5 ms·

> that the Fed should wait on raising interest rates I don't agree either. If the economy tanks again, there is almost nothing that can be done, being that one

> that the Fed should wait on raising interest rates I don't agree either. If the economy tanks again, there is almost nothing that can be done, being that one of the usual steps is to lower interest rates to spur growth.

autokad 10y ago
they could always use quantitative easing. the argument "we need to raise rates so we can lower them if the economy tanks" doesn't fit well with me. its sort of like saying lets take poison so that if we get sick we can stop taking poison and feel better. it might hold some water if there was inflation, but there's not. deflation is still a bigger risk. I think the fed should use interest rates to fight inflation, and QE to fight unemployment.
- tradersam 10y ago
  > its sort of like saying lets take poison so that if we get sick we can stop taking poison and feel better. Raising interest rates isn't poison. Also, at the moment deflation isn't a bigger risk. It says right in the article inflation is slowly rising, not falling.
  - autokad 10y ago
    "Raising interest rates isn't poison." Higher interest rates are intended to slow down the economy by making borrowing harder. "Also, at the moment deflation isn't a bigger risk. It says right in the article inflation is slowly rising, not falling." 1.74% is very low, and on the wrong side of target inflation. ~3% inflation is considered historic, and we are no where close to getting there. not even a little bit. if that anemic .03 growth went even a smidgen on the wrong side of 0, that would be bad. so yeah, deflation is still a bigger risk.
    - hueving 10y ago
      >Higher interest rates are intended to slow down the economy by making borrowing harder. Which is precisely what you need to do to get inflation under control. You may be correct that inflation is too low right now to tighten the screws, but calling interest rates poison is ignoring the reason the fed sets them.
- u801e 10y ago
  > it might hold some water if there was inflation, but there's not. deflation is still a bigger risk. I've always wondered if the worry about deflation is overblown. We still have a lot of things that people and businesses buy that have inelastic demand which will not change regardless of whether or not we are experiencing deflation. Also, when looking at expenses related to computer hardware, it has been going down relative to its capability. That hasn't led to a delay in purchases from either consumers or businesses from what I understand.
  - tradersam 10y ago
    I think you're misunderstanding macro-economic deflation vs. technology advancing. Mass production and technological advancement reduce prices, sure, but whole economic deflation makes debt's real value increase, basically exponentially punishing people holding debt while favoring lenders, where as inflation obviously does the opposite. So, the majority of people with a mortgage, car or student debt get screwed during a deflationary event.
  - grigjd3 10y ago
    Under deflation, there is decreasing motivation to work or produce. Why buy seeds to grow food when your money could just buy more later? A little inflation motivates people to produce, either by labor, investment or both.
    - fauigerzigerk 10y ago
      >Under deflation, there is decreasing motivation to work or produce Is that only a bad thing? If we have overcapacities and therefore prices fall then producing less would be the rational thing to do. I do understand that this has negative consequences as well though.
  - adrianratnapala 10y ago
    During the 19th century, with money more strongly tied to gold, deflation was pretty common. And it seemed like no big deal. Of course the evidence is hard to interpret. The 19th century was poorer than the 20th. Well Duh. The had 19th lots of recessions and depressions. But nothing so bad as the Great Depression. But also nothing so good as the Great Moderation. My guess is that moderate anything is fine. But that policy wonks get the heebie-jeebies about not having the monetary lever in "their" hands.
- edblarney 10y ago
  " its sort of like saying lets take poison so that if we get sick we can stop taking poison and feel better." No. The analogy is - right now, with low rates, we are doing red bull and meth to 'stay awake' and we need to return to normal so that in a crunch, we can do a little more meth. Right now, we're dying from too much meth :)
caf 10y ago
It's the interest rate in real terms (nominal rate minus inflation rate) that spurs growth, so higher inflation itself adds a couple more arrows back into the quiver. (That's also why deflation is avoided like the plague - in that event, even a zero nominal interest rate is a positive real rate).
- jfoutz 10y ago
  I kinda wonder if technical advances means we actually have de facto deflation. Regular stuff is constantly being improved. Perhaps socks are 2% cheaper or better every year, effectively making inflation negative.
  - fauigerzigerk 10y ago
    This idea is already part of how inflation is measured. It's called Hedonic Quality Adjustment: https://www.bls.gov/cpi/cpihqaqanda.htm https://www.bls.gov/cpi/cpihqaqanda.htm But I also think that this is difficult to get right.
- deleted 10y ago
  [deleted]

autokad 10y ago

they could always use quantitative easing. the argument "we need to raise rates so we can lower them if the economy tanks" doesn't fit well with me. its sort of like saying lets take poison so that if we get sick we can stop taking poison and feel better. it might hold some water if there was inflation, but there's not. deflation is still a bigger risk. I think the fed should use interest rates to fight inflation, and QE to fight unemployment.

