The combination of tax repatriation, tax cuts, and large-scale deficit spending (fiscal expansion) late in the economic cycle (recessions typically happen every 8 years or so, and the current expansion has been going on for ~10 yrs now) while the Federal reserve is raising interest rates (monetary 'contraction') is more or less unprecedented (we've never seen it happen in modern times in the US or any other large developed economy).
The risk is that fiscal policy is pouring more fuel on the fire at the precise time when the economy typically starts slowing, further inflating asset bubbles and making the Fed's job (to avoid inflation and keep employment high) much potentially harder and making it more likely a misstep will happen.
Popping bubbles or slowing their formation is inherently a tricky proposition (just look at the run-up in stocks from early 2017 until now); move too aggressively and you risk sparking a liquidity crisis and plunging your economy directly into recession; move too slowly and you end up with an even larger bubble later on to deal with.
This is tricky in normal times, but doing so while the other wing of government is actively stimulating the economy makes it much harder to gauge the impact of monetary policy and withdraw Fed support in a prudent and measured way.
The so called business cycle is created by the FED itself. Left uncontrolled, the market will disconnect from reality and create bubbles that can destroy the economy, as it did in 1929. The unrecognized work of the FED is to increase the interest rates periodically to force these bubbles to pop and create a minor recession before they can collapse the economy. The real risk of this cycle is that the FED has already lost the opportunity to contain a major bubble which is already forming in the stock market.
> Left uncontrolled, the market will disconnect from reality and create bubbles that can destroy the economy, as it did in 1929.
And 1893, and a bunch of other times. But that might also be called the "business cycle". This nice tame business cycle that we've come to take for granted is created by the Fed; the sans-Fed business cycle was incredibly vicious.
Yes, but they should have started increasing interest rates at least several years before they started. They kept the party going too long. And when we get the next hangover, the interest rates will already be too low to zero.
(What is hard to know is how much laundered money props up real estate in London, NYC, Miami, etc., and if we crack down on laundering, whether it will pop the bubble. Adam Davidson and Seth Hettena have written well on how we got here and why it will be difficult to unroll.)
The Fed (it's short for Federal Reserve, not some acronym) was created well after business cycles first appeared.
The business cycle of boom and bust is characteristic of capitalism as a system, and if anything, the elastic monetary policy that the Federal Reserve allows has softened the blows.
Business cycles have been around longer than the FED and in countries where it doesn't operate. Hence it probably didn't create them all. The FED tries to moderate the cycles I guess.
The "Tulip Bubble" of 1630's is arguably the first speculative bubble. No FED back then. Maybe the FED affects the timing and depth of the business cycle, but probably cannot prevent all "bubbles"...Unless, maybe you give the FED a clue-stick to use on stupid investors.
The historical view of tulip speculation has changed a lot in the last 20 years, but popular conception has not caught up.
In a nutshell, it is now believed by several researchers to have been a very narrow phenomenon with minimal impact to the national economy. Per Wikipedia
"While Mackay's account held that a wide array of society was involved in the tulip trade, Goldgar's study of archived contracts found that even at its peak the trade in tulips was conducted almost exclusively by merchants and skilled craftsmen who were wealthy, but not members of the nobility.[44] Any economic fallout from the bubble was very limited."
Taken at face value, this suggests that the tulip "bubble" was dramatically different from either the dotcom or the mortgage bubble, which had wide ranging participation and damage. One could argue that the latter two would have been impossible without the Fed.
Economies ran slower in those days so it's hard to compare. But the principle of hype and me-too-ism was present in the Tulip incident even if it didn't spill over to other economic areas. Whether human nature breaks big gizmos or small gizmos, it's still human nature at play. The FED did not make people pay way too much for silly dot-coms.
But bubbles continued. I wonder if one can make a case that pre-FED bubbles were notably smaller than post-FED bubbles, factoring in the fact that the nature of modern economies may magnify bubbles. In other words, if there is a continuous upward slope to the size of bubbles from the 1600's up to now, then it would appear FED made no significant difference. But if there is a spike or jump when FED formed, it could mean they magnify them.
fed intervention has been shown to make things worse, rather than a quick and violent correction we get the anemic recovery from the 2008 recession, combined with another 10 trillion in debt from the fed printing money to buy stocks and prop up Obama. Zero interest rake hikes during his entire presidency is a joke.
Bernanke is the fed chairman so he obviously knows something that most of us don't. But from some analysis, it seems that US will be in good shape for the next 10-20 years. US is currently in capable hands economically since it is lead by a businessman and surrounded by financial experts from wall street. (I don't approve of Trump's character).
Some factors for US's continued growth: healthy demographics - due to immigration, low corporate tax rate, interest rate rising and dollar strength - attracting capital inflow, biggest economy in the world, biggest consumer market in the world, one of the most innovative for its size, balanced economy (used to be dominated by manufacturing, but now it is pretty spread out and consistent), good environment for rich to immigrate to, growing reshoring of manufacturing, leader in technologies, etc.
Instead of comparing US to the yesteryears, let's compare US to other countries in the world today and see why money is going to keep flowing into US for a long time.
Japan: seems to be on an upswing, the recent news of bring in 500,000 immigrants will help with the economy. Unfortunately, it still suffers from demographic decline, innovation staleness, 1.0% anemic gdp growth, competition from cheaper Asian countries for manufacturing, etc. Its paternalistic culture doesn't help to introduce women into the workforce and boost/diversify its economy. Still, a good place to live for many, and high standards of living. but not for investments.
Xi Jing Ping: he is the dictator, therefore he is the country and the economy. Sadly, history has proven that a society cannot escape middle-income trap until it has transformed to a culture that promotes openness and innovation, something that a dictatorship has never shown to do. Therefore the country is dedicated to stealing IP from other countries and companies for a long time. If one looks at other dictatorships in the current era, they always exhibit faster economic growth than their democracy counterparts. However, once the easy growth is used up, the dictatorships are stuck in a decline. As evidenced by the country's 350%+ GDP to debt, 3 trillion of its 6 trillion wealth has fled to overseas, and 50% of rich wanting to leave. Also, evidenced by strict capital control, draconian rule of law, censorship, housing bubble bursting, fake GDP numbers claimed by many of its provinces, etc. The current government will try to hold on for another 10-15 years, stunting the economy. Xi Jing Ping will die, then the grab for power will throw the economy into chaos.
