[OC] - US Yield Curve, mean yield curve spread, and percent of all yield curve combinations that are invertedShankThatSnitch t1_ixvf65s wrote
Reply to comment by jbrandon in [OC] - US Yield Curve, mean yield curve spread, and percent of all yield curve combinations that are inverted by MetricT
Well, the only real tool is the fed lowering the Fed rate. The fed could also start doing yield curve control, by buying up specific US treasuries, but this is not a real solution, and just kicks the can down the road. This is essentially what the Bank of Japan has been doing, and is arguably a large factor in why they have super slow economic growth for the past 10-20 years. The other major factor, is their population is getting very old.
The issue with lowering the Fed rate right now, is that they could reverse progress on trying to get inflation under control. The fed and Gov't WANT to cause a recession, because it is a sure fire way to kill inflation. And the reason they would do that, is because the longer and worse inflation carry on, the more devastating the resulting recession will be. So they want to get it out of the way, cause a bunch of bankruptcies and defaults in the short term to kill inflation now, rather than have utter catastrophe later on.
A recession also fixes the yield curve, because is washes out a ton of bad debt, which is a drag on economic growth. Once a bunch of bad debt is cleared away, a new growth/debt cycle can start, and the curve will naturally return to a normalized curve.
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You should watch this video by Ray Dalio, which breaks down the debt cycles in a very simple way, they makes it much easier to understand the big picture of all this stuff.
jbrandon t1_ixvfr51 wrote
Thank you. So the Fed rate is really the only tool the government has? I’m not a civics expert but aren’t there any other options that the executive branch can wield without needing to pass legislation?
ShankThatSnitch t1_ixvid3h wrote
Well, the Fed is not exactly part of the Gov't. In theory it is separate, but in practice it is more connected. The president can do certain things through executive order, to try and spur economic growth, but there is no guarantee it will work, or for how long. The simple fact is that the way the global financial/monetary system works, basically guarantees cycles of growth, followed by recessions.
There are a few cycles. The 10 year cycle, which is the basic growth cycle, then there is a generational cycle, which is based on major population generations, and when they become earners or start retiring etc. because if causes certain spending habits to change on a large scale, like everyone in a specific generation starting to buy houses and have kids, which comes with a ton of economic activity. Then there is the long term debt cycle, which is more like 70-100 years, and involves bigger economic trends that also include sovereign debt, and the stability of nations as a whole.
There are things that can be done to delay the cycles to an extent, but you can't prevent them from happening, because it all ties into how money and debt works. Watch the video, and you will understand a lot more.
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