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Fed raising interest rates 0.25% and setting a goal of "normal" 2% by 2018 means little to nothing. Market already priced the miniscule rate hike in as the move

• dsr_ 11y ago
  If you want to stimulate aggregate demand at the consumer level, you need more people to have good jobs, so they can make money, so they can spend money. This would represent a reversal of the trend since 1970 towards greater income inequality. It is not clear to me that anyone is doing anything about that (except, of course, in the negative sense.)
  • toomuchtodo 11y ago
    Exactly correct. The Federal Reserve has the knobs and levers to create asset bubbles, but not to stoke consumer demand. Only Congress can do that with legislation increasing the minimum wage, changing corporate taxes so it behooves companies to pay employees more, or legislation increasing entitlements such as social security. Those in lower and middle classes are the ones who govern the velocity of money through the economy, not the most wealthy. https://youtu.be/iJCcoF5K0SM?t=19m https://youtu.be/iJCcoF5K0SM?t=19m
    • vezzy-fnord 11y ago
      increasing the minimum wage Be careful what you wish for: http://marginalrevolution.com/marginalrevolution/2015/03/how-effective-is-the-minimum-wage-at-supporting-the-poor.html http://marginalrevolution.com/marginalrevolution/2015/03/how... legislation increasing entitlements such as social security Expected to run structural deficits by a certain point. Theoretically speaking, an endogenously determined fiat money system doesn't really have "government debt" what with it being the sovereign issuer of debt to begin with, but in reality politics and the economy don't exist in frictionless vacuums and there are political costs to pork barreling, logrolling, unsound investments and so forth.
      • toomuchtodo 11y ago
        I argue my ideas only need to hold water for another 10-30 years, depending on if technology advancement keeps up. Japan's been running structural deficits for decades, and still has a very high quality of life. > but in reality politics and the economy don't exist in frictionless vacuums and there are political costs to pork barreling, logrolling, unsound investments and so forth. As basic minimum income solves this without the messy politics surrounding it.
        • vezzy-fnord 11y ago
          I argue my ideas only need to hold water for another 10-30 years, depending on if technology advancement keeps up. Given that the AI community's prediction making skills have been just slightly better than those of Nostradamus, that's a very tough gambit to rely on. Japan's been running structural deficits for decades, and still has a very high quality of life. Except for the aftermath of the whole Lost Decade thing and aging population taking tolls on aggregate productivity. I'm not qualified enough to say whether causes were monetary, fiscal, sociological or some combination thereof, but listing Japan as a positive example here doesn't strike me as wise. As basic minimum income solves this without the messy politics surrounding it. UBI would theoretically handle a minimum transfer of purchasing power for every individual. We're talking about public programs and initiatives unrelated to that. Though, if you're idealistic enough to think the UBI is a prospect soon realizable, I wonder why you're advocating minimum wage increases over say, stronger collective bargaining? Denmark for instance has never had a minimum wage law.
    • dragonwriter 11y ago
      > changing corporate taxes so it behooves companies to pay employees more "Corporate" is perhaps too restrictive, but shifting the relative tax burden from labor to capital, without changing the overall share of the economy represented by taxes or government spending, would probably be pretty powerful here. There are, to say the least, political difficulties involved.
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    • branchless 11y ago
      So kill the asset bubble and give the next generation more disposable income...
  • laotzu 11y ago
    I question the assumption that "job creation" is the necessary prerequisite for money creation especially in an age of automative ephemeralization and surplus. Large demand for money already exists among the poor whether or not they have a job. >In technology's "invisible" world, inventors continually increase the quantity and quality of performed work per each volume or pound of material, erg of energy, and unit of worker and "overhead" time invested in each given increment of attained functional performance. This complex process we call progressive ephemeralization. In 1970, the sum total of increases in overall technological know-how and their comprehensive integration took humanity across the epochal but invisible threshold into a state of technically realizable and economically feasible universal success for all humanity. -Buckminster Fuller
  • brc 11y ago
    Consumer demand is meaningless. Trying to push it is like trying to push a string. Demand is an artefact of production. Unless your economy is producing, you won't increase quality of life and wealth for all citizens. This point is obvious, but gets completely lost in all the frenzy around 'stimulating demand'. To buy something, first you have to produce something worthy of exchange. Everyone has to start from this point.
