[HN Gopher] US Federal Reserve raises interest rates for first t...
___________________________________________________________________
US Federal Reserve raises interest rates for first time since 2018
Author : clove
Score : 301 points
Date : 2022-03-16 19:19 UTC (3 hours ago)
(HTM) web link (www.theguardian.com)
(TXT) w3m dump (www.theguardian.com)
| RichardHeart wrote:
| Be nation. Mint money out of thin air. Prices go up for
| everything. Citizens sell stuff for other stuff. Because prices
| all went up, causes tax on "gains." But was no real gain. Citizen
| robbed twice. Once when all prices up. Once when taxed on fake
| gain.
| avrionov wrote:
| Not only that they increased the rate, but also they'll reduce
| the buying of securities:
|
| "In addition, the Committee expects to begin reducing its
| holdings of Treasury securities and agency debt and agency
| mortgage-backed securities at a coming meeting."
|
| Which may have a bigger effect.
| [deleted]
| ayngg wrote:
| IIRC they have already stopped purchasing them as of a week ago
| I think, they were supposed to announce their plans on
| quantitative tightening (selling the things they bought) which
| is what that quote is referring to.
| [deleted]
| mtremsal wrote:
| > Which may have a bigger effect.
|
| Could you please explain? Isn't that just a way to "enforce"
| the target rate in auctions to the primary market?
| avrionov wrote:
| Here is a good explanation:
| https://www.brookings.edu/blog/up-front/2021/07/15/what-
| does...
|
| The federal reserves buys bonds / treasures and mortgage
| backed securities.
|
| It has an effect on long term interest rates and mortgages
| (keeping the interests low).
| atlgator wrote:
| Recession is inevitable. If you're only considering interest
| rates, you haven't bothered to look at the Fed's balance sheet or
| FOMC meeting minutes from 2020. We bailed out the world through
| currency swaps, corporate bonds, and MBS purchases and we're
| still doing it to the tune of $120B per month.
| jeffalbertson wrote:
| so many people in this thread will play the common HN
| intellectual and exclaim how the fed is obviously trapped, or
| what they did wrong to do get us here.
|
| And in a different thread will trash bitcoin only focusing on its
| energy consumption and not its potential sound money properties.
|
| If Bitcoin is bad, and the Fed (and every government ever)
| created a situation which will only lead to poverty & widening
| wealth gap, whats the solution?
| sfblah wrote:
| The solution is to set interest rates to a historically
| reasonable level, say 4%. Then, accept you're going to have a
| recession as asset values reset to reasonable levels.
|
| The reason you need a reasonable risk-free rate is, without
| that, almost any marginally profitable that you can finance
| with debt will get financed. This leads to malinvestment. You
| can see this all around you.
|
| Asset inflation has the insidious side-effect of damaging
| democracy by producing oligarchy.
|
| An alternative solution would be simply to declare a maximum
| net worth and set tax rates on income over, say, $1m per year
| to 95%.
| boppo1 wrote:
| >whats the solution?
|
| If I misjudge a cool jump off the roof into the pool and
| catastrophically break both my legs, then my legs are broken.
| colechristensen wrote:
| The fed was able to maintain a functioning economy without
| major disruption in essentials (i.e. there weren't major shocks
| in being able to buy food or maintain housing) despite shutting
| down or significantly modifying large sections of the economy
| for a significant time.
|
| They aren't "trapped" this is the natural and expected
| consequence of creating a lot more money to sidestep a
| temporary condition. Considering the US is the strongest-ish
| economy in the world and the rest of the world had to do the
| same thing, there shouldn't be terrible consequences as long as
| nobody does anything really stupid.
|
| Bitcoin, gold, and anti-fed fanboys have a tendency to have a
| poor understanding at best of global economics with very basic
| misunderstandings like thinking that bumping the rate bumps the
| rates of all previous bonds.
|
| Some people who do advocate for those things do know what they
| are talking about and can argue valid points which are up for
| discussion, but you don't actually see those very often.
|
| Monetary policy in the US has made major mistakes, but it has
| been doing a pretty good job, and importantly has avoided the
| worst kinds of disaster for a long time. What it did during
| covid was essentially the only option, what a gold standard
| economy would have been able to do would have led to much worse
| outcomes.
|
| People will complain about anything. The HN crowd generally
| overestimates its expertise in matters not related to startup
| tech (i.e. physics, engineering, economics posts often have
| pretty awful comments)
| alliao wrote:
| i don't think bitcoin is the saviour it claims, especially now
| it's being used and swayed by all the usual suspects of the old
| monetary system. It's now just another bucket within sea of
| capital. Used to adjust and move capital around, ended up to be
| just another instrument....
| cowmoo728 wrote:
| The solution to bad governance is better governance, not
| utopianism. Problems like this are the entire reason that
| democratic countries have elections and peaceful transfers of
| power. Does it always work? No. But looking for a technical
| solution (short of all powerful general AI) to a human problem
| will only lead to pain when the human problems start creeping
| back in to whatever technical solution was designed.
| beefman wrote:
| It's often different subsets of users in these threads. People
| tend to read and comment on stories they're interested in. Any
| bias in this interest can become amplified. For example, most
| commenters on stories claiming that low-level environmental
| pollution causes large socioeconomic effects believe the claim.
| Dissesnting comments are likely to be downvoted, so people with
| dissenting opinions don't bother commenting. Each topic becomes
| its own echo chamber.
|
| There are discentralized digital currencies that don't require
| insane energy consumption. But since clean energy is
| essentially unlimited on our planet, this isn't a reason to
| avoid conventional blockchains (that reason would be their
| abysmal scaling behavior). None of them provide any price
| stability at all -- or wouldn't, if more than precisely zero
| goods and services were priced in one of them. (Certain DeFi
| markets have elements of a banking system that might,
| concievably, offer some price stability.)
|
| The COVID-19 helicopter drops -- which were performed by the
| Treasury, not the Fed -- certainly could cause inflation. But
| this would generally be an inflationary shock, not an ongoing
| inflationary regime. Instead, it's the lockdowns (or hysteria
| more generally), which damaged the structure of the global
| economy. You can think of the inflation as the cost of
| rebuilding these networks, of convincing people to work
| together again. Simply put, things become cheap when they're
| produced by efficient networks. If those networks decay, things
| become more expensive.
| neonate wrote:
| https://www.wsj.com/articles/fed-raises-interest-rates-for-f...
|
| https://archive.ph/0XjAq
| cubano wrote:
| Inflation is almost 100% caused by "too much money" chasing "too
| few goods".
|
| "Too much money" is a condition almost always caused by the
| creation of too much "fiat currency" (ie a currency that is
| backed by nothing but the good faith and credit of the issuing
| government)
|
| As we all should know, in the US, on 6/5/1933 FDR took the US off
| gold-backed currency and started the fiat currency situation we
| still find ourselves in.
|
| Over the past 13 years, the US M3 money supply (see
| https://fred.stlouisfed.org/series/MABMM301USM189S ) has grown
| from around $7.5T to $22T.
|
| This number represents the "too much money" part of the original
| equation, and to be honest I'm quite surprised that price
| inflation isn't significantly worse then what it currently is.
| This is almost certainly being caused by the fact that the US
| dollar is the world's Reserve Currency.
|
| Looking at the graph, starting Aug 2020 the line is starting to
| approach vertical, so it should be completely unsurprising that
| price inflation is occurring.
|
| Finally, a 0.25% increase in the Federal Funds Rate is laughably
| small, and will do absolutely nothing to help with the price
| inflation the US is currently seeing.
| jldugger wrote:
| > Inflation is almost 100% caused by "too much money" chasing
| "too few goods".
|
| I find it baffling that the "always and everywhere a monetary
| phenomenon" crowd never inspects velocity.
| deeg wrote:
| I think this group is afraid of hyperinflation, which _is_
| almost always caused by governments printing too much money.
| (And, if we 're honest, hyperinflation is a scary situation.)
| The problem is that they then extrapolate and decide that
| nominal inflation must be the result of the same problem and
| that all government action will lead to hyperinflation.
| danielmarkbruce wrote:
| It's a beautiful sounding, simple theory. Print lots of
| money, get inflation. Humans eat up stories that are
| beautiful sounding and simple.
| hgomersall wrote:
| Worth a read https://new-wayland.com/blog/too-much-money/ and
| also https://economicsfromthetopdown.com/2021/11/24/the-
| truth-abo...
| voisin wrote:
| Velocity always seems to be treated as independent. When
| velocity plummets, Fed increases money supply. When velocity
| recovers, the money supply _never_ shrinks. It is a one-way
| ratchet. Why is that?
| nostrademons wrote:
| Because velocity tends to return to historical norms in a
| functioning economy, and if velocity _doesn 't_ return to
| historical norms - say it goes to infinity, like in Weimar
| hyperinflation, or it goes to zero, like in Japan-style
| depression - you have bigger problems.
|
| The "velocity is dropping so we need to print more" argument
| runs into scary problems if you make it without understanding
| _why_ velocity is dropping. If it 's because all the wealth
| is concentrating within a certain sliver of the population
| (like 2008-2020 U.S), that's a really big problem that's
| going to cause mass social instability. If it's because
| everybody's shutting themselves in their room and not
| spending money or engaging with society (like Japan), that's
| also a really big problem. If it reverses and returns to
| historical norms and beyond (as I suspect will happen),
| that's also a problem.
|
| A big contrarian position in 2008 that I thought was nuts at
| the time but now think is very likely was that we were going
| to get "Deflation, _then_ hyperinflation ". I didn't
| understand the hyperinflation part then, but the argument was
| that deflation would lead the Fed to keep expanding the money
| supply, which would pool among a small number of people,
| until some spark triggered that group to spend money. COVID-
| related supply chain disruptions were that spark, and I think
| the hyperinflation case is increasingly likely now.
| mpalczewski wrote:
| In the us we printed a bunch of money, and now the dollar is
| strong, but we have world wide inflation.
|
| I don't think it helps to look at US charts for a worldwide
| phenomenon.
| tehlike wrote:
| price inflation and asset inflation.
|
| That increased supply went to asset inflation.
| AviationAtom wrote:
| You shared my exact sentiment. 0.25% is far too small. The
| reason we even discussed negative rates when COVID hit was
| because the Fed was too afraid hike rates more rapidly, hence
| we hadn't gotten to a reasonable rate, before it called for
| being dialed back. This left very little "powder in the keg."
| At the pace we are going now I fear it's only a matter of time
| before the next 2008 hits, and we have nothing left to throw at
| it. It's a very delicate balance, and it doesn't seem capable
| hands are at the controls.
| at-fates-hands wrote:
| >> You shared my exact sentiment. 0.25% is far too small.
|
| Most reports were doubling the rate to 4% or greater. I think
| after the talk of moving it up that fast and that
| drastically, a lot of investors started getting the jitters:
|
| https://www.cnbc.com/2022/02/23/the-market-has-adjusted-
| its-...
|
| _That change came after traders had been pricing a move
| double that size at the March 15-16 Federal Open Market
| Committee meeting. Central bankers have been dousing the idea
| of needing to go up 50 basis points at the meeting, with New
| York Fed President John Williams saying last week that there
| is "no compelling argument" for the move._
|
| _Still, it hasn't made investors any less nervous about what
| the path ahead will look like._
|
| _"I'm not so worried about whether they do 50 [basis] points
| out of the gate or not. But I also think they shouldn't
| overdo it here," said Jim Paulsen, chief investment
| strategist at the Leuthold Group. "You can do 25, and if you
| want to do another one soon, you can do it, rather than add
| additional disruption or uncertainty."_
|
| I can understand the idea of going slowly and evaluating the
| effect on the current markets with inflation still going on.
| I like the cautious approach considering the massive fallout
| if it did suddenly jump up to 4%, you'd see a ton of money
| get pulled out of the market which could be disastrous.
|
| But like you said, either way could lead to another
| staggering recession so I'm not 100% confident in either
| approach.
| specialp wrote:
| On 6/5/1933 the USA was also dealing with massive DEFLATION.
| Deflation is also a very bad thing. In fact periods of
| deflation correlate with periods of large economic slowdown.
| Now I know people who are against fiat currency enjoy
| deflationary fixed currencies like most cryptocurrencies, but
| the inability to control money supply leads to hoarding of
| money, and compounding economic problems due to the lack of
| money supply.
|
| Hyperinflation is a terrible thing too. But that does not
| necessarily make gold backed or non fiat currencies superior as
| large deflation is very destructive as well.
| colinmhayes wrote:
| Deflation is much, much worse than the inflation we are
| currently experiencing. The US was in a 50 year depression
| starting in 1860 largely due to ineffective monetary policy
| which caused deflation. Small amounts of inflation are in
| fact a good thing, as it encourages loaning money.
| nemo44x wrote:
| The inflation is worse in a lot of things like housing and
| healthcare. Especially at the high end. Income and wealth
| inequality are the signs here.
| alliao wrote:
| you're correct on the too much money, though it's not the goods
| that we're chasing, rather anything else that represents value.
| The gold backed currency was limiting because it's incredibly
| hard to adjust for fast moving market. So by freeing up money
| supply, we can exploit the full extent of the market.
|
| When US print money, since the world values USD, whoever buys
| USD will pay for that inflation. Since there're not better
| alternatives, they just kept buying, in a sense US is just
| exporting capital.
|
| So it's no surprise that inflation will be absorbed by USD
| hoarding entities. say here..
|
| https://ticdata.treasury.gov/Publish/mfh.txt
| stjohnswarts wrote:
| Gold would have been so outlandishly valued if we stuck with
| that. What is your solution to gold being worth astronomically
| more as currency backer vs it's day to use by people and
| industry? Just accept that you can't ever use gold again for
| manufacturing and let momma's wedding ring increase in value to
| ridiculous amounts?
|
| I'll agree we probably need at least a 0.5 increase in interest
| and that's on hte low side. I see so many new land grabs around
| town and too many new businesses popping up because it's pretty
| easy to get a loan right now.
| danielmarkbruce wrote:
| Credit spends too.
|
| US Household debt to GDP steadily went down over that period.
| throw0101a wrote:
| > _" Too much money" is a condition almost always caused by the
| creation of too much "fiat currency" (ie a currency that is
| backed by nothing but the good faith and credit of the issuing
| government)_
|
| Japan money supply:
|
| * https://fred.stlouisfed.org/series/MYAGM2JPM189S
|
| Japan inflation:
|
| * https://fred.stlouisfed.org/series/FPCPITOTLZGJPN
|
| Money supply [?] inflation.
|
| > _As we all should know, in the US, on 6 /5/1933 FDR took the
| US off gold-backed currency and started the fiat currency
| situation we still find ourselves in._
|
| Except for the multiple decades post-WW2 with Bretton Woods.
|
| Further, being on the gold standard didn't seem to help with
| inflation in the US during the 1920s:
|
| * https://www.theatlantic.com/business/archive/2012/08/why-
| the...
|
| * https://archive.ph/FWKcL
| jppittma wrote:
| I have no idea how anybody looks at Japan without realizing
| that the MMT people got it right.
|
| Thought experiment: If the government printed money to send
| unemployed people to uninhabited farmland to start
| cultivating it (in complete isolation from the rest of the
| economy) would it cause inflation for the rest of us who
| aren't connected?
|
| If that community was then connected to the rest of the
| world, would the economic benefit be positive?
|
| You can clearly see that the limitation on printing money is
| unutilized resources in the economy.
| Manuel_D wrote:
| Quite the contrary. Japan's money supply has grown
| considerably more slowly than other countries - reinforcing
| the relationship between money supply, economic growth, and
| inflation.
|
| > Thought experiment: If the government printed money to
| send unemployed people to uninhabited farmland to start
| cultivating it (in complete isolation from the rest of the
| economy) would it cause inflation for the rest of us who
| aren't connected?
|
| Sure, because those people can't actually spend the money
| they were given. But who would agree to be sent to said
| island? The incentive of getting paid is worthless if you
| can't spend your money on anything. If the government
| printed money to pay people to build wind farms with the
| restriction that they can't spend this money on anything,
| how many workers would accept this offer?
| pdonis wrote:
| _> If the government printed money to send unemployed
| people to uninhabited farmland to start cultivating it (in
| complete isolation from the rest of the economy) would it
| cause inflation for the rest of us who aren 't connected?_
|
| First, this never happens, and certainly is not what's been
| happening for decades now in the US with the Fed printing
| money, so it's not a very relevant thought experiment.
