Also, big tech benefitting from high interest rates, is that from them loaning out their cash being "net liquidity suppliers" as you previously mentioned?
If so who are they lending to? Would a reduction in rates begin to harm tech? We've been talking about the Fed losing ways to control inflation because of this, it's starting to sound like a bit of a runaway train with cash accumulating into the big boys
They are mostly lending to the US government by buying Treasuries. A lot of the cash piles of Big Tech companies are invested in short-term US treasuries.
Yeah the big key here is a flood of US short-term treasuries in the financial system. Imagine you had $100 in your wallet that becomes $105 after a year, you'd definitely want to have that $100.
It's a $100 bill, so super liquid and can be spent anytime, or can be kept and earn $5.
It's the best of both worlds.
The current glut in treasury bills (short-term treasuries) has been a godsend for high profit generating companies and money market funds and it's a huge counter to the Fed's attempts to slow down the business cycle using high interest rates.
Yellen really played high interest rates well by issuing lots of t-bills.
However, at the end of the day this is still "kicking the can" down the road. If she keeps stimulating the economy then the Fed can't lower interest rates because of high inflation and future America will need to pay a very very expensive bill.
Short-term problems always feel the most pressing and worthy to solve, especially in an election year, but they're really borrowing a lot from the future.
Worst of all, the US is burning a lot of international goodwill right now with the two major proxy wars it's bankrolling.
But I guess by using this term, I also wanted to highlight the point that by all measures Yellen should be happy China is exporting to a lot, given the stubbornly high inflation in the US.
It's weird that she's unhappy about China's large exports.
I have to admit "exporting deflation" is just a smarty-pants way of saying, China has a lot of supply but not enough domestic demand so its exporting a lot of goods causing global goods prices to fall.
Oh gotcha. So, another way to phrase it is China has so much supply and little demand, that *if* they didn't export, they would experience deflation. So they "export deflation" that they would otherwise experience. Same thing with Japan.
So that's an interesting yin-yang situation then. When America stops importing, we experience inflation, and China would experience deflation. Makes sense, I guess that's the benefit and consequence of globalization.
Maybe Yellen was trying to make efforts to de-escalate China's war prepping?
If I'm thinking of this wrong lmk, but China's been prepping their economy for war, and I think beefing up industrials & manufacturing via exports would be a part of that. I think we went over that a few articles back.
Complaining that they need to reduce their supply/exports may have been an awkward attempt to put a damper on their preparations.
If that idea tracks, then I think the take away is that Yellen's primary concern was over de-escalating war, rather than inflation which is telling
Yeah exactly. So my theory right now, is that the unspoken "war factor" is affecting the rational decision making process, so that if one just hears what they say without reading between the lines, without accounting for the war factor it'd sound confusing and contradictory.
But once you account for the "war factor", confusing outwards rhetoric becomes less confusing.
Also, big tech benefitting from high interest rates, is that from them loaning out their cash being "net liquidity suppliers" as you previously mentioned?
If so who are they lending to? Would a reduction in rates begin to harm tech? We've been talking about the Fed losing ways to control inflation because of this, it's starting to sound like a bit of a runaway train with cash accumulating into the big boys
They are mostly lending to the US government by buying Treasuries. A lot of the cash piles of Big Tech companies are invested in short-term US treasuries.
Yeah the big key here is a flood of US short-term treasuries in the financial system. Imagine you had $100 in your wallet that becomes $105 after a year, you'd definitely want to have that $100.
It's a $100 bill, so super liquid and can be spent anytime, or can be kept and earn $5.
It's the best of both worlds.
The current glut in treasury bills (short-term treasuries) has been a godsend for high profit generating companies and money market funds and it's a huge counter to the Fed's attempts to slow down the business cycle using high interest rates.
Yellen really played high interest rates well by issuing lots of t-bills.
However, at the end of the day this is still "kicking the can" down the road. If she keeps stimulating the economy then the Fed can't lower interest rates because of high inflation and future America will need to pay a very very expensive bill.
Short-term problems always feel the most pressing and worthy to solve, especially in an election year, but they're really borrowing a lot from the future.
Worst of all, the US is burning a lot of international goodwill right now with the two major proxy wars it's bankrolling.
Could you explain "exporting deflation"? I remember that from the BoJ article and thought it would make sense to me later, but I'm still fuzzy on it.
But I guess by using this term, I also wanted to highlight the point that by all measures Yellen should be happy China is exporting to a lot, given the stubbornly high inflation in the US.
It's weird that she's unhappy about China's large exports.
Good question.
I have to admit "exporting deflation" is just a smarty-pants way of saying, China has a lot of supply but not enough domestic demand so its exporting a lot of goods causing global goods prices to fall.
Oh gotcha. So, another way to phrase it is China has so much supply and little demand, that *if* they didn't export, they would experience deflation. So they "export deflation" that they would otherwise experience. Same thing with Japan.
So that's an interesting yin-yang situation then. When America stops importing, we experience inflation, and China would experience deflation. Makes sense, I guess that's the benefit and consequence of globalization.
Maybe Yellen was trying to make efforts to de-escalate China's war prepping?
If I'm thinking of this wrong lmk, but China's been prepping their economy for war, and I think beefing up industrials & manufacturing via exports would be a part of that. I think we went over that a few articles back.
Complaining that they need to reduce their supply/exports may have been an awkward attempt to put a damper on their preparations.
If that idea tracks, then I think the take away is that Yellen's primary concern was over de-escalating war, rather than inflation which is telling
Yeah exactly. So my theory right now, is that the unspoken "war factor" is affecting the rational decision making process, so that if one just hears what they say without reading between the lines, without accounting for the war factor it'd sound confusing and contradictory.
But once you account for the "war factor", confusing outwards rhetoric becomes less confusing.