She cooed like a dove every time she spoke. No hawk in her.
Janet Yellen - Remember her?? She's going to be the new Treasury Secretary
- Thread starter JSOP
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She cooed like a dove every time she spoke. No hawk in her.
That was a weird time with so high of interest rate and still wasn't able to rein in the inflation. But I feel the problem was really a higher propensity to spend with a lower propensity to save than today. The crazy 80's was known for the shiny tacky materialism. And that was exacerbated with lower productivity at the time without China and the countries to provide cheap labour. The monetary policy is only as good as what those "multipliers" allow it to be. In extreme cases, even if you have a 100% interest rate, if nobody wants to save with the propensity to save as 0, then the monetary policy is not going to have any effect unless you hold a gun to people's heads and force them to save.
So coming back today, once this Covid blows over, if you want to keep inflation down and you want to be self-reliant instead of relying on other countries to provide cheap labour, then you need to either work like a slave like the Japanese (perfect example of a country that doesn't have any insource via immigration or outsource) or implement robotics to achieve total automation otherwise you are still going to have inflation problems even with higher interest rate, albeit a bit muted because people are having a lower propensity to spend.
I have to push back a bit on the savings and spending aspect of your opinion. Data on US Personal Savings Trends shows that in general people save less now than they did in the 80's.
https://tradingeconomics.com/united-states/personal-savings
High interest rates and skyrocketing fuel prices killed consumers and consumer spending. People were loathe to buy cars or big ticket items like appliances unless they paid in cash. High inflation just smokes economies. The knock-off effects permeated everything people did. It stifled small businesses and kept people from taking vacations. Bigger businesses didn't want to spend on plant or equipment because the commercial credit lines were so insane.
But drugs, rock and roll, and porn did well in the 80's
https://tradingeconomics.com/united-states/personal-savings
High interest rates and skyrocketing fuel prices killed consumers and consumer spending. People were loathe to buy cars or big ticket items like appliances unless they paid in cash. High inflation just smokes economies. The knock-off effects permeated everything people did. It stifled small businesses and kept people from taking vacations. Bigger businesses didn't want to spend on plant or equipment because the commercial credit lines were so insane.
But drugs, rock and roll, and porn did well in the 80's
%%
Yes its a tough row to hoe if one was putting stock in a 6 foot fake mouse+ DAL sector.
But tech, e business, real estate,bottled water sales are going great guns/up. Groceries in the south are going down or stable.
People loaded up with student loan may not be able to buy much real estate., on credit.......................; in a ca king market/no problem.
Are we looking at the same chart? https://tradingeconomics.com/united-states/personal-savings. If you click on "MAX" at the left-hand corner on top of the chart to look at the savings rate which gives an idea of the propensity to save, throughout the years, the savings rate during the 80's was one of the lowest at less than 10% whereas the savings rate hit as high as 33% in 2020, 3 times of that of the 80's. There is no way that the savings rate now would be lower than what was before and today's interest rate is 1/10 of that of the 80's. The actual propensity to save would need complex econometrics modeling.
High interest rates and skyrocketing fuel prices killed consumers and consumer spending. People were loathe to buy cars or big ticket items like appliances unless they paid in cash. High inflation just smokes economies. The knock-off effects permeated everything people did. It stifled small businesses and kept people from taking vacations. Bigger businesses didn't want to spend on plant or equipment because the commercial credit lines were so insane.
But drugs, rock and roll, and porn did well in the 80's
Yeah paying with cash, that's still spending, taking the money out and spend, expanding the money supply which is what the fed monetary policy tries to affect. Bigger businesses' spending on plants or equipment is "investment" in macroeconomics. That's different.
Yeah you need to throw out 2020 data. No way people are saving 33%. Please.
Let's try it with the Fed's data. Longer term savings trends have been down the past few decades as compared to the 80's.
https://fred.stlouisfed.org/series/PSAVERT
Yeah, money supply is another one of those pumped to moon metrics distorted by the Fed. Not sure that it's feasible to compare the 80's to anything current.
https://tradingeconomics.com/united-states/money-supply-m0
Very typical of economists. Something wrong with the model? It must be the data that's wrong, throw out the data!!
Just kidding. The spike of 33% savings rate is really from April 2020, during the height of the 1st wave of covid where everybody's locked in and trying their hands at the casino of the stock market. Do not estimate the power of Robinhood!! So that savings rate is really not that far off from reality. Ok but fine, we will throw it out and treat that as an anomaly and look at the average savings rate over the years. If you look at the average savings rate throughout the 80's which I took as from 1980 - 1990, the average savings rate is about 9% with the rate slightly higher during the beginning of the 80's and gradually dropping to about 8% towards the 90's. If you look at the average savings rate which I took as pre-covid from the 2019's to just before covid, it's about the same and maybe slightly lower than that during the 80's BUT that is at 2% interest rate right now vs when the interest rate was at double digit. So yes maybe the savings rate is about the same if not slightly lower but if you compare the savings rate adjusted for interest rate, the savings rate now is actually lot higher than that of the 80's.
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That's the interim goal that they use to achieve their target. The problem is with the innovation of financial and credit products and most recently cryptocurrency, the actual definition of what is "money" has dramatically changed from the 80's, let along the term "money supply".