2 ways to pull money out of the economy. Taxes (higher rates). Gubment issued bonds, but the rates will need to be more attractive. This is why I’m skeptical of how long they can keep rates low.
Stop buying bonds in the open market and start selling bonds in the market thus cutting the money supply available. Less $$$ = higher interest rates and curbs to inflation.
Warning to all: This is taking a political turn, which isn’t appropriate in the Vintage Ferrari Market Forum. Matt
Unless there have been posts removed, I don't see anything political here. Just a discussion of Economics 101, which is VERY relevant to the collector car market.
Hmmmm, I thought/intended my comment to be purely economic having to do with actions of the Fed, a bank that is non political as I understand its charter? What am I missing?
Impossible for the Fed to net purchase U S bonds in the open market; with what would they pay? only answer: creating more dollars out of thin air by quantitative easing. For the Fed to do otherwise would add trillions of "dollars" to the already unsupportable national debt. The U S economy may be in an inevitable death spiral. Which is why people of means are converting their dollars (cash) into tangible personal property of long-lasting value; real estate, old master paintings, rare gem stones, classic Bugattis, Ferraris and Duesenbergs, gold and silver bullion, rare, classic timepieces and such-like.
You know of coarse, that is pretty much what the Fed does when they buy bonds in the market, increase the money supply. When they sell bonds they decrease the money perhaps not Finance 101 but at least Finance 102.
Paul, the Fed has no interest in damping inflation; it is in the borrowing business and will "repay" today's trillion-dollar loans with ever cheaper dollars. Think Germany one century ago.
This strategy works well when interest rates are very low but as interest rates increase the absolute "cost" of debt becomes more onerous. As inflation increases so does the interest rate at which the Fed is able to bowwows so that acts as a counter measure to the “pay back” in cheaper dollars, Finance 101. Lenders are less and less willing to loan money to the Fed at cheap rates in periods of time when inflation is on the rise or is uncertain as the inflation risk has increased in those periods.
This is exactly my fear... Say inflation takes off, the Fed will have no choice but to raise rates, that's an era of malaise that makes me shudder.
I agree, however currently the "talking heads" say that inflation is not in sight for the next 18-24 months. But we all know that at some point inflation will come back. The pendulum always swings in both directions just a matter of time, the only question is hard it swings and to what height to interest rates rise?
“It can last a lot longer than you think, it can go a lot higher than you think, and the crash can be a lot worse than you think.” – Henry Blodget
Japan has have near zero rates and extremely accommodating monetary policy for over 20 years now, with inflation no where in sight (in fact the Nikkei still has not reached its peak of 38,9000 from 1989 - it's at 27,800 today). I'm sure many Ferrari collectors remember the run up in prices when the Japanese would buy at any price. Sent from my MAR-LX1M using Tapatalk
Japan has a declining population and are not massive consumers so printing tons of money won't do anything if you have it sitting idle and/or not enough people to move it around. Not the issue here in the US as we have a growing population and over-consumers...very high money velocity. So when you print more you will get higher prices. I don't see blue chip Fcar prices falling or other collector cars (near 7 figure cars and higher) anytime soon. As said above, these are a storage of wealth unlike the dollar which becomes more worthless by the day. And these are not (at least to my knowledge), purchased with loans and lots of leverage which mid 6 figure and under cars are. I don't see the current money printing ending well...6-12 months probably an asset correction for "normal" assets and not these vintage Fcars. The central banks around the world will have no other way to deal with the next correction other than printing more money which will inflate it up again probably one final time until currency debasement.
A declining population is not exclusive to Japan, in fact it is occuring in almost all major economies. The household saving rate in the US has actually skyrocketed during and after the pandemic. Sent from my MAR-LX1M using Tapatalk
populations in non 1st world countries are exploding. the only first world population growth is among the immigration population. in a few generations those countries will be run by the newly minted citizens.
No other major economies outside of Japan have declining populations (negative rate). Their populations are increasing, but at a slower rate than in the past (still positive growth). Declining populations outside of Japan include Lativa, Ukraine, etc...not major economies. https://data.worldbank.org/indicator/SP.POP.GROW?most_recent_value_desc=false