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Fed Ends Zero-Rate Era

bloomberg.com

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Re: Fed Ends Zero-Rate Era

#71

Post by jfoutz »

pjungwir wrote: post #56
jfoutz wrote: post #30

Earlier quoted context omitted.

The fed interest rate is the foundation for pretty much all loans, cars, mortgages, whatever. Low interest rates are good for borrowers. I want a car, or a house, or a power plant, or a jet, or whatever. I want to spend some money that i don't actually have. This changes the economy because more money is moving around. High interest rates are good for lenders. I've got this pile of cash that isn't doing anything. The…

Rising interest rates also mean that house prices should drop (or deaccelerate), right? If you figure a buyer has a fixed budget, the more they are paying in interest the less they can pay in principal. Not saying 0.25% will have much effect, but in principle don't they have that relationship?

Eventually. Today, of the many houses sold, there's going to be .25% more people who can't get the loan they want. They're going to move down market, and buy a slightly cheaper house. The more expensive houses might lower their price, or take it off market or whatever.

It's like a distributed system. There's a bunch of complicated moving parts that all react to each other. There aren't that many knobs and levers to pull on. The fed can't tell home sellers to lower their prices, they can just fiddle with interest rates.

Re: Fed Ends Zero-Rate Era

#72

Post by vinceguidry »

kasey_junk wrote: post #19
chollida1 wrote: post #15

Nanex, an account that follow market micro-structure, had an interesting tweet that showed how the liquidity on 10 year Treasuries just dried up prior to the announcement. https://twitter.com/nanexllc/status/677202959030083584 I'm surprised this story has gotten so many votes so fast. This rate hike was widely predicted, as intentionally as the fed could by law so that they don't impact the markets too much. Alot of…

Treasuries always dry up in front of fed announcements. It's marked on the calendar like job numbers and other macro items that can cause wild swings. Its much cheaper to just not trade during those times than it is to build out the models/risk management components for most market makers.

I'm home shopping at the moment, and my mortgage broker told me that he noticed a large hike in mortgage rates, is that due to this announcement and that I should wait a few weeks before locking in a rate?

Re: Fed Ends Zero-Rate Era

#73

Post by chad_strategic »

reefoctopus wrote: post #57
chad_strategic wrote: post #54

Unicorns can't exist in ZIRP. (Zero Interest Rate Policy)

Why not?

Because as soon as you can get a risk free rate of return, (savings) then why would someone invest in a half brained start up that has a low probability of any return, when you could get a risk free return.

The FED has reduced interest rates to drive spending in startups, lending, housing market, and the stock market.

But don't worry, .5% is only a start, we have a ways to go before Unicorns start to starve.

Re: Fed Ends Zero-Rate Era

#74

Post by vezzy-fnord »

toomuchtodo wrote: post #51
dsr_ wrote: post #50

Earlier quoted context omitted.

If you want to stimulate aggregate demand at the consumer level, you need more people to have good jobs, so they can make money, so they can spend money. This would represent a reversal of the trend since 1970 towards greater income inequality. It is not clear to me that anyone is doing anything about that (except, of course, in the negative sense.)

Exactly correct. The Federal Reserve has the knobs and levers to create asset bubbles, but not to stoke consumer demand. Only Congress can do that with legislation increasing the minimum wage, changing corporate taxes so it behooves companies to pay employees more, or legislation increasing entitlements such as social security. Those in lower and middle classes are the ones who govern the velocity of money through th…

increasing the minimum wage

Be careful what you wish for: http://marginalrevolution.com/marginalrevolution/2015/03/how...

legislation increasing entitlements such as social security

Expected to run structural deficits by a certain point. Theoretically speaking, an endogenously determined fiat money system doesn't really have "government debt" what with it being the sovereign issuer of debt to begin with, but in reality politics and the economy don't exist in frictionless vacuums and there are political costs to pork barreling, logrolling, unsound investments and so forth.

