common man as bag-holders when a currency fails. I want something I could bury in the ground and feel confident that it'll be worth more when my grandchildren dig it up.
Is there evidence / supporting documentation that gold is that asset? If you believe that gold is that asset, why do you believe it? Is it just a matter of trust/faith of what you've heard, and the authorities that you heard it from, or did you examine some data to come to this conclusion?
Since you're just tasking me with asking a bunch of easily google-able questions, I'm not sure what the point you're trying to make is. Are you just being contrarian, or is there a different asset that you think is a better durable store of value, or do you disagree with the concept of durable value?
Feels like you have a dogmatic repulsion to gold, and I don't understand why.
As the papers that the podcast pointed to indicate, there is nothing special about gold in protecting against inflation. The price fluctuations of gold, relative to USD, seem to be more crazy than any inflation most people have seen or are likely to see. Most people aren't going to experience crazy inflation unless there's some other crazy things happening in their country/area:
Per the research done for the podcast, there doesn't seem to be anything special about any asset class that would protect you better than any other asset class.
I think aurum is a fine element, as are argentum, cuprum, platinum, etc. It's just whenever finance (and especially inflation) comes up there's all this talk about gold and I have no idea why. Just because it was used as money in the past, and there was for a time a link between modern cash and gold (as a kind of 'compatibility' layer), does not mean there is any point in treating it as special now. It certainly can be used as a store a value, but why is it better than anything else?
† The Aztecs didn't find it anything too special: it was shiny and flexible, so they used it simply for personal adornment (jewelry).
But on a more serious note, this bet is based on the idea that if/as USD hegemony collapses (in ~decade time scale), inflation will accelerate and there is an increased chance that Bitcoin becomes world reserve currency. I believe Bitcoin volatility will decrease as price grows (it already has to an extent), and once it has about one more ~10x increase (reaching roughly market cap of total earth gold supply) the bubble/bust pattern will break and it'll become more stable.
But who knows. I recommend keeping 1-5% of net asset value in cryptocurrency (BTC, ETH, maybe ADA if you like risk, roughly weighted by market cap and ignoring long tail of unproven coins), but it is certainly a very risky investment and securing them has unique technical challenges that make them less suitable for non-technicals.
The same argument would apply to a whole lot of companies in the "necessities" department. They provide every bit of inflation hedge value Gold provides, but also provide dividend and stock appreciation.
If you're going to try to argue that Bitcoin is a Ponzi scheme, at least put some effort into the argument. This is just lazy and simplistic.
There's an old adage that equity traders are the short-bus riders and bond traders are riding the long bus. I tend to think there's something to this and thus I tend to think the bond traders are more likely to be right here.
> The odd thing about this is that gold, the traditional inflation hedge has gone nowhere fast.
It's going into real estate.
Some of it is likely going to Bitcoin / crypto as well, even if not everyone agrees on the legitimacy of that space.
There are many other things that are overvalued, such as real estate - because there's an expectation that they can be used to trade for something else later. In other words, they're bought solely because they're expected to hold their buying power, i.e. they're used as money. The reason why this happens is because modern fiat money doesn't have this property - it's expected to not hold its buying power.
Now, there is money that holds its buying power - bitcoin. It's expected that in the coming years most of the value from real estate and other overvalued assets will transfer into bitcoin, because there's no reason any more to own them other than for their utility.
I'm not sure RE is overvalued. There's a shortage of houses at a time when Millennials (the largest generational cohort so far) are hitting peak household formation.
> Now, there is money that holds its buying power
Bitcoin peaked at around $64K in April 2020. Now it's currently at $38K - it was down to about $30K a month ago. Seems pretty volatile for something that "holds it's buying power".
I know the claim recently was that there were more unoccupied homes than homeless people. Even if you factor out the undesirable/impractical ones, I'd expect if we had some means to unlock that capacity, it would glut and crash the market down to (much closer to) affordability.
