I’m not sure it is particularly alternative. That is not criticism. What is unusual is that we have an hour long detailed, fact based objective conversation between two experts. This used to be the expected standard but sadly a rarity these days.
This is what a real interview looks like. An actual economist who understands the topic making insightful questions. Great job Joeri and also cheers to Philip for accepting the interview.
This video would have benefited a lot if graphs were presented to illustrate every number mentioned. Like "we dropped rates from -0,25 to -0,5". Why not show us how they were before and 4 years since?
@@MoneyMacroso kind of You! ❤ Amazing what You do for financial education here, there can be a surprising lot to learn, depending on how deep one dares to dive! My conviction is that policymaking in economics can be both fascinatingly complex and not just useful, but literally steering the course of international business with all of the direct implications on standards of living. The latter seems to be so immensely overlooked in Europe, especially when it comes to politics and making informed decisions, it blows my mind! ❤
Hi, please interview Kartik Gada. He has some very important insights. What you are missing is that high tech grows faster than the economy on average, it is a larger share each year, and a sector that will exert highly deflationary influence. With exponential tech you would also exponentially increase easing.
Thank you very much. The interview helped understand the inflation spike and clarify central bank policies. It also helps build trust in institutions like the ECB to see such a knowledgeable and nuanced banker, and provides clear reasons why we need central banks, despite what cryptofans may dream. What I found hard to understand was your idea that the ECB didn't raise interest rates as much as it could have to allow wages to rise. Philip Lane only said that the ECB raised rates (as much as it had to, in my understanding) to prevent negative real interest rates and to make sure the ensuing wave of wage inflation was moderate and did not lead to a pro-cyclical scenario of high inflation expectations. He also said that, without wage inflation (arguably through higher interest rates), there would have been a recession. So the ECB did not raise interest rates as much in order to prevent a recession, therefore it was also in order to allow wages to catch up, but enough to ensure it was a "moderate process" to prevent pro-cyclical expectations. That's what I understood.
Walk us through what would have happened had the central banks not existed and we had sound money instead. What is the nightmare scenario you envision if we didn't have saviors like central bankers to save ourselve from each other. Let's hear it. Considering the world got the bad flu, are you ok with the price we all paid to avoid getting the sniffles?
Good to hear the information from the horse's mouth. Also a good idea to discuss events which are relatively in the past to avoid too much political influence. Thanks Joeri!
Working in Banking what I didn't grasp pre-inflation was that raising retail rates just a few percent would cause such public discontent. I genuinely thought Reserve Banks had far more latitude to exercise appropriate policy. For that reason I think we should curtail ZIRP and QE as policy tools even if it causes some deflation.
Without ZIRP and QE, an entire generation of baby boomer assets would be inadequately priced to support their retirement. They had inadequate real savings going into retirement. Letting a housing bubble collapse would have sunk many retirees. Instead of letting them suffer with their own poor lifetime savings habits by living an austere retirement, central banks figured they could just inflate asset prices using QE to keep their largest voting block temporarily happy. This, of course, all comes at the expense of the younger generations no longer having resonable savings and investment options. So, it basically become intergenerational wealth transfer from young to old. Boomers want full central bank bailouts to keep assets propped up, the youth would love to see an asset price crash so they could afford housing and a real rate of return on their savings. Part of the reason people complained so loudly about rising policy rates is because assets prices (speaking primarily of residential housing) had grown so high that they were only affordable when money was free (ZIRP). Now that rates are slightly higher, houses are out of reach for most young working families. Deflation of asset prices would be an absolute gift to the next generation. Yes, there would be some temporary labor instability or unemployment, but only in fields where people had no business being employed in the first place, like the swarm of bureaucratic middlemanagers, fake finance and other bullsh.t jobs. The valuable jobs, like healthcare, education, manufacturing, security and agriculture will persist. Business entrepreneurs will have lower cost of labor to start new business. Stranded assets will be liquidated to more ambitious and creative pursuits. QE has created horrible distortions in the real economy. Resources have been misallocated to frivolous and speculative pursuits. When capital becomes accessible to the undeserving, it gets steered away from productive investment and wasted on hedonism and speculation.
@@MoneyMacrothe problem is, that central banks only have this single, very bunt Tool of raising interest rates, which is NOT useful at all to fight supply schock "inflation"! It any effect it increase inflation ins assets in housing markets at least!
@@MoneyMacro Don't let it go to your head, Joeri. You were merely a polite host. That's not what makes a good interviewer. You could have pushed back much more. Played a more aggressive devil's advocate. Make this very influential institution defend their dissertation that we are all forced to live by. This was a softball interview.
@@aaron159r2 It was an interview oriented on EDUCATION, not contrexamination. Joeri focused on explanations, often rephrased the answers, picked up on the underlying or suggested contents, forced the interviewee to give answers that are actually informative, and combined explaining what happened in this particular crisis/situation with a more general knowledge about macroeconomics and central bank policy making. The goal was not to be antagonistic or catch the ECB representative in flagranti for whatever reason. The goal was to educate and I think it was reached.
I really enjoyed this video. the questions were well thought, yet simple. it made it easy to follow, yet entertaining for people like me who know the basics, but nothing too in depth.
Very nice interview! But I can't help to think that summary of the policy is that is that intrests rates are going to be up for as long as it takes inflation to get back to 2%.
I really appreciated your attempts to summarize and make sense of his points throughout the interview, thanks for that. At the same time, I hate how he could never just give a yes or no regarding your summary. I'm sure it's career suicide as a public figure to agree to others summarizing your points and risk being pinned down to something you don't really mean... But it'd be so satisfying to hear him say "yup thats right" 😂.
@@aaron159r2 To be fair, a big part of economic policy is to try to assure the public things will be OK and the economy will stay stable. It seems reasonable to do that both through raising/lowering interest rates, but also by talking to the public confidently about your plans (even if it's kinda waffling). But with that said I could never stomach that sort of job.
What kind of nanny state has Europe become if the public needs to be told “we will be ok”? That kind of false paternalism is unnecessary. Your line of logic is how populations end up supporting authoritarian dictatorships. “Oh Daddy Government, tell me everything will be ok. Reassure us that our irresponsible behaviors with money have no financial consequences.” …to be fair. Are we children with no self-determinism? Economic slaves to our technocratic overlords? Central banking is not necessary for humanity to thrive. It’s a hijacking of our common currency. The ECB and Fed spokesmen are there to create a narrative for the fools to believe. And I wouldn’t doubt that the ECB has found a loyal stooge that actually believes his own lie in order to sound more convincing.
Very shocking to see that an organization with the *single* mandate of price stability and that is supposed to be independent openly considers itself part of the government and argues for monetary policies based on fiscal spending needs as Lane does in the beginning of the video. "We had to ignore price stability to support very generous government spending. Surprisingly this lead to inflation". Very unfortunate that Joeri didn't push against that line of arguments.
Totally agree. If inflation targeting was the ONLY mandate, then central banks ought to have been criticizing massive fiscal deficits. Of course, price stability is not their real mandate, it is merely cover for an inflationary taxation scheme that enables government official to squander the public's wealth for personal gain and ill-conceived political pursuits.
Its simple. The government had to pay a lot of money to fix everything. But you as a citizen ARE the government. Everything the government does need to be paid by its citizen. You and me ... therefore the inflation was used as some tempotary tax system to tax people in a different way than regular tax raises. The downside i see to this is that its a tax on money not on assets. They move along.... so then people without assets and money lose and people with lots of assets get richer.
That's because price stability is not the ECB's only mandate. From their website, _"Our mandate is laid down in the Treaty on the Functioning of the European Union, Article 127 (1). The Treaty adds that “without prejudice to the objective of price stability”, the ECB shall also support the general economic policies in the EU with a view to contributing to the achievement of the Union’s objectives as laid down in Article 3 of the Treaty on European Union._ _"These objectives include balanced economic growth, a highly competitive social market economy aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment - without prejudice to the objective of price stability."_
Disagree, he failed to challenge his guest. Listen to Lex Fridman or Joe Rogan. They are good interviewers. Then listen well (as did Joeri) but then they play aggressive devil's advocate to get the guest to provide compelling arguements against criticism. This was such a softball interview.
Absolutely. The problem is cash (and these days crypto), which offers a 0% interest rate. However, at large quantities storing cash (and crypto) is very risky. So, if there is a slightly negative interest rate on bank deposits, that is still more interesting than holding large sums of cash for most. However, if you drop interest rates to e.g. -10% you would likely see a large flight to cash.
The problem is "one Euro interest rate does not fit all" so let the southern states have their national currencies again, purely digital alongside the Euro. Whoever opts for his national currency again, will get a debt cut or moratorium on repayment and interest from the ECB. I have no idea what is coming, but would preferr this scenario.
Maybe I am being cynical but did he blame everything else, including shadow banking, consumers, supply chains and private business, other than their own negative rates & QE policy? The fiscal dominance has been aided by the central banks.
“Inflation was not caused by increase in money supply because spending did not increase in 2021” Yeah sure mate but there was no way to spend it in the lockdown economy so this money just piled up in everyone’s bank accounts and was unleashed only in 2022 when the economy opened up - he is completely missing the delay between cause and effect due to the circumstances at the time Central banks are so afraid to admit mistakes there is hardly any value in every overly political statement they make
But you forget that we have a global economy and that covid measurements and breakouts where NOT synchronised around the world causing demand spikes for stuff at one side for stuff that was made somewhere else where factories are closed. U are too naive and not think in details. You are not open for understanding just rather want some opinion to be right and steer towards that opinion. Why do u do that?
@@HermanWillems I am not saying there was no demand side inflation, my point is it is discouraging to see the ECB dismissing the money printing argument so easily without any serious reflection on their own performance
Idk if it's happening in the EU, in Canada we are also seeing unemployment rise. So we are seeing both unemployment rise and wages not keeping up. Most of the unemployment is rising because of the interest rate increases. So would that not be an expected outcome in the EU as well?
I don’t know about central and southern Europe, but in Scandinavia we are once again seeing real wage increases (higher than inflation) while unemployment slowly creeps up. As long as energy prices remain somewhat stable it looks a lot like a normal recession is in the making.
@@axelnilsIn Slovakia real wages rising too. I think ECB actually don't know what to do in current situation and they just waiting for FED(elections in US) as usual
Nope we still see wages going up at least here in the Netherlands. Just had another big raise... and unemployment is really low. I have a personal inflation attack plan. Has to do with energy use. So i try to produce as much energy for myself behind the meter which is not taxed and run my house + electric car on tax free solar energy. And yes i got a huge battery at home then to store it all. This means i will have low expendures. Energy inflation then does not hit me as hard. But other inflation like food and insurances can hit me..
So the most likely scenario is still 2% for both inflation and interest. But with geopolitical risk and the dire demographics wouldn't the inflation be of the regressive kind where commodities go up and real wages stagnate?
it could be. But, it could also be that increased spending on defence & retirement benefits produces the type of 'overheating' inflation that we are now seeing in Russia.
@@MoneyMacro not an expert on the EU or macroecon but emerging trade tensions with china and the interdiction of sea routes running through the mideast seem like they could lead to a friedman-esque situation similar to the one the US faced in this scenario my impression is that governments are likely never going to be able to fund enough stimulus to surpass consumer demand for goods and cause overheating to dominate over supply shortages; import prices would thus dominate over salary increases and the stimulus would then only sustain wealth effects feeding into this demand
I think he suggested that the most likely scenario will be a bit higher than 2% because higher instability leads to higher inflation. In the absence of big shocks, and despite instability, monetary policy should be able to maintain inflation between 2% and 3%.
The modern economic system is built on debt- growth through debt. Therefore, there will always be an aim to keep IR low despite high IR acting as a corrective mechanism to root out mismanaged, bogus businesses for which there is no real market.
Having no central bank and no monetary policy doesn't mean the interest rate is "correct": it means that it is zero (or higher, if capital is very limited). After all, if the ECB sets its interest rate to zero, that doesn't mean I can take out a loan at 0% interest - just that the only cost will be due to risk. With monetary policy, the interest rate's role is still to weed out good and bad investments. A good investment is one which pays back quickly enough that it's worth the short-term hit of inflation. When inflation is high, the interest rate is set high, and so is the bar for what counts as worthwhile.
Don't you think a big part of the inflation felt by consumers is just corporations deciding to pump up the prices regardless of anything, unrelated to the actual economy but using it as an excuse, just because they can, and because they have semi-captive customers?
Apart from the COVID recession, just about every recession since 1974 has been caused, or at least sparked, by an oil crisis. This makes sense when you consider how vital transportation is to the economy, and how closely correlated inflation and the price of oil are, at least over timespans below about five years. However, over the coming decades, we expect to see a shift away from oil as a fuel, which would either insulate us against these shocks or, even better, bring us back into a 2014-2021 scenario with cheap energy, low inflation and low interest rates. Therefore, perhaps we can be optimistic about the long term.
Maybe I am being cynical but did he blame everything else, including shadow banking, consumers, supply chains and private business, other than their own negative rates & QE policy? The fiscal dominance has been aided by the central banks. Not to mention the argument made at 11:20 is wrong. Of course people had too much money - that is always a ration and it should be taken into consideration in proportion to what they can spend it on. When services are restricted the pool of things to spend on goes down but the CBs made the numerator bigger instead of smaller.
So the part about the Philips curve and refraining from mercilessly increasing interest rates to tackle inflation to allow companies to keep there employees. How does that make sense in a overheated labor market? Or is the labor market not overheated? Also, what does this have to do with price stability?
He wants to make people unemployed just to mess with peoples lives. Some nonsense argument will be presented that if unemployment dissapears, then will companies be forced to raise wages higher and higher to be able to find any workers at all. And the higher wages will cause more inflation. And more inflation will cause much bad habits in a society. People might stop saving money and borrow money like crazy, even just for buying simple everyday things like toilet paper. But that is of course not substainable in the long run. One day will interest rates go up to compensate for the higher inflation. And the high interest rates will mean that fewer people will borrow money and pump that money into the economy - which means that the inflation bubble implodes. And not companies can make a 15% yearly profit on every 100 Euros they got. And they have to at least a 15% yearly profit if they are going to borrow money at 15% interest rates. Personally do I think that this reasoning is just nonsense. The economy was doing better in Europe in 1945-1975 when there was to EU central bank trying to steer the economy with their dogma. Price stability is seen more important than low unemployment by the ECB. While economists of the period 1945-1975 had the opposite view, and their time period was one of 0% unemployment, strong GDP growth, higher rates of investment and technological research, less wealth inequality, and no economic crashes - while the EU gave us the 1992 economic disasters in UK and Sweden, and the eurocrisis in Spain, Greece, Ireland, Portugal, and Italy. Personally do I think the solution forward is not for Europe to compete with lower wages. The way forward for a country should instead be higher wages and higher standards of living and no poor and unemployed. We should have higher wages thanks to the development of high technologies that no other countries in the world have the skills to master. That makes us a monopoly producer of goods that people all around the world have a strong urge to have. So global demand is strong while competition is low - and that allows us to sell large amounts of stuff for high prices, and that means huge profits, high wages and much tax income for governments. We should also have government monopoly of energy (something that EU once again opposes) so that we can have cheap energy in our country, and that will allow us to have lower production costs and makes it possible for us to have high wages and still being able to sell products all around the world at low prices that are very competative because we got cheap energy.
US central bank authorities are major league players. The European authorities are still playing AAA ball. I'm refering of course to their ability to lie and manipulate date to suit their narrative. Europe has a lot of learning to do when it comes to bilking the public out of value.
