Announcing the IBC Workshop
The footage of us lecturing comes from a February 2015 workshop we put on in Birmingham. I realized that you guys don’t understand the quite specific presentations my co-author, Carlos Lara, and I have been giving to audiences during the summer. No, I wasn’t telling them, “I expect a spike in the VVIX on Monday, August 24,” but I certainly gave them the big-picture theory of the boom-bust cycle and then reasons that I thought Yellen was going to hold pat and let the market go down. (For purists, I made clear the distinction between Austrian business cycle theory, and my personal guess that Yellen was going to let a crash happen before launching a QE4.)
I have work to do for clients, so let me just quickly say that I regret not a single word of this 2011 piece, which Scott Sumner somehow thinks is damning. (Hint: I was telling people that the stock market was being driven by the rounds of QE. What has happened since then is entirely consistent with that theory. So if you think the Fed can just keep quintupling its balance sheet every 7 years, I grant you, there’s no reason to be wary of the U.S. stock market.)
“So if you think the Fed can just keep quintupling its balance sheet every 7 years, I grant you, there’s no reason to be wary of the U.S. stock market.)’
I have a question about this – are you saying that the ONLY thing driving the value of the S&P500 is fed asset purchases – and that investor confidence , future real returns of the 500 companies listed etc, all count for nothing and the index is driven entirely by the fed ?
What about alternative views that say that when investor confidence is low and demand to hold more liquid assets (like cash) is high, then increasing the supply of liquid assets (which QE programs are meant to do) will allow the markets to tend towards their true equilibrium values?
Transformer wrote:
“increasing the supply of liquid assets (which QE programs are meant to do) will allow the markets to tend towards their true equilibrium values?”
True equilibrium values as decided by who? The investors or the monetary/fiscal authorities?
By the people who are buying and selling the shares of the companies that make up “the market”.
Hey Bob, I like your little workshop intro, it’s pretty cool.
I do think you are perhaps a tiny bit overzealous in your claim that this is a whole new concept just invented. I think there’s a long history of insurance-related savings schemes, especially in the USA. Back in 2012 you called it “Life Insurance, the Forgotten Savings Vehicle”.
Just to point out, I’m not criticizing Nash’s ideas here, and quite likely he has contributed some useful details (yes I understand that details do matter, especially when dealing with anything that effects your tax liability) but he didn’t invent the whole concept, nor is this some amazing new idea that people are just starting to adopt.
As for what’s good for the country as a whole, that’s a long and difficult argument, but as I pointed out last time, there’s a major difference, in that conventional modern bankers can (and do) offer immediate gratification. So you get your money NOW, you buy want you want NOW. Insurance-related savings schemes really require people to delay gratification, and there’s nothing weird about that (generally all savings implies delayed gratification) but when you put that comparison right out there, it becomes clear why modern banks do what they do.
Finally, in a competitive environment like trying to buy a house where there’s limited supply (they aren’t making any new land, well they are but not much) the guy who has the immediate money can buy NOW, but the guy who tries to save up for it comes along much later and everything’s already sold… by then price inflation has done the work and the saver needs to bid much harder to get anything. Anyway, nuff said… I’m sure you get the point.