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

finance.yahoo.com

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

#71

Post by AnimalMuppet »

zie wrote: post #57
bryanlarsen wrote: post #50

Earlier quoted context omitted.

The least bad option would be to raise taxes. If the problem is too much money, directly removing the money from the system is the solution. Taxes can be precisely targeted and work quickly. Call it a "windfall tax" for political cover, but given that it would have to be large to be effective, it would be more than that. The Inflation Reduction Act was a good start, but it only raised taxes by $700B. The next least b…

I agree, raising taxes would definitely help AND would help the US govt with their currently fiscally idiotic ways. Unfortunately, that would imply Congress has their act together. Since they currently can't even manage to keep from defaulting the US govt on their current debt, I'm not hopeful they will stop being fiscal idiots anytime soon. I mean this to imply both political parties are fiscal idiots as far as I ca…

It's worse. Let's say Congress raises taxes, as some here advocate. All right, what's Congress going to do with the money? Have less of a deficit? Or are they going to find new things to spend it on? Congress being Congress, they're going to spend it. And that won't help with inflation, because it reroutes the money rather than removing it.

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

#72

Post by gameman144 »

rightbyte wrote: post #65
gameman144 wrote: post #55

Earlier quoted context omitted.

I can offer my perspective as someone who would probably be considered a "defender of the Fed" (definitely not government policy as a whole, though). Pouring helicopter money down is going to increase inflation, hands-down. Giving it to more people will increase inflation more than giving it to fewer people (since the competition for scarce goods will be more widely distributed), but it's just as bad giving helicopte…

> There's some deep hypocrisy in fiscal policy, but I think the Fed is doing what the Fed can do to keep jobs and inflation in balance. Sure, I guess I agree on this. But there has to be something more I don't understand. The interest on savings goes up with the interest on loans. Is it maybe "quantitive easing" that is the real culprit?

> But there has to be something more I don't understand. The interest on savings goes up with the interest on loans.

This is true, but it's all because of the one interest rate that the fed controls: the interest rate at which it lends to banks. If that rate goes up, then banks are willing to pay higher savings rates to depositors (since banks don't want to pay higher Fed interest rates to borrow, so luring in depositors is a replacement). Since banks are paying more for their money, though, they also need to charge more on the loans they give. This is why those move in tandem.

Quantitative easing/tightening also does one thing: either buy or sell financial assets at the Fed. Historically this has been bonds and other low-yield, long-term instruments, but always with the purpose of either stimulating the economy (by buying assets and pumping money into the economy) or selling assets (thus pulling money out of the economy to cool it). I would agree that the Fed buying stocks during COVID isn't what I would have liked, but mostly because stocks are an asset class where volatility and risk are baked in (and I don't like the moral hazard of the Fed absolving investors of that risk).

Quantitative easing as a mechanism, though, is a pretty blunt and simple tool to either pull money out of push money in to the economy. I reckon that the early-COVID hey-day of easing probably had something to do with the super-high valuations we're seeing today, but the actions the Fed is taking _now_ seem like a reasonable and rational response to that overheating.

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

#73

Post by zie »

AnimalMuppet wrote: post #71
zie wrote: post #57

Earlier quoted context omitted.

I agree, raising taxes would definitely help AND would help the US govt with their currently fiscally idiotic ways. Unfortunately, that would imply Congress has their act together. Since they currently can't even manage to keep from defaulting the US govt on their current debt, I'm not hopeful they will stop being fiscal idiots anytime soon. I mean this to imply both political parties are fiscal idiots as far as I ca…

It's worse. Let's say Congress raises taxes, as some here advocate. All right, what's Congress going to do with the money? Have less of a deficit? Or are they going to find new things to spend it on? Congress being Congress, they're going to spend it. And that won't help with inflation , because it reroutes the money rather than removing it.

Agreed, hence Congress is full of fiscal idiots. It's not new, Congress has been full of fiscal idiots for well over a decade.

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

#74

Post by NickC25 »

elzbardico wrote: post #8

The US have maybe a few months to completely undo their stupid sanctions on the Russians and return their money or the de-dollarizarion movement will keep gaining steam and those bank failures will look like children’s play. There’s no way the USA can survive as a world power if they keep stupidly weaponizing the dollar and weakening its status as the world currency. How do people think we will keep our standards of…

The sanctions on Russia aren't stupid.

Could they be more effective? Certainly. Should they be going much further and actually crippling Putin? Yes. Does Putin deserve to get his teeth kicked in for the shit he's pulling in Ukraine? Absolutely. Should Putin's oligarchic buddies get their fortunes wiped out because of Putin's stupid actions? Certainly.

