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Why I Dissented

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Re: Why I Dissented

#51

Post by edblarney »

skywhopper wrote: post #14

Glad to hear that someone on the Fed has some sense. The confusion of "target" with "ceiling" has been disastrous for the economic recovery. Raising rates now is a terrible idea. Moderate inflation is good for an economy based on credit, _especially_ so when so many individuals are overburdened by overwhelming student loan debt and underwater mortgages. Running under 2% core inflation for the past nine years has dest…

"so when so many individuals are overburdened by overwhelming student loan debt"

They are taking it on because it's cheap.

Low interest rates are like heroin: sooner or later you have to quit.

All things considered, the time would definitely be now.

Re: Why I Dissented

#52

Post by edblarney »

autokad wrote: post #13
tradersam wrote: post #5

Earlier quoted context omitted.

> that the Fed should wait on raising interest rates I don't agree either. If the economy tanks again, there is almost nothing that can be done, being that one of the usual steps is to lower interest rates to spur growth.

they could always use quantitative easing. the argument "we need to raise rates so we can lower them if the economy tanks" doesn't fit well with me. its sort of like saying lets take poison so that if we get sick we can stop taking poison and feel better. it might hold some water if there was inflation, but there's not. deflation is still a bigger risk. I think the fed should use interest rates to fight inflation, an…

" its sort of like saying lets take poison so that if we get sick we can stop taking poison and feel better."

No. The analogy is - right now, with low rates, we are doing red bull and meth to 'stay awake' and we need to return to normal so that in a crunch, we can do a little more meth. Right now, we're dying from too much meth :)

Re: Why I Dissented

#53

Post by fauigerzigerk »

jfoutz wrote: post #46
caf wrote: post #28

Earlier quoted context omitted.

It's the interest rate in real terms (nominal rate minus inflation rate) that spurs growth, so higher inflation itself adds a couple more arrows back into the quiver. (That's also why deflation is avoided like the plague - in that event, even a zero nominal interest rate is a positive real rate).

I kinda wonder if technical advances means we actually have de facto deflation. Regular stuff is constantly being improved. Perhaps socks are 2% cheaper or better every year, effectively making inflation negative.

This idea is already part of how inflation is measured. It's called Hedonic Quality Adjustment: https://www.bls.gov/cpi/cpihqaqanda.htm

But I also think that this is difficult to get right.

Re: Why I Dissented

#54

Post by shaqbert »

jboydyhacker wrote: post #20

The author operates from the assumption that keeping rates low is stimulative. While true in many and most circustamnces, the Fed took rates to zero on an emergency basis in the 2007-2009 crisis. While originally stimulative over time the evidence that zero rates are providing stimulus is weak in fact it's likely that the harm it does to pensioners, savers and others dependent on the debt markets is not only anti sti…

The historic data for extended periods of super low interest rate is "sparse" to put it mildly. Pretty much never happened before, so the "consensus view" by economists is not that much of a "consensus" after all.

Also, historically a leader of the various Feds does not necessarily have to be an economist - similar how supreme court judges don't necessarily have to have a legal/judge background. Given there is a whole committee of opinions, having some "fresh" outsider views may actually help the discussion. (Though I am not saying that having a former Goverment Sachs fellow necessarily is a poster child of fresh ideas here :)

Re: Why I Dissented

#55

Post by fauigerzigerk »

grigjd3 wrote: post #39
u801e wrote: post #17

Earlier quoted context omitted.

> it might hold some water if there was inflation, but there's not. deflation is still a bigger risk. I've always wondered if the worry about deflation is overblown. We still have a lot of things that people and businesses buy that have inelastic demand which will not change regardless of whether or not we are experiencing deflation. Also, when looking at expenses related to computer hardware, it has been going down…

Under deflation, there is decreasing motivation to work or produce. Why buy seeds to grow food when your money could just buy more later? A little inflation motivates people to produce, either by labor, investment or both.

>Under deflation, there is decreasing motivation to work or produce

Is that only a bad thing? If we have overcapacities and therefore prices fall then producing less would be the rational thing to do. I do understand that this has negative consequences as well though.