    • redler 11y ago
      Supply and demand are entwined in a perpetual dance, and "if you build it they will come" only goes so far. A product has to find a market capable of making the purchase. Opening a Whole Foods supermarket in rural Tanzania isn't going to boost sales of Tom's of Maine Wicked Cool Toothpaste -- a product apparently worthy of exchange among sufficiently wealthy consumers in a different context.
      • brc 11y ago
        Malinvestment in incorrect production is part of the process. The person who produces unwanted goods and services must gain the feedback that they have, so they can switch production to what is desired. This is a very important reason why crony capitalism, protectionism and secession regulation hurts everyone. I have never stated that 'if you build it they will come', because that is patently false. This is a common straw man erected by the true 'aggregate demand is all' believer (I don't know if this is your position or not). If you build it, they will come is as absurd as 'if we just gave everyone a bit more money, the economy would grow'.
        • millstone 11y ago
          You're arguing that a glut is due to producing what is not desired, instead of what is desired. So when there is a glut in one area, there must be corresponding shortages in other areas. This is easy to debunk. Look at the labor market. The US unemployment rate went from ~4.5% in 2007 to 10% in 2010: a big labor glut. The "malinvestment" theory predicts unfulfilled demand comparable in size to the unemployment. Large sectors of the economy should have had millions of unfilled job listings, spiraling wages, etc. But this did not happen. The right explanation is simply that total labor supply exceeded demand.
  • washedup 11y ago
    Cheap debt has been one "solution", but this can only work temporarily.
  • rodgerd 11y ago
    > It is not clear to me that anyone is doing anything about that (except, of course, in the negative sense.) Precisely - monetary policy in the English-speaking world has, since the 80s, been focused on avoiding inflationary pressures via avoiding "too much" growth. Anything that would lead to upward income pressure outside the executive suite is "too much".
    • lintiness 11y ago
      good lord. read some history. if you're not afraid of inflation, you haven't lived long enough.
  • cheald 11y ago
    Income equality has jack-all to do with absolute income levels. The richest getting richer at a pace greater than others doesn't mean that others aren't making money. Real income is up for all quintiles since the 1970s, as are consumption expenditures. Real income is up quite a lot more for the upper quintiles, but since we don't operate in a zero-sum economy, that doesn't require that it be down for other people.
• PaulWillis 11y ago
  Isn't investing in bonds putting money to work in the economy? And how does the government really stimulate demand? Nobody demanded an IPhone before it existed. Good products stimulate demand.
  • jstalin 11y ago
    Politicians spending your money for you is better than you deciding how to spend it.
    • alttab 11y ago
      Can't tell if this is sarcasm or not. Sign of the times I guess.
      • hodwik 11y ago
        Has to be sarcasm. People who actually believe that wouldn't say "politicians", they'd use some other euphemism, because they believe in some abstract trustworthy organization that's always being hampered by those damn politicians. Statists love their euphemisms: “investment” instead of “government spending” “shared sacrifices” instead of "wealth redistribution" "government officials" instead of "un-elected bureaucrat" and lastly, "public sector" instead of "The State".
        • ubernostrum 11y ago
          Statists love their euphemisms My irony detector has just exploded. Can you direct me to a completely-unregulated minarchist free-for-all market where I can buy one that merely poisons me and everyone in a hundred-mile radius? Because at least it would actually work.
          • hodwik 11y ago
            You have to pay extra for the poison. This is libertarian land, dude. NOTHING is free, even poison.
• nemanja 11y ago
  > ...move did nothing to assure markets that the Fed is in control, or set credible, measurable goals for future hikes Markets respectfully disagree, see the uptick across all indices since the announcement. As you point out, there is only so much Fed can do and they are taking a measured, responsible stance, well within expectations. The fact that Fed's actions are fully aligned with expectations is kind of the point - the last thing they want to do is spook the markets, so messaging and signaling is key.
  • encoderer 11y ago
    A huge percentage of net market moves happen on the days around fed announcements. Your interpretation of the reaction needs to be rebased onto that history. Today only looks like a big move compared to an average day in a week without a fed announcement. You can see this here: http://slopeofhope.com/socialtrade/item/19476?__share=52402 http://slopeofhope.com/socialtrade/item/19476?__share=52402
  • Estragon 11y ago
    All a rise means today is that the markets had priced in a higher hike than the Fed posted.
    • gozur88 11y ago
      I don't think anybody believed there would be a larger increase, particularly in light of the lack of inflation.