|
| Second, taking your scenario as given for the sake of
| argument, what was stopping the unemployed people from
| cultivating the uninhabited farmland before? Was it the
| absence of money, or the fact that they didn't _own_ the
| farmland?
|
| In other words, the real operative point in your thought
| experiment is not the government printing money, but the
| government giving tangible resources (uninhabited farmland)
| to a group of unemployed people, so that they will produce
| something of value from it. The money is really incidental:
| once they start producing more food than they can consume
| themselves, they will be able to acquire their own money by
| selling the excess. The initial printed money is really
| more like a one-time grant of working capital, so they can
| buy enough initial supplies to get the operation going. And
| money doesn't even have to be printed for that: the
| government could just allocate some tax revenue to it.
|
| Third, in our actual system as it actually works, who
| _does_ get newly printed money? Is it unemployed people who
| could be doing productive work but aren 't? That was
| perhaps true for COVID relief checks--although those didn't
| really enable anyone to go back to work, they enabled
| people to stay _out_ of work, _not_ producing anything, for
| longer--but in any case those don 't actually add up to a
| lot in terms of the total US money supply. The vast
| majority of the money the Fed prints goes to financial
| institutions, and the only thing whose "production" is
| increased by that printed money is loans. Those loans,
| since they are mostly mortgages, will certainly _redirect_
| productive capacity in the economy (so we build more
| McMansions and commercial office buildings that sit empty
| for years after being built, while our roads, bridges,
| drainage systems, electrical power grid, and other
| infrastructure deteriorate), but they don 't _increase_
| productive capacity overall. In other words, they 're just
| redistribution--and almost always (with the COVID relief
| checks being the only possible exception I can see) from
| the poor to the rich, since that's who the newly printed
| money goes to (financial institutions).
|
| _> You can clearly see that the limitation on printing
| money is unutilized resources in the economy._
|
| No, we can clearly see that the limitation on printing
| money is how much redistribution from the poor to the rich
| the rich think they can get away with. Remember that the
| Fed was initially advocated to the US government by rich
| bankers who were tired of the government coming to _them_
| for bailouts whenever there was a financial panic due to
| stupid government interventions (the Panic of 1907 was the
| specific one that prompted the legislation that became the
| Federal Reserve Act), so they decided to put a system in
| place that would make it so the costs of the bailouts ended
| up being paid by ordinary citizens (who wouldn 't get any
| of the money the Fed would print) instead of them.
| burntbridge wrote:
| The "uninhabited farmland" is just an analogy for some
| area of the economic landscape that when you spend money
| on it, can absorb labor and return a tangible benefit
| that is equal or more than what you spend. Maybe for
| example repairing worn out infrastructure or creating new
| infrastructure.
|
| >The vast majority of the money the Fed prints goes to
| financial institutions
|
| You maybe thinking of Quantitative Easing. In which case
| financial institutions are just incentivized to cash in
| their Government Bonds, whereby they need to look for
| some place else to put the money, hence perhaps asset
| inflation. The Government doesn't just print a whole lot
| of money and give it away to someone.
| nostrademons wrote:
| Then the unemployed people on uninhabited farmland move
| back to their home cities with all this extra money and buy
| a house for a couple million, sending prices skyrocketing.
|
| This is literally what's been happening to the economy for
| the last decade. All the money that went into the economy
| from 2008 onwards ended up in the financial & tech sectors
| in NYC, Seattle & the Bay Area. As long as it _stayed_
| there, it only increased prices in NYC, Seattle & the Bay
| Area. Then remote work happened and these techie
| millionaires realized they could live anywhere. Or they
| just hit a threshold where they can retire. Suddenly those
| millions are ending up in places like Boise, Phoenix,
| Austin, Denver, Asheville, etc. and _now_ we get inflation.
| Manuel_D wrote:
| Inflation is money supply relative to the amount of goods and
| services. E.g. I have 500 cars in the economy and $1000 in
| circulation. Over time I grow the economy, and now I have
| 1000 cars, and I still only have $1000 in circulation. In
| this scenario we'd have deflation. To maintain an equilibrium
| I'd need to increase the money supply commensurately, to
| $2000. If I increased supply to $4000 I'd have inflation.
|
| Japan's money supply growth is actually pretty constrained.
| From 2007 to 2017 it want from 713 trillion to 960 trillion
| as per the chart you linked. For the USA [1], money supply in
| circulation went from 7 trillion to 13.3 trillion and
| inflation is correspondingly higher [2]. Granted, this source
| doesn't include recent data around the pandemic, so it's of
| limited use for analysis existing inflation trends.
|
| 1. https://fred.stlouisfed.org/series/MYAGM2USM052S
|
| 2. https://fred.stlouisfed.org/series/FPCPITOTLZGUSA
| izend wrote:
| Compare the US M3 growth vs the Japanese M3 growth from 1990:
|
| ---------------------------
|
| _US JAN 1990 M3: $3.166T
|
| _ US JAN 2022 M3: $21.8T
|
| ---------------------------
|
| _JPN JAN 1990 M3: Y=708T
|
| _ JPN JAN 2022 M3: Y=1536T
|
| ---------------------------
|
| US nearly 7x
|
| JPN just over 2x
| pdonis wrote:
| _> Except for the multiple decades post-WW2 with Bretton
| Woods._
|
| Um, what? The Bretton Woods agreement _was_ part of "the
| fiat currency situation we now find ourselves in" (just an
| earlier stage of it where the government was still trying to
| pretend to some sort of "linkage" with gold, instead of just
| dropping the pretense altogether as was done in the early
| 1970s when Bretton Woods fell apart). No US money was backed
| by gold at all (not even United States Notes, which were
| still in circulation) after the FDR administration
| confiscated all private gold holdings and suspended
| redemption indefinitely in 1933.
|
| _> being on the gold standard didn 't seem to help with
| inflation in the US during the 1920s_
|
| To call the monetary regime in place in the 1920s "the gold
| standard" is a serious misnomer. The Federal Reserve was
| created and authorized to print money (Federal Reserve Notes,
| not backed by gold or anything else) in 1913. A significant
| amount of that money was in circulation in the 1920s. Plus,
| even United States Notes, which were notionally backed by US
| gold reserves, were not expected to be redeemed for gold in
| any great quantities, since paper money was so much more
| convenient than gold for transactions; so the fact that those
| notes were notionally backed by gold did not have much
| practical effect on their exchange value. What _did_ have a
| practical effect was the fact that United States Notes and
| Federal Reserve Notes exchanged at par (one dollar of each
| was required to have the same exchange value), so as more
| Federal Reserve Notes were printed, the exchange value of
| United States Notes dropped.
| [deleted]
| russellbeattie wrote:
| > _I 'm quite surprised that price inflation isn't
| significantly worse._
|
| The one benefit of wealth disparity in the US and around the
| world.
|
| I agree that if all that new money had been evenly distributed,
| then it would have most likely caused crazy inflation. But it
| wasn't. It went directly into the coffers of large banks,
| corporations and arms manufacturers, and eventually into the
| accounts of the 0.001%.
|
| The supply of money has to be available to spend in order for
| it to affect the economy. With the top 1% owning 40% of the
| wealth, it means all that money is essentially locked away from
| the general public.
| arawde wrote:
| Most surprising part of this FOMC had to be when Powell said "we
| would like to slow demand" during the press conference, you don't
| usually hear the quiet part out loud like that from this Fed
| chair. Also shift upwards in PCE in the SEP, plus the dots, all
| seems appropriately hawkish
| civilized wrote:
| > you don't usually hear the quiet part out loud like that from
| this Fed chair
|
| Is it implying / could be construed in some negative way? Like,
| "slow demand" means "poor people need to buy less", or
| something?
| Ericson2314 wrote:
| Yes, the only way raising these rates could reduce demand is
| by increasing unemployment.
|
| Powell is much more honest than his predecessors in this
| regard. I commend him for it.
|
| The obsession with this single policy lever is bad, and I
| hope it changes. But there being little political will to
| raise rates is a good first step.
|
| Eventually we can leave them at zero, and manage the economy
| by other means.
| mywittyname wrote:
| > Powell is much more honest than his predecessors in this
| regard.
|
| I disagree pretty heavily here. Yellen was always honest
| about the need for monetary policy which would be
| politically unsavory (which is why her term wasn't
| renewed). Her delivery was very much designed not to "spook
| the markets" but I think part of the reason she scared the
| markets was that she favored long-term stability.
|
| Her words as Treasury Secretary aren't exactly sugar
| coating things. She's been saying that the impact of the
| Russian sanctions are going to hurt American as well, and
| that inflation is probably here to stay in the medium term
| at least (she's long held the belief that high inflation is
| an acceptable tradeoff for low unemployment). Granted,
| those statements are followed up with "we are working on a
| solution"-type statements, but I don't see many promises.
| lghh wrote:
| > Yes, the only way raising these rates could reduce demand
| is by increasing unemployment.
|
| It could also reduce demand by making it more expensive to
| buy things. Sure, that will probably have a side-effect of
| increasing unemployment, but that unemployment isn't the
| goal. The goal is to make it cost more to do things so less
| people want to do them.
| civilized wrote:
| I wonder why we'd want to pull levers to make things cost
| more, when the goal is to fight inflation, the bad
| phenomenon in which things cost more.
| hellojesus wrote:
| Increased costs lead to decreased demand, which
| ultimately will dampen further price increases. They're
| shifting the intersection of supply and demand.
| dragonwriter wrote:
| > Most surprising part of this FOMC had to be when Powell said
| "we would like to slow demand" during the press conference, you
| don't usually hear the quiet part out loud like that from this
| Fed chair.
|
| That's...not really a "quiet part", it's the widely
| acknowledge, overt nature of managing inflation. That the Fed's
| dual mandate involves employment and price stability, and that
| those are in tension because controlling inflation often
| involves mitigating demand, while promoting employment enhances
| demand is not viewed as a secret. It's like Fed 101, and Fed
| board members (chair or not) very often do not walk on
| eggshells about it.
| mullingitover wrote:
| The quiet part would be "We need to put a few million people
| out of work to cool things off."
| mywittyname wrote:
| It's the reason that the Fed is nominally non-political.
|
| Nobody wants the medicine, even if they need it.
| goodluckchuck wrote:
| Monetary policy is always political.
| dang wrote:
| We changed the URL from
| https://www.federalreserve.gov/newsevents/pressreleases/mone...,
| which is a slightly obscure press release, to what looks like an
| ok third-party article. If there's a better third-party article
| (that isn't hard paywalled) we can change it again.
| nickff wrote:
| It's worth taking a look at the effective federal funds rate over
| time, which clearly shows how low it's been recently:
| https://www.macrotrends.net/2015/fed-funds-rate-historical-c...
| victorvosk wrote:
| I am sensing a pattern here.. just can't put my finger on it...
| whoseonthat wrote:
| It seems interest rates lower during recessions. Right now we
| are already low and are raising which seems to be a different
| pattern. Is lowering interest rates a method to overcome a
| recession?
| hedora wrote:
| Welcome to stagflation.
| mym1990 wrote:
| We are not yet in stagflation, unless I really missed
| something. The economy is actually fairly strong by most
| indicators. The question is whether inflation can be tamed
| by the time we hit a recession(which we will, whether it is
| in 6 months, 2 years, 5 years, etc...)
| throwaway0a5e wrote:
| Everyone is sure acting like it'll be 6-12mo and if
| everyone expects a recession in 6-12mo then...
| babypuncher wrote:
| These 6-12 month predictions for the next recession are
| always real popular 6-12 months before the next major
| election. I recall almost identical rhetoric in H1 2018,
| coincidentally the last time the fed raised interest
| rates.
|
| Nobody has a clue when the next recession will be.
| nickff wrote:
| Yes, the common theory is that lowering interest rates
| encourages investment and growth, at the cost of higher
| inflation. This increased inflation is also generally thought
| to depress 'real' salaries, which further increases growth.
|
| https://www.investopedia.com/ask/answers/12/inflation-
| intere...
| hitpointdrew wrote:
| The thinking is that lowering rates will increases spending
| (why save if you aren't getting much of return, you will find
| other ways to invest your money rather than have it sit in a
| bank account). So, if the economy seems to be in a recession
| central banks will often lower rates to encourage spending.
| But if you are already at near 0% for a record length of
| time, and have printed massive amounts of money, well friend
| we are in uncharted territory. What's better than do nothing?
| Doing something, we have this interstate rate lever, we can't
| pull it down, lets push it up!
| mym1990 wrote:
| Yes, lowering interest rates during tough times has the
| effect of making borrowing capital cheaper, thus
| incentivizing people to take on risk via opening a business,
| investing, etc...
|
| In contrast, raising interest rates is a way to fight a hot
| economic market. While in theory having massive growth might
| be ideal, it would be the equivalent of a sprinter using all
| of his/her energy in the first 100m while running a
| marathon...it needs to be a balancing act.
|
| Lowering interest rates has been one of the major tools in
| fighting recessions, and one of the main concerns has been
| that lowering interest rates isn't possible(or effective)
| when they are already at such a low level.
| [deleted]
| adamhp wrote:
| Lowering interest rates makes capital cheaper, which does
| spur investment and thus economic development, so, it can
| certainly have that effect given the right circumstances. But
| keep it too low, too long, and you see money start flying
| around too quickly, getting a little too loose because
| everyone wants to get theirs, and then they start inventing
| things like mortgage-backed securities and everyone starts
| over-leveraging, because, why not, money is cheap! Then you
| get 2008.
| mywittyname wrote:
| It's important to separate out fraud from low interest
| rates. Low rates absolutely drive investment, and riskier
| investment at that. But the issue with 2008 was fraud in
| the lending market, not necessarily the low rates.
|
| Risky investments aren't necessarily bad investments. Low
| interest rates give businesses more runway to operate
| investments that might take a while to show returns. A
| million dollar loan at 10% for an investment means that it
| needs to return into ~$80k a month to break even. At 2%,
| that same investment only needs a ~$16k monthly return.
| That's a huge difference in runway needed to start
| generating cash flow.
| twh270 wrote:
| "Money is cheap" yes, also "you can buy a house if you can
| fog a mirror". (Buy as in acquire a piece of paper that
| says you'll pay $$$$ per month to whoever holds the note.)
| voisin wrote:
| > Lowering interest rates makes capital cheaper, which does
| spur investment and thus economic development
|
| There are diminishing marginal returns to this, and when
| rates were already close to zero it is hard to imagine
| going to zero spurred much more than meme stocks and YOLO
| gambles.
| BurningFrog wrote:
| It used to be, until they reached 0%.
|
| The usual metaphor is that the interest rate is how hard you
| pull a rope. Pulling harder slows down the economy more.
|
| But below 0%, you're trying to _push_ the rope. And, as any
| rope expert will tell, you that doesn 't do anything.
| wolpoli wrote:
| It's important to note that the Federal reserve normally
| controls the overnight rate, and let the market determines
| the interest rate for other durations (eg. 30Y). That
| changed with the introduction of Quantitative Easing where
| it reduces the interest rate over the entire yield curve.
|
| In other words, even through the overnight rate is 0%, you
| could still push down the interest rate down for bonds of a
| longer maturity, and that'll further stimulate the economy.
| brandmeyer wrote:
| The last couple of recessions have placed a ton of
| deflationary pressure on the USD, and the fed has reacted to
| maintain a small positive inflation by both lowering interest
| rates and QE.
|
| Now that inflation is rising and the economy is also at
| nearly full employment, its pretty straightforward for them
| to raise interest rates to rein in inflation.
| phkahler wrote:
| >> Is lowering interest rates a method to overcome a
| recession?
|
| It is claimed to be. The idea is that with lower interest
| rate, companies and people will be more likely to borrow
| money to spend and that will boost the economy.
|
| I for one do not really believe this to be true. I suspect
| it's the act of lowering rates that gives a _temporary_ boost
| until things rebalance. In other words, economic activity has
| some dependence on the derivative of interest rates. This is
| why things were so good from 198x through 2003 or so, rates
| were dropping the entire time (filtered of course).
| jjoonathan wrote:
| > economic activity has some dependence on the derivative
| of interest rates
|
| If interest rates go down, it's easy to roll over old
| promises and make new ones besides. If interest rates go
| up, promises must be kept or the business will fold.
