5 ms·

>Wish for interest rates to be higher then. Why? There are people on both sides of the interest-rate trade, so any change in rates creates winners and losers.

>Wish for interest rates to be higher then. Why? There are people on both sides of the interest-rate trade, so any change in rates creates winners and losers. Higher rates aren't inherently "better" than lower rates. Personally, I want LOW rates. I'm young and have a mortgage and car payment. I want cheap money, so that I can put it to use investing in my future. Why should I pay more to subsidize the Baby Boomer's retirement funds? They've had an easy enough road as it is.

rwj 11y ago
Those low rates have probably also propped up the the value of your house. Look at the ratio of the median house price to income over time, and you will be less convinced that low interest rates have been helpful.
- forgetsusername 11y ago
  >you will be less convinced that low interest rates have been helpful. So the fact that I'm paying less interest AND the value of the asset has increased isn't helpful? Again, I'm not making the argument that low rates are "good"; I'm saying they're good for me.
jerf 11y ago
"I'm young and have a mortgage and car payment." Your mortgage costs more because interest rates are low, making lending easy, making it easy to take out loans, meaning all the buyers can get bigger loans, meaning you have to bid more to win. Second order effects. Interests rates are not low in a vacuum. It is likely that because there's nowhere else to make good returns, there's a lot of money sloshing into stupid non-value-focused dotcoms that will dry up when interest rates go back up, creating competition for those dollars. Again, second order effects. You're not thinking economically if you're not thinking about those.
- forgetsusername 11y ago
  >"Second order effects. Interests rates are not low in a vacuum." Uh, no. My mortgage is inarguably cheaper due to low rates. So is my car payment. Is it possible that the price of the asset I'm borrowing against is higher because low rates are inflating asset prices? Possibly. It depends where I live and when I bought my house. If I just re-fi'd at lower rates, it's cheaper, period. Besides that, the inflated price shows up as an asset on my personal balance sheet. These second-order effects are relevant, but not substantial.
  - jerf 11y ago
    "Besides that, the inflated price shows up as an asset on my personal balance sheet." Until interest rates go up and it deflates again. That's not a reliable asset. With all due respect, you really don't know what you're talking about here. Your model of economics is too linear and static.
    - deleted 11y ago
      [deleted]
    - forgetsusername 11y ago
      >With all due respect, you really don't know what you're talking about here. Benefits of interest rates are ambiguous, as I argue. Inflated asset prices benefit asset owners, as I argue: https://www.stlouisfed.org/publications/inside-the-vault/spring-2011/low-interest-rates-have-benefits-and-costs https://www.stlouisfed.org/publications/inside-the-vault/spr...
    - crdoconnor 11y ago
      >Until interest rates go up Yeah, 24 years later and Japan putting up interest rates is just around the corner. When policies last for entire generations treating them as a temporary aberration is a mistake.
  - greendata 11y ago
    The interest rates have a substantial effect on the price of houses. It's the same with the price of education.
- dragonwriter 11y ago
  > Interests rates are not low in a vacuum. This is true in almost exactly the reverse of the sense you intend; interest rates are low as a fairly direct result of poor results on a number of economic measures; its true that the conditions in which low interest rates occur are bad, but that's not because of low interest rates, it is what low interest rates are a response to. Inflation in prices is one of the signals which leads to higher interest rates. (While there are some wrinkles, pretty much the main purpose of monetary policy is short-circuiting destructive positive feedback loops in the economy by introducing negative feedback mechanisms to counteract them.)
zhte415 11y ago
Short term, as a borrower, low rates are fantastic. But really, long term, they're the sign of a sick economy. The rate of return of investment across an economy is the interest rate. Think of it like a balance sheet - if the economy is able to expense liabilities at a really low rate, then assets are also expensed at a really low rate. Stable interest rates are great (across an economy, not individual rates - plus this gets really hard to measure where a banking system isn't the main source of capital, but I digress no more) are great. It allows planning. Low (real) rates can seem great, but over the long term in a North American/European banking-funding centric economy (i.e. measurable), it indicates low increases on return of capital. And because of the low rates, an economy that is troubled in generating growth. My liability is your asset. If my liability is returning 0.5% real per year, as (real) growth, we're sitting stagnant. As pointed out by someone else, a low rate also means revenue generating assets have a much higher price. That's because they're returning revenue, not growth. Low real interest rates are really, really, bad.
- pjc50 11y ago
  Interest rate control is used to affect inflation by constraining employment and hence wages. That's the 'linkage' by which the central bank 'lever' acts on the real economy. We have low inflation and moderate unemployment. Pushing up rates will cause deflation and unemployment. If we want rates to go up we have to push up consumer price and wage inflation.
- forgetsusername 11y ago
  >Low real interest rates are really, really, bad. You can repeat that as often as you want, but it simply isn't true. It's post hoc, ergo propter hoc reasoning: we see low rates in times of trouble, therefore low rates caused the trouble? >My liability is your asset Exactly. So whatever return you aren't earning on your capital, I'm saving on my use of that capital.
  - crdoconnor 11y ago
    >You can repeat that as often as you want, but it simply isn't true. It's post hoc, ergo propter hoc reasoning: we see low rates in times of trouble, therefore low rates caused the trouble? It simply is true, although not because of that reasoning. It's a stupid/evil reaction to an over-leveraged economy that has come crashing down. The presumption built into the idea that lowering interest rates would help is twofold: A) If you just started getting people into even more debt then the economic woes would fix themselves because people will start spending again. As if more debt were the solution to too much debt. Hence Japan is still terrified of raising rates 20 years later. Because ramping up debt is not a solution to too much debt. B) If people's asset prices are now worth more (houses, etc.) then they'll feel richer and spend more. Except that only applies to a minority. The majority don't have much in the way of significant assets and are instead getting royally screwed by rentiers capitalizing on those higher asset prices.
pjc50 11y ago
Absolutely. In the wider economy, things are better with low interest rates on unsecured loans, government bonds, and especially business working capital (think traditional manufacturing inventory). The only problem is loans being used for leverage in asset price speculation. We need to find some way of rationing leverage while keeping working capital cheap.
crdoconnor 11y ago
>Why? There are people on both sides of the interest-rate trade, so any change in rates creates winners and losers. Higher rates aren't inherently "better" than lower rates. I didn't say they were inherently better. I said that it was the policy that led to all of these stupid investments being funded. When debt is cheap (and right now it is absurdly cheap) it leads to yield chasing behavior by investors. That leads them to funnel money into often ridiculous investments, triggering bubbles where people get funded ridiculous amounts to mail pet food or open a social networking site for cats. Hence : bubbles everywhere. >I'm young and have a mortgage and car payment. I save up for things before buying them. Oh, the main reason I can't afford to do that and buy a house is because of low interest rates. >Why should I pay more to subsidize the Baby Boomer's retirement funds? It's really depressing how easy it was for elite propagandists to get millenials to blame their own grandmas for the sins of the 0.1%. It wouldn't even be as bad if they weren't open about their intentions to divide and conquer these voting blocs.

