10 ms·

Fed likely to keep raising rates

116 points by petethomas 8y ago

ceejayoz 8y ago
They pretty much have to. With big tax cuts and trillion-dollar deficits during a boom time, we're not leaving much in the quiver to use in an economic downturn.
- cft 8y ago
  How about using the money allocated for rising interest to pay off some of the trillion debts instead? PS. Whoever downvoted this, it was an opinion of Ray Dalio who founded Bridgewater Associates, the largest hedge fund in the world: https://youtu.be/5C43i3yclec https://youtu.be/5C43i3yclec This new HN trend of downvoting without an argument finally got to me. I quit.
  - deleted 8y ago
    [deleted]
  - Latteland 8y ago
    Even better, tax really rich people who don't need tax cuts. Poor people will spend any more money they got, and we have a consumer driven economy. We should help poor people, not overpaid software engineers like me.
    - freewilly1040 8y ago
      You’ll need a different congress for that
      - deleted 8y ago
        [deleted]
      - tjr225 8y ago
        Maybe, just maybe, we will get one.
    - mohammedbin 8y ago
      You are free to send IRS a bigger check. What's that? You won't do it unless everybody has to? That's just an excuse.
    - anon49124 8y ago
      91% for millionaires, like the good ol' days.
      - briandear 8y ago
        False. https://mises.org/library/good-ol-days-when-tax-rates-were-90-percent https://mises.org/library/good-ol-days-when-tax-rates-were-9...
        ceejayoz 8y ago
        If we're throwing clearly partisan sources around: Sort-of. http://www.slate.com/blogs/moneybox/2017/08/07/the_history_of_tax_rates_for_the_rich.html http://www.slate.com/blogs/moneybox/2017/08/07/the_history_o... For a less partisan source, with a neat "pick your income" chart that illustrates the flaws in the Mises argument for sky-high incomes (try anything over ~$500k/year), https://qz.com/74271/income-tax-rates-since-1913/ https://qz.com/74271/income-tax-rates-since-1913/
      - refurb 8y ago
        The percentage of all taxes paid by the top 10% hasn’t really changed over the past century. Despite have marginal rates >70%, very few people ever paid them.
        ceejayoz 8y ago
        True for the top 10%. Put in the top 1% (~$500k), though, on the effective tax rate chart at https://qz.com/74271/income-tax-rates-since-1913/ https://qz.com/74271/income-tax-rates-since-1913/ and you'll see it has dropped significantly for that population (by about half) since about 1980.
    - briandear 8y ago
      Speak for yourself. I am not overpaid. I get paid exactly what the market for my skills is willing to pay. $15 per hour for a teenager to sweep floors — now that’s being overpaid. If you think you are undertaxed, there is a solution: https://www.treasurydirect.gov/govt/reports/pd/gift/gift.htm https://www.treasurydirect.gov/govt/reports/pd/gift/gift.htm In 2018, just over $700,000 has been donated. So clearly all of us “overpaid” people don’t really care. I pay taxes for public transit I don’t use, public schools my kids don’t attend, healthcare I don’t consume, wars I didn’t ask for, bridges in places I’ll never go. I subsidize food for people I’ll never meet, housing, universal service fees; I pay sales taxes on everything, excise taxes created to pay for a war almost 100 years before I was born, subsidies to farmers, oil, green energy — we pay for all of this stuff. I am on with paying taxes, but dammit, I pay enough already. Over half of everything I earn goes to pay for government. I even had to pay US taxes when I didn’t even live in the US. I understand taxes are necessary; but it’s not fair that I work 1 day for the government for every 1 day I work for myself. It doesn’t matter how much I get paid, what matters is that half of everything I do goes to taxes. I worked very hard to get to where I am — that ought not result in being punished for it. I consume just as much “government” as the guy standing next to me; why should I have to pay more than him?
      - deleted 8y ago
        [deleted]
      - Latteland 8y ago
        I am paid what the market allows also. I pay tons and tons of taxes too! But it's not better for society if people like me get together and take over the government via regulatory capture and get lower taxes just for us (like paying all the senators to do things we like via campaign contributions and. hiring them when they retire). How much taxes do you think you should pay? Less than everyone else? What if your kids or your nephews say, aren't quite as fortunate as you are, they are sweeping the floor somewhere, and they get sick or in a car accident? Should they just die, or depend on the kindness of strangers or a rich aunt? I think we should take care of the poor, the kids who weren't lucky enough to be born to someone who was rich or a programmer (I was lucky and born to two college graduates, and one was even a programmer :-)).
    - refurb 8y ago
      The top 10% (many people in HN are in this group, it’s $130k+) already pay 70-80% of all income taxes. How much higher do you think that number should be?
      - ceejayoz 8y ago
        "The top 10% pay 70% of income taxes" sounds scary until you remember they also control 75% of the wealth in the country.
  - heylook 8y ago
    What?
  - PacifyFish 8y ago
    Why does money need to be allocated for rising interest?
    - cft 8y ago
      Because the increasing interest on government issued paper needs to be paid by the government
  - ceejayoz 8y ago
    https://www.nytimes.com/2018/01/10/business/fed-profits-treasury-2017.html https://www.nytimes.com/2018/01/10/business/fed-profits-trea... > The interest that the Fed collects on its investments is paid by the federal government, and then returned to the government. But this wash cycle still saves money because those interest payments would otherwise be made to the outside investors who would have purchased the bonds. > “It’s interest that the Treasury didn’t have to pay to the Chinese,” Ben S. Bernanke, then the Fed’s chairman, told Congress back in 2011, when the annual windfalls were still new and surprising.
  - jahewson 8y ago
    That’s actually happening. The increase in interest paid on Treasury bills is being used by the Fed to help pay down the $4 trillion in quantitive easing debt they hold.
    - credit_guy 8y ago
      Huh? Who is paying that interest? To whom?
      - justsayinstuff 8y ago
        Maybe I misunderstand something here, but the debt is of the US govt to the Fed. Rising interest that the Fed collects is the Fed's not the US govt's... That's like asking Citibank to allocate the interest it collected on me to my credit card balance...
        jahewson 8y ago
        No, the debt I’m talking about is the Fed’s own. They leant fictitious money to themselves (quantitive easing). It’s included in the public debt, but it’s not a literal debt of the U.S. government, which a is separate, massive debt.
      - jahewson 8y ago
