Kugscheese
I am not sure why the govt may encourage it, but I can say that I know several people who have moved to these areas (coastal Florida, the Carolinas) because New York has become far far too expensive and the taxes here are beyond their ability to pay. In my area the flood zones are in the less desirable areas but I know that’s not always the case. It’s just cheaper there than here. I feel very bad for them until you have lived through one of those storms you really cannot imagine how bad it can get…
Kugscheese
I am not sure why the govt may encourage it, but I can say that I know several people who have moved to these areas (coastal Florida, the Carolinas) because New York has become far far too expensive and the taxes here are beyond their ability to pay. In my area the flood zones are in the less desirable areas but I know that’s not always the case. It’s just cheaper there than here. I feel very bad for them until you have lived through one of those storms you really cannot imagine how bad it can get…
The peak oil thing was just a part of the problem. I constructed a bunch of charts to detangle as best I could what really happened post-1971. As best I could tell, the primary problem was that the Fed didn’t raise interest rates for 2 years in order to get Nixon elected. That created a fantastic economy - for a time - with some pretty ridiculous levels of both activity, private debt creation, and then inflation. This happened prior to the oil shock.
What I also noticed was that during the rest of the 70s, the Fed would never keep rates low enough, for long enough, to really stamp out inflation. The conclusion I draw is that, without gold to provide guidance, they were just guessing, and their guesses weren’t very good.
If you think about it, they had a system in place since 1913. Institutional memory for 60 years told them how to deal with rates. Then, suddenly, no more gold to help them decide. They were just clueless about what to do, and it took them 10 years to figure it out.
Here’s the key chart.
- rates kept too low from 1971-1973. This gets Nixon elected.
- Because rates are too low for too long, private debt explodes (20% change y/y is just crazy)
- With a 2-year lag, this causes inflation (measured by producer prices) to just go nuts in 1973.
- Then in 1974, we have the oil price shock. You can see that inflation is already going gangbusters a year before oil prices triple. Certainly the oil price shock causes another PPIACO jump a year later, but the proximate cause of the inflation problem in 73-75 was the Fed keeping rates low to help Nixon in 71-72.
Your explanation bears further examination. To what does one attribute value? And, what is the relative value of the commodity used to set that benchmark:
If you think about it, they had a system in place since 1913. Institutional memory for 60 years told them how to deal with rates. Then, suddenly, no more gold to help them decide. They were just clueless about what to do, and it took them 10 years to figure it out.The political machinations of those in charge will always default to those with the most to lose. Wars, revolutions, riots, etc., will always be the result. Again, go back to oil and realize the point (I think) Mark_BC was making; that oil allows "stuff" to happen. 5000 years ago, food, land, cattle, etc. were the benchmark indicators(hence the Biblical reference). As long as we have a fiat currency system, the ability to control the availability of that commodity, calls the shots! The ability to sustain ourselves will be and is becoming the future. What we be the cost of Florence's impact or Mandkhut's wake. The PP outlook says a great deal about the coming years and, yes, resilience will be the key. Forcing debt repayment will rule, unless governments, seriously, examine the options. https://www.cbc.ca/news/world/typhoon-mangkhut-china-1.4826248
As the mystery of what happened at the Sunspot Obseratory deepens (and likely espionage arrest) let us consider what we don’t know, about the state of Solar Coronal Research.
http://www.ioffe.ru/LEA/SF_AR/webinar.html
Do you know what these acronyms are?
HAARP
HAMMER
SMACC
[strange alien giggles in background]
After nixon, the fed kept it pretty much at 5% until 2000, when they drove it to zero.
So… if inflation is zero, and everything is past peak production and declining, and population is increased, it should be harder to get stuff, right?
And if inflation is forced to zero, what does that do to wages? Doesn’t that force wage declines (credit to my father on this)?
And if wages must decline, what does that do to peoples’ ability to pay existing debt?
So didn’t the zero inflation response to the dotcom crash cause the 2008 crash?
And if that is true, then inflation can be too low… and the question begs to be answered, what is the right inflation rate for best economic stability?
I don’t disagree with your year-to-year analysis. I just think that access to energy played a greater role than you may be suggesting because the tools that they had available at the time were ultimately a function of energy availability. And the reason their tools didn’t work in the early 1970’s as they expected based on their history back to 1913 was because domestic oil was becoming significantly scarcer, as shown in the production chart post-1970. The difference in oil needed to supply the mini boom brought on by lower rates came from imports and a new and increasing trade deficit, which then placed pressure on the dollar and the need to subsequently raise rates.