|
| At the end of every business cycle, interest rates are low
| and there are lots of unprofitable "zombie companies" that
| operate by simply rolling over their promises. In order for
| the economy to grow, interest rates must be hiked to do a
| controlled burn and remove this underbrush. Zombie
| companies have to actually die. This is painful at the best
| of times.
|
| Political will formation will be doubly hard this time
| around because A. there is more national debt (so we
| probably need to soft-default on it and inflate it down,
| first) and B. last time around Carter did the burn and
| Reagan got the growth and the credit, so the question is
| who wants to be Carter this time around.
| reflexco wrote:
| It seems that Putin is the scapegoat for inflation and
| will be the scapegoat for recession as well.
| jjoonathan wrote:
| This isn't a rate-hike recession, it's stimulus
| withdrawal.
|
| Rates are at 0.25%. Last time it took 20.00% to stop
| inflation. We haven't even started. We haven't soft-
| defaulted on the national debt, so we can't even think
| about starting. The Ukraine conflict will be dusty
| history by the time actual rate hikes and an actual rate
| hike recession come around.
| xxpor wrote:
| There's still a lot of debate if raising interest rates
| is what actually caused inflation to fall.
|
| Another theory is that it was actually Regulation Q.
|
| https://pages.stern.nyu.edu/~asavov/alexisavov/Alexi_Savo
| v_f...
|
| I also personally think that high inflation is treated as
| bad axiomatically. This needs some justification if the
| only proposed solution is to intentionally cause a
| recession.
| cjsplat wrote:
| The MMT point is that it isn't clear that the interest
| rate is what killed inflation.
|
| A major cause of inflation in the 70s was the 6x increase
| in the price of oil.
|
| From 1980 to 1986 there was nearly a div by 5 drop.
| nostrademons wrote:
| Except it wasn't. Inflation was already high and going up
| by the time the first oil crisis hit. CPI was 5.5% in
| 1969, 5.8% in 1970, went down to 3.3% by 1972, and was
| 6.2% in 1973:
|
| https://www.minneapolisfed.org/about-us/monetary-
| policy/infl...
|
| The first oil crisis didn't hit until October 1973. Look
| at the month-by-month numbers for 1973:
|
| https://www.inflation.eu/en/inflation-rates/united-
| states/hi...
|
| The biggest jump was 1.81% in _August_ , 2 months before
| the oil shock. (Note that this is roughly double the
| monthly numbers we see now.) There was consistent monthly
| inflation 0.68%+ from January -> June.
|
| The real reason for the 1970s inflation was Nixon
| monetizing the debt incurred by our Vietnam hangover, but
| in true Nixonian fashion, he found an external event to
| blame it on.
| voisin wrote:
| > Rates are at 0.25%. Last time it took 20.00% to stop
| inflation.
|
| This is good context. Is anything different this time
| that would make one believe we won't need much, much
| higher rates to tame inflation?
| tmn wrote:
| The system will seize up and collapse with anything close
| 20% interest rates. Look at what happened in September
| 2019. The rates shot back to 0 because there was a
| liquidity problem in the repo market. The system is rife
| with zombie companies servicing their debt with nearly
| free debt. This will not go like the 70s. When rates stop
| increasing and go back to zero within the next two years
| remember this comment
| jjoonathan wrote:
| The 1979-1982 interest rate spike was preceded by 15
| years of faffing around, playing at raising interest
| rates, and then chickening out, with a backdrop of rising
| persistent inflation. I think it's likely to play out
| exactly as you describe, but that's exactly how it played
| out in the 70s.
|
| I'm much less certain that it will end the same way, but
| there are big problems with all the alternatives too
| (yuan, euro, crypto, gold) so who knows.
| blagie wrote:
| I think what you're describing is exactly what's claimed.
| /Lowering/ interest rates leads to growth, not low interest
| rates. I don't think many economists would dispute that.
|
| The general model is that interest rates, lowering taxes,
| and increasing government spending are tools for shoring up
| the economy during a recession. During a growth period,
| interest rates should be raised, government spending
| lowered, and taxes raised, so we have room to adjust them
| for the next recession. This can, in theory, smooth out the
| boom-bust cycle which otherwise naturally results.
|
| The problem is that we rarely raise interest rates, reduce
| spending, or raise taxes, since it's politically unpopular.
| Many of these tools are harmful; for example, outside a few
| domains like infrastructure and medicine, long-term high
| government spending tends to /harm/ the economy.
| dragonwriter wrote:
| > The problem is that we rarely raise interest rates
|
| Not really true; there was a long period of near-zero
| rates not moving during and after the Great Recession,
| but that was a unique event; from 2015-2018 there was a
| fairly consistent notching up of rates typical of an
| expansion with inflationary signals, then an ease back
| from 2019 until COVID hit at rates were cut sharply.
|
| Looking at history there's a long run up in 2003-2006
| after the 2001 recession, a run up 1992-2001 through the
| dotcom boom after the short period of easing from
| 1989-1992, a runup from 1986-1989, etc.
| voisin wrote:
| Throughout these time periods there was a dramatic
| increase in the money supply (from my view of FRED stats
| it doesn't look like there's ever been a contraction of
| the monetary supply), so we're rate increases just offset
| by enough monetary growth to offset?
| spaetzleesser wrote:
| "It seems interest rates lower during recessions. Right now
| we are already low and are raising which seems to be a
| different pattern. Is lowering interest rates a method to
| overcome a recession?"
|
| It used to be that you could lower interest rates and run up
| deficits during bad times with the intent of going back to
| normal when things are better. We now have kept low interest
| rates and record deficits during good times. When things blow
| up (as they always do after a while) there is almost nothing
| left that can be done to counter a recession. In the past
| going to war helped....
| miketery wrote:
| Lowering interest rate to stimulate economy, increasing
| interest rate to lower inflation. Problem is we've got no
| room left to lower and asset prices have never been higher.
| downrightmike wrote:
| Yes, because it increases the money supply. We are supposed
| to tighten when things are good by raising rates. At this
| point they need to raise rates to pull money out of the
| system. Because with covid, not only did we cut rates, we put
| in a HUGE amount of money and that was really irresponsible.
| And now we are seeing the repercussions with inflation
| lowering the value of the dollar.
| mym1990 wrote:
| I am not sure if it is really useful to evaluate what
| happened vs the other outcomes that we were not able to
| experience. We don't really even have that many precedents
| for the situation. It was, and still is, an extremely
| complex problem to address. Injecting large amounts into
| the system ultimately doesn't create long term wealth, but
| in that short term gap during the first 1 of the pandemic
| many people were undoubtedly pulled out of a hole.
| InitialLastName wrote:
| We should recall that not only did the US cut rates and
| spend a lot of money through the covid recession, when
| things were bad, it ignored that first bit of advice before
| Covid when things were good (it's hard to remember now how
| hot the economy was in 2016-2019, but it was really hot),
| by cutting taxes and continuing to print money and keep the
| rates low to cover it. As the tax cut detractors correctly
| predicted, those tax cuts (and the growth that didn't
| happen enough to cover them) reduced the US's leverage to
| respond when an actual crisis came up.
| throwaway0a5e wrote:
| I don't see how tax policy matters in this case. That
| money still sloshes around. The only difference is who's
| nominally in control of it.
| InitialLastName wrote:
| a) higher taxes enable the government to apply
| deflationary pressure on the economy (by removing
| currency from circulation)
|
| b) Reducing taxes without cutting spending (because it
| will "pay for itself in growth") leads to a larger
| deficit, which requires increased debt to cover, which
| triggers the money-printers.
| landemva wrote:
| The Fed raised interest rates into Trump's first two
| years in office.
| userabchn wrote:
| It encourages investment (over saving), so can help to boost
| the economy
| tamaharbor wrote:
| We had soaring inflation in the early 80's, but at that time loan
| interest rates and certificate of deposit rates were much higher
| than they are now. Does anyone know why the difference?
| mym1990 wrote:
| Someone posted the graph earlier:
| https://www.macrotrends.net/2015/fed-funds-rate-historical-c...
|
| Fed funds rate in the early 80s were at their historical peak.
| We are still currently at near historical lows.
| bshep wrote:
| How did anyone buy a house or a car with interest rates in
| the 20%s?
| windpower wrote:
| Not 100% sure about cars, but houses were cheaper. Interest
| rates being higher means that the monthly payment on a
| given mortgage amount is higher, meaning the house price
| that an average buyer can afford goes down. Low interest
| rates mean that people can afford a more expensive house,
| and that causes prices to go up.
|
| Anecdotally, my dad complains about paying an interest rate
| in the teens for the house I grew up in. My parents paid
| $69K ($188K in 2022 dollars) for the house, which was about
| a year old. Zillow estimates the same house at $457K today.
| Obviously not all of the price increase is due to lower
| interest rates, but the house _was_ much cheaper, so even
| with a high interest rate, the mortgage was pretty
| affordable.
| ryandrake wrote:
| Also, returns from other investments tied to interest
| rates were higher. I seem to recall seeing CD rates >10%
| in the '80s. I know I had a CD paying >6% as late as the
| mid '90s. This world where basic banking investments are
| pointless and pay ~0% is a historic anomaly.
| trgn wrote:
| tbh maybe it should stay like that, it's only an anomaly
| if you start your timeline at the advent of central
| banking. Interest rates on deposits are a purely
| mathematical fiction, creating no new value. If people
| would like to see their old tired moneys sprout new baby
| moneys out of thin air, they should convert their savings
| into capital, and effectively invest in productive
| enterprise. Any capital gain then is by market consensus
| that new value has been created by your investment in
| that enterprise.
| just_steve_h wrote:
| The house cost $30,000 and the car cost $5,000.
| Ferrotin wrote:
| Prices were lower, and they could refinance when rates got
| lower.
| efsavage wrote:
| House values are driven by what people can afford, which is
| heavily influenced by the interest. If you can afford
| $1k/mo and 10% of that is interest, 90% is going to
| principal and you can figure out the math on what your
| total principal would be. If 20% of that is going to
| interest, you're still paying $1k, but now your initial
| principal is much lower, which at scale will drive housing
| down to some equilibrium where, to be a bit reductive,
| average people can afford average houses.
|
| My parents bought their house in 1979, for $33k. ~10 years
| later, when rates had lowered significantly, it was worth
| $150k.
| throwawayboise wrote:
| I don't think mortgate rates ever broke 20% but were in
| double-digits.
|
| At that time, though, you needed about 20% down payment to
| qualify for a mortgage. So you weren't borrowing as much,
| and houses were smaller and cheaper. It was very difficult
| for many people to buy a house in those years.
| mym1990 wrote:
| From this chart(https://inflationdata.com/articles/wp-
| content/uploads/2021/1...) we can see that in inflation
| adjusted terms, housing was much more affordable prior to
| about 2001(give or take). I think generally speaking,
| housing changes hands now much more often than it did
| before the internet, and there is much more
| investment/speculation going on as well, which drives a lot
| of the additional cost nowadays.
| boppo1 wrote:
| Outright, maybe? I've heard of boomers buying mustangs and
| paying college tuition with a summer job.
| colechristensen wrote:
| Lag, it just hasn't happened yet.
| ceejayoz wrote:
| They don't raise rates rapidly, as that can cause a shock.
| They're expecting to dribble small increases out regularly over
| the next year.
|
| If you chart inflation and interest rates you'll see the close
| relationship: https://www.gzeromedia.com/the-graphic-
| truth-50-years-of-us-...
| mywittyname wrote:
| They have been "expecting" to raise rates for years now. Most
| of the time, they chicken out, and last time they went
| through with it (2018), the Fed Chairman was replaced with
| someone who was well known to be "dovish" on rate increases.
| aeyes wrote:
| I don't follow your argument, the feds interest rate
| consistently increased from the end of 2017 until Covid
| hit. When Powell started it was at 1.4% and got up to 2.4%
| in July 2019, more than one year after he took office.
| 29athrowaway wrote:
| You will own nothing and be happy.
| FpUser wrote:
| >"An interesting aspect of this is that the endless printing of
| money in the last few years was a sort of stress test of modern
| monetary theory"
|
| I think it was / is stress test of how much and for how long
| other countries are willing to finance the US and let it abuse
| status of the dollar.
| andreyk wrote:
| An interesting aspect of this is that the endless printing of
| money in the last few years was a sort of stress test of modern
| monetary theory, which has been seeing lots of discussion in
| those same years. I never quite understood how this theory would
| work while avoiding inflation, and what's happening now seems to
| at least be related -
| https://www.nytimes.com/2022/02/06/business/economy/modern-m...
|
| Conceptually the answer in the theory is to suck up the excess
| money with taxes, which of course is not going to fly in the US.
| But maybe this inflation will make that more viable in the
| future: "Ms. Kelton and her colleagues make clear that the
| pandemic relief packages did not follow one of M.M.T.'s key
| tenets -- they did not try to account for resource constraints
| ahead of time. In an M.M.T. world, the Congressional Budget
| Office would have carefully analyzed possible inflation ahead of
| time, and lawmakers would have tried to offset any strain on
| available workers and widgets with stabilizing measures and tax
| increases."
| stjohnswarts wrote:
| The problem is all that new wealth created, about 90% goes to
| the top 1% who can easily store it away in nontaxable assets
| (at least until said assets are sold) since generally the "buy
| tax" isn't all that high compared to growth in value of
| securities and real estate (at least good investments thereof).
| Just siphoning more money out of the poor and middle class will
| not fly in the USA you will be voted out and your policy
| rescinded within a couple of years.
| pkulak wrote:
| How is it a test? MMT doesn't say you can increase monetary
| supply forever without consequence. It says that you can
| increase monetary supply until you see consequences, at which
| point you need to start reducing it, mostly through taxation.
| Raising interest rates does reduce monetary supply, but I don't
| think nearly to the degree that MMT would call for.
|
| Now, if congress immediately votes in a bunch of new taxes,
| it'll be a wonderful test. :D
| birdyrooster wrote:
| MMT simply has currency scaling with the exponential utility
| of commerce. Value is created on both sides of each business
| transaction, not just for the recipient of the money. The
| money supply increases to reflect all of the new value
| created by commerce.
| boppo1 wrote:
| > Congressional Budget Office would have carefully analyzed
| possible inflation ahead of time...
|
| Ah yes, surely central planning is the solution.
| r00fus wrote:
| You jest, but that's exactly what the CBO is supposed to do.
| roenxi wrote:
| An important point to keep in mind when talking about MMT in a
| policy setting is that the people who will implement it don't
| care about theory and will make a series of short-term
| politically expedient and/or vaguely corrupt decisions. If they
| implement MMT, there are good odds that it will just look like
| money printing.
|
| It doesn't really matter what the academic plan is, the policy
| isn't going to follow it. Much like how interest rates were
| supposed to rise after being dropped to emergency levels a
| decade or so ago and instead a 25 bps rise is front page news.
|
| All the politicians/relevant voters are looking for is a green
| light to hand out money and some buzz to say that it'll make
| everyone better so ignore the doubters. If they cared about
| good economic policy the last few decades would look very
| different. The dominant ideology is that centrally planned
| interest rates are a good idea, and that is questionable.
| wolpoli wrote:
| I would encourage readers to also review this [1] document
| which compares and contrasts MMT and other economic theories.
| The author concluded that "MMT contains some kernels of truth,
| but its most novel policy prescriptions do not follow cogently
| from its premises. "
|
| [1]:https://scholar.harvard.edu/files/mankiw/files/skeptics_gui
| d...
| GoodJokes wrote:
| athrowaway3z wrote:
| I keep these things in the back of my mind when talking about
| economic theories:
|
| - an economist is someone who can tell you today why he was
| wrong yesterday.
|
| - the central bank of Sweden made up an award in the honor of
| Nobel. Twice the recipient made a point to remind people
| economic theory is not an exact science.
| solveit wrote:
| > an economist is someone who can tell you today why he was
| wrong yesterday.
|
| Which puts them near the bottom as a hard science, but near
| the top of the social sciences. (I'm agreeing with you, but
| the valence of your observation depends on what reference
| class you have in mind for economics)
| dragonwriter wrote:
| Yeah, MMT basically asserts that the separation between fiscal
| and monetary policy is artificial, and that the only real
| constraint on "fiscal" policy (tax and spending) is monetary
| effects, not the metaphorical limited purse ("fisc") that must
| be filled with revenue and borrowing to allow spending.