        Anyone who buys Treasury bills is paying that interest to the Fed. So banks, pension funds, social security, etc. The Fed’s debt is made up of (other) Treasury bills which it purchased during QE using “printed” money. If this makes your head spin, then you’ve probably understood it correctly.
        taysic 8y ago
        So are you saying that if the Fed prints $x money, it gets back $x money + interest. It is using the interest to pay back the $x money... and then in theory it erases it from its balance sheet. What does it do with the excess money it collects?
- anon49124 8y ago
  Decatrillion dollar deficits.
  - deleted 8y ago
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- briandear 8y ago
  You mention tax cuts and deficits — isn’t spending equally to blame? Why is cutting government spending viewed by some as not an option? Those who oppose the tax cuts almost never suggest cutting entitlement spending which is the largest percentage of the federal budget — 56% of all federal outlays are from mandatory entitlements. That’s far more significant than any tax cut effects. Besides, even after the tax cuts, the government has collected record revenues this year. We are collecting plenty in taxes — but we are spending it wrong. Here is a list of some of the more ridiculous expenditures: https://www.dailywire.com/news/12309/9-ridiculous-things-government-wasted-money-year-aaron-bandler https://www.dailywire.com/news/12309/9-ridiculous-things-gov...
  - selectodude 8y ago
    Because a huge number of the voters that demand lower taxes are on the dole.
  - Naga 8y ago
    Deficits implies spending, as a deficit occurs when spending is greater than receipts.
  - gizmo686 8y ago
    The general economic principle in play is that the government should act counter-cyclically. That is, it should tax high and spend low during good years, then tax low and spend high during bad years. What the government spends the money on is not particuarly relevent [0]. Hiring an army to fill in ditches that your other army digs would serve this purpose just fine. If you are able to spend this money doing productive work, that is a plus; but not particularly relevant to the core economics. Of course, the problem with this economic philosophy is that it can be difficult to implement given political constraints. During bad years, there is a sense that the government needs to tighten its bootstraps, and during good years there is a sense that the government has the money to invest. While this is a good philosophy for household budgeting, it just turns the government into a pro-cyclic actor, which is the opposite of what we want. [0] As long as the money makes it throughout the economy that is.
  - adventured 8y ago
deleted 8y ago
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anonu 8y ago
The Fed is notoriously independent and cannot appear to be influenced by the President. So if Trump comes out and tells the Fed to put a pause on rate hikes... Well... It's enough reason to turn a "no hike" vote into a "hike" one...
- 1123581321 8y ago
  What is this based on? I tried correlating decisions with presidential remarks advising the opposite, but I’m having trouble finding and dating the presidential quotes.
  - Donald 8y ago
    You won't find the quotes from US Presidents (present excluded). Heads of state who comment harshly on reserve bank decisions are typically met with steepening rates enforced by the sovereign debt market's perception of higher credit risk.
RyanShook 8y ago
We’ve been in a low rate environment for almost a decade. Rates need to rise but it needs to happen more slowly. Just because the fed has been warning everyone it’s coming doesn’t mean the market is ready for it.
- sanxiyn 8y ago
  But that's market's fault, isn't it? The Fed is responsible for entire economy, not just stock market.
  - dlor 8y ago
    Exactly! Waiting would just be the Fed preferring slower movers to faster ones.
- dlor 8y ago
  What does that even mean though? The market is supposed to represent something close to the "correct" state of things, based on public knowledge. Given the warnings, how long should it take to "get ready"? And should the Fed "wait for it to be ready"?
- thoughtexplorer 8y ago
  > Rates need to rise but it needs to happen more slowly. How do you know? Serious question: Would anyone realistically have a better idea than the fed about that?
  - dlor 8y ago
    I tend to agree here. Any tolerance for "slowness" is anti-free-market. I don't necessarily think completely free markets are optimal, but I can't see a reasonable argument for slower being better than faster in general.
  - fiter 8y ago
    Does the Fed have some privileged information that everyone else does not?
- 8y ago
zaroth 8y ago
There seems to be significant disagreement over how robust this recovery is. It’s hard to separate out political posturing from rational economic argument, but the macro indicators certainly seem powerfully positive. People can’t seem to figure out why inflation is so low with employment so high. The Fed is doing what they do when unemployment drops this low, despite the fact that inflation isn’t knocking at the door. It seems like the best assessment is that as long as the macro indicators stay strong, we might as well dry out some powder for a rainy day. But I personally worry about knocking the legs out from under the strongest bull cycle we’ve ever seen when the next few years seem poised to deliver very strong gains, particularly to disadvantaged populations which are the hardest to bring into full employment, and for whom better paying jobs are life changing.
- gnarbarian 8y ago
  well, for better or worse Fed rate hikes have less of an affect on the money supply when banks can loan each other money more cheaply than getting it from the FED (ICE LIBOR [1]). But regardless of the money multiplier, raising rates does still have a negative impact on market outlook and optimism. Not too much to worry about probably. unless you are looking to buy or sell a house with a low down payment. 1 https://en.wikipedia.org/wiki/Libor https://en.wikipedia.org/wiki/Libor
- cinquemb 8y ago
  > People can’t seem to figure out why inflation is so low with employment so high. Probably because of the methodical changes that have happened to how employment is calculated post 2009 compared to before…
  - swampthinker 8y ago
    Could you elaborate on this? I'm not familiar with the changes made.
    - cinquemb 8y ago
      Take the time to read through the posts here[0] and you'll see. [0] https://www.alhambrapartners.com/category/markets/ https://www.alhambrapartners.com/category/markets/
deleted 8y ago
[deleted]
rukittenme 8y ago
On the plus side, higher rates means lower assets prices and greater wage growth.
- NTDF9 8y ago
  How is wage growth getting higher because of higher rates?
Alex3917 8y ago
So will this force all the tech companies that have been raising huge amounts of capital in the private markets to finally go public?
- dev_dull 8y ago
  Or, perhaps, go under.
- adventured 8y ago
