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kleinbl00  ·  14 days ago  ·  link  ·    ·  parent  ·  post: "Today's NYT is brought to you by the letter 'secular stagnation'"

Nice to see you again, man!

"Half-life" is a useful way of thinking of inflation. I'm old and can remember when candy bars could be had at the grocery store for 40 cents. Now they're 85. The purchasing power of a dollar dropped by more than half there, at least as it relates to candy bars.

If you look at the CPI, a dollar in December 1989 has the same purchasing power as $2 in January 2019. That puts the "half life" of the American dollar at about nineteen years.

So. American money has a half-life in the same regime as strontium-90. Sit on it and it will be worthless. This is basically what drives investment - you put your money in a bank rather than under the mattress because the hope is that you make interest that at least keeps up with inflation. It never does, though. You have to put your money in bonds and stocks and real estate and capital projects for it to beat inflation which is the "engine that drives the economy" or some shit - investing, in a nutshell.

Things get into trouble if the risk of losing your money is greater than the gain of investing. Then everybody locks their money up in the bank because a guaranteed rate beats a high risk of loss. "locks their money up in a bank" is bad for "liquidity" - there's cash, but nobody can spend it. So you lower interest rates so that people are forced to invest their money. You create a disincentive for saving rather than an incentive for investing.

Right now, something like a third of the world's money is under negative interest rates - the banks charge you money to hang onto it. That's because the world's central banks can't provide enough disincentive to make you invest. It is economic crazytown and it's only numbness that doesn't have economists howling from the rooftops (they did a bunch when ZIRP and NIRP - Zero and Negative Interest Rate Policy respectively - came to town). In other words, the smart guys in the room are real close to the metal here; they're running out of reasons for you to not put your money under the mattress.

Because that "half-life" characteristic can be influenced. It's called the "rate of inflation." Central banks usually shoot for 3-6%. They don't hit it very often. But as you can see, if it's too high things go crazy. If it's too low things collapse.

A lot of my guys are linking to that horrible "turning japanese" video because they're 80s guys and they're scared to death of that "half life" reaching the point where money is no longer "radioactive."

Your reactor works like shit on depleted uranium.