11 ms·

How was it miscalculated? We can't sit there and leave interests rates low forever. It's a mitigating tactic, not a tenable one. We've been doing this for _year

How was it miscalculated? We can't sit there and leave interests rates low forever. It's a mitigating tactic, not a tenable one. We've been doing this for _years_. It's long, long, long over due for fed interest rates to come back up. Because right now all it's really doing is building a credit bubble. Real wages and real purchasing power must keep going up. And for that to happen the upper 1% are going to have to take a nice hit for the economy to truly correct. Both effectively need to happen at the same time. The FED is essentially signalling to policy makers that the time to up minimum wage is... was, yesterday. I want to challenge you to really dive into your perspective and defend why you think the fed miscalculated here, and why you think leaving interest rates low isn't going to have extremely negative effects if we don't start changing course now. If not now, when?

pjc50 8y ago
> Real wages and real purchasing power must keep going up. Yes and yes - but how? The interest rate is only monetary policy, not fiscal. Traditionally, low rates were expansionary. Maybe we need lower rates?
- kadendogthing 8y ago
  Increasing minimum wage, and essentially workers across the board need to start demanding higher wages. Maybe if there was a way to band together and seek a unified compensation policy on a company/industry basis.
  - Dangeranger 8y ago
    Workers have been “demanding” higher wages for quite some time. I’m not sure why it would work any better this time. Outside of technology workers are still looked at as replaceable and expendable. I’m not sure what is going to break the ceiling in this climate.
    - craftyguy 8y ago
      > Outside of technology workers are still looked at as replaceable and expendable I know HN users tend to have 'high horse' syndrome, but this is incredibly naiive. There are plenty of skilled jobs where workers are not easily replaced/expended. Physicians, RNs, higher education teachers/professors, many jobs related to architecture design, construction, etc. > I’m not sure what is going to break the ceiling in this climate. There's been recent success in the old school technique of 'striking'.
      - kevin_thibedeau 8y ago
        Most of those jobs are being asked to do more work with less staffing so that profiteers at the top can take a bigger cut.
      - tw04 8y ago
        >There's been recent success in the old school technique of 'striking'. All of those skilled jobs you speak of are full of people who don't understand what good a union does. Literally complaining that a union is worthless while reaping the benefits and job stability that only a union can provide. I don't know if it's a matter of education or if people are really just going to have to experience for themselves how horrible the working world is/will become when there are no unions to protect them...
        mruts 8y ago
        The market protects those who produce value. Unions are only of use to people who fail to produce increasing value and want to be paid for their stagnation.
        tw04 8y ago
        >The market protects those who produce value. This is a ridiculously juvenile view of how the world works. You need not look further than insert fortune 500 company who lays off highly paid sr. technical staff and replace them with jr. Claiming they provide no value to the company is asinine.
  - wyldfire 8y ago
    > Maybe if there was a way to band together and seek a unified compensation policy on a company/industry basis. I don't think the problem is that people haven't considered unionizing, nor because of constraints put on union due collection. Productivity up, population up. That will have an impact on wages for sure.
  - Frondo 8y ago
    Parent is talking about unions, people, and it's a good idea. There's no more effective way for labor to throw its weight around than collectivizing in bite-sized (i.e. company-sized) bargaining units; history tells us this is so and evidence gives us no reason to think it won't work again. They're not perfect (no democratic organization is), but the only thing more corrupt than a union is management.
    - normal_man 8y ago
      During the shutdown, the administration was more than happy to compromise security by letting TSA employees go unpaid. Once workers started striking and airports started shutting down? Immediate response. There is power in a union.
      - Frondo 8y ago