I keep wondering if the wage growth-inflation cycle is a myth. I think it is magical thinking on the part of economists supporting big business. Inflation is actually caused by other forces and wage growth severely lags inflation. Therefore wage growth never causes inflation.
Austrian school economists constantly contradict themselves. First they blame inflation on too high wages. And then other times they say that inflation can never be caused by too high wages. Because too high wages only leads to unemployment. If workers demanded and got a 20.000 dollar a month minimum wage here in Europe, then would most companies go broke and be forced to lay off people as most companies would fail to generate enough profits to afford paying such high salaries. And if companies refused to fire their workers and continued to make losses and tried to borrow money to cover the wage costs for as long as possible... then they would still go bankrupt at some time and all the workers would be laid off anyways. Personally I think that the view is too simplistic. Say that a product is sold for 30 dollars. To produce it it would cost 10 dollars for all the electricity, inputs and so on. So that leaves a profit of 20 dollars (30-10=20). These 20 dollars now needs to be shared between the workers and the company. Today would a Swedish worker take 56% of that money, while 44% would become profits for the company and its owners. However there is no law that says that only 56% can become wages for the workers. In 1978 for example, was 78% of the pie given to the workers while the other 22% was kept as profits for the company. To me its very telling that rightwingers always complain when about wages causing inflation, when they really don't mean higher prices for the consumers. Its only the profits of the company that goes down instead. And when there is competition on the market, it would be hard to raise the price of a product from 30 dollars to 35 dollars. Because then would consumers only start buying products from other companies instead. The only way I see inflation happening would be if the price of this product actully rose from 30 dollars to say 35 dollars or 40 dollars. That would mean more money could be shared among the workers and the company. If prices rose from 30 dollars to 40, to pay for higher wages then would rightwingers scream and complain about inflation. But if wages remained unchanged and companies increased prices because they were greedy and wanted to make more money by scamming consumers, and thereby causing inflation by raising prices from 30 dollars to 40, then for some reason would rightwingers remain silent. I think that is utter hypocrisy. But my main argument against an economy favoring the owner class is not a moral one Or one based on my contempt for their hypocrisy. Rather I am mostly against this type of economic policy because it is harmful to society and its long term economic development and GDP growth.
why can't we have sector specific interest rates? Housing is not an option. You need it to participate in the economy.... We need to keep housing interest rates lower even when all other interest rates go up.
wages are prices! Wages are the price for labour,. If it's an true inflationary effect, meaning no goods supply or demand shock, but the money losing value, than all prices rise and therefore wages have to rise aswell and there is no price-wage-spiral. Reason is that all prices express the quantity relation of goods to each other, but if nothing real has changed, than the relations must stay the same and also will reach the same level again, if nothing else has changed.
wages are just a fantasy fairytale product just like prices are. They are all just social constructs. A person could only be a King if other people agrees to see him as a King and treat him that way. And the same goes for money and most things else. There is no law written in stone that says that a wage for a month of work is worth this or that. Nor does the market decide that on its own. Wages are much determined by governments through protectionism (laws against immigration of foreign labor, for example). So if the wages we have today are fake, then we could just raise them and they would not be any less fake. *"Reason is that all prices express the quantity relation of goods to each other, but if nothing real has changed, than the relations must stay the same and also will reach the same level again, if nothing else has changed."* Fair enough. That would mean that real wages for a factory worker at Scania should go up by x4 times. Because an average worker there produces 4 times more stuff per workhour than a Scania worker did in year 1980. Today have wages not kept up, and greedy capitalists have stolen the share of the pie that should belong to the workers and put it into his own pocket instead. So it would therefore only be fair if wages was increased and the stolen money was given back to the people who had done hard work to earn it, instead of being just an useless owner.
The public is not generally taught monetary policy. FiscaI policy is easily understood. I found the conversation informative, engaging and accessible. However, I have an undergraduate degree in Economics and I still don't consider myself extremely knowledgeable on many points discussed. Yet I wonder whether we would need the concept of an anchor for example if the general population were better informed and educated on monetary policy. If, for arguments, the public could understand monetary policy's relationship to wages better, could the public factor in this knowledge into a clearer public discourse on why governments take certain fiscal steps and central banks monetary ones? Rather than lies, blame and misconceptions poisoning public discourse
I think that the public is ignorant and wants to be ignorant. Its the same way when people go to the hospital because they have a problem. They just want their problem fixed and they blindly trust their doctor. They take their pills and are too disinterested in hearing what the doctor has to say and hearing how the medication works and what they are for and so on. Many people are lazy and disinterested. One could think they would be more interested in their own health and well-being and how to avoid dying. But some people just rather wanna spend time on other stuff instead and not having to think that much about boring issues like this. And the same goes for monetary policy. Personally do I think that monetary policy, finance and such are the most boring fields of economics. Economics is fun. And with fun I think of more economic history, industrial policy, trade, resource mobilization in a war economy, political economy etc. Personally do I think the entire idea of monetary policy as a separate entity from the rest of the government is just an idiotic idea. Fiscal policy is a better tool for solving almost every problem as it is better at targeting a small specific area of an economy that needs to be fixed, instead of the clumsy monetary policy that only could raise or lower rates and thus creating enormous negative side effects when it raises rates or lowering them. I think fiscal policy is better at maximizing gains for society with a minimum of negative impacts. Another area of monetary policy is the money supply. Which once again only can increase or decrease and thereby creating winners and losers in the economy every time its changed. One area where European governments potentiall could do some useful stuff with monetary policy would be capital controls - but such a measure is forbidden in the EU since 1986 due to neoliberal dogma. So we have seen idiotic real estate and housing bubbles in Ireland and Spain and in Sweden in 1992 thanks to EUs policies. The biggest obstacle to sound economic policies are mostly dogma. Like the idea of the existence of the phillips curve, this guys talk about a 2% inflation goal as if there is a natural law that we need such a goal, or the idea that there is such a thing as cost-push-inflation. Or the idea of balanced budgets that are written into the EU constitution, however schools like MMT have another view that says that government surpluses are harmful. Prioritizing price stability over low unemployment has not created more economic growth and economic stability as the dogmatic neoliberals in the ECB has promised us. Instead have the last 24 years seen slow economic growth, the Euro crisis, a Europe that fails to keep up with the speed of technological developments in USA and China. And unemployment has been high and wages too low along with living standards. So I am unimpressed. This dogma has ruled Europe for decades now. They have had their chance to prove themselves and show results. And all they have shown us are failures. Slower GDP growth, falling shares of GDP going to investments and research, more unemployment, more tax evasion, more economic inequality, and Europe has not yet managed to produce a single tech gigant that could compare to Microsoft, Apple, Google, Facebook and Amazon. The entire economic policy of the EU project needs to be thrown into the trash.
Mostly its not lies. Just regular people not understanding shit. And make shit up and conspiracies. Dont you see that at work? I have that at work that i have to deal with people who just dont seem to understand things.... and its not easily explained "like i am 5" because its layered knowledge. For example u need first knowledge of "X" to understand "Y" but people know neither. So and the subject is Y... then its really hard to explain. For example a lot of people missing the mathematical knowledge to explain to them the situation and systems in place.
My understanding is that: private banks can't actually print money in that they can't print the currency itself. When it loans out money, it is loaning out currency it already holds that it obtained from other depositors, and that currency has to be paid back, so it merely controls two exchanges of already existing currency: one from the bank to the debtor, and one from the debtor back to the bank. Of course: the bank still owes the same amount of money that it has lent back to the depositor(s) who put the money into the bank in the first place. But the money isn't there, and that is why bank runs are such an issue. If banks literally printed money through the act of creating a loan then there would be no issue in terms of bank runs because banks wouldn't lend out their depositors money, they would be printing fresh money to lend out instead. A bank's job is to ensure that it balances inflows and outflows of money such that it can meet out its stated obligations: that it has enough in reserves to fulfil depositor demands. Now, of course, it is possible for a bank to fail, to not have enough money in reserves to fulfil depositor demands, but when that gets close to happening, The Central Bank will print its own money and lend it to the bank, if not repossess that bank and auction it off to someone else (at leas that's how they do it in The U.S.). But when The Central Bank does this, it is an extraordinary act. Just because almost all deposits are theoretically guaranteed by The Central Bank doesn't mean that that capability is frequently actualized, it isn't, because the actual owners of that bank don't want the shares of their bank to lose a majority of their value, which is what would happen if the bank became insolvent and some outside buyer had to come in and buy that bank at a discounted auction.
Une inflation à 1% suite aux dégâts de la crise de 2008. Alors que sur une très longue période les taux sont restés à 0% ou négatifs, le cour des marchés n'a fait que grimper. Il semblerait que le crédit se soit tourné vers la finance et non vers l'économie ? Comment justifier une telle hausse de la valorisation des cours de bourse si la demande se maintenait si basse que l'inflation ne dépasse pas 1 % ?
I have a question, I suppose 2 questions but one would be something to ask someone from the ECB directly. I've recently read about a thought experiment looking at our current FIAT currency system in the EU and considering if it were not more efficient to directly let the government take on debt with it's central bank account, rather than going through a tendering process via private banks. One of the main arguments for it was how often Politicians argue for more responsible spending because of potentially higher costs later in interest payments. The idea was to remove this part of the system and not let private investors gain any benefit of government bonds directly anymore, disconnecting it from Government borrowing completely. What are your thoughts on this? It would mean government bonds wouldn't pass into the hands of select private banks when governments create money anymore, one of the examples for a benefit was how Greece could find low interest loans with much higher debt now because of the ECB's backing, even though back during the height of it's crisis it was unable to do so as the ECB didn't back Greece in front of the private banks. In the thought experiment loan payments on government debt wouldnt exist, it would just be a number representing how much investment and spendig done by the government has not been recouped via taxation yet.
A side-effect of that policy would be that reserves pile up as governments spend with no open market operations "neutralizing" the spending effect of governments on the amount of reserves in the banking system. Under "conventional" monetary policy (which effectively means pre-GFC) where the central bank kept its balance sheet as small as possible the policy rate effectively forms in the interbank market for reserves. Under that regime the CB controls the amount of reserves through OMOs by buying and selling government bonds from the banks to keep the reserve supply consistent with its policy rate. This system is also called a corridor system. Since the GFC the CB is in a floor system because the interbank market dried out. In the floor system the CB sets the policy rate by paying interest on reserves. In the former corridor system the proposal you brought forward wouldn't be possible as the CB would have to sell the bonds again to the banks even though it bought them directly from the government to drain the reserves added by government spening. In a floor system it is not as clear. The question would be what could be negative consequences of reserves piling up on the reserve accounts of the banks. Anyways it gets clear that result-wise it doesn't even matter if the government first sells the bonds to the banks and the CB then buys/sells them on the secondary market of that that CB directly buys them from the government and only then sells them to the banks. Both would be open market operations with the same end result balance sheet wise. This shows that the rule that CBs are technically not allowed to directly "finance" the government by directly buying bonds from them nearly has importance some people seem to imply.
@@trixn4285 Thank you for the answer, althhough I don't quite understand the last part of your statement. Are you saying it has more importance or less importance than people seem to imply?
@@witthyhumpleton3514 I mean less importance. The result on the balance sheet is exactly the same if the CB first buys the bonds from the government and then has to sell them to the banks to drain reserves (at least if it wants to maintain a positive policy rate meaning not a permanent zero interest rate policy). It doesn't really matter which way around it is done so there is not a big difference between "directly financing" the government. The only difference is who actually sells the bonds to the banks to drain the reserves. As if banks care who that is :D But as I said this applies to a corridor system where the CB controls the interest rates by adding/draining reserves and let the banks lend/borrow reserves between each other on the interbank market. In a floor system the policy rate is determined by the interest the CB pays in reserves the banks hold. A bank will not be willing to lend reserves to another bank for less than what the CB pays on reserves as the later is risk free.
@@witthyhumpleton3514 Yes, that would be required in a corridor model, as the added reserves (without being drained) provide excess supply of reserves which naturally drives the interest rate down to zero (or down to whatever the CB pays on reserves in a floor model where there can be excess reserves but still a policy rate above zero). An interesting question would be if those reserves piling up have any negative consequences.
The two arguments I see the most often are that 2% 1. encourages spending over saving (good for economic growth) 2. slowly reduces the value of debts (although this depends on interest rates) 3. deflation is more risky than inflation thus you prefer a bit of inflation to avoid deflation (what peterthefourth4 is saying). You could also argue that you don't really want 2% inflation per sé. But, you want an economy that is running so well that it produces 2% inflation. That is, enough people are employed and spending (typically seen as good) that it produces some mild inflation.
@@MoneyMacro mild inflation is not a mark of a well running economy. Quite the contrary. Improving technologies and more efficient production techniques leading to a higher supply of goods and services should lead to deflation.
@@multidavid7473 hoarding money may have been a problem when money was literally cash that you hide in a safe in your home, but most "money" is actually bank deposits being loaned to borrowers, if not outright equities that are not money at all. The money is already in the economy. Its better for those resources to be used by productive entities than to be destroyed by needless personal consumption. I'm all for accepting inflation as an alternative to politically difficult taxation so necessary public expenses can get funding, but inflation for its own sake is bad, period.
@@multidavid7473 I sometimes wonder if this is not precisely the point: inflation prevents people from enjoying the fruits of their labour without fearing for the future, that their savings might be devalued with time. It awfully sounds like a great recipe to keep a large segment of population, let's say the 99% who don't have access to debt-credit creation among their options for raising revenue, into a somewhat better serfdom, if that's a good word to describe that uneasy situation of vulnerability to the power of Big Banking.
I'm not sure why you talked about public debt levels but not private debt levels if you're trying to predict whether interest rates and inflation are going to fall back down again. Isn't the overall demand for credit dependent upon the private debt to GDP? If everyone has already taken out loans and needs to repay them, they won't want to take out more loans unless those loans are at a low enough interest rate. It also constrains consumer spending if household debt is too high which cools the economy and reduces inflation. Private debt to GDP had been going up and up until 08 then it stalled and slightly decreased but is now back to basically near its peak. The only reason we're seeing this inflation and higher interest rates is because of the quantitative easing done at the pandemic. They just overshot slightly so now they're tightening, but ultimately nothing has changed. You could argue that less liberal trade polices, ie deglobalization, war, and global warming are causing supply side shocks that will lead to higher inflation long term, but on the financial side the explanation for the low interest rates has to do with the overall level of indebtedness in the economy and that hasn't gone away. The supply side shocks and the private leverage are acting in opposite directions and you need to figure out which side will win the tug of war. In Japan where the level of private sector debt is quite a bit higher than most (but not all) EU countries, there is still persistent low inflation despite all the supply side shocks. Yes, they are raising rates, but only to .25%.
Can someone please explain how a definition of price stability as a yearly 2% increase makes sense in a world where competitive markets driven by technological innovation should lead to prices falling to the marginal cost of production? Either we accept that a 2% annual price increase reflects the reality of a functioning economy and competitive markets, or we acknowledge that we're trapped in an illusion of "capitalism" where money is being debased with numerous negative side effects.
Inflation targeting is a wealth tax. The tax is paid by working class people. The rate is equal to nominal inflation target plus the amount of deflation that otherwise would have occured had technological productivity based deflation been allowed to proceed. Maybe life gets 3% cheaper every year based on technologic progress. If inflation is nominally 2%, the average global citizen who holds very little financialized assets and works for fiat wages sees a 5% separation from the top tier asset holder who then outcompete them in a resource limited world. Inflation is the most regressive tax and serves as the base of selfdom and fuels wealth disparity.