It feels like this is one of many problems that are trivial to solve in the abstract, but intractable as long as we worship private-property rights. A simple fix would be an >100% annual value tax on unoccupied dwellings. The vacant-50-weeks-a-year vacation house, or the 'investment property' you're holding to sell in a few years, becomes an instant financial grenade, where it's better to hand the deed over to your pizza delivery guy as a tip than to be not living in it when the tax bill comes due.
Transferring payments across the world is functional, and yes, the traditional financial system also does this, but it doesn't mean crypto has no functionality.
Edit: Previous statement I was responding to has changed. I still don't agree that crypto has no utility though. I agree with almost everything I was responding to except that part. Yes, real estate has more utility, for sure. To me it doesn't matter that crypto has some overlap with traditional finance. This is an iteration on technology, which has its own pros/cons, but some folks are trying to come up with something better. Time will tell if that succeeds or not. IMO, it's too early to tell. You can also see that I wasn't the only person who responded to the parent comment that Bitcoin may be a competitor to capital flowing to gold as a potential inflation hedge.
My main point is let's wait and see how this new technology evolves instead of just shooting it down. I don't think everything about traditional finance is perfect. Negative interest rates in some parts of the world are one sign of that.
I think we can iterate on traditional finance as well as explore other potential solutions. The aversion to cryptocurrency as a technology, when Bitcoin has only been around for a bit over a decade, seems premature to me.
There have been comparisons of cryptocurrency to the internet, which everyone may not agree with, but what if we just shut down the internet before it really took off? Well, we wouldn't be having this conversation.
I still think there's something a little bit special about bitcoin. It simultaneously has the properties of modern electronic currency BUT has some elements of "permission-less-ness" like cash or gold.
year-over-year CPI is backward looking: it compares one year ago to today.
Treasury yields are forward looking: If I tie up money now, how much more will I get one year from now.
Last year was pretty unusual. People expect the next year to be different.
My understanding is that banks get negative interest on deposits in the banking system over night from many European central banks. So if you pay say -0.x% on deposits then 1.85% over 30y is a bargain.
This is why bond price and bond yields have an inverse relationship.
my guess would be people are putting that money into bitcoin
Interest rates have been going down, at least in Western countries, with some gyrations, since 1310 AD:
This comes with a whole new approach to finance, such as infinite duration mortgages (you never pay them back). And they even have those with a floating interest rate, in case you would like to bet your entire net worth on the idea that rates will stay this low till you die (and till your children, who will inherit the house with the mortgage, die, and till their children ...). Brave new world.
(link in Portuguese)
My mortage did not pay me yet, but the negative rate was eating into the markup ( ~1% ). So for years I had a mortage with about 0.5% interest. I know of DK people actually got money out of their mortage.
 https://thepoorswiss.com/capital-gains-switzerland/ (mainly talks about stocks but applies to capital gains in general).
a lovely job, and well done
One way or another interest rates will be forced to rise, especially at the longer duration end of the yield curve.
Interest rate are similar: https://fred.stlouisfed.org/series/FEDFUNDS
Europe even worse than these above. We leave us without tools for economic troubles when we are declining to raise interest rate and sell assets on business cycle peak.
See: Japan 
1. What is Japanification?
It’s a term used by economists to describe a state of chronically anemic economic growth and feeble inflation or even deflation similar to the conditions faced by Japan since a giant real-estate bubble popped in the early 1990s. It’s used to convey the alarming prospect -- often discussed in Europe, which has staggered economically ever since the 2008 financial crisis -- of sluggishness so deep that it is extremely difficult to escape. Even after Japan’s central bank embraced two extraordinary forms of monetary stimulus -- negative interest rates and asset purchases worth more than the entire size of the world’s third-largest economy -- the country has yet to return to a positive growth cycle strong enough to generate 2% inflation after nearly three decades.
