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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

#431

Post by alphabettsy »

mikeyouse wrote: post #243
ameister14 wrote: post #136

Earlier quoted context omitted.

Yeah but that's an overall lowering of debt servicing as a percent of disposable income. The only part that hasn't dropped much is consumer debt. Plus while reverse amortization might be less common, ARMs generally are still very popular and you'll see a hike in overall debt service associated with rising interest rates. I don't know what's gonna happen with the housing market and I don't think it'll crash either but…

Consumer debt is also low; https://fred.stlouisfed.org/series/CDSP And metrics like credit card delinquencies are at historic lows: https://fred.stlouisfed.org/series/DRCCLACBS ARMs actually aren't very popular - fewer than 15% of new mortgages are ARM. > BlackRock bought what, 10-15% of the houses sold in 2020? People vastly overestimate how large players like Blackrock are. There are something like 80 million singl…

Naïve question, but what happens if something like 5-10% of those ARMs default and the traditional default rate increases too?

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

#432

Post by [deleted] »

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.

[deleted]

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

#433

Post by ajross »

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…

> endless printing of money in the last few years

This didn't happen in a vacuum, though. It was simultaneous (and, obviously, co-causal) with a very rapid economic contraction and a subsequent supply shock across a ton of industries. Any analysis of this situation that starts end ends with "the government printed money" is, IMHO, basically pushing an agenda.

What actually happened is that the device under control (the economy) had an excursion (picture a car blowing a tire and veering) and the government corrected rapidly (prevented it from entering another travel lane, say), but it was something of an overcorrection (the car ran off the shoulder).

Should we have "printed less money"? Probably yes, in hindsight. Was the alternative worse? Of course it was; we were looking at a huge jump in poverty. Was anyone unaware of the inflation risk? No, not really. Was anyone dead-on correct about the right amount of stimulus? Not that I can see.

We'll be fine.

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

#434

Post by monktastic1 »

nickles wrote: post #406
monktastic1 wrote: post #378

Earlier quoted context omitted.

The Fed (not FED, BTW) doesn't "set" the rates, but has policies (including IORB, or what you call the federal reserve rate) which guide the markets to arrive at their target. Maybe that's a small distinction, but I think it helps OP, because I labored under the same confusion for a while.

> The Fed (not FED, BTW) doesn't "set" the rates, but has policies (including IORB, or what you call the federal reserve rate) The Fed does explicitly set certain interest rates. IORB is an interest rate that gets paid out every single day to market participants. “Federal reserve rate” does not exist; what you’re probably referring to is the fed funds rate . The Fed sets a target range for this, and, if the effective…

"Federal reserve rate" is not my term. My parent comment coined it and defined it as "the interaste (sic) rate paid to banks every day for their deposits with the FED", which is the IORB.

I appreciate the thorough and accurate response you gave (and which I learned from). The distinction I've been trying to make is that the Fed has no mechanism to enforce the rate banks offer to each other or to consumers -- as in, there's no legal enforcement anywhere. Instead, they have various levers that predictably cause rational actors to voluntarily change their own rates. Maybe this has always been obvious to you, but it wasn't to me at some point.

If you still feel this is "blatantly incorrect information," I'm certainly open to learning more.

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

#435

Post by cyanydeez »

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…

monetary theory is meaningless if its based on the american dollar as reserve currency.

its more american monetary beliefs

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

#436

Post by alphabettsy »

trgn wrote: post #350
ryandrake wrote: post #178

Earlier quoted context omitted.

Also, returns from other investments tied to interest rates were higher. I seem to recall seeing CD rates >10% in the '80s. I know I had a CD paying >6% as late as the mid '90s. This world where basic banking investments are pointless and pay ~0% is a historic anomaly.

tbh maybe it should stay like that, it's only an anomaly if you start your timeline at the advent of central banking. Interest rates on deposits are a purely mathematical fiction, creating no new value. If people would like to see their old tired moneys sprout new baby moneys out of thin air, they should convert their savings into capital, and effectively invest in productive enterprise. Any capital gain then is by m…

I think the idea was that deposits support other investments but where would that idea have come from? Sounds silly.