Re: Fed Ends Zero-Rate Era

#75

Post by alttab »

jstalin wrote: post #66
PaulWillis wrote: post #61

Earlier quoted context omitted.

Isn't investing in bonds putting money to work in the economy? And how does the government really stimulate demand? Nobody demanded an IPhone before it existed. Good products stimulate demand.

Politicians spending your money for you is better than you deciding how to spend it.

Can't tell if this is sarcasm or not. Sign of the times I guess.

Re: Fed Ends Zero-Rate Era

#76

Post by gotchange »

jstalin wrote: post #67
gotchange wrote: post #60

Fed => Wall St. Bankers => Private Eguity/Venture Capital => Silicon Valley => Start-ups (disruption in labor market & layoffs) => leaner corporations and more profits $$$ => Wall St. Bankers => PE/VC ad infinitum You get the picture by now where's the Fed's loyalty lies in this reverse Robin Hood wealth redistribution scheme. Isn't capitalism wonderful?

Central banking is essentially a price-fixing scheme and doesn't really have much to do with capitalism.

With all due respect, just ask any fat cat on Wall St. about the Fed or the role of central banks in the economy and he would assert that those institutions are essential for the global economy to function correctly and they are really upapologitically capitalists and they wear the label as a badge of honor.

Re: Fed Ends Zero-Rate Era

#77

Post by downandout »

This will have an impact on the flow of money to VC's, which will have an impact on the flow of burnable cash to unprofitable startups. No more $1.5 million rounds for apps like Yo [1] (the investor community should be embarrassed and horrified that this kind of thing was getting financed anyway).

Winter is indeed coming for those that don't have a business model, and that's a good thing.

[1] http://www.businessinsider.com/yo-raises-15-million-at-a-5-1...

Re: Fed Ends Zero-Rate Era

#78

Post by narrator »

What is this going to do to interest payments on the national debt? Will this put a squeeze on spending? Cause tax increases? Or will it be business as usual and the fed buy as many bonds as needed?

In the latter case, I think that will cause inflation to pick up unless we can export it all out the trade deficit.

Re: Fed Ends Zero-Rate Era

#79

Post by jstalin »

gotchange wrote: post #76
jstalin wrote: post #67

Earlier quoted context omitted.

Central banking is essentially a price-fixing scheme and doesn't really have much to do with capitalism.

With all due respect, just ask any fat cat on Wall St. about the Fed or the role of central banks in the economy and he would assert that those institutions are essential for the global economy to function correctly and they are really upapologitically capitalists and they wear the label as a badge of honor.

They're "capitalists" as long as they have a thumb on the scale, but they're not really capitalists who would cheer a true free market in currency.

Re: Fed Ends Zero-Rate Era

#80

Post by toomuchtodo »

vezzy-fnord wrote: post #74
toomuchtodo wrote: post #51

Earlier quoted context omitted.

Exactly correct. The Federal Reserve has the knobs and levers to create asset bubbles, but not to stoke consumer demand. Only Congress can do that with legislation increasing the minimum wage, changing corporate taxes so it behooves companies to pay employees more, or legislation increasing entitlements such as social security. Those in lower and middle classes are the ones who govern the velocity of money through th…

increasing the minimum wage Be careful what you wish for: http://marginalrevolution.com/marginalrevolution/2015/03/how... legislation increasing entitlements such as social security Expected to run structural deficits by a certain point. Theoretically speaking, an endogenously determined fiat money system doesn't really have "government debt" what with it being the sovereign issuer of debt to begin with, but in reali…

I argue my ideas only need to hold water for another 10-30 years, depending on if technology advancement keeps up.

Japan's been running structural deficits for decades, and still has a very high quality of life.

> but in reality politics and the economy don't exist in frictionless vacuums and there are political costs to pork barreling, logrolling, unsound investments and so forth.

As basic minimum income solves this without the messy politics surrounding it.

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