|
| It is not "Congress can spend willy-nilly" but "Congress needs
| to stop thinking about fiscal balance and start thinking like
| the Fed." (Or, perhaps, "Congress needs to define fiscal policy
| with movable levers which it gives control of to the Fed or a
| Fed-like body.")
| throwaway894345 wrote:
| Irrespective of its economic merits, any policy which depends
| on a competent and upright Congress does not inspire
| confidence. It feels like it's bound to be one of those "True
| MMT Hasn't Ever Been Tried (TM)" things.
| dragonwriter wrote:
| MMT isn't a thing to try or be tried: it's not an ideology
| or set of policies or even policy goals (there is a very
| loose correlation between adherence to MMT and certain
| progressive policy goals, but they aren't the same thing.)
|
| MMT is an _understanding of factual nature of the
| environment in which government operates_. Reduced to one
| sentence it is "the entire concept of fiscal balance is
| play-acting as if the government was using commodity or
| externally-controlled fiat currency, rather than it 's own
| fiat and a distraction from the real constraints on
| government finance, rather than something which reflects,
| or even loosely guides policy makers towards, the real
| constraints."
| grey-area wrote:
| Your definition is circular. What proves MMT is in any
| way 'factual'.
|
| MMT is an old lie, oft repeated, and only discovered as a
| lie after it is far too late.
| stale2002 wrote:
| > it's not an ideology or set of policies or even policy
| goals
|
| That might be true in the academic sense.
|
| But in reality, the only people who talk about MMT are
| people who just want to spend money infinitely and claim
| that there is no negative consequences to doing so.
|
| Which of course, doesn't make any sense if you know
| anything about MMT in the academic sense, which
| absolutely admits that there is negative consequences to
| spending/money printing.
|
| Mainstream economists don't really think MMT has much to
| say, TBH, and few professionals care about it.
| brimble wrote:
| As someone who took a lot of political science and
| economics classes once upon a time, and has an ongoing
| amateur interest in these things, MMT is the first time
| I've looked at one of these macro-level
| explanations/descriptions and _not_ felt like I needed to
| ask a bunch of stupid questions that are (inevitably)
| going to be dismissed with a heaping dose of
| condescension. Finally, something that _makes total
| sense_ when I look at how real world systems (and
| especially governments) behave.
| hn_version_0023 wrote:
| The best definition of _Congress_ I've ever seen was this:
|
| Congress: 535 ants on a leaf, floating down a river towards
| a waterfall, with each ant thinking they're steering.
|
| I share your lack of confidence.
| mushbino wrote:
| If it said being paid not to steer, I think that would
| make more sense in our current oligarchy.
| travisgriggs wrote:
| Let's rebrand it as Critical Fiscal Theory.
|
| I've got my popcorn already.
| kregasaurusrex wrote:
| Not-quite Fiscal Theory: the fed mints a $1 trillion
| dollar platinum coin and lends it to congress to allocate
| the year's budget. The coin may not have any value beyond
| spot, but everyone can see that congress has a rare piece
| of metal!
| somewhereoutth wrote:
| The great thing about fiscal policy is that it can be
| targeted, unlike monetary policy, for example to address
| wealth imbalance.
| simpthrown8id wrote:
| >>Conceptually the answer in the theory is to suck up the
| excess money with taxes
|
| Govt spending is already 45% of GDP, so there's not much room
| to increase it more.
|
| As for MMT, I think what the MMT crowd doesn't realize is that
| there's a lot of latent inflation coming. Asset prices and CPI
| do not go up in tandem. First Asset prices are inflated, then
| later for the next decade or so, as people slowly make
| withdrawals from those inflated asset prices, it begins to
| affect the CPI. And that's where we are right now, at the
| beginning of the CPI impact.
| toyg wrote:
| _> Govt spending is already 45% of GDP, so there 's not much
| room to increase it more._
|
| Several European countries are well over 50%. There is plenty
| of room.
| cjsplat wrote:
| I can't repro the 45% number.
|
| BEA says 2021 US GDP is nearly $23T, CBO says total 2021
| budget is $6.8T.
| jmalicki wrote:
| Federal budget is $6.8T, the 45% includes state and local
| government spending as well.
|
| https://fred.stlouisfed.org/graph/?g=8fX https://en.wikiped
| ia.org/wiki/Government_spending_in_the_Uni....
| tarsinge wrote:
| As I understand it taxes in MMT are just destruction of
| money, it's the essential counterpart of money creation used
| to balance supply. It's irrelevant to GDP and spending in
| that model, since in MMT the government doesn't need taxes to
| spend, it just print what it needs, that's the core idea.
| nostrademons wrote:
| Interestingly, the mechanics of this seem backward. A major
| problem with the Fed's operations is that operations on
| financial markets take 12-18 months to spread to the real
| economy, so they have to target interest rates _now_ based
| on what they think the economy is going to look like in
| 12-18 months. Conversely, money going into or out of the
| average person 's checking account _now_ affects what they
| do in the real economy _now_ , without a lag time. When
| we've recovered from significant economic crises (2008 and
| 2020), it's often been through direct fiscal stimulus.
|
| It seems that the logical thing to do would be to put money
| _into_ the economy through directly giving it to citizens,
| and then take money _out_ of the economy through interest
| rates, by making it more expensive to borrow and reducing
| business investment. Typically you want to put money into
| the economy in a hurry, in response to a crisis, but you
| want to take it out gradually, so that businesses can plan
| ahead. MMT 's framing of this still seems backwards, even
| if they've realized that fiscal and monetary policy are two
| sides of the same coin. You'd also get a lot less political
| resistance to the fiscal policy side if it involved giving
| people money rather taking money away from them.
| Scarblac wrote:
| I seem to recall that France used to do this -- create
| money for government spending, taxed money ceases to exist,
| no need for government debt. But I can't find anything
| about it, and I don't know if I'm just not using the right
| search terms.
|
| Has this been put into practice in large countries before?
| zer0tonin wrote:
| Is France a small country now?
| causalmodels wrote:
| I am by no means a fan of mmt, but I think looking at
| government spending as a share of GDP misses the point mmt
| proponents attempt and often fail to make; which is that
| financial constraints are should not be the limiting factor
| of the economy.
|
| A better indicator would be the price of labor and
| commodities since they better reflect the constraints of the
| real economy. Unfortunately for the mmt people, the prices
| are going nuts because we are actually dealing with real
| resource constraints now.
| hn_throwaway_99 wrote:
| > >>Conceptually the answer in the theory is to suck up the
| excess money with taxes
|
| > Govt spending is already 45% of GDP, so there's not much
| room to increase it more.
|
| Taxes (government income) is not all that related to
| government spending, as we've seen recently.
| dillondoyle wrote:
| I can think of a few trillion in urgently needed money we
| could spend taxes on: renewable energy, batteries,
| retrofitting homes for chargers, resilience building (and
| paying people to move out of high risk areas), invest in
| carbon capture/moonshots.
| ummonk wrote:
| MMT doesn't prescribe spending to curb inflation; it
| prescribes taxes.
| paulpauper wrote:
| has MMT worked. it remains to be seen
| unyttigfjelltol wrote:
| Says the man midway through a 40-story fall from a
| skyscraper: "So far so good!"
| birdyrooster wrote:
| The alternative is a static or deflationary currency. This
| leads to hoarding of assets which were originally intended
| to serve and increase commerce. Think Bitcoin. Without MMT,
| we would be falling from a skyscraper as you depict.
| [deleted]
| datavirtue wrote:
| You can expect inflation as you grow the money supply.
| Inflation is good. Runaway, uncontrolled inflation is not. We
| have not had, nor do we have now, runaway inflation. You have
| to grow the money supply as the population and productivity
| increases. Most of the talk and reporting on inflation is just
| silly.
| MuffinFlavored wrote:
| How did "printing lots of money"
| https://fred.stlouisfed.org/series/CURRCIR not spike USD to
| EUR? did EUR also print lots of money?
| https://finance.yahoo.com/quote/USDEUR=X/ basically unchanged 5
| years ago -> now
| ThePhysicist wrote:
| M3 has roughly tripled in the last 20 years, so yeah we've
| printed lots of money too.
| OGWhales wrote:
| > I never quite understood how this theory would work while
| avoiding inflation
|
| I see this sentiment any time MMT is brought up. I think it
| shows a misunderstanding of what MMT is saying.
|
| While I've got my own issues with MMT, it's always been made
| clear by MMTers that inflation is an important signal to
| respect and that you can't infinitely 'print' money due to the
| constraint of real resources.
| freedomben wrote:
| You're correct, but I think the problem is that a lot of
| people who advocate for MMT, don't actually understand it,
| because many of the pro-MMT people I've talked to _really do
| think you can print money forever_.
|
| It's not unique to MMT, the same thing happens with plenty of
| other subjects too.
| causalmodels wrote:
| Not even the MMT people understand MMT. The lack of formal
| models means everyone is working with wildly different and
| often contradictory definitions
| OGWhales wrote:
| > everyone is working with wildly different and often
| contradictory definitions
|
| I've found the main MMTers to be mostly consistent
| amongst themselves in their theories. Now, I think some
| ideas are wrong, but they do seem mostly on the same
| page. I agree MMT does an excellent job convincing laymen
| of some pretty wacky ideas and that's one of my bigger
| complaints with it.
|
| Also, I find the focus on mathematical models problematic
| in mainstream economics. It obfuscates a lot of erroneous
| assumptions. Models are great for testing, but words are
| useful for communicating ideas too and can sometimes be a
| better format, especially for wider audiences. To be
| clear, I'm not saying models are bad or that MMT
| shouldn't use them, in fact I saw one MMTer post this
| paper recently:
| http://www.levyinstitute.org/pubs/wp_992.pdf
| xxpor wrote:
| I think people conflate what MMTers were saying post-2008,
| which was we had WAAAAAAAAAAAY more capacity to print
| money, especially from 2008-2014 or so, with we can spend
| literally infinite money. And so you get all of these
| people saying "MMT was wrong" with the pandemic inflation,
| when it's the exact opposite. We started running into
| _real_ resource constraints (due to lockdowns, supply chain
| issues, etc) and inflation shot up exactly as expected.
| Now, even as an MMT fan, I 'm perfectly willing to admit
| that predicting _where_ the real constraint is is extremely
| hard. And that politically in the US raising taxes on a
| dime is basically impossible. But MMT wasn 't wrong, for
| the parts that have been tested as much as they can be.
| OGWhales wrote:
| Absolutely, I think MMT in particular is prone to doing
| this and it's one of my bigger gripes with it.
| mariodiana wrote:
| Even if we imagine MMT working perfectly -- whatever that means
| -- it represents a stealthy redistributing of wealth. The idea
| behind it is for the government to acquire and then
| redistribute goods and services from those in the private
| sector who would otherwise command that wealth, and do
| something else with it: in other words, give these goods and
| services to others.
|
| And no one is going to notice this? The people who are used to
| enjoying some quantity of goods and services are not going to
| notice that they now enjoy less, because someone else is
| enjoying them?
|
| Or, is this somehow supposed to "stimulate" the economy, so
| that more goods and services are actually produced, because of
| the extra money?
|
| This is alchemy. Production comes before consumption.
| hn_throwaway_99 wrote:
| Here are the first two paragraphs on the MMT Wikipedia article:
|
| > Modern Monetary Theory or Modern Money Theory (MMT) is a
| heterodox[1] macroeconomic theory that describes currency as a
| public monopoly and unemployment as evidence that a currency
| monopolist is overly restricting the supply of the financial
| assets needed to pay taxes and satisfy savings desires.[2][3]
| MMT is opposed to the mainstream understanding of macroeconomic
| theory, and has been criticized by many mainstream
| economists.[4][5][6]
|
| > MMT says that governments create new money by using fiscal
| policy and that the primary risk once the economy reaches full
| employment is inflation, which can be addressed by gathering
| taxes to reduce the spending capacity of the private sector.[7]
| MMT is debated with active dialogues about its theoretical
| integrity,[8] the implications of the policy recommendations of
| its proponents, and the extent to which it is actually
| divergent from orthodox macroeconomics.[9]
|
| Regarding this being a "test" of MMT, I don't see why. The
| first part of the first sentence of that second paragraph, _MMT
| says that governments create new money by using fiscal policy
| and that the primary risk once the economy reaches full
| employment is inflation_ , which seems to be precisely what has
| happened, no?
| IncRnd wrote:
| > ...and that the primary risk once the economy reaches full
| employment is inflation, which seems to be precisely what has
| happened, no?
|
| Certainly, there is inflation. There isn't full employment.
| standeven wrote:
| How do you define full employment? The unemployment rate in
| the USA is currently 3.8%.
| IncRnd wrote:
| BLS defines full employment as an economy in which the
| unemployment rate equals the nonaccelerating inflation
| rate of unemployment (NAIRU), no cyclical unemployment
| exists, and GDP is at its potential. [1]
|
| [1] https://www.bls.gov/opub/mlr/2017/article/full-
| employment-an...
| ummonk wrote:
| There's no strict definition, but an unemployment rate
| <4% almost certainly corresponds to full employment, as
| frictional unemployment can be expected to be ~4%.
| drexlspivey wrote:
| Unemployment < 4% is basically full employment. People that
| are changing jobs are temporarily unemployed. Another
| metric you can use to reach the same conclusion is that #
| of job openings > unemployed work force
| IncRnd wrote:
| That's U-3. U-6 is at 7.2%. In general the claim that
| many people are not returning to work after COVID
| lockdowns is true. The reasons are up for debate, but
| that's not the point. The U-3 rate is an artificial rate
| to claim as the truth. That's moving the goal posts in
| order to get the win.
|
| Plus there are a record number of unfilled job openings.
| bskap wrote:
| U-6's 7.2% is compared to 7.0% in February 2020 and 8.1%
| in February 2007. So even that is similar to pre-Covid
| levels and better the the peak before the last recession.
| IncRnd wrote:
| How does that apply to full employment?
| bskap wrote:
| The 5% = full employment threshold has always been
| calculated based on U3. That's what they measured to come
| up with that estimate. If you want to talk about how U6
| is better, then you need to compare it to previous U6
| measurements, not previous U3 measurements.
|
| If, as you were implying, U3 was hiding extra
| unemployment right now but U6 was more accurate, then it
| wouldn't be so closely tracking U3.
| [deleted]
| hn_throwaway_99 wrote:
| Your argument is a non sequitur to me:
|
| > Plus there are a record number of unfilled job
| openings.
|
| Yes, which would basically imply that it's incredibly
| easy for anyone who wants a job to get one.
| IncRnd wrote:
| > Your argument is a non sequitur to me:
|
| For something to be a non sequitur, it must be a non
| sequitur to everyone, not just to one. This is not a non
| sequitur for two reasons. 1) The sentence
| you quoted was not intended to be a consequence
| of the earlier statement. Unemployment rate and
| number of job openings are connected, but not as you
| believe. Correlation is not causation. You are drawing
| inferences without cause. 2) Full employment
| depends upon the number of job openings as well
| as the unemployment rate, which you ignored from
| my comment.
|
| > Yes, which would basically imply that it's incredibly
| easy for anyone who wants a job to get one.
|
| No. That is your inference but is clearly not implied.
| AceJohnny2 wrote:
| How is "unemployment" defined in the US? Take those
| numbers with a grain of salt.
|
| In France, you were counted as "unemployed" if you were
| registered with the national employment agency and
| actively looking for employment _according to their
| criteria_.
|
| If you didn't find anything (for example because the
| opportunities on offer were too far away, or various
| other reasonably human reasons) after a certain time, the
| agency dropped you, and you were no longer part of the
| "unemployed" statistic. Unemployment went down!
|
| I've also seen the government there change their criteria
| for unemployment (for example dropping you after 9 months
| instead of 12), to make it seem like unemployment went
| down.
|
| (I'm a big believer in statistics-driven policies, but
| statistics, like anything involving humans, can be
| corrupted)
| bskap wrote:
| The US uses a large-scale survey for unemployment rather
| than tying it to the unemployment process. The official
| definition most people quote is based on responses to the
| survey of "have not worked recently, have looked for work
| recently" but there are also broader measures of
| unemployment that count people who want to work even if
| they haven't looked, as well as people working part time
| who want to work full time.
|
| Using even the broadest measure of unemployment[1],
| numbers are back down where they were before Covid. The
| labor force participation rate is still down though[2]
| which means that about 2% of US adults aren't looking to
| go back to work at all- many of them are likely now
| retired, students, or stay-at-home parents.