• SilasX 11y ago
  But it would seem like a 2% rate would still have pretty bad consequences. The average interest rate on federal debt is 2.4%. [2], and interest on that debt is about 7 percent of outlays. [1] (Yes, I looked up those figures for my previous HN comment, not trying to plagiarize myself.) I couldn't find data on average maturity, but if it's slanted toward shor-term debt, then that average could go to more like ~3.5%, which would be a ~40% increase in interest spending, and (assuming no increase in revenues) a 3-4% cut from the federal budget, when pretty much anything is hard to cut. Debt at these low interest rates makes spending very vulnerable to even small (point-wise) increases. [1] http://www.cbpp.org/research/policy-basics-where-do-our-fede.. http://www.cbpp.org/research/policy-basics-where-do-our-fede.... [2] http://www.pewresearch.org/files/2013/10/debt_interest1.png http://www.pewresearch.org/files/2013/10/debt_interest1.png http://www.pewresearch.org/files/2013/10/debt_interest1.png http://www.pewresearch.org/files/2013/10/debt_interest1.png
• dragonwriter 11y ago
  > Fed raising interest rates 0.25% and setting a goal of "normal" 2% by 2018 means little to nothing. Market already priced the miniscule rate hike in as the move was widely expected The second part is true, but doesn't support the first. The fact that move was expected and priced in doesn't make it meaningless, since if it didn't occur as expected, the fact that it was priced in would mean that the market would then have to adjust to the inaccurate expectation that had been priced in.
• zeveb 11y ago
  > We need the Federal government to stimulate aggregate demand at the consumer level. Investing tax dollars in a smarter manner. Isn't it highly unlikely that tax dollars will be spent or invested more wisely than the original owners of those dollars would have spent or invested them, since no-one would have known the owners' preferences as well as the owners themselves? Keynesian pump-priming ends up thinking it makes economic sense to tax people for money to fill up jars, tax people to pay for workers to fill jars with cash, tax people to pay for workers to bury the jars, and tax people to pay for workers to dig the jars up. Although I think there is a very valuable insight about velocities and derivatives rather than simply values-at-times, I think that government spending in general is essentially a drag on the economy: a necessary and inevitable malinvestment, but one to be avoided where possible.
  • jbooth 11y ago
    It's not about 'wisely' in terms of returns to the individual who invested, it's about 'wisely' in terms of creating aggregate demand. For example, funding a bunch of national infrastructure projects would have horrible returns, being a 100% loss to the person who spent the money. But that money circulates in the economy, creating demand, and we get the infrastructure afterwards as well. That's speculation, of course, but we can look back to the New Deal to see that it's worked at least once before, and look at current-day corporate balance sheets and their underwhelming investment in demand-creating ventures to see that what we're doing now is not working. If the goal was to generate novel tax-avoidance schemes like the double-irish, though, we'd be a rousing success, so there's that.
    • clarkmoody 11y ago
      Many smart people argue that the New Deal prolonged the Great Depression due to the government's incessant meddling in the market with price controls and new regulations.
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      • 11y ago
• gotchange 11y ago
  > We need the Federal government to stimulate aggregate demand at the consumer level. How? Simply put by distributing cash to the people directly. Why do only rich people on Wall St. get subsidies and bailouts where the Fed purchase their worthless papers with hefty sum of money and push on their balance sheet on the taxpayer's dime? Not only this but they are also engaged with them in destroying the labor market by bankrolling Wall St greed and their endless chase of efficiency at the expense of people's jobs as they get more aggressive with M&A activity evading taxes and expanding robotics & automation to eliminate labor costs. This can't be going this way forever and something has to be done to stop this madness.
  • laotzu 11y ago
    >This can't be going this way forever and something has to be done to stop this madness. Wall St: "Invest in pitchforks!"
• cft 11y ago
  > Fed raising interest rates 0.25% and setting a goal of "normal" 2% by 2018 means little to nothing. This means the end of 70% of the unicorns.
  • beat 11y ago
    So maybe the industry might have to take some risks on younger businesses, rather than piling on yet another zillion dollars for the Series Q round of Unicorn Inc along with the timid institutional investors?
  • rodgerd 11y ago
    Good. A hard dose of reality might make HN slightly less full of aggressively, arrogantly clueless twenty-somethings.
