what I'd like to understand is: does this mean the Fed Put is dead? At which point do central banks become impotent? Is QE no longer an option when debt is, say, 150% of GDP?
We know that the central bank of Turkey can't open the floodgates -- they've been open for years. Likewise, there's nothing central bankers can do to fix stagnation in Argentina (going on for generations) or Hungary (going on for decades). But these are all small-fry cases.
One of the theories I have been banding around for a while is that the Fed may be closer to QE or even Yield Curve control than we think (https://klementoninvesting.substack.com/p/is-this-the-monetary-policy-of-the). If long-term Treasury yields are starting to get out of control, I think it is entirely possible for the Fed to introduce Yield Curve control as the Bank of Japan did from 2016 to 2024. In theory, this can go on for a long time (decades, possibly), but it is really hard to get out of it ever again. In the case of the US, it may not be possible to get out of it ever, in which case you get permanently distorted cost of capital and persistently distorted capital allocation to unproductive uses like, say, frivolous consumption.
I think the Japanese case is not so easily appliable because most of Japan's government debt is held by domestic lenders. If I am informed correctly, for example the Japanese pension funds hold megatons of government debt at artificially low interest rates. (This means that pensions are lower than they would otherwise be. Perhaps this explains why so many Japanese senior citizens work?)
There was this wacko plan that surfaced a few months ago which entailed forcing foreign countries to buy low-interest US government debt, in order to get preferential trading agreements. It sounds like a stretch to hope this would solve the problem.
But perhaps I'm getting all this wrong? It's certainly not an area in which I feel well versed.
That isn’t really a problem. From 2010 to 2020 the Fed completely monetized US deficits. The total ambit of QE purchases is almost exactly the cumulative deficit borrowing of the government during that time. Monetization of debt has already been successfully done for a decade in the US.
I guess the one 'saving grace' for the US economy has always been defence spending or welfare for the rich depending on your perspective that at 52% of non discretionary spending has always been a Keynsian 'pump prime' for the economy but if spending gets so out of whack to income even financial engineering may come up short. Considering Trump has already been through 4 bankruptcies, maybe the US will be his ultimate triumph!
what I'd like to understand is: does this mean the Fed Put is dead? At which point do central banks become impotent? Is QE no longer an option when debt is, say, 150% of GDP?
We know that the central bank of Turkey can't open the floodgates -- they've been open for years. Likewise, there's nothing central bankers can do to fix stagnation in Argentina (going on for generations) or Hungary (going on for decades). But these are all small-fry cases.
it's an intriguing thought
One of the theories I have been banding around for a while is that the Fed may be closer to QE or even Yield Curve control than we think (https://klementoninvesting.substack.com/p/is-this-the-monetary-policy-of-the). If long-term Treasury yields are starting to get out of control, I think it is entirely possible for the Fed to introduce Yield Curve control as the Bank of Japan did from 2016 to 2024. In theory, this can go on for a long time (decades, possibly), but it is really hard to get out of it ever again. In the case of the US, it may not be possible to get out of it ever, in which case you get permanently distorted cost of capital and persistently distorted capital allocation to unproductive uses like, say, frivolous consumption.
I think the Japanese case is not so easily appliable because most of Japan's government debt is held by domestic lenders. If I am informed correctly, for example the Japanese pension funds hold megatons of government debt at artificially low interest rates. (This means that pensions are lower than they would otherwise be. Perhaps this explains why so many Japanese senior citizens work?)
There was this wacko plan that surfaced a few months ago which entailed forcing foreign countries to buy low-interest US government debt, in order to get preferential trading agreements. It sounds like a stretch to hope this would solve the problem.
But perhaps I'm getting all this wrong? It's certainly not an area in which I feel well versed.
That isn’t really a problem. From 2010 to 2020 the Fed completely monetized US deficits. The total ambit of QE purchases is almost exactly the cumulative deficit borrowing of the government during that time. Monetization of debt has already been successfully done for a decade in the US.
I guess the one 'saving grace' for the US economy has always been defence spending or welfare for the rich depending on your perspective that at 52% of non discretionary spending has always been a Keynsian 'pump prime' for the economy but if spending gets so out of whack to income even financial engineering may come up short. Considering Trump has already been through 4 bankruptcies, maybe the US will be his ultimate triumph!