While assuming competitive markets a technological breakthrough would lower prices, central banks make sure to use monetary policy in order for there to still be low inflation. This is because it has 2 important effects: incentivizes both investment and consumption, because there is a cost associated to just have money lying around, but also it helps everyone who has debts, because the value of the debts also decreases in module. Of course while it helps families and small businesses with debts, they especially help the biggest debtor in any economy: the government.
@@aaron159r2What? If anything, it would do the opposite of what you are saying, inflation slowly burns through cash reserves, topically held by the rich, and also slowly corrodes through the value of debt, typically held by the poor.
@@joaocustodio7705 Central banks devalue money annually to encourage spending in a world where we waste 2.5 billion tons of food each year and overconsume, mainly benefiting the wealthiest by reducing their debt burden and preventing consumers from benefiting from falling costs. This approach penalizes saving, effectively redistributing wealth to the top. What exactly is the cost of allowing people to save their hard-earned money over time without controlled debasement? People would still consume, as money cannot fulfill basic needs like food or drink.
@@joaocustodio7705 I can explain. First, inflation isn't a naturally occuring phenomenon. It's a policy choice. It occurs when governments and their central banks push too much currency into an economy too quickly. The mechanism of new money creation is not equally distributed. New money is almost always first acquired and spent by the well-connected wealthy class, governments and political favoritism. These first spender turns around to immediately buy primarily financialized assets like stocks, bond and RE. While yes, the rich probably have larger piles of cash sitting around, they also have more than enough assets to appreciate as inflation provokes speculative asset bubbles. The erosion in cash purchasing power does not have a meaningful impact on wealthy individuals. Their assets grow in price and their paper wealth grows more than their currency purchasing power shrinks...by far. Second, the loss in purchasing power of cash doesn't meaningfully impact the consumer life style of the wealthy as much as it affects the poor. A family living on $70k will feel the loss of purchasing power when the cost of daily items increased by 5-10% in a year. An extremely wealthy person could realistically pay 2-3 TIMES more (100-200%) on every item they consume and not notice. Inflation serves as a regressive tax in this fashion, punishing poor folks relatively more than the rich...probably not a sustainable way to order a society. Lastly, the vast majority of debt is held by people who are credible, or credit worthy. The most credit worthy people are those that have piles of capital assets to serve as collateral for additional lending, like governments and megacap corporations. Bond rates for sovereign and investment class debt is always rock bottom relative to all else. It is also well known that wealthy people carry cheaply financed debt, both to consume and live on, and also use in leveraged asset aquisition. So, the richer you are, the lower your interest rate tends to be because you can secure the debts with collateral and the more leverage you can apply to gain more assets. Being that governments are massive debtors, inflation allows governments to control more of the economic pie at the expense of the public. This is the definition of a tax. Poor people tend to have limited credit, even as a collective aggregate. The debt they DO have is typically much higher interest and well above the rate of inflation. Rich people, low rates, poor people, high rates. Inflation does NOT help the poor discharge their debt, but it does make it much more difficult to service their debt because they have less saved income after daily life is paid for. It's very important that people understand this. Your reasons offered for why 2% inflation targeting is upheld is the common narrative pitched by government-funded academics to support the policy, but even if true, is it a moral pursuit for governments to implement a regressive 2% inflation tax outside of voter input? I'd argue that low inflation does not promote consumption and high inflation can easily overheat into a doom loop of hyperinflation and wasteful consumption. It's dangerous to mess with positive feedback loops. More begets more and it can quickly get out of hand. And even if low inflation did promote consumption, being forced to consume at the threat of inflation confiscation is an immoral theft of property. Did you not have siblings that would eat your desert if you were too slow? Did you not feel the injustice of dilligently saving your treat only to have your asshole brother eat his then your because you were "too slow"? Should I be allowed to eat your cake if you want to save it for later? Inflation does NOT promote investment. Humanity was just fine building out civilization before central bankers started targeting 2% fiat currency inflation. If anything, inflation robs purchasing power from the private economy and redistributes it to the government command economy. Government "investment" (if you can even call it that) typically has a negative real rate of return, meaning the spending is merely consumed as it is redistributed to other programs that use lots of resources but and produce few resources in return. Whereas, the private economy is excellent at allocating real capital into improved efficiency and processes. Taxing the private economy rarely results in better investment outcomes. Bear in mind, nothing in life is free. The state of the world is degredation, obsolescence and scarcity. Entropy works against living beings. As humans, we must always exert effort (labor, natural resources, technology, saved capital) in order to persist, grow and thrive. If inflation is helping somebody, it is hurting somebody else in an equal manner. It is merely a transfer of resource from one to another. Inflation is a transfer of resources from the last person to spend the newly created currency units (the poor) to the first people that get to spend the newly created currency units (the government and dealer banks). This is called the Cantillon Effect. New money is most valuable to the first user and less valuable to all subsequent users. Historically, civilizations were destroyed by social rebellion after governments used the power of the mint to debase the common currency. We all know Rome would collect silver coins, melt them down with tin and other cheap base metals in order to pay its government expenses with newly debased currency. Eventually it results in a systemic government malinvestment of resources that lead down a path of inefficiency, waste and social chaos. There is a very deep history with monetary inflation and none of it is good. This most recent sliver of fiat central banking we are living through is a blip in human history and will be studied as what not do to ever again (but it will happen again and again and again as long as people give their governments the power to create money from nothing.) Direct and representative taxation is the only form of moral taxation. Inflation is neither of those.
31:46….. “a building lasting for 30 years”. ?.. My house in Germany was built in 1886 and still good. (Part of it built in 1600). No wonder Europe is in decline!
Inflation isn't a naturally occuring phenomenon. It's a policy choice. It occurs when governments and their central banks push too much currency into an economy too quickly. The mechanism of new money creation is not equally distributed. New money is almost always first acquired and spent by the well-connected wealthy class, governments and political favoritism. These first spender turns around to immediately buy primarily financialized assets like stocks, bond and RE. While yes, the rich probably have larger piles of cash sitting around, they also have more than enough assets to appreciate as inflation provokes speculative asset bubbles. The erosion in cash purchasing power does not have a meaningful impact on wealthy individuals. Their assets grow in price and their paper wealth grows more than their currency purchasing power shrinks...by far. Second, the loss in purchasing power of cash doesn't meaningfully impact the consumer life style of the wealthy as much as it affects the poor. A family living on $70k will feel the loss of purchasing power when the cost of daily items increased by 5-10% in a year. An extremely wealthy person could realistically pay 2-3 TIMES more (100-200%) on every item they consume and not notice. Inflation serves as a regressive tax in this fashion, punishing poor folks relatively more than the rich...probably not a sustainable way to order a society. Lastly, the vast majority of debt is held by people who are credible, or credit worthy. The most credit worthy people are those that have piles of capital assets to serve as collateral for additional lending, like governments and megacap corporations. Bond rates for sovereign and investment class debt is always rock bottom relative to all else. It is also well known that wealthy people carry cheaply financed debt, both to consume and live on, and also use in leveraged asset aquisition. So, the richer you are, the lower your interest rate tends to be because you can secure the debts with collateral and the more leverage you can apply to gain more assets. Being that governments are massive debtors, inflation allows governments to control more of the economic pie at the expense of the public. This is the definition of a tax. Poor people tend to have limited credit, even as a collective aggregate. The debt they DO have is typically much higher interest and well above the rate of inflation. Rich people, low rates, poor people, high rates. Inflation does NOT help the poor discharge their debt, but it does make it much more difficult to service their debt because they have less saved income after daily life is paid for. It's very important that people understand this. Your reasons offered for why 2% inflation targeting is upheld is the common narrative pitched by government-funded academics to support the policy, but even if true, is it a moral pursuit for governments to implement a regressive 2% inflation tax outside of voter input? I'd argue that low inflation does not promote consumption and high inflation can easily overheat into a doom loop of hyperinflation and wasteful consumption. It's dangerous to mess with positive feedback loops. More begets more and it can quickly get out of hand. And even if low inflation did promote consumption, being forced to consume at the threat of inflation confiscation is an immoral theft of property. Did you not have siblings that would eat your desert if you were too slow? Did you not feel the injustice of dilligently saving your treat only to have your asshole brother eat his then your because you were "too slow"? Should I be allowed to eat your cake if you want to save it for later? Inflation does NOT promote investment. Humanity was just fine building out civilization before central bankers started targeting 2% fiat currency inflation. If anything, inflation robs purchasing power from the private economy and redistributes it to the government command economy. Government "investment" (if you can even call it that) typically has a negative real rate of return, meaning the spending is merely consumed as it is redistributed to other programs that use lots of resources but and produce few resources in return. Whereas, the private economy is excellent at allocating real capital into improved efficiency and processes. Taxing the private economy rarely results in better investment outcomes. Bear in mind, nothing in life is free. The state of the world is degredation, obsolescence and scarcity. Entropy works against living beings. As humans, we must always exert effort (labor, natural resources, technology, saved capital) in order to persist, grow and thrive. If inflation is helping somebody, it is hurting somebody else in an equal manner. It is merely a transfer of resource from one to another. Inflation is a transfer of resources from the last person to spend the newly created currency units (the poor) to the first people that get to spend the newly created currency units (the government and dealer banks). This is called the Cantillon Effect. New money is most valuable to the first user and less valuable to all subsequent users. Historically, civilizations were destroyed by social rebellion after governments used the power of the mint to debase the common currency. We all know Rome would collect silver coins, melt them down with tin and other cheap base metals in order to pay its government expenses with newly debased currency. Eventually it results in a systemic government malinvestment of resources that lead down a path of inefficiency, waste and social chaos. There is a very deep history with monetary inflation and none of it is good. This most recent sliver of fiat central banking we are living through is a blip in human history and will be studied as what not do to ever again (but it will happen again and again and again as long as people give their governments the power to create money from nothing.) Direct and representative taxation is the only form of moral taxation. Inflation is neither of those.
Because there are several factors even political ones for the money policy?? Fiat money is actually money you trust based on the government and politics so.. its not that weird you know.
How would negative interest rates encourage inflation?? Its pulling money out of the (banking) system. In contrast, recent high inflation rates are pushing inflation (or at least not reducing it), depening on hiw much of the interest revenues were further spent or again saved in non-productive assets
Obviously this guy never goes into a supermarket to buy his own food. If he did he would change his view of inflation; same for his bills for his electricity and gas !
@@MoneyMacro Energy prices came down, but the US also extinguished its Strategic Petroleum Reserve to do so. I'm not sure that effect can last, especially if the US attempts to refill its SPR.
Very weird. Very much had constantly repeating themes of "we know was happening", "we knew was was happening at the time, we had the data", "history already had these cases covered", "many people had researched good solutions after the last time this happened". Ok but then why did the problems get worse? If you know what your doing the problems should only get better, never worse.
Only if you do have enough power to solve them. The power of a central bank is highly overrated. We did already see it in the past. 0% interest and QE meant that the ECB was absolutely desperate. And this was by no surprise when at the same time governments wreck their economies. What they did to Greece was a crime.
ECB is good at reckless lack of banking regulation. ECB is good at rejecting MMT. Instead are budget surpluses written into laws for governments and municipalities in Europe. ECB is good at forbidding capital controls - which could have limited the damage of the capital inflows that caused inflation bubbles in Ireland and Spain during the Euro crisis, or for Sweden in the early 1990s. ECB is good at creating unnecessary suffering and bad economic performance by abandoning the doctrine of full employment in favor of "price stability". The idea was that price stability would make it easier for companies to predict the future and therefore make correct decisions about investments and such. And the calm predictable future would encourage more investments and economic growth in the long run. And all the stability would help to create stronger growth and lower unemployment. This is what we were promised. Instead have we seen slower GDP growth than back in the 1950s and 1960s when European governments did the opposite and prioritized full employment over price stability. That was also a time period of more investments than now. And no economic crashes like the Euro crisis. So the ECB is much to blame for Europes bad economic performance. Or rather the dogma of its economists to be more precise.
@@nattygsbord it really all comes down to low birth rates and an unfunded social system. MMT is a ridiculous theory that would never work in practice. Austrian Economics is far superior to Keynes.
@@righteousmammon9011 I see low birth rates rather as an effect than a cause of Europes weak economic performance the last 40 years. Most people in my age and younger seems to dream of forming a family but lacks housing and jobs. And that is the fault of neoliberalism. EUs housing policy is designed to benifit that landlords and speculators, and not ordinary people. EUs economic doctrine is to favor capitalists at the expense of workers (by shifting the tax burden throught the race to the bottom, by encouraging austarity programs, by prioritizing price stability over full employment, by lawsuits like the Vaxholm-Laval court case, by forbidding governments to fund regional programs that help poorer provinces have local industries that create jobs - like forestry in Sweden before EUs occupation in 1995 etc etc). I am not a dogmatic follower of MMT, because dogma is for idiots. That is why libertarians and communists are some of the dumbest people on the planet. I think some key takeaways from MMT are that double entry bookkeeping has been forgotten among analphabets of economics like the Austrian school and the ECB. If you just look at a simple chart of double entry booking keeping you see that every loan creates two pages in the book. One page where someone goes into debt when a loan is taken. And on the other side you see that someone has gotten an asset when a loan has been created. And all loans are like that. One person goes into debt, and the other person gets an asset. When the government goes into debt, then are assets created in the private sector. And when you try to balance the budgets, then you steal money from the private sector to repay loans to the government. And that move is just harmful and idiot deflation. And now when surpluses have literarly been written into law in all European countries, have the EU decided that all countries should commit economic suicide through deflation. And it is very ironic that rightwingers that claims to care more about the private sector than the government, are some of the biggest proponents of this idiotic "balanced budgets" dogma that harms the private sector and the economy in general. The GDP of a country is really simple. You have the government, the private sector, and then you got foreign trade that could either create a plus or a minus for the GDP of a country. And not all countries in the world can export more stuff than they import. So the only solution then is that the government goes into debt as I sees it. And I do not see it as dramatic as idiots do. First of all, if the Swedish government borrows money from the Swedish people, then all it needs to do is to tax the Swedish people to repay the Swedish people. So I really do not see the point in such a pointless move, and the money would just flow back and fourth inside the Swedish economy by doing so, and the Swedish people would not get any richer or poorer by doing this. All that would happen in our debt based economy is that money dissapears from circulation - which might harm Swedish buisness owners when consumers cannot buy their products due to a lack of money. I am not a Keynesian. I am a heterodox mercantilist nationalist. And the austrian school is just rubbish. Its not even internally consistent, but austrian economists contradict themselves when they one time say that minimum wages do not create inflation but only unemployment, and in the next moment they contradict themselves and angrily bark that they cause more inflation. Praxeology is also a flawed idiot methodology of aquiring knowlegde. Empiricism has its flaws. But praxeology is 20 times dumber. And its basically just based on gut feeling assumptions about the world and not caring to look if they are true or not. So they behave like conspiracy theorists in this regard. They only care to notice things that fits in with their own theory, and evidence that contradicts it gets ignored. A scientist behaves in the opposite way. He first looks at ALL the evidence and then afterwards make a conclusion how the world works. I think one could make any praxeological nonsense claims about this world if one wants to. I could for example say that young men are the best drivers. They are young, have good eyes so they can quickly see a dangerous traffic situation coming up and thereby quickly react to it, they got good reaction time with their fast muscules, and of them have played much computer games driving cars and such so they already got some driving experience from that. And many young men are deeply interested in motor vehicles like women are not. However if one looks at data, will my praxeological assumptions not hold up well. As young male drivers are enormously overrepresented in car accidents given their share of drivers on the road. Many of them drive imaturly, overestimate themselves, are unexperienced and therefore got less reaction time to react to avoiding a dangerous traffic situation. Personally do I think that the Austrian school should be called the American school of economics, since Mises and the economists after him moved to America. And he was also the man who got the school into praxeology, so its fair to say that this school is no longer austrian.
