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Fed cuts half point in emergency move amid spreading virus

bloomberg.com

401–410 of 499 posts

Re: Fed cuts half point in emergency move amid spreading virus

#401

Pardon my cynicism, but it seems like many of the actions the administration is pushing are simply things they were pushing already and are using this health crisis as cudgel to help get what they want. What we need are lower interest rates! What we need is to limit immigration from Mexico (even though the US has a higher infection rate and there isn't any talk of limiting flights from, say, England). What we need to…

Agreed, I think many people in the administration and at the Fed were itching to cut rates for a while, and this is the perfect excuse to do what they were already planning to do.

Re: Fed cuts half point in emergency move amid spreading virus

#402
post #163
post #51

For those saying the Fed is running out of ammunition, study what the Bank of Japan has done. It owns close to 80% of the Japanese ETF market currently, with no end to the expansion of balance sheet in sight. After buying long treasuries, it's not unreasonable to imagine the Fed buying stocks, either individual issues or ETFs. The President would be for it, and it would be hard to drum up any opposition to it in cong…

“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.” ~ Someone, supposedly Thomas Jefferson Edit: ~ "Thomas Jefferson" changed to "~ Someone…

The trouble is that the nominally risky thing -- allowing banks to create a lot of money -- has already happened. Consumer debt is very high. Most of the borrowed cash is now in the coffers of corporations that never spend it, which keeps inflation low, but also keeps anyone from using that money to pay back what they borrowed. So they just pay the interest. Which they can do as long as rates are low.

The only way out of this is to get enough cash into the hands of regular people that they can use it to pay down their debts at the same time as interest rates increase to provide the incentive to do that. Either that means the money corporations are warehousing has to somehow get paid out as wages (which would require some kind of major e.g. tax policy change), or some other new money has to be created by the government and not banks (by fiat rather than as debt) and then transferred to regular people via a UBI or similar.

In the meantime we can pretty much keep kicking the can down the road by keeping interest rates low for an arbitrarily long period of time. We could even go further into it, because the lower interest rates are the more debt load people can carry. But that keeps increasing the amount of idle cash in the corporate coffers. Something something wealth inequality.

Re: Fed cuts half point in emergency move amid spreading virus

#404
post #264
post #82

Earlier quoted context omitted.

Keynes famously said you could hire people to dig ditches and it would stimulate the economy. However, if we were to take aggressive action on Climate Change, there’s a lot of potential jobs there. A massive potential stimulus. Also, you know, public funding of basic research which could explore, I don’t know, pandemic response, new therapeutics, etc. Like you said, ideological barriers are what’s keeping us stuck. B…

Keynes's ideas also fail all over the globe. Saving and investing is what grows an economy.

Saving doesn't grow the economy, pretty much by definition as was already pointed out.

(Real) investment, in the sense of building up new productive capacity, is an important part of growing the economy. However, investment at least by the private sector cannot thrive in a vacuum. It needs a context of either existing or plausible demand. If the demand is missing, you'd be a fool to spend money on increasing productive capacity, i.e. you'd be a fool to invest.

Note the important emphasis on what kind of investment we're talking about. Unfortunately, the act of buying existing productive capacity (e.g. by buying stocks) is also called investing, and you have to be careful not to confuse the different meanings of the word.

Re: Fed cuts half point in emergency move amid spreading virus

#405

Earlier quoted context omitted.

Trump will not let the recession occur, because he's so afraid of losing.

This is the point of the Fed being independent - so that they can ignore Trump's tweets and do what they think the economy actually needs. Now, they have recently done basically what Trump asks. Are they succumbing to Trump's pressure, or is Trump asking them to do what actually is the right thing?

They are independent, but not imune to pressure from a powerful person who doesn't recognize any boundaries to achieve his personal goals.