  The question is the point where rates start to cause serious valuation deflation. Is that very near? Is it 3%, 4%, 5%, etc? There is a lot of money sloshing around looking for somewhere to go. There's a rather epic pile of cash sitting on the sidelines at this point. I doubt that breaking point is as high as it was in the late 1990s, both because of the debt load in the economy being higher and markets being a lot more sensitive to rate hikes after nearly a decade of exceptionally low rates. More broadly, mortgage rates just hit a seven year high. That's going to start to slam the brakes on some economic activity as people re-adjust to more expensive borrowing costs. It'll soon climb well over a 5% average for the 30 year fixed at the rate the Fed is hiking. That's cheap vs the 1980s, however consumers have been spoiled. On the affordability upside, it'll start restraining house price increases. Corporations are fairly well loaded up with debt. That's all going to start getting more expensive. The increase in interest costs over time will to a modest degree eat into some of the profitability gains the corporate tax cut delivered. Fortunately for US corporations, their profitability is also at an all-time high, if they're smart about it at all they can trim back debt as it gets more expensive (we'll see, I'd expect a mixed bag of behavior).
anon49124 8y ago
Stupid^3. When (not if) the dollar is dropped, within a decade, as the de-facto intl currency, the American economy, combined with the insane and unsustainable public and private debt, will tank like nothing before. http://www.usdebtclock.org/ http://www.usdebtclock.org/
- hemantv 8y ago
  This combined with student loan debt is disaster in making https://goodlyapp.com/clock https://goodlyapp.com/clock
  - ceejayoz 8y ago
    If I'm Googling correctly, there's $1.5 trillion in US student loan debt right now. We spent about that on the F-35 thus far, and it's only an extra year and a half of the current annual deficit to pay it off entirely. Or, to put it another way, wiping out all student debt in the US would increase the national debt about 7%. Hardly catastrophic sounding.
    - gizmo686 8y ago
      There is a major moral hazard in just canceling student debt. Unless it comes along with serious reform of higher education financing, the problem is just going to come back much worse because, not only did we not resolve the original cause of the problem, but now borrowers think that their debt will be erased if they wait long enough.
      - ceejayoz 8y ago
        Maybe you're fixing the wrong moral hazard. Maybe forcing people into debt to pay for a necessary education is the moral hazard, and we could pay off that debt and publicly fund secondary education like most of the rest of the developed world already does.
  - 013a 8y ago
    Student Debt is a weird one. The purpose of all debt is to act as an investment to increase net productivity for the borrower at a rate higher than the interest rate. When phrased like that, you realize there is literally no debt an individual could possibly take out which offers a higher return on investment than student debt. For example, lets say you take out $60k @ 4% and plan to pay it off over 20 years. You'd pay $27k in interest. But if that enables you to upgrade from a $40k/year job to a $70k/year job, you've literally paid for the interest in the first year. The reason it gets complicated is because not everyone invests their student debt as well as they could. So not everyone sees a rate of return like that. Lets say we solve that by allowing student debt to be subject to default; sounds like an interesting idea because banks would make smarter investments. That means investing in students who take traditionally high-earning degrees (STEM?) and students who have a good academic history. Uh oh. Now this doesn't sound so good. We'd probably see discrimination against lower income students because they statistically show poorer academic success in high school, discrimination against poorer performing schools, centralization of students into high performing schools causing wait lists and overcrowding, discrimination against liberal arts and low-performing degrees, the list goes on. This probably isn't a better world we've created. The big things schools need to fix is overwhelming growth in administrative costs. I don't think that problem is in student debt itself and as a concept, but where the problem actually lies doesn't have an easy answer.
PhilWright 8y ago
Forgive a related question, but I have never understood why quantitively easing was used to get demand into the economy by buying back bonds. Surely the money will just get reinvested in stocks or other bonds and not stimulate demand? Buy back a rich persons Ferrari and they just go and buy a Bently instead. Why not do the obvious, which is to give every adult some free money each month? Most people are not rich and so most of it gets spent very quickly on goods/service? I live in Australia and this happened back in 2008 to stave off a recession. I remember twice getting cash in the bank account without having to do anything! I am not an economist so forgive me if this is a banal question.
- toomuchtodo 8y ago
  > Why not do the obvious, which is to give every adult some free money each month? The federal reserve isn't equipped to do this; the federal government would need to do it (as it has before using the IRS to distribute stimulus checks). The federal reserve is equipped to buy up as many bonds as necessary to put a floor under assets. EDIT: Could the federal reserve assume an aggressive policy posture and expand out of its swim lane in creative ways [1]? Sure, but it hasn't shown the initiative to do that. [1] https://www.marketwatch.com/story/fed-should-forget-about-its-own-cryptocurrency-and-instead-create-electronic-bank-accounts-for-everyone-2018-04-30 https://www.marketwatch.com/story/fed-should-forget-about-it... (Federal Reserve should give everyone checking accounts, new study says)
  - PhilWright 8y ago
    Thanks.
- dangrossman 8y ago
  They did just that. In 2009 the US government sent out "stimulus checks" to nearly every household.
- sanxiyn 8y ago
  I think Australia's 2008 cash handout was a good try. On the other hand, post-handout analysis suggests cash handout was not spent. It was saved instead. Stimulating Savings: An Analysis of Cash Handouts in Australia and the United States. http://press-files.anu.edu.au/downloads/press/p269601/pdf/stimulating.pdf http://press-files.anu.edu.au/downloads/press/p269601/pdf/st...
nabla9 8y ago
US government is implementing pro-cyclical fiscal policy – throwing more money into already heated economy. Of course Fed should attempt to suck at least some of that excess out of the system.
NTDF9 8y ago
Does anyone know why the FED has to keep manipulating the supply of money? Let's say we have a very responsible government which taxes well, reinvests well in productive work, private markets that operate smoothly, why does the FED have to step in periodically to raise/lower interest rates (outside of very bad circumstances). Another way of asking this question is, "What is a neutral rate?" or "What is an economy in equilibrium?"
