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Fed hikes rates as inflation worries push up bond yields

reuters.com

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Re: Fed hikes rates as inflation worries push up bond yields

#211

Post by disgruntledphd2 »

mikewarot wrote: post #197
dabinat wrote: post #27

Prediction: this causes a recession in two years, right after a Democrat wins the White House, who will be blamed for it. The economy will turn around after a few years, just in time for a Republican to win and claim they fixed it. This is how Republicans have a reputation for being economically savvy despite actual evidence to the contrary, because the general population doesn’t understand that economics runs on a t…

I think this could be the thing that finally pops the AI circular financing bubble, leading to World Depression II. I'm not sure either of the existing 2 faces of the duopoly infesting politics will survive, and there's a non-zero chance this breaks civilization as supply chains collapse, and we enter a new dark ages.

> leading to World Depression II

This is very, very unlikely. The US would probably suffer more, given how much AI related expenditure there is. The EZ mostly wouldn't notice, and China is already basically in a depression that it's desperately trying to export its way out of (which seems unlikely without them doing something about all the underwater property debt).

Re: Fed hikes rates as inflation worries push up bond yields

#212

Post by disgruntledphd2 »

macintux wrote: post #141
adventured wrote: post #33

Earlier quoted context omitted.

There isn't going to be a great depression. The US is going to debase itself endlessly through spend-print-spend-print. At some point they may load up enough debt that the economy suffers a gradual heat death, in the style of Japan, wherein too much of your national capital is going to debt maintenance, sitting in a low yield blackhole sucking the dynamism out of your system (instead of going to productive use, busin…

> since Bush nearly doubled the size of the Federal Government and blew up our finances with simultaneous tax cuts + massive spending expansion We were 10 years from paying off the national debt when Clinton left office. 10 years!

> We were 10 years from paying off the national debt when Clinton left office. 10 years!

To be fair, if the US government had continued paying off the debt, the only way the (global) books would've balanced would've been for the US populace and businesses to take on waaaaayyyyyy more debt. Not sure if that would've been better.

(For a much better explanation of this, read Trade Wars are Class Wars).

Re: Fed hikes rates as inflation worries push up bond yields

#213

Post by iamflimflam1 »

bluGill wrote: post #116
iamflimflam1 wrote: post #77

Earlier quoted context omitted.

This really doesn’t make sense. Higher interest rates mean the monthly payment is higher. You need to pay back the principal + the interest.

He assumed that the payment is the same meaning the principal for the same house went down and so this is neutral. If your payment is the same it doesn't matter what is principal vs interest. In the best cases rates go down in the future and then you refinance and your payment goes way down. House prices tend to be "sticky", so that assumption is probably wrong. People who own a house often cannot afford to sell for…

Maybe the mortgage system is different in the US.

But if you have a 25 year term on a loan for a $500,000

Approx numbers:

5%: $2922 monthly, total paid: $876,885

10%: $4543 monthly, total paid: $1,353,000.

Re: Fed hikes rates as inflation worries push up bond yields

#214

Post by tossandthrow »

iamnothere wrote: post #207
tossandthrow wrote: post #199

Earlier quoted context omitted.

No? Paying down a high interest mortgage will always have bigger impact on the dollar than paying down a low interest mortgage.

If you’re paying the same amount monthly, your cash flow is the same. Are we not comparing apples to apples here? I mean a traditional fixed mortgage. I’m comparing a mortgage with a high rate and lower principal to one with a lower rate and high principal, where the minimum monthly payments are the same and the owner pays the minimum. A high interest mortgage just means that you pay more total interest over the life…

I said that the monthly payment is the same. Not that you pay the same amount towards your loan.

An optional extra payment is worth more when interest rates are higher.

Ie. An optional extra payment of 1000$ will pay your 150$ a year in saved interest when the rate is 15% and only 15$ when the rate is 1.5%.

Everything else being equal, optional payments has a higher value, which represent value to the buyer.

Re: Fed hikes rates as inflation worries push up bond yields

#215

Post by cbolton »

jameslk wrote: post #192
sbohacek wrote: post #176

Earlier quoted context omitted.

Maybe you mean something different, but not every recent president has "run an increasing deficit" Reagan: +74B Bush: +103B Clinton: -382B Bush: +1.5T Obama: -747B Trump: +2.1T Biden: -1T Where change in deficit is the final budget deficit - starting budget deficit So, every Republican president runs an increasing deficit and every Democrat president runs a decreasing deficit.

Congress is the one that largely makes the fiscal policy choices. For example, during Clinton’s second term when the deficit was almost eliminated (some claim there was a surplus, but there wasn’t because of social security liabilities), you had a republican controlled congress who were pushing for cuts and fiscal tightening: https://en.wikipedia.org/wiki/Contract_with_America

The republican program was in large part vetoed by Clinton though and the spending cuts that passed were largely offset by the tax cuts. From what I read the reduction in deficit is mostly due to the dot-com boom, helped with the "deficit reduction act" of 1993 that was pushed by Clinton and happened to hike taxes at the right time to tax the boom.