Re: Why I Dissented

#56

Post by adrianratnapala »

u801e wrote: post #17
autokad wrote: post #13

Earlier quoted context omitted.

they could always use quantitative easing. the argument "we need to raise rates so we can lower them if the economy tanks" doesn't fit well with me. its sort of like saying lets take poison so that if we get sick we can stop taking poison and feel better. it might hold some water if there was inflation, but there's not. deflation is still a bigger risk. I think the fed should use interest rates to fight inflation, an…

> it might hold some water if there was inflation, but there's not. deflation is still a bigger risk. I've always wondered if the worry about deflation is overblown. We still have a lot of things that people and businesses buy that have inelastic demand which will not change regardless of whether or not we are experiencing deflation. Also, when looking at expenses related to computer hardware, it has been going down…

During the 19th century, with money more strongly tied to gold, deflation was pretty common. And it seemed like no big deal.

Of course the evidence is hard to interpret. The 19th century was poorer than the 20th. Well Duh. The had 19th lots of recessions and depressions. But nothing so bad as the Great Depression. But also nothing so good as the Great Moderation.

My guess is that moderate anything is fine. But that policy wonks get the heebie-jeebies about not having the monetary lever in "their" hands.

Re: Why I Dissented

#57

Post by heisenbit »

skywhopper wrote: post #14

Glad to hear that someone on the Fed has some sense. The confusion of "target" with "ceiling" has been disastrous for the economic recovery. Raising rates now is a terrible idea. Moderate inflation is good for an economy based on credit, _especially_ so when so many individuals are overburdened by overwhelming student loan debt and underwater mortgages. Running under 2% core inflation for the past nine years has dest…

Agree but the real issue here is that the Fed seems helpless with their tool set. They can pump money into the economy but that money is not used for productive but only for speculative purposes. By pushing in more money at the asset side of things they devalue relatively the labor side of things. Re-balancing would require enabling more small scale capital accumulation vs. the current policy of supporting large economic entities.

Re: Why I Dissented

#58

Post by chad_strategic »

chad_strategic wrote: post #36

The premise that government should dictate the interest rates and not let the market determine rates through price discovery is absurd. 100 of Phd's couldn't predict the housing bubble and the financial crisis of 08 and if you think we are safe from that again, good luck. http://amzn.to/2mGM5hA

I'm starting to take great pride in getting downvoted here at "hack" news. There seems be a group think here on this site, in addition to people just commenting on things they have no knowledge about especially when it comes to economics.

I guess I'm just blessed with not running with herd.

The affiliated link, that was my bad. But money is fiat...

Re: Why I Dissented

#59

Post by squozzer »

It bothers me a little that economists might lack the ability to factor in changing consumer or business habits that are emerging because of recent events or secular trends.

For example:

>One additional consideration that I think about is the possibility that low rates are scaring people and causing them to save more and invest less, while conventional wisdom is that low rates should lead to more investment and less saving.

I will say that even when times are good, but can no longer be assured, people will save more. Moreover, when the costs of economic vulnerability have never been higher, the spending habits of the past no longer work.

Many of us are one pink slip away from permanent unemployment, underemployment, and financial ruin.

Many of us are one chronic - not necessarily life-threatening - illness away from peonage.

It seems unrealistic to expect people to behave as if it's 1957 or even 1987. Jobs for everyone or the threat of nuclear war probably spurred a bit more "live for today" mentality than what we might experience today.

Re: Why I Dissented

#60

Post by generj »

chad_strategic wrote: post #36

The premise that government should dictate the interest rates and not let the market determine rates through price discovery is absurd. 100 of Phd's couldn't predict the housing bubble and the financial crisis of 08 and if you think we are safe from that again, good luck. http://amzn.to/2mGM5hA

The markets do set interest rates on assets. The discount rate is just the rate of loans the Fed offers. The markets have decided to base their rates on the discount rate. Voila, the markets are at work!

I suppose letting the architects of the housing bubble (who also didn't predict it) set the discount rate is preferable?

Not having the ability to adjust the central interest rate has resulted in recessions in the past. It means every recession could be a depression. Interest rates would increase dramatically right as we desperately need them to lower to prevent the economy from going into a tail spin.

Economics is so much more than simply worshiping the invisible hand - if it was nobody would need to get a degree in it. We also need to understand when and how market failures occur.

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