- DSingularity 8y ago
  Because economies tend to get carried away. The fed comes in to pump the breaks by lowering/raising interest rates.
  - NTDF9 8y ago
    Why can't the government do that with structural changes? What is the role of the money supplier?
    - klodolph 8y ago
      Since we have fiat currency we must therefore have monetary policy. We can either adjust our monetary policy in response to changes in the economy or we can nail it to a peg and hope that it works.
- srgseg 8y ago
  It's important for the US dollar to maintain reasonably constant and predictable purchasing power from year to year. This is part of their dual mandate. Their target is just under 2% inflation per year, as measured by the Core-PCE index. If the dollar didn't have reasonably constant and predictable purchasing power, people would be afraid either to issue or to take out loans denominated in USD. Manipulating the supply of the dollar via interest rate adjustments, along with open market operations, is how the Fed attempts to control inflation.
- Nasrudith 8y ago
  In terms of Fed policy it means they are neither focusing on restraining inflation (and thus economic growth) with high rates nor promoting growth (and thus inflation) with low rates. Equilibrium means that they don't need to intervene for either problem right now - and both have proven to be problems to be avoided.
calimac 8y ago
When are we going to actually make the Fed history known to the man stream of Americans. Understand the players that built the Fed and read the book on the Fed by G Edward Griffin "Creature from Jekyll Island" Or listen to him give a talk about it here. https://www.youtube.com/watch?v=lu_VqX6J93k https://www.youtube.com/watch?v=lu_VqX6J93k just one of many copies online: https://archive.org/details/TheCreatureFromJekyllIslandByG.EdwardGriffin/page/n13 https://archive.org/details/TheCreatureFromJekyllIslandByG.E...
apo 8y ago
What's "loco" is not the tightening now underway, but the super-lax monetary policy that preceded it for many years. The Fed kept short-term rates close to zero for nearly a decade. Longer terms rates were negative for many years. All of the world's central banks joined in the orgy of money creation. The Fed's balance sheet (assets bought by conjuring money) ballooned 4x in the same time: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... This Fed will now face unprecedented political pressure to reverse its course of monetary tightening and balance sheet unwinding. The President will almost certainly lose an election held during a recession. But reversing course is going to be very difficult, given the sharp and sustained rise in inflation over the last few years: https://stats.bls.gov/regions/mid-atlantic/data/consumerpriceindexhistorical_us_table.htm https://stats.bls.gov/regions/mid-atlantic/data/consumerpric... Oddly enough, it looks like the President has the legal authority to fire the entire reserve board if he so chooses: Upon the expiration of the term of any appointive member of the Federal Reserve Board in office on the date of enactment of the Banking Act of 1935, the President shall fix the term of the successor to such member at not to exceed fourteen years, as designated by the President at the time of nomination, but in such manner as to provide for the expiration of the term of not more than one member in any two-year period, and thereafter each member shall hold office for a term of fourteen years from the expiration of the term of his predecessor, unless sooner removed for cause by the President. https://www.federalreserve.gov/aboutthefed/section10.htm https://www.federalreserve.gov/aboutthefed/section10.htm Never before in the modern history of US banking has there been a President with so much drive to kick convention to the curb, nor a Federal Reserve that has painted itself into such a small corner. If I were a gambler, though, I'd bet on the President. One way or another, the Fed will be forced to reverse its balance sheet unwinding and short term interest rate increase campaign.
- nopinsight 8y ago
  This article says that the President cannot fire Fed Governor at will or because of policy disagreement. https://www.marketwatch.com/story/why-trump-cant-fire-powell-for-disagreement-over-monetary-policy-2018-10-11 https://www.marketwatch.com/story/why-trump-cant-fire-powell... "The law goes back to the 1940s when President Franklin Roosevelt removed a member of the Federal Trade Commission and cited as a reason their divergent views of public policy. The Supreme Court unanimously reversed the firing, saying executives of independent agencies cannot be removed in their term of office except for cause. These agencies “must be free from executive control,” the court ruled." I would be interested to learn more so it would be great if someone has more info to share.
qwerty456127 8y ago
BTW can somebody share a link to where can I download historical data on the interest rates of all the major countries central banks (FED, BOE, ECB, BOJ, RBA, SNB etc)? BOE is the easiest, FED is not hard but for the majority of the rest finding the historical rate datasheets seems not really easy.
- lbotos 8y ago
  a start: https://www.global-rates.com/interest-rates/central-banks/central-banks.aspx https://www.global-rates.com/interest-rates/central-banks/ce...
  - qwerty456127 8y ago
    Thanks. I know this site but it has (or I just can't find where are the full lists there) really short lists - just 10 last rate changes for every country.
hindsightbias 8y ago
Paul McCulley, the guy who called the housing bubble and liquidity trap first, had this to say (18 months ago): McSquared - The Coming War between Trump & The Fed: https://www.youtube.com/watch?v=xnYZwxzxd9Y https://www.youtube.com/watch?v=xnYZwxzxd9Y
purplezooey 8y ago
This doesn't do anything to address the new Gilded Age we're entering.
WouterZ 8y ago
Lack of inflation is not easily understood through the lens of individuals. Better to look at the fractional reserve system. The Fed creates money (M0), a lot of it in the shape of quantitative easing. But it was offsetting the deleveraging banks (reduction in M, M2 and M3). M0 = cash, M1= M0+ short-term instruments, M2= M1 + medium-term, M3 = M2 + long-term stuff /mortgages. Even now, banks are less leveraged due to more stringent capital requirements (think Basel accords). Translation to inflation is tricky. It's about demans vs. supply at its fundamentals - too much supply them you introduce inflation. Since banks can create money, supply is governed by M1,M2,M3 depending on the horizon. Demand is the economy which looks to be booming. Plus in the case of the US, the dollar is still the global reserve currency. So we have China, developing countries wanting more dollars. And the world still uses it as a vehicle currency, trade in brent oil is in dollars. And we have inflation expectations - which is why the Fed is independent. And Trump should be quiet. The Fed will target 2%, thus we expect it to be 2%.