Intrest rates are still way to low.As long as intrest rates are not above inflation there is even no point to talk about intrest rates.Its not the house that gains in value but the currency that looses in value...Its time to put the value back in the currency and start with responsible fisical budgets....else the purchase power of the coin will be deluted so far that it looses any significance....We already see folks dont have the purchase power to have children anymore...yeah yeah its not the usual tale they spin of industrialized nations have less children.they have less children cuz there purchase power is reduced null a fied bye integration in all sorts of so called social structures forcing dependency on the state they slowly reduce the desire to protest...in fact the reckless policies ,infinety printing and fractal banking combined with out of control defecits is wat is destroying every nation in the west...Modern economics like you tobelieve there are no rea world limits on the next form of ponzi-skeme they invent.In the real world where worthless cash follows limited goods and services thats just not the case eventualy the bubbles pop
Central bankers are famously coy with definitive statements, or any hard statements at all, since they can change expectations. When they issue one, it has to be done carefully.
@@Var_ but you have a lot bad confidence people who think they are confident.. look at the dunning kruger chart. U have either people who are confident with almost no knowledge of people who are confident with a lot knowledge. Most people who are confident are the first... because its easier to be stupid than to be smart.
A bit of mental gymnastics how it was a bottleneck issue instead of stimulus. You cannot say "bottlenecks" and demand are separate and only focus on the "bottlenecks" that is strange. In a normal economy where no work = no money the bottlenecks would not have formed or at least much less. Governments stepped in with stimulus aka money printing keeping demand high even though nobody did any work so no goods produced but people can still spend the money. No good but lots of money = inflation. It is directly correlated to the stimulus policy as it always has been on a macro level.
Simply not true and not in any way to be seen in the macro data. It's damn clear that higher prices came from higher cost, not excess demand. It's beyond me how anyone can interpret the data in any other way. Monetary policy has a significant time lag and rate hikes should not be used to fight a temporary supply side bottle neck. Sure, there might have been to some extend an effect of excess demand when the lockdown ended but this is also only a temporary effect that (again) is not worth or needed to be targeted with rate hikes. There is no reason to assume that consumer preference has changed in a significant way, why should it? You seem to imply that the overall costs of laying off a massive amount of people would have been lower cost compared to fiscal stimulus. What is the basis for that?
@@trixn4285 Higher prices can only exist if the money is there to pay for it. I was speaking about stimulus more like money printing and a lot of fiscal stimulus not rate hikes or lowering that does nothing anyway. Consumers are also producers, no work = no money hence no consumption. Government stepped in with support of ECB to keep demand high while no production simple idea simple result inflation. I did not even mention the "cost" of massive lay-off only looked at inflation, yes massive lay-off would happen but in turn also massive deflation because no-one can spend when no money in a normal world (i know all the social security makes this not valid in our current world because government would again give out money). And the deflation would blow up the banks and pension funds sure but that is the point we are to far gone to even consider a route where deflation can take place hence on the road to zimbawe just not there yet.
@@PatrickvanderEst Why on earth would anybody with a brain blow up the whole economy and financial sector in a massive deflation, when capital and workers are on an ordered holiday? This is beyond silly. Also it is just not true that the "stimulus" kept demand high. You can see in all the macro data that demand dropped massively during the pandemic and that prices went DOWN. People used a lot of the money to pay down private debt which is just deleveraging and the rest was primarily saved. Nothing was open anyways. The only time we had a temporal increase of demand beyond the pre-pandemic level was when the lockdowns ended. There we has some inflation yes, but this is not dangerous at all, it's a one-off hike, not a self-sustaining fight for spending power. _"Higher prices can only exist if the money is there to pay for it."_ Wow, congratulation for that groundbreaking realization. So what is your proposal? Limit the money supply? The economy is about flows, not stocks. Nothing blows up there. And you seem to know nothing about Zimbabwe Hyperinflation because it had literally nothing to do with money-printing. Money printing is a symptom, not a cause. The cause was a supply-side shock because land was taken away from the white colonialists and given to people who could not be nearly as productive. Agricultural production dropped by 60% and Zimbabwe got into an exchange rate devaluation death spiral due to import dependence (while having no more exports).
If the cost of raw materials go up for a business its inflationary, cost of labour goes up its inflationary, cost of oil or transport likewise, but the cost of borrowing goes up and somehow that's deflationary. Are you sure?
All youtube videos have some degree of crappy sound and image quality as only compressed formats are allowed for uploading. But it could also perhaps be the fault of the guy uploading the video, if you record a video in say 480p and later on convert the video into 1080p will the image quality still suck and be just as bad as it was when it was 480p. And there is no way to improve image quality afterwards.
@@SamuelHauptmannvanDam Its probably the camera then that is crappy. The sound quality lacks bass - which I guess is due to compression (MP3 and MP4 and such loves to eat up bass sounds) but also because the microphone is a bit crappy. But that is okay, this is not a song but just two dudes talking about economics in a podcast format. My guess is that the microphone does not record any sounds below 80Hz, while it increase volume on higher frequencies. So therefore do I doubt that the two men sounds exactly the same in the real world as in the recording. I am a sound technician, so videos are not really my thing. However I would guess one out of 3 reasons why the video is blurry: 1. Cheap Camera Quality: Lower-end cameras often have inferior lenses and sensors, which can result in lower image clarity and sharpness. 2. Compression: High compression rates can degrade video quality significantly. Compression artifacts can make the video appear blurry or blocky, especially if the compression algorithm prioritizes file size over quality. 3. Low Resolution (480p): Recording in 480p, which is considered standard definition, inherently has fewer pixels compared to higher resolutions like 720p (HD), 1080p (Full HD), or 4K. Fewer pixels mean less detail, making the video appear less sharp and more blurry.
I can only say that there is an enormous difference between cameras on mobile phones. And better cameras do of course often cost more money. One can just go an art gallery and see art masterpieces, they are so much cooler and colorful in real life than what they are when you see the paintings in books where they just are a pale copy without the richness of colors and depth that they are in real life. And most cheap junk cameras fail to come close to reality in depicting those paintings as they really look in the real world. However having a great camera is not doing you anything good if you do not have the right settings when recording a video. If you record things in say 320p you will just get the same crappy resolution as low quality videos here on youtube, even if you have a camera for 20.000 Euros. And it doesn't matter if you later on convert your 320p video into 2048 resolution afterwards - because your recording will still be the same ugly garbage as before. And if you have a nice camera and make a nice recording in extremely good resolution and detail, then can your video still become ugly junk if you use too much compression. Compression saves space on your harddrive, but it murders sound and video quality. If you have a wav file of music of 1024kbits (perfect sound quality with other words) and then you convert that wav file into a MP3 file of 128kbits - then you have automatically just murdered and removed 90% of sound quality with a mouse click. And if you then convert this file to a WAV and then to a MP3 file again, then you have murdered another 90% of the sound quality... and the recording starts to sounds ugly in your ears. So when you do the same thing to an image and convert your BMP image or your AVI video into a JPG photo or a MP4 video.. then of course you make enormous losses of quality of the images just the same way as happened to the music.
Please stopp raising interest rates upon the types of supply schock inflation we have seen in the recent decades. High interest rates cause so much problems in the actual mainstream neoliberal economic setup (which is not working for crisises!) and do not reduce inflation - unless in a single case which I can't remember happening for a very long time: a real hot economy where everybody takes on lots of private debt for comsumption. Else its a stupid policy leading at least to a recession right after one or more crisises!
What you call high is actuall historically a low value. Do u not see that? I hear my grandpa about percentages above 10 and 20%. Totally different. The interest on the banks where also higher on your savings accounts.
@HermanWillems calm down please! More than 10 % interest rate is an expression of dramatic change or specific issues in a country - like in Turkey recently. The also try to dedollarize their country. Only because rarely even higher interest rates existed in history, it doesn't mean that 3 to 6 % can't do harm as well - specifically if increasing interest rates can't work against the types of inflation we experienced in Western countries since the 70es
@@ProgressiveEconomicsSupporter Im talking about the west. Not turkey. Europe. In a real HOT economy people actually not go a lot in private debt. Private debt here in my country is actually going down. Less and less people actually take up debt. Savings up breaking new records. Extremely low unemployment rates that even suffocate the economy. It's actually normalized now here people only take mortgage and outside of that no other debt. It's a bit different in the USA i guess. Im now in Canada and you are almost killed with loan advertisements. This is not the case in Europe. We have strict policies regarding commercials that are bad for people. I did actually NOT see people taking up big loans in a HOT economy.... why you make that assumption?
@HermanWillems I think we m8sunderstand each other. Don't know if Canada has a hot economy, I doubt that, but Canada makes a lot of things much more right than other Western countries. In Eurooe there is for sure no hot economy. However private debt rose in the USA and in other parts of there world before the financial crisis 2007/2008, as a consequences e of less government social and other spendings or in countries with outright neoliberal austerity. Canada is very different to like USA alone on the number and and sizes of banks and their business.. Else you are right ofc, if economy goes well (not even hot with too much demand), loans goes down ans less social payments are required since unemployment is low. But all of this is not the point of my initial comment
The biggest problem over the past two to three decades has been very low interest rates and massive money-printing/asset-inflation which arose from from those rates. There was only $87 trillion in debt (government, consumer, corporate, financial) in 2000. The last I read, there was $360+ trillion. It took humans 50-100 years to build up $87 trillion but only two and a half decades to triple that debt. The global economy has been running on debt for the past three decades... we do not need any more low-interest-rate and debt-fueled so-called 'growth.' Remember that all the technological growth and rise of new industries over the past three decades has been fueled by Ponzinomics at the Casino. The world desperately needs governments and economic elites everywhere to start exercising more financial restraint, accurate accounting, and quit relying on low-interest-rate BS to produce artificial economic growth.
Here here! This can only end badly. It will either be a catastrophic reversal of fortunes or a decades long stagnation and decline. All that falsely priced capital promoted massive real economic malinvestment that was wasted on inefficient pusuits. It's pretty infuriating and the general public has no real recourse to solve the issue of central banks hijacking our trading currency.
The problem with your statement is that you think in dollars having always the same value and the economy not growing. You must always compare debt with economical output. The debt value on itself says mothing. Hopefully u understand? Think in relative terms will help u understand things more. Dont think in absolute values. That does not work and will lead into wrong thinking.
18:18 I really hope companies can play along and absorb the high interests plus the higher wages they need to pay their employees. Wait … what … manufacturers are closing business and relocating to Asia and US for lower wages and taxes and more government incentives? Oops!
The downside is that its a tax on fiat money holders. Asset holders will not get caught as they go up in value together with inflation. Taxing trough inflation should come then together with taxes on assets to balance out. But this is all complex stuff. But tax trough inflation hits people unequally and isnt healthy.
I find your glib, dismissive attitude towards those people who said that increasing the money supply through stimulus is what caused the inflation utterly infuriating. The supply is back to normal, the printed money is still circulating and the prices haven't gone down one bit. If the price rises were due mostly to supply shortages, then they would've gone down a lot closer to pre-pandemic levels when the supply chain was restored.
It is difficult for me to speak to how I come across. But, I can say that I take that narrative serious enough that I wanted to bring it up to Philip Lane. I will admit that one thing that consistently disappoints me about those who previously promoted this narrative is that I've never seen any of them try to address counterarguments like the ones featured in this video.
If you had proof you could sell something for £10 (because you had done it for a year) why would you reduce your price to £9? Markets don't work like that whatever the theory says.
@@davidthompson797 Because unless you have a government enforced monopoly someone will compete with you for your clients and offer the same product or service for slightly lower prices or offer something extra to entice them away from you. At least that's how it worked in a mostly free market.
@@davidthompson797 You can only sell at the new, higher price until volume starts to fall off. Once that happens, you either have to lower prices or risk losing market share.
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I appreciated the summary / highlights at the end. 👍
Great interview. Good to see alternative media get such good access.
how alternative is it when it has the same biases and talking points?
@@yeetyeet7070what do you specifically disagree with?
@@yeetyeet7070 wrong, run along kid
I’m not sure it is particularly alternative. That is not criticism. What is unusual is that we have an hour long detailed, fact based objective conversation between two experts. This used to be the expected standard but sadly a rarity these days.
This is what a real interview looks like. An actual economist who understands the topic making insightful questions. Great job Joeri and also cheers to Philip for accepting the interview.
I like the wall! Very fun
This video would have benefited a lot if graphs were presented to illustrate every number mentioned.
Like "we dropped rates from -0,25 to -0,5". Why not show us how they were before and 4 years since?
It is an idea worth trying!
@@MoneyMacroso kind of You! ❤ Amazing what You do for financial education here, there can be a surprising lot to learn, depending on how deep one dares to dive! My conviction is that policymaking in economics can be both fascinatingly complex and not just useful, but literally steering the course of international business with all of the direct implications on standards of living. The latter seems to be so immensely overlooked in Europe, especially when it comes to politics and making informed decisions, it blows my mind! ❤
Congrats on the interview! Long time fan, happy seeing the channel develop!
This channel is so great, thank you for this!! I didn’t even know I was interested in ECB policy until this channel.
The way you summarise what you take from what he's saying is brilliant. Fantastic interview technique, please do more of these.
Hi, please interview Kartik Gada. He has some very important insights.
What you are missing is that high tech grows faster than the economy on average, it is a larger share each year, and a sector that will exert highly deflationary influence. With exponential tech you would also exponentially increase easing.
Thank you, Yuri! This was a fantastic interview 😊
Thank you very much. The interview helped understand the inflation spike and clarify central bank policies. It also helps build trust in institutions like the ECB to see such a knowledgeable and nuanced banker, and provides clear reasons why we need central banks, despite what cryptofans may dream.
What I found hard to understand was your idea that the ECB didn't raise interest rates as much as it could have to allow wages to rise. Philip Lane only said that the ECB raised rates (as much as it had to, in my understanding) to prevent negative real interest rates and to make sure the ensuing wave of wage inflation was moderate and did not lead to a pro-cyclical scenario of high inflation expectations. He also said that, without wage inflation (arguably through higher interest rates), there would have been a recession. So the ECB did not raise interest rates as much in order to prevent a recession, therefore it was also in order to allow wages to catch up, but enough to ensure it was a "moderate process" to prevent pro-cyclical expectations. That's what I understood.
Walk us through what would have happened had the central banks not existed and we had sound money instead. What is the nightmare scenario you envision if we didn't have saviors like central bankers to save ourselve from each other. Let's hear it. Considering the world got the bad flu, are you ok with the price we all paid to avoid getting the sniffles?
Good to hear the information from the horse's mouth. Also a good idea to discuss events which are relatively in the past to avoid too much political influence. Thanks Joeri!
Very cool interview, nice to hear from someone right in the thick of it, and to have them interviewed by someone intelligent and knowledgeable! :)
Working in Banking what I didn't grasp pre-inflation was that raising retail rates just a few percent would cause such public discontent. I genuinely thought Reserve Banks had far more latitude to exercise appropriate policy.
