5 ms·

I think that zero interest rate policy should have ended 2-3 years ago when economy got back in shape. The zero interest rates are benefiting housing market the

I think that zero interest rate policy should have ended 2-3 years ago when economy got back in shape. The zero interest rates are benefiting housing market thereby increasing housing prices. I don't understand why Feds inflation gauge doesn't take into account the housing prices/rents that well? Every month Feds see unemployment rate and review the rates accordingly. I think they should also take into consideration the housing prices equally. I feel zero-interest rates have benefited wealthy 10 times more than an average person.

stretchwithme 11y ago
Super low rates are bad all the time. They allow many things to exist that shouldn't, while the viable businesses have to pay higher prices for all their inputs. When you have cheap money, more people think marginal investments now make a lot of sense. But if you create too many online dog food companies, eventually most of them have to be shut down. It would have been better to allow an organic recovery. And remove the impediments to hiring. We seem to ignore the law of supply and demand in the labor markets and then scratch our heads when there is a lot of unemployment.
- roghummal 11y ago
  >And remove the impediments to hiring. What're those?
  - deleted 11y ago
    [deleted]
  - stretchwithme 11y ago
    Anything that makes labor more expensive than the price the market is willing to pay. Government adds a lot of costs and even fixes the price of unskilled labor in the belief that these workers are benefiting. But if the total cost of labor is higher than employers are able to pay for labor, they won't hire. This is especially true in a downturn. If we want to assist these workers, it would be far better to help them directly instead of forcing employers to do it. We'd avoid distorting the market place and shutting a certain percentage out of it altogether.
eots 11y ago
Total econ noob here, could somebody please explain how zero interest rates cause increasing housing prices?
- mrec 11y ago
  People tend to judge affordability based on repayments, not prices, so lower interest rates mean you can service a much larger debt for the same monthly repayment. Where housing is scarce prices are determined by availability of credit more than anything else, so "you can" rapidly becomes "you'll have to, otherwise you'll be outbid by somebody who will". Over the long term it's a shitty, negative-sum game for everyone except the banks.
- tinco 11y ago
  Low Fed interest means you can't make good money safely by loaning it to the central bank. So it makes the alternative loans more attractive, mortgages are a relatively safe and profitable investment. When the cost of mortgages goes down the amount borrowable goes up so the people can buy more expensive houses. The immediate result is that their prices go up.
- jdawe 11y ago
  Lower interest rates mean it's cheaper to borrow, which makes borrowing more affordable to more people, which increases demand, which increases prices when supply is limited (artificially or otherwise, see San Francisco).

stretchwithme 11y ago

Super low rates are bad all the time. They allow many things to exist that shouldn't, while the viable businesses have to pay higher prices for all their inputs. When you have cheap money, more people think marginal investments now make a lot of sense. But if you create too many online dog food companies, eventually most of them have to be shut down. It would have been better to allow an organic recovery. And remove the impediments to hiring. We seem to ignore the law of supply and demand in the labor markets and then scratch our heads when there is a lot of unemployment.

roghummal 11y ago
>And remove the impediments to hiring. What're those?
- deleted 11y ago
  [deleted]
- stretchwithme 11y ago
  Anything that makes labor more expensive than the price the market is willing to pay. Government adds a lot of costs and even fixes the price of unskilled labor in the belief that these workers are benefiting. But if the total cost of labor is higher than employers are able to pay for labor, they won't hire. This is especially true in a downturn. If we want to assist these workers, it would be far better to help them directly instead of forcing employers to do it. We'd avoid distorting the market place and shutting a certain percentage out of it altogether.

eots 11y ago

Total econ noob here, could somebody please explain how zero interest rates cause increasing housing prices?

mrec 11y ago
People tend to judge affordability based on repayments, not prices, so lower interest rates mean you can service a much larger debt for the same monthly repayment. Where housing is scarce prices are determined by availability of credit more than anything else, so "you can" rapidly becomes "you'll have to, otherwise you'll be outbid by somebody who will". Over the long term it's a shitty, negative-sum game for everyone except the banks.
tinco 11y ago
Low Fed interest means you can't make good money safely by loaning it to the central bank. So it makes the alternative loans more attractive, mortgages are a relatively safe and profitable investment. When the cost of mortgages goes down the amount borrowable goes up so the people can buy more expensive houses. The immediate result is that their prices go up.
jdawe 11y ago
Lower interest rates mean it's cheaper to borrow, which makes borrowing more affordable to more people, which increases demand, which increases prices when supply is limited (artificially or otherwise, see San Francisco).