116 points by petethomas 8y ago

They pretty much have to. With big tax cuts and trillion-dollar deficits during a boom time, we're not leaving much in the quiver to use in an economic downturn.

cft 8y ago
How about using the money allocated for rising interest to pay off some of the trillion debts instead? PS. Whoever downvoted this, it was an opinion of Ray Dalio who founded Bridgewater Associates, the largest hedge fund in the world: https://youtu.be/5C43i3yclec https://youtu.be/5C43i3yclec This new HN trend of downvoting without an argument finally got to me. I quit.
- deleted 8y ago
  [deleted]
- Latteland 8y ago
  Even better, tax really rich people who don't need tax cuts. Poor people will spend any more money they got, and we have a consumer driven economy. We should help poor people, not overpaid software engineers like me.
  - freewilly1040 8y ago
    You’ll need a different congress for that
    - deleted 8y ago
      [deleted]
    - tjr225 8y ago
      Maybe, just maybe, we will get one.
  - mohammedbin 8y ago
    You are free to send IRS a bigger check. What's that? You won't do it unless everybody has to? That's just an excuse.
  - anon49124 8y ago
    91% for millionaires, like the good ol' days.
    - briandear 8y ago
      False. https://mises.org/library/good-ol-days-when-tax-rates-were-90-percent https://mises.org/library/good-ol-days-when-tax-rates-were-9...
      - ceejayoz 8y ago
        If we're throwing clearly partisan sources around: Sort-of. http://www.slate.com/blogs/moneybox/2017/08/07/the_history_of_tax_rates_for_the_rich.html http://www.slate.com/blogs/moneybox/2017/08/07/the_history_o... For a less partisan source, with a neat "pick your income" chart that illustrates the flaws in the Mises argument for sky-high incomes (try anything over ~$500k/year), https://qz.com/74271/income-tax-rates-since-1913/ https://qz.com/74271/income-tax-rates-since-1913/
    - refurb 8y ago
      The percentage of all taxes paid by the top 10% hasn’t really changed over the past century. Despite have marginal rates >70%, very few people ever paid them.
      - ceejayoz 8y ago
        True for the top 10%. Put in the top 1% (~$500k), though, on the effective tax rate chart at https://qz.com/74271/income-tax-rates-since-1913/ https://qz.com/74271/income-tax-rates-since-1913/ and you'll see it has dropped significantly for that population (by about half) since about 1980.
  - briandear 8y ago
    Speak for yourself. I am not overpaid. I get paid exactly what the market for my skills is willing to pay. $15 per hour for a teenager to sweep floors — now that’s being overpaid. If you think you are undertaxed, there is a solution: https://www.treasurydirect.gov/govt/reports/pd/gift/gift.htm https://www.treasurydirect.gov/govt/reports/pd/gift/gift.htm In 2018, just over $700,000 has been donated. So clearly all of us “overpaid” people don’t really care. I pay taxes for public transit I don’t use, public schools my kids don’t attend, healthcare I don’t consume, wars I didn’t ask for, bridges in places I’ll never go. I subsidize food for people I’ll never meet, housing, universal service fees; I pay sales taxes on everything, excise taxes created to pay for a war almost 100 years before I was born, subsidies to farmers, oil, green energy — we pay for all of this stuff. I am on with paying taxes, but dammit, I pay enough already. Over half of everything I earn goes to pay for government. I even had to pay US taxes when I didn’t even live in the US. I understand taxes are necessary; but it’s not fair that I work 1 day for the government for every 1 day I work for myself. It doesn’t matter how much I get paid, what matters is that half of everything I do goes to taxes. I worked very hard to get to where I am — that ought not result in being punished for it. I consume just as much “government” as the guy standing next to me; why should I have to pay more than him?
    - deleted 8y ago
      [deleted]
    - Latteland 8y ago
      I am paid what the market allows also. I pay tons and tons of taxes too! But it's not better for society if people like me get together and take over the government via regulatory capture and get lower taxes just for us (like paying all the senators to do things we like via campaign contributions and. hiring them when they retire). How much taxes do you think you should pay? Less than everyone else? What if your kids or your nephews say, aren't quite as fortunate as you are, they are sweeping the floor somewhere, and they get sick or in a car accident? Should they just die, or depend on the kindness of strangers or a rich aunt? I think we should take care of the poor, the kids who weren't lucky enough to be born to someone who was rich or a programmer (I was lucky and born to two college graduates, and one was even a programmer :-)).
  - refurb 8y ago
    The top 10% (many people in HN are in this group, it’s $130k+) already pay 70-80% of all income taxes. How much higher do you think that number should be?
    - ceejayoz 8y ago
      "The top 10% pay 70% of income taxes" sounds scary until you remember they also control 75% of the wealth in the country.
- heylook 8y ago
  What?
- PacifyFish 8y ago
  Why does money need to be allocated for rising interest?
  - cft 8y ago
    Because the increasing interest on government issued paper needs to be paid by the government
- ceejayoz 8y ago
  https://www.nytimes.com/2018/01/10/business/fed-profits-treasury-2017.html https://www.nytimes.com/2018/01/10/business/fed-profits-trea... > The interest that the Fed collects on its investments is paid by the federal government, and then returned to the government. But this wash cycle still saves money because those interest payments would otherwise be made to the outside investors who would have purchased the bonds. > “It’s interest that the Treasury didn’t have to pay to the Chinese,” Ben S. Bernanke, then the Fed’s chairman, told Congress back in 2011, when the annual windfalls were still new and surprising.
- jahewson 8y ago
  That’s actually happening. The increase in interest paid on Treasury bills is being used by the Fed to help pay down the $4 trillion in quantitive easing debt they hold.
  - credit_guy 8y ago
    Huh? Who is paying that interest? To whom?
    - justsayinstuff 8y ago
      Maybe I misunderstand something here, but the debt is of the US govt to the Fed. Rising interest that the Fed collects is the Fed's not the US govt's... That's like asking Citibank to allocate the interest it collected on me to my credit card balance...
      - jahewson 8y ago
        No, the debt I’m talking about is the Fed’s own. They leant fictitious money to themselves (quantitive easing). It’s included in the public debt, but it’s not a literal debt of the U.S. government, which a is separate, massive debt.
    - jahewson 8y ago
      Anyone who buys Treasury bills is paying that interest to the Fed. So banks, pension funds, social security, etc. The Fed’s debt is made up of (other) Treasury bills which it purchased during QE using “printed” money. If this makes your head spin, then you’ve probably understood it correctly.
      - taysic 8y ago
        So are you saying that if the Fed prints $x money, it gets back $x money + interest. It is using the interest to pay back the $x money... and then in theory it erases it from its balance sheet. What does it do with the excess money it collects?
anon49124 8y ago
Decatrillion dollar deficits.
- deleted 8y ago
  [deleted]
briandear 8y ago
You mention tax cuts and deficits — isn’t spending equally to blame? Why is cutting government spending viewed by some as not an option? Those who oppose the tax cuts almost never suggest cutting entitlement spending which is the largest percentage of the federal budget — 56% of all federal outlays are from mandatory entitlements. That’s far more significant than any tax cut effects. Besides, even after the tax cuts, the government has collected record revenues this year. We are collecting plenty in taxes — but we are spending it wrong. Here is a list of some of the more ridiculous expenditures: https://www.dailywire.com/news/12309/9-ridiculous-things-government-wasted-money-year-aaron-bandler https://www.dailywire.com/news/12309/9-ridiculous-things-gov...
- selectodude 8y ago
  Because a huge number of the voters that demand lower taxes are on the dole.
- Naga 8y ago
  Deficits implies spending, as a deficit occurs when spending is greater than receipts.
- gizmo686 8y ago
  The general economic principle in play is that the government should act counter-cyclically. That is, it should tax high and spend low during good years, then tax low and spend high during bad years. What the government spends the money on is not particuarly relevent [0]. Hiring an army to fill in ditches that your other army digs would serve this purpose just fine. If you are able to spend this money doing productive work, that is a plus; but not particularly relevant to the core economics. Of course, the problem with this economic philosophy is that it can be difficult to implement given political constraints. During bad years, there is a sense that the government needs to tighten its bootstraps, and during good years there is a sense that the government has the money to invest. While this is a good philosophy for household budgeting, it just turns the government into a pro-cyclic actor, which is the opposite of what we want. [0] As long as the money makes it throughout the economy that is.
- adventured 8y ago