For that reason I think we should curtail ZIRP and QE as policy tools even if it causes some deflation.
I'm not sure if the rates are causing the discontent, or the inflation that spurred central banks to raise rates.
If we're honest, both, right? That seems to be the deadlock of our time
@@MoneyMacro those rates make houses unaffordable, another type of inflation
Without ZIRP and QE, an entire generation of baby boomer assets would be inadequately priced to support their retirement. They had inadequate real savings going into retirement. Letting a housing bubble collapse would have sunk many retirees. Instead of letting them suffer with their own poor lifetime savings habits by living an austere retirement, central banks figured they could just inflate asset prices using QE to keep their largest voting block temporarily happy. This, of course, all comes at the expense of the younger generations no longer having resonable savings and investment options. So, it basically become intergenerational wealth transfer from young to old. Boomers want full central bank bailouts to keep assets propped up, the youth would love to see an asset price crash so they could afford housing and a real rate of return on their savings.
Part of the reason people complained so loudly about rising policy rates is because assets prices (speaking primarily of residential housing) had grown so high that they were only affordable when money was free (ZIRP). Now that rates are slightly higher, houses are out of reach for most young working families. Deflation of asset prices would be an absolute gift to the next generation. Yes, there would be some temporary labor instability or unemployment, but only in fields where people had no business being employed in the first place, like the swarm of bureaucratic middlemanagers, fake finance and other bullsh.t jobs. The valuable jobs, like healthcare, education, manufacturing, security and agriculture will persist. Business entrepreneurs will have lower cost of labor to start new business. Stranded assets will be liquidated to more ambitious and creative pursuits. QE has created horrible distortions in the real economy. Resources have been misallocated to frivolous and speculative pursuits. When capital becomes accessible to the undeserving, it gets steered away from productive investment and wasted on hedonism and speculation.
@@MoneyMacrothe problem is, that central banks only have this single, very bunt Tool of raising interest rates, which is NOT useful at all to fight supply schock "inflation"!
It any effect it increase inflation ins assets in housing markets at least!
I first came to this channel many years ago to learn about central banking, I'm happy that this topic came up again in a big way.
Kudos for making that great discussion with your Interview partner
You are a very skilled interviewer, great questions and discussion!!
Thank you!
@@MoneyMacro Don't let it go to your head, Joeri. You were merely a polite host. That's not what makes a good interviewer. You could have pushed back much more. Played a more aggressive devil's advocate. Make this very influential institution defend their dissertation that we are all forced to live by. This was a softball interview.
@@aaron159r2 It was an interview oriented on EDUCATION, not contrexamination. Joeri focused on explanations, often rephrased the answers, picked up on the underlying or suggested contents, forced the interviewee to give answers that are actually informative, and combined explaining what happened in this particular crisis/situation with a more general knowledge about macroeconomics and central bank policy making.
The goal was not to be antagonistic or catch the ECB representative in flagranti for whatever reason. The goal was to educate and I think it was reached.
I really enjoyed this video. the questions were well thought, yet simple. it made it easy to follow, yet entertaining for people like me who know the basics, but nothing too in depth.
lobe your interviews, always great conversation with great guest
Very nice interview! But I can't help to think that summary of the policy is that is that intrests rates are going to be up for as long as it takes inflation to get back to 2%.
Very good and interesting intervew with many insights. Please bring more content like this!
I really appreciated your attempts to summarize and make sense of his points throughout the interview, thanks for that. At the same time, I hate how he could never just give a yes or no regarding your summary. I'm sure it's career suicide as a public figure to agree to others summarizing your points and risk being pinned down to something you don't really mean... But it'd be so satisfying to hear him say "yup thats right" 😂.
He is a political spokesman. His job is to waffle, flip-flop, evade, be non-commital and gaslight. I think he is very well suited for his position.
@@aaron159r2 To be fair, a big part of economic policy is to try to assure the public things will be OK and the economy will stay stable. It seems reasonable to do that both through raising/lowering interest rates, but also by talking to the public confidently about your plans (even if it's kinda waffling). But with that said I could never stomach that sort of job.
What kind of nanny state has Europe become if the public needs to be told “we will be ok”? That kind of false paternalism is unnecessary. Your line of logic is how populations end up supporting authoritarian dictatorships. “Oh Daddy Government, tell me everything will be ok. Reassure us that our irresponsible behaviors with money have no financial consequences.” …to be fair. Are we children with no self-determinism? Economic slaves to our technocratic overlords? Central banking is not necessary for humanity to thrive. It’s a hijacking of our common currency. The ECB and Fed spokesmen are there to create a narrative for the fools to believe. And I wouldn’t doubt that the ECB has found a loyal stooge that actually believes his own lie in order to sound more convincing.
Interesting conversation. Thank you!
Great interview
Very shocking to see that an organization with the *single* mandate of price stability and that is supposed to be independent openly considers itself part of the government and argues for monetary policies based on fiscal spending needs as Lane does in the beginning of the video. "We had to ignore price stability to support very generous government spending. Surprisingly this lead to inflation". Very unfortunate that Joeri didn't push against that line of arguments.
Totally agree. If inflation targeting was the ONLY mandate, then central banks ought to have been criticizing massive fiscal deficits. Of course, price stability is not their real mandate, it is merely cover for an inflationary taxation scheme that enables government official to squander the public's wealth for personal gain and ill-conceived political pursuits.
Its simple. The government had to pay a lot of money to fix everything. But you as a citizen ARE the government. Everything the government does need to be paid by its citizen. You and me ... therefore the inflation was used as some tempotary tax system to tax people in a different way than regular tax raises.
The downside i see to this is that its a tax on money not on assets. They move along.... so then people without assets and money lose and people with lots of assets get richer.
Lets not pretend that any CB in the World are really independent
That's because price stability is not the ECB's only mandate.
From their website,
_"Our mandate is laid down in the Treaty on the Functioning of the European Union, Article 127 (1). The Treaty adds that “without prejudice to the objective of price stability”, the ECB shall also support the general economic policies in the EU with a view to contributing to the achievement of the Union’s objectives as laid down in Article 3 of the Treaty on European Union._
_"These objectives include balanced economic growth, a highly competitive social market economy aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment - without prejudice to the objective of price stability."_
@@ivani3237it would be pretty ridiculous if they wer as then wtf is the point of democracy?
Congratulations on a great interview. I like very much that you are exploring various types of content. Looking forward to your next video.
this was a great listen ty
We saw a reversal in price pressures but not prices post 2022. Dr. Schasfoort implied that the expectation was for prices to decline.
I'll be reviewing this a few times👍
You are a born interviewer! Interesting speaker, good questions, clearly understandable!
Keep up the good work!
Disagree, he failed to challenge his guest. Listen to Lex Fridman or Joe Rogan. They are good interviewers. Then listen well (as did Joeri) but then they play aggressive devil's advocate to get the guest to provide compelling arguements against criticism. This was such a softball interview.
Really excellent interview! Very easy to understand and makes the world slightly more predictable.
He mentioned that there is a limit to how negative interest rates can go. Can you explain this more. Thanks
Absolutely. The problem is cash (and these days crypto), which offers a 0% interest rate. However, at large quantities storing cash (and crypto) is very risky. So, if there is a slightly negative interest rate on bank deposits, that is still more interesting than holding large sums of cash for most. However, if you drop interest rates to e.g. -10% you would likely see a large flight to cash.
@@MoneyMacroAnd then they'll ban cash 😊
@@MoneyMacro well explained, thank you
I wish you could touched on effects of large government deficits and debt to GDP. Thanks for the Europe perspective.
This deserves a comment. Well done 👍
The problem is "one Euro interest rate does not fit all" so let the southern states have their national currencies again, purely digital alongside the Euro. Whoever opts for his national currency again, will get a debt cut or moratorium on repayment and interest from the ECB. I have no idea what is coming, but would preferr this scenario.
Wonderful Insight!
Maybe I am being cynical but did he blame everything else, including shadow banking, consumers, supply chains and private business, other than their own negative rates & QE policy? The fiscal dominance has been aided by the central banks.
Exactly. An hour of bullshit talking instead of admiring the fact of correlation between QE and inflation
Great interview!!
“Inflation was not caused by increase in money supply because spending did not increase in 2021”
Yeah sure mate but there was no way to spend it in the lockdown economy so this money just piled up in everyone’s bank accounts and was unleashed only in 2022 when the economy opened up - he is completely missing the delay between cause and effect due to the circumstances at the time
Central banks are so afraid to admit mistakes there is hardly any value in every overly political statement they make
Don't forget supply demand created inflation too.
I think he addressed it, for even in 2022 inflation was driven mainly by price increases in energy, food and industry, not in services.
Bingo. Admitting mistakes would unveil the air of authority and infallibility they need to persist.
But you forget that we have a global economy and that covid measurements and breakouts where NOT synchronised around the world causing demand spikes for stuff at one side for stuff that was made somewhere else where factories are closed. U are too naive and not think in details. You are not open for understanding just rather want some opinion to be right and steer towards that opinion. Why do u do that?
@@HermanWillems I am not saying there was no demand side inflation, my point is it is discouraging to see the ECB dismissing the money printing argument so easily without any serious reflection on their own performance
Awesome. This was my favourite video on this channel.
Heel goed interview!
Good to see the ECB took notes from Australia during the 2008 SPM crisis
Thank you for this video.
Idk if it's happening in the EU, in Canada we are also seeing unemployment rise. So we are seeing both unemployment rise and wages not keeping up. Most of the unemployment is rising because of the interest rate increases. So would that not be an expected outcome in the EU as well?
I don’t know about central and southern Europe, but in Scandinavia we are once again seeing real wage increases (higher than inflation) while unemployment slowly creeps up. As long as energy prices remain somewhat stable it looks a lot like a normal recession is in the making.
@@axelnilsIn Slovakia real wages rising too. I think ECB actually don't know what to do in current situation and they just waiting for FED(elections in US) as usual
Nope we still see wages going up at least here in the Netherlands. Just had another big raise... and unemployment is really low.
I have a personal inflation attack plan. Has to do with energy use. So i try to produce as much energy for myself behind the meter which is not taxed and run my house + electric car on tax free solar energy. And yes i got a huge battery at home then to store it all. This means i will have low expendures. Energy inflation then does not hit me as hard. But other inflation like food and insurances can hit me..
Loved the video
Loving this channel.
one for the algorithm.
keep up the great work!
So the most likely scenario is still 2% for both inflation and interest. But with geopolitical risk and the dire demographics wouldn't the inflation be of the regressive kind where commodities go up and real wages stagnate?
Well wouldn't that be the point of the EU project? Benifitting the top 2% in society at everyone elses expense
it could be. But, it could also be that increased spending on defence & retirement benefits produces the type of 'overheating' inflation that we are now seeing in Russia.
@@MoneyMacro not an expert on the EU or macroecon but emerging trade tensions with china and the interdiction of sea routes running through the mideast seem like they could lead to a friedman-esque situation similar to the one the US faced
in this scenario my impression is that governments are likely never going to be able to fund enough stimulus to surpass consumer demand for goods and cause overheating to dominate over supply shortages; import prices would thus dominate over salary increases and the stimulus would then only sustain wealth effects feeding into this demand
I think he suggested that the most likely scenario will be a bit higher than 2% because higher instability leads to higher inflation. In the absence of big shocks, and despite instability, monetary policy should be able to maintain inflation between 2% and 3%.
Excellent long form work, thank you
Great Job yuri. Youre the man
Very interesting. Thanks!
There hasnt been any Deflation over all. So Things have gotten more expensive and we became poorer over all
The modern economic system is built on debt- growth through debt.
Therefore, there will always be an aim to keep IR low despite high IR acting as a corrective mechanism to root out mismanaged, bogus businesses for which there is no real market.
Interest rates have been falling for 700 years
Having no central bank and no monetary policy doesn't mean the interest rate is "correct": it means that it is zero (or higher, if capital is very limited). After all, if the ECB sets its interest rate to zero, that doesn't mean I can take out a loan at 0% interest - just that the only cost will be due to risk.
With monetary policy, the interest rate's role is still to weed out good and bad investments. A good investment is one which pays back quickly enough that it's worth the short-term hit of inflation. When inflation is high, the interest rate is set high, and so is the bar for what counts as worthwhile.
@@alphamikeomega5728 No central bank mean IR = infinity !!!!!!!!!!!!!
Don't you think a big part of the inflation felt by consumers is just corporations deciding to pump up the prices regardless of anything, unrelated to the actual economy but using it as an excuse, just because they can, and because they have semi-captive customers?
Thank you! Very interesting
Goeie interview, pik!
Great video 😁
Apart from the COVID recession, just about every recession since 1974 has been caused, or at least sparked, by an oil crisis. This makes sense when you consider how vital transportation is to the economy, and how closely correlated inflation and the price of oil are, at least over timespans below about five years.
However, over the coming decades, we expect to see a shift away from oil as a fuel, which would either insulate us against these shocks or, even better, bring us back into a 2014-2021 scenario with cheap energy, low inflation and low interest rates. Therefore, perhaps we can be optimistic about the long term.
This guy give me a lot of confidence in the European economy
Maybe I am being cynical but did he blame everything else, including shadow banking, consumers, supply chains and private business, other than their own negative rates & QE policy? The fiscal dominance has been aided by the central banks.
Not to mention the argument made at 11:20 is wrong. Of course people had too much money - that is always a ration and it should be taken into consideration in proportion to what they can spend it on. When services are restricted the pool of things to spend on goes down but the CBs made the numerator bigger instead of smaller.
Ever heard of the velocity of money? It changes. I imagine it changes by a lot as you enter and leave a pandemic.
@@alphamikeomega5728 this is just another reason not to implement 0 or negative rates
So the part about the Philips curve and refraining from mercilessly increasing interest rates to tackle inflation to allow companies to keep there employees. How does that make sense in a overheated labor market? Or is the labor market not overheated? Also, what does this have to do with price stability?
He wants to make people unemployed just to mess with peoples lives. Some nonsense argument will be presented that if unemployment dissapears, then will companies be forced to raise wages higher and higher to be able to find any workers at all. And the higher wages will cause more inflation. And more inflation will cause much bad habits in a society. People might stop saving money and borrow money like crazy, even just for buying simple everyday things like toilet paper.
But that is of course not substainable in the long run. One day will interest rates go up to compensate for the higher inflation.
And the high interest rates will mean that fewer people will borrow money and pump that money into the economy - which means that the inflation bubble implodes.
And not companies can make a 15% yearly profit on every 100 Euros they got. And they have to at least a 15% yearly profit if they are going to borrow money at 15% interest rates.
Personally do I think that this reasoning is just nonsense. The economy was doing better in Europe in 1945-1975 when there was to EU central bank trying to steer the economy with their dogma. Price stability is seen more important than low unemployment by the ECB. While economists of the period 1945-1975 had the opposite view, and their time period was one of 0% unemployment, strong GDP growth, higher rates of investment and technological research, less wealth inequality, and no economic crashes - while the EU gave us the 1992 economic disasters in UK and Sweden, and the eurocrisis in Spain, Greece, Ireland, Portugal, and Italy.
Personally do I think the solution forward is not for Europe to compete with lower wages. The way forward for a country should instead be higher wages and higher standards of living and no poor and unemployed. We should have higher wages thanks to the development of high technologies that no other countries in the world have the skills to master. That makes us a monopoly producer of goods that people all around the world have a strong urge to have. So global demand is strong while competition is low - and that allows us to sell large amounts of stuff for high prices, and that means huge profits, high wages and much tax income for governments.
