Why are interest rates so low? • Hacker News Board

Re: Why are interest rates so low?

#181

Post by jedharris » Mon, Mar 30, 2015, 11:40 PM UTC

randyrand wrote: post #165

The comments I see in this thread make me so upset. HN has always been about making the world a better place. Doing things that matter. Making lives better. We look forward to self driving cars, solving heathcare, etc etc et. Yet I read these comments and apparently HN isn't as concerned about progress anymore. "Why do we need growth", "I'll take peace over growth at this point." Are you crazy? When did we stop carin…

The word "growth" is confusing people. In this context it doesn't mean more stuff or more money. Instead it could mean higher efficiency, cheaper solar panels so we'd use less fossil fuel; better, cheaper education so more young people could achieve bigger dreams; better, cheaper medical care so we could cure chronic disease and prevent premature death; improved manufacturing that uses less resources; and so forth.

Technically we're talking about improved "total factor productivity" not more GDP or "things". We get more GDP or things if that is how we spend our improved productivity.

Re: Why are interest rates so low?

#182

Post by roymurdock » Mon, Mar 30, 2015, 11:55 PM UTC

sprash wrote: post #142

Sadly, even the chairmen of central banks ignore the most important contribution to inflation: wages. The reason why we have deflation in Japan and Europe despite almost zero rates and even additional quantitative easing is because nominal median wages there are actually falling. It is very easy to make sure to have an inflation of 2%: Just raise the minimum wage 2% each year. Thats it. Example that inflation correla…

This is wrong. 3.3m workers work for the minimum wage in the US. This represents 2.6% of all wage and salary workers in the economy [0]. Raising the minimum wage would simply make 2.6% of the working population better off at the expense of their employers. It's a redistribution of wealth and it has nothing to do with inflation.

You have your causation backwards. Employers being forced to pay a higher wage to 2.6% of the working force does not cause the money supply to increase. Central bank monetary policy causes the money supply to increase, creating inflation. Wages increase in order to preserve purchasing power in an inflationary economy. This is why the markets hang on the Fed's every word - the Fed has the power to change interest rates and inflation which, in turn, effects the labor market.

To address your point about deflation: QE was designed to support bank balance sheets by removing risky and opaque assets and replacing them with liquidity. Banks now have a ton of liquidity [1], but no investment-worthy projects. Thus they choose to hold their reserves with central banks, choosing a negative interest rate over the risk of lending in the economy. Wages are falling because there is less money in the economy chasing an increasing amount of goods. Therefore money is appreciating in value. Once banks resume lending out the liquidity they have been injected with we will see wages rise.

[0] http://www.pewresearch.org/fact-tank/2014/09/08/who-makes-mi...

[1] http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1...

Re: Why are interest rates so low?

#183

Post by Devthrowaway80 » Tue, Mar 31, 2015, 12:00 AM UTC

randyrand wrote: post #165

The comments I see in this thread make me so upset. HN has always been about making the world a better place. Doing things that matter. Making lives better. We look forward to self driving cars, solving heathcare, etc etc et. Yet I read these comments and apparently HN isn't as concerned about progress anymore. "Why do we need growth", "I'll take peace over growth at this point." Are you crazy? When did we stop carin…

People in this thread have stated that they haven't seen any benefit from economic growth, and it is indeed possible that they haven't. The increase in income inequality has meant that economic growth has primarily benefited those in the top 1%, and within the top 1%, the majority has gone to the top 0.1% and so on. I suspect you might see more enthusiasm for "growth," however we define it, when the benefits are spread around a bit more equally.

Re: Why are interest rates so low?

#184

Post by shard972 » Tue, Mar 31, 2015, 12:10 AM UTC

Mikeb85 wrote: post #79

saosebastiao wrote: post #77

Interest rates are low because inflation is low and central banks are irrationally terrified of even mild deflation, fearing some sort of hypothetical deflationary spiral (despite a complete lack of precedent). And since the rate of technological progress is increasing , and technological progress creates deflationary pressure , they have to work extra hard to keep up. Tell me, when was the last time you stopped buyi…

The problem with deflation isn't that everyday things get cheaper, it's that investments (like houses) devalue, which leads to people hoarding cash. Now that's not to say it's always a bad thing. In Canada right now I'd argue houses are way too expensive, and that market needs to correct itself. If housing prices were to crash (and they very well might), they'd eventually bottom out at a reasonable level, because man…

> and everyone expected that the price of anything they bought would devalue, they might not buy it today.