        I don't know why your comment's downvotes into gray, striking has gotten serious results several times already this year. Taft-Hartley banned wildcat strikes, but I think if we saw more of those (despite their present-day illegality) we'd see a ton more actions favorable to workers taking place. Of course, we should roll back the labor-hostile parts of Taft-Hartley (like the bans on wildcat strikes and the restrictions on speech surrounding union organizing), but that'll take more time.
  - logfromblammo 8y ago
    For a moment, it seemed like maybe you were suggesting... a union.~ That might have worked 15 years ago, but I think it's going to take unions and government, working along near-parallel vectors, to bring the economy back into a sustainable power-balance among its various institutions. Corporate management and moneyed elites have erected a nice little fortress full of positive feedback loops for themselves, and have been steadily plugging the holes in it for 40 solid years now. They're working on mindless, robotic slave labor in an effort to defeat the labor unions forever, but they're also still relatively open to attack by government, as buying it off with corruption has so far been sufficient to keep it at bay.
- slowhand09 8y ago
  Thinking out loud here... for real wages to go up, real prices for services and goods must go up, else companies go out of business. Rising interest rates discourage companies from making capital purchases on credit (which they all do). To service higher debt, companies need to raise prices for services and goods. Which reduces purchasing power... And people who miss basic economic understanding scream for higher real wages and increases in purchasing power. On another note, are student loans typically fixed or variable interest rates?
  - kadendogthing 8y ago
    >real prices for services and goods must go up, else companies go out of business. That's not true at all. There is no dataset that supports this position. And we have data against it. Mainly every time we've forcefully increased the minimum wage.
  - ABCLAW 8y ago
    Are we assuming that margins don't exist and returns on invested capital are fixed for this thought experiment?
djyaz1200 8y ago
"We can't sit there and leave interests rates low forever" ...says who? What force dictates that the equilibrium for rates must be higher? Yes that's historically been the case but that doesn't mean that's the right path for us now and in the future. I would argue that low interest rates will be and need to be the new normal. Interest is the ultimate rent seeking activity. The fed funds rate is a form of price fixing for banks whereby they collectively decide how much interest they can extract from the economy without killing it. Why must this be the case, the economy should be allowed to run much hotter for much longer. Inflation is less of a risk now because of technology + globalization, right now we are experiencing significant deflationary pressure as products and labor converge towards global pricing/wages. Our economy and government will be in very serious trouble if we have to pay higher interest on our significant national debt, so the government has a big interest (pun intended) in keeping rates low to protect its own financial solvency. Finally, high interest rates imply money is scarce and that's far from the case now. Having large sums of money is not what it used to be, you're competing against a lot of other people and organizations seeking to deploy that money productively for a return. This generates downward pressure on market interest rates as evidenced by European Central banks going below zero to negative rates.
- kadendogthing 8y ago
  >What force dictates that the equilibrium for rates must be higher? Because that violates a big part of the dual mandate of the federal reserve. Lowering interest rates indefinitely makes borrowing money super easy, and you essentially cause a credit cascade. At certain levels, borrowing money means the fed is able to print more money. But if no one can really pay that money back, that bubble pops. And if you keep lowering interest rates to correct for that you'll get inflation. Lots of inflation. To the point where the money becomes useless. >Inflation is less of a risk now because of technology + globalization I have quite literally never heard this thought before, and at face value it doesn't make a lick of sense. you can't just vaguely pay lipservice to two very broad terms and act like it's going to make inflation irrelevant? What? >Finally, high interest rates imply money is scarce and that's far from the case now. No it means that the economy shouldn't/isn't/can't really borrow more. The first one tends to be the primary reason for increasing interest rates. You can't just keep borrowing indefinitely. Because again, that makes money useless. We're already in a bit of a pickle at the moment. And we're seeing signs that the economy is starting to slip -- but we can still