Ask HN: Do you think this is the start of the new financial crisis?

If the Fed hadn't stepped up to insure the SVB deposits, we might be in a much worse situation, but as it is this feels like it could possibly maybe get out of control if a whole series of other bad things happen, but probably very unlikely.

There was one day in 2008 where it really felt like 'this is it, it really actually is all going to come crashing down, unless...'.

Some MMT theorists suspect rising rates is at least not price deflationary as is assumed by Keynesian monetary theory. And the basis is simple: An increase in debt interest has to be serviced by money creation. So the tool used to reduce bank lending creates money, and increasing bank lending creates money. Both roads lead to the money printer.

The following points are taken from https://www.reddit.com/r/mmt_economics/comments/wchq55/raisi...

1. When central banks raise interest rates, this means governments spend more on their interest payments. This translates into increased income for bondholders. Higher incomes lead to more consumer demand, pushing up prices. Similarly, banks benefit from higher interest payments from the Federal Reserve. In other words, the interest from the higher interest rates goes to someone in the economy, and their demand increases rather than decreasing.

2. Interest rates are a cost for businesses. When central banks raise interest rates, businesses pass this new cost on to consumers in the form of higher prices, which is inflation by definition.

3. Higher interest rates make it harder to start a business and harder to hold inventory. This reduces supply, leading to higher prices aka inflation.

4. Finally, MMT economists point to the fact that there is no empirical research at all showing that higher interest rates decrease inflation. In fact, the correlation runs in the opposite direction.

An increase in interest rates is not an increase in interest, because it decreases borrowing. (And even if it did mean an increase in interest, that’s a delayed effect, the impact on borrowing is immediate.)

To increase the federal funds rate the fed has to sell treasuries (pushing up coupon rate, which is government interest payments), or pay banks interest on reserves (give banks money), or buy assets from banks (give banks money). So from every angle, the government is creating money when it increases funds rate. https://www.stlouisfed.org/open-vault/2020/august/how-does-f...

If we zoom out, the two ways the Fed increases the rate is by giving banks free money, or pushing up bond prices (and the interest on bonds comes from new money).

Despite the enormous complexity of monetary policy, the only actual tool the Fed has underlying everything is the ability to print money.

This is much worse, in my opinion.

At least the loans were backed by real property in 2008. Homes that will have value and in fact have came back way, way more valuable than the bottom of that crash.

What we have now is a crash in financial instruments themselves.

It's about supply and demand. The USA has been printing up dollars like crazy since the beginning of the Covid pandemic. Simple supply and demand. More money created, less value money is worth.

History is littered with governments printing too much money, , and their entire civilization comes down.

Even Rome, mighty Rome, was brought down by printing up too much money. Other shit, too, but mainly printing too much money. They don't tell you this, but there ya go.

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Will we pull out? Hope so. Just like in 2008 - we managed to pull out of it.

But 9 lives, folks. We're using them up.