We should also have government monopoly of energy (something that EU once again opposes) so that we can have cheap energy in our country, and that will allow us to have lower production costs and makes it possible for us to have high wages and still being able to sell products all around the world at low prices that are very competative because we got cheap energy.
It also has to do with unemployment rate which is another key value to regulate on. Companies can keep existing not go bankrupt by the pandemic.
I like how he actually looks on the demand and supply side.
The US counterparts seem to only look at the supply side.
US central bank authorities are major league players. The European authorities are still playing AAA ball. I'm refering of course to their ability to lie and manipulate date to suit their narrative. Europe has a lot of learning to do when it comes to bilking the public out of value.
@@aaron159r2Can you give me examples? I’m a financial auditor but I don’t understand the media side of the fed.
I keep wondering if the wage growth-inflation cycle is a myth. I think it is magical thinking on the part of economists supporting big business. Inflation is actually caused by other forces and wage growth severely lags inflation. Therefore wage growth never causes inflation.
Austrian school economists constantly contradict themselves.
First they blame inflation on too high wages.
And then other times they say that inflation can never be caused by too high wages. Because too high wages only leads to unemployment. If workers demanded and got a 20.000 dollar a month minimum wage here in Europe, then would most companies go broke and be forced to lay off people as most companies would fail to generate enough profits to afford paying such high salaries.
And if companies refused to fire their workers and continued to make losses and tried to borrow money to cover the wage costs for as long as possible... then they would still go bankrupt at some time and all the workers would be laid off anyways.
Personally I think that the view is too simplistic. Say that a product is sold for 30 dollars.
To produce it it would cost 10 dollars for all the electricity, inputs and so on. So that leaves a profit of 20 dollars (30-10=20).
These 20 dollars now needs to be shared between the workers and the company. Today would a Swedish worker take 56% of that money, while 44% would become profits for the company and its owners.
However there is no law that says that only 56% can become wages for the workers. In 1978 for example, was 78% of the pie given to the workers while the other 22% was kept as profits for the company.
To me its very telling that rightwingers always complain when about wages causing inflation, when they really don't mean higher prices for the consumers. Its only the profits of the company that goes down instead.
And when there is competition on the market, it would be hard to raise the price of a product from 30 dollars to 35 dollars. Because then would consumers only start buying products from other companies instead.
The only way I see inflation happening would be if the price of this product actully rose from 30 dollars to say 35 dollars or 40 dollars. That would mean more money could be shared among the workers and the company. If prices rose from 30 dollars to 40, to pay for higher wages then would rightwingers scream and complain about inflation.
But if wages remained unchanged and companies increased prices because they were greedy and wanted to make more money by scamming consumers, and thereby causing inflation by raising prices from 30 dollars to 40, then for some reason would rightwingers remain silent.
I think that is utter hypocrisy.
But my main argument against an economy favoring the owner class is not a moral one Or one based on my contempt for their hypocrisy. Rather I am mostly against this type of economic policy because it is harmful to society and its long term economic development and GDP growth.
Wow this was so cool to see! I feel like I learned a lot. I really appreciate how you would summarize and explain each part throughout the interview.
why can't we have sector specific interest rates?
Housing is not an option. You need it to participate in the economy.... We need to keep housing interest rates lower even when all other interest rates go up.
wages are prices! Wages are the price for labour,. If it's an true inflationary effect, meaning no goods supply or demand shock, but the money losing value, than all prices rise and therefore wages have to rise aswell and there is no price-wage-spiral. Reason is that all prices express the quantity relation of goods to each other, but if nothing real has changed, than the relations must stay the same and also will reach the same level again, if nothing else has changed.
wages are just a fantasy fairytale product just like prices are. They are all just social constructs.
A person could only be a King if other people agrees to see him as a King and treat him that way. And the same goes for money and most things else. There is no law written in stone that says that a wage for a month of work is worth this or that. Nor does the market decide that on its own.
Wages are much determined by governments through protectionism (laws against immigration of foreign labor, for example).
So if the wages we have today are fake, then we could just raise them and they would not be any less fake.
*"Reason is that all prices express the quantity relation of goods to each other, but if nothing real has changed, than the relations must stay the same and also will reach the same level again, if nothing else has changed."*
Fair enough. That would mean that real wages for a factory worker at Scania should go up by x4 times. Because an average worker there produces 4 times more stuff per workhour than a Scania worker did in year 1980. Today have wages not kept up, and greedy capitalists have stolen the share of the pie that should belong to the workers and put it into his own pocket instead.
So it would therefore only be fair if wages was increased and the stolen money was given back to the people who had done hard work to earn it, instead of being just an useless owner.
The public is not generally taught monetary policy. FiscaI policy is easily understood. I found the conversation informative, engaging and accessible. However, I have an undergraduate degree in Economics and I still don't consider myself extremely knowledgeable on many points discussed. Yet I wonder whether we would need the concept of an anchor for example if the general population were better informed and educated on monetary policy. If, for arguments, the public could understand monetary policy's relationship to wages better, could the public factor in this knowledge into a clearer public discourse on why governments take certain fiscal steps and central banks monetary ones? Rather than lies, blame and misconceptions poisoning public discourse
I think that the public is ignorant and wants to be ignorant. Its the same way when people go to the hospital because they have a problem. They just want their problem fixed and they blindly trust their doctor. They take their pills and are too disinterested in hearing what the doctor has to say and hearing how the medication works and what they are for and so on. Many people are lazy and disinterested. One could think they would be more interested in their own health and well-being and how to avoid dying. But some people just rather wanna spend time on other stuff instead and not having to think that much about boring issues like this. And the same goes for monetary policy.
Personally do I think that monetary policy, finance and such are the most boring fields of economics. Economics is fun. And with fun I think of more economic history, industrial policy, trade, resource mobilization in a war economy, political economy etc.
Personally do I think the entire idea of monetary policy as a separate entity from the rest of the government is just an idiotic idea. Fiscal policy is a better tool for solving almost every problem as it is better at targeting a small specific area of an economy that needs to be fixed, instead of the clumsy monetary policy that only could raise or lower rates and thus creating enormous negative side effects when it raises rates or lowering them.
I think fiscal policy is better at maximizing gains for society with a minimum of negative impacts.
Another area of monetary policy is the money supply. Which once again only can increase or decrease and thereby creating winners and losers in the economy every time its changed.
One area where European governments potentiall could do some useful stuff with monetary policy would be capital controls - but such a measure is forbidden in the EU since 1986 due to neoliberal dogma. So we have seen idiotic real estate and housing bubbles in Ireland and Spain and in Sweden in 1992 thanks to EUs policies.
The biggest obstacle to sound economic policies are mostly dogma. Like the idea of the existence of the phillips curve, this guys talk about a 2% inflation goal as if there is a natural law that we need such a goal, or the idea that there is such a thing as cost-push-inflation. Or the idea of balanced budgets that are written into the EU constitution, however schools like MMT have another view that says that government surpluses are harmful.
Prioritizing price stability over low unemployment has not created more economic growth and economic stability as the dogmatic neoliberals in the ECB has promised us. Instead have the last 24 years seen slow economic growth, the Euro crisis, a Europe that fails to keep up with the speed of technological developments in USA and China. And unemployment has been high and wages too low along with living standards. So I am unimpressed. This dogma has ruled Europe for decades now. They have had their chance to prove themselves and show results. And all they have shown us are failures.
Slower GDP growth, falling shares of GDP going to investments and research, more unemployment, more tax evasion, more economic inequality, and Europe has not yet managed to produce a single tech gigant that could compare to Microsoft, Apple, Google, Facebook and Amazon.
The entire economic policy of the EU project needs to be thrown into the trash.
Mostly its not lies. Just regular people not understanding shit. And make shit up and conspiracies. Dont you see that at work? I have that at work that i have to deal with people who just dont seem to understand things.... and its not easily explained "like i am 5" because its layered knowledge. For example u need first knowledge of "X" to understand "Y" but people know neither. So and the subject is Y... then its really hard to explain. For example a lot of people missing the mathematical knowledge to explain to them the situation and systems in place.
My understanding is that: private banks can't actually print money in that they can't print the currency itself. When it loans out money, it is loaning out currency it already holds that it obtained from other depositors, and that currency has to be paid back, so it merely controls two exchanges of already existing currency: one from the bank to the debtor, and one from the debtor back to the bank. Of course: the bank still owes the same amount of money that it has lent back to the depositor(s) who put the money into the bank in the first place. But the money isn't there, and that is why bank runs are such an issue. If banks literally printed money through the act of creating a loan then there would be no issue in terms of bank runs because banks wouldn't lend out their depositors money, they would be printing fresh money to lend out instead. A bank's job is to ensure that it balances inflows and outflows of money such that it can meet out its stated obligations: that it has enough in reserves to fulfil depositor demands.
Now, of course, it is possible for a bank to fail, to not have enough money in reserves to fulfil depositor demands, but when that gets close to happening, The Central Bank will print its own money and lend it to the bank, if not repossess that bank and auction it off to someone else (at leas that's how they do it in The U.S.). But when The Central Bank does this, it is an extraordinary act. Just because almost all deposits are theoretically guaranteed by The Central Bank doesn't mean that that capability is frequently actualized, it isn't, because the actual owners of that bank don't want the shares of their bank to lose a majority of their value, which is what would happen if the bank became insolvent and some outside buyer had to come in and buy that bank at a discounted auction.
Just distinguish money and credit and all is clear
awesome background. love the wall.
We all now that they're inching towards shared debt.
Une inflation à 1% suite aux dégâts de la crise de 2008. Alors que sur une très longue période les taux sont restés à 0% ou négatifs, le cour des marchés n'a fait que grimper. Il semblerait que le crédit se soit tourné vers la finance et non vers l'économie ? Comment justifier une telle hausse de la valorisation des cours de bourse si la demande se maintenait si basse que l'inflation ne dépasse pas 1 % ?
I have a question, I suppose 2 questions but one would be something to ask someone from the ECB directly.
I've recently read about a thought experiment looking at our current FIAT currency system in the EU and considering if it were not more efficient to directly let the government take on debt with it's central bank account, rather than going through a tendering process via private banks.
One of the main arguments for it was how often Politicians argue for more responsible spending because of potentially higher costs later in interest payments.
The idea was to remove this part of the system and not let private investors gain any benefit of government bonds directly anymore, disconnecting it from Government borrowing completely.
What are your thoughts on this? It would mean government bonds wouldn't pass into the hands of select private banks when governments create money anymore, one of the examples for a benefit was how Greece could find low interest loans with much higher debt now because of the ECB's backing, even though back during the height of it's crisis it was unable to do so as the ECB didn't back Greece in front of the private banks.
In the thought experiment loan payments on government debt wouldnt exist, it would just be a number representing how much investment and spendig done by the government has not been recouped via taxation yet.
A side-effect of that policy would be that reserves pile up as governments spend with no open market operations "neutralizing" the spending effect of governments on the amount of reserves in the banking system. Under "conventional" monetary policy (which effectively means pre-GFC) where the central bank kept its balance sheet as small as possible the policy rate effectively forms in the interbank market for reserves. Under that regime the CB controls the amount of reserves through OMOs by buying and selling government bonds from the banks to keep the reserve supply consistent with its policy rate. This system is also called a corridor system. Since the GFC the CB is in a floor system because the interbank market dried out. In the floor system the CB sets the policy rate by paying interest on reserves. In the former corridor system the proposal you brought forward wouldn't be possible as the CB would have to sell the bonds again to the banks even though it bought them directly from the government to drain the reserves added by government spening. In a floor system it is not as clear. The question would be what could be negative consequences of reserves piling up on the reserve accounts of the banks.
Anyways it gets clear that result-wise it doesn't even matter if the government first sells the bonds to the banks and the CB then buys/sells them on the secondary market of that that CB directly buys them from the government and only then sells them to the banks. Both would be open market operations with the same end result balance sheet wise. This shows that the rule that CBs are technically not allowed to directly "finance" the government by directly buying bonds from them nearly has importance some people seem to imply.
@@trixn4285 Thank you for the answer, althhough I don't quite understand the last part of your statement.
Are you saying it has more importance or less importance than people seem to imply?
@@witthyhumpleton3514 I mean less importance. The result on the balance sheet is exactly the same if the CB first buys the bonds from the government and then has to sell them to the banks to drain reserves (at least if it wants to maintain a positive policy rate meaning not a permanent zero interest rate policy). It doesn't really matter which way around it is done so there is not a big difference between "directly financing" the government. The only difference is who actually sells the bonds to the banks to drain the reserves. As if banks care who that is :D
But as I said this applies to a corridor system where the CB controls the interest rates by adding/draining reserves and let the banks lend/borrow reserves between each other on the interbank market.
In a floor system the policy rate is determined by the interest the CB pays in reserves the banks hold. A bank will not be willing to lend reserves to another bank for less than what the CB pays on reserves as the later is risk free.
@@trixn4285 I do believe another part of the proposal I read was a zero interest policy, similar to Japan if I am remembering correctly.
@@witthyhumpleton3514 Yes, that would be required in a corridor model, as the added reserves (without being drained) provide excess supply of reserves which naturally drives the interest rate down to zero (or down to whatever the CB pays on reserves in a floor model where there can be excess reserves but still a policy rate above zero). An interesting question would be if those reserves piling up have any negative consequences.
Why is there a target for 2% inflation instead of no inflation?
The two arguments I see the most often are that 2%
1. encourages spending over saving (good for economic growth)
2. slowly reduces the value of debts (although this depends on interest rates)
3. deflation is more risky than inflation thus you prefer a bit of inflation to avoid deflation (what peterthefourth4 is saying).
You could also argue that you don't really want 2% inflation per sé. But, you want an economy that is running so well that it produces 2% inflation. That is, enough people are employed and spending (typically seen as good) that it produces some mild inflation.
@@MoneyMacro mild inflation is not a mark of a well running economy. Quite the contrary. Improving technologies and more efficient production techniques leading to a higher supply of goods and services should lead to deflation.
Inflation is needed to get people to not hoard money, so go out and spend it, which is what keeps an economy going. Inflation also reduces debt.
@@multidavid7473 hoarding money may have been a problem when money was literally cash that you hide in a safe in your home, but most "money" is actually bank deposits being loaned to borrowers, if not outright equities that are not money at all. The money is already in the economy. Its better for those resources to be used by productive entities than to be destroyed by needless personal consumption.
I'm all for accepting inflation as an alternative to politically difficult taxation so necessary public expenses can get funding, but inflation for its own sake is bad, period.
@@multidavid7473 I sometimes wonder if this is not precisely the point: inflation prevents people from enjoying the fruits of their labour without fearing for the future, that their savings might be devalued with time. It awfully sounds like a great recipe to keep a large segment of population, let's say the 99% who don't have access to debt-credit creation among their options for raising revenue, into a somewhat better serfdom, if that's a good word to describe that uneasy situation of vulnerability to the power of Big Banking.