reverse and put an end to these signs. Consumer and corporate credit is at an all time high. Just last quarter, the number of people that are delinquent on their car loans spiked. Car payments are something people typically let slip during a financial squeeze, because it's hard for the bank to recoup it in a timely manner. But not paying your credit card or electric bill, those kind of services get shut off immediately. Lower interest rates allowed the current credit spike we're seeing. But at some point it has to be paid back. But if people don't have the real wages to pay back those loans AND keep spending money, you're going to see a squeeze on the service sector. And that's not going to be good for the American economy.
AnimalMuppet 8y ago
> We can't sit there and leave interests rates low forever. I very much agree on this. To me, it seems like the Fed left rates too low for too long coming out of the recession in 2000, which set up the bubble of 2008. They don't want to do it again. And when 2008 hit, they wound up against the "zero bound" of interest rates, where they couldn't lower any further, and they don't want to do that again, either. If they want some distance away from the zero bound, they have to raise rates sometime. "But we can't raise them now! The economy is too fragile!" Yeah, we've been hearing that for a decade. And, as the parent said, we can't sit there and leave interest rates low forever.
- amanaplanacanal 8y ago
  I agree. Looking at the overall inflation rate as a guide to monetary policy is misguided. There is nothing that says that inflation has to be widely spread, rather than just concentrated in smaller segments as we saw in the bubble you mention. If you keep inflating the balloon, it's going to bulge out somewhere. And last time was bad.
- TearsInTheRain 8y ago
  Yellin promised us 4 rate hikes in 2016 and only did one. And it came after the election. Huge blunder imho.
- throwaway34241 8y ago
  Just because we've been hearing it for a decade, doesn't mean it can't be true. Japan has been in a low interest rate environment for even longer and their economy isn't exactly overheating. Maybe low interest rates are the new normal, they've been on an overall downward path for decades so it's not entirely a recent thing. I don't really get raising interest rates to have more ammunition in a recession either. Sure, you have more room to cut later, but raising interest rates itself slows the economy down. Unless the stimulating power you get from cutting is more than slowing effect from raising, it doesn't seem like it gets you anywhere, since you're just digging a deeper hole that you need to get out of. It's another thing if it's in conjunction with fiscal policy (looser fiscal policy, which then leads to raising rates, after which there's more room to cut in a recession). But then I think that's mainly an argument for having different fiscal policy and not just about raising rates. Central bankers seem to be aware that not being able to lower interest rates is going to be problematic in the next recession (along with diminished QE effectiveness etc.). They aren't completely out of options to fight deflation (there's always helicopter money etc.) but we do seem to be in uncharted territory.
stale2002 8y ago
> We can't sit there and leave interests rates low forever. Well, then can sit there for as long as we aren't seeing the negative effects of low interest rates. IE, inflation. Which we aren't seeing. > If not now, when? When inflation starts happening. That's when. But that is not happening now, so we are good. It's really that simple. The whole point of raising inflation rates is to prevent high inflation. But if there isn't any high inflation then there isn't any problem!
mruts 8y ago
The problem is that markets are so overtuned nowadays. Every trader is just hanging on to every last dot of the fed. The fed should have raised rates a long time ago. Like, rates in the 70s used to be around 20%. And now, the fed doesn’t have the balls to raise it 500 bips. It’s ridiculous.
opo 8y ago
>...The FED is essentially signalling to policy makers that the time to up minimum wage is... was, yesterday. I don't think there is any evidence at all that the Fed raising (or not raising) the interest rates is an attempt to dictate the minimum wage level. The Fed's mandate from Congress is to aim for three goals: "...maximum sustainable employment, stable prices, and moderate long-term interest rates." https://www.federalreserve.gov/faqs/what-economic-goals-does-federal-reserve-seek-to-achieve-through-monetary-policy.htm https://www.federalreserve.gov/faqs/what-economic-goals-does... Let's not use Fed policy in trying to achieve their mandates as a pretext for some other policy someone wants to promote.

