Federal Reserve pushes interest rates above 5% for first time since 2007 • Hacker News Board

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#101

Post by caeril » Thu, May 04, 2023, 11:43 AM UTC

notahacker wrote: post #99

caeril wrote: post #94

Earlier quoted context omitted.

Yes, reading the texts from a school of economics that was capable of predicting the price inflation we see now from the money supply inflation of the previous decade seems like a horrible idea. Better to read about economics from the Keynesians and Chicago Monetarists who completely fucking failed to see the inflation coming, were "surprised" by it, and are now OVER-tightening their way to a depression. The same sch…

Aside from the fact that my core point was about the fact that the present system didn't even exist in 1963 for Rothbard to get angry about it, the Mises Austrians' habit of making annual predictions of imminent hyperinflation - something which has still never happened in the US - is hardly a track record that compares favourably with more mainstream economists! Oh, and the current level of price rises? Had it on num…

Fair points. Maybe the entirety of economics should rightly be considered the voodoo psuedoscience that it is.

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#102

Post by tsjackson » Thu, May 04, 2023, 12:54 PM UTC

xk_id wrote: post #87

tsjackson wrote: post #24

Lots of smoke in the comments here. The Fed is doing what needs to create relative stability. Uncomfortable, but real. Demand is outstripping supply and prices are going up. The least painful option is raising interest rates. Alternatives are hyperinflation, (very bad), or various price fixing schemes (which have literally never worked despite many attempts and are even worse in the ultimate outcomes). There are lots…

Raising rates is a very poor instrument for fixing supply-driven inflation. Even if it forces suppliers to temporarily lower their prices, as soon as rates are lowered again and economic activity picks back up and demand returns, inflation will return with a vengeance too. Destroying demand does nothing to fix the supply chain problems behind current inflation (which you already mentioned: war, energy, deglobalisatio…

I actually 100% agree with this comment, except the "only being done to maintain appearances" part. A blunt instrument is better than no instrument. By raising interest rates, the fed is reducing average inflation by cooling the market across the board (though unfortunately with very little direct effect on the primary driver of energy consumption, which is very inelastic). Without cooling the economy a bit, normal inflation plus the supply side drivers could lead to hyperinflation, and/or stagflation.

Supply chain issues won't sort themselves out for 3-4 years, possibly more - it can take at least that long to get a new domestic semiconductor chip fab or solar panel factory from the idea stage to full capacity. And if you are a business, the level of uncertainty as to what 4 years from now will look like makes a huge investment like that less than desirable. (Source: I work for businesses in these spaces).

Businesses just aren't as nimble as we were led to believe, and it's going to be a bumpy few decades in all likelihood, assuming China stays on the path of no-dissent nationalism and the U.S. stays on the path of re-industrialization.

In the long run, we need to transition the energy grid to electric/renewables/storage as fast as possible to get off of the fossil fuel roller coaster that has caused every major inflationary event. In the medium-term, we need to reduce impediments to building physical things in our country, so that businesses can respond more quickly to increases in prices by increasing supply.

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#103

Post by singron » Thu, May 04, 2023, 1:16 PM UTC

hospitalJail wrote: post #18

Just a perspective to share from someone trying to buy property for a small business(since most people think about it from a residential POV). Unlike residential mortgages, corporate loans are not fixed interest rates. They are all adjustable. What in 2020 seems financially sound, becomes impossible a few years later. I can't imagine how other companies do this, do you just make sure your business can handle 12% inte…

There are certain risks that aren't worth hedging in a stable country like the US. E.g. you don't hedge treasury bond defaults because in the unlikely event that happens, your money is probably worthless anyway and you would rather have food and guns.

A 15% interest rate is so high that even if you managed to protect your financing with a hedge, it might be unlikely you have solvent customers anymore.

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#104

Post by thunky » Thu, May 04, 2023, 1:17 PM UTC

bryanlarsen wrote: post #100

thunky wrote: post #97

Earlier quoted context omitted.

> The least bad option would be to raise taxes Taxes also reduce productivity/supply, which is that opposite of what you want.