I'm not sure why you talked about public debt levels but not private debt levels if you're trying to predict whether interest rates and inflation are going to fall back down again. Isn't the overall demand for credit dependent upon the private debt to GDP? If everyone has already taken out loans and needs to repay them, they won't want to take out more loans unless those loans are at a low enough interest rate. It also constrains consumer spending if household debt is too high which cools the economy and reduces inflation. Private debt to GDP had been going up and up until 08 then it stalled and slightly decreased but is now back to basically near its peak. The only reason we're seeing this inflation and higher interest rates is because of the quantitative easing done at the pandemic. They just overshot slightly so now they're tightening, but ultimately nothing has changed. You could argue that less liberal trade polices, ie deglobalization, war, and global warming are causing supply side shocks that will lead to higher inflation long term, but on the financial side the explanation for the low interest rates has to do with the overall level of indebtedness in the economy and that hasn't gone away. The supply side shocks and the private leverage are acting in opposite directions and you need to figure out which side will win the tug of war. In Japan where the level of private sector debt is quite a bit higher than most (but not all) EU countries, there is still persistent low inflation despite all the supply side shocks. Yes, they are raising rates, but only to .25%.
Can someone please explain how a definition of price stability as a yearly 2% increase makes sense in a world where competitive markets driven by technological innovation should lead to prices falling to the marginal cost of production? Either we accept that a 2% annual price increase reflects the reality of a functioning economy and competitive markets, or we acknowledge that we're trapped in an illusion of "capitalism" where money is being debased with numerous negative side effects.
Inflation targeting is a wealth tax. The tax is paid by working class people. The rate is equal to nominal inflation target plus the amount of deflation that otherwise would have occured had technological productivity based deflation been allowed to proceed. Maybe life gets 3% cheaper every year based on technologic progress. If inflation is nominally 2%, the average global citizen who holds very little financialized assets and works for fiat wages sees a 5% separation from the top tier asset holder who then outcompete them in a resource limited world. Inflation is the most regressive tax and serves as the base of selfdom and fuels wealth disparity.
While assuming competitive markets a technological breakthrough would lower prices, central banks make sure to use monetary policy in order for there to still be low inflation. This is because it has 2 important effects: incentivizes both investment and consumption, because there is a cost associated to just have money lying around, but also it helps everyone who has debts, because the value of the debts also decreases in module. Of course while it helps families and small businesses with debts, they especially help the biggest debtor in any economy: the government.
@@aaron159r2What? If anything, it would do the opposite of what you are saying, inflation slowly burns through cash reserves, topically held by the rich, and also slowly corrodes through the value of debt, typically held by the poor.
@@joaocustodio7705 Central banks devalue money annually to encourage spending in a world where we waste 2.5 billion tons of food each year and overconsume, mainly benefiting the wealthiest by reducing their debt burden and preventing consumers from benefiting from falling costs. This approach penalizes saving, effectively redistributing wealth to the top.
What exactly is the cost of allowing people to save their hard-earned money over time without controlled debasement? People would still consume, as money cannot fulfill basic needs like food or drink.
@@joaocustodio7705 I can explain. First, inflation isn't a naturally occuring phenomenon. It's a policy choice. It occurs when governments and their central banks push too much currency into an economy too quickly. The mechanism of new money creation is not equally distributed. New money is almost always first acquired and spent by the well-connected wealthy class, governments and political favoritism. These first spender turns around to immediately buy primarily financialized assets like stocks, bond and RE. While yes, the rich probably have larger piles of cash sitting around, they also have more than enough assets to appreciate as inflation provokes speculative asset bubbles. The erosion in cash purchasing power does not have a meaningful impact on wealthy individuals. Their assets grow in price and their paper wealth grows more than their currency purchasing power shrinks...by far.
Second, the loss in purchasing power of cash doesn't meaningfully impact the consumer life style of the wealthy as much as it affects the poor. A family living on $70k will feel the loss of purchasing power when the cost of daily items increased by 5-10% in a year. An extremely wealthy person could realistically pay 2-3 TIMES more (100-200%) on every item they consume and not notice. Inflation serves as a regressive tax in this fashion, punishing poor folks relatively more than the rich...probably not a sustainable way to order a society.
Lastly, the vast majority of debt is held by people who are credible, or credit worthy. The most credit worthy people are those that have piles of capital assets to serve as collateral for additional lending, like governments and megacap corporations. Bond rates for sovereign and investment class debt is always rock bottom relative to all else. It is also well known that wealthy people carry cheaply financed debt, both to consume and live on, and also use in leveraged asset aquisition. So, the richer you are, the lower your interest rate tends to be because you can secure the debts with collateral and the more leverage you can apply to gain more assets. Being that governments are massive debtors, inflation allows governments to control more of the economic pie at the expense of the public. This is the definition of a tax. Poor people tend to have limited credit, even as a collective aggregate. The debt they DO have is typically much higher interest and well above the rate of inflation. Rich people, low rates, poor people, high rates. Inflation does NOT help the poor discharge their debt, but it does make it much more difficult to service their debt because they have less saved income after daily life is paid for.
It's very important that people understand this. Your reasons offered for why 2% inflation targeting is upheld is the common narrative pitched by government-funded academics to support the policy, but even if true, is it a moral pursuit for governments to implement a regressive 2% inflation tax outside of voter input? I'd argue that low inflation does not promote consumption and high inflation can easily overheat into a doom loop of hyperinflation and wasteful consumption. It's dangerous to mess with positive feedback loops. More begets more and it can quickly get out of hand. And even if low inflation did promote consumption, being forced to consume at the threat of inflation confiscation is an immoral theft of property. Did you not have siblings that would eat your desert if you were too slow? Did you not feel the injustice of dilligently saving your treat only to have your asshole brother eat his then your because you were "too slow"? Should I be allowed to eat your cake if you want to save it for later?
Inflation does NOT promote investment. Humanity was just fine building out civilization before central bankers started targeting 2% fiat currency inflation. If anything, inflation robs purchasing power from the private economy and redistributes it to the government command economy. Government "investment" (if you can even call it that) typically has a negative real rate of return, meaning the spending is merely consumed as it is redistributed to other programs that use lots of resources but and produce few resources in return. Whereas, the private economy is excellent at allocating real capital into improved efficiency and processes. Taxing the private economy rarely results in better investment outcomes.
Bear in mind, nothing in life is free. The state of the world is degredation, obsolescence and scarcity. Entropy works against living beings. As humans, we must always exert effort (labor, natural resources, technology, saved capital) in order to persist, grow and thrive. If inflation is helping somebody, it is hurting somebody else in an equal manner. It is merely a transfer of resource from one to another. Inflation is a transfer of resources from the last person to spend the newly created currency units (the poor) to the first people that get to spend the newly created currency units (the government and dealer banks). This is called the Cantillon Effect. New money is most valuable to the first user and less valuable to all subsequent users. Historically, civilizations were destroyed by social rebellion after governments used the power of the mint to debase the common currency. We all know Rome would collect silver coins, melt them down with tin and other cheap base metals in order to pay its government expenses with newly debased currency. Eventually it results in a systemic government malinvestment of resources that lead down a path of inefficiency, waste and social chaos. There is a very deep history with monetary inflation and none of it is good. This most recent sliver of fiat central banking we are living through is a blip in human history and will be studied as what not do to ever again (but it will happen again and again and again as long as people give their governments the power to create money from nothing.) Direct and representative taxation is the only form of moral taxation. Inflation is neither of those.
31:46….. “a building lasting for 30 years”. ?.. My house in Germany was built in 1886 and still good. (Part of it built in 1600). No wonder Europe is in decline!
Inflation isn't a naturally occuring phenomenon. It's a policy choice. It occurs when governments and their central banks push too much currency into an economy too quickly. The mechanism of new money creation is not equally distributed. New money is almost always first acquired and spent by the well-connected wealthy class, governments and political favoritism. These first spender turns around to immediately buy primarily financialized assets like stocks, bond and RE. While yes, the rich probably have larger piles of cash sitting around, they also have more than enough assets to appreciate as inflation provokes speculative asset bubbles. The erosion in cash purchasing power does not have a meaningful impact on wealthy individuals. Their assets grow in price and their paper wealth grows more than their currency purchasing power shrinks...by far.
Second, the loss in purchasing power of cash doesn't meaningfully impact the consumer life style of the wealthy as much as it affects the poor. A family living on $70k will feel the loss of purchasing power when the cost of daily items increased by 5-10% in a year. An extremely wealthy person could realistically pay 2-3 TIMES more (100-200%) on every item they consume and not notice. Inflation serves as a regressive tax in this fashion, punishing poor folks relatively more than the rich...probably not a sustainable way to order a society.
Lastly, the vast majority of debt is held by people who are credible, or credit worthy. The most credit worthy people are those that have piles of capital assets to serve as collateral for additional lending, like governments and megacap corporations. Bond rates for sovereign and investment class debt is always rock bottom relative to all else. It is also well known that wealthy people carry cheaply financed debt, both to consume and live on, and also use in leveraged asset aquisition. So, the richer you are, the lower your interest rate tends to be because you can secure the debts with collateral and the more leverage you can apply to gain more assets. Being that governments are massive debtors, inflation allows governments to control more of the economic pie at the expense of the public. This is the definition of a tax. Poor people tend to have limited credit, even as a collective aggregate. The debt they DO have is typically much higher interest and well above the rate of inflation. Rich people, low rates, poor people, high rates. Inflation does NOT help the poor discharge their debt, but it does make it much more difficult to service their debt because they have less saved income after daily life is paid for.
It's very important that people understand this. Your reasons offered for why 2% inflation targeting is upheld is the common narrative pitched by government-funded academics to support the policy, but even if true, is it a moral pursuit for governments to implement a regressive 2% inflation tax outside of voter input? I'd argue that low inflation does not promote consumption and high inflation can easily overheat into a doom loop of hyperinflation and wasteful consumption. It's dangerous to mess with positive feedback loops. More begets more and it can quickly get out of hand. And even if low inflation did promote consumption, being forced to consume at the threat of inflation confiscation is an immoral theft of property. Did you not have siblings that would eat your desert if you were too slow? Did you not feel the injustice of dilligently saving your treat only to have your asshole brother eat his then your because you were "too slow"? Should I be allowed to eat your cake if you want to save it for later?
Inflation does NOT promote investment. Humanity was just fine building out civilization before central bankers started targeting 2% fiat currency inflation. If anything, inflation robs purchasing power from the private economy and redistributes it to the government command economy. Government "investment" (if you can even call it that) typically has a negative real rate of return, meaning the spending is merely consumed as it is redistributed to other programs that use lots of resources but and produce few resources in return. Whereas, the private economy is excellent at allocating real capital into improved efficiency and processes. Taxing the private economy rarely results in better investment outcomes.
Bear in mind, nothing in life is free. The state of the world is degredation, obsolescence and scarcity. Entropy works against living beings. As humans, we must always exert effort (labor, natural resources, technology, saved capital) in order to persist, grow and thrive. If inflation is helping somebody, it is hurting somebody else in an equal manner. It is merely a transfer of resource from one to another. Inflation is a transfer of resources from the last person to spend the newly created currency units (the poor) to the first people that get to spend the newly created currency units (the government and dealer banks). This is called the Cantillon Effect. New money is most valuable to the first user and less valuable to all subsequent users. Historically, civilizations were destroyed by social rebellion after governments used the power of the mint to debase the common currency. We all know Rome would collect silver coins, melt them down with tin and other cheap base metals in order to pay its government expenses with newly debased currency. Eventually it results in a systemic government malinvestment of resources that lead down a path of inefficiency, waste and social chaos. There is a very deep history with monetary inflation and none of it is good. This most recent sliver of fiat central banking we are living through is a blip in human history and will be studied as what not do to ever again (but it will happen again and again and again as long as people give their governments the power to create money from nothing.) Direct and representative taxation is the only form of moral taxation. Inflation is neither of those.
No
I never understand why Europe promotes political people for making interest rate decisions. Like Lagarde.
Because there are several factors even political ones for the money policy?? Fiat money is actually money you trust based on the government and politics so.. its not that weird you know.
So essentially nothing will change, boring EU will stay boring with little opportunities.
How would negative interest rates encourage inflation?? Its pulling money out of the (banking) system.
In contrast, recent high inflation rates are pushing inflation (or at least not reducing it), depening on hiw much of the interest revenues were further spent or again saved in non-productive assets
Obviously this guy never goes into a supermarket to buy his own food. If he did he would change his view of inflation; same for his bills for his electricity and gas !
Food prices increased by 50%. Where's the "reversal"?
No reversal there. There has been a reversal in some other important categories like energy prices. Not in food.
@@MoneyMacro Energy prices came down, but the US also extinguished its Strategic Petroleum Reserve to do so. I'm not sure that effect can last, especially if the US attempts to refill its SPR.
Very weird. Very much had constantly repeating themes of "we know was happening", "we knew was was happening at the time, we had the data", "history already had these cases covered", "many people had researched good solutions after the last time this happened".
Ok but then why did the problems get worse? If you know what your doing the problems should only get better, never worse.
Only if you do have enough power to solve them.
The power of a central bank is highly overrated. We did already see it in the past. 0% interest and QE meant that the ECB was absolutely desperate.
And this was by no surprise when at the same time governments wreck their economies. What they did to Greece was a crime.
ECB is good at reckless lack of banking regulation.
ECB is good at rejecting MMT. Instead are budget surpluses written into laws for governments and municipalities in Europe.
ECB is good at forbidding capital controls - which could have limited the damage of the capital inflows that caused inflation bubbles in Ireland and Spain during the Euro crisis, or for Sweden in the early 1990s.
ECB is good at creating unnecessary suffering and bad economic performance by abandoning the doctrine of full employment in favor of "price stability". The idea was that price stability would make it easier for companies to predict the future and therefore make correct decisions about investments and such. And the calm predictable future would encourage more investments and economic growth in the long run. And all the stability would help to create stronger growth and lower unemployment.
This is what we were promised. Instead have we seen slower GDP growth than back in the 1950s and 1960s when European governments did the opposite and prioritized full employment over price stability. That was also a time period of more investments than now. And no economic crashes like the Euro crisis.
So the ECB is much to blame for Europes bad economic performance. Or rather the dogma of its economists to be more precise.
@@nattygsbord it really all comes down to low birth rates and an unfunded social system. MMT is a ridiculous theory that would never work in practice. Austrian Economics is far superior to Keynes.
@@righteousmammon9011 I see low birth rates rather as an effect than a cause of Europes weak economic performance the last 40 years. Most people in my age and younger seems to dream of forming a family but lacks housing and jobs. And that is the fault of neoliberalism. EUs housing policy is designed to benifit that landlords and speculators, and not ordinary people. EUs economic doctrine is to favor capitalists at the expense of workers (by shifting the tax burden throught the race to the bottom, by encouraging austarity programs, by prioritizing price stability over full employment, by lawsuits like the Vaxholm-Laval court case, by forbidding governments to fund regional programs that help poorer provinces have local industries that create jobs - like forestry in Sweden before EUs occupation in 1995 etc etc).
I am not a dogmatic follower of MMT, because dogma is for idiots. That is why libertarians and communists are some of the dumbest people on the planet.
I think some key takeaways from MMT are that double entry bookkeeping has been forgotten among analphabets of economics like the Austrian school and the ECB. If you just look at a simple chart of double entry booking keeping you see that every loan creates two pages in the book. One page where someone goes into debt when a loan is taken. And on the other side you see that someone has gotten an asset when a loan has been created.
And all loans are like that. One person goes into debt, and the other person gets an asset. When the government goes into debt, then are assets created in the private sector. And when you try to balance the budgets, then you steal money from the private sector to repay loans to the government.
And that move is just harmful and idiot deflation. And now when surpluses have literarly been written into law in all European countries, have the EU decided that all countries should commit economic suicide through deflation.
And it is very ironic that rightwingers that claims to care more about the private sector than the government, are some of the biggest proponents of this idiotic "balanced budgets" dogma that harms the private sector and the economy in general.
