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In QE, the Treasury issued long-term bonds. The Fed bought up the long bonds, issued overnight debt, and passed the interest difference back to the Treasury. In the end, it is just as if the Treasury issued overnight debt in the first place.
The tradeoff between cost of borrowing and how much interest rate risk taxpayers shoulder should be squarely on the shoulders of the politically-accountable Treasury not the independent Fed.
The debt dynamics work the same for a central government as they do for a person or a company, except that a central government has a central bank that can print money (which devalues it) and it can take money away from people via taxes.
Early in the final stage of the Big Debt Cycle, the market action reflects this dynamic via interest rates rising led by long-term rates, the currency declining especially relative to gold, and the central government’s treasury department shortening the maturities of its debt offerings because of a shortage of the demand for long-term debt.
So, it's hard to tell how much of like the loss of the past few years was AI versus the end of like zero interest rate policy and like the post-COVID crash. And I think it's more the latter, but like again, LLMs are still getting better.
Just like Hollywood once compared Netflix to the Albanian Army, the US establishment
doesn’t yet understand how much better Satoshi Nakamoto or Vitalik Buterin is than every
apparatchik they have in the Federal Reserve system.
things have to go really wrong for us to like just get over the threshold of uh you know, capital being productive enough to automate lots of work, but not be productive enough that that the interest rate is high and or the price of capital produced goods is falling a lot, okay? So, even without redistribution, a little bit of savings will save a lot of people.
Federal Reserve Board members have often resigned their positions well before their 14-year terms expired, since that's quite a long time to spend in one position in government.
A decade on, it already feels possible that in the future, commentators will argue that this specific fruitful synthesis lit the fuse on evolutionary cultural anthropology’s explosion (with due apologies to earlier books from L. L. Cavalli-Sforza, E. O. Wilson, Peter Richerson and Robert Boyd).
And so, I always look what I call the fat tails and manage that we can handle all the all the fat tails. And not the stress test the Fed gives us, but all the fat tails.
If a new monetary network with its own unit (i.e. not pegged to an existing currency as a credit rail on top of it, but rather a fully parallel system to central banks) is going to bootstrap from zero to massive, it requires upward volatility.
But the spike in interest rates require to do this would be huge. And the trade shock will cause a sharp recession, or worse, putting even more stress on the budget. A debt crisis is likely along the way as the US finds it impossible to roll over debt.
Friedman and Schwartz becomes the playbook for the Federal Reserve. We have lived through this, the financial crisis. The Federal Reserve is ready to loan. Covid, the Federal Reserve does all kinds of new things, because no Federal Reserve chair wants to be in Friedman-Schwartz 2.0 that somebody writes, where they're the bad guy who let the economy meltdown.
Since inflation is not primarily driven by private-sector lending in the current environment, making borrowing more expensive will not significantly cool the economy.
If the future is like the past, this implies that debt rollovers—that is, the issuance of debt without a subsequent increase in taxes—may well be feasible. Put bluntly, public debt may have no fiscal cost.
Their words now
Across advanced economies, the celebrated ( r - g ), i.e., the difference between the interest rate and the growth rate, appears to have durably changed sign or, at a minimum, to have gone from a substantially negative number to a number closer to zero.
In the actual data, interest rates don’t seem to drive investment that much, and furthermore central bank influence over the real rate of interest typically is limited.
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