EU: several of its nation members are suffering EU withdraw symptoms. Greece would like to leave but its economy is too small to matter. Italy however, is another story. With the 3rd biggest economy in EU, and the recent elected populist leaders, Italy will try to pile on the debt to address its anemic economy and migrants issue. EU unfortunately won't be able to do much; threaten Italy with debt reduction (currently 120% of gdp), and Italy will leave EU. Do nothing, and Italy will bring down EU's fiscal health until EU disbands. EU doesn't seem to be viable in 5 years.
Emerging Market: current capital outflow indicates there are trouble brewing due to expatriation of dollar back into US. From Turkey to Argentina to Indonesia, the emerging markets are going to struggle paying back their dollar-denominated debts with the rising interest rates and stronger dollars. Flashback to 1998 Asian crisis.
> US is currently in capable hands economically since it is lead by a businessman and surrounded by financial experts from wall street. (I don't approve of Trump's character).
All presidents are surrounded by financial experts. Also the ‘financial experts’ did a lot of mistakes and mispredictions through history, not sure if your point stands.
Having a businessman for president is arguably good, a country is not a business.
Just to clarify. There is no inherent business cycle. The Great Depression proved that the lows can continue on indefinitely without abatement. Laissez faire economics are dead.
The Great Depression itself had periodic upswings and downturns. 'This time is different' is also the mantra of every late-cycle investor buying at the peak.
I started my working life right into the jaws of the Great Recession and try not to forget that lesson.
Yes, there is. It's driven by individual credit cycles syncing up due to the economies of scale of financial distribution. Borrowing money fundamentally means more income today and less income (than otherwise) tomorrow. That drives cycles.
If you're about to argue that there wouldn't be business cycles or depressions if we managed to overthrow capitalism, I don't think people are going to disagree with you lol
The cyclical nature of economic health has less to do with a particular form of human economy and more to do with how self regulating complex systems behave.
Most open system that tend towards homeostasis will exhibit boom-bust feedback loops (ecosystems, metabolism, gene expression, antibiotic resistance, human economies, etc.).
I'm not sure it's either possible or desirable to fight that at a fundamental level, although I do think politically it's a very good reason to provide a strong financial safety net.
I'm not sure what you mean by capitalism, but human economies are fundamentally self regulating homeostatic systems. You can engineer around that to make them more human friendly, or just, or dampen the swings, but you can't fight their fundamental nature.
No, I’m saying that without the Fed and the federal government acting to rationally steer markets the markets will go off a cliff and not come back. Just like Bernanke said here. Regulators matter. When the government stimulates the already hot market with lax taxes and high spending it’s like pouring liquid oxygen onto a flame.
True, in most communist systems instead you get really slow growth, with occasional pauses in growth at all alongside frequent severe shortages of essential goods.
I’m not a communist. Probably the market the US spread through the globe from 1945-2017 was a highlight. A pretty well buffered system, but not without it’s hard lessons and squandering of the individual wealth. There are clear examples of exploitation.
I'm not sure that's actually true. Yes, the govt. reported "official" unemployment number is 3.8% or whatever. BUT... that comes with a couple of big, big caveats:
1. Those numbers by definition don't include job-seekers who have left the market and quit being job-seekers. IOW, people who became so despondent that they gave up. But, there's nothing specific that stops these people (or some portion of them) from re-entering the job market to fill demand.
2. These numbers don't reflect underemployment where someone has "a job" but the job doesn't require the skills the individual actually possesses and pays significantly less than they would expect to earn in a "normal" position.
3. Wage growth is still very low, which suggests that the economy is not being hamstrung (yet) by lack of available workers. At some point, if demand exceeds supply by enough, you're inevitably going to see wage growth. A significant jump in wages would, IMO, be the best sign that there's an actual gap between labor supply and labor demand.
Note that I'm not saying that Bernanke's theory is wrong, but this one little point jumped out to be as something that's at least somewhat questionable.
On a recent EconTalk[1], Edward Glaeser, the Fred and Eleanor Glimp Professor of Economics at Harvard, said, in their recent sample, 11.9% of U.S. men aged 25-55 have been jobless for over 12 months.
EDIT: quick googling, 11.9% of U.S. men aged 25-55 is about 7.5 million people.
But problems 1 and 2 are the same for the official unemployment metric in times past as well.
1. If the person has stopped looking for a job, their likelihood of resuming their job-seeking is pretty low. That's especially true for the unusually large aging baby-boomer population who are taking an early retirement rather than seeking re-employment.
2. While that's clearly another indicator of the strength of the job market, it is hard to argue that no job is better than a job which isn't ideal for skill/pay reasons. If you have a suggestion on how to accurately measure this that'd be great.
Who knew that a single number was insufficient to measure something as complex as employment? Yeah, we need to look at the larger picture, but it's hard to say we have exceptionally low unemployment AND that this is a good time for a stimulus.
But problems 1 and 2 are the same for the official unemployment metric in times past as well.
Absolutely. Don't get me wrong... I'm not arguing for or against any specific policy in the post above, or making any particular claim regarding Bernanke's argument. I just wanted to point out that saying "we're at full employment" is at least a little bit questionable as an assertion, at least if we take "full employment" to represent a situation where lack of available labor represents a threat to the economy, vis-a-vis other policy issues.
Maybe I'm just picking nits with this observation, but that jumped out me for some reason, when I was reading the article.
But "full employment" is widely considered to be a sub 5.0% unemployment rate.
> at least if we take "full employment" to represent a situation where lack of available labor represents a threat to the economy, vis-a-vis other policy issues.
I believe that there are officially fewer unemployed people than there are open jobs in the US [1]. Not sure if that's the kind of "threat" you're looking for, but it qualifies, as a risk at least.
I'm not sure that's actually true. Yes, the govt. reported "official" unemployment number is 3.8% or whatever. BUT...
Upvoted your post.
You are correct to be skeptical here. In fact there are even people at the Fed who don't agree with the assertion. Current President of the Minneapolis Fed has publicly stated that Labor Force Participation Rate would be a better measure. As I'm sure you can imagine, that isn't a popular view w/i certain circles.
While Ben may truly believe what he's saying, I mostly get the sense that he's trying to burnish his 'legacy'.
Also don’t forget that a huge percentage of the job growth has been in the tenuousness of the “gig economy,” famous for its workers committing suicide in public as a desperate appeal for acknowledgement of their hardship.