Raising interest rates also reduces productivity and supply. Raising taxes is more efficient so reduces productivity less than raising interest rates does.

> Raising taxes is more efficient

I'm not sure if that's true. And even if it is the effect is much slower compared to the near immediate impact raising interest rates has had.

Also, I consider inflation as a tax on it's own. So adding a tax on top of a tax is pouring salt on the wound if you ask me.

I'm satisfied that cash is paying 5%, at least that takes a bite out of inflation. For the last several years savers have been penalized and borrowers have been spoon fed money so I'm glad that's reversing. And I'm glad that rising mortgage rates are putting a ceiling on the housing market.

No I don't want to pay more in taxes to cover the recent insanity that I had nothing to do with.

Maybe when you advocated for raising taxes you mean somebody else's taxes, not yours? I suppose that's usually what people mean when they say that.

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#105

Post by avn2109 » Thu, May 04, 2023, 2:42 PM UTC

dragonwriter wrote: post #89

avn2109 wrote: post #47

Earlier quoted context omitted.

> "...the Federal Reserve will keep pushing those interest rates higher and higher..." They really can't raise interest rates much above 5%, this follows straightforwardly from observing how much of the national budget is consumed by debt service as a function of the interest rate. (Higher rate = larger fraction of budget allocated to debt service, obviously.) If they go above five-ish percent, this implies that they…

> They really can't raise interest rates much above 5% They really can. > this follows straightforwardly from observing how much of the national budget is consumed by debt service as a function of the interest rate. Decoupling monetary policy decisions from that kind of fiscal concern is a substantial part of the reason for an independent central bank setting monetary policy. > If they go above five-ish percent, this…

Much is made of "independent central bank," though I typically think of that independence in the same light as "newspaper with independent newsroom which is firewalled off of the advertising/commercial side such that editorial decisions are never influenced by the business."

In practice Congress and the Fed are sibling entities in the same system, which cooperate when stressed (there are many historical examples of this, e.g. WW2). The alignment is obviously not perfect, but there is much more coordination than "totally independent" as is often bandied about.

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#106

Post by throwoutway » Thu, May 04, 2023, 2:59 PM UTC

singron wrote: post #103

hospitalJail wrote: post #18

Just a perspective to share from someone trying to buy property for a small business(since most people think about it from a residential POV). Unlike residential mortgages, corporate loans are not fixed interest rates. They are all adjustable. What in 2020 seems financially sound, becomes impossible a few years later. I can't imagine how other companies do this, do you just make sure your business can handle 12% inte…

There are certain risks that aren't worth hedging in a stable country like the US. E.g. you don't hedge treasury bond defaults because in the unlikely event that happens, your money is probably worthless anyway and you would rather have food and guns. A 15% interest rate is so high that even if you managed to protect your financing with a hedge, it might be unlikely you have solvent customers anymore.

It's gone higher:

> The fed funds rate began the decade at a target level of 14 percent in January 1980. By the time officials concluded a conference call on Dec. 5, 1980, they hiked the target range by 2 percentage points to 19-20 percent, its highest ever.

https://www.bankrate.com/banking/federal-reserve/history-of-...

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#107

Post by uptownfunk » Thu, May 04, 2023, 3:38 PM UTC

douglasisshiny wrote: post #44

uptownfunk wrote: post #13

Earlier quoted context omitted.

You raise a valid point so don't know why you're being downvoted. A lot of my investors reallocated their portfolios when SVB happened to minimize risk due to dollar volatility. I think perhaps this runs counter to the mainstream woke narratives whenever russia comes up

Can you explain what you mean by dollar volatility?

Specifically long term devaluation with respect to specific commodity classes.

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#108

Post by elzbardico » Thu, May 04, 2023, 5:04 PM UTC

Dalewyn wrote: post #53

uptownfunk wrote: post #13

Earlier quoted context omitted.

