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US Federal Reserve raises interest rates for first time since 2018

theguardian.com

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Re: US Federal Reserve raises interest rates for first time since 2018

#301

Post by freedomben »

OGWhales wrote: post #288
andreyk wrote: post #137

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…

> 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.

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.

Re: US Federal Reserve raises interest rates for first time since 2018

#302

Post by stjohnswarts »

jonnycomputer wrote: post #172

Good thing I didn't come here for informed economic commentary. Now back to the blogosphere.

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.

Re: US Federal Reserve raises interest rates for first time since 2018

#303

Post by roenxi »

andreyk wrote: post #137

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…

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.

Re: US Federal Reserve raises interest rates for first time since 2018

#304

Post by tmn »

voisin wrote: post #232
jjoonathan wrote: post #182

Earlier quoted context omitted.

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.

> 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?

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

Re: US Federal Reserve raises interest rates for first time since 2018

#306

Post by nostrademons »

tarsinge wrote: post #242
simpthrown8id wrote: post #159

Earlier quoted context omitted.

>>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…

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.

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.

Re: US Federal Reserve raises interest rates for first time since 2018

#307

Post by cheriot »

voisin wrote: post #250
mikaeluman wrote: post #229

Earlier quoted context omitted.

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.

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.

Higher interest payments just means the Gov borrows more. I don't think the Fed is concerned about the ability to issue new debt.

Re: US Federal Reserve raises interest rates for first time since 2018

#308

Post by Manuel_D »

jppittma wrote: post #201
throw0101a wrote: post #162

Earlier quoted context omitted.

> "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…

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…

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?

Re: US Federal Reserve raises interest rates for first time since 2018

#309

Post by spaetzleesser »

yalogin wrote: post #254

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.

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.

Re: US Federal Reserve raises interest rates for first time since 2018

#310

Post by afterburner »

cm2187 wrote: post #268

When inflation is at 8%, that's like pissing on a forest fire.

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.

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