pjc50 8y ago

> Real wages and real purchasing power must keep going up. Yes and yes - but how? The interest rate is only monetary policy, not fiscal. Traditionally, low rates were expansionary. Maybe we need lower rates?

kadendogthing 8y ago
Increasing minimum wage, and essentially workers across the board need to start demanding higher wages. Maybe if there was a way to band together and seek a unified compensation policy on a company/industry basis.
- Dangeranger 8y ago
  Workers have been “demanding” higher wages for quite some time. I’m not sure why it would work any better this time. Outside of technology workers are still looked at as replaceable and expendable. I’m not sure what is going to break the ceiling in this climate.
  - craftyguy 8y ago
    > Outside of technology workers are still looked at as replaceable and expendable I know HN users tend to have 'high horse' syndrome, but this is incredibly naiive. There are plenty of skilled jobs where workers are not easily replaced/expended. Physicians, RNs, higher education teachers/professors, many jobs related to architecture design, construction, etc. > I’m not sure what is going to break the ceiling in this climate. There's been recent success in the old school technique of 'striking'.
    - kevin_thibedeau 8y ago
      Most of those jobs are being asked to do more work with less staffing so that profiteers at the top can take a bigger cut.
    - tw04 8y ago
      >There's been recent success in the old school technique of 'striking'. All of those skilled jobs you speak of are full of people who don't understand what good a union does. Literally complaining that a union is worthless while reaping the benefits and job stability that only a union can provide. I don't know if it's a matter of education or if people are really just going to have to experience for themselves how horrible the working world is/will become when there are no unions to protect them...
      - mruts 8y ago
        The market protects those who produce value. Unions are only of use to people who fail to produce increasing value and want to be paid for their stagnation.
        tw04 8y ago
        >The market protects those who produce value. This is a ridiculously juvenile view of how the world works. You need not look further than insert fortune 500 company who lays off highly paid sr. technical staff and replace them with jr. Claiming they provide no value to the company is asinine.
- wyldfire 8y ago
  > Maybe if there was a way to band together and seek a unified compensation policy on a company/industry basis. I don't think the problem is that people haven't considered unionizing, nor because of constraints put on union due collection. Productivity up, population up. That will have an impact on wages for sure.
- Frondo 8y ago
  Parent is talking about unions, people, and it's a good idea. There's no more effective way for labor to throw its weight around than collectivizing in bite-sized (i.e. company-sized) bargaining units; history tells us this is so and evidence gives us no reason to think it won't work again. They're not perfect (no democratic organization is), but the only thing more corrupt than a union is management.
  - normal_man 8y ago
    During the shutdown, the administration was more than happy to compromise security by letting TSA employees go unpaid. Once workers started striking and airports started shutting down? Immediate response. There is power in a union.
    - Frondo 8y ago
      I don't know why your comment's downvotes into gray, striking has gotten serious results several times already this year. Taft-Hartley banned wildcat strikes, but I think if we saw more of those (despite their present-day illegality) we'd see a ton more actions favorable to workers taking place. Of course, we should roll back the labor-hostile parts of Taft-Hartley (like the bans on wildcat strikes and the restrictions on speech surrounding union organizing), but that'll take more time.
- logfromblammo 8y ago
  For a moment, it seemed like maybe you were suggesting... a union.~ That might have worked 15 years ago, but I think it's going to take unions and government, working along near-parallel vectors, to bring the economy back into a sustainable power-balance among its various institutions. Corporate management and moneyed elites have erected a nice little fortress full of positive feedback loops for themselves, and have been steadily plugging the holes in it for 40 solid years now. They're working on mindless, robotic slave labor in an effort to defeat the labor unions forever, but they're also still relatively open to attack by government, as buying it off with corruption has so far been sufficient to keep it at bay.
slowhand09 8y ago
Thinking out loud here... for real wages to go up, real prices for services and goods must go up, else companies go out of business. Rising interest rates discourage companies from making capital purchases on credit (which they all do). To service higher debt, companies need to raise prices for services and goods. Which reduces purchasing power... And people who miss basic economic understanding scream for higher real wages and increases in purchasing power. On another note, are student loans typically fixed or variable interest rates?
- kadendogthing 8y ago
  >real prices for services and goods must go up, else companies go out of business. That's not true at all. There is no dataset that supports this position. And we have data against it. Mainly every time we've forcefully increased the minimum wage.
- ABCLAW 8y ago
  Are we assuming that margins don't exist and returns on invested capital are fixed for this thought experiment?

djyaz1200 8y ago

"We can't sit there and leave interests rates low forever" ...says who? What force dictates that the equilibrium for rates must be higher? Yes that's historically been the case but that doesn't mean that's the right path for us now and in the future. I would argue that low interest rates will be and need to be the new normal. Interest is the ultimate rent seeking activity. The fed funds rate is a form of price fixing for banks whereby they collectively decide how much interest they can extract from the economy without killing it. Why must this be the case, the economy should be allowed to run much hotter for much longer. Inflation is less of a risk now because of technology + globalization, right now we are experiencing significant deflationary pressure as products and labor converge towards global pricing/wages. Our economy and government will be in very serious trouble if we have to pay higher interest on our significant national debt, so the government has a big interest (pun intended) in keeping rates low to protect its own financial solvency. Finally, high interest rates imply money is scarce and that's far from the case now. Having large sums of money is not what it used to be, you're competing against a lot of other people and organizations seeking to deploy that money productively for a return. This generates downward pressure on market interest rates as evidenced by European Central banks going below zero to negative rates.