Re: Fed hikes rates as inflation worries push up bond yields

#216

Post by pjc50 »

unified101 wrote: post #164
aftbit wrote: post #152

Earlier quoted context omitted.

I dunno about the politics, but personally I don't think there is a generic "correct" value. The rate describes the state of the world, and the "correct" value is whatever accurately describes the state of the world. There is a separate question though - is that state of the world good or bad for people? Is it better or worse today than it was yesterday? What can we do - collectively - to push it in a direction that…

I personally don't think there's a correct concept of money. Money describes how happy I feel, and the correct money I should have is whatever describes my current mood. So what can we collective do with money so I feel most happy. This may be the most important question of all to ask.

^ This is unironically how the median voter responds to all this policy.

Re: Fed hikes rates as inflation worries push up bond yields

#217

Post by pjc50 »

carefree-bob wrote: post #147
dabinat wrote: post #27

Prediction: this causes a recession in two years, right after a Democrat wins the White House, who will be blamed for it. The economy will turn around after a few years, just in time for a Republican to win and claim they fixed it. This is how Republicans have a reputation for being economically savvy despite actual evidence to the contrary, because the general population doesn’t understand that economics runs on a t…

A 0.25% rate hike is going to cause a recession? How, exactly, would that happen? Honestly it seems your post is heavy on politics but I am not seeing an actual argument anywhere in there. My canned response to people being upset at various policies or ratios, whether it is inflation, or bond yields, or market movements, is to ask them what they think the correct value should be. Stop complaining about the movement a…

> is to ask them what they think the correct value should be

This is Hacker News, we should understand what a PID controller is.

The economy is the "plant". The variable of interest, inflation, is the output of the plant. The government interest rate is the input. As inflation varies around the target FOMC rate, the Fed adjusts the rate. If inflation is over 2%, we should expect rate hikes, regardless of what the current rate is.

This is a fairly simple and very effective system that has worked in most Western countries and the Eurozone since the 90s.

However, note that the "recession" claim is also partly correct: the reason rate hikes work to reduce inflation is that they move the economy growth rate down, in the direction of (but not necessarily into!) recession.

Re: Fed hikes rates as inflation worries push up bond yields

#218

Post by cbolton »

rayiner wrote: post #165
nemomarx wrote: post #47

Earlier quoted context omitted.

You really really just need to raise taxes. Just find a way to sell that to the public (focus on the rich or large corporations or whatever outgroup you want basically)

Our budget deficit is $2 trillion. To close it, you need to significantly raise taxes on the fattest part of the income curve, which is the top 25%. They have $10 trillion of income. https://taxfoundation.org/data/all/federal/latest-federal-in... . An across the board 200 basis point increase would close the deficit. That would raise their taxes to 38% at the low end to 46% at the high end, which is perfectly fine. T…

> Over 10% of the country will be in the top 1% of earners at some point in their life

Though most of them only for one year due to temporary revenue, so it's not that rational.

Re: Fed hikes rates as inflation worries push up bond yields

#219

Post by pjc50 »

carefree-bob wrote: post #163
smackeyacky wrote: post #161

Earlier quoted context omitted.

I don’t understand why central banks seem to use such a blunt object like interest rates for every inflation problem. It would make sense to rise if the cause of inflation was accelerated economic activity, not price rises due to supply restrictions. How does hurting mortgage holders even more help with not starting wars? All it can do is have a double dampening effect on the economy as people pull back their discret…

Central banks didn't use to do this, in the post-war period up until about 1980, they tried targeting the monetary aggregates like M2. Unfortunately they discovered that the size of monetary aggregates was outside the control of central banks, these were demand determined by the public's desire for money balances. So all attempts to control the growth of monetary aggregates failed. Having an inability to control anyt…

Bob is correct here. The other tool people keep forgetting about is fiscal policy; government deficit spending is inflationary, and the US is currently running a very large deficit and was floating even more inflationary ideas like directly bribing voters to vote Republican in the midterms.

Really the problem is that everyone wants to make lots of money (economic growth) so they can spend more (increase consumption) but without anyone else raising their prices as a result. Unsquareable circle.

Re: Fed hikes rates as inflation worries push up bond yields

#220

Post by tossandthrow »

iamflimflam1 wrote: post #213
bluGill wrote: post #116

Earlier quoted context omitted.

He assumed that the payment is the same meaning the principal for the same house went down and so this is neutral. If your payment is the same it doesn't matter what is principal vs interest. In the best cases rates go down in the future and then you refinance and your payment goes way down. House prices tend to be "sticky", so that assumption is probably wrong. People who own a house often cannot afford to sell for…

Maybe the mortgage system is different in the US. But if you have a 25 year term on a loan for a $500,000 Approx numbers: 5%: $2922 monthly, total paid: $876,885 10%: $4543 monthly, total paid: $1,353,000.

Yes, so the 500k is not fixed - that should be obvious from these calculations.
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