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Fed Ends Zero-Rate Era

bloomberg.com

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Re: Fed Ends Zero-Rate Era

#121

Post by ones_and_zeros »

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?

My feeling is over the next 12-18 months, at least in markets that are already hot (SF, NYC, Boston, etc), you'll actually see house prices rise as the buyers who have been on the side lines are given a kick in the butt to get in the game for fear of losing out on the low interest rates.

Re: Fed Ends Zero-Rate Era

#122

Post by brc »

PaulWillis wrote: post #61
roymurdock wrote: post #28

Fed raising interest rates 0.25% and setting a goal of "normal" 2% by 2018 means little to nothing. Market already priced the miniscule rate hike in as the move was widely expected, and move did nothing to assure markets that the Fed is in control, or set credible, measurable goals for future hikes. Fed can continue to push on the supply side of money at the bank/institutional level all it wants. We need the Federal…

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.

production creates demand. Not because people want to buy it, but because the act of production gives you something to trade.

The people who build iPhones (Apple employees) produce something valuable (iPhones). Everyone else has to produce something to trade for an iPhone - a bushel of wheat, a written work, a clean window, a haircut, a night of entertainment.

The act of production and trade is what creates wealth and economic growth.

People get lost and separated from this basic understanding because if you create and give everyone money, then everyone can go and trade the money with Apple employees for an iPhone. But this is not long term sustainable, and you actually cheated the Apple employees because the money they are getting is worth slightly less than when they set out to build phones. And it's clear that the extra money has not made the world as rich as it would have been from people actually producing something else to trade. This is patently true even though the mythical gdp number went up, giving the illusion of an increase in wealth.

Re: Fed Ends Zero-Rate Era

#123

Post by mywittyname »

itchyouch wrote: post #99
MarlonPro wrote: post #9

Earlier quoted context omitted.

Looks like the stock market reacts positively to the rate hike. But its effect on the general population remains to be seen, specially in the mortgage industry. Will more people shun buying houses? Banks are more willing to lend money with higher interest rate.

I would imagine that housing will stay flat. New mortgages and new rentals will both increase in cost as lending costs rise. IIRC, generally, a higher interest rate environment will incentivize people to go from renting to home ownership as rents increase due to increase lending costs & lowered/flatter housing costs. Each 1% hike in interest reduces the leveraged buying power of all buyers about ~$21k per $1000 mortg…

Additionally, you can buy discount points to reduce the mortgage interest rate. So it's either a reduction of $21k as you said, or $3000 more due at closing to buy the discount.

Re: Fed Ends Zero-Rate Era

#124

Post by encoderer »

danieltillett wrote: post #82
czinck wrote: post #37

Earlier quoted context omitted.

Not really, any long term fixed rate loan had this priced in for months. In fact, the FNMA 30 year interest estimate is slightly lower now than when it opened, opened at 3.040% and is currently at 3.019% (sorry, no internet source available for that or I'd link it). The question this morning was if they were going to raise the rates today or next quarter and by how much, not if they were going to. Edit: It's now move…

The fact that we can borrow at 3% for 30 years and we don't use this to invest in productive infrastructure assets is insane.

Who is we? The federal govt can borrow at far lower rates than 3%.

Re: Fed Ends Zero-Rate Era

#125

Post by vezzy-fnord »

toomuchtodo wrote: post #118
vezzy-fnord wrote: post #100

Earlier quoted context omitted.

I made some perhaps overly hasty generalizations. HN is a community that is heavily skewed towards a belief in transhumanism (especially that AGI will be coming very soon) and moreover that high rates of technological unemployment are upon us, necessitating a UBI or stronger reforms to make sure the general-purpose labor saving of AGI doesn't cause social unrest from crowding humans out of the labor market. I can't i…

> I can't imagine what else could the GP have been referring to other than mass automatized labor for most sectors, hence either AGI or lots of narrow AI. * Renewables generating the majority of power consumed world wide * Self driving electric vehicles * Universal basic income Nothing outlandish like transhumanism.

Second is a real possibility during the next 20-30 years. First and third are significantly more doubtful.