2. What is secular stagnation?
It’s a term originally coined by the Harvard economist Alvin Hansen in the 1930s to describe the tendency of mature industrial economies to move toward instability in the absence of large amounts of public investment. It echoed the ideas laid out by John Maynard Keynes in his seminal 1936 treatise, “The General Theory of Employment, Interest and Money.” At the time, the global economy was mired in a deep depression, and theories like Keynes’s and Hansen’s offered an explanation and a prescription for the way out. In recent years, amid rock-bottom interest rates in the wake of the biggest global downturn since the 1930s, another Harvard economist -- former U.S. Treasury Secretary Lawrence Summers -- revived the phrase to capture basically the same idea.
3. Are they the same thing?
Essentially, yes. Japanification can be seen as a subset of secular stagnation, with characteristics matching those that have specifically plagued Japan. The country’s rapidly aging and shrinking population has contributed to the slowdown of economic activity, and to a high saving-low investment environment despite ultra-low interest rates. The Bank of Japan also complains about a deflationary mindset that has taken hold of consumers and companies that inhibits higher spending or higher prices. Japan’s example offers other countries an unsettling vision of their possible future. “We’re essentially at the Japanese place,” Summers told Bloomberg Television on March 12. “That’s a place that’s very hard to get out of.”
(my note: the future for all developed countries is Japan)
You can do this essentially without any inhibitions to growth until inflation hits about 7%.
Downside : it'll get a lot of very wealthy people seeing red and will scare upper middle classes who are more used to their security being provided by assets rather than social services.
The one thing that seems to work surprisingly well is direct subsidies for switching to a better but more expensive product (electrical cars, house insulation).
Personally, I agree that the government should take negative interest rates as a sign to massively invest. But I struggle to find an investment that is both just and sustainable.
There is, for instance a huge pension gap in Germany. It would be wise to borrow money now if we could invest it to mitigate that gap. But how would such an investment look like? Buying children?
However, the idea of stimulus makes basic assumptions that the economy can sustain a higher level. That economic article of faith may inherently be flawed in many cases.
Another option for developed countries is rather than trying to stimulate the economy instead focus on increasing efficiency. Japan’s workforce increased 1% in the last 22 years. Long term stagnation should be expected in countries like Japan with stagnant and aging populations. Even 1% growth assumes the economy will double every 70 years. Relative stagnation isn’t inherently bad as long as the economy is still doing all the things an economy should be doing.
Those are very regressive, you’re taking money away from the less well-off (through higher fuel taxes, for example) and giving it pretty much directly to the way better-off middle-classes who can afford those new EVs and those houses which to insulate. It’s pretty much a return to the 1770s-1780s France, when “la gabelle” was in full force.
Government officials are also talking about using tax money to rebuild all houses for the people affected by the recent floods that were without flood insurance. It's a huge middle finger to all those people who can't afford a house.
There are so many tax exemptions that exclusively apply to the rather well-off that I'm surprised that these issues are not coming up regularly when talking about social issues.
Examples include offices at home are only deductable if they have a door (applies to larger-than-necessary apartments or houses), you get money for driving to work rather than living nearby and walking (0.35€/km), a more expensive hybrid company car costs the employee a lot less than a privately owned ICE car, and many more.
Also, building a modest-sized house in Germany costs about 200k€ - this sum is affordable by the average German couple (average income is around 36k€ per year).
Germany is not California and especially not the Silicon Valley. Just because you may have chosen to rent an extremely expensive, 130 year old apartment 5min from your workplace that does not mean it is the lifestyle for the majority in the country.
The Arbeitszimmerregelung is only valid for 2020 and 2021 and only up to 120 days/year. You typically work 220 days a year. In 2022 it's back to door-or-bust.
I live in a big city, I can walk to work and pay a relatively high rent for a small apartment, I can claim 0.35€ per day, about 77€/year. Meanwhile a friend of mine commutes over 50km, living in a big house. They are quite happy each year to get about 4,000€ back. It's government funded pollution.
