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This story has been "The Boy Who Cried Wolf" for more than the past year. Every 4 weeks they threaten and no change. I'm hoping they finally move, because rat

by pdq 11y ago

This story has been "The Boy Who Cried Wolf" for more than the past year. Every 4 weeks they threaten and no change. I'm hoping they finally move, because rates have been too low too long. Yes I realize this is likely the worst time to raise rates in the past 5 years, but that's only because they waited too long.

ergothus 11y ago
"too low too long" Is there something inherently wrong with being low for a lengthy period of time? "Too low" is obviously bad (if true - my understanding differs, but I'm no expert), but is there any concern over "too long" if "too low" isn't true? (honest question - is a too stable rate itself a problem?) On to the "too low" part - My understanding is that Fed targets 2% inflation, and we've just not been there. Do you have reasons other than gut instinct to dislike the low rate? (Again, honest question, my understanding could very well be wrong).
- disgruntledphd2 11y ago
  I think that rising house prices in many parts of the world are directly connected to low rates. In general (over the last century or so) house prices have kept pace with inflation. It appears that with really low interest rates, property has become a good investment for the pools of capital sloshing around looking for a return. It would be my hope that increased rates could redirect some of this capital back into bonds and other non-property investments, which would be good for many people who are looking to buy houses. This is totally just a speculative theory though, I haven't really investigated the matter in detail.
- rquantz 11y ago
  In fact, the problem has been that rates aren't low enough, they are united by the zero lower bound. The natural interest rate would be several points in the negative.
  - pdq 11y ago
    In what universe could interest rates ever be negative and considered "natural"? Or even a zero interest rate being considered "natural". If you believe that to be true, what rational entity would take the risk of loaning out money to either lose money or get back solely their principal at some future time? And considering prices are inflating, this makes zero and negative interest rates even worse. Market interest rates reward the savers by risking their capital and loaning it to borrowers who can put that capital to work and pay back the lender both principal and interest.
    - rquantz 11y ago
      Sorry, autocorrect. That was supposed to be limited by the zero lower bound. You can't get below zero (or not much below anyway).

by pdq 11y ago

ergothus 11y ago

"too low too long" Is there something inherently wrong with being low for a lengthy period of time? "Too low" is obviously bad (if true - my understanding differs, but I'm no expert), but is there any concern over "too long" if "too low" isn't true? (honest question - is a too stable rate itself a problem?) On to the "too low" part - My understanding is that Fed targets 2% inflation, and we've just not been there. Do you have reasons other than gut instinct to dislike the low rate? (Again, honest question, my understanding could very well be wrong).

disgruntledphd2 11y ago
I think that rising house prices in many parts of the world are directly connected to low rates. In general (over the last century or so) house prices have kept pace with inflation. It appears that with really low interest rates, property has become a good investment for the pools of capital sloshing around looking for a return. It would be my hope that increased rates could redirect some of this capital back into bonds and other non-property investments, which would be good for many people who are looking to buy houses. This is totally just a speculative theory though, I haven't really investigated the matter in detail.
rquantz 11y ago
In fact, the problem has been that rates aren't low enough, they are united by the zero lower bound. The natural interest rate would be several points in the negative.
- pdq 11y ago
  In what universe could interest rates ever be negative and considered "natural"? Or even a zero interest rate being considered "natural". If you believe that to be true, what rational entity would take the risk of loaning out money to either lose money or get back solely their principal at some future time? And considering prices are inflating, this makes zero and negative interest rates even worse. Market interest rates reward the savers by risking their capital and loaning it to borrowers who can put that capital to work and pay back the lender both principal and interest.
  - rquantz 11y ago
    Sorry, autocorrect. That was supposed to be limited by the zero lower bound. You can't get below zero (or not much below anyway).