|
| [1] https://fred.stlouisfed.org/series/U6RATE [2]
| https://fred.stlouisfed.org/series/CIVPART
| IncRnd wrote:
| That's very astute of you. The GP was talking about a
| rate called U-3, but the U-6 rate is far more
| descriptive. U-3 is what is generally used as the quoted
| rate, because it severely minimizes actual unemployment,
| allowing the Federal Government to use false statistics.
| [1]
|
| [1] https://www.bls.gov/news.release/pdf/empsit.pdf
| alexilliamson wrote:
| I'm glad someone else got on this soap box today. Folks
| will bend over backwards to justify the U-3 rate when
| it's not that meaningful at all.
| xxpor wrote:
| It's extremely meaningful. It measures those who are
| unemployed. U-6 counts underemployment and people not
| actively searching due to an "economic reason".
|
| Even regardless, the current U-6 rate is very close to
| the record low: https://fred.stlouisfed.org/series/U6RATE
| OGWhales wrote:
| MMTers argue that government spending at full employment
| will cause inflation, not that there must be full
| employment for there to be inflation.
| dlp211 wrote:
| Inflation has many inputs and looking at inflation strictly
| through a monetary lens will provide a distorted picture as
| to why there is inflation.
|
| Additionally, MMT states that it needs to use taxes to
| manage inflation, which the US federal gov't is clearly not
| doing, which undermines the testability of the theory.
| zemptime wrote:
| MMT has seemed to me to be an academic fig leaf over the
| indirect taxation which occurs when more money is printed.
| MMT is fundamentally wrong, and everyone smart knows it is,
| but you as an individual can't make any sort of "respected"
| career as an economist unless you say the right things or
| are stupid enough to believe them.
| ericmay wrote:
| Aren't there record job openings?
|
| I know "full employment" is a loaded term here, but at
| least in a general sense all who want a job could at least
| find _something_ right?
|
| One thing I'd be interested in seeing a discussion on as it
| relates to this topic is what happens when there is a
| legitimate labor shortage.
| Mountain_Skies wrote:
| Not all job openings exist with the intention of ever
| being filled.
| germinalphrase wrote:
| Wouldn't it also suggest that the prescribed inflation
| antidote - raising taxes - would be impractical due to
| political opposition. Seems like a double win: stand strong
| against raising taxes (which is the heterodox position) while
| showing MMT "doesn't work".
| mudlus wrote:
| All value is explanatory, that is, even if it has "intrinsic
| value" like carbohydrates in ATP in a cell, it is still
| knowledge instantiated for a resilient purpose (eg to power a
| cell to replicate its knowledge).
|
| As explanations change, value changes, so anything can be a
| currency at the level of the individual--in this way, at
| least for conscious minds, a public monopoly on money is,
| while possible, morally wrong. It's a form of Marxism.
|
| There's already been a solution the problem of state monopoly
| on symbolic abstractions for value (money), that started with
| Bitcoin and has been growing a new global economy since 2009.
| xxpor wrote:
| The state has a monopoly on money because they collect
| taxes. Try paying your taxes in BTC and tell me how that
| goes.
| paulpauper wrote:
| here begins the process of the fed sllowwwwly raising rates, well
| behind the rate of inflation. Either buy stocks or lose $ due to
| inflation. NO way out
| AviationAtom wrote:
| This is pretty much it. The engine already overheated, now
| we're just dumping water on it.
| mtoner23 wrote:
| Or you could use your capital to invest in a business to
| increase the supply of goods that this excess money is chasing.
| That would help fight inflation.
| AviationAtom wrote:
| This is one of the best ideas, but it would be wise to find a
| business that is recession resistant.
| afterburner wrote:
| Overdo it and you crash the economy. On top of that, inflation
| is still likely going to fall back down in a year, so no reason
| to overcorrect now when the downside is so bad.
| trgn wrote:
| Which isn't what's happening. It's been months now that this
| was being floated, and the stock market has been volatile the
| last half year, an outright bear market in some sectors.
| Trillions in equity have evaporated already, and that's not
| even taking into account the wealth erosion of high inflation.
|
| Now's the time to be skilled, but not the time to be a rentier.
| paulpauper wrote:
| Probably half of that selling is due to Ukraine . Also, a few
| months of weakness does not change the long-standing trend of
| stocks being a good hedge against inflation. Stocks generated
| real returns in the 80s, 90s, 2003-2007, 2015-2017 despite
| the fed raising rates.
| yalogin wrote:
| We did waste the 3 yrs before Covid hit by not increasing
| interest rates and not reducing Fed's money printing. I don't
| know if it's the fed or if the government pushing to win
| elections, but feels like we didn't take care of the house in
| good times and we have led ourselves into this cycle.
| spaetzleesser wrote:
| Slowing down GDP growth or the stock market would have been
| political suicide. It would probably have been a good thing in
| the long-term but long-term planning is not feasible anymore in
| the current climate. Sadly it's a winning strategy to inflate
| bubbles.
| drexlspivey wrote:
| The FED balance sheet was decreasing from Jan 2018 till covid
| hit and it was stable the 4 years prior to that
| r00fus wrote:
| Hmm - I wonder who appointed the current Fed chair?
| stjohnswarts wrote:
| The current Fed chair has basically the same idea on
| economics as Yellen. Likely not much would have changed if
| she'd stayed in office.
| nostromo wrote:
| True -- but note that Yellen was appointed by the same
| president.
| jonathanpeterwu wrote:
| Yeah no doubt about this. But its also important to remember
| we've been doing this non stop since 2008 minus a few months
| in 2018. So this is a multi president, both parties are
| involved in continuing this train.
| spaetzleesser wrote:
| People have been conditioned to believe it's either one or
| the other party's fault. And they decide whether things are
| going well or not so well based on whether their favorite
| president is in power. Nobody looks at the actual data.
| trustfundbaby wrote:
| >We did waste the 3 yrs before Covid hit by not increasing
| interest rates and not reducing Fed's money printing.
|
| Most of the money printing happened in 2020 and after.
| https://fred.stlouisfed.org/series/M1SL
| bduerst wrote:
| *Printing money, but in response to covid stagnation in 2020.
|
| Printing and interest rates are separate. There was still a
| missed opportunity to increase interest rates while the
| economy was running hot prior to 2020.
| np_tedious wrote:
| It's not as dramatic as that looks. They changed the
| definition of M1.
|
| From the same link:
|
| Before May 2020, M1 consists of (1) currency outside the U.S.
| Treasury, Federal Reserve Banks, and the vaults of depository
| institutions; (2) demand deposits at commercial banks
| (excluding those amounts held by depository institutions, the
| U.S. government, and foreign banks and official institutions)
| less cash items in the process of collection and Federal
| Reserve float; and (3) other checkable deposits (OCDs),
| consisting of negotiable order of withdrawal, or NOW, and
| automatic transfer service, or ATS, accounts at depository
| institutions, share draft accounts at credit unions, and
| demand deposits at thrift institutions.
|
| Beginning May 2020, M1 consists of (1) currency outside the
| U.S. Treasury, Federal Reserve Banks, and the vaults of
| depository institutions; (2) demand deposits at commercial
| banks (excluding those amounts held by depository
| institutions, the U.S. government, and foreign banks and
| official institutions) less cash items in the process of
| collection and Federal Reserve float; and (3) other liquid
| deposits, consisting of OCDs and savings deposits (including
| money market deposit accounts). Seasonally adjusted M1 is
| constructed by summing currency, demand deposits, and OCDs
| (before May 2020) or other liquid deposits (beginning May
| 2020), each seasonally adjusted separately.
| colinmhayes wrote:
| m1 graph is incredibly misleading because they changed the
| definition, and even before it was still quite limited.
| Here's the real money supply
| https://fred.stlouisfed.org/series/WM2NS
| tlogan wrote:
| We have an inflation which is about 8% while mortage rates on 30
| year fixed are just 4.7% (15 year fixed are just 3.8%).
|
| So I really do not understand logic here: how can bank give me
| money at rate 2x times lower than inflation.
|
| Seems like free money (and it is no surprise that home prices are
| going thru the roof).
|
| But I'm probably naiive here and do not understand how banking
| works.
| 01100011 wrote:
| I have no idea if any of this is correct, but my understanding
| is that mortgage rates are set, more or less, by the market.
| You have buyers(say, pension funds) with a lot of cash that
| they need to invest in a relatively safe way. They bid on
| mortgages and whatever they're willing to pay for those loans
| sets the mortgage rate. Up until(or maybe still including) now,
| the Fed has also been one of those buyers in an attempt to push
| down those mortgage rates.
|
| Rates are low because there aren't a lot of alternatives for
| safely storing cash right now. Normally you could buy
| government bonds, but rates on those are also negative for the
| same reasons(demand along with fed buying).
|
| When rates on government bonds rise, or when it's obvious we're
| back in a period of consistent inflation(likely, given the
| fed's weak move today), investors will have other options and
| the demand for cheap mortgage debt will dry up at the current
| price, pushing rates higher.
| mercutio2 wrote:
| The finance industry is not predicting that inflation will
| continue at its current pace.
|
| That, plus the 30 year fixed interest mortgage market is not a
| naturally occurring market, it is heavily subsidized.
| HeavenFox wrote:
| Presumably inflation is not going to stay at 8% over the next
| 30 years.
|
| In fact the current 30-year expected inflation is only at 2.2%:
| https://fred.stlouisfed.org/series/EXPINF30YR
| MuffinFlavored wrote:
| Have you peeled back the categories measured by the 8%
| inflation? This is stupid for me to say but, for example...
| Used car prices factor into that 8% number. But if you aren't
| shopping for a used car... it doesn't really affect you, right?
|
| Housing affects mostly everybody. Same with energy. I don't
| truly understand the weighting or everything that goes into the
| 8% CPI getting tossed around and I understand that it comes out
| to "on average as a whole, you as a consumer are most likely
| seeing a roughly 8% increase in cost" but I wonder if it is
| worth calling out that "actual personally perceived inflation"
| might be less (or more) than 8%
|
| My rent hasn't gone up, I haven't bought a different (new or
| used) car. Gas is more expensive surely but I think that's an
| extra $40/mo for me or so. I think Chipotle bowls cost about $3
| more now... Not exactly life changing?
| jcadam wrote:
| Got my mortgage at 2.75% late last year. Woooooo.....
| seizethecheese wrote:
| What do you think is going to happen to your home price is
| interest rates go up to 5% and then people can't afford huge
| mortgages anymore?
| [deleted]
| jyu wrote:
| Prices will stay the same, but days on market increases.
| Inflation works itself through the system and eventually
| there will be a buyer.
| solveit wrote:
| Shouldn't be too relevant if they're planning on living in
| the house for the next ~30 years.
| jcadam wrote:
| We'll see. we didn't have inflation like this during the last
| big downturn in 2008. I also don't think the Fed is going to
| be able to raise rates as high as they did back in the early
| 80s.
| nostromo wrote:
| The economy would collapse, along with the US government,
| at even moderately-high interest rates.
|
| The federal government is $30t in debt. Even a small rise
| in interest rates would quickly make the entire federal
| budget servicing the debt.
| nwmcsween wrote:
| We currently have runaway inflation, if you look at how
| inflation was calculated in 1980s compared to now it would
| be between 12-16%.
| novateg wrote:
| Got mine at 2.25% in 2020. I'm saving $500k for 360 months with
| the rate i got
| lapetitejort wrote:
| If you're a dummy like me, 25 bps means 0.25%.
| [deleted]
| trelane wrote:
| Technically, it does not, raising 0.25% is always in relation
| to the existing value of the thing, so increasing a percentage
| by a quarter of a percent would mean increasing it by a quarter
| of a percent of its existing value.
|
| On the other hand, "basis percentage points" means something
| absolute, not relative to the existing level.
|
| Pedant out. :)
| [deleted]
| HWR_14 wrote:
| Pedantry is _useless._
|
| It's very useful to know the difference between the two. It's
| similar to many other things where there are two concepts
| that people conflate into one word and then spend a long time
| complaining or creating humor about confusing the results.
| trelane wrote:
| Obligatory Jayne: "let's see... A quarter percent of nothing,
| carry the nothing, is.. nothing!"
| monktastic1 wrote:
| The claim wasn't that "raising by 25 bps" should be
| interpreted the same as "raising by .25%", it was:
|
| > 25 bps means 0.25%.
|
| In a sense, that is technically correct: it _does_ refer to
| .25% -- not of the _current_ value but of the 100% value.
| dmurray wrote:
| While we're at it, we should remember that this isn't a
| unitless number although it's often confused for one.
|
| Interest rates are being raised by .25% _per year_.
| nimbius wrote:
| imo this has been a comically glacial effort, and im not sure
| the feds 1.9% interest target by EOY is anywhere near
| aggressive enough to stave off 10% or greater inflation by Q4.
| What i really think are needed --Clinton era 4-5% rates-- are
| all but taboo to the market post-housing-collapse. nearly a
| year ago the fed was cheerleading "transient" inflation in an
| attempt to avoid culpability for the corporate credit bubble it
| created during 2008's post financial meltdown. the article is
| pretty fixative about 2018 but IMO this goes a long way back.
| Quantitative easing measures from from 2010 lke low credit and
| bond buyback were still going on in 2021. The coming to jesus
| moment for the fed that july bond buyback cessation targets
| would be a disaster was likely the 2021 holiday shopping slump,
| and we didnt start honestly talking about raising prime
| interest until febuary.
|
| the reason 1.9%, and the reason this is a desperate tightrope,
| is that the fed has the very real ability to blow up the
| corporate credit bubble with prime interest.
| throw0101a wrote:
| > _imo this has been a comically glacial effort, and im not
| sure the feds 1.9% interest target by EOY is anywhere near
| aggressive enough to stave off 10% or greater inflation by
| Q4._
|
| How much of the current inflation has anything to do with
| interest rates? You think oil/gas prices will care much about
| the Fed's action?
|
| And we still have supply chain issue before all geopolitical
| problems even started: just try asking network vendors what
| their lead times are for switches and routers.
|
| For consumers, Ford is shipping cars with missing
| functionality:
|
| * https://arstechnica.com/cars/2022/03/ford-ships-explorers-
| mi...
| latchkey wrote:
| I run several datacenters. Switches are impossible to find
| right now.
| rndphs wrote:
| The amount of money being circulated absolutely does affect
| inflation (almost by definition). The Fed interest rate
| affects the amount of money in circulation because the Fed
| credit money is simply printed. This printed credit money
| gets spent and ends up circulating. The lower the interest
| rate, the easier it is to borrow, the more borrowing gets
| done, the more money is printed and enters circulation,
| which leads to inflation.
|
| Theoretically, the money needs to be paid back eventually.
| But as long as the Fed interest rate is below inflation,
| paying back can always be put off by covering the previous
| debt with new debt.
| throw0101a wrote:
| > _The amount of money being circulated absolutely does
| affect inflation (almost by definition)._
|
| No, money supply [?] inflation. E.g., Japan M2:
|
| * https://fred.stlouisfed.org/series/MYAGM2JPM189S
|
| Japan inflation:
|
| * https://fred.stlouisfed.org/series/FPCPITOTLZGJPN
|
| Why do Friedman-esqe Monetarists continue to ignore
| velocity?
|
| * https://fred.stlouisfed.org/series/M2V
|
| I personally like Cullen Roche's analogy:
|
| > _But this is what so much of the money supply
| represents - money that has been issued and is just
| sitting around unused. Why is this useful? It's like
| calculating your weight changes by counting how much food
| you have in your refrigerator. No. That's potential
| calories consumed and potential weight gain. The amount
| of food in your fridge tells you little about your future
| weight changes just like the amount of money in the
| economy tells us little about the actual price changes in
| the economy._
|
| * https://www.pragcap.com/three-things-i-think-i-think-i-
| see-d...
|
| > _The Fed interest rate affects the amount of money in
| circulation because the Fed credit money is simply
| printed. This printed credit money gets spent and ends up
| circulating. The lower the interest rate, the easier it
| is to borrow, the more borrowing gets done, the more
| money is printed and enters circulation, which leads to
| inflation._
|
| Things do not work like this. Money gets created through
| private banks by credit creation, and the only limit on
| that is the the risk they see in their loans being
| defaulted on. The Bank of England put out a primer a few
| years ago:
|
| > _The reality of how money is created today differs from
| the description found in some economics textbooks:
| Rather than banks receiving deposits when households save
| and then lending them out, bank lending creates deposits.
