Odd Lots Volatility Suppression Turned The Entire Economy Into One Big Carry Trade
Oct 1, 2020
In this discussion, Tim Lee, the founder of Pi Economics known for his insights on financial markets, and Kevin Coldiron, a financial engineering lecturer at UC Berkeley, dive into the concept of carry trades. They explain how policymakers' suppression of volatility has turned the economy into a massive carry trade, distorting asset prices and intensifying income inequality. The conversation touches on the implications for liquidity and market behavior amidst rising risks, and questions the future of fiat money in a world increasingly influenced by cryptocurrencies.
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Central Bank Policy Transmission
- Central bank policy's main transmission mechanism has shifted.
- Their actions now primarily suppress financial volatility.
Carry Trades and Financial Conditions
- Carry trades create easier financial conditions by increasing liquidity and credit.
- When they reverse, conditions tighten, prompting central bank intervention.
Carry Trade Definition and Examples
- Joe Weisenthal asks for a definition of carry trades and their relation to various investment strategies.
- He questions how buying the dip is economically similar to buy-to-let property investments.
