It's not a free lunch, it's called counter cyclical fiscal policy. Market failures can last a long time, hence Keynes' quip "in the long run we are all dead men." Better to try to put out a fire than to let the whole building burn down (it may spread, nothing may be spared).
Keynesian Theory works (make that maybe works) if we ever held the line in good times and then let the money printers fly in bad times. We don't and probably never will get our act together fiscally - and so will never find it if Keynesian Theory ever "holds water". Please don't say it does when it has never really been tried the complete way he espoused it to.
There’s a ton of documented evidence that counter cyclical fiscal policies work and help the economy. Ideally the fiscal balance is restored — but we aren’t discussing how efficient government is in balancing their budgets, we are discussing the merit of a counter cyclical fiscal strategy. Anyway, as Japan, the Eurozone, and now the US is finding out — the deflationary overhang is going to keep real rates suppressed. The dollar, in the long run, will outperform the yen and euro based upon the fact that the Fed has decided not to allow yields to go negative (though tips yields are). If the structural issues are addressed then maybe we can see robust long term growth or inflation, but no one in Washington is really talking about these items and people don’t have a clue. Read Dr Lacy Hunt (one of the best bond managers): https://hoisington.com/pdf/HIM2021Q1NP.pdf
Putting off the day of reckoning works and works and works and works ..... and works and works some more and then stops working. What then? Just like there are functioning addicts that manage day to day, going cold turkey at some point is a real bitch.
@SunTrader read the link I posted. Dr. Hunt is a well known market economist and bond fund manager based in Texas — he’s as conservative as you can get. But he’s bullish on bonds and he outlines it in his quarterly outlook. Also the type of anecdotal argument you’re using doesn’t work. Economies are complex and aren’t going to be solved by going “cold turkey” or whatever that actually means lol.
We have a manipulated bond market. Rates would be much higher if not for The Fed machinations. You have to admit if The Fed removed QEternity cooompletely rates would rise. Substantially. At a certain point they will have no choice in the matter. The point may be decades away, who knows. I completely agree with those who say don't fight The Fed and it is what it is. But at the same time I don't hide my head in the sand or worse yet believe the Keynesian nonsense that there is nothing now or in the future to be concerned about with The Fed generated distortions to markets.
that’s where we disagree. The Fed has been maintaining liquidity to keep an orderly market. Rates would be lower if the Fed wasn’t doing anything. In TIPS, the yield is negative.
Agree to disagree oh yeah. (WSJ) "Employers raised wages as they continue to ramp back up and compete over a limited pool of workers. The average hourly pay of private-sector employees rose 3.6% in June from a year earlier. Compared with February 2020—the month before the pandemic plunged the U.S. into a recession—average hourly earnings are up 6.6%, well above inflation, which rose 3.8% in May from the year before, according to the Labor Department’s consumer-price index." Happy 4th out on the left coast. Maybe Yellin will be back in town for the occasion?
Take a look at "Central Banking 101" by Joseph J Wang. It may turn out to be the best book 2021 for traders and investors. Although I have several other strong candidates.