deleted 8y ago

[deleted]

anonu 8y ago

The Fed is notoriously independent and cannot appear to be influenced by the President. So if Trump comes out and tells the Fed to put a pause on rate hikes... Well... It's enough reason to turn a "no hike" vote into a "hike" one...

1123581321 8y ago
What is this based on? I tried correlating decisions with presidential remarks advising the opposite, but I’m having trouble finding and dating the presidential quotes.
- Donald 8y ago
  You won't find the quotes from US Presidents (present excluded). Heads of state who comment harshly on reserve bank decisions are typically met with steepening rates enforced by the sovereign debt market's perception of higher credit risk.

RyanShook 8y ago

We’ve been in a low rate environment for almost a decade. Rates need to rise but it needs to happen more slowly. Just because the fed has been warning everyone it’s coming doesn’t mean the market is ready for it.

sanxiyn 8y ago
But that's market's fault, isn't it? The Fed is responsible for entire economy, not just stock market.
- dlor 8y ago
  Exactly! Waiting would just be the Fed preferring slower movers to faster ones.
dlor 8y ago
What does that even mean though? The market is supposed to represent something close to the "correct" state of things, based on public knowledge. Given the warnings, how long should it take to "get ready"? And should the Fed "wait for it to be ready"?
thoughtexplorer 8y ago
> Rates need to rise but it needs to happen more slowly. How do you know? Serious question: Would anyone realistically have a better idea than the fed about that?
- dlor 8y ago
  I tend to agree here. Any tolerance for "slowness" is anti-free-market. I don't necessarily think completely free markets are optimal, but I can't see a reasonable argument for slower being better than faster in general.
- fiter 8y ago
  Does the Fed have some privileged information that everyone else does not?
8y ago

zaroth 8y ago

There seems to be significant disagreement over how robust this recovery is. It’s hard to separate out political posturing from rational economic argument, but the macro indicators certainly seem powerfully positive. People can’t seem to figure out why inflation is so low with employment so high. The Fed is doing what they do when unemployment drops this low, despite the fact that inflation isn’t knocking at the door. It seems like the best assessment is that as long as the macro indicators stay strong, we might as well dry out some powder for a rainy day. But I personally worry about knocking the legs out from under the strongest bull cycle we’ve ever seen when the next few years seem poised to deliver very strong gains, particularly to disadvantaged populations which are the hardest to bring into full employment, and for whom better paying jobs are life changing.

gnarbarian 8y ago
well, for better or worse Fed rate hikes have less of an affect on the money supply when banks can loan each other money more cheaply than getting it from the FED (ICE LIBOR [1]). But regardless of the money multiplier, raising rates does still have a negative impact on market outlook and optimism. Not too much to worry about probably. unless you are looking to buy or sell a house with a low down payment. 1 https://en.wikipedia.org/wiki/Libor https://en.wikipedia.org/wiki/Libor
cinquemb 8y ago
> People can’t seem to figure out why inflation is so low with employment so high. Probably because of the methodical changes that have happened to how employment is calculated post 2009 compared to before…
- swampthinker 8y ago
  Could you elaborate on this? I'm not familiar with the changes made.
  - cinquemb 8y ago
    Take the time to read through the posts here[0] and you'll see. [0] https://www.alhambrapartners.com/category/markets/ https://www.alhambrapartners.com/category/markets/

deleted 8y ago

[deleted]

rukittenme 8y ago

On the plus side, higher rates means lower assets prices and greater wage growth.

NTDF9 8y ago
How is wage growth getting higher because of higher rates?