You raise a valid point so don't know why you're being downvoted. A lot of my investors reallocated their portfolios when SVB happened to minimize risk due to dollar volatility. I think perhaps this runs counter to the mainstream woke narratives whenever russia comes up

I downvoted because if our collective desire for world peace is anything substantive rather than just vapid, feelgood window dressing, sanctioning Russia is among the first of many actions we should be taking. And honestly, we aren't doing enough to demonstrate that warmongering is not acceptable in this day and age.

Where was your collective desire for world peace while the US invaded Iraq, Afeghanistan, bombed Lybia, and yes, promoted a coup of state in Ukraine to them close their eyes for 14 years to the bombing of the ethnic portion of their population in Russia?

Have you ever get at least superficially interested in the human cost on the Saudi military intervention on Yemen for the last few years?

Do you want me to introduce you to people that have been tortured by military regimes in South America, every one of them put in the power with the help of the United States of America?

If you think what Nuland and the other neocons that have been in the state department for the last 30 years, no matter which party is in power, are interested in world peace, you've drank too much kool-aid.

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#109

Post by NickC25 » Thu, May 04, 2023, 6:10 PM UTC

rightbyte wrote: post #26

dangerlibrary wrote: post #16

Earlier quoted context omitted.

> how is printing money and giving it to the poor any worse. You might be onto something. https://en.wikipedia.org/wiki/Helicopter_money

My gut feeling is that it is a bad idea too. But the defenders of the system do not bat an eye when the Fed pours helicopter money over the rich. The hypocrisy is maddening. It is so dishonest.

Right - this is my hangup too. Look what happened during COVID - 3 trillion dollars were printed. 200 Billion of which went directly to citizens, and the remaining 2.8 trillion were in the form of loans to massive corporations (who didn't need them) that somehow magically were forgiven.

I think just forgiving 2.8 trillion dollars in "loans" to people who didn't need loans in the first place causes a shit ton of inflation.

One side of the political aisle got so angry about that 200 billion to the point that they were only willing to go along with it if their party leader got to put his name on those checks. Yet the 2.8 trillion that went to already profitable corporations (or to fraudulent citizens) went along without a peep from anyone who makes any sort of decision in Washington DC.

All this completely fucked up the M2V (Monetary Velocity) chart, because giving lots of people who won't use it quickly really hurts the economy. When the velocity of money is high, the economy works for everyone, not just wealthy people.

Re: Federal Reserve pushes interest rates above 5% for first time since 2007

#110

Post by G3rn0ti » Fri, May 05, 2023, 10:04 AM UTC

caeril wrote: post #101

notahacker wrote: post #99

Earlier quoted context omitted.

Aside from the fact that my core point was about the fact that the present system didn't even exist in 1963 for Rothbard to get angry about it, the Mises Austrians' habit of making annual predictions of imminent hyperinflation - something which has still never happened in the US - is hardly a track record that compares favourably with more mainstream economists! Oh, and the current level of price rises? Had it on num…

Fair points. Maybe the entirety of economics should rightly be considered the voodoo psuedoscience that it is.

Guys, I recommended the book because I believe it gives a rather good introduction to the fundamentals of money and banking, even though its title is designed to catch your attention. I am _not_ claiming it's the ultimate source of truth, of course, and sure enough, there is this whole "classical economists" (aka "Austrian" school) vs "Chicago school" (aka "monetarists") going on behind the scenes suggesting other books as well...

Regarding this whole battle I'd say the monetarists should be able to sleep well, since they dominate all economics anyway these days. Neoclassical economics is all about empirical research, quantitative predictions and tests. Insofar it is, of course, a real science and they certainly can do good research.

However, economic policies are rarely evaluated empirically and are usually not justified by real research. And let's face it: the FED's policies are ultimately done do serve the government only (even if it is formally "independent"), since it is a government drowning in debts that profits the most from cheap money unlike its citizens.

Austrians do "economic research" by logical reasoning alone in the tradition of the humanities. They might not publish econometric models but they are able to explain and reason about fundamental economic facts with great clarity unlike most modern economists. This becomes especially obvious when it comes to monetary policies.

Hence, in any economic crisis I recommend reading "Austrian" books because they are able to teach a valuable lesson.