Federal Reserve to increase interest rates by 75 basis points for the third time • Hacker News Board

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#131

Post by bluGill » Wed, Sep 21, 2022, 7:21 PM UTC

JumpCrisscross wrote: post #40

maxfurman wrote: post #7

Earlier quoted context omitted.

My understanding is that the US has so much more debt now than we did in the 80s that a rate hike of that magnitude would cause too much harm for the Fed to stomach.

> the US has so much more debt now than we did in the 80s that a rate hike of that magnitude would cause too much harm for the Fed to stomach The Treasury pays interest on government debt. The Fed does not. Raising rates causes the Fed no harm other than (a) risking recession and (b) creating accounting losses idiots politicise. (The same way the Fed's accounting gains as it lowered rates are a useful fiction.) When…

> Raising rates causes the Fed no harm other than (a) risking recession and (b) creating accounting losses idiots politicise

There is C: politics. It is believed that the Fed is directly responsible for Carter losing to Reagan. (though it isn't clear how the election would have gone otherwise, it wouldn't have been the landslide it was) The Fed also reports to congressional hearings.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#132

Post by MrStonedOne » Wed, Sep 21, 2022, 7:21 PM UTC

wbsss4412 wrote: post #68

cs702 wrote: post #39

On a related note, since mid-April, the Fed has withdrawn –$140B of liquidity from the financial system: https://news.ycombinator.com/item?id=32929454 and earlier this year announced that it plans to continue withdrawing liquidity from the financial system at the rate of $90B/month for the foreseeable future. The innocuous term for these withdrawals is "quantitative tightening." There are no historical precedents for…

Note that many people on this and other forums have been talking about how the fed just prints money forever and is out of control. This is them destroying money. It might not be enough for you personally, but let’s not pretend that money printing only goes in one direction. Note: as a base expectation, you want to be printing a small amount of money unless circumstances dictate otherwise. In a growing economy, if th…

No post body was provided.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#133

Post by andrekandre » Wed, Sep 21, 2022, 7:21 PM UTC

qeternity wrote: post #105

hot_gril wrote: post #65

Earlier quoted context omitted.

The Fed creates money, which nothing else can do. Of course the money supply has its own ebb and flow from private banks and such offering loans, but it's hard to ignore M2 doubling every 10 years.

I agree with your sentiment but this isn’t true, in fact for most of the Fed’s life it was not the primary creator of money. Fractional reserve banking (which, by definition, the Fed is) creates money. If I deposit $1,000 into my local bank, and they turn around and lend $900 of that back out, that creates money.

  > If I deposit $1,000 into my local bank, and they turn around and lend $900 of that back out, that creates money

im kind of ignorant so please forgive if this is not correct, but i've heard its not necessarily "creating" money since its (the 900 dollars) all on the balance sheets as liabilities?

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#134

Post by digianarchist » Wed, Sep 21, 2022, 7:21 PM UTC

ProfessorLayton wrote: post #28

maxfurman wrote: post #14

I'll echo what some folks have said in other threads, we've had rates down near zero for fifteen years, and we've got to get them back somewhere near historic normals at some point. If only so they can be cut again during the next crisis. How much is our entire culture the result of cheap money?

>we've got to get them back somewhere near historic normals at some point. Not a monetary expert here, but do we? Japan has been at zero/near zero since the mid 90s.

Japan also has low inflation.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#135

Post by jhallenworld » Wed, Sep 21, 2022, 7:22 PM UTC

selectodude wrote: post #107

bombcar wrote: post #77

Earlier quoted context omitted.

The argument is that easy "free money" causes money to flow into equities, and that money goes in search of better returns which includes venture funding. The moment the economy tightens up, suddenly the venture funds have less money. I'm not sure what's causal in it all, but from the outside it certainly looks like that's what happens.

>suddenly the venture funds have less money. It's not that they have less money, it's just that when 1yr treasuries are paying over 4%, the returns in risk-adjusted investments need to either return a lot more or die.

Probably both matter: suppose your grandma is your angel investor. If suddenly equities plummet, grandma sees less in her portfolio, so the funds available for angel investing are no longer there.

This is happening to me right now with my parents not being able to help as much with my kids' college tuition.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#136

Post by jayski » Wed, Sep 21, 2022, 7:22 PM UTC

plandis wrote: post #45

dougmwne wrote: post #13

Given that mortgage rates recently rose past 6%, seems to me this latest rate increase is going to put strong pressure on house prices. The rate has a huge impact on the monthly payment required to service a loan, more so than is immediately apparent without doing the math.

Good time to buy if you’re wealthy with cash on hand.

can you elaborate a little more?

