Why would people want deflation? Sure your dollars will be worth more but you’ll be out of work and the economy will be in shambles. People seem to hate the fed and its ability to print dollars until a liquidity crisis comes around. I will admit this fed is highly questionable for a few years now as it seems its primary motivation is boosting stock prices. If you’ve followed Powell from the beginning it’s hard to come up with another motivation he’s operating under. I think he won’t hint at a hike and then will leave his position before a hike is imminent as he doesn’t want to be blamed for a crash. It’s very concerning that the fed has basically become an extension of the White House and seemingly politically motivated.
> Why would people want deflation? Sure your dollars will be worth more but you’ll be out of work and the economy will be in shambles
The narrative is important on this.
When a recession happens, the message which is brought to the population is :
"Recession is bad, we must end the recession"
When inflation hits the message is (not that it's necessary given that people feel the diminishing purchasing power) : "Inflation is bad, we must end inflation".
Deflation has never been painted as the enemy by institutions, and I think rightfully so, because the population would struggle to see it as an enemy due to the fact that it's desirable at the individual level.
So crypto is the perfect enviornment for this. People make up their mind to buy crypto within close doors without thinking about macroeconomics...they only think about their dollars being worth more
> It’s very concerning that the fed has basically become an extension of the White House and seemingly politically motivated.
It has always been. Everybody wants to be popular and keep their job.
> because the population would struggle to see it [deflation] as an enemy due to the fact that it's desirable at the individual level.
Deflation can be ruinous at the individual level. If you are in debt (like many of the poorest members of our society) then significant deflation means that you'll have to pay back your creditors substantially more than you borrowed, and many won't be able to.
Consider, would you take a mortgage denominated in Bitcoin? Of course not! If its price continued to go up (i.e. it continued to be deflationary) then you wouldn't be able to pay back the loan and would face foreclosure.
> would you take a mortgage denominated in Bitcoin? Of course not! If its price continued to go up
Only so long as Bitcoin is pegged to the USD. Once Bitcoin becomes the basis of value, and the USD is pegged to Bitcoin instead, things become different. Bitcoin stabilizes. You take a loan in Bitcoin, you take a salary in Bitcoin. Bitcoin isn't going up anymore in this scenario because it's not related to fiat currency.
You're still thinking in terms of BTC going up in USD. 1 BTC = 1 BTC
I think BTC and crypto are already good ways to transfer value. I think it'll "stabalize" in time such that it'll be boring in terms of its volatility.
> It has always been. Everybody wants to be popular and keep their job.
That part is demonstrably false. The Fed has never been as dovish as it is now and at times has been extraordinarily hawkish and unkind to the equity markets- Paul Volker or Alan Greenspan, anyone?
The big difference to me is that there used to be this underlying assumption that if inflation went up, the fed must act, so people didn’t freak out because of a single hike. I also believe the fed operated in far greater silence, being “data-dependent” and not fully committing for years to a single policy. Because of that everyone wasn’t laser focused on the fed. These days it’s all anyone following the markets talks about. But because the markets are so keyed in on rates and every little thing Powell says, it just tells me the next crash won’t be caused by the fed but an externality which could be far more dangerous given how far the fed is willing to let this market run unchecked.
What I meant is that the Fed has always been political, just look at the mandate:
1) Price stability which is a way of saying keep inflation low. That's because the population was scarred by inflation in the past and wants institutions to protect against it.
2) Maximum employment: Is there anything more political than this? People were scarred by losing their jobs in the past and want institutions to protect against such thing.
If the Fed was harsh on equity markets before, then it solely means that in their perception it was the best way to be popular and keep their job.
Every human wants to be popular and keep their job, so that's the motive behind every choice, doesn't matter if you are the Fed chair or the POTUS or a McDonald's employee.
The only people who sort of have some freedom to sacrifice short term popularity in order to achive long term popularity are the ones which have their job as a guarantee: Dictators essentially...and only some of them.