I don't see how this is different than today, there are not many things you buy aside from a house that don't lose value over time.

Re: Why are interest rates so low?

#185

Post by sliverstorm » Tue, Mar 31, 2015, 12:16 AM UTC

ido wrote: post #176

sliverstorm wrote: post #130

Earlier quoted context omitted.

If you want to freeze on ten years back, there's nothing stopping you from getting an old flip phone. Or if you want to freeze on 8 years back, nobody will prevent you from buying a iPhone 2G. It sounds like you are saying you won't do that because you don't want to be "left behind", so you'd like everyone else to stop moving forward to accommodate you. But that's their choice, just like using an iPhone 2G is your ch…

There was actually no iPhone 2g, although there were iPhone and iPhone 3G.

The "iPhone" worked on 2g networks, so I call it the 2g to be clear. The same way the "Xbox" is now called "Original Xbox", to distinguish it from the others, esp. the Xbox One.

Re: Why are interest rates so low?

#186

Post by angularly » Tue, Mar 31, 2015, 12:19 AM UTC

cmdkeen wrote: post #119

beamatronic wrote: post #104

Earlier quoted context omitted.

I'll take "peace" over "growth" at this point.

The world as a whole is in one of its most peaceful periods ever. The 1990s saw a genocide in Europe, horrific civil wars in Africa, before that you had the Cold War with all of its attendant problems. Growth and Peace aren't mutually incompatible aims.

"Growth and Peace aren't mutually incompatible aims."

No shit, almost all wars start with economic discontent. So all things equal, growth will mean less wars.

Re: Why are interest rates so low?

#187

Post by DeanCollinsNY » Tue, Mar 31, 2015, 12:29 AM UTC

twobits wrote: post #98

colund wrote: post #6

Why the obsession of economic growth? In Sweden we currently have negative prime interest rate and people have higher salaries than ever and housing prices are all time high. This greed doesn't lead to less global warming or happier people. I think politicians and economists should start thinking about what actually makes people happy. Economics is efficient management of resources nothing else. Giving the population…

"Why the obsession of economic growth?" Because central banks (CB) print money out of thin air. That "money" is debt. You print 100, you owe 110 counting interest. How can you pay the 10, if you only printed/exists, 100? You can't. You, me, everyone, is a debt slave. "Times are good" = CBs print a lot of money (out of thin air). A lot of non existant interest too, but you don't notice, cause more money/debt is printe…

agree.....it still amazes me to this day that people don't wake up and realize that inflation is "government theft" you had 100 dollars today....next year with 6% inflation next year you have $94

idiots run around looking at their 401k's and their "property values" thinking they are rich but its really.....no you idiot the government stole from you and you are too stupid to realize.

Re: Why are interest rates so low?

#188

Post by aranazo » Tue, Mar 31, 2015, 12:35 AM UTC

Someone wrote: post #17

Mikeb85 wrote: post #11

Earlier quoted context omitted.

Because economic growth is the only way to pay off the massive amounts of debt that currently exist. The US needs to constantly grow and acquire more and more resources, labour and capital or else it will cease being the way it currently is...

Inflation also is a way to get rid of debt. A few years with 10% inflation would do wonders for the debt of most countries, provided that their debt is in their own currency.

Inflating a currency is likely incompatible with it being the global reserve asset.

Re: Why are interest rates so low?

#189

Post by aranazo » Tue, Mar 31, 2015, 12:38 AM UTC

collyw wrote: post #103

hnnewguy wrote: post #68

Earlier quoted context omitted.

> If growth doesn't occur, the markets don't do as well and may even fall causing a LOT of people to take a hit in retirement funds. It isn't just about "markets". There are actual businesses underlying those financial assets that require economic growth to expand, hire people, pay wages and provide an economic return to their owners (including shareholders).

Patagonia outdoor clothing company recently announced they were aiming for no growth. http://www.greenbiz.com/news/2013/03/01/patagonia-founder-ta...

It is also a benefit corporation and thus insulated from normal business incentives.

Re: Why are interest rates so low?

#190

Post by Trumpet6 » Tue, Mar 31, 2015, 12:47 AM UTC

Early on the author states "the Fed is keeping them low. That’s true only in a very narrow sense."

He then proceeds to stay in this narrow sense, while explaining the theoretical framework driving the Fed's decision. While it is of course interesting to better know their reasoning, this article does not amount to a more nuanced response than "the Fed is keeping them low because the Fed thinks its best".

Personally I think that's close enough to "the Fed is keeping them low" to not really bother with the distinction.