The BLS compiles six unemployment numbers, of which U-3 is routinely reported. U-6 covers the factors you mention and is approximately double U-3.
https://www.bls.gov/news.release/empsit.t15.htm
Do you know how the government might acquire the data you're looking for? #3 is easy, #1 and #2 seem more in the domain of private surveyors that are more like pollsters and taking voluntary data sets to proxy the big picture. That has its own problems, of course.
There is already data collected on at least (2) and(3) of those points, although I can't tell you all of the details from memory, as far as who collects it, how it's collected, the frequency, etc. But I can clearly recall reading recent (and less recent) articles on economic issues that cited data reflecting underemployment, and wage growth.
There's a lot of interesting information here[1] regarding what employment related data is collected and reported by the BLS.
Which have been dusted off again now that a Republican is in office.
> Those numbers by definition don't include job-seekers who have left the market and quit being job-seekers. IOW, people who became so despondent that they gave up.
There's a large pool of people who gave up searching for jobs, and that happened under Obama. It was years of feeling helpless that swung so many Democrats in the rust belt to vote for Trump. Obama's policies greatly benefited coastal areas, DC was a boom town the entire time for instance, while simply ignoring large swaths of the country.
2020: policies put in place under this administration will come home to roost during the next administration, which will get the blame.
This lag between economic policy and outcomes is a big reason the US has such a disingenuous public debate. Getting what you can in the short term, while being deceptive about long term effects, has become a good strategy. [1]
[1] https://mobile.nytimes.com/2017/12/18/opinion/republicans-ta...
“The essence of this strategy is to take tax policy out of the hands of experts and entrust it to activists. These campaigns do not usually have much credibility with card-carrying economists. ”
> “The essence of this strategy is to take tax policy out of the hands of experts and entrust it to activists. These campaigns do not usually have much credibility with card-carrying economists. ”
When it comes to economics and religion, the "experts" and activists tend to be one and the same and neither seems to be credible.
One of our the "greatest experts" predicted eternal collapse of the markets after trump's election
"If the question is when markets will recover, a first-pass answer is never."
and an endless global recession.
"So we are very probably looking at a global recession, with no end in sight."
> This lag between economic policy and outcomes is a big reason the US has such a disingenuous public debate.
Economic policy doesn't cause recessions. The business cycle and the FED raising and lowering interests cause recessions. No matter the economic policies, there will always be a recession. I believe it was jamie dimon who said we usually get one every 8 to 10 years.
No, there are actually experts that we should rely on. Of course no economist is a perfect predicter- predicting the future is hard.
Tom Nichols’ book The Death of Expertise is relevant here.
——
As for your specific points:
- Paul Krugman, on his major predictions, has been incredibly prescient. He was talking about media bothsidesism, a major reason for this political moment, in 1999. He said America was being lied into war in Iraq in 2002. He predicted the effects of stimulus in America and Europe. The guy is a genius and so he becomes a target for his political enemies. (Re the stock prediction: he withdrew this in a few days. It was a minor prediction. The predictions above were long term predictions.)
The issue is that conservative economics has been captured by the conservative propaganda machine which amplifies minor corrected predictions like this while ignoring the huge long term mistake that the right’s “economists” made about inflation in response to stimulus.
- The business cycle causes recessions, yes. Not sure what you mean by economic policy. But both monetary and fiscal (tax) policy has big effects on entry and exit from recession. And also public debt affects provision of public policies like the social safety net.
Pensions are fine if employers accurately discount present wages for the expected payment of future wages, and accurately forecast future population growth to maintain a good ratio of workers to retirees.
Some governments seem to be quite bad at this though. States differ in pension liabilities and I haven't looked at the federal level.
It isn't that governments are bad at it, its that they have incentives to fuck it up. It's much easier politically to give the union what it wants and let it be some mess someone cleans up in 20 or 40 years.
Only if the electorate is intelligent / educated enough to call bullshit do they temper their bullshitery.
The electorate prefers to be distracted by Buzz Aldrin's facial ticks, Pence's water bottle, and a fake Meliana blow up doll instead of having a serious discussion about the consequences of policy today, let alone 20 years from now.
(Just three recent examples of the nonsense of the day. Yesterday or tomorrow, different nonsense, but always nonsense over serious discussion.)
Probably some governments are bad at it because knowing what will happen in the future, which you need to in order to keep a defined benefit plan solvent, is impossible. Other governments/employers were luckier.
Of course they are more of a problem, just like a mortgage is more risky than saving up to buy a house with cash upfront — pensions create a long term liability in a way that putting cash in employee 401k doesn’t. Even more importantly, with pensions you’re taking a mortgage that is deferred for a few decades, and someone else than you will be responsible for paying it off — by the time the pension benefits come to mature, people who made the deal are long gone, and won’t take any responsibility. It gives them an incentive to make a bad deal to make pensioners happy now, and let someone else deal with the problem of funding them later on.
...pensions create a long term liability in a way that putting cash in employee 401k doesn’t.
Assuming we don’t want to live in a society in which vast numbers of elderly live in penury this isn’t true. It’s well known that when retirement savings are the responsibility of the emoloyee then they don’t save enough.
What you say about bad governance is certainly true and incompetent or badly incentivized leadership will exacerbate problems. I don’t know what the solution is for the U.S. but the current system is going to make us end up with a society with large numbers of destitute elderly. Shifting the onus to the employee via 401Ks is just kicking the can down the road so to speak. It also allows politicians and voters off the hook because the liabilities aren’t on the books. On paper it looks good but the reckoning will occur.
Not to mention shifting responsibility on the management side from professionals to citizens.
(There are a lot of arguments to be quibbled over here, but when the average American can't calculate interest I'm not going to point to them as the best steward of their retirement)
I'd disagree. Fully funded would probably look more like 300% of what is expected. People are living longer. If healthcare is included in the pension, it is a variable cost we can't even measure in terms of future cost.
Additionally, pension have to be managed and administrated. This is pure wasted money. Every pensioner would be better off taking the money that is set aside for their part of the pool and putting it in a Vanguard index fund. When you start to withdraw, you know how much you have left and you haven't paid tons of kickbacks along the way. When there is a recession, you can scale back your withdraws until there is a recovery, etc.
Fixed benefit pensions can never be anything but a pyramid scheme. Otherwise, your pension would be more by doing what I state above because the administration is near zero. The pension funds have never done better than the S&P over any reasonable time window. Pensions will always have unnecessary overhead.
Pensions actually provide a massive benifit in that they don't provide dead people money. You can say I will be fine if I run out of money at age X, but when you start talking about 100 million people you get a large number that make it past that.