Please don't tell me I spread misinformation when you yourself claim things that aren't true.
Also, again, your friends do not "get" anything. They pay way more than that for getting to work. They recover some of the financial burden of commuting, while you don't pay that in the first place and safe the time. Why should society help you in your insane quest to live in an ever denser environment, compete for square cm and minutes of time with literally hundreds of competitors while the countryside just rots away?
Your singular perspective about the big city life being the only true path is exactly what makes the city so expensive. If one day you cannot pay the rent anymore this has been partly because of this ideology. Don't complain when you have to move into some crappy apartment in nowhere when you retire and the young guns with 15times your income just pay ridiculous rents for your apartment.
This must be very modest and without any special necessities like a cellar. Current prices for a cold cellar alone are already 80k.
More realistic construction costs currently are rather between 300k and 400k - for a modest house. You'll only come down to 200k if you do lots of the work yourself.
Source: I'm currently trying to build a house and have gathered bids for weeks now.
We have roads, bridges, and buildings that were built decades ago, then the funds that should have gone for their maintenance spent on tax cuts instead, so they're limping along with stopgap solutions.
To close the pension gap, Germany could also buy ETFs on borrowed money, or borrow to create a national investment fund, but that would be much too eccentric for an extremely risk-averse country.
Is there a good way to measure what potential productive capacity of infrastructure investment is? I wonder what percentage of the limit we're at right now? Could the market efficiently react to a doubling or even 10x-ing of federal infrastructure investment?
> Compliance with this rule is to be examined on the basis of reference values for the general government deficit (3%) and gross debt (60%) in relation to GDP, whereby a number of qualifications can be applied.
The simple key to understanding what can and cannot be done with printing money is to understand that you can redirect activity inside the country almost at will by printing, a pseudo command economy; but you can't print (a) foreign currency or (b) oil, steel, vaccines, or other constraints of physical production.
Worked example? If you print money and the citizens spend it on imported goods, that depreciates the currency and is usually Bad. Currency depreciation against hard currency (USD) usually shows up as inflation.
Weimar prints money to buy up domestic gold to ship to France for reparations => hyperinflation.
Zimbabwe prints money but is unable to subsidize kerosene in shops at any price because the country doesn't export enough value to import fossil fuels => hyperinflation.
US prints money for domestic stimulus while being oil producer and having labour slack and a generation of anti-wage-rise policy => almost nothing happens except asset inflation.
Everyone knows housing has gone way up. As I go about trying to do work on my house, it's very clear that the price of getting work done when you want it is not what it was in 2019, because I pay those same prices in order to be in a line. I haven't needed anything enough to figure out what the price of prompt work is.
Food prices have gone up. Cars have increased in price significantly.
wages in many circumstance, though growth in low-skill labor wages from supply shortage we are seeing the same as other supply shock from corona.
They have to spend on top of what they already do, because the current level is the baseline and is generally priced into market expectations.
As the original article is about Germany, in 2020 they had their first budget deficit in a decade:
To put it bluntly: the Germans don't spend s--t.
A first deficit meaning Germany spend ordinarily all that and then also more. This is showing Germany spend significantely more for economy size.
Evidence is in need for supporting an idea that only spending above and beyond usual have an effect on markets.
The previous US administration basically created supply chain problems with it's Hooverian trade policies. (ie. doing the same thing over and over and expecting different results. Nope. We got the same results we got in the late 1920's + COVID).
It's going to be hard to unwind that. I think the central bank has done a pretty good job making arguments that sustained low interest rates are a necessary evil. Unfortunately, the government (ie. aggregate of congress, senate, SCOTUS, and POTUS) are having a hard time swallowing that we need a looser fiscal policy. All because of political idiocy.
I feel like Keynes should be taught to all children in primary school.
I don't have the answers, but this seems to be borrowing from a playbook written for a different era.
The causality is reversed for public debt though - governments react to deflationary environments by increasing public spending to compensate for the private sector's propensity to save - as a "spender of last resort" as it were.