kadendogthing 8y ago
>What force dictates that the equilibrium for rates must be higher? Because that violates a big part of the dual mandate of the federal reserve. Lowering interest rates indefinitely makes borrowing money super easy, and you essentially cause a credit cascade. At certain levels, borrowing money means the fed is able to print more money. But if no one can really pay that money back, that bubble pops. And if you keep lowering interest rates to correct for that you'll get inflation. Lots of inflation. To the point where the money becomes useless. >Inflation is less of a risk now because of technology + globalization I have quite literally never heard this thought before, and at face value it doesn't make a lick of sense. you can't just vaguely pay lipservice to two very broad terms and act like it's going to make inflation irrelevant? What? >Finally, high interest rates imply money is scarce and that's far from the case now. No it means that the economy shouldn't/isn't/can't really borrow more. The first one tends to be the primary reason for increasing interest rates. You can't just keep borrowing indefinitely. Because again, that makes money useless. We're already in a bit of a pickle at the moment. And we're seeing signs that the economy is starting to slip -- but we can still reverse and put an end to these signs. Consumer and corporate credit is at an all time high. Just last quarter, the number of people that are delinquent on their car loans spiked. Car payments are something people typically let slip during a financial squeeze, because it's hard for the bank to recoup it in a timely manner. But not paying your credit card or electric bill, those kind of services get shut off immediately. Lower interest rates allowed the current credit spike we're seeing. But at some point it has to be paid back. But if people don't have the real wages to pay back those loans AND keep spending money, you're going to see a squeeze on the service sector. And that's not going to be good for the American economy.

AnimalMuppet 8y ago

> We can't sit there and leave interests rates low forever. I very much agree on this. To me, it seems like the Fed left rates too low for too long coming out of the recession in 2000, which set up the bubble of 2008. They don't want to do it again. And when 2008 hit, they wound up against the "zero bound" of interest rates, where they couldn't lower any further, and they don't want to do that again, either. If they want some distance away from the zero bound, they have to raise rates sometime. "But we can't raise them now! The economy is too fragile!" Yeah, we've been hearing that for a decade. And, as the parent said, we can't sit there and leave interest rates low forever.

amanaplanacanal 8y ago
I agree. Looking at the overall inflation rate as a guide to monetary policy is misguided. There is nothing that says that inflation has to be widely spread, rather than just concentrated in smaller segments as we saw in the bubble you mention. If you keep inflating the balloon, it's going to bulge out somewhere. And last time was bad.
TearsInTheRain 8y ago
Yellin promised us 4 rate hikes in 2016 and only did one. And it came after the election. Huge blunder imho.
throwaway34241 8y ago
Just because we've been hearing it for a decade, doesn't mean it can't be true. Japan has been in a low interest rate environment for even longer and their economy isn't exactly overheating. Maybe low interest rates are the new normal, they've been on an overall downward path for decades so it's not entirely a recent thing. I don't really get raising interest rates to have more ammunition in a recession either. Sure, you have more room to cut later, but raising interest rates itself slows the economy down. Unless the stimulating power you get from cutting is more than slowing effect from raising, it doesn't seem like it gets you anywhere, since you're just digging a deeper hole that you need to get out of. It's another thing if it's in conjunction with fiscal policy (looser fiscal policy, which then leads to raising rates, after which there's more room to cut in a recession). But then I think that's mainly an argument for having different fiscal policy and not just about raising rates. Central bankers seem to be aware that not being able to lower interest rates is going to be problematic in the next recession (along with diminished QE effectiveness etc.). They aren't completely out of options to fight deflation (there's always helicopter money etc.) but we do seem to be in uncharted territory.

stale2002 8y ago

> We can't sit there and leave interests rates low forever. Well, then can sit there for as long as we aren't seeing the negative effects of low interest rates. IE, inflation. Which we aren't seeing. > If not now, when? When inflation starts happening. That's when. But that is not happening now, so we are good. It's really that simple. The whole point of raising inflation rates is to prevent high inflation. But if there isn't any high inflation then there isn't any problem!

mruts 8y ago

The problem is that markets are so overtuned nowadays. Every trader is just hanging on to every last dot of the fed. The fed should have raised rates a long time ago. Like, rates in the 70s used to be around 20%. And now, the fed doesn’t have the balls to raise it 500 bips. It’s ridiculous.

opo 8y ago

>...The FED is essentially signalling to policy makers that the time to up minimum wage is... was, yesterday. I don't think there is any evidence at all that the Fed raising (or not raising) the interest rates is an attempt to dictate the minimum wage level. The Fed's mandate from Congress is to aim for three goals: "...maximum sustainable employment, stable prices, and moderate long-term interest rates." https://www.federalreserve.gov/faqs/what-economic-goals-does-federal-reserve-seek-to-achieve-through-monetary-policy.htm https://www.federalreserve.gov/faqs/what-economic-goals-does... Let's not use Fed policy in trying to achieve their mandates as a pretext for some other policy someone wants to promote.