| In normal times, the central bank does not fix the amount
| of money in circulation, nor is central bank money
| 'multiplied up' into more loans and deposits._
|
| * https://www.bankofengland.co.uk/quarterly-
| bulletin/2014/q1/m...
|
| Roche again from a 2011 paper, "Understanding the Modern
| Monetary System":
|
| * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=190
| 5625
|
| Banks create (hopefully) viable loans first, and then
| look for reserves after--assuming reserve requirements
| even exist, as many countries removed them decades ago.
| syshum wrote:
| This is the thing, the entire fiat currency system will
| at some point likely be recorded in history as the
| largest fraud ever perpetuated in civilization.
|
| Moves like removing reserves completely just move us
| further over the ledge into the clear ponzi scheme that
| it is
|
| If any private actor attempted to do what central banks
| do, they would be rightfully jailed. We should not allow
| central banks to do things private actors can not do
| boppo1 wrote:
| Sure, but if the interest rate is lowered arbitrarily
| rather than based on some market function, don't unworthy
| businesses get loans? Seems like we sacrificed efficiency
| and price discovery to keep employment numbers high.
| HWR_14 wrote:
| > How much of the current inflation has anything to do with
| interest rates? You think oil/gas prices will care much
| about the Fed's action?
|
| Yes. Oil/Gas prices are pretty determined by OPEC voting
| and production of their member countries in conjunction
| with other macroeconomic issues. OPEC adjusts their
| production to take into account macroeconomic factors. The
| Fed rate is one of those issues.
| fundad wrote:
| Hiring back 10 million laid-off workers is expensive and
| consumers are paying the bill. The problem is wage growth
| at the bottom is the last thing elites want.
| syshum wrote:
| Alot... the only reason why a middle class family can
| afford that new $80,000 F150 is because 0% financing over
| 7-8 years.
|
| Supply chain issues are being exacerbated by "free money"
| from the fed...
| tryptophan wrote:
| It has everything to do with it.
|
| If they were higher, people would go bankrupt, not have
| money to drive, use less gas/oil, thus reducing demand,
| thus reducing price, thus reducing inflation.
| colinmhayes wrote:
| It certainly does not have everything to do with it. The
| answer is somewhere in the middle. Cheap money absolutely
| causes inflation, but so do global supply chain
| breakdowns.
| chasd00 wrote:
| > but so do global supply chain breakdowns
|
| i would believe supply chain issues were major
| contributors to inflation if wages were not rising. It
| seems to me a supply chain problem causes price to go up
| but wages would not. The price increase by the retailer
| is there to pay for their price increase to the
| wholesaler, not to increase employee wages.
| mindslight wrote:
| IMO rather than talking about ambiguous "inflation", one
| should be specific about what exactly is being inflated -
| "monetary inflation", "asset inflation", "price
| inflation", etc. Monetary inflation occurred when the Fed
| printed several trillions of dollars back in 2020, asset
| inflation occurred soon thereafter, and then price
| inflation took hold throughout 2021 as that new money
| trickled into consumers' hands.
|
| It doesn't particularly make sense to call the current
| rising oil price inflation (that would make "inflation"
| just a synonym for price increases), but the price of
| energy going up will cause broad price inflation down the
| line.
| colinmhayes wrote:
| Unless I know I'm talking to an economist I use inflation
| to mean price inflation, because that's what every non
| economist thinks it means. You are certainly right that
| it's ambiguous in a technical sense though.
| posnet wrote:
| Yes, but have they tried raising interest rates, _and_
| kill all the poor people?
|
| https://www.youtube.com/watch?v=owI7DOeO_yg
| hgomersall wrote:
| It might possibly have an effect, in the same way that
| anything that causes more unemployment and increases the
| likelihood of a recession might have an effect.
| analyst74 wrote:
| Current rate, which is nearly 0, is also an important
| consideration.
|
| What this means is if you borrow at 0.25% interest rate
| yesterday, and it becomes 0.5% tomorrow, your cost of borrowing
| just doubled.
| mywittyname wrote:
| Percent-of-a-percent is how I remember it.
|
| More technically, a hundredth of a percentage point.
| cm2187 wrote:
| When inflation is at 8%, that's like pissing on a forest fire.
| afterburner wrote:
| They are saying they will raise it several more times this
| year.
|
| Inflation isn't the worst economic problem you can have,
| unemployment and deflation are. And raising interest rates
| risks raising unemployment, and even causing a recession if
| you're too aggressive.
|
| The inflation could still be a temporary effect of the COVID
| years, so if you overdo it, you'll risk dampening economic
| activity too much when it was going to go down after a year
| anyways.
| cm2187 wrote:
| even if you add the subsequent increases, they add up to
| 1.5%. That won't do anything to an inflation of 8% raging
| right now.
| afterburner wrote:
| If the inflation falls later on, that 1.5 won't look so
| bad. No reason risk to crash the economy right when it's
| just starting to recover. Overcorrecting is bad.
| cm2187 wrote:
| It has been high for a year already and everything points
| to it worsening (the 8% doesn't include Ukraine, which
| will push both energy and food prices up). It is because
| it is not temporary anymore than the Fed is forced to act
| now.
| rafale wrote:
| That's the most optimistic number possible. For most people, I
| am sure the actual cost inflation is higher.
| mikaeluman wrote:
| This was expected since at least December. The market is pricing
| in 6 more rate increases throughout the year. They simply can't
| afford to lag behind inflation too much for too long.
| voisin wrote:
| Am I incorrect in thinking they also can't afford to let rates
| rise too much as they can't afford the interest payments?
| mikaeluman wrote:
| The FED receive interest payments. They don't make them.
|
| But yes, raising too much too fast will cause stress and
| defaults, and nobody wants that unless it's absolutely
| necessary.
| voisin wrote:
| Federal Reserve receives but the payments are made as a
| share of the government's budget, no? So the Fed is trying
| to balance inflation with effectively defunding the
| governments non-debt servicing initiatives.
| cheriot wrote:
| Higher interest payments just means the Gov borrows more.
| I don't think the Fed is concerned about the ability to
| issue new debt.
| drexlspivey wrote:
| The coupon payments in the government's existing debt are
| fixed and as such they are not effected by any changes.
| It will only affect newly issued debt while the debt is
| being rolled over which will take some time (the average
| maturity is around 5 years)
| lvl102 wrote:
| Higher rates won't impact US as much as they will impact emerging
| economies. Those countries will face food crisis in addition to
| rapidly rising debt costs. Keep an eye on this because we are on
| cusp of civil unrests across the globe.
| UncleOxidant wrote:
| War in Ukraine will have a much larger effect. Something like
| ~25% of global wheat supply comes from Ukraine and Russia.
| There won't be any planting to speak of in Ukraine this spring.
| And Russian wheat is pretty much off the world market.
| cjbgkagh wrote:
| I've heard from Russian sources (so take with grain of salt)
| that they've avoided the center of Ukraine to allow locals to
| plant food. So maybe some planting may take place.
| lvl102 wrote:
| Yes, it went from bad to insurmountable in many poor parts of
| the world and not enough people are talking about it if any.
| frockington1 wrote:
| They did the absolute minimum to appear to be able to say they
| are dong something. With official inflation nearing 8%, this is
| nowhere near enough. SO far equity markets agree this is
| effectively nothing
| hgomersall wrote:
| It's only nowhere near enough if you view the process as
| something other than a huge charade. Take a look at the
| predicted inflation to see how little the monetary policy
| "experts" have a clue.
| zthrowaway wrote:
| They'll get more aggressive with it after the midterms.
| chipgap98 wrote:
| Isn't this the first of many hikes planned for 2022?
| standardUser wrote:
| The Fed said to expect up to 7 increases this year.
| jcadam wrote:
| As soon as the economy starts really sputtering, they'll
| reverse course.
| czbond wrote:
| And no one believes them. The bond market is doing the rate
| cuts for them.
| boppo1 wrote:
| > The bond market is doing the rate cuts for them.
|
| Can you elaborate? I don't understand.
| nine_zeros wrote:
| They need to go slow. An abrupt rate increase will cause a
| recession.
| bequanna wrote:
| Could they go any slower? The consensus seems to be that this
| is far too little way too late.
| chipgap98 wrote:
| Consensus from who?
| bequanna wrote:
| Every person in the US who has had their purchasing power
| destroyed over the past ~18 months.
|
| Unfortunately, most people were/are too drunk on (maybe
| temporary) housing and stock market gains to care.
|
| Cheap money, free money and rampant speculation could all
| have easily been cut off a year ago and we would have had
| a much "softer landing". Now we're in a much more
| precarious position and may end up fighting stagflation
| possibly causing years long general economic malaise.
|
| ...but hey, Zillow said my house is worth $XXX!!!
| colinmhayes wrote:
| > Every person in the US who has had their purchasing
| power destroyed over the past ~18 months.
|
| The vast majority of people in the US have no idea what
| the fed is. Why would you trust their judgement?
| Loughla wrote:
| I legitimately want my home value to tank. I'm sick of
| paying taxes on a 275k home value that will never, ever,
| ever sell for that much. I wish it could go back to
| 80-100k, regardless of whatever "equity" that costs me.
| I'm in my permanent home, not an investment property.
| phkahler wrote:
| In particular a bursting of the housing bubble that has been
| reinflated (and then some) since the last time it popped in
| '08.
| mikeyouse wrote:
| There's no evidence at all for this.
|
| The exotic mortgage products (e.g. reverse ARMs) have
| essentially disappeared, people's homes are well
| capitalized, lending standards are much higher than they
| were, there's very low levels of home equity debt, overall
| debt payments as a percent of household income are at very
| low levels.
|
| The people waiting for a housing crash are going to wait _a
| long_ time. This one chart sums it up well:
|
| https://fred.stlouisfed.org/series/MDSP
|
| Mortgage debt service payments as a percent of disposable
| income are near all-time lows and at roughly 1/2 the number
| of the GFC peak. Since the vast majority of home loans are
| fixed -- what's the mechanism for rate hikes to cause a
| housing crash?
| ameister14 wrote:
| Yeah but that's an overall lowering of debt servicing as
| a percent of disposable income. The only part that hasn't
| dropped much is consumer debt.
|
| Plus while reverse amortization might be less common,
| ARMs generally are still very popular and you'll see a
| hike in overall debt service associated with rising
| interest rates.
|
| I don't know what's gonna happen with the housing market
| and I don't think it'll crash either but I think part of
| the reason is because private equity has bought a huge
| amount of housing - BlackRock bought what, 10-15% of the
| houses sold in 2020?
| boppo1 wrote:
| > BlackRock bought what, 10-15% of the houses sold in
| 2020
|
| Is this official somewhere? I've seen it in headlines and
| heard it in soundbytes but did they disclose it in their
| 10k or something?
| mikeyouse wrote:
| Consumer debt is also low;
| https://fred.stlouisfed.org/series/CDSP
|
| And metrics like credit card delinquencies are at
| historic lows:
| https://fred.stlouisfed.org/series/DRCCLACBS
|
| ARMs actually aren't very popular - fewer than 15% of new
| mortgages are ARM.
|
| > _BlackRock bought what, 10-15% of the houses sold in
| 2020?_
|
| People vastly overestimate how large players like
| Blackrock are. There are something like 80 million
| single-family homes in the US. Of these, Blackrock owns
| 80 _thousand_. If they bought every one of those homes in
| 2020 (they didn 't) - it would represent more like 1% of
| homes sold that year. And of course there are millions of
| condos not figured into my denominator. They're huge, but
| way under 1% of purchases.
| Qub3d wrote:
| My (very amateur) understanding of the housing issue is
| that its primarily a problem of _supply_. Since houses
| have been redefined from a dwelling to a financial
| investment, there is strong pressure on political policy
| to encourage asset appreciation. That means NIMBYism and
| corporate REITs are acting as two wealthy and highly-
| motivated special interest groups in favor of making new
| development nigh-impossible.
|
| Or at least, so I've been lead to believe. All I know for
| sure is I can't by a third of the sq. ft my older sibling
| could 8 years ago.
| slaw wrote:
| They need to slowly hike interest rate by 25 bps every week
| for the next 8 months to match inflation.
| nine_zeros wrote:
| That is silly. With mere speculation of interest rate
| increase, housing sales have already started to slow down.
| With every 25 bps increase, real asset interest rates will
| go much higher, causing much more slowdown in sales, GDP
| and inflation.
|
| If fed accelerates rate increases, we are very likely to
| see a recession. Which will automatically reduce demand for
| goods and services and thus inflation.
|
| But reducing inflation by causing mass unemployment will
| lead to other problems.
| slaw wrote:
| You can build houses cheaper. They don't have to be as
| overpriced as they are.
| [deleted]
| pclmulqdq wrote:
| It's worth noting that this is actually a rate target, not the
| rate. Previously, the rate floated between 0% and 0.25% based on
| a market. Now, it is going to be between 0.25% and 0.5%.
| qwertyuiop_ wrote:
| First I have heard of this and quite interesting to learn.
| Could you explain the difference ? Does this mean they are
| going to implement the rate increase some point in future ala
| target ?
| monktastic1 wrote:
| As another reply indicated, the Fed doesn't actually set
| interest rates. That's a common misconception. Instead they
| purchase and sell treasuries to member banks, such that those
| banks' balance sheets change in such a way as to make money
| more or less expensive to trade amongst themselves, which has
| knock-on effects for consumers.
|
| On the other hand, since there's no longer a reserve
| requirement since the start of covid, the mechanism that
| causes banks to have to borrow from each other (to meet the
| nightly reserve requirement, historically) is much less clear
| to me. Hopefully an economist can chime in.
| sbelskie wrote:
| " Adjustments to the IORB rate help to move the federal
| funds rate into the target range set by the FOMC. Banks
| should be unwilling to lend to any private counterparty at
| a rate lower than the rate they can earn on balances
| maintained at the Federal Reserve. As a result, an increase
| in the IORB rate will put upward pressure on a range of
| short-term interest rates. The opposite holds for a
| decrease in the IORB rate. Typically, changes in the FOMC's
| target range are accompanied by commensurate changes in the
| IORB rate, thus providing incentives for the federal funds
| rate to adjust to a level consistent with the FOMC's
| target."
|
| https://www.federalreserve.gov/faqs/why-is-the-federal-
| reser...
| drexlspivey wrote:
| > As another reply indicated, the Fed doesn't actually set
| interest rates. That's a common misconception.
|
| The FED absolutely sets the interest rates by controlling
| the federal reserve rate which is the interaste rate paid
| to banks every day for their deposits with the FED
| monktastic1 wrote:
| The Fed (not FED, BTW) doesn't "set" the rates, but has
| policies (including IORB, or what you call the federal
| reserve rate) which guide the markets to arrive at their
| target. Maybe that's a small distinction, but I think it
| helps OP, because I labored under the same confusion for
| a while.
| nickles wrote:
| > The Fed (not FED, BTW) doesn't "set" the rates, but has
| policies (including IORB, or what you call the federal
| reserve rate)
|
| This is wrong. The Fed does set interest rates, _period_.
| IORB is an interest rate that gets paid out _every single
| day_ to market participants. "Federal reserve rate" does
| not exist; what you're probably referring to is the _fed
| funds rate_. The Fed sets a target range for this, and,
| if the _effective fed funds rate_ does not stay within
| the target corridor, the Fed will conduct _open market
| operations_ to push it there.
|
| I tried to give you a thorough and accurate response to
| your parent comment. Stop spreading blatantly incorrect
| information about a nuanced subject.
| nickles wrote:
| > the Fed doesn't actually set interest rates
|
| It's not clear cut as to what degree interest rates are
| exogenous inputs that central banks respond to, but the Fed
| absolutely does set interest rates, allowing some
| variability between upper and lower bounds.
|
| Today, Fed adjusted interest on reserve balances (IORB,
| formerly IOER/IORR) to 40bps from 15bps. This rate
| determines how much interest banks are paid for reserves
| kept at the Fed. In theory, this rate acts as a floor for
| the effective fed funds rate. In practice, it's somewhat
| murkier.
|
| The Fed also sets the discount rate (now 50bps), which is
| meant to act as a ceiling on rates. Banks are able to
| borrow money from the Fed's discount window if they need
| it; however, there's a stigma associated with utilizing
| this facility. The Fed now maintains standing repo and
| reverse repo facilities to help banks manage liquidity.