Also, fully funded is only fully funded when it can survive the company going bankrupt tomorrow. People like to redefine it as liability less than X, but that just means underfunded.
Granted, if you have kids you might want the leftovers from your retirement to go to them, but that's not a social problem. Further becase pensions take less money so a subset can always just buy life insurance.
PS: The biggest issue is benifits not including inflation, but again that's a policy issue.
This is nonsense. Pensions should be and used to be funded when they were set up. The issue is that greedy, irresponsible politicians (many of whom claim to be conservatives) plundered them like piggy banks.
> Pensions are not inherently a problem any more than any other form of retirement account is.
Sure it is. It's inherently problematic because it assumes perpetual growth of population and economy. Also, there is a difference between pensions and 401ks and IRAs. 401ks/IRAs will run out. Pensions can never run out. In other words, you can outlive your 401ks/IRAs, but you can't outlive your pension.
Or put it simply, with 401k/IRAs, you can't take out more than you put in. With pensions, you can if you live long enough. So who makes up the difference? The workers or taxpayers.
Not if they are fully funded. But the issue is that most pensions systems are woefully underfunded, thus, are a huge risk.
If pension payouts floated as a percentage of overall asset value, then they would a great retirement strategy. But promising people a guaranteed (generous) fixed-income is not sustainable in the long-term.
The only reason pensions are underfunded is that they were plundered. Hold the politicians that broke them responsible, not the workers who earned their benefits.
" 2020: policies put in place under this administration will come home to roost during the next administration, which will get the blame."
That has often been the case. Bush suffered through Clinton's internet bubble. then Obama suffered through Bush's real estate bubble. Trump now benefits from Obama's policies. We'll see what happens after Trump.
It's incredible that nobody in this discussion mentions the massive fraud and incompetence on the part of Wall Street banks, and the deregulation and lack of oversight that allowed it.
I really regret making my comment. It was about presidents getting credit and blame for the consequences of whatever happened before they were in office. It just shows that people are not capable of discussing things without immediately going into their partisan positions.
It’s a sign of how bad things are in the U.S. State something obvious, like you did, that jives with someone’s attachement to a political party and you get irrational responses. The polarization is palpable. People don’t seem to rationally discuss policy. It’s about defending/justifying political parties. It’s the party that matters.
And the democrats fought tooth and nail to prevent corrections for that decade because those policies, in the short term, appeared to help their constituents. They wanted to get lots of new homeowners homes, but those homeowners often found they couldn't afford the mortgages in the long run, which is exactly why the banks hadn't been making those loans prior to government meddling. Those mortgage problems were, naturally, exacerbated by the fact that lots of additional demand drove up home prices.
For the exact same story, see the ongoing student loan debacle.
That’s not the story I heard from the finance people who were setting up the securitization.
I agree with your broader point: government policy is complex, we need a regulated market system because completely free markets don’t work, so we need a high skilled government that tries hard to get things right — and a legislative system that cares about the government functioning well.
Exactly. Unfortunately Americans have been trained to believe that one party is right and the other is wrong. The concept that maybe both are wrong or support the same thing is foreign to them.
Same with surveillance: It's either Bush's fault or Obama's fault. They don't see the steady progression over the years independently of who is in power.
It’s sort of the divide and conquer strategy. Pit groups against each other whilst the looting occurs. While people fight over who is the true snowflake and that kind of stuff all sorts of shitty policies get enacted. Things didn’t just suddenly get unbearable because <person of opposite party> just got elected. If one thinks this then the problem was already there and one's lack of awareness of it is the real problem.
It's also convenient for maintaining a grip on power and something I'm certain both parties have internally considered. Think about the most recent election. How many people voted for Hillary thinking, "I think this person truly and accurately represents my views and beliefs." And similarly for Trump? By contrast how many voted for one or the other thinking, "This person is trash... but, my god, the alternative is just completely unacceptable!"
The same sort of attitude ensures that third parties will never be considered. When people are driven to literally fear the 'opposition' winning, it means that the powers that be have effectively sealed their grip on power tight. Also even notice the media's focus on "electability." It's all rhetoric designed to get people to note vote for the candidate they want in power, but to 'strategically vote' and in the process completely undermine their own self interest.
Pair this with some institutional issues like ballot access and we have a system where the establishment has all but guaranteed their perpetual success.
This Chomsky vote comes to mind: “The smart way to keep people passive and obedient is to strictly limit the spectrum of acceptable opinion, but allow very lively debate within that spectrum....” .
Since we're discussing nothing short of the US government acting as an enemy to the citizens it is supposed to serve, I would suppose the next few prudent questions are:
1) What is the entity deploying this divide and conquer strategy?
2) Is this entity monolithic? Cellular? Organized or random?
3) What does this entity stand to gain and is it good for all?
Since we're discussing nothing short of the US government acting as an enemy to the citizens it is supposed to serve....
Your premise is incorrect. The "sort of" part of my statement is important. There are lots of forces at play that cause this. I see it as sort of an emergent phenomenon and not the design of some clever genius or powerful organization.
I didn’t make any self referential call out to authority. I provided no authority whatsoever. I posited beliefs and spoke in such terms. I just stated how I see things. As I said, I believe the problems are emergent phenomena. Of course I could be wrong. It could be an organized effort as you say. It seems reasonable that it would become organized even if the origin isn’t.
I'm hesitant to give Obama credit, but I think Trump claiming that the unemployment rate was 30, 40, 50% during the election and immediately taking credit for the unemployment numbers in january 2017 was so disingenuous that it truly boggles the mind. Anyone that gives Trump credit for the current trajectory of unemployment numbers is beyond the pale.
Giving Obama credit to me is at the very least questionable - things were at rock bottom, they could almost only go up (and I supported Obama). There are so few absolutes to hold on to in terms of economic indicators for the layperson, but its hard to see how the Obama years were an economic catastrophe, and unfortunately we'll never know what the effect of a larger stimulus might have been (or no stimulus for that matter).
This is inaccurate. People who are neither employed nor unemployed are not considered part of the labor force. For instance this would include retired persons, students, people taking care of children or other family members, and those who have no desire at all to work. Here [1] is a brief on the reasons people are not counted.
Source? People tend to put much more thoughtful words in his mouth after the fact trying to make what he says seem more reasonable, but if you have a source I'd gladly review it.
In the meantime, politifact has a good breakdown of what he says about the issue and where the numbers come from (spoiler, they make some wild assumptions) [1].