rwj 11y ago

Those low rates have probably also propped up the the value of your house. Look at the ratio of the median house price to income over time, and you will be less convinced that low interest rates have been helpful.

forgetsusername 11y ago
>you will be less convinced that low interest rates have been helpful. So the fact that I'm paying less interest AND the value of the asset has increased isn't helpful? Again, I'm not making the argument that low rates are "good"; I'm saying they're good for me.

jerf 11y ago

"I'm young and have a mortgage and car payment." Your mortgage costs more because interest rates are low, making lending easy, making it easy to take out loans, meaning all the buyers can get bigger loans, meaning you have to bid more to win. Second order effects. Interests rates are not low in a vacuum. It is likely that because there's nowhere else to make good returns, there's a lot of money sloshing into stupid non-value-focused dotcoms that will dry up when interest rates go back up, creating competition for those dollars. Again, second order effects. You're not thinking economically if you're not thinking about those.

forgetsusername 11y ago
>"Second order effects. Interests rates are not low in a vacuum." Uh, no. My mortgage is inarguably cheaper due to low rates. So is my car payment. Is it possible that the price of the asset I'm borrowing against is higher because low rates are inflating asset prices? Possibly. It depends where I live and when I bought my house. If I just re-fi'd at lower rates, it's cheaper, period. Besides that, the inflated price shows up as an asset on my personal balance sheet. These second-order effects are relevant, but not substantial.
- jerf 11y ago
  "Besides that, the inflated price shows up as an asset on my personal balance sheet." Until interest rates go up and it deflates again. That's not a reliable asset. With all due respect, you really don't know what you're talking about here. Your model of economics is too linear and static.
  - deleted 11y ago
    [deleted]
  - forgetsusername 11y ago
    >With all due respect, you really don't know what you're talking about here. Benefits of interest rates are ambiguous, as I argue. Inflated asset prices benefit asset owners, as I argue: https://www.stlouisfed.org/publications/inside-the-vault/spring-2011/low-interest-rates-have-benefits-and-costs https://www.stlouisfed.org/publications/inside-the-vault/spr...
  - crdoconnor 11y ago
    >Until interest rates go up Yeah, 24 years later and Japan putting up interest rates is just around the corner. When policies last for entire generations treating them as a temporary aberration is a mistake.
- greendata 11y ago
  The interest rates have a substantial effect on the price of houses. It's the same with the price of education.
dragonwriter 11y ago
> Interests rates are not low in a vacuum. This is true in almost exactly the reverse of the sense you intend; interest rates are low as a fairly direct result of poor results on a number of economic measures; its true that the conditions in which low interest rates occur are bad, but that's not because of low interest rates, it is what low interest rates are a response to. Inflation in prices is one of the signals which leads to higher interest rates. (While there are some wrinkles, pretty much the main purpose of monetary policy is short-circuiting destructive positive feedback loops in the economy by introducing negative feedback mechanisms to counteract them.)