It's not "The West's" fault that Russia has not modernized at all since the fall of the USSR, nor is it their fault that Russia decided to hand the keys to the kingdom over to a former KGB operative, and keep handing him the keys every chance they got. NATO was essentially created for situations like this - because the powers-that-be knew Russia would try to expand its territory every chance it got.

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

#75

Post by dragonwriter »

AnimalMuppet wrote: post #71
zie wrote: post #57

Earlier quoted context omitted.

I agree, raising taxes would definitely help AND would help the US govt with their currently fiscally idiotic ways. Unfortunately, that would imply Congress has their act together. Since they currently can't even manage to keep from defaulting the US govt on their current debt, I'm not hopeful they will stop being fiscal idiots anytime soon. I mean this to imply both political parties are fiscal idiots as far as I ca…

It's worse. Let's say Congress raises taxes, as some here advocate. All right, what's Congress going to do with the money? Have less of a deficit? Or are they going to find new things to spend it on? Congress being Congress, they're going to spend it. And that won't help with inflation , because it reroutes the money rather than removing it.

> Let's say Congress raises taxes, as some here advocate. All right, what's Congress going to do with the money? Have less of a deficit? Or are they going to find new things to spend it on?

Probably the former; if they found new things to spend it on, they’d spend it independent of whether or not they raised taxes.

Congress understands, even if they pretend not to when it provides a public excuse for opposing popular spending that they choose to avoid (while not bothering with that pretense when they want to spend) that there is no necessary, non-self-imposed, relationship between revenue and spending when operating in your own fiat.

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

#76

Post by tsjackson »

rightbyte wrote: post #49
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…

> The least painful option is raising interest rates. Alternatives are hyperinflation Why is this taken as a fact everywhere. Surely, interest rates is a zero sum game? I honestly don't understand.

Let's take an extreme example. If banks offered everyone 0% interest mortgages with 100 year terms and no credit checks, how many more people would want to buy a house? A lot! It would take decades for builders to build enough houses to meet that demand. In the meantime, house prices would go up by a factor of 10, along with wood and other building materials. Meanwhile everyone who already owns a house is cash out refinancing their now multi-million dollar home, and suddenly everyone you know who was a homeowner at the beginning of 2023 is now a million dollars richer and spending it quickly.

The same with businesses. Let's say you're a growing business. Things are good and you've been investing your 10% profits each year into hiring. Now banks decide that all decently profitable businesses can have that same 0% interest mortgage with 100 year term. Why not double, triple, quadruple your team? You could achieve your goals so much faster! But then the banks are offering all of your competitors the same deal. But there's not enough talent to go around. Suddenly you're in a bidding war for decent sales guys and the starting price is a million dollar salary. And those million dollar sales guys are spending their salary, competing with other million dollar sales guys for shit they don't need - the price of everything goes up.

This is an extreme example to illustrate WHAT JUST HAPPENED with record low interest rates. The economy was being heated up by very very cheap money. Inflation started getting out of control.

Now, if you were in the above hypothetical scenario, you might say "Hey maybe we shouldn't give out all those crazy loans, people are going crazy with all of this money, and it's kind of fucking everything up." And you would be right.

And so is the Federal Reserve.

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

#77

Post by bryanlarsen »

zie wrote: post #73
AnimalMuppet wrote: post #71

Earlier quoted context omitted.

It's worse. Let's say Congress raises taxes, as some here advocate. All right, what's Congress going to do with the money? Have less of a deficit? Or are they going to find new things to spend it on? Congress being Congress, they're going to spend it. And that won't help with inflation , because it reroutes the money rather than removing it.

Agreed, hence Congress is full of fiscal idiots. It's not new, Congress has been full of fiscal idiots for well over a decade.

> Congress has been full of fiscal idiots for well over a decade.

For well over 200 years. Compared to how Andrew Jackson destroyed the US economy, the current Congress is doing fairly well.

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

#78

Post by xnx »

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…

> 12% interest rates just incase a politician decides to give away free money for a few years?

High interest rates = "giving away free money"?

I thought low interest rates was giving away money?

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

#79

Post by bryanlarsen »

pseg134 wrote: post #61
bryanlarsen wrote: post #50

Earlier quoted context omitted.

The least bad option would be to raise taxes. If the problem is too much money, directly removing the money from the system is the solution. Taxes can be precisely targeted and work quickly. Call it a "windfall tax" for political cover, but given that it would have to be large to be effective, it would be more than that. The Inflation Reduction Act was a good start, but it only raised taxes by $700B. The next least b…

The inflation reduction act couples 2.4 trillion of spending with 740 billion of taxes.

2.4 trillion of spending over 10 years with 740 billion of taxes annually.

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

#80

Post by zamnos »

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…

Fun fact'! 30-year fixed rate mortgages is a uniquely American thing. Most other countries are adjustable rate mortgages, even for boring primary residential loans.
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