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#137

Post by nine_zeros » Wed, Sep 21, 2022, 7:22 PM UTC

qeternity wrote: post #105

hot_gril wrote: post #65

Earlier quoted context omitted.

The Fed creates money, which nothing else can do. Of course the money supply has its own ebb and flow from private banks and such offering loans, but it's hard to ignore M2 doubling every 10 years.

I agree with your sentiment but this isn’t true, in fact for most of the Fed’s life it was not the primary creator of money. Fractional reserve banking (which, by definition, the Fed is) creates money. If I deposit $1,000 into my local bank, and they turn around and lend $900 of that back out, that creates money.

> If I deposit $1,000 into my local bank, and they turn around and lend $900 of that back out, that creates money.

While you are right about fractional reserve creating money, this example is a common misconception. When you deposit $1000, the bank assumes a reserve of $1000 and lends out $9000. This, is assuming the bank has enough reserves on hand. And reserves for the bank is either central bank money (given by fed) or treasury bonds (bought from your $1000 deposit) or MBS (bought from your deposit).

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#138

Post by xyzzyz » Wed, Sep 21, 2022, 7:22 PM UTC

kyrra wrote: post #83

jollyllama wrote: post #23

Earlier quoted context omitted.

>How much is our entire culture the result of cheap money? Only the parts involving housing, education, transportation, employment, and investments.

College Education pricing has many blames beyond cheap money. The fed getting involved in student loans have totally broken that segment of the economy. 1) Federal loans do not have limits on amount. 2) Loans are non-discharged (you can't shed them in bankruptcy). 3) There is no intensive for schools to charge less. (schools likely should have skin in the game if borrowers end up shedding debt through time expiration…

> Federal loans do not have limits on amount.

This is false.

> Loans are non-discharged (you can't shed them in bankruptcy).

They’re also not collaterized. As a taxpayer, I’d be very much against a non-collaterized loan that anyone can get without much care for credit risk, that’s dischargeable in bankruptcy. In private sector, dischargeable debt with no collateral, like credit card debt, has 20%+ rates for people with low credit scores.

> 3) There is no intensive for schools to charge less. (schools likely should have skin in the game if borrowers end up shedding debt through time expiration or bankruptcy).

If debt is held by federal government, the students defaulting will not be much of an incentive to the school.

> Loans or the amount of the loans are not weighted at all by the future prospects of the person

Indeed. The most recent loan forgiveness plan is basically mechanical engineers subsidizing drama majors.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#139

Post by digianarchist » Wed, Sep 21, 2022, 7:23 PM UTC

jazzkingrt wrote: post #106

mberning wrote: post #49

Earlier quoted context omitted.

Something dramatic is going to have to happen for SWE salaries to drop significantly. I have a feeling if SWEs take a 20%+ haircut on salaries things are going to be absolutely abysmal for people in other roles.

Many of us have already dealt with a 20% haircut, at least on the RSU portion of compensation. * Higher cost of borrowing is putting pressure on growth companies that relied on cheap capital * Economic downturn makes it harder to do business and lowers stock prices, which makes up a big part of any 400K SWE package * Tech companies can allow RSU grants to expire rather than implementing formal paycuts. Whereas compan…

My RSUs are down 70% from their post IPO peak.

Re: Federal Reserve to increase interest rates by 75 basis points for the third time

#140

Post by WalterBright » Wed, Sep 21, 2022, 7:23 PM UTC

nine_zeros wrote: post #128

fny wrote: post #82

Earlier quoted context omitted.

I'll mention something that most people are forgetting. The Fed was forced to cut rates to zero for a long time because fiscal policy was not stimulative enough. Rates are a shitty stimulative tool. Here's Bernanke in 2012: https://www.theatlantic.com/business/archive/2012/12/ben-ber... Low rates help people with money borrow more cheaply, accrue more wealth, and kick bankruptcy cans down the road indefinitely. It al…

> The Fed was forced to cut rates to zero for a long time because fiscal policy was not stimulative enough. It's not just fiscal stimulus but "how" the stimulus was applied. It's not like the government isn't spending enough. It is spending. Until recently, all the spending went on tax credits and military. What we need is fiscal stimulus in industries of the future. Only the current administration gets it and made i…

Government subsidy tends to attract a lot of malinvestment in order to get those dollars. For example, in Biden's bill, there's a subsidy for so-called "smart" glass that darkens when an electric current is applied. This is supposed to reduce solar input from windows by 20%.

Of course, if this mattered, people would have already installed window blinds, which are cheap and easy. External eyebrows and eaves also work. "Smart" glass is an expensive solution, it's been around for 25 years, and nobody wants it.