zhte415 11y ago

Short term, as a borrower, low rates are fantastic. But really, long term, they're the sign of a sick economy. The rate of return of investment across an economy is the interest rate. Think of it like a balance sheet - if the economy is able to expense liabilities at a really low rate, then assets are also expensed at a really low rate. Stable interest rates are great (across an economy, not individual rates - plus this gets really hard to measure where a banking system isn't the main source of capital, but I digress no more) are great. It allows planning. Low (real) rates can seem great, but over the long term in a North American/European banking-funding centric economy (i.e. measurable), it indicates low increases on return of capital. And because of the low rates, an economy that is troubled in generating growth. My liability is your asset. If my liability is returning 0.5% real per year, as (real) growth, we're sitting stagnant. As pointed out by someone else, a low rate also means revenue generating assets have a much higher price. That's because they're returning revenue, not growth. Low real interest rates are really, really, bad.

pjc50 11y ago
Interest rate control is used to affect inflation by constraining employment and hence wages. That's the 'linkage' by which the central bank 'lever' acts on the real economy. We have low inflation and moderate unemployment. Pushing up rates will cause deflation and unemployment. If we want rates to go up we have to push up consumer price and wage inflation.
forgetsusername 11y ago
>Low real interest rates are really, really, bad. You can repeat that as often as you want, but it simply isn't true. It's post hoc, ergo propter hoc reasoning: we see low rates in times of trouble, therefore low rates caused the trouble? >My liability is your asset Exactly. So whatever return you aren't earning on your capital, I'm saving on my use of that capital.
- crdoconnor 11y ago
  >You can repeat that as often as you want, but it simply isn't true. It's post hoc, ergo propter hoc reasoning: we see low rates in times of trouble, therefore low rates caused the trouble? It simply is true, although not because of that reasoning. It's a stupid/evil reaction to an over-leveraged economy that has come crashing down. The presumption built into the idea that lowering interest rates would help is twofold: A) If you just started getting people into even more debt then the economic woes would fix themselves because people will start spending again. As if more debt were the solution to too much debt. Hence Japan is still terrified of raising rates 20 years later. Because ramping up debt is not a solution to too much debt. B) If people's asset prices are now worth more (houses, etc.) then they'll feel richer and spend more. Except that only applies to a minority. The majority don't have much in the way of significant assets and are instead getting royally screwed by rentiers capitalizing on those higher asset prices.

pjc50 11y ago

Absolutely. In the wider economy, things are better with low interest rates on unsecured loans, government bonds, and especially business working capital (think traditional manufacturing inventory). The only problem is loans being used for leverage in asset price speculation. We need to find some way of rationing leverage while keeping working capital cheap.

crdoconnor 11y ago

>Why? There are people on both sides of the interest-rate trade, so any change in rates creates winners and losers. Higher rates aren't inherently "better" than lower rates. I didn't say they were inherently better. I said that it was the policy that led to all of these stupid investments being funded. When debt is cheap (and right now it is absurdly cheap) it leads to yield chasing behavior by investors. That leads them to funnel money into often ridiculous investments, triggering bubbles where people get funded ridiculous amounts to mail pet food or open a social networking site for cats. Hence : bubbles everywhere. >I'm young and have a mortgage and car payment. I save up for things before buying them. Oh, the main reason I can't afford to do that and buy a house is because of low interest rates. >Why should I pay more to subsidize the Baby Boomer's retirement funds? It's really depressing how easy it was for elite propagandists to get millenials to blame their own grandmas for the sins of the 0.1%. It wouldn't even be as bad if they weren't open about their intentions to divide and conquer these voting blocs.