The Federal Reserve Is About to Give US Workers the Shaft
commondreams.org
commondreams.org
This is precisely what was said by policymakers in the early 1970s who were saying pretty much the same thing back then: we can't act on inflation because it will hurt the labor market.
This of course resulted in inflation becoming more and more firmly entrenched until their WAS a wage-price spiral that was very hard to break. It then look the new Federal Reserve chairman more than a decade of trying to get it under control, and ultimately, it was only done through sky-high interest rates that caused 2 bad recessions. Most of that pain could have been avoided had they just acted more decisively in the early 70s.
And now here we are again decades later with the worst inflation in 40 years and some people saying we should just 'let it ride and see what happens'! Well we already know what happens if history is any indication.
If this was happening to say a build/deploy system for software and it kept having crashes/halts on some interval I would want to find root causes. I am no economist but it seems like a root cause analysis is in order of the whole system. I know you can’t just stop the economy and look at log files to figure it out, but there aren’t even conversations about it, like you said “let it ride and see what happens”.
This puts the US in unique position when it can inject massive amounts of liquidity into the economy, and nothing bad is apparently happening for years! The world happily buys dollars.
Then the consequences still catch up and bite, but it's already a different administration. So the temptation is high.
Frankly I think from an economic standpoint we’d be better off not being the reserve currency.
Note that there are other reserve currencies such as the Pound, Euro, and Yen. A reserve currency is simply what banks tend to hold in reserve. Most large international banks will hold multiple reserve currencies. The USD is just the one that’s in the most demand.
So rather than a problem in the code, it may be a problem in the nature of maintaining and updating it.
This will only raise long term rates while simultaneously reducing liquidity.
We don't need unemployment to reduce liquidity when the balance sheet has so much to sell.
In theory, interest rate on government debt should be slightly below dividend payments of equity (stocks of private companies). That's because the dividends are more risky, so investors demand a higher yield.
If interest rates on government debt go up, then people should, in theory, sell some of their stocks and buy government bonds.
Think of it this way, if there is (in your words) "a clear choice between equities [and] bonds", then people will sell whichever one is less desirable and buy whichever one is more desirable. This will make the less desirable asset cheaper and the more desirable asset more expensive, and this process will continue until you reach a market equilibrium where investors as a whole are indifferent between stocks and bonds.