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The Fed plans to sharply boost unemployment

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Re: The Fed plans to sharply boost unemployment

#141

Post by pgwhalen »

uup wrote: post #111
yuan43 wrote: post #89

Zero direct evidence for the title's claim was provided in the article. All the Fed is doing is to normalize interest rates. Deeply negative real yields (5% or more) are aberrations that history has shown to ultimately lead to catastrophe. Yet talking head and Dem Senator alike are treating rate normalization as financial Armageddon. Somebody tell me how at the very least a 0% real yield on cash is going to kill the…

It’s going to kill the economy because the Fed is basically setting up perfect conditions for stagflation. Congress and the Fed caused the M1 money supply to 5X in just a period of two years. Of course there is going to be inflation in such a scenario. And yes, while the money supply isn’t the only factor that determines inflation, it certainly is a part and such a drastic change in the money supply almost certainly…

> Congress and the Fed caused the M1 money supply to 5X in just a period of two years.

Oft-repeated, but incorrect. The way M1 is calculated was changed in 2020, and the apples to apples comparison is actually a little bit less than 2X.

https://fred.stlouisfed.org/series/M1SL

Re: The Fed plans to sharply boost unemployment

#142

Post by econ101time »

Retric wrote: post #39
econ101time wrote: post #24

Earlier quoted context omitted.

You're forgetting that there's a market at the other end too. Every business has a cost of capital, and if its returns are not in line with other similarly placed businesses, they will have to spend a lot more money to acquire capital.

That’s assuming they need to raise capital. However, most companies are flush with cash and will only become more profitable with increasing demand.

So much wrong with this line of thinking. 1) They're also facing increased costs. 2) Most companies are by no means "flush with cash". 3) Cash is fleeting but the need for capital is always hanging over your head. Even if you pride yourself on bootstrapping your business and not needing much in loans or additional investment, one or two bad quarters can quickly leave you with no choice but to get loans or sell equity.

Re: The Fed plans to sharply boost unemployment

#143

Post by edmundsauto »

prepend wrote: post #106
UtopiaPunk wrote: post #104

Earlier quoted context omitted.

As an anti-capitalist, I would love a society where everyone benefited from unpleasant jobs being automated away. However, under capitalism, only the owners will benefit. That's because automation turns labor into property. That means the owners of property, capitalists, benefit. If the value of automation were distributed differently it'd be great. If workers owned a company such as in a worker-cooperative structure…

> That's because automation turns labor into property. That means the owners of property, capitalists, benefit. I think customers also benefit. If a janitor costs $100/day and that’s automated away to a robot with $20/day costs that $80 will be passed on to the customer (just like every other technology innovation).

Potentially; another possible outcome is that $60 is passed to ownership and $20 passed to consumers. Companies these days are pretty aware of how price conscious their customers are - they aren't going to lower pricing based on cost unless there is strong reason to (competition is the only one I can think of... but it looks to me like companies compete less these days due to a variety of factors, including brand loyalty and monopolistic behaviors).

Re: The Fed plans to sharply boost unemployment

#144

Post by marcosdumay »

nilsbunger wrote: post #140
marcosdumay wrote: post #112

Earlier quoted context omitted.

There isn't a simple, first-order relation between the monetary and the real economies. The only thing that exists is an absurdly complex web of small second or higher order interactions.

It’s pretty tightly linked. Lots of loans don’t happen when interest rates go up. On the consumer side , car loans, mortgages , etc. on the biz side, capital loans and lines of credit. All of this significantly reduces purchases and money in our pockets, thus putting downward pressure on gdp and demand.

> Inflation is high because demand exceeds supply.

That's the part that is wrong.

It's wrong by definition, because demand and supply are the same thing. It's also wrong because inflation is an unrelated phenomenon.

Raising interest rates does normally (not always) reduce the economic output. Nobody is disagreeing on this.

Re: The Fed plans to sharply boost unemployment

#146

Post by starkd »

afpx wrote: post #138
starkd wrote: post #102

Earlier quoted context omitted.

Economic activity is not inimical to humanity. Not in and of itself. That's a terrible way to think of your fellow man and our relationship to nature.

Believe me, I'd love it if people cared for nature. But, people tend to choose having kids and keeping those kids out of poverty before they choose nature. And, having kids requires economic activity, unfortunately. I didn't create the system. Someone started this ball rolling 10k years ago.