Even assuming all three come in place soon, I don't understand how they'll fix public choice. If anything, at least autonomous electric vehicles will be a boon on private enterprise, which I don't think is what you had in mind.

Re: Fed Ends Zero-Rate Era

#126

Post by dragonwriter »

codyb wrote: post #112
zeveb wrote: post #102

Earlier quoted context omitted.

> We need the Federal government to stimulate aggregate demand at the consumer level. Investing tax dollars in a smarter manner. Isn't it highly unlikely that tax dollars will be spent or invested more wisely than the original owners of those dollars would have spent or invested them, since no-one would have known the owners' preferences as well as the owners themselves? Keynesian pump-priming ends up thinking it mak…

I'd argue government spending on things like infrastructure moves goods and people to more places thus stimulating the economy. Government spending on research results in new drugs and medications which improve peoples qualities of life. Government investment in clean energy promises to reduce the tens of thousands of people adversely affected by pollution in our nation annually and also provide us with a hugely viab…

> Government spending on bureaus like the FDA, EPA, and BBB give consumers and citizens access to outlets for complaints against dirty businesses and give us a decent amount of protection against those who would harm us to gain more of those dollars you think they'd rather have in their own pocket.

Well, that's clearly not the case for the BBB (which is a private nonprofit), unless you are counting granting tax exempt status to an organization as a form of "government spending". I tend to agree with regard to the FDA and EPA, most of the time, but its not exactly a non-controversial claim and regulatory capture is always a concern.

Re: Fed Ends Zero-Rate Era

#128

Post by zeveb »

roymurdock wrote: post #83
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.

Bonds are government debt. When you buy a bond, you are giving the government your money now in order to receive a return on that money later, with the expectation that the government will do something useful with the money in the meantime. So if the government is allocating its budget well, then yes, purchasing bonds is a good thing. If it is not, you are making a bad loan to someone who may not be able to pay you b…

> iPhone would not exist without the development of the internet during the cold war on gov grant

Isn't that a bit of a broken-window fallacy, though? We can see that the iPhone exists, and we can see that it exists in part as a result of the State grants which funded the development of the Internet, but we can't see what that money might have funded had it not been spent on those grants. We have no way of knowing what the original earners of those dollars might have chosen to invest them in, and what the world would now look like had they been free to do so.

We do know from history that while socialist economies like the USSR and its satellites did indeed tend to improve their economies measurably over their pre-socialist levels, freer governments tended to improve their economies to an even greater degree, leading to exponential quality-of-life differences over the decades. The average Russian was better off in 1989 than he would have been in 1913, as was the average American, but that average American was so much better off than the very best-off Russians that Boris Yeltsin was converted simply by seeing a Houston grocery store[1].

I love the Internet deeply, and I'm glad that government grants financed the research which led to it, but I wonder what else I might have had if those grants had been spent otherwise, just as a Russian in 1989 was no doubt glad for what he had — and amazed when he saw what he could have had.

[1] http://blog.chron.com/thetexican/2014/04/when-boris-yeltsin-...

Re: Fed Ends Zero-Rate Era

#129

Post by brc »

roymurdock wrote: post #28

Fed raising interest rates 0.25% and setting a goal of "normal" 2% by 2018 means little to nothing. Market already priced the miniscule rate hike in as the move was widely expected, and move did nothing to assure markets that the Fed is in control, or set credible, measurable goals for future hikes. Fed can continue to push on the supply side of money at the bank/institutional level all it wants. We need the Federal…

>We need the Federal government to stimulate aggregate demand at the consumer level. How? Investing tax dollars in a smarter manner

Everyone - and I do mean everyone - would be better off if the fed government (and state and local) invested those tax dollars smarter by leaving the majority of them in the hands of those that earnt them.

"There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income.” - Milton Friedman

Re: Fed Ends Zero-Rate Era

#130

Post by vecter »

enahs-sf wrote: post #127

Does this mean that buying a home in San Francisco, where 1/4 of the homes sold are all cash, just got a little bit more difficult?

Most of those cash buyers are wealthy Chinese people living in China. I doubt this will change that.
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