Learning Curve?

[rentedmule]

I'm not sure that central banks actually have a learning curve at all! It seems that they really just have a fatal and compulsive belief that THEY can force the world to conform to THEIR world view.

Bill Gross is about as mainstream and "pro regulation" as it gets, yet even he is becoming annoyed.

finance.yahoo.com/news/bill-gross-says-fed-recognizing-115301811.html

"NEW YORK, July 30 (Reuters) - Closely followed bond investor Bill Gross on Thursday said the Federal Reserve is beginning to recognize that ultra low interest rates increasingly have negative as well as positive consequences."

[kemmer]

Hubris at its finest-- along with a belief that markets, and life, can be made perfectly smooth, always rising, never falling.

Thing is, there's never going to be a perfect time to raise interest rates. See: the Bank of Japan, which set off the whole, world-wide housing bubble collapse when it raised rates and killed the carry trade. See also: Greenspan's "a little frothy" comment-- no reason to raise rates for just a little froth, right?

Truth is, for all the talk about regulating on behalf of "the little guys", rates will not be raised until the dreaded words "wage inflation" hit the news. Everybody (except central bankers) who lived through the '70's knows wages lag inflation. First, prices go up (because money is worth less), then a few months or a year later, workers get the raises that keep them even-- except, of course, for the months when they paid higher prices without any pay raise. In government circles during Nixon's day, this was called the "Wage-Price Spiral". I don't know if they knew they were lying, but I'm not giving them a pass.

I predict that when wages begin to rise, the Fed will raise rates.

Personally, I'd like a central bank that saw its sole mission as keeping the value of a dollar constant. Wouldn't it be lovely if a 20-something could save $100 with the understanding that it would still buy $100 worth of goods and services when they retire? Wouldn't that be an incentive to amass wealth, capital? Plus, their taxes would only be paid on genuine capital gains, not mythical gains that often reflect genuine losses when measured in purchasing power. (If you saved $100 when that would rent a nice apartment, and it's been "turned into" $1000, but it now costs $1000 to rent the same apartment, you've had 0% capital gains... but you owe taxes on $900 of your savings. If it's only "grown" to $900, you have a real loss, but you owe taxes on the $800 faux "gains.")

[rentedmule]

Jul 30, 2015 22:35:25 GMT -5 kemmer said:

Hubris at its finest-- along with a belief that markets, and life, can be made perfectly smooth, always rising, never falling.

Thing is, there's never going to be a perfect time to raise interest rates. See: the Bank of Japan, which set off the whole, world-wide housing bubble collapse when it raised rates and killed the carry trade. See also: Greenspan's "a little frothy" comment-- no reason to raise rates for just a little froth, right?

Truth is, for all the talk about regulating on behalf of "the little guys", rates will not be raised until the dreaded words "wage inflation" hit the news. Everybody (except central bankers) who lived through the '70's knows wages lag inflation. First, prices go up (because money is worth less), then a few months or a year later, workers get the raises that keep them even-- except, of course, for the months when they paid higher prices without any pay raise. In government circles during Nixon's day, this was called the "Wage-Price Spiral". I don't know if they knew they were lying, but I'm not giving them a pass.

I predict that when wages begin to rise, the Fed will raise rates.

Personally, I'd like a central bank that saw its sole mission as keeping the value of a dollar constant. Wouldn't it be lovely if a 20-something could save $100 with the understanding that it would still buy $100 worth of goods and services when they retire? Wouldn't that be an incentive to amass wealth, capital? Plus, their taxes would only be paid on genuine capital gains, not mythical gains that often reflect genuine losses when measured in purchasing power. (If you saved $100 when that would rent a nice apartment, and it's been "turned into" $1000, but it now costs $1000 to rent the same apartment, you've had 0% capital gains... but you owe taxes on $900 of your savings. If it's only "grown" to $900, you have a real loss, but you owe taxes on the $800 faux "gains.")

You are correct about the wages being a motivator for the fed! But as usual they will just blame that incidental damage on the evil capitalists, and they citizens will become even more angry and be inspired to accept even more socialism and meddling by regulators.