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

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

#201

Post by qeternity »

nine_zeros wrote: post #137
qeternity wrote: post #105

Earlier quoted context omitted.

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 fe…

I’m not sure you understand how this works. It’s not a common misconception, it’s literally FRB.

The bank might turn around and borrow from the Fed and use the deposits as reserves, but that has more to do with rates markets and nothing to do with FRB.

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

#202

Post by fny »

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…

I'm the parent commenter, and I strongly disagree with the idea that stimulus should be directed by the federal government.

The federal government is an extremely poor resource allocator. It knows nothing about local and personal wants and needs. In my view, funding should be dolled out to individuals and maybe local governments. That way money flows from the bottom up, not top down.

The money flow is an extremely important factor: when money flows to individuals, each individual gains "votes" to allocate resources. Those votes informs how and where the economy grows at a granular level. The federal government cannot do this with any level of precision or efficiency.

If higher levels of government need money to do things, they should tax for--this includes some portion of the transfer payments. I know it sounds redundant for the government to tax money they've handed out, but I think governments need to feel the pain of working to get the money in the first place.

I'm also convinced you would dramatically reduce the amount of fraud and favoritism that occurs since decision making will end up being decentralized.

Here's a "hot take" example. The federal government funding child care is a dumb idea.

1) Not everyone needs child care.

2) Not everyone needs child care in the way the federal government wants to provide it.

3) An entire bureaucratic apparatus needs to be developed to define what child care is, what constitutes valid child care, who can provide child care, blah, blah, blah. This will be expensive to manage and will metasticize in its own way over time.

So why not just give people money to people who have young children to do whatever they want to do with it?

Maybe you add some provisions to prevent people from making babies to cash in checks, but I'm assuming writ large I can trust my fellow citizen to make better decisions about their child care than whatever "governmental apparatus" we want to create to do that for them.

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

#203

Post by de_Selby »

closeparen wrote: post #165
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…

When rates rise in response to inflation, that’s not a “meaningful” return you’re getting, is it?

The point is that having near or below 0 rates has been a terrible policy for almost everyone, just as increasing them in response to inflation is going to hit most people hard now.

A problem has been kicked down the road for years, it was always going to blow up in our faces.

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

#204

Post by fny »

closeparen wrote: post #165
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…

When rates rise in response to inflation, that’s not a “meaningful” return you’re getting, is it?

The current rate hikes are not due to inflation alone.

IMO, Powell wanted to keep raising rates in 2018, but was hamstrung by Mnuchin and Trump who wanted to keep rates low and the dollar weak. The mini market panic at the time did not help. The COVID meltdown is why we went back to zero. Now he has the perfect excuse to return back things to a normal economic mode.

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

#205

Post by qeternity »

hot_gril wrote: post #168
qeternity wrote: post #105

Earlier quoted context omitted.

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.

The money supply has been steadily but quickly increasing for decades now. That can't be a result of fractional reserve banking alone. When I say the Fed creates money, I'm referring to the virtual printing.

The supply of money has been increasing since the invention of money. Humankind would be incredibly resource constrained otherwise.

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

#206

Post by maerF0x0 »

majormunky wrote: post #192
maerF0x0 wrote: post #149

Anyone else notice Powell mentioned multiple times that they're trying to weaken the labor market? (and by extension the ability of workers to negotiate good wages, good conditions) Anyone know why?

Workers making good wages increases demand on goods that are already in high demand.

> Workers making good wages

Wouldn't that be a baseline value of a society? It makes me think that the price increases that are happening is simply a return to norms after we had like 50yrs of productivity increases w/o increasing wages -- meaning prices were actually suppressed.

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

#207

Post by jedberg »

11101010001100 wrote: post #147
digianarchist wrote: post #139

Earlier quoted context omitted.

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

question: is it illegal to setup a hedging instrument for this sort of thing?

It's illegal for officers and directors to short their own stock. It's not technically illegal for any other employee.

That being said I've never seen a company that allows it in their company policy. Every company I've seen forbids it to eliminate the appearance of unethical behavior.

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

#208

Post by nine_zeros »

qeternity wrote: post #201
nine_zeros wrote: post #137

Earlier quoted context omitted.

> 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 fe…

I’m not sure you understand how this works. It’s not a common misconception, it’s literally FRB. The bank might turn around and borrow from the Fed and use the deposits as reserves, but that has more to do with rates markets and nothing to do with FRB.

This video series might help more: https://www.youtube.com/watch?v=KvpbQlQwl0A

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

#209

Post by nine_zeros »

fny wrote: post #202
nine_zeros wrote: post #128

Earlier quoted context omitted.

> 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…

I'm the parent commenter, and I strongly disagree with the idea that stimulus should be directed by the federal government. The federal government is an extremely poor resource allocator. It knows nothing about local and personal wants and needs. In my view, funding should be dolled out to individuals and maybe local governments. That way money flows from the bottom up, not top down. The money flow is an extremely im…

It is exactly this thought process that is preventing good fiscal stimulus during recessions.

Well intentioned thoughts like these are a good default for the government running in cruise control - when there is no financial volatility. A stimulus is only required during a recession. In each recession, we have only allowed the Fed to print more money, which hasn't turned out well. Instead of printing this money and raising asset prices, during each recession, fiscal policy should help increase the supply of things direly in need. If a recession is causing food shortages, we don't want printed money to increase demand for food. We would do much better by literally subsidizing X units of food for the next 1 year.

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

#210

Post by hot_gril »

qeternity wrote: post #205
hot_gril wrote: post #168

Earlier quoted context omitted.

The money supply has been steadily but quickly increasing for decades now. That can't be a result of fractional reserve banking alone. When I say the Fed creates money, I'm referring to the virtual printing.

The supply of money has been increasing since the invention of money. Humankind would be incredibly resource constrained otherwise.

Money used to just be precious metal or correspond to it, so no this isn't how it's been from the start.

Why resource-constrained? It's money, not something with utility. In any expanding economy, you generally get more buying power spending later rather than now, regardless of changes in money supply. Only if the currency is being diluted too much, you have to park your savings in something scarce instead, like land or low-risk stocks. It's not all that different from just using a fixed supply of currency (I'm not counting lending as creating money; it's not the same thing).

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