The neat thing about macro scale dynamics (e.g. economics) is you can always choose to blame the current or previous powers, depending on which provides support for your political preferences.
While I think Obama's economic policies were total crap, at least he had a partially-supported justification for his deficits. Trump has no excuse for his deficits, and his neo-Smoot-Hawley "reforms" are going to put us back in the same place that Smoot-Hawley did. He's reckless and out of control.
It's startling what the growth on my 401k has done since November 2016. Essentially flat for years before, then immediately jumping, once the election results were in. Q1 2018 was a bit sluggish, but it's back on that tragectory again.
Even outside the market, people are hiring again, companies are making investments, it's a hell of a turn around.
> then immediately jumping, once the election results were in.
So your long-term retirement investment fund which should span over 20+ years increased somewhat drastically over a small percentage of it's perceived lifetime. Why is that superbly beneficial for long term fund performance?
> Even outside the market, people are hiring again
The stock market has being going sup since 2009 or so. Sometimes a little faster, sometimes a little slower. Look at a logarithmic chart and you will see that trend from 2009 to now. Same for unemployment. The rate has steadily gone down from 2010 on. There was no turn around in 2016.
You must be a terrible investor then, the DOW under Obama went from ~7,000 to 18,000, unemployment fell from 10% to 5%, nearly 20 million gained healthcare under the ACA, and the economy gained 11.6 million jobs. Obama's numbers blow Trump's away.
During Clinton's time there was a huge run-up in the stock market fueled b a lot of internet companies. Clinton got all the credit for the growth during that time and then Bush suffered through the predictable collapse.
Luckily for us, Clinton moved the budget toward balance during a good economy. So when the bubble burst, Bush was able to stimulate the economy and cut taxes.
The current tax cut increases the national debt during a good economy. So this irresponsibility limits America’s options when this bubble (if it exists) bursts.
The current tax cuts are a trivial part of the deficit problem (to note, I'm against the personal income tax cuts they passed). The US deficit was going to $1 trillion regardless of the tax cuts. The forecast for a deficit explosion due to entitlement costs, long predates the Trump tax cuts.
Half of those cuts reset. The primary item in the other half, the corporate income tax cuts, were a necessity to compete with the rest of the planet that has a more typical ~20% rate (including Europe, which has the lowest corporate income tax rates of any region).
The deficit is going to $1 trillion, the tax cuts are an average $50-$75 billion per year of that problem over the next ten years.
The tax cut is meaningless in that picture. It'll add at worst a trillion to the $30 trillion pile of public debt that will exist in 8-10 more years.
It's a $3 trillion tax cut over 10 years. They get to $1B by finding an "offset" of $2 billion, which assumes a very optimistic growth estimate, which there was political push to develop. In particular, that offset assumes there is no bubble to pop.
Good luck to the US. The yearly budget is $3.8T. Of that, only $1B is discretionary. $3T of tax cuts is three years of the entire discretionary budget. The cut is huge. And that cut wasn't Keynesian stimulus - it came during a good economy. Good luck to the US.
Could you provide some factual basis for this? For example, my understanding is that the corporate tax burden in the US was lower than other advance economies; one particular tax, which few paid in full due to loopholes, etc, was higher.
He was making it sound like the bubble was caused by specific Clinton era policies. I'm pretty sure the dot com bubble was largely just a speculative bubble.
> During Clinton's time there was a huge run-up in the stock market fueled b a lot of internet companies.
I'm not sure the dot-com boom and bust affected the rest of the economy nearly as much as it affected our industry. If there was a recession, it was the smallest in decades:
The recession happened just before Bush's election (officially starting in March 2000). The .com bust had a huge impact on the tech sector, but the Enron & Worldcom scandals hit the rest of the economy hard.
It was a modest recession, but it wiped out a huge amount of wealth held by "main street" investors. It was bad enough that Bush, a very, very pro-business president, signed into law the Sarbanes-Oxley Act, which is widely criticized as an onerous and needless regulation by conservatives.
During the second half of the Clinton Admin, there was an extreme stock market bubble, which began to crash at the end of his second term.
Bush inherited a guaranteed recession, and then 9/11 occurred on top of that context.
Which then led the Fed to make stupid mistakes on interest rates, which helped spur immense asset inflation in the real estate sector, which then collapsed, which led to the great recession, which got Obama elected with a Dem super majority to go with it, which delivered the ACA.
Then the Fed lowered interest rates to basically zero, or below zero when QE is considered, for the better part of a decade to combat the great recession, which spurred / enabled extreme corporate debt binging, extreme government debt binging, and re-inflated both the stock market and real estate asset bubbles. The debasement of the dollar due to the Fed's abusive interest rate policies during the ~2001-2004 period also dramatically spiked both healthcare costs and college costs, while eroding US purchasing power and the US standard of living (represented by the simultaneous global skyrocketing of GDP in all other nations, as well as being represented in the epic commodity bubble (commodities are mostly priced in dollars)).
Now we're waiting for the fallout from another round of idiotic Fed policies.
All in the name of initially trying to avoid or skate around a rather mild recession in the GW Bush first term - because no politician can tolerate a recession these days - the assholes at the Fed delivered more than a decade of immense suffering with more to come.
The part about 2001-2004 is pretty hard to believe. Inflation was maybe high and I do think some housing debt came from that but there is absolutely no way all the effect you claim can be explained by the monetary policy of that time.
However in 2008-2009 the Fed policy was actually extremely tight. The recession of 2008 can not be explained by the monetary policy of 2001-2006. It simply does not add up. And even people who argue for the Austrian Theory (i.e. unsustainable investment boom in long term investments).
If monetary policy was to easy, then there is simply no way to explain nominal income. How can you explain this with 'Fed was to easy':
The people who developed the Austrian cycle theory actually called this 'secondary deflation'. A static central bank policy can be inflationary or deflationary depending on the outside of the economy. Or more technically the stance on monetary policy depends on the Fed target rate relative to the natural rate.
What happened in 2008 is that the natural rate fell bellow the Fed rate and Fed policy became deflationary. They did not notice this because they observed false signals from high oil prices, you can read that in the documents from their late 2008 meeting. In the middle of a NGDP collapse they were talking about high inflation expectation, pretty insane.
The story of successive Fed created bubbles simply does not hold up.
100% agree, I'd put the blame on the Fed before Trump, Obama, Bush, or Clinton. If I had to choose it would be Bush for being president when TARP was passed but really the blame there falls on the Congress.