tradersam 10y ago
> its sort of like saying lets take poison so that if we get sick we can stop taking poison and feel better. Raising interest rates isn't poison. Also, at the moment deflation isn't a bigger risk. It says right in the article inflation is slowly rising, not falling.
- autokad 10y ago
  "Raising interest rates isn't poison." Higher interest rates are intended to slow down the economy by making borrowing harder. "Also, at the moment deflation isn't a bigger risk. It says right in the article inflation is slowly rising, not falling." 1.74% is very low, and on the wrong side of target inflation. ~3% inflation is considered historic, and we are no where close to getting there. not even a little bit. if that anemic .03 growth went even a smidgen on the wrong side of 0, that would be bad. so yeah, deflation is still a bigger risk.
  - hueving 10y ago
    >Higher interest rates are intended to slow down the economy by making borrowing harder. Which is precisely what you need to do to get inflation under control. You may be correct that inflation is too low right now to tighten the screws, but calling interest rates poison is ignoring the reason the fed sets them.
u801e 10y ago
> it might hold some water if there was inflation, but there's not. deflation is still a bigger risk. I've always wondered if the worry about deflation is overblown. We still have a lot of things that people and businesses buy that have inelastic demand which will not change regardless of whether or not we are experiencing deflation. Also, when looking at expenses related to computer hardware, it has been going down relative to its capability. That hasn't led to a delay in purchases from either consumers or businesses from what I understand.
- tradersam 10y ago
  I think you're misunderstanding macro-economic deflation vs. technology advancing. Mass production and technological advancement reduce prices, sure, but whole economic deflation makes debt's real value increase, basically exponentially punishing people holding debt while favoring lenders, where as inflation obviously does the opposite. So, the majority of people with a mortgage, car or student debt get screwed during a deflationary event.
- grigjd3 10y ago
  Under deflation, there is decreasing motivation to work or produce. Why buy seeds to grow food when your money could just buy more later? A little inflation motivates people to produce, either by labor, investment or both.
  - fauigerzigerk 10y ago
    >Under deflation, there is decreasing motivation to work or produce Is that only a bad thing? If we have overcapacities and therefore prices fall then producing less would be the rational thing to do. I do understand that this has negative consequences as well though.
- adrianratnapala 10y ago
  During the 19th century, with money more strongly tied to gold, deflation was pretty common. And it seemed like no big deal. Of course the evidence is hard to interpret. The 19th century was poorer than the 20th. Well Duh. The had 19th lots of recessions and depressions. But nothing so bad as the Great Depression. But also nothing so good as the Great Moderation. My guess is that moderate anything is fine. But that policy wonks get the heebie-jeebies about not having the monetary lever in "their" hands.
edblarney 10y ago
" its sort of like saying lets take poison so that if we get sick we can stop taking poison and feel better." No. The analogy is - right now, with low rates, we are doing red bull and meth to 'stay awake' and we need to return to normal so that in a crunch, we can do a little more meth. Right now, we're dying from too much meth :)

caf 10y ago

It's the interest rate in real terms (nominal rate minus inflation rate) that spurs growth, so higher inflation itself adds a couple more arrows back into the quiver. (That's also why deflation is avoided like the plague - in that event, even a zero nominal interest rate is a positive real rate).

jfoutz 10y ago
I kinda wonder if technical advances means we actually have de facto deflation. Regular stuff is constantly being improved. Perhaps socks are 2% cheaper or better every year, effectively making inflation negative.
- fauigerzigerk 10y ago
  This idea is already part of how inflation is measured. It's called Hedonic Quality Adjustment: https://www.bls.gov/cpi/cpihqaqanda.htm https://www.bls.gov/cpi/cpihqaqanda.htm But I also think that this is difficult to get right.
deleted 10y ago
[deleted]