• brc 11y ago
  >We need the Federal government to stimulate aggregate demand at the consumer level. How? Investing tax dollars in a smarter manner Everyone - and I do mean everyone - would be better off if the fed government (and state and local) invested those tax dollars smarter by leaving the majority of them in the hands of those that earnt them. "There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income.” - Milton Friedman
  • eli 11y ago
    That seems like something that reasonable people could disagree about.
    • someguydave 11y ago
      I'm not so sure. Wouldn't the principal-agent problem (https://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...) cause one to think that government spending is going to yield fewer returns than private investment?
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  • millstone 11y ago
    In terms of stimulating aggregate demand, transfers to people who will spend the money are more effective than transfers to people who spend less (i.e. save more). In practice that means food stamps, unemployment benefits, etc. are more effective than tax cuts directed at high earners.
• jpadkins 11y ago
  > We need the Federal government to stimulate aggregate demand at the consumer level. How? Investing tax dollars in a smarter manner. How do you get 535 people (congress) to spend $3 trillion smarter? It's an impossible task. A fools errand. Even if we elected the 500 smartest people to congress, the results wouldn't be much better. We need less of the economy flowing thru the federal government, not more.
  • Frondo 11y ago
    Nah, it's actually pretty easy. The 535 people just need to assign general priorities, like spend a third our country's money on health care and education, a third of it on infrastructure, a little bit on funding pure research, and whatever's left over, the military can have. They're not in charge of deciding how each individual dollar is spent, and they shouldn't be.
    • bpodgursky 11y ago
      This is super naive. For much of the past decade, congress could have removed the entire discretionary budget (yes, including the military) and still had a deficit. The deficit is driven by social security, medicare, and medicaid. If you want to balance the budget, you have to reform those.
      • dragonwriter 11y ago
        > For much of the past decade, congress could have removed the entire discretionary budget (yes, including the military) and still had a deficit. Two fiscal years in the past decade (2010 and 2011) had deficit exceeding discretionary spending. That's not "much of the past decade". (The highest deficit was in 2009, but discretionary spending was actually higher.) > The deficit is driven by social security, medicare, and medicaid. If you want to balance the budget, you have to reform those. The deficit is driven by a shortfall of revenue vs. spending. Even if your portrayal of the spending side was accurate, ignoring the revenue side is not. If you want to balance the budget [0], you probably shouldn't ignore one side of the balance. [0] The question of whether you should want to is one which is rarely addressed directly, merely assumed.
• hackaflocka 11y ago
  So... is this a good time to short bonds?
  • jvproject 11y ago
    there is no such thing as a good time to short bonds :)
    • hackaflocka 11y ago
      Explain please :)
  • mcnees287 11y ago
    It's likely priced in already.
• graeme 11y ago
  Why do you say "fed can push the supply side of money". By raising rates, the fed is decreasing the money supply. Unless I've seriously misinterpreted your comment, this really shouldn't be the top comment, because it's wrong. And "markets pricing in" the move isn't the same as "the move had no effect". It just means the effect already started prior to the announcement.
  • deleted 11y ago
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• jusben1369 11y ago
  It's great if they work together. But it's also rarely the case historically. Don't feel bad for the Fed. They actually have very real power to influence the economy _indirectly_ History will judge Ben Bernanke as preventing the country (globe?) from a depression via aggressive monetary policy.
• arzt 11y ago
  Right, it would help to put $ directly into consumers hands versus buy bonds and putting it back on to bank balance sheets who will not necessarily lend it back out.
• natmaster 11y ago
  Who's at fault, the druggie or drug dealer? The fed is the enabler
• skylan_q 11y ago
  Fed raising interest rates 0.25% and setting a goal of "normal" 2% by 2018 means little to nothing. Market already priced the miniscule rate hike in as the move was widely expected, and move did nothing to assure markets that the Fed is in control, or set credible, measurable goals for future hikes. I'm pretty sure it doesn't mean nothing and that it actually is more than just symbolic.
• gozur88 11y ago
  >Not raising the interest paid out on short term bonds so that institutions are incentivized to keep even more money in bonds rather than putting them to work in the economy. There's plenty of money around. Oceans of it. The problem is a lack of demand.
• seoguru 11y ago
  Yes. Former Chief Economist and Managing Director of PIMCO: The deficit is too low. https://www.youtube.com/watch?v=Sdhv2WuoYGM&feature=youtu.be&t=1937 https://www.youtube.com/watch?v=Sdhv2WuoYGM&feature=youtu.be...