The fact that the US has enjoyed a economic boom post 2008, while the rest of the world struggled for several more years (especially Europe), can be considered evidence that it was the correct action to take at the time. The current expansion is the second longest in modern history.
For who will get the blame: Trump will get all the blame for when the stock market goes down and Obama will get all of the credit when it goes up. Look at this Februarys headlines for evidence of that
Ben Bernanke’s point in his recent memoir is that central banks can only do so much.
At the end of the day, monetary policy is not social change, moral evolution, or political coalition building. These things happen outside the Central Banking system and are just as important for a functioning economy.
I know this sounds controversial, but at this point quite frankly the deficit does not matter. There is so much debt in the world, we are likely heading towards a global debt write-off.
It doesn’t help that China has essentially been spewing entirely fictitious accounting numbers for the last 20 years. It’s not even about padding an extra 10-15% anymore. There are journal articles out there claiming that Alibaba, a company as big as Oracle, is making up whole cloth 95% of it’s accounting statements. Ridiculous...
> Ben Bernanke’s point in his recent memoir is that central banks can only do so much.
Yeah and he is totally wrong in that. His own writing before the recession argued for that to be false.
Once in power of the central bank many other people were involved and they were not willing (in the beginning to use those tools). Eventually they figured it out but by that point it was way to late.
The problem was that people were so obsessed with inflation that the central bank flat out refused to go above 2% and that would clearly have been needed from a monetary perspective.
This was a clearly a flat out instiutional failure from the Fed and Bernanke tried his best in his book to shovel that under the table.
We know this because the meeting are public, they were debating about fear of to much inflation in late 2008 when all economic indicated were pointing to a major collapse.
> At the end of the day, monetary policy is not social change, moral evolution, or political coalition building. These things happen outside the Central Banking system and are just as important for a functioning economy.
But those things did not cause the economy to collapse. The economy collapsed because of a massive demand shortfall with NGDP going almost 9% below trend.
> I know this sounds controversial, but at this point quite frankly the deficit does not matter. There is so much debt in the world, we are likely heading towards a global debt write-off.
Easy to say. But the fact is that those things almost never happen and the only cases where it did was after major wars.
> It doesn’t help that China has essentially been spewing entirely fictitious accounting numbers for the last 20 years.
Whatever they claim go to China and see the growth.
> It doesn’t help that China has essentially been spewing entirely fictitious accounting numbers for the last 20 years. It’s not even about padding an extra 10-15% anymore. There are journal articles out there claiming that Alibaba, a company as big as Oracle, is making up whole cloth 95% of it’s accounting statements. Ridiculous...
That can't be any good. The very foundation of modern nations is built on good accounting purposes. In fact, I read a book about how double entry accounting was one of the fundamental reasons for the growth of the British and later the American empire.
And yes while the deficit doesn't matter, good accounting absolutely does. Fudge those numbers and people lose trust in the system. That's how you create economic panics...
Well... the low interest rates mean that we can borrow large amounts and be able to afford the interest payments. "Large amounts", as in, more than we can comfortably pay back the principle on. But we're doing OK because the rates are low.
One day the rates will (probably) rise. At that point, it will be more painful even to pay the interest.
Writing off sovereign debt always comes with strings attached for the creditors - the terms will by definition be anti-democratic and could be incredibly dangerous. An improvement in global inequality is not a likely outcome.
I've heard that its more likely we will see massive inflation ramp up. And since the debts are all fixed interest rates at the time of borrowing, they will be inflated away to nothing, not "written off".
No one believes any of the economic numbers coming out of China. There is a whole art and science in trying to find and figure out the real Chinese GDP and GDP growth numbers.
I have a question about the federal funds rate that I haven't ever had a good explanation for. It is: To what extent is the fed funds rate set to match market demand, and to what extent is it controlled completely independently of market demands? If anyone has a good answer, I would appreciate it a lot.
To flesh out my question a little further, let's say that the fed decides one day to change the fed funds rate from 1.75% to 2%. They put the bonds up for auction and find out that they were only able to auction off the allotment of bonds at an effective rate of 1.8%. Is this typical? Or is it usually the case that the bond buyers will quickly hoover up whatever rate they are given?
Maybe a more formal way to put it- is the elasticity of demand for these bonds low enough for the fed to have complete control over the fed funds rate such that they can set any interest rate they desire?
I don't think the Fed Fund Rate is controlled by bonds, but by money supply. They remove dollars from circulation until the borrowing rate rises to a pre-defined rate (such as 2%).
Banks don't typically borrow from the Fed as it's viewed as a sign of being unable to borrow from another bank. It's part of the reason the Big Banks were forced by the Fed to ask for a loan during the 2008 crisis, so smaller banks could ask for loans without looking weak.
"[..] the central bank (that is, the government) can always set bond yields at whatever level it chooses including zero."
A different question is if institutional arrangements will allow it. But even when they not, if the crisis is big enough they will. See the example of the debt crisis in the Eurozone. It finished the day that governor of the European Central Bank decided to do "whatever it takes" (1), even if the operations that they are doing are technically illegal in the framework of the Eurozone.
I'm sure "economists" generally as a field can not accurately predict recessions, however certain individuals have used sound logic to predict certain downturns in the past. There is a general logic to the market, the debt cycle for instance, the natural hot/cold phases the USA and the world in general go through. So, while your comment is witty and I agree generally, I also think there is a possibility of a major downturn in the near future.
I don’t think so. He’s basically saying there is always somebody saying the economy will collapse and there are always people saying the economy is going to be stronger than ever.
Yes, in 2008 he didn't see the problems right in his face. He was supposed to be a great scholar of the Great Depression but seemed to have learned nothing from it. Maybe he has learned from his own crisis...
It’s quite an old trick in the book for any administration, whichever color it has, to try to push the can down the road until it gets re-elected. After that, it’s buyer beware.
Something to consider is that in times like these money are flowing in the wrong direction, instead of going from developed countries (US, EU, JP) to developing countries with better return rates (Emerging markets) it is the other way around, going into developed countries estates, bonds and stocks even with low returns which look already overvalued. That would normally read that there is way more liquidity than actual growth and the valuations are not accurate.
The Fed has been used as a stop gap to fix incompetent/malicious policies driven by political actors. The reality is that central banks can only do so much, and Congress and others are leading the nation off a cliff to pursue short term political goals.
Beating the other team in the short term is seen as more important than the long term health of the nation. You can see this play out in the tax cut, deficit spending and many other examples.