That's how Japan ended up the way it did.
Arguably it should have spent even more to offset deflation in the 90s.
Again, we're at levels record levels of global public debt. There is no free lunch. Debt financed spending is only possible through financial repression (real default through inflation in this case and in the 1940's following WWII, the last time US debt reached 130% of GDP) which ultimately drives speculation as capital searches for yield. Rinse repeat deflationary shock as a result.
We are seeing this now thanks to wealth inequality brought on by capital being given preferential tax status to labor for decades and stagnant wage growth again for decades.
This wasnt a problem following WW2 - wage growth was high and given vastly preferential tax treatment to labor.
The stock market is where savers have been forced to. Pensions included. ZIRP/negative real rates have consequences. There "isn't too much capital". It's being misallocated due to misguided policy. It will get worse.
You need to start thinking in second and third order effects.
Canceling debt does not make wealthy "see red." Long-term it would harm those who initially benefit from the cancellation by leaving less credit to go around and forcing people at the lower end of the income scale to accept less favorable loans.
If you want to upset the wealthy, you can do any or all of the following:
1. End stock buybacks. These sound nice in theory but in practice they have promoted short-term thinking and have disproportionately benefited the wealthy.
2. Eliminate the long-term capital gains tax rates and treat all capital gains as income (perhaps with some provisions for retirement income).
3. Treat cash loans backed by financial assets (stocks, bonds, investment properties, etc.) as income (many wealthy people use loans backed by their investment portfolios to avoid paying income tax, and their heirs pay no capital gains tax because of cost-basis adjustments), with possible exceptions for loans that are immediately invested (to allow for leveraged investment strategies) and exceptions for mortgages that pay for a personal residence.
4. Eliminate the various industry-specific carve-outs introduced in e.g. the Tax Cuts and Jobs Act (which were nothing more than a corrupt way to buy votes from various senators).
and so forth. We have accumulated decades of policies that favor the wealthy, and as a result the income and wealth gaps have exploded.
If you want to decrease asset prices, tax them (without loopholes) and see their valuation drop real fast, or slow - depending on tax rate.
Just remember to equitably distribute a part of proceeds so you're helping, not hurting the poor.
And again, I don't mean to be inflammatory (well ok, I do), but I really feel that constantly reflating asset bubbles for the rest of time, rather than accepting a one-time severe penalty whose moral hazard applies only to people who need things for their use-value, really is a Sunk Cost Fallacy that amounts to throwing good money after bad.
Debt forgiveness is not nearly as simple and positive as people believe. It often winds up hurting the people it was meant to help and having long-term negative consequences.
For instance, birth rates are dropping because young adults cannot afford a house, which in term means they have to rent against higher prices which means they have less income to actually put into the economy.
What will we do once we have a generation which doesn't have any wealth and doesn't own a place to live? People who have little to show for it after a lifetime of working while subsidizing those who own the properties they live in is not a situation you want society to be in.
1. Split multiple ways due to multiple children.
2. Sold to finance retirement living.
> Downside : it'll get a lot of very wealthy people seeing red and will scare upper middle classes who are more used to their security being provided by assets rather than social services.
Change is hard, but inevitable.
Is this actually happening? Feels like a tech only phenomenon, and tech workers are only a small slice of the US office labour force...
Edit: As someone else in thread pointed out, renewables should be invested in.
Hang on. Isn't that essentially what the Japanese did?
I wonder which domestic investments turned out to be the smart move in Japan.
This is not a 'technical' issue, but a social/behavioural one.
If you give everyone a million dollars and it doesn't mean everyone can now afford a house in a sunny state. It just means houses will be more expensive as no one is going to give them away for worthless cash.
Please explain how this works. If I buy stocks then the money goes to the seller of the stock. Most of the time that is another rich person because rich people own a lot of stocks. Then it's companies issuing new shares and finally it's some retail investor owning an irrelevant fraction of a company.
