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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

#391

Post by nostrademons »

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…

Then the unemployed people on uninhabited farmland move back to their home cities with all this extra money and buy a house for a couple million, sending prices skyrocketing.

This is literally what's been happening to the economy for the last decade. All the money that went into the economy from 2008 onwards ended up in the financial & tech sectors in NYC, Seattle & the Bay Area. As long as it stayed there, it only increased prices in NYC, Seattle & the Bay Area. Then remote work happened and these techie millionaires realized they could live anywhere. Or they just hit a threshold where they can retire. Suddenly those millions are ending up in places like Boise, Phoenix, Austin, Denver, Asheville, etc. and now we get inflation.

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

#392

Post by IncRnd »

standeven wrote: post #291
IncRnd wrote: post #274

Earlier quoted context omitted.

> ...and that the primary risk once the economy reaches full employment is inflation, which seems to be precisely what has happened, no? Certainly, there is inflation. There isn't full employment.

How do you define full employment? The unemployment rate in the USA is currently 3.8%.

BLS defines full employment as an economy in which the unemployment rate equals the nonaccelerating inflation rate of unemployment (NAIRU), no cyclical unemployment exists, and GDP is at its potential. [1]

[1] https://www.bls.gov/opub/mlr/2017/article/full-employment-an...

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

#393

Post by grey-area »

dragonwriter wrote: post #364
throwaway894345 wrote: post #260

Earlier quoted context omitted.

Irrespective of its economic merits, any policy which depends on a competent and upright Congress does not inspire confidence. It feels like it's bound to be one of those "True MMT Hasn't Ever Been Tried (TM)" things.

MMT isn't a thing to try or be tried: it's not an ideology or set of policies or even policy goals (there is a very loose correlation between adherence to MMT and certain progressive policy goals, but they aren't the same thing.) MMT is an understanding of factual nature of the environment in which government operates . Reduced to one sentence it is “the entire concept of fiscal balance is play-acting as if the gover…

Your definition is circular. What proves MMT is in any way ‘factual’.

MMT is an old lie, oft repeated, and only discovered as a lie after it is far too late.

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

#394

Post by nostromo »

stjohnswarts wrote: post #298
r00fus wrote: post #265

Earlier quoted context omitted.

Hmm - I wonder who appointed the current Fed chair?

The current Fed chair has basically the same idea on economics as Yellen. Likely not much would have changed if she'd stayed in office.

True -- but note that Yellen was appointed by the same president.

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

#395

Post by jyu »

seizethecheese wrote: post #305
jcadam wrote: post #255

Got my mortgage at 2.75% late last year. Woooooo.....

What do you think is going to happen to your home price is interest rates go up to 5% and then people can’t afford huge mortgages anymore?

Prices will stay the same, but days on market increases. Inflation works itself through the system and eventually there will be a buyer.

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

#396

Post by jjoonathan »

tmn wrote: post #304
voisin wrote: post #232

Earlier quoted context omitted.

> 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

The 1979-1982 interest rate spike was preceded by 15 years of faffing around, playing at raising interest rates, and then chickening out, with a backdrop of rising persistent inflation. I think it's likely to play out exactly as you describe, but that's exactly how it played out in the 70s.

I'm much less certain that it will end the same way, but there are big problems with all the alternatives too (yuan, euro, crypto, gold) so who knows.

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

#397

Post by nostrademons »

jldugger wrote: post #184
cubano wrote: post #116

Inflation is almost 100% caused by "too much money" chasing "too few goods". "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) As we all should know, in the US, on 6/5/1933 FDR took the US off gold-backed currency and started the fiat currency situation we still find ourselv…

> Inflation is almost 100% caused by "too much money" chasing "too few goods". I find it baffling that the "always and everywhere a monetary phenomenon" crowd never inspects velocity.

Because velocity tends to return to historical norms in a functioning economy, and if velocity doesn't return to historical norms - say it goes to infinity, like in Weimar hyperinflation, or it goes to zero, like in Japan-style depression - you have bigger problems.

The "velocity is dropping so we need to print more" argument runs into scary problems if you make it without understanding why velocity is dropping. If it's because all the wealth is concentrating within a certain sliver of the population (like 2008-2020 U.S), that's a really big problem that's going to cause mass social instability. If it's because everybody's shutting themselves in their room and not spending money or engaging with society (like Japan), that's also a really big problem. If it reverses and returns to historical norms and beyond (as I suspect will happen), that's also a problem.

A big contrarian position in 2008 that I thought was nuts at the time but now think is very likely was that we were going to get "Deflation, then hyperinflation". I didn't understand the hyperinflation part then, but the argument was that deflation would lead the Fed to keep expanding the money supply, which would pool among a small number of people, until some spark triggered that group to spend money. COVID-related supply chain disruptions were that spark, and I think the hyperinflation case is increasingly likely now.

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

#398

Post by MuffinFlavored »

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…

How did "printing lots of money" https://fred.stlouisfed.org/series/CURRCIR not spike USD to EUR? did EUR also print lots of money? https://finance.yahoo.com/quote/USDEUR=X/ basically unchanged 5 years ago -> now

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

#399

Post by xxpor »

freedomben wrote: post #301
OGWhales wrote: post #288

Earlier quoted context omitted.

> 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.

I think people conflate what MMTers were saying post-2008, which was we had WAAAAAAAAAAAY more capacity to print money, especially from 2008-2014 or so, with we can spend literally infinite money. And so you get all of these people saying "MMT was wrong" with the pandemic inflation, when it's the exact opposite. We started running into real resource constraints (due to lockdowns, supply chain issues, etc) and inflation shot up exactly as expected. Now, even as an MMT fan, I'm perfectly willing to admit that predicting where the real constraint is is extremely hard. And that politically in the US raising taxes on a dime is basically impossible. But MMT wasn't wrong, for the parts that have been tested as much as they can be.

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

#400

Post by dillondoyle »

simpthrown8id wrote: post #159
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…

>>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…

I can think of a few trillion in urgently needed money we could spend taxes on: renewable energy, batteries, retrofitting homes for chargers, resilience building (and paying people to move out of high risk areas), invest in carbon capture/moonshots.
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