But ultimately, the decade-scale trends in interest rates were driven by the invisible hand of energy, not by whether rates were too low for a couple years. What you are describing is small scale movement of someone walking back and forth on a moving bus. But the overall speed and direction of the bus and everyone on it is determined by energy.
If you look at the downward trend in rates since 1982, it is consistent. But there are variations and short reversals along that path that deviate by a few years. I’m sure many of those deviations had political origins similar to what you describe for Nixon in the 70’s. But ultimately, any of those short term trends were part of a larger 35 year trend which was shaped and constrained by energy availability; and any temporary increase or decrease in rates was followed by a more dramatic reversal to bring the trend back in line.
I’m not suggesting that the powers that were at that time understood the role of oil in this multi-decade trend in rates; and I doubt they do even today. But at any point they were making short term reactions to the situations they faced at the time and making decisions using the tools they had available to them – monetary, fiscal, political, and military. Those tools were all constrained by the energy situation at that time. That’s why policy makers do not have the same tools available today, because the energy situation is now totally different. Most policy makers today probably don’t understand why they don’t have these tools available, but they are still bound by this regardless. The perfect example would be Bernanke and his Keynesian experiments he was playing on the western financial world, and wondering why it didn’t work (and then hastily retreating so a future governor would take the blame for the ultimate consequences).
Clearly, any debt based economy weighted down by 18% interest rates MUST have access to plentiful cheap energy in order to be able to continue growing in such a harsh financial environment. But the US hit Peak Oil in 1970; it clearly didn’t have plentiful oil when rates were 18%. What changed in the early 1980’s was that the US suddenly gained access to the entire world’s oil supplies via its new reserve currency status, and global oil at that time was still nowhere near Peak, which is what allowed, Volker etc. to have access to those new tools including jacking up rates so high. Without access to this global supply of energy, rates could never have been raised anywhere near that.
How long does it take to add $1tn of new debt? According to DttP debt was $20.493tn on 1 Jan and it hit $21.494tn on 19 Sept 2018. Exponential???
Brunel wrote:
How long does it take to add $1tn of new debt? According to DttP debt was $20.493tn on 1 Jan and it hit $21.494tn on 19 Sept 2018. Exponential???
richcabot wrote:
People of the future will work more, not less
I am not sure I understand this question. The Fed currently has been proposing an “ideal” inflation rate of 2% for at least the last 9 or 10 years. As many have mentioned, this is a statistical quagmire because of what is included to determine the rate. Everyone’s rate varies markedly even if the average is 2%. Having an inflation rate that is postive tends to increase the circulation of the currency instead of having it hoarded or saved since its value is shrinking. Greater inflation would encourage greater spending until at Venezuelan or Turkish or Argentinian rates one would be tempted to unload whatever currency you received as soon as possible.
Now the ideal interest rate is supposedly a market determined phenomenon. We all have a time preference for money today vs money tomorrow. If I get nothing for loaning it to someone I fail to see why I shouldn’t just put it under my mattress. Loaning it involves at least some risk. The ability to force a zero interest rate is quite puzzling actually. It stems in my mind from the ability of Central Bankers to create even more money. In fact all the money they need, to do whatever they have in mind to finance. When Reagan was going on about the national debt and deficit in 1980, the national debt was less than a trillion. Today of course it is over $21 Trillion. Interest rates have fallen the whole time. The bond vigilantes have not been very vigilant…
If money actually meant something ie was “Real”–then an ideal rate might fluctuate between 2%-5% per annum based upon conditions and opportunities. Real money is a unit of account and store of value in addition to its role as a medium of exchange. So if a dollar was defined as something, anything it might have greater utility and less tendency to be abused. I don’t think an ideal rate could be set–it should fluctuate.
THIS THIS THIS AND MORE OF THIS
“The Boomers went from “peace, love and question authority” to the most warmongering, selfish and short-sighted generation on record. Quite the cultural whiplash when you consider the moral distance traveled in one brief generational lifespan.”
This has been one of the biggest conundrums for me i the last 30 ywars. This is fertile ground for analysis.
What the hell happened to the generation that gave you Woodstock, the Summer of Love, SDS, the Black Panthers, the Grateful Dead, the Merry Pranksters, the Anti war movement, and all the rest of the 60’s.
They grew up and gave you perpetual war and an over one trillion military budget.
Lucy you got some splainin to do