Re: Fed cuts half point in emergency move amid spreading virus

#406

Pardon my cynicism, but it seems like many of the actions the administration is pushing are simply things they were pushing already and are using this health crisis as cudgel to help get what they want. What we need are lower interest rates! What we need is to limit immigration from Mexico (even though the US has a higher infection rate and there isn't any talk of limiting flights from, say, England). What we need to…

The administration doesn't direct interest rate policy, the FED does, within the context of the FED's mandate a rate drop isn't unexpected during an event like this.

Re: Fed cuts half point in emergency move amid spreading virus

#407

Earlier quoted context omitted.

They started raising rates but then Trump successfully bullied the Fed. Though inflation had remained low, so it's not clear that it was necessary to raise rates.

Inflation remains low? Seriously, I have no idea how they are computing that rate when asparagus is $4.99/pound these days. It seems like low rates feed the housing bubble nicely, and if housing costs were more adequately represented in the CPI, it would be much higher.

Housing costs are reflected in CPI, as imputed rent. I couldn't find the exact weights with a quick search, but IIRC housing costs are around a quarter of the basket. Asparagus is less than that.

Re: Fed cuts half point in emergency move amid spreading virus

#408

Earlier quoted context omitted.

You don't have a point, you have an opinion. You don't provide any facts or resources that prove the money spent in a fiscal stimulus returns a greater rate than the interest on it. You don't address the fact that the debt has gone up 300% over the last 20 years while the GDP is up only an average of 2.5% a year. Printing your way out of debt is not a solution, ask Argentina. Eventually your investors will lose faith…

Us GDP to debt ratio is not dramatically worse compared to where it was 30-50 years ago if you just look at how other countries were during this period Boomers are the ones who tell you to be scared of the debt. Same boomers tell me that gold is the best investment

Well, Boomers remember the 70s, and gold has done extremely well vs USD since then.

Re: Fed cuts half point in emergency move amid spreading virus

#409

Earlier quoted context omitted.

There’s one thing the virus cannot beat: social distancing.

Unclear. Can't find a link, but I recall reading that if you were within 50m (?) of a norovirus patient when they vomited, you had a noticeable chance of catching the bug yourself.

social distancing is the cancelation of conferences (google canceled theirs), not having sporting events (italy), not sending kids to school, etc, etc.

Re: Fed cuts half point in emergency move amid spreading virus

#410

This is a big mistake. There is nothing the Fed can do revive the economy from the Corona virus, because this is not a demand problem, it is a supply problem. The economy WILL slow down because the major parts of the economic chain have been considerably affected by this virus. You cannot use more money when there is less to buy and sell. This will happen simply because whatever solution to the virus disruption will…

I am always surprised when software engineers have such strong opinions on monetary policy. Black and white statements like "There is nothing the Fed can do revive the economy from the Corona virus" aren't the best for macroeconomics discussions that rely on imperfect information and multiple related variables. Your wording makes it sound like you know more about macro than the best minds in monetary policy.

I hate to say it, but I believe your confidence is severely misplaced. The indoctrinated airheads running the Fed are hardly the "best minds in monetary policy." This is the same central bank that stuck its head in the sand despite clear warnings approaching the 2008 financial crisis, then proceeded to overreact to appear as if they were doing something(1).

When is the last time the Fed's spastic behavior had a sure and long-term positive impact on the economy from the average person's perspective? I specify this perspective because the macro measures used by central banks are not always accurate indicators of the general welfare. Central banks are good for primarily one purpose, and that is ensuring the economic dominance of the groups controlling them. This has been their purpose throughout history(2), and I don't see that changing now. This most recent move is at best a platitude.

All that said, I agree with your sentiment that blanket statements, especially in the highly dynamic field of economics, tend not to be accurate or helpful.

(1) Danielle DiMartino Booth, Fed Up

(2) Look into the history of the Banque Royale of France 1716-1720 and the history of the Bank of England up into the 18th century. The long and short of it is these banks were used as mechanisms by the elite to retain control over currency systems which would otherwise have given too much power to the public for their liking.

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