[ExI] Odd Market Moves

[Brent Allsop]

Hi Dylan,
Thanks for the reply..  Sorry, my terminology probably isn't the best to
communicate what I"m trying to describe, so thanks for asking
for clarification.

On Fri, Mar 13, 2020 at 11:41 AM Dylan Distasio via extropy-chat <
extropy-chat at lists.extropy.org> wrote:

> Hi Brent-
>
> A few comments from the peanut gallery, as I'd like to better understand
> your argument.
>
> I'm not sure how you're defining inflating here. Inflation is generally
> used in the context of money devaluing, so I'm not sure I understand this
> sentence correctly.  Are you referring to the USD strengthening
> against other currencies?  I'm also not sure how you are defining a money
> supply not keeping up with an accelerating economy (how are you measuring
> money supply, and an accelerating economy).
>
> On Fri, Mar 13, 2020 at 12:59 PM Brent Allsop via extropy-chat <
> extropy-chat at lists.extropy.org> wrote:
>
>> Yet despite all that money being printed, money is still inflating in
>> value (lack of desired inflation of the cost of goods), because the money
>> supply is failing to keep up with the exponentially accelerating economy.
>>
>
My understanding is that the federal reserve uses the price of a basket of
good to measure the "inflation rate".  Their goal is to create enough money
to keep this at about a 2% inflation rate.  Which means the USD is
deflating (not inflating) in value compared to the goods.


> Negative interest rates are strictly a creation of central banks that have
> allowed them, and banks are forced to hold the paper under regulations.
>  The only way they'll happen in the US is if the Fed decides they want to
> let them happen.
>

Right.  In times like this (and during the 2008 crash) the fed lowers
interest rates, attempting to stimulate the economy.  But once they get to
zero, it is normally assumed that they can't do any more.  But some central
banks are now going negative, right?  The US ended up doing "quantiative
easing" rather than going negative.


> When you say, they can't get the price of bonds to go up, I assume you're
> referring to yields (interest rates).
>

My understanding is that the fed dumping more money on the market drives
down the yield on new bonds, driving up the price of trading bonds with
higher rates?  In other words, I was thinking of the fed trying to drive
down the yield, which should raise the price of bonds?


> I'm not trying to be pedantic, just making sure, as the price of bonds has
> a specific meaning related to where the actual bond is trading at in the
> market, and bond prices have generally been going up a lot because interest
> rates continue to fall.
>

You are saying bonds have been going up, but I thought John was saying,
this normally happens, but isn't happening now?


> I don't know if anyone can say for sure why there is no inflation in
> interest rates themselves, but if the demand for bonds exceeds the supply,
> bond prices rise and interest rates/yields fall.  This tells me that
> despite the heavy borrowing of governments like the US which is running a
> large deficit, there are still few places people feel safe parking their
> money as they keep funding the US (and others) despite a lousy deal on the
> interest.   If other governments and miscellaneous parties stop buying as
> heavily, interest rates will rise, but that hasn't happened yet.
>
> If there was an actual liquidity crisis (I assume this is what you mean by
> not enough money, but correct me if I'm not understanding), interest rates
> would go up quickly.  That's what happens whenever borrowing gets hard
> (implying a lack of liquidity).  Financial markets sieze and rates go
> through the roof to compensate anyone willing to provide funding.   With
> everything in freefall, that's why the Fed just pumped a trillion (yes, not
> a typo) dollars of short term liquidity into the overnight repo markets
> (and also announced they would start buying a lot of other assets on their
> book).
>

Right, Is this why John is saying the price of bonds isn't going up?

Everyone always seemed to say interest rates will go way up in the future,
like they did in the late 70s (12% mortgage rates back then, for example)
or else there would be inflation.  But no matter how low the feed keeps the
interest rates, they still struggle to keep the inflation rate at 2%,
right?  Has USD inflation ever been over 2%/year since the year 2000?

It just seems to me that if we are approaching the singularity, the economy
is growing at least at an exponential rate.  And if that is true, the money
supply must also grow, exponentially, to math.  But the fed bankers likely
can't comprehend this kind of exponential growth, so constantly error on
the side of not printing enough money?  And could this be the cause of what
John is talking about here?
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