> Who cares if the world explodes in 6 years? I need to be reelected in 2.
This is just another reminder to always have emergency funds in your bank account, not tied into the markets. Allows you to weather the storm, until things correct themselves.
The poster's sentiment is correct is saying that it's a good idea to have low-risk resources available as a safety net. However I'd say having physical things like items you know you'll need in the future, or food storage, would be more valuable than having cash. Inflation wouldn't hurt the value of a computer or food you already own. In the other hand, I would imagine investing in gold would be a good idea as well.
Depression, you'll want gold and barterable goods.
Economic collapse or apocalypse, you'll want food, medicine, and alcohol (possibly the most barterable good, also delicious).
In any case anybody reading this in a major city faces non zero likelihood of disaster (take your pick for your city, hurricane, earthquake, tornado, terrorist attack, war) and should be stockpiling 3 liters of water per person in the house per day you want to be able to survive on your own, alongside 2k calories of food, trash bags, etc. I say have a stocked liquor cabinet as well because my experience in Backcountry many week hikes has taught me you can get nearly anything in return for good liquor :)
I've also heard strong arguments for the stockpiling of pornography and certain chemicals that are valuable in tbe production of medicine or just used as general reagents, don't know too much about chemical stockpiling though.
Careful for the prepper rabbit hole, it runs so very deep ;)
Yeah, there's a very deep end it's possible to go off.
However after this winter's experience where two feet of snow ran the supermarkets out of fresh food, I'm going to keep slightly more food and folding money on hand.
But remember these are long-term processes. Ultimately your connections and community will become important in economic collapses, because they're usually very slow-motion.
Regarding that, I highly recommend "a Paradise in hell."
It analyzes the citizen responses to several catastrophic disasters. Turns out, people don't turn into ravaging wolves in a disaster, they immediately begin to help their neighbor, with no regard to race color Creed etc. It's when the national guard comes in that issues start arising...
First I've heard or thought about stockpiling chemicals for the apocalypse! What an interesting thing to theorycraft about. Here's a few ideas:
Potassium permanganate - A swiss army knife of a chemical. It can be used to clean certain contaminants from water, clean wounds, start fires, and it's cheap as dirt.
Aqua Regia - A mixture of muriatic acid and nitric acid. I can imagine this being useful to smuggle gold through bandit warlord checkpoints. George de Hevesy dissolved a nobel prize medal to hide it from nazis. Acids in general are useful.
Sulfur - Depending on your location, this is the hardest component to obtain for making gunpowder. The other components can be made from pee and cooked wood.
That's all I can think of off the top of my head. Note: I am neither a chemist nor a prepper.
Gold is worthless for buying stuff. My dad holds this view that people should keep a bunch of gold on hand for disasters. He was right that disaster would strike (massive snow storm), but he was wrong about the gold. Turns out, when credit card machines are inoperable, grocery stores won't take gold, just cash.
Tuck away a few hundred bucks in small bills. It will be more valuable than a chest full of gold when you really need it. It suuuuuuuucks to be caught without physical cash in an emergency.
I can't agree with your opinion or your father's anecdote. Throughout all of history, gold has held intrinsic value in all kinds of civilizations, and is still one of the most valuable elements that's widely traded. If you can't buy groceries with a block of gold (assuming you're not just shredding off dust to pay them), then the seller clearly doesn't understand the value. On the contrary, paper dollars are intrinsically useless, especially since we left the Gold Standard, which links the value of paper dollars to the value of gold.
Being prepared is not an exercise in mutual exclusivity. You prepare for inflation by owning non-cash assets. You prepare for a rapid drop in the value of stocks and real estate by having cash.
When I read articles like this I wish I had a better grounding in economics, I guess specifically macroeconomics? Is there a well-known, digestible textbook?
^ Not this one. Mankiw is already ideological enough, Sowell and Hazlitt should be stayed far away from. The real answer to the above commenter is that you can't, not really. You can put a lot of work into understanding Mankiw and then you go to econ grad school and learn all the caveats and how much of it is basically wrong. Economists themselves barely understand the economy and they spent years and decades getting to 'barely.' A layman is basically incapable.
In that sense maybe I'm wrong and maybe Sowell is the good choice, just decide your ideological viewpoint on the economy now, read enough to defend your viewpoints to other laymen and let that be that.
While this particular prediction didn't (yet) come true, Krugman is at least one of the few name-brand economists who will admit when he is wrong. He's also got a Nobel in the field, so to write off his textbook as unreadable for a failed prediction seems like a little much.
"The Mind and the Market: Capitalism in Western Thought" by Jerry Z. Muller is one of my favorites for history. "The Growth of Economic Thought" by Henry Spiegel is also good.
"Money Mischief" by Milton Friedman is a good short one monetary policy.
"Fault Lines" is a solid book by Raghuram Rajan.
Those will get your more interested than reading raw economic textbooks, imo.
From the cited text:
"The question is considered why the economics profession has failed over most of the past century to make any progress concerning knowledge of the monetary system, and why it instead moved ever further away from the truth as already recognised by the credit creation theory well over a century ago. The role of conflicts of interest and interested parties in shaping the current bank-free academic consensus is discussed."
I was in attendance and it is worth noting that Bernanke did not take any questions from the audience (apparently unexpected by some of the staffers) and that he did not remain for any of the (illuminating in my opinion) panel discussion that followed.
Suggest that people pay attention to the remarks of Mr. Warsh, who in my opinion actually should have gotten the nod to be Fed Chair -- though I understand completely why that would have been untenable for many.
Last thing I'll add: some of what is said openly during Congressional testimonies, these fora, and the like is knowingly contradicted in private conversations.
It’s a fascinating time in the markets. You’ve got all these different forces pulling in different directions. Quantitative tightening, fear of trade war, tax cuts, continuing buybacks, lots of accumulated debt, the rise of high-frequency traders and their tendency to remove liquidity at the hint of any change in fundamentals, strong earnings, low employment, high asset prices. It doesn’t surprise me that ^SPX is swinging between 2600 and 2800 with all of these conflicting signals.
The language here is interesting. "Wile E Coyote moment" in the abstract looks and feels like a bubble, but he doesn't use the term bubble.
So a sharp correction? But isn't that what a bubble does? Why not just say we're in bubble fueled by artificial growth caused by numerous government subsidies.
Consider, e.g., real estate prices in a relatively stable area after that area is plunged into a long-running war. Prices will sharply correct, but talking about a "peace bubble" is a bit disingenuous.