The GDP of a country is really simple. You have the government, the private sector, and then you got foreign trade that could either create a plus or a minus for the GDP of a country. And not all countries in the world can export more stuff than they import. So the only solution then is that the government goes into debt as I sees it.
And I do not see it as dramatic as idiots do. First of all, if the Swedish government borrows money from the Swedish people, then all it needs to do is to tax the Swedish people to repay the Swedish people. So I really do not see the point in such a pointless move, and the money would just flow back and fourth inside the Swedish economy by doing so, and the Swedish people would not get any richer or poorer by doing this.
All that would happen in our debt based economy is that money dissapears from circulation - which might harm Swedish buisness owners when consumers cannot buy their products due to a lack of money.
I am not a Keynesian. I am a heterodox mercantilist nationalist.
And the austrian school is just rubbish. Its not even internally consistent, but austrian economists contradict themselves when they one time say that minimum wages do not create inflation but only unemployment, and in the next moment they contradict themselves and angrily bark that they cause more inflation.
Praxeology is also a flawed idiot methodology of aquiring knowlegde. Empiricism has its flaws. But praxeology is 20 times dumber. And its basically just based on gut feeling assumptions about the world and not caring to look if they are true or not. So they behave like conspiracy theorists in this regard. They only care to notice things that fits in with their own theory, and evidence that contradicts it gets ignored.
A scientist behaves in the opposite way. He first looks at ALL the evidence and then afterwards make a conclusion how the world works.
I think one could make any praxeological nonsense claims about this world if one wants to.
I could for example say that young men are the best drivers. They are young, have good eyes so they can quickly see a dangerous traffic situation coming up and thereby quickly react to it, they got good reaction time with their fast muscules, and of them have played much computer games driving cars and such so they already got some driving experience from that. And many young men are deeply interested in motor vehicles like women are not.
However if one looks at data, will my praxeological assumptions not hold up well. As young male drivers are enormously overrepresented in car accidents given their share of drivers on the road. Many of them drive imaturly, overestimate themselves, are unexperienced and therefore got less reaction time to react to avoiding a dangerous traffic situation.
Personally do I think that the Austrian school should be called the American school of economics, since Mises and the economists after him moved to America. And he was also the man who got the school into praxeology, so its fair to say that this school is no longer austrian.
Sounds like you are an advocate for free money for everybody. Have you considered simple petty theft?
Intrest rates are still way to low.As long as intrest rates are not above inflation there is even no point to talk about intrest rates.Its not the house that gains in value but the currency that looses in value...Its time to put the value back in the currency and start with responsible fisical budgets....else the purchase power of the coin will be deluted so far that it looses any significance....We already see folks dont have the purchase power to have children anymore...yeah yeah its not the usual tale they spin of industrialized nations have less children.they have less children cuz there purchase power is reduced null a fied bye integration in all sorts of so called social structures forcing dependency on the state they slowly reduce the desire to protest...in fact the reckless policies ,infinety printing and fractal banking combined with out of control defecits is wat is destroying every nation in the west...Modern economics like you tobelieve there are no rea world limits on the next form of ponzi-skeme they invent.In the real world where worthless cash follows limited goods and services thats just not the case eventualy the bubbles pop
“Any thing can happen” this is exactly what I want to here from my central bankers
Would you rather they be overconfident in a complicated and uncertain future and field?
@@stereomachinetime to elect someone more confident! ;)
Central bankers are famously coy with definitive statements, or any hard statements at all, since they can change expectations. When they issue one, it has to be done carefully.
@@MartcaptYup. Thanks. 👍🏻 Much agree with You and @grapesurgeon
@@Var_ but you have a lot bad confidence people who think they are confident.. look at the dunning kruger chart. U have either people who are confident with almost no knowledge of people who are confident with a lot knowledge. Most people who are confident are the first... because its easier to be stupid than to be smart.
Didn't hear any clear and certain answers here. Talks like a politician
What are you talking about he answered every question in detail it’s not because an answer is long it avoids the answer.
more immigrants!
A bit of mental gymnastics how it was a bottleneck issue instead of stimulus. You cannot say "bottlenecks" and demand are separate and only focus on the "bottlenecks" that is strange. In a normal economy where no work = no money the bottlenecks would not have formed or at least much less. Governments stepped in with stimulus aka money printing keeping demand high even though nobody did any work so no goods produced but people can still spend the money. No good but lots of money = inflation. It is directly correlated to the stimulus policy as it always has been on a macro level.
Simply not true and not in any way to be seen in the macro data. It's damn clear that higher prices came from higher cost, not excess demand. It's beyond me how anyone can interpret the data in any other way. Monetary policy has a significant time lag and rate hikes should not be used to fight a temporary supply side bottle neck. Sure, there might have been to some extend an effect of excess demand when the lockdown ended but this is also only a temporary effect that (again) is not worth or needed to be targeted with rate hikes. There is no reason to assume that consumer preference has changed in a significant way, why should it? You seem to imply that the overall costs of laying off a massive amount of people would have been lower cost compared to fiscal stimulus. What is the basis for that?
@@trixn4285 Higher prices can only exist if the money is there to pay for it. I was speaking about stimulus more like money printing and a lot of fiscal stimulus not rate hikes or lowering that does nothing anyway. Consumers are also producers, no work = no money hence no consumption. Government stepped in with support of ECB to keep demand high while no production simple idea simple result inflation. I did not even mention the "cost" of massive lay-off only looked at inflation, yes massive lay-off would happen but in turn also massive deflation because no-one can spend when no money in a normal world (i know all the social security makes this not valid in our current world because government would again give out money). And the deflation would blow up the banks and pension funds sure but that is the point we are to far gone to even consider a route where deflation can take place hence on the road to zimbawe just not there yet.
@@PatrickvanderEst Why on earth would anybody with a brain blow up the whole economy and financial sector in a massive deflation, when capital and workers are on an ordered holiday? This is beyond silly.
Also it is just not true that the "stimulus" kept demand high. You can see in all the macro data that demand dropped massively during the pandemic and that prices went DOWN. People used a lot of the money to pay down private debt which is just deleveraging and the rest was primarily saved. Nothing was open anyways. The only time we had a temporal increase of demand beyond the pre-pandemic level was when the lockdowns ended. There we has some inflation yes, but this is not dangerous at all, it's a one-off hike, not a self-sustaining fight for spending power.
_"Higher prices can only exist if the money is there to pay for it."_
Wow, congratulation for that groundbreaking realization. So what is your proposal? Limit the money supply? The economy is about flows, not stocks. Nothing blows up there. And you seem to know nothing about Zimbabwe Hyperinflation because it had literally nothing to do with money-printing. Money printing is a symptom, not a cause. The cause was a supply-side shock because land was taken away from the white colonialists and given to people who could not be nearly as productive. Agricultural production dropped by 60% and Zimbabwe got into an exchange rate devaluation death spiral due to import dependence (while having no more exports).
First
If the cost of raw materials go up for a business its inflationary, cost of labour goes up its inflationary, cost of oil or transport likewise, but the cost of borrowing goes up and somehow that's deflationary. Are you sure?
Why wouldnt you? This is basic knowledge.
@@HermanWillems Sorry, why wouldn't I what?
Wages are gonna catch up. Hahahaha. It's a fairytale.
camera is still blurred here on youtube. Or am I the only one who sees it?
All youtube videos have some degree of crappy sound and image quality as only compressed formats are allowed for uploading.
But it could also perhaps be the fault of the guy uploading the video, if you record a video in say 480p and later on convert the video into 1080p will the image quality still suck and be just as bad as it was when it was 480p. And there is no way to improve image quality afterwards.
@@nattygsbord Hmm.. the clips mixed in is actually crisp. So it's literally the video footage of himself that is slightly off.
@@SamuelHauptmannvanDam Its probably the camera then that is crappy. The sound quality lacks bass - which I guess is due to compression (MP3 and MP4 and such loves to eat up bass sounds) but also because the microphone is a bit crappy. But that is okay, this is not a song but just two dudes talking about economics in a podcast format. My guess is that the microphone does not record any sounds below 80Hz, while it increase volume on higher frequencies.
So therefore do I doubt that the two men sounds exactly the same in the real world as in the recording.
I am a sound technician, so videos are not really my thing.
However I would guess one out of 3 reasons why the video is blurry:
1. Cheap Camera Quality: Lower-end cameras often have inferior lenses and sensors, which can result in lower image clarity and sharpness.
2. Compression: High compression rates can degrade video quality significantly. Compression artifacts can make the video appear blurry or blocky, especially if the compression algorithm prioritizes file size over quality.
3. Low Resolution (480p): Recording in 480p, which is considered standard definition, inherently has fewer pixels compared to higher resolutions like 720p (HD), 1080p (Full HD), or 4K. Fewer pixels mean less detail, making the video appear less sharp and more blurry.
I can only say that there is an enormous difference between cameras on mobile phones. And better cameras do of course often cost more money. One can just go an art gallery and see art masterpieces, they are so much cooler and colorful in real life than what they are when you see the paintings in books where they just are a pale copy without the richness of colors and depth that they are in real life.
And most cheap junk cameras fail to come close to reality in depicting those paintings as they really look in the real world.
However having a great camera is not doing you anything good if you do not have the right settings when recording a video. If you record things in say 320p you will just get the same crappy resolution as low quality videos here on youtube, even if you have a camera for 20.000 Euros. And it doesn't matter if you later on convert your 320p video into 2048 resolution afterwards - because your recording will still be the same ugly garbage as before.
And if you have a nice camera and make a nice recording in extremely good resolution and detail, then can your video still become ugly junk if you use too much compression. Compression saves space on your harddrive, but it murders sound and video quality.
If you have a wav file of music of 1024kbits (perfect sound quality with other words) and then you convert that wav file into a MP3 file of 128kbits - then you have automatically just murdered and removed 90% of sound quality with a mouse click. And if you then convert this file to a WAV and then to a MP3 file again, then you have murdered another 90% of the sound quality... and the recording starts to sounds ugly in your ears.
So when you do the same thing to an image and convert your BMP image or your AVI video into a JPG photo or a MP4 video.. then of course you make enormous losses of quality of the images just the same way as happened to the music.
Please stopp raising interest rates upon the types of supply schock inflation we have seen in the recent decades.
High interest rates cause so much problems in the actual mainstream neoliberal economic setup (which is not working for crisises!) and do not reduce inflation -
unless in a single case which I can't remember happening for a very long time:
a real hot economy where everybody takes on lots of private debt for comsumption.
Else its a stupid policy leading at least to a recession right after one or more crisises!
What you call high is actuall historically a low value. Do u not see that? I hear my grandpa about percentages above 10 and 20%. Totally different. The interest on the banks where also higher on your savings accounts.
@HermanWillems calm down please! More than 10 % interest rate is an expression of dramatic change or specific issues in a country - like in Turkey recently. The also try to dedollarize their country.
Only because rarely even higher interest rates existed in history, it doesn't mean that 3 to 6 % can't do harm as well - specifically if increasing interest rates can't work against the types of inflation we experienced in Western countries since the 70es
@@ProgressiveEconomicsSupporter Im talking about the west. Not turkey. Europe. In a real HOT economy people actually not go a lot in private debt. Private debt here in my country is actually going down. Less and less people actually take up debt. Savings up breaking new records. Extremely low unemployment rates that even suffocate the economy. It's actually normalized now here people only take mortgage and outside of that no other debt. It's a bit different in the USA i guess. Im now in Canada and you are almost killed with loan advertisements. This is not the case in Europe. We have strict policies regarding commercials that are bad for people. I did actually NOT see people taking up big loans in a HOT economy.... why you make that assumption?
@HermanWillems I think we m8sunderstand each other. Don't know if Canada has a hot economy, I doubt that, but Canada makes a lot of things much more right than other Western countries.
In Eurooe there is for sure no hot economy.
However private debt rose in the USA and in other parts of there world before the financial crisis 2007/2008, as a consequences e of less government social and other spendings or in countries with outright neoliberal austerity.
Canada is very different to like USA alone on the number and and sizes of banks and their business..
Else you are right ofc, if economy goes well (not even hot with too much demand), loans goes down ans less social payments are required since unemployment is low.
But all of this is not the point of my initial comment
25:20 only companies' investors are allowed to reap the fruits of the workers.
The biggest problem over the past two to three decades has been very low interest rates and massive money-printing/asset-inflation which arose from from those rates. There was only $87 trillion in debt (government, consumer, corporate, financial) in 2000. The last I read, there was $360+ trillion. It took humans 50-100 years to build up $87 trillion but only two and a half decades to triple that debt. The global economy has been running on debt for the past three decades... we do not need any more low-interest-rate and debt-fueled so-called 'growth.' Remember that all the technological growth and rise of new industries over the past three decades has been fueled by Ponzinomics at the Casino. The world desperately needs governments and economic elites everywhere to start exercising more financial restraint, accurate accounting, and quit relying on low-interest-rate BS to produce artificial economic growth.
Here here! This can only end badly. It will either be a catastrophic reversal of fortunes or a decades long stagnation and decline. All that falsely priced capital promoted massive real economic malinvestment that was wasted on inefficient pusuits. It's pretty infuriating and the general public has no real recourse to solve the issue of central banks hijacking our trading currency.
The problem with your statement is that you think in dollars having always the same value and the economy not growing. You must always compare debt with economical output. The debt value on itself says mothing. Hopefully u understand? Think in relative terms will help u understand things more. Dont think in absolute values. That does not work and will lead into wrong thinking.
18:18 I really hope companies can play along and absorb the high interests plus the higher wages they need to pay their employees. Wait … what … manufacturers are closing business and relocating to Asia and US for lower wages and taxes and more government incentives? Oops!
Well we inflated 2% and another 2% and another all the way up to 140% now back down the other side.
Inflation cut debt/GDP ratios by 30%. The fiscal framework is still a terribly stupid idea.
This is the prime reason governments prop up central banks. To finance government debt and delevage high debt/GDP ratios at the public's expense.
The downside is that its a tax on fiat money holders. Asset holders will not get caught as they go up in value together with inflation. Taxing trough inflation should come then together with taxes on assets to balance out. But this is all complex stuff. But tax trough inflation hits people unequally and isnt healthy.
Lagarde is a disgrace. Draghi had serious issues but at least knew what he was doing.
too bad no comment euro vs dollar valuations
I find your glib, dismissive attitude towards those people who said that increasing the money supply through stimulus is what caused the inflation utterly infuriating. The supply is back to normal, the printed money is still circulating and the prices haven't gone down one bit. If the price rises were due mostly to supply shortages, then they would've gone down a lot closer to pre-pandemic levels when the supply chain was restored.
It is difficult for me to speak to how I come across. But, I can say that I take that narrative serious enough that I wanted to bring it up to Philip Lane. I will admit that one thing that consistently disappoints me about those who previously promoted this narrative is that I've never seen any of them try to address counterarguments like the ones featured in this video.
If you had proof you could sell something for £10 (because you had done it for a year) why would you reduce your price to £9? Markets don't work like that whatever the theory says.
@@davidthompson797 Because unless you have a government enforced monopoly someone will compete with you for your clients and offer the same product or service for slightly lower prices or offer something extra to entice them away from you. At least that's how it worked in a mostly free market.
@@davidthompson797 You can only sell at the new, higher price until volume starts to fall off. Once that happens, you either have to lower prices or risk losing market share.
@@aaron159r2 If that were true in practice then wouldn't free market capitalism be inherently deflationary?