Why are interest rates so low? • Hacker News Board

Re: Why are interest rates so low?

#71

Post by ArkyBeagle » Mon, Mar 30, 2015, 5:37 PM UTC

Mikeb85 wrote: post #48

Someone wrote: post #17

Earlier quoted context omitted.

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.

Reasonable levels of inflation usually goes hand in hand with economic growth. On the other hand, growing the money supply too quickly when there's no economic growth leads to a situation like Zimbabwe...

Zimbabwe was a failed state before it had hyperinflation. i won't say that we get good answers on the difference between moderate and hyperinflation, but I am sure there is a difference.

Hyperinflation is just a good apocalyptic narrative device, and people (ab)use it.

edit: s/has/had

Re: Why are interest rates so low?

#72

Post by ArkyBeagle » Mon, Mar 30, 2015, 5:38 PM UTC

avn2109 wrote: post #59

Bootvis wrote: post #55

Earlier quoted context omitted.

The economy needs to grow as quickly as the population because otherwise there would be a reduction in wealth on the individual level. Also, if inequality remains the same the lives of those on the bottom of society see their lives improve. Less essential, but the people here should appreciate it, growing the economy means that young people have the opportunity to develop themselves professionally, e.g start start-up…

>> "The economy needs to grow as quickly as the population..." In countries with declining populations, ought the economy to contract?

Possibly. It depends on how well they do exports.

Re: Why are interest rates so low?

#73

Post by enraged_camel » Mon, Mar 30, 2015, 5:39 PM UTC

jseliger wrote: post #25

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? One alternate question might be, "At what point in time do you consider the economy to have become 'big enough' that you don't care about growth?" Today? 2000? 1990? 1970? The people who might think today is "big enough" might also have thought that say 1990 was big enough, and yet very few people would want to be limited to 1990's tech / culture. It seems reasonable to imagine t…

You can have technological, scientific and cultural advancement without economic growth.

Building more shopping malls out in the suburbs leads to growth, but it doesn't advance society.

Re: Why are interest rates so low?

#74

Post by Mikeb85 » Mon, Mar 30, 2015, 5:39 PM UTC

cloakandswagger wrote: post #58

xorcist wrote: post #51

Earlier quoted context omitted.

That's not an answer. You could just as well ask "at what point in time do you consider interest rates low enough"? 0%, -1% or -10%? There's no clear answer for either question, of course, but that doesn't mean we shouldn't discuss them.

How is it not an answer? He's saying that the "greed" described by the original commenter is the same source of innovation that's given us all of the modern amenities we enjoy today. Conversely, I would say outright dismissing the pursuit of growth is not an answer.

> He's saying that the "greed" described by the original commenter is the same source of innovation that's given us all of the modern amenities we enjoy today.

And is life any better today than in 1990? Are we happier?

I think he's arguing that material possessions don't necessarily correlate to 'quality of life' and happiness.

I would personally be pretty happy without a car or computer. But I live in a ridiculous city that is sprawled out over hundreds of square kilometres with terrible public transportation, and live in a society where electronic communication is basically a requirement to do anything.

My happiest childhood memories where on my grandfather's farm. My wife's happiest childhood memories where in her small village in an 'under-developed' country. Today life in Canada is stressful as hell, and her country has been consumed by violence and corruption.

Re: Why are interest rates so low?

#75

Post by zo1 » Mon, Mar 30, 2015, 5:41 PM UTC

dgregd wrote: post #53

dualogy wrote: post #34

Earlier quoted context omitted.

> Why the obsession of economic growth? Easy. Essentially unknowable/unpredictable future growth expectations/extrapolations were already baked into present-day voter promises, welfare obligations and many bank/insurance/pension calculations, plus current "financial asset" valuations. Now the big scramble is on to will said growth assumptions into actually happening, lest "all bets will be off", literally.

> many bank/insurance/pension calculations It will also clearly show how big banks, HFT companies are making huge profits. They are slowly pulling money out of your pension fund. Banks do not produce, they have no income from dividends, so how they earn?

>"Banks do not produce, they have no income from dividends, so how they earn?"

They provide a service. Just because they don't "produce" something by processing raw materials, or less-processed goods, doesn't meant they're not providing something of value to someone.

But, additionally and simplistically, they make money from giving out loans at higher interest rates than what they give out at in deposits.

Re: Why are interest rates so low?

#76

Post by ArkyBeagle » Mon, Mar 30, 2015, 5:42 PM UTC

guelo wrote: post #42

joshfraser wrote: post #27

CPI is a horrible way to measure inflation. This is a pretty biased piece coming from the former chairman of the Fed. It takes for granted that we need centralized organizations to control the supply of money and that our only option is never-ending inflation. There are many who believe we'd be better off it we ended the Fed and the tax of inflation that devalues our money and punishes savers.

Is there an example of a successful economy that ran without a central bank?

You can look up the Free Scots Banks. Successful? Hard to say.

Re: Why are interest rates so low?

#77

Post by saosebastiao » Mon, Mar 30, 2015, 5:42 PM UTC

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 buying milk because you noticed housing prices coming down? Or stopped buying cars because you notice that coffee is getting cheaper? Hell, when was the last time you stopped buying coffee when you noticed coffee getting cheaper?

We really need to start challenging the idea that mild inflation is the only acceptable monetary policy. At the very least, when considering the scariness of some degree of deflation, we should use an inflation metric that excludes consumables (as proven in repeated rounds of econometric studies that consumable items have no decrease in purchasing rates during downward pricing trends, and in fact have statistically significant increases in purchase rates).

Re: Why are interest rates so low?

#78

Post by mkempe » Mon, Mar 30, 2015, 5:44 PM UTC

guelo wrote: post #42

joshfraser wrote: post #27

CPI is a horrible way to measure inflation. This is a pretty biased piece coming from the former chairman of the Fed. It takes for granted that we need centralized organizations to control the supply of money and that our only option is never-ending inflation. There are many who believe we'd be better off it we ended the Fed and the tax of inflation that devalues our money and punishes savers.

Is there an example of a successful economy that ran without a central bank?

The USA before 1913. See [1] for a detailed treatment of economies that thrived without central banking.

[1] http://www.amazon.com/dp/B004VMUL6G

Re: Why are interest rates so low?

#79

Post by Mikeb85 » Mon, Mar 30, 2015, 5:48 PM UTC

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 many people who held off buying a house when then buy one.

However if deflation happened year after year, and everyone expected that the price of anything they bought would devalue, they might not buy it today. Enough people do that en masse, and you have problems.

Re: Why are interest rates so low?

#80

Post by dageshi » Mon, Mar 30, 2015, 5:48 PM UTC

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…

Didn't that deflationary spiral happen in Japan? The lost decade?