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

#437

Post by Manuel_D »

jppittma wrote: post #423
Manuel_D wrote: post #308

Earlier quoted context omitted.

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 co…

You're missing the point. The government can and should print money to turn unutilized resources in the economy into utilized resources. What's best for the economy is for every capable person in it to be generating stuff. Everything else is an abstraction around that end. In my thought experiment, there's simply more stuff in the economy because the government printed the money, and the whole is more prosperous for…

Your thought experiment involves people working for free: being paid with money they can't actually use because they're isolated from the rest of the economy and can't spend that money. Nobody would agree to this. In practice, the people receiving the printed money would not be isolated from the rest of the economy and would be purchasing goods and services with their subsidies and driving up the prices of those products.

You're right that if spending printed money created gains in production to match the increase in money supply it wouldn't result in inflation. That's correct, but I seriously doubt that this is how MMT would work out in practice. Most MMT evangelists aren't trying to get a favorable return on investment. They're looking to fund massive social spending programs like UBI, government healthcare, or decarbonization of energy production.

To be clear, some of these are important projects but we shouldn't kid ourselves into thinking that printing trillions of dollars to pay for them isn't going to affect inflation. They're worth paying for because of the benefits they bring and disasters they avert, not because they're going to produce a return on investment.

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

#438

Post by stale2002 »

brimble wrote: post #411
stale2002 wrote: post #375

Earlier quoted context omitted.

> it's not an ideology or set of policies or even policy goals That might be true in the academic sense. But in reality, the only people who talk about MMT are people who just want to spend money infinitely and claim that there is no negative consequences to doing so. Which of course, doesn't make any sense if you know anything about MMT in the academic sense, which absolutely admits that there is negative consequenc…

As someone who took a lot of political science and economics classes once upon a time, and has an ongoing amateur interest in these things, MMT is the first time I've looked at one of these macro-level explanations/descriptions and not felt like I needed to ask a bunch of stupid questions that are (inevitably) going to be dismissed with a heaping dose of condescension. Finally, something that makes total sense when I…

Theories that are dismissed by the vast majority of the mainstream experts are often simple, yes.

It turns out that the real world is complicated, and thats why we have experts in the world.

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

#439

Post by nebula8804 »

lotsofpulp wrote: post #134
vineyardmike wrote: post #78

Earlier quoted context omitted.

This is always the case though, there are always retired people. They have raised rates and damaged market values in past. Its a decision they are comfortable taking. Plus, at least current US retirees have social security, which may not last another 20+ years in current form (unfortunately for people paying in today).

There is no reason the US federal government would have to nominally end federal social security benefits. The federal government has the power to simply create new money. However, it would be prudent to assume that the social security benefits will have less and less purchasing power (since each USD will have less and less purchasing power), and the government will not increase the amount of the benefits sufficientl…

Biden has attempted to cut social security numerous times.

The elite will eventually get their way because it represents such a vast source of untapped value to extract from. Will it be in my lifetime? (im in my 30s).

That I don't know but I do know that they are gunning for it as well as Medicare and Medicaid and if a US bankruptcy does not wipe it out then eventually they will find a way to take it.

[1]:https://www.youtube.com/watch?v=9X3UiSvgle0

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

#440

Post by lotsofpulp »

nebula8804 wrote: post #439
lotsofpulp wrote: post #134

Earlier quoted context omitted.

There is no reason the US federal government would have to nominally end federal social security benefits. The federal government has the power to simply create new money. However, it would be prudent to assume that the social security benefits will have less and less purchasing power (since each USD will have less and less purchasing power), and the government will not increase the amount of the benefits sufficientl…

Biden has attempted to cut social security numerous times. The elite will eventually get their way because it represents such a vast source of untapped value to extract from. Will it be in my lifetime? (im in my 30s). That I don't know but I do know that they are gunning for it as well as Medicare and Medicaid and if a US bankruptcy does not wipe it out then eventually they will find a way to take it. [1]: https://ww…

If the federal US government is borrowing in a currency they control, I do not see why US leaders would choose to go bankrupt over simply issuing new money to meet debt obligations?

And Social Security and other government benefits/services are continuously cut, at least where I live as far as I am concerned since they never keep up with price increases for the things I buy.

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