|
| These policies all target the front end of the yield curve,
| which is where Fed has the most control. To manipulate the
| long end of the curve, Fed implemented QE. Other central
| banks (e.g. BoJ) have gone further, using yield curve
| control to explicitly impact the term structure.
|
| > Instead they purchase and sell treasuries to member
| banks, such that those banks' balance sheets change in such
| a way as to make money more or less expensive to trade
| amongst themselves, which has knock-on effects for
| consumers.
|
| Repo rates are determined by the market, but are bounded by
| the rates at Fed's repo facilities. A catch here is that
| not all market participants have direct access to these.
| While repo rates may impact behavior, the Fed's intended
| mechanism is IORB, which (ignoring steepness of the yield
| curve) influences how attractive banks find loaning money
| to clients.
|
| > the mechanism that causes banks to have to borrow from
| each other (to meet the nightly reserve requirement,
| historically)
|
| This market used to be the Fed Funds market, which
| consisted of uncollateralized loans between banks. The fed
| funds market is basically dead, replaced by the repo
| market, which is collateralized. IIRC, the remaining
| participants are GSEs like Fannie Mae and Freddie Mac,
| which can't collect IORB. They sweep their cash to banks
| and split the interest (which is why IORB can act as a
| ceiling instead of a floor).
| bogomipz wrote:
| The FOMC(Federal Open Market Committee) is the policy arm of
| the Fed. They can not and do not set interest rates directly.
| What they do is adjust the money supply to try to influence
| interest rates towards a target range. One of the tools they
| have to do this is the the federal funds rate which is the
| rate that banks charge each other to borrow money overnight
| in order to meet their reserve requirements. The Fed Funds
| rate is one of the tools they have their disposal. The FOMC
| meets 8 times and year releases this guidance.
| monktastic1 wrote:
| As I mentioned in a sibling comment, there hasn't been a
| reserve requirement for two years. I'm not sure what's
| primarily driving the interbank borrowing now.
| sbelskie wrote:
| But doesn't the Fed still pay on reserves held? Even if
| it's not required, the Fed increasing the rate paid on
| reserves would put upward pressure on other rates,
| otherwise banks would just take the IORB rate.
| bogomipz wrote:
| The Fed Funds rate is still the reference for policy but
| the Fed has been using a new framework called "ample
| reserves" since the latter part of 2020. See:
|
| "How Does the Fed Influence Interest Rates Using Its New
| Tools?"
|
| https://www.stlouisfed.org/open-vault/2020/august/how-
| does-f...
| blawson wrote:
| Not GP, but I don't think there's an actual "rate" as such -
| it's the actions the Fed takes to balance prices such that it
| falls within their target:
| https://www.newyorkfed.org/markets/reference-rates/effr
| jonnycomputer wrote:
| Good thing I didn't come here for informed economic commentary.
| Now back to the blogosphere.
| jorblumesea wrote:
| One of the most annoying thing about engineering (and smart
| people in general) is how they think because they are good in X
| field, that somehow translates into Y field with little
| training.
| afterburner wrote:
| They're also used to dealing with things that are entirely
| within their control and all variables are known.
|
| That's so far off the mark for macroeconomics it's not even
| funny.
| andreilys wrote:
| Macroeconomics is largely narrative driven with very limited
| evidence behind it.
|
| I would argue a theoretical physicist could produce more
| macro-economically sound models than a tenured professor of
| macro-economics.
|
| The former at least would have a deeper
| understanding/appreciation of the math.
| stjohnswarts wrote:
| The blogosphere economics circle jerk is about as good as HN on
| economics, I wouldn't cite them as reliable or dependable
| source of info.
| bigcat123 wrote:
| Aperocky wrote:
| The only thing that everyone agreed on here is how equally
| uninformed they themselves are.
|
| Which is a breath of fresh air compared to certain places where
| everyone believes they are the best informed and most well
| thought out.
| ahahahahah wrote:
| > The only thing that everyone agreed on here is how equally
| uninformed they themselves are.
|
| There are a lot (if not most) of comments here where the
| commenter clearly doesn't hold that position.
| dang wrote:
| " _Please don 't sneer, including at the rest of the
| community._" It's reliably a marker of bad comments and worse
| threads.
|
| https://news.ycombinator.com/newsguidelines.html
|
| If you know more than others do, that's great--but then you
| should either share some of what you know, so the rest of us
| can learn, or just accept that people are wrong on the
| internet. Posting empty, supercilious putdowns doesn't help
| anything.
|
| https://hn.algolia.com/?dateRange=all&page=0&prefix=true&sor...
| mactitan wrote:
| The Fed is trapped: It can't raise too much since trillions of
| debt rely on very low rates. If it doesn't raise enough then
| inflation will cause a recession.
| matheusmoreira wrote:
| It is a position is of its own making. It shouldn't have
| allowed this massive debt to accumulate in the first place.
| Cheap credit and the massive debt that comes with it is the
| main cause of inflation. Now that the whole economy depends on
| credit and debt, solutions to inflation can't be applied since
| they negatively affect credit.
| deutschew wrote:
| They've printed their way out of a recession since '08 by
| kicking the can down the road, and we can't kick it any
| further without creating a large number of losers.
|
| IMHO, it's a sign that American innovation has peaked. It's
| also reflected by the markedly decrease in intellectualism
| (as if American culture wasn't anti-intellectual to begin
| with). When I see young students from other countries and
| compare them to Americans, there is very little valuing
| education in fact the antagonism is occurring.
|
| For example, math is being scapegoated as systematically
| discriminating against the lowest performers while the
| highest performers are being subject to the equivalent of
| forced confessions, guilt and pushed ridiculous theories
| about race. Yet despite that camp's calls for equity, it is
| still okay for Asian Americans to be discriminated at
| academic institutions and various other fields while there
| are increased calls for virtue signaling towards other groups
| who do not get the same scrutiny and insanely high standards.
| Meanwhile the lowest end of the society are allowed to steal
| (as long as its under $950), commit crimes without
| consequences (take a trip to SF to see thanks to calls for
| community patrols post-Floyd) and descend into the inhumane
| (mental health issues from drug addictions and poverty being
| normalized) because there is now a sort of compassion
| industrial complex armed with the loudspeaker that is social
| media to manipulate opinions while cancelling out the
| rational as the enemy.
|
| Meanwhile, the military are increasingly spending large
| amount of money in video games, making young Americans
| idolize military & war, if not evident from the war mongering
| cries out of America for a conflict that they largely put in
| the groundwork to trap their old enemy, censoring, cancelling
| any opposing view to their narrative. We are all confused,
| angry, quick to point fingers at one another, instead of
| nuanced takes, whatever narrative invokes _emotions_
| strongest drowns out other side, regardless of whether they
| are grounded on reality or outright fabrication.
|
| This is the trickle down effect I notice also at YC, I see
| increasingly bad ideas being pushed like blockchains without
| any real adoption, trading of unregistered securities, and
| SaaS companies without real revenues raise ton of money but
| with no real business plan or use case. It's clearly a race
| to IPO and find exit liquidity. ex) Coinbase
|
| This is all a giant mess and I ponder, how did America stoop
| this low, where did it all go wrong?
| dustingetz wrote:
| A lot of the problems of focusing on equality can be
| connected to internet media making visible a tremendous
| amount of previously hidden inequity, (literacy rates are
| highest ever right?), I don't see what it has to do with
| interest rates
|
| I do see a separate parallel problem of too much dumb
| capital chasing returns that are in the past not the
| future, but that can also be connected to the maturation of
| internet/web platform and the rollout of 2010s web tech to
| legacy industries; applying web tech to healthcare and like
| Africa is low-risk high reward ... capital floods the low
| grounds first
|
| also see "diffusion of technological revolution"
| installation/deployment model
| https://i.imgur.com/BLVTqo2.png
| sfblah wrote:
| https://i.redd.it/mfw55duw9h971.jpg
| deutschew wrote:
| My point was that wealth gap increased due to QE and a
| class war masked as racial equity is being waged amongst
| the 99% as a result (without any net benefit to society
| since the 1. source of wealth come from excess supply of
| money which makes debt cheap for those in position to
| take advantage of it vs those who are oppressed by it 2.
| increasingly diminishing to non-existent value added
| widgets and services being sold, see my coinbase example
| above), not between the actual winners or losers of the
| system but rather the professional advocates from both
| ends who are seizing the narrative to push their
| political views in all spectrum of American society,
| culture and individuals through that tiny screen we carry
| in our pockets.
| boppo1 wrote:
| It's over man. Just sit back and watch it hit the wall.
| Anyone who has never sat down and modeled out a DCF in
| excel can't tell the difference between your argument and
| the crackpot ones on 4chan about jewish illuminati. Half
| of the people who _have_ modeled out a DCF have enough
| assets to maybe have a chair when the music stops, and
| they won 't risk it trying to explain how the game works
| to anyone who doesn't already know.
| dustingetz wrote:
| For others- https://www.wallstreetprep.com/knowledge/dcf-
| model-training-...
| dustingetz wrote:
| "source of wealth come from excess supply of money which
| makes debt cheap for those in position to take advantage
| of it vs those who are oppressed by it"
|
| what do I need to read to understand this
| MR4D wrote:
| It's even worse - if the Fed actions tank the markets, then
| millions of retirees who have been enjoying high market values
| are screwed and have no other source of wealth or income.
|
| I do not envy the position the Fed is in.
| pastor_bob wrote:
| The Fed's mandate is to control inflation and unemployment.
| It's not meant to have anything to do with the stock market.
| woobar wrote:
| Only small fraction (2.5%) of retirees rely on their 401(k)
| plans as a single source of income. The majority relies on
| social security. High inflation will affect many more people,
| and not just retirees.
|
| [1] https://www.cnbc.com/2020/01/17/heres-where-most-
| americans-a...
| lastofus wrote:
| A typical retiree portfolio should have a significant portion
| in bonds (or more likely, bond funds). Initially this will
| hurt, but over time, higher rates mean higher bond returns
|
| Equity markets can take a hit at pretty much any time for
| completely unforeseen reasons. This is expected and should be
| factored into a "safe" withdrawal rate (see Bill Bingham and
| the 4% rule).
|
| Anyone who was relying on an equity market that never tanked,
| to survive retirement, was doomed from the outset.
| techie128 wrote:
| I'm sorry but if they're 50+ and majority of their holdings
| are in stocks, not bonds they're at fault.
| thehappypm wrote:
| Oh no! Boomers will lose 401(k) value! The horror!
| kipchak wrote:
| Unfortunately most people with 401(k)s are in SPY as the
| default, boomers or not
| tootie wrote:
| SPY is up >2% today. I think the market wants inflation
| to be tamped more than they want cheap money right now.
| thehappypm wrote:
| Time in the market > timing the market. It'll go back up.
| colordrops wrote:
| Phrased less sarcastically: "Millions of retirees won't
| have enough money to survive until they pass away."
| akvadrako wrote:
| Lots of people live on social security alone.
| budoso wrote:
| Phrased sarcastically again, but from the opposite point
| of view: "Jerome Powell wants your grandma to starve!"
| throwawayboise wrote:
| Or:
|
| Your elderly parents need to move in with you because
| they cannot afford to live on their own.
| foogazi wrote:
| Savings diluted by inflation or artificial asset growth?
|
| Can you have it both ways ?
| xienze wrote:
| You won't be laughing when you find out it's your
| responsibility to bail them out.
| thehappypm wrote:
| Sadly this is probably the case.
| moltke wrote:
| We can always just bring in more immigrants since that
| seems to be the solution to every problem like this. /s
| rhexs wrote:
| I'm actually quite impressed they haven't started that
| push yet --- guessing COVID still sort of being a thing
| but no longer spoken about due to it polling poorly makes
| this a non-ideal time.
|
| On the other hand, as there's effectively no border
| enforcement during this administration, I guess they're
| already accomplishing their goals without needing the
| media to ram "Americans can't/won't do the jobs" down
| your throat.
| Qub3d wrote:
| That's a bit callous of you, not to mention shortsighted.
| If the Baby Boomer generation loses financial security,
| they will as a group A) tighten their spending habits and
| B) not retire.
|
| Either of these effects on their own would hurt the younger
| generations, and together would make the already slow
| wealth building hit a brick wall. (I'm 25, for the record,
| and I don't expect to be debt-free or a homeowner until
| well into middle age)
|
| While it really shouldn't be true, and at the level of
| financial mechanics probably isn't, the stock market has
| become _the_ measure of the economy. Remember, pensions are
| dead and buried, and the nuclear family standard means that
| relying on your children (read: you and I) is not the
| bulwark it once was. That means 401(k) performance is
| really, really important, as terrible as that may be -- its
| just the reality right now.
| thehappypm wrote:
| It's really not callous. If a boomer's 401(k) is still
| heavy on stocks they're being greedy! De-risk, people. I
| don't want to let inflation tank my economy to protect a
| generation of greedy grandparents.
| nick__m wrote:
| If they are one of the lucky few with a defined benefit
| public pension, like my parents have, having your RRSP
| (401(k) in Canada) biased towards stocks is a sounds
| investment policy.
| Qub3d wrote:
| Generally 401(k) plan ratios are not managed
| individually. Most will have target date funds[0] that
| automatically transition in to progressively less-risky
| investments as you get closer to retirement.
|
| The problem is... almost no financial instruments outside
| of stocks can provide a meaningful return any more, so
| even the target date funds are almost all stock.
|
| I noted your other "time in the market beats timing the
| market" comment, which suggests you are an active
| investor. That's great! But very few Americans are active
| investors, and expecting them to become so is
| unrealistic.
|
| Its a problem of realpolitik, which is why, going back to
| my original comment, you _should still care_ , if only
| for how it will affect you.
|
| [0]: Here is an example prospectus of a 2055 target date
| fund. Note the graph showing the changing allocation of
| stocks/bonds/money-market funds (or CDs). By retirement,
| nearly half the portfolio is still stocks.
| https://prospectus-
| express.broadridge.com/summary.asp?client...
| amanaplanacanal wrote:
| A big chunk of those boomers have almost nothing. The only
| thing they'll have to look forward to is poverty.
| thehappypm wrote:
| So these boomers have "almost nothing" yet have a 401(k)
| that's set up in the riskiest way possible, when they're
| near retirement age?
| analyst74 wrote:
| Poor boomers are affected more by inflation than market
| crash.
| sillyquiet wrote:
| What a horrific ageist and bigoted comment.
|
| This literally could mean the difference between living
| independently or not for a lot of people.
|
| Not to mention _everybody_ working today with a 401k as
| their retirement plan will lose value no matter their age,
| which means they have to work longer than planned. This is
| a real life impact to a lot of people.
| dragonwriter wrote:
| > This literally could mean the difference between living
| independently or not for a lot of people.
|
| Given that quality of assistive care matters, it could
| literally mean the difference between _living_ and not
| for people.
|
| Of course, on the other hand, so could runaway inflation
| for lots of people into the same age group (not every
| elderly person is self-sufficient on retirement income;
| many are supported by younger, working family members.)
| thehappypm wrote:
| If your retirement portfolio crumbles with a stock market
| correction when you're actively retired, you have made
| terrible investment choices.
| dragonwriter wrote:
| I have no idea why you thought that a subthread on estate
| tax and what it says about younger people's interest in
| older folks savings was the most germane place to post
| that, but I hope you feel better having gotten it off
| your chest.
| pastor_bob wrote:
| If you're in all stocks (growth particularly) and
| retired, you're living pretty foolishly.
| nightski wrote:
| Depends. If you plan to draw down your savings to 0 to
| survive retirement maybe. But if you have enough saved up
| for a safe withdrawal rate to survive retirement, why not
| keep it invested normally and have more for your
| inheritors?
| thehappypm wrote:
| I don't think I am obligated to care.
|
| Retirees who are fortunate enough to have substantial
| retirement assets should take precautions against risk.
| If they haven't then that's their problem. I'm retiring
| in 30 years, my retirement accounts are all stocks. If I
| was 65 I'd have my 401(k) heavily in bonds and fixed
| income.
|
| Anything else is just greed.
| [deleted]
| anonporridge wrote:
| It's rough.
|
| On the one hand, retirees bring nothing of real value to the
| economy. We serve them because of the obligations they built
| up over their working careers. But, they get the focus of
| attention because a) they have all the money, b) they have
| all the time to be engaged in politics, and c) they vote. But
| they're purely an extractive cost center. A kind of economic
| parasite that keeps getting bigger and bigger with the magic
| of compounding interest.