So, how do I as the class of rich people protect myself against inflation/negative interest rates/wealth tax on money? I can't.
Rich person -> Rich person is net zero.
Rich person -> company is net zero because I own the company and thereby own the money it has in its bank account. Worse, if that company employs people the peasants get my money.
Rich person -> retail investor. I lose every time.
If anything, rich people massively benefit from 0% inflation or even deflation. As a millionaire you can afford to throw $100k into Bitcoin and get another million out of it with zero work done, meanwhile those stupid stocks have to employ peasants and pay them.
Here is another paradox: If the rich have very little money and the poor have most of it, why are they poor?
I am not rich but quite well off. What has recent policy of pumping cash as loans and handouts done to me? My assets (mainly stocks) skyrocketed. My less fortunate friends complaining that prices of everyday items has gone up? I haven't noticed, I can buy more fresh produce or housing or electronics with my Google or Amazon stock that I could have before the pandemics and way way more than a few years ago.
It seems to me you're confusing money with wealth. Money doesn't matter, assets do. It's just convenient to price assets in money as long as the currency is stable. If you give everyone a house you solve a huge problem. If you give everyone a freshly printed million dollars you don't solve anything. Rich people still live in big houses and own companies. It will just be a temporary inconvenience to find some way to trade. No one is buying anything of value with that million.
There are a lot more poor people than there are rich people. Collectively they have most of the cash, but no one individual has very much. More importantly, though, one's wealth is not dictated by the amount of cash one owns. If you're rich and in need of cash you have plenty of assets you can trade for it. If you're poor then cash makes up a larger portion of your assets, and the part that isn't cash (your home, car, etc.) is both non-liquid and painful to part with.
The first bit, incidentally, is part of the reason why redistribution doesn't help: there are a lot fewer rich than there are poor, and even if you seized all the assets of the rich and spread them around it wouldn't add up to much on an individual basis. (And then secondary effects kick in: production capacity collapses due to consuming capital, prices skyrocket, etc.) And then you have the fact that the rich end up rich as a result of various combinations of preferences, habits, and connections which distinguish them from the general population—not merely their bank accounts—and since those underlying factors shaping the flow of wealth aren't likely to change you'll soon end up back where you started.
Btw, the point with 2% inflation is rising wages which then causes rising prices.
Furthermore, prices of much stuff is held down by productivity (hours per widget).
That's not stable.
Unfortunately, racism in Japan is rampant.
If racism wasn't a problem, then immigration wouldn't be seen as a problem either.
The real problem will be: when the rest of the "undeveloped world" becomes developed, and the need to migrate is relieved. Then we're ALL "Japan" economies. Oh wait, I don't see a problem with that.
How can such an environment be so stable? If people put their savings into a bank account, then this savings would nevertheless be available for investments via the banks, arn't they?
No, those two things have nothing to do with each other. When you ask a bank for credit to invest into something, the bank just creates money they don't take money from other customers.
Would it be fair to say simply, “eternal growth is not sustainable”?
Can we get out of the growth-focused finance system and use some other metric such as “well-being”?
Inflation is the only good thing in this. It's finally close to Euroarea target. Unfortunately it wild likely slow down within a 12 - 18 months again.
What's often missed in this analysis is population. Interest rates are tightly coupled to population growth and even with negative interest rates, a country needs to see Japan-scale population decline to risk Japanification.
The virus has accelerated EU population decline and exacerbated the North/South fertility divide. It's natural to think that as the long-term outlook for the virus worsens (over the next several years), this would have a non-negligible effect on interest rates. https://www.reuters.com/article/us-health-coronavirus-eu-bir...
Institutions: requirements that they hold a % of their portfolio in safe assets like bonds.
> the European Central Bank’s statement that it had bought many more bonds in the last two months than the bloc’s top four countries sold.