Well before that a "market correction" was imminent from about 2013 to mid-to-late 2017 at least, so who knows what'll really happen. But valuations do seem high across the board and we're pretty late in the business cycle, so it seems like we should at least expect lower returns for the foreseeable future.
It only diminishes debt if your ability to service that debt outstrips the rate of inflation. If your ability to service debt does not grow in line with inflation, you are in no better state.
It's primary purpose is as a unit of account, i.e., to quantify the value of an asset. It's the assets themselves that are the long-term store of wealth.
In basic terms, inflation is the loss of purchasing power due to an increase of the monetary supply faster than economic growth. In plain English, this is where more currency is chasing the same number of goods and services.
This means your unit of currency buys less over time. What is 'wrong' with this is that inflation is a transfer of wealth—some people even go so far as calling it theft or a 'stealth tax.'
This is because the purchasing power that you had in your unit of currency isn't 'lost', it is actually transferred to the institutions creating the money. If you had $1 worth of pennies in your pocket, and inflation was 1%, it is like an invisible hand reaching into your pocket and stealing a penny. Do that a hundred times and you can 'create' $1, but by the time this is done, you will find that your $1 can only by 99 cents worth of goods and services now. In a fiat based, fractional reserve system that we have today in the West, the institutions that are reaching into your pocket (AKA creating money) are central banks and commercial banks.
For example, say the Fed (the central bank for the US) creates an initial $10m of reserve currency, this is then used by commercial banks to 'create' an additional $90m through loans from that $10m reserve. It is therefore commercial banks, not central banks, that predominantly create currency in society—and depending on growth and circulation (economists call this velocity) in the real economy, creates inflation. You see if the creation and circulation of money was perfectly in line with the growth of the economy than there would be no inflation. The real problem is that the growth in monetary supply has far outstripped the growth of Western economies. Indeed there is a compounding effect of inflation.
But yeah, I can understand that this material may seem unbelievable... I have included a URL to a YouTube video where a Bank of England (the central bank of the UK) representative actually says in no uncertain terms that commercial banks create most of the money in the economy.
The important passages are:
"...banks create additional broad money whenever they make a loan"
"Now, while this is nothing new, it's sometimes overlooked as the main way in which money is created and it runs contrary to the view sometimes put forward that banks can only lend out deposits that they already have."
"In fact, loans create deposits, not the other way around."
> if the creation and circulation of money was perfectly in line with the growth of the economy than there would be no inflation.
While this is technically true (at least for some interpretations of "inflation"), it's important to realize that the wealth transfer effect you describe still occurs in this case. The only way it would not occur is if the newly created money was distributed exactly in accordance with the current allocation of money: in other words, if the economy grows by 1 percent, every current holder of a dollar gets a penny. But of course that's not how money creation is actually done.
Yeah I wish this was taught in public school. Also I think that part of the problem is that concepts like 'wealth', 'purchasing power' or 'the time value of money' aren't discussed at all until first year University courses in Finance.
I wish more people understood that most of the time wealth is transferred, not destroyed.
Well... you can be in the stock market for the next two years. During those two years (under normal circumstances), interest rates should be rising. Two years from now, when the stock market is at its peak, sell stocks and buy long duration bonds. Hold those while the stock market tanks and interest rates go down. (Bonds increase in price as the interest rate declines; the longer term the bond, the bigger the price change.)
All that's assuming that Bernanke is right both in direction and in timing. It also assumes that interest rates will do the usual thing this cycle which, given the strange stuff that the government is doing to intervene, may not be a good assumption.
Note well: I am not a financial advisor, and this is not investment advice.
I hate that statement. Because people who say it claim they were right based on it, when they were clearly wrong and just trying to excuse their failure.
Saying 'at some point in the future prices might be lower' without a time attached to it is an intellectually empty statement.
The thing to understand about shorting is that your losses have no upper bounds. You short a stock at $100 and it goes up to $1,000, you now OWE $900. Here's [0] a story of a guy going to bed with $30k in his ETrade and waking up to a $106k debt call.
This is one area where I think the US system shows the power of separation of concerns.
Trump would love lower interest rates but the Fed, tends to run itself without much political influence. These people are all "adults" and very accomplished and knowledgeable.
They set the FED rate and everyone else falls along. They have been actively raising rates, with more rate hikes expected in this year to cool inflation, and the economy by extension.
At the very least the US will have some wiggle room to lower rates when the economy slows down again.
> At the very least the US will have some wiggle room to lower rates when the economy slows down again.
While true, one of the lessons from 2008-9, and part of Bernanke's point, is that monetary policy alone can't always accomplish the task. If we use up all the extra fuel in the run-up to a rough patch, we risk not having enough to get us out of the rut ahead.
Go back to 2008 and look at their policy and meeting. The fact is that they were talking about HIGH INFLATION in the meeting in late 2008.
They did not lower interest rates to zero and had a policy of sterilization (selling bonds to buy troubled housing assets, instead of buying the troubled with new money).
The did not even deliberately end this policy, the market forced them because they were running out of T-Bonds. Later the called this 'QE1' but it was not really QE, it was them preserving a minim of T-Bonds (and that's their own account).
While they did go on to do QE1/QE2 they also payed interest on reserves to prevent that money from creating more inflation. And this was very deliberate policy, they explicitly said 'We are doing this to prevent the money from going out'.
The fact is that while nominal income collapsed in 2008 the Fed did nothing while the economy collapsed, like Nero in Rome.
How can you claim that a bank that can print infinite amounts of money could not do anything against this:
Friedman, Bernanke and many others have written about how the central bank could do much at the zero bound and other countries like Switzerland showed that this is true.
The Fed failed as a institutional because they didn't plan for 0% interest, not because its impossible to do anything.
The risk is that fiscal policy is pouring more fuel on the fire at the precise time when the economy typically starts slowing, further inflating asset bubbles and making the Fed's job (to avoid inflation and keep employment high) much potentially harder and making it more likely a misstep will happen.
Popping bubbles or slowing their formation is inherently a tricky proposition (just look at the run-up in stocks from early 2017 until now); move too aggressively and you risk sparking a liquidity crisis and plunging your economy directly into recession; move too slowly and you end up with an even larger bubble later on to deal with.
This is tricky in normal times, but doing so while the other wing of government is actively stimulating the economy makes it much harder to gauge the impact of monetary policy and withdraw Fed support in a prudent and measured way.