|
| On the other hand, the younger working class generations, who
| are the real engines of the economy that keep us all fed and
| served, are legitimately suffering and failing to acquire a
| significant stake in the economy. Sure, employment is high
| but pay is low compared to their parents. When shit hits the
| fan, the young generations are largely gonna shrug, because
| who fights to defend something they don't have a stake in?
|
| It really seems like a powder keg for revolution.
| duncan-donuts wrote:
| You're talking about living breathing humans. "extractive
| cost center" is a weird way to describe "person who paid
| social security their entire working life". You're not
| wrong about what you're saying but fuck can you act like
| there's real people involved here and not just numbers? Are
| retirees _really_ economic parasites?
|
| Let's not forget that consumption is bringing in revenue to
| _someone_ which does provide value to the economy.
| Unbelievable
| anonporridge wrote:
| If you want to work on and solve big hairy problems, you
| can't get caught up in the weeds.
|
| We can acknowledge the humanity of the humans who make up
| the constituent parts of the colossus while also saying
| that the colossus, the sum of those humans, is a
| potentially negative force on the stability and
| sustainability of the system.
|
| And I speak as one of these retirees.
| loufe wrote:
| Sure it's not the most humanizing but it is valuable to
| disassociate oneself from our human side in order to
| analyze inhuman systems. The perspective isn't without
| value, and GP wasn't implying it wasn't, but to take the
| time to elaborate the point going through the motions to
| emotional pad it would have been time wasted for most of
| us.
|
| It's something I appreciate about this community, that we
| can express ourselves in such ways in order to convey a
| point without any fat on it. I still assume the person
| making the point understands that there the fat is there
| without needing to explicitly mention it. It's a sign of
| mature dialogue IMO.
| mc32 wrote:
| Retirees are everyone, except older. What would
| "you"[1]want from the fed once a retiree?
|
| [1] other working people once they too retire.
| pessimizer wrote:
| Far fewer young people have any possibility of retiring.
| You can't build retirement from gig labor and shitty
| service jobs.
| tw600040 wrote:
| //On the one hand, retirees bring nothing of real value to
| the economy
|
| Not true. If retirees have money, that's money they got
| paid for doing actual contribution. If you devalue that
| money that's devaluing their life's work and contributions.
|
| Not an advocate for crypto etc, but it feels wrong that a
| bunch of folks like Powell etc get to decide the fate of
| whole generation's peaceful retirement.
| boppo1 wrote:
| >feels wrong
|
| Because it is. Why did we start interest rate
| interventions again?
| mrmuagi wrote:
| > retirees bring nothing of real value to the economy.
|
| Sure they may not be producing anything, but is there any
| value to the idea they consumers still? A lot of FIRE
| philosophy is you work hard so you can _earn_ retirement
| early too -- people aren 't going to work all their lives
| either, there has to be a light at the end of the tunnel.
| It is saddening that it may not be the case for many.
| duncan-donuts wrote:
| Apparently retirees aren't allowed to hold investments
| dc-programmer wrote:
| Probably not. Estate taxes are low
| mikeyouse wrote:
| Estate taxes don't exist for 99.7% of people. A married
| couple can exempt the first $24M of their estate from
| _any_ Federal taxes.
|
| https://www.kiplinger.com/taxes/601639/estate-tax-
| exemption-...
|
| Mind you, this also avoids a ton of tax that would
| otherwise be due had they not died via the step-up in
| basis... it's a massive giveaway to the rich.
|
| https://www.investopedia.com/terms/s/stepupinbasis.asp
| dragonwriter wrote:
| > Estate taxes don't exist for 99.9% of people.
|
| Which supports the claim that they are low, and,
| consequently that young people (who often stand to
| inherit from their elderly relatives) have a stake in the
| investments of old people not getting wiped out.
| mikeyouse wrote:
| Of course young people have a stake in their rich parents
| not getting wiped out - but it has nothing to do with the
| estate tax.
| bogomipz wrote:
| This is an incredibly bigoted screed. Describing human
| beings who were the economic engine for 40-50 years and
| paid in to the system as a "parasite" and a "purely an
| extractive cost center" is truly appalling.
|
| >"It really seems like a powder keg for revolution."
|
| I would argue your entire post seems like a powder keg for
| some self-reflection.
| jcranberry wrote:
| You think retirees are keeping all their savings in cash in
| their mattresses or something?
| 0xB31B1B wrote:
| The point is, the things that make the economy work and
| grow is the production of things. Regardless of how many
| investments a retired person has, they by definition do
| not produce things.
| jcranberry wrote:
| You need investment to produce things and consumers to
| buy produced things.
| throwawayboise wrote:
| You need to have consumers to make production worth
| something. Retirees are consumers. It's basically all
| they do.
| stickfigure wrote:
| This is a variant of the broken windows fallacy:
|
| https://en.wikipedia.org/wiki/Parable_of_the_broken_windo
| w
| tomc1985 wrote:
| Jesus Christ, work til you die eh?
|
| For a lot of people, what is even the point of living if
| there's no retirement to enjoy?
|
| They are an extractive class insofar as their present
| contributions are net negative. But you are forgetting they
| likely spent their entire life building up that account,
| both in terms of an actual retirement and the broader
| accounting of total life's contributions. Indeed, it is
| something that hopefully you and I will enjoy one day,
| because we've earned it.
|
| That idea reeks of short-term thinking, and a world of
| endless work for no reward as your worth goes to 0 once you
| stop contributing.
| anonporridge wrote:
| > Jesus Christ, work til you die eh?
|
| That is the normal human experience.
|
| But also not what I'm suggesting.
| tomc1985 wrote:
| Among the poverty-striken, sure.
|
| But nearly every society has some form of elder care.
| anonporridge wrote:
| True, but almost every society expects its elders to
| still do some kind of work, usually house work and child
| care, which helps free the healthy adults to do the more
| difficult work. Those who can't do that are usually very
| close to death.
| tomc1985 wrote:
| So then what is the complaint? They are indeed
| contributing to society. We enjoy the level of
| technological advancement that we do because our
| innovators are free to innovate, and not wasting their
| time on prosaic matters (because the elders cover that
| for them)
| tonguez wrote:
| "For a lot of people, what is even the point of living if
| there's no retirement to enjoy?"
|
| The point is you are supposed to be helping other people
| in some way. Not just being a useless turd and forcing
| young functional people pay rent to you so that you can
| do nothing but sit on your fat ass and shit in your
| diaper. They also lived in a society that was much more
| prosperous than any young person ever will. Considering
| that now everything is ruined, it's hard not to look at
| them and imagine they share some small part of the blame.
|
| Maybe if people cared less about saving up a big sum for
| themselves to "enjoy their retirement", aka being a self-
| centered moron, then the world wouldn't be such a
| shithole today.
| tomc1985 wrote:
| > forcing young functional people pay rent to you so that
| you can do nothing but sit on your fat ass and shit in
| your diaper.
|
| They own the house, which they bought and paid for. It is
| their property to rent or not rent as they see fit. You
| pay money for said privilege. They are not squatting on
| communal property, and short of returning it to the
| market the property would otherwise sit unused and
| wasted.
|
| Are you saying that young "functional" people should have
| free housing? Most of you had some for 18, 20, maybe even
| 25+ years with your parents. Is it that you want that to
| last forever? Do you guys think you are Peter Pan or
| somethign?
|
| > Considering that now everything is ruined, it's hard
| not to look at them and imagine they share some small
| part of the blame.
|
| Don't let generational nihilism color your vision so
| much. There is a world of opportunity out there,
| especially here in the US, but young people think said
| opportunity looks like Twitch streaming or professional
| influencing or pretending that are innovating, but it's
| not. If those kids would pull their heads out of their
| asses and start learning how to be boring they will find
| there is lots of ways to get ahead in life, and that
| there aren't a lot of easy answers on YouTube.
|
| "Everything is ruined"... like, c'mon, if that's really
| what you think then you've barely even lived
| JaimeThompson wrote:
| >Don't let generational nihilism color your vision so
| much.
|
| >but young people think said opportunity looks like
| Twitch streaming or professional influencing or
| pretending that are innovating
|
| Physician, heal thyself
| munificent wrote:
| TIL that saving up so that one can afford to pay their
| own bills after they are too old and infirm to work is
| "being a self-centered moron".
|
| I guess the alternative is to not have any savings and
| rely on others to take care of them and that is somehow
| _less_ self-centered?
| paulpauper wrote:
| Not once in my lifetime have I seen the fed tank the markets.
| It's more like the fed being tailwind. Since 2008 the pattern
| has been for the fed to be way behind the curve by keeping
| real interest rates negative and raising rates very slowly
| and with tons of advance warning even as the stock market and
| economy rips higher.
| vineyardmike wrote:
| This is always the case though, there are always retired
| people. They have raised rates and damaged market values in
| past. Its a decision they are comfortable taking.
|
| Plus, at least current US retirees have social security,
| which may not last another 20+ years in current form
| (unfortunately for people paying in today).
| lotsofpulp wrote:
| There is no reason the US federal government would have to
| nominally end federal social security benefits. The federal
| government has the power to simply create new money.
|
| However, it would be prudent to assume that the social
| security benefits will have less and less purchasing power
| (since each USD will have less and less purchasing power),
| and the government will not increase the amount of the
| benefits sufficiently to offset the decrease in purchasing
| power.
| code51 wrote:
| Shouldn't there be an "invisible hand" at work to settle this
| problem automatically when Fed over-raises or under-raises?
| With the invisible hand and free market arguments, this
| should have been a non-problem at the first place. But...
| since the initial move was not natural (lots of cash
| injection), the natural final move has to be sudden and
| forceful. These analysis-paralysis rate hikes seem like lots
| of pawns to be lost before the final blow. It just opens a
| window of opportunity for ahead-of-the-curve retirees to save
| their wealth, not helping to avoid the final effect.
| fuzzer37 wrote:
| Won't somebody please think of the poor poor boomers with
| millions of equity in their houses!
|
| Cry me a river.
| throwawayboise wrote:
| Most "boomers" have a house maybe worth a few 100K, if they
| even own their own home. Very few live in million dollar
| homes.
| joshkrycerick wrote:
| California would like a word.
| throwawayboise wrote:
| That's a small segment of "boomers"
| chiefalchemist wrote:
| > I do not envy the position the Fed is in.
|
| Let's not be naive. The Fed put itself in this position.
| You're correct. Most of the rest of us will - once again -
| take a massive shot to the wallet. But to The Fed and its
| "fan base" it's simply another cycle in the process of moving
| more from the bottom to the top.
|
| Put another way, you or me are simply not The Fed's priority.
| I'm not sure why we voted for them.
|
| That last bit is sarcasm.
| SamuelAdams wrote:
| I'm surprised this is top comment. Everyone ought to
| rebalance their assets as they get closer to retirement. If
| you are retired you should have a minimum of 3-10% of your
| portfolio in bonds, which typically fluctuate less than
| stocks. Then you draw from your bond assets to actually get
| money.
|
| As long as your stock assets aren't touched for 3-5 years it
| doesn't matter what the market does in the next few months.
| godmode2019 wrote:
| You should have 60% bonds and 40% stocks
|
| As you get older 80% bonds 20% stocks.
|
| Source: The intelligent investor (famous finance book)
|
| People these days have 80% house, 15% crypto and 5% stocks
| voisin wrote:
| I think this particular advice from The Intelligent
| Investor is unreliable. Back then, bond yields were
| substantially higher, dividend yields were significantly
| higher, equity valuations we significantly lower, etc
| etc. The rest of the book is top notch though.
| paulpauper wrote:
| people say this every time rates go up. The fed is not trapped.
| Rates went up from 0% in 2015 to 2.25% by 2018 and nothing bad
| happened. Inflation remained low, bonds did well.
| [deleted]
| chiefalchemist wrote:
| The problem is, The Fed* is the sole creator of this situation.
| Again and again.
|
| * An entitity with unprecedented powpower, unelected, and is
| effectively - due to a lazy and incompotent Congress -
| unregulated. What could go wrong.
| colechristensen wrote:
| That debt was already sold at low rates. Now it's going to get
| inflated away. New debt will be more expensive, old debt will
| be losing effectively 10% of its value as the price of
| everything else goes up.
| thehappypm wrote:
| A recession may be all right. Americans have a gigantic amount
| saved up and so long as it's mild enough it'll probably
| strengthen the dollar.
| dragonwriter wrote:
| > Americans have a gigantic amount saved up
|
| The median household savings is about $5k. Sure, the _mean_
| is a lot higher, but that gets thrown off by a few really
| rich people with enormous savings.
| Sohcahtoa82 wrote:
| You are living in a bubble. This may be true for you and the
| people you associate with, but for the majority of Americans,
| it's not true in the slightest.
| notch656a wrote:
| Median household wealth is over $100k. Not only is it true
| far more than the slightest, it's true of the majority of
| American households.
| qbasic_forever wrote:
| Over half of America can't cover a surprise $1000 expense:
| https://www.cnbc.com/2022/01/19/56percent-of-americans-
| cant-...
|
| You are not looking at the reality of the situation if you
| think the average American has a "gigantic amount saved up".
| The average American is working paycheck to paycheck and is
| lucky to have a couple hundred bucks for a rainy day or
| unexpected car repair.
| notch656a wrote:
| You've been played by a study designed to manipulate the
| view of American wealth. The median household has a
| gigantic amount of wealth, over $100k worth. Not having $1k
| in a checking account doesn't mean you can't afford $1k or
| even a $10k expense.
| qbasic_forever wrote:
| Sure if you define 'household' as home owners, of course
| their assets are well above $100k because of the hyper
| inflated housing market in the country.
|
| I would _love_ to see how someone renting an apartment
| and working minimum wage with less than $1k in their
| checking account can get a $10k loan. What are they going
| to do, go to the check cashing place around the corner
| and walk out with 10 grand? (that's saracasm btw)
| notch656a wrote:
| >Sure if you define 'household' as home owners
|
| I don't. All households. Majority of households have >
| 100k wealth. Your claim is patently wrong, when taken
| against your citation which shows nearly everyone found
| _some_ way to pay the expense. Personally I would just
| pay with a credit card so I can let inflation shred away
| ~0.5% of the real cost, but I'd be tossed away with those
| who 'cant afford' it by your interpretation of the study.
|
| I usually keep less than $1k in fiat accounts and I could
| easily have tens of thousands tomorrow if I like, and my
| household is far poorer than the median household. It's
| called selling (or borrowing against) assets. The median
| household can do the same thing. Only an idiot holds fiat
| in a savings account when inflation is raging.
| qbasic_forever wrote:
| I'm really trying to understand how you can agree that
| 56% of people can't find $1k, and yet over 50% of people
| have $100k in assets.
|
| I don't think we're looking at the same ~50% of people
| here...
| notch656a wrote:
| I'm skeptical but willing to believe 56% of people can't
| find $1k on the spot in fiat cash because of the
| structure of their wealth. However statistically _most_
| households have a hundred times over that in net wealth.
| Carefully reading the study, it becomes apparent the vast
| majority are able to alter the composition of their
| wealth or future spending to accommodate the expense. 59%
| were going to pay outright (if you add in the 15% that
| said they would pay and cut their budget), and if you add
| in people like me that would let it sit on credit to let
| some real value inflate away, it goes up to 79% who would
| pay it outright either by debiting from their fiat
| stockpiles or credit card. Only 4% actually needed to
| take out a personal loan, and only 10% would resort to
| family. Factor in that probably 14% of adults are 25 or
| younger or in school, and it starts to become apparent
| that the overwhelming majority of adults can afford a $1k
| expense.
| mcs5280 wrote:
| The Fed has created a debt bomb.
| photochemsyn wrote:
| Probably best to not let Wall Street gamble with boomer
| retirement money on when the debt bomb will blow up. Putting
| Glass-Steagall rules on investment vs. commercial banking back
| in place would probably make sense around now.
| AnimalMuppet wrote:
| It would have made _sense_ to never remove them in the first
| place.
| bequanna wrote:
| I agree, but I think the size of public/private debt is a
| guarantee that rates will stay historically low for the
| foreseeable future.
|
| It's only a bomb if rates go up.
___________________________________________________________________
(page generated 2022-03-16 23:00 UTC)