In principal this could occur if there were large capital “sinks” in the economy where paper money is being removed from circulation or it's velocity plummets. This could occur if for instance certain economic actors could acquire large cash flows that they then deposit into illiquid non productive assets.
E.g. Housing, universities, Large rent speaking corporations with offshore accounts, individuals with the same.
(educational purposes only, not investing advice, pay a pro a fixed fee for an hour or two of time)
Depends which EU country he is living in (though he said Europe). Italy pension system is hazardous. Greece is in the EU too, by the way.
Just think about it. If Greece needs x billion € to pay its debt off the most logical way to deal with the problem would be to just buy a huge amount of Greek products rather than send x billion € directly.
Luckily the primary function of a home is to provide shelter. You don't have to worry about being out on the street if you're unemployed (pending you can afford local taxes).
It's possible that the house price falls by 10%. It is very, very unlikely that rents will crash by 10%; they're sticky, at best you'll see a very slow slide over years.
If you're still paying your mortgage, do you really own your home?
You own your home in this scenario just as much as the entity on the other side of the equation owns the income stream from your mortgage.
A mortgage is a collateralized loan. You agree to give up ownership of your collateral if you fail to meet the terms of you contract. So yes, you own the home now, subject to constraints.
Ownership is almost always subject to some constraints. Nobody says “do you own your home even though you can be taken out of it (and jailed) if you refuse to pay taxes on it?” even though that’s arguably a more extreme condition upon your ownership. While I am sympathetic to conversation about the broader meaning of ownership, this “mortgage => !ownership” thing is a tired meme.
Easier said than done.
Far more important is keeping your salary up with inflation, since for most people 1y salary > savings.
Hopefully you don't mean in a bank? If history is any guide that's useless with capital controls initiated before the public even gets whiff of it, see Greece and Cyprus 2008. A bolted-down safe in your house seems to be the caveat on such a statement. Money in the bank simply isn't yours and far too many people don't realise this.
That advice you're giving there is actually kind of dangerous & misleading.
It's still wise to at least consider the possibility of a bank failure, qv Northern Rock.
Grandparent comment's advice about keeping an overseas investment is wise, too; as a Brit I've not regretted having US investments.
Most industrialized countries have insurance of bank deposits up to a certain point. So even if the bank goes poof your savings are still safe.
It would simply be prudent to have money in more than one bank (or credit union), as if something bad happens then things may get chaotic in the short term.
A second account also helps with IT problems:
The Rational Reminder podcast looking into this and basically concluded that there is no hedge:
The best you can probably do is have some debt which will worth less and less over time as its nominal value stays the same whereas you get cost of living (CoL) increases with your salary so have more money in really terms to pay it off.
Other than that equities have (generally, but not always) had good enough nominal returns so that you get a real return increase in your investments.
Of course the flaw with this is that I get 4% interest on personal loans so I actually can't make money off of this strategy.
For insurance against negative economic events... that's a more rapidly evolving, short-term issue. To the extent you can do it, it is a matter of identifying near term risk sectors, and minimizing exposure to the and/or having investments in areas negatively correlated with the at risk sector.
I think that as long as the EU wants to keep the political Euro project going, there is no way around such policies, since having rates go up could cause Southern European countries to default and would cause the EU to implode.
A wealth tax on deposits and land would be ok. The rich can buy bonds or stocks if they want. If there is a shortage of companies you can always create new ones. If there is a shortage of money or land it's much harder.
Similar situation for "illiquid nonproductive assets". Whoever sells them gets the cash.
If it sits in a bank account, the bank loans it out, where the borrowers spend it again.
Bezos isn't keeping $200 billion out of circulation. He owns 10% of a $2 trillion company.
The level of indirection serves no practical purpose but is ideologically justified with the argument that banks are more likely to consider the market when deciding whether to buy the bonds or not even though they can just sell to the ECB without any losses.
I don’t understand the benefit of an individual buying such a bond when not forced to. Holding cash seems better than unless you think rates will go even more negative!