>The goal of central banks is to keep CONSUMER prices steadily increasing and employment high.
Yeah it's surprising that many people don't understand this.
>I don't understand how anyone thinks this plan can involve lowering rates, which would crash asset prices, and trigger a wave of defaults leading to a recession (lower income, less spending, lower prices, and less jobs).
It can involve lowering interest rates because the old assumption is that there is basically an endless amount of profitable work to be done in the country (or economic union) the central bank is in. It conveniently ignores that doing the endless amount of work elsewhere (developing countries) can actually be even more profitable.
>Notice that assets are conveniently not included in Central Banks' measures of inflation. Assets can inflate to infinity. It's irrelevant.
Yeah it's true, consumer prices are the real target. The irony of course is that if you keep inflating assets your economy will rot from the inside. Companies can just drink straight from the money faucet. There is no need to actually employ anyone in the country the central bank is operating in.
>Mortgage payments are included in the price indexes, though! They happen to make up a big chunk of the ratio, too. And guess what? Central Banks are making them cheaper for 90% of home owners (now ~67% of the population) by artificially manipulating rates to make their payments lower.
Payments tend to stay the same though because the housing market is competitive in a lot of locations. Housing values keep increasing instead. One could argue that real estate will indirectly employ construction workers but the fundamental problem is that many places simply are not willing to build more housing. It's almost criminally insane but that's how it is, unfortunately. In places where there is little competition it is possible to get good deals but not everyone is willing to do that. Those deals are also disappearing now that remote work is forced upon everyone.
>What does that mean? The more central banks lower rates and the higher home prices climb, the more likely "inflation will continue to be stubbornly low".
Well, yes because the money isn't reaching the right places. A lot of it is sitting in some random bank account. The money that is actually put to use is just going back to asset owners (remember we want it in the hands of consumers) because a lot of the hard labor is done abroad but the profits are collected at home. Despite the surplus of money companies are not willing to spend money on training even though it will make more profitable work available domestically. College often doesn't work because it's not actually based on what companies want. Students chase their own dreams which is fine in principle but it means the training problem is still unsolved.
>Central banks aren't normalizing rates any time soon. They're much more likely to print a ton more money because people AREN'T spending more money on airplane tickets, gasoline, bananas, and (importantly) their mortgages.
And as you said, they keep spending it on the wrong things.
>The solution to the problem is a bigger problem. When all you have is a hammer everything is a nail.
The reason for that is that the central bank does not have the power to solve all the problems it's responsible for. It's almost comical. It has to make sure the economy is not broken but it only has one lever. That lever can fix the economy with the right timing and correct usage. However, that lever can only go so low and opportunities in which it makes sense to pull the lever grow more scarce as you keep overusing it. At this point it's time to recognize that the rest of the government is failing to do it's part through fiscal policy. The central bank has already done far more than it's share of the work.
Yeah it's surprising that many people don't understand this.
>I don't understand how anyone thinks this plan can involve lowering rates, which would crash asset prices, and trigger a wave of defaults leading to a recession (lower income, less spending, lower prices, and less jobs).
It can involve lowering interest rates because the old assumption is that there is basically an endless amount of profitable work to be done in the country (or economic union) the central bank is in. It conveniently ignores that doing the endless amount of work elsewhere (developing countries) can actually be even more profitable.
>Notice that assets are conveniently not included in Central Banks' measures of inflation. Assets can inflate to infinity. It's irrelevant.
Yeah it's true, consumer prices are the real target. The irony of course is that if you keep inflating assets your economy will rot from the inside. Companies can just drink straight from the money faucet. There is no need to actually employ anyone in the country the central bank is operating in.
>Mortgage payments are included in the price indexes, though! They happen to make up a big chunk of the ratio, too. And guess what? Central Banks are making them cheaper for 90% of home owners (now ~67% of the population) by artificially manipulating rates to make their payments lower.
Payments tend to stay the same though because the housing market is competitive in a lot of locations. Housing values keep increasing instead. One could argue that real estate will indirectly employ construction workers but the fundamental problem is that many places simply are not willing to build more housing. It's almost criminally insane but that's how it is, unfortunately. In places where there is little competition it is possible to get good deals but not everyone is willing to do that. Those deals are also disappearing now that remote work is forced upon everyone.
>What does that mean? The more central banks lower rates and the higher home prices climb, the more likely "inflation will continue to be stubbornly low".
Well, yes because the money isn't reaching the right places. A lot of it is sitting in some random bank account. The money that is actually put to use is just going back to asset owners (remember we want it in the hands of consumers) because a lot of the hard labor is done abroad but the profits are collected at home. Despite the surplus of money companies are not willing to spend money on training even though it will make more profitable work available domestically. College often doesn't work because it's not actually based on what companies want. Students chase their own dreams which is fine in principle but it means the training problem is still unsolved.
>Central banks aren't normalizing rates any time soon. They're much more likely to print a ton more money because people AREN'T spending more money on airplane tickets, gasoline, bananas, and (importantly) their mortgages.
And as you said, they keep spending it on the wrong things.
>The solution to the problem is a bigger problem. When all you have is a hammer everything is a nail.
The reason for that is that the central bank does not have the power to solve all the problems it's responsible for. It's almost comical. It has to make sure the economy is not broken but it only has one lever. That lever can fix the economy with the right timing and correct usage. However, that lever can only go so low and opportunities in which it makes sense to pull the lever grow more scarce as you keep overusing it. At this point it's time to recognize that the rest of the government is failing to do it's part through fiscal policy. The central bank has already done far more than it's share of the work.