Alex3917 8y ago

So will this force all the tech companies that have been raising huge amounts of capital in the private markets to finally go public?

dev_dull 8y ago
Or, perhaps, go under.
adventured 8y ago
The question is the point where rates start to cause serious valuation deflation. Is that very near? Is it 3%, 4%, 5%, etc? There is a lot of money sloshing around looking for somewhere to go. There's a rather epic pile of cash sitting on the sidelines at this point. I doubt that breaking point is as high as it was in the late 1990s, both because of the debt load in the economy being higher and markets being a lot more sensitive to rate hikes after nearly a decade of exceptionally low rates. More broadly, mortgage rates just hit a seven year high. That's going to start to slam the brakes on some economic activity as people re-adjust to more expensive borrowing costs. It'll soon climb well over a 5% average for the 30 year fixed at the rate the Fed is hiking. That's cheap vs the 1980s, however consumers have been spoiled. On the affordability upside, it'll start restraining house price increases. Corporations are fairly well loaded up with debt. That's all going to start getting more expensive. The increase in interest costs over time will to a modest degree eat into some of the profitability gains the corporate tax cut delivered. Fortunately for US corporations, their profitability is also at an all-time high, if they're smart about it at all they can trim back debt as it gets more expensive (we'll see, I'd expect a mixed bag of behavior).

anon49124 8y ago

Stupid^3. When (not if) the dollar is dropped, within a decade, as the de-facto intl currency, the American economy, combined with the insane and unsustainable public and private debt, will tank like nothing before. http://www.usdebtclock.org/ http://www.usdebtclock.org/

hemantv 8y ago
This combined with student loan debt is disaster in making https://goodlyapp.com/clock https://goodlyapp.com/clock
- ceejayoz 8y ago
  If I'm Googling correctly, there's $1.5 trillion in US student loan debt right now. We spent about that on the F-35 thus far, and it's only an extra year and a half of the current annual deficit to pay it off entirely. Or, to put it another way, wiping out all student debt in the US would increase the national debt about 7%. Hardly catastrophic sounding.
  - gizmo686 8y ago
    There is a major moral hazard in just canceling student debt. Unless it comes along with serious reform of higher education financing, the problem is just going to come back much worse because, not only did we not resolve the original cause of the problem, but now borrowers think that their debt will be erased if they wait long enough.
    - ceejayoz 8y ago
      Maybe you're fixing the wrong moral hazard. Maybe forcing people into debt to pay for a necessary education is the moral hazard, and we could pay off that debt and publicly fund secondary education like most of the rest of the developed world already does.
- 013a 8y ago
  Student Debt is a weird one. The purpose of all debt is to act as an investment to increase net productivity for the borrower at a rate higher than the interest rate. When phrased like that, you realize there is literally no debt an individual could possibly take out which offers a higher return on investment than student debt. For example, lets say you take out $60k @ 4% and plan to pay it off over 20 years. You'd pay $27k in interest. But if that enables you to upgrade from a $40k/year job to a $70k/year job, you've literally paid for the interest in the first year. The reason it gets complicated is because not everyone invests their student debt as well as they could. So not everyone sees a rate of return like that. Lets say we solve that by allowing student debt to be subject to default; sounds like an interesting idea because banks would make smarter investments. That means investing in students who take traditionally high-earning degrees (STEM?) and students who have a good academic history. Uh oh. Now this doesn't sound so good. We'd probably see discrimination against lower income students because they statistically show poorer academic success in high school, discrimination against poorer performing schools, centralization of students into high performing schools causing wait lists and overcrowding, discrimination against liberal arts and low-performing degrees, the list goes on. This probably isn't a better world we've created. The big things schools need to fix is overwhelming growth in administrative costs. I don't think that problem is in student debt itself and as a concept, but where the problem actually lies doesn't have an easy answer.

PhilWright 8y ago

Forgive a related question, but I have never understood why quantitively easing was used to get demand into the economy by buying back bonds. Surely the money will just get reinvested in stocks or other bonds and not stimulate demand? Buy back a rich persons Ferrari and they just go and buy a Bently instead. Why not do the obvious, which is to give every adult some free money each month? Most people are not rich and so most of it gets spent very quickly on goods/service? I live in Australia and this happened back in 2008 to stave off a recession. I remember twice getting cash in the bank account without having to do anything! I am not an economist so forgive me if this is a banal question.

toomuchtodo 8y ago
> Why not do the obvious, which is to give every adult some free money each month? The federal reserve isn't equipped to do this; the federal government would need to do it (as it has before using the IRS to distribute stimulus checks). The federal reserve is equipped to buy up as many bonds as necessary to put a floor under assets. EDIT: Could the federal reserve assume an aggressive policy posture and expand out of its swim lane in creative ways [1]? Sure, but it hasn't shown the initiative to do that. [1] https://www.marketwatch.com/story/fed-should-forget-about-its-own-cryptocurrency-and-instead-create-electronic-bank-accounts-for-everyone-2018-04-30 https://www.marketwatch.com/story/fed-should-forget-about-it... (Federal Reserve should give everyone checking accounts, new study says)
- PhilWright 8y ago
  Thanks.
dangrossman 8y ago
They did just that. In 2009 the US government sent out "stimulus checks" to nearly every household.
sanxiyn 8y ago
I think Australia's 2008 cash handout was a good try. On the other hand, post-handout analysis suggests cash handout was not spent. It was saved instead. Stimulating Savings: An Analysis of Cash Handouts in Australia and the United States. http://press-files.anu.edu.au/downloads/press/p269601/pdf/stimulating.pdf http://press-files.anu.edu.au/downloads/press/p269601/pdf/st...

nabla9 8y ago

US government is implementing pro-cyclical fiscal policy – throwing more money into already heated economy. Of course Fed should attempt to suck at least some of that excess out of the system.

NTDF9 8y ago

Does anyone know why the FED has to keep manipulating the supply of money? Let's say we have a very responsible government which taxes well, reinvests well in productive work, private markets that operate smoothly, why does the FED have to step in periodically to raise/lower interest rates (outside of very bad circumstances). Another way of asking this question is, "What is a neutral rate?" or "What is an economy in equilibrium?"