Well, having kids is kind of important. Essential even.

Re: The Fed plans to sharply boost unemployment

#147

Post by addicted »

yuan43 wrote: post #89

Zero direct evidence for the title's claim was provided in the article. All the Fed is doing is to normalize interest rates. Deeply negative real yields (5% or more) are aberrations that history has shown to ultimately lead to catastrophe. Yet talking head and Dem Senator alike are treating rate normalization as financial Armageddon. Somebody tell me how at the very least a 0% real yield on cash is going to kill the…

Your statement is false. The Fed has told us why it’s raising rates. It’s NOT to normalize historically low rates. It’s to fight inflation. There is nothing to debate here. The Fed has said it explicitly.

The second part, whether the Fed is hoping to do this by increasing unemployment isn’t as trivial to show. However, we can be almost certain this is true because: (1) since inflation is not due to monetary weakness (the USD is historically strong and has been for the past few years) the only other way the Fed can cause inflation to reduce is by making the economy weaker, which will traditionally lead to lost jobs and increasing unemployment, and (2) the Fed keeps saying that it thinks it can achieve a soft landing, ie, without putting us into a recession and leading to massive job losses, which indicates that they are also aware that they may cause a recession/unemployment growth, and are only kind of hoping they can avoid it.

Re: The Fed plans to sharply boost unemployment

#148

Post by PaulDavisThe1st »

econ101time wrote: post #135
PaulDavisThe1st wrote: post #129

Earlier quoted context omitted.

Do you think that Robert Reich also doesn't understand supply and demand? https://www.theguardian.com/commentisfree/2022/sep/25/inflat...

Robert Reich is a politico with a political agenda, and that article is in a US politics opinion section. Inflation is a major US electoral issue, and the Biden admin has tried to shift blame to greedy companies (not that it's necessarily fair to put the blame on the Biden admin, that's another issue altogether). And even if he were an economist (which he's not, despite the PPE degree), economists can be political ha…

I didn't ask what he was. I asked if he understood supply and demand.

As for what he actually is: a professor of public policy at UC Berkeley and a former 1-term secretary of labor. He was appointed to the latter position, not elected. Almost anyone with an interest in the world has their own "political agenda".

Re: The Fed plans to sharply boost unemployment

#149

Post by PaulDavisThe1st »

pclmulqdq wrote: post #132
PaulDavisThe1st wrote: post #127

Earlier quoted context omitted.

What recession? Measured with what metrics?

Two consecutive quarters of negative growth is the standard definition used around the world. Except in the US today.

Current economic metrics are all over the place following the worst global pandemic in a century. It's true that the metric(s) typically used to define/measure growth are down as you describe, there are lots (and lots) of related metrics that say something quite different. I think overall it's most accurate to suggest that we're in a strange time indeed, not just a repeat of the last 3 or 5 recessions.

Re: The Fed plans to sharply boost unemployment

#150

Post by lamontcg »

yuan43 wrote: post #89

Zero direct evidence for the title's claim was provided in the article. All the Fed is doing is to normalize interest rates. Deeply negative real yields (5% or more) are aberrations that history has shown to ultimately lead to catastrophe. Yet talking head and Dem Senator alike are treating rate normalization as financial Armageddon. Somebody tell me how at the very least a 0% real yield on cash is going to kill the…

The goal of Fed monetary policy is to contain inflation back down to the 2% target rate.

The knob they have to turn is raising interest rates. There's a lot of steps in between that and inflation coming down.

Inflation right now has a strong component of rising Labor costs because of low unemployment and workers having strong ability to bargain for higher salaries.

To achieve low inflation in the current environment, there must be more "slack in the labor market" which comes about through higher unemployment and less ability for workers to bargain for their salaries.

The mechanism that this happens through is by making bad investments that have been funded by loans taken out at very low short rates to fail via higher interest rates and for those effects to ripple through the economy, ultimately destroying jobs.

The only problem with the title of the article is that it should have been written "The Fed's plans will sharply boost unemployment".

They plan to lower inflation by rising interest rates, but unemployment has to rise for them to hit their targets.

I also would bet that soon, as is typical in all recessions (and it never, ever true that "this time it is different") that there will be a financial collapse when the tide goes out and we see who has been swimming naked.

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