So, for those who remember the last financial crisis, it was around late 2007 when everyone started to learn the words "credit crunch", "sub-prime mortgages", "derivatives" and "collateralized debt obligations"

Fast forward 10 years... its time to brush up on "Quantitative Easing" and "Asset Price Inflation".

The next few months is going to see the trickle of "hey. So this is happening. No one really knows if this is a problem" articles turn into a flood of "ah. This should have been obvious all along, we are completely ****ed"

Good gentle intro for you all on Bloomberg.

https://www.bloomberg.com/view/artic...itative-easing

What’s your point?

hope you guys got your low interest rates locked in


I have in-laws trying to buy a house and apparently people are buying like crazy right now trying to beat the uptick

I intiutively get the concept of asset price inflation but I don't think I understand what quantitative easing is. What is it?

2.19% for the next 5 years. Probably should have gone for the 3% for 10 years option but who plans that far ahead.

It's when a central bank increases the amount of money in circulation by purchasing financial assets.

That makes sense. What would happen if in the process of quantitative easing they bought everything?

Probably massive inflation because the dollars used to make the purchases are conjured from thin air.

but then they would still own everything even if the dollars became valued much less. thats pretty scary.

Yeah should have converted to bitcoin years ago.

Hyperinflation in the US would be an absolute disaster, as commodities are priced in dollars. The global economy would probably nosedive.

We also have a heavily armed populace that probably wouldn't be ok if they woke up one morning to find the price of a loaf of bread had increased to $1000 or something crazy like that.

What sets this article apart from all of the other articles written over the last ten years warning us about the massive amounts of inflation that were just around the corner?

I don't think there is any particular reason that quantitative easing has to result in a huge crash.

If done properly, all it has done is basically move forward some asset returns, so you should see lowered returns in the near future but not necessarily negative.

Obviously, if it is unwound too fast there could be problems, but only time will tell on that. All in all, I'd welcome a bit of market volatility.

Its not really even saying that. Did you read it?

Its not a coincidence that asset prices, including housing and stocks are at hugely inflated levels right now. After a oeriod of trying a completely new economic tool, to a massive and unprecedented degree.

Most serious articles mainly point out the above, along with 1. This is another massive redistribution of wealth from the young and poor to the old and rich and 2. This has potential to be massively disruptive, its just not entirely clear how yet

Anyway. I didnt expect a lot of traction on this article right now. If im wrong it will dissapear without a trace. If im right, this will attract more interest over time.

QE isn't exactly a "new economic tool". There was a similar approach to the Great Depression.

And you are on faulty impressions that the markets don't correct themselves (assuming there's no underlying issues like toxic assets underneath it all) as we may be seeing presently.

Re 1. Thanks. I didnt know that. Reading up on it now.

Re 2. Not sure I understand your point. First. All markets correct themselves is a pretty extreme ideological position these days.

Second. Even if this will correct itself, that could still caise significant economic problems, no? I guess thats what you are saying?

Market correction isn't an extreme ideological position. Believing markets are infallible on the other hand would be.

In the short term if markets are reacting to info about interest rates being raised it might cool off and make investors a little squeamish. In the long run, if the current market environment is just cooling off from being overheated by lower interest rates, business will return to normal eventually. I suspect we are witnessing the business cycle do its thing.

Actually, the urge to lock in low rates doesn't make too much sense.

If rates on mortgages go up, buyer demand will go down and real estate prices will also go down.

Dont think you save that much money by buying now vs a wait and see.

Besides, if you buy at a slightly higher mortgage rate, you can always refinance if it comes down later.

If you buy at too high of a purchase price, you're out of luck if your house value drops.

It amazes me how economic main streamers won't confront the very obvious apparent impossible to avoid elephant in the room.

IRs have been set to emergency levels for some time now, super duper inject the patient with mega stimulus levels. Levels that in any other period prior to 2008 would have resulted in Booooom if held at that level for that long.

All we got was meh. GDP has been meh, wage growth really meh. Indeed negative in the UK.

Of course Assets have soared across the board, not just assets but anything the rich buy in general. Look at the price of football players.

Bottom line is if you can't achieve better than 1.x% GDP growth after QE and ten years of a historical low interest rates and what growth you do achieve comes with massive asset price distortions, then your intellectual and policy tools are probably defunct.

Of course we are being told everything is normal. It so obviously is not.

It could, but I don't see any compelling argument that it definitely will.

What would you have done differently if you were in charge of monetary policy after the financial crisis?

I'm in my early 30s, and a lot of my friends are at the point where they are tired of renting and moving around. In my anecdotal bubble of a life, I see realty demand as relatively inelastic.

The question imo is not whether one will buy, but where.

Amortization impacts this calculus in a way I'm not sure you're contemplating here.

Again, anecdotal life bubble, but I'm not seeing people looking to buy a house as a "for now" kind of investment. They are trying to escape the "for now" frame of mind.

I agree with all this. I think for probably most home buyers they are planning on staying in the house for a while, so locking in rates make sense even if the value of the home could potentially drop.

In select markets you guys might be right.

On the other hand, you have stories in the other thread about mortgage businesses shutting down expansion and laying off people as soon as rate increases were mentioned. The idea of higher interest rates causing lower demand isnt something I just made up.

Of course higher interest rates cause lower demand. That doesn't necessarily mean someone shouldn't lock in an interest rate now.