DSingularity 8y ago
Because economies tend to get carried away. The fed comes in to pump the breaks by lowering/raising interest rates.
- NTDF9 8y ago
  Why can't the government do that with structural changes? What is the role of the money supplier?
  - klodolph 8y ago
    Since we have fiat currency we must therefore have monetary policy. We can either adjust our monetary policy in response to changes in the economy or we can nail it to a peg and hope that it works.
srgseg 8y ago
It's important for the US dollar to maintain reasonably constant and predictable purchasing power from year to year. This is part of their dual mandate. Their target is just under 2% inflation per year, as measured by the Core-PCE index. If the dollar didn't have reasonably constant and predictable purchasing power, people would be afraid either to issue or to take out loans denominated in USD. Manipulating the supply of the dollar via interest rate adjustments, along with open market operations, is how the Fed attempts to control inflation.
Nasrudith 8y ago
In terms of Fed policy it means they are neither focusing on restraining inflation (and thus economic growth) with high rates nor promoting growth (and thus inflation) with low rates. Equilibrium means that they don't need to intervene for either problem right now - and both have proven to be problems to be avoided.

calimac 8y ago

When are we going to actually make the Fed history known to the man stream of Americans. Understand the players that built the Fed and read the book on the Fed by G Edward Griffin "Creature from Jekyll Island" Or listen to him give a talk about it here. https://www.youtube.com/watch?v=lu_VqX6J93k https://www.youtube.com/watch?v=lu_VqX6J93k just one of many copies online: https://archive.org/details/TheCreatureFromJekyllIslandByG.EdwardGriffin/page/n13 https://archive.org/details/TheCreatureFromJekyllIslandByG.E...

apo 8y ago

What's "loco" is not the tightening now underway, but the super-lax monetary policy that preceded it for many years. The Fed kept short-term rates close to zero for nearly a decade. Longer terms rates were negative for many years. All of the world's central banks joined in the orgy of money creation. The Fed's balance sheet (assets bought by conjuring money) ballooned 4x in the same time: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... This Fed will now face unprecedented political pressure to reverse its course of monetary tightening and balance sheet unwinding. The President will almost certainly lose an election held during a recession. But reversing course is going to be very difficult, given the sharp and sustained rise in inflation over the last few years: https://stats.bls.gov/regions/mid-atlantic/data/consumerpriceindexhistorical_us_table.htm https://stats.bls.gov/regions/mid-atlantic/data/consumerpric... Oddly enough, it looks like the President has the legal authority to fire the entire reserve board if he so chooses: Upon the expiration of the term of any appointive member of the Federal Reserve Board in office on the date of enactment of the Banking Act of 1935, the President shall fix the term of the successor to such member at not to exceed fourteen years, as designated by the President at the time of nomination, but in such manner as to provide for the expiration of the term of not more than one member in any two-year period, and thereafter each member shall hold office for a term of fourteen years from the expiration of the term of his predecessor, unless sooner removed for cause by the President. https://www.federalreserve.gov/aboutthefed/section10.htm https://www.federalreserve.gov/aboutthefed/section10.htm Never before in the modern history of US banking has there been a President with so much drive to kick convention to the curb, nor a Federal Reserve that has painted itself into such a small corner. If I were a gambler, though, I'd bet on the President. One way or another, the Fed will be forced to reverse its balance sheet unwinding and short term interest rate increase campaign.

nopinsight 8y ago
This article says that the President cannot fire Fed Governor at will or because of policy disagreement. https://www.marketwatch.com/story/why-trump-cant-fire-powell-for-disagreement-over-monetary-policy-2018-10-11 https://www.marketwatch.com/story/why-trump-cant-fire-powell... "The law goes back to the 1940s when President Franklin Roosevelt removed a member of the Federal Trade Commission and cited as a reason their divergent views of public policy. The Supreme Court unanimously reversed the firing, saying executives of independent agencies cannot be removed in their term of office except for cause. These agencies “must be free from executive control,” the court ruled." I would be interested to learn more so it would be great if someone has more info to share.

qwerty456127 8y ago

BTW can somebody share a link to where can I download historical data on the interest rates of all the major countries central banks (FED, BOE, ECB, BOJ, RBA, SNB etc)? BOE is the easiest, FED is not hard but for the majority of the rest finding the historical rate datasheets seems not really easy.

lbotos 8y ago
a start: https://www.global-rates.com/interest-rates/central-banks/central-banks.aspx https://www.global-rates.com/interest-rates/central-banks/ce...
- qwerty456127 8y ago
  Thanks. I know this site but it has (or I just can't find where are the full lists there) really short lists - just 10 last rate changes for every country.

hindsightbias 8y ago

Paul McCulley, the guy who called the housing bubble and liquidity trap first, had this to say (18 months ago): McSquared - The Coming War between Trump & The Fed: https://www.youtube.com/watch?v=xnYZwxzxd9Y https://www.youtube.com/watch?v=xnYZwxzxd9Y

purplezooey 8y ago

This doesn't do anything to address the new Gilded Age we're entering.

WouterZ 8y ago

Lack of inflation is not easily understood through the lens of individuals. Better to look at the fractional reserve system. The Fed creates money (M0), a lot of it in the shape of quantitative easing. But it was offsetting the deleveraging banks (reduction in M, M2 and M3). M0 = cash, M1= M0+ short-term instruments, M2= M1 + medium-term, M3 = M2 + long-term stuff /mortgages. Even now, banks are less leveraged due to more stringent capital requirements (think Basel accords). Translation to inflation is tricky. It's about demans vs. supply at its fundamentals - too much supply them you introduce inflation. Since banks can create money, supply is governed by M1,M2,M3 depending on the horizon. Demand is the economy which looks to be booming. Plus in the case of the US, the dollar is still the global reserve currency. So we have China, developing countries wanting more dollars. And the world still uses it as a vehicle currency, trade in brent oil is in dollars. And we have inflation expectations - which is why the Fed is independent. And Trump should be quiet. The Fed will target 2%, thus we expect it to be 2%.