Curious of examples of these zombie corporations that survive only because of the artificial ZIRP?The Fed, as an institution and contrary to what many people believe, is not independent from the Governament. It responds to the congress as per the 1913 Federal Reserve Act, and thus it is implicitely bound to political mandates (and agendas). Therefore...
There is zero chance, literally zero, that the Govt will let the Fed raise rates to any significant level considering that the US is the world's greater debtor, its debt-to-GDP is 130% and raising, and the debt level of the average american is higher than pretty much any other western country. To say nothing about zombie corporations that survive only because of the artificial ZIRP.
Look at what happened in 2018 when the Fed felt brave and hiked rates above 2%. The markets tanked, and someone at the Fed got an angry call from someone at the Govt. Result: rates were back at zero within months.
Unfortunately, our economy has been chugging along through the 2010s only because financing has been pretry much free. If money had a historically standard cost of, say 5%, the picture would have been rather dire. Any change in rate policy (to the upside) would annihilate the US economy with the largest deflationary shock since 1929.
Until the debt-to-GDP ratio goes down to a more managable level, say 60%, I cannot envision any other scenario through the 2020s decade other than keeping the current policies. The Govt is, unfortunately, forced to inflate the debt away (or devaluate its fiat money) since the other organic secular deflationary forces play against them: aging population, technology, globalization, yadda yadda. The Govt+Fed just cant let that happen, thus they are forced to continue doing what they have been doing:
I dont know man... I am really not optimistic given the current macro framework
- the Fed keeping rates low, even controlling the yield curve, while prolonging its Quantitative Easing programs for years to come.
- and the Govt continueing with its helicopter fiscal policies, perhaps all the way to UBI (God help us!).
how inflation comes about
- Thread starter happy trading
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Healthy price increases are essential for sustainable economic development. Economists believe that sustained inflation occurs when the money supply (that is, money in the hands of the population and in banks) grows slightly faster than the economy as a whole. The optimal level of inflation is necessary in order to to a certain extent stimulate the population's expenditures, and not savings, thereby contributing to economic growth. That is why the world's central banks control inflation: they set a target level of stable low inflation and try to maintain it.
With such a moderate annual rise in prices, industry will develop, and people will willingly spend part of their earnings, without worrying about income and savings.
With such a moderate annual rise in prices, industry will develop, and people will willingly spend part of their earnings, without worrying about income and savings.