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> "We can't sit there and leave interests rates low forever" ...says who? Certainly it can be done, but if 2008 proved anything it was the theory that lowering

> "We can't sit there and leave interests rates low forever" ...says who? Certainly it can be done, but if 2008 proved anything it was the theory that lowering interest rates would provide Keynesian stimulus and mitigate the impact of a recession. One of the perks of controlling the interest rate is that you can use it to apply counterpressure to the business cycle, pushing down bubbles and pulling out of recessions. If the interest rate is stuck near 0, you can't really do that, so it's in the interest of economic stability to bring it back up again.

ams6110 8y ago
2008 was more a consequence of lowering lending qualification standards (or just ignoring them altogether) than it was low rates. Doesn't matter so much what the interest rate is, if you are lending money to people who can't pay it back.
- deleted 8y ago
  [deleted]
- finnh 8y ago
  I believe OP was talking about the stimulus/recovery, not the cause of the crash.
- moosey 8y ago
  That's a massive oversimplification. My favorite piece about this issue was from This American Life and NPR News: https://www.thisamericanlife.org/355/the-giant-pool-of-money https://www.thisamericanlife.org/355/the-giant-pool-of-money
- edmundsauto 8y ago
  Aren't those pretty tightly connected?
kadendogthing 8y ago
Lowering the interest rates was not the primary band aid on the 2008 financial crisis. The fed and other banks didn't just help the credit market grow (via lowering interest rates), they quite literally bought it to keep money flow up. There was a substantial credit freeze, and many parts of the financial system were on death's door. So governments and banks quite literally just went "take this huge wad of cash, please stay in business." And by huge wad of cash, we're talking about $12 trillion dollars of bailouts, stimulus packages, debt bonds, etc. Twelve. Trillion. In one year. The entire GDP of the U.S in 2017 was about $20 trillion. Wages at the time were too low (oh, imagine that) to mitigate any kind of credit stasis on the monetary system. It would have had a compounding effect. No credit, no consumption, no consumption, no economy. We "fixed" two of those. But we did it in a manner that requires us to pay for it at some point. So here we are. Bring wages up. Allow the credit to be repaid. And not just consumer credit, corporate credit as well. Allow the federal reserve to finally increase interest rates. Make the economy truly robust again, instead of just "letting the good times roll" and creating another crisis. Companies have to start paying workers more for us to get out of this mess.
- fjp 8y ago
  The fact that somehow just giving banks money at near-zero interest and letting them loan it at higher interest to speculators that drive up home and asset prices is 'good policy' but god forbid we give money to people that actually spend it on things made by other people... that's bad/socialism/some scary word. We have socialized risks and privatized profits.
  - Fjolsvith 8y ago
    It occurs to me that the tight labor market is forcing wages higher naturally. Additionally, the recent tax cuts have helped inject cash into the economy.
    - kadendogthing 8y ago
      > Additionally, the recent tax cuts have helped inject cash into the economy. Source? Typically this doesn't actually happen. In fact there is very little evidence for tax cuts "injecting" (whatever this actually means) cash into the economy. >It occurs to me that the tight labor market is forcing wages higher naturally. It's a well understood fact that labor markets actually don't equalize in a supply/demand fashion. I want to know why you think this is the case?
      - Fjolsvith 8y ago
        Common sense. Lets say you previously was paying 30% taxes on your (e.g.) 10k annual income - $3000. Taxes get reduced to 25%. So, the next year you have an extra $500 in your pocket and not in the goverment treasury. Where does that $500 go? One or two places. You either 1) spend it on something or 2) invest it in something (which will result in that getting spent by the entity "borrowing" it). > I want to know why you think this is the case? I have had to raise the wages paid by my business to retain employees due to other businesses in my industry raising their wages. No research needed for these two thoughts. Direct observation and application of logic.
      - Fjolsvith 8y ago
microtherion 8y ago
"Keynesian stimulus" is provided by fiscal policy, not monetary policy.

ams6110 8y ago

2008 was more a consequence of lowering lending qualification standards (or just ignoring them altogether) than it was low rates. Doesn't matter so much what the interest rate is, if you are lending money to people who can't pay it back.

deleted 8y ago
[deleted]
finnh 8y ago
I believe OP was talking about the stimulus/recovery, not the cause of the crash.
moosey 8y ago
That's a massive oversimplification. My favorite piece about this issue was from This American Life and NPR News: https://www.thisamericanlife.org/355/the-giant-pool-of-money https://www.thisamericanlife.org/355/the-giant-pool-of-money
edmundsauto 8y ago
Aren't those pretty tightly connected?

kadendogthing 8y ago

Lowering the interest rates was not the primary band aid on the 2008 financial crisis. The fed and other banks didn't just help the credit market grow (via lowering interest rates), they quite literally bought it to keep money flow up. There was a substantial credit freeze, and many parts of the financial system were on death's door. So governments and banks quite literally just went "take this huge wad of cash, please stay in business." And by huge wad of cash, we're talking about $12 trillion dollars of bailouts, stimulus packages, debt bonds, etc. Twelve. Trillion. In one year. The entire GDP of the U.S in 2017 was about $20 trillion. Wages at the time were too low (oh, imagine that) to mitigate any kind of credit stasis on the monetary system. It would have had a compounding effect. No credit, no consumption, no consumption, no economy. We "fixed" two of those. But we did it in a manner that requires us to pay for it at some point. So here we are. Bring wages up. Allow the credit to be repaid. And not just consumer credit, corporate credit as well. Allow the federal reserve to finally increase interest rates. Make the economy truly robust again, instead of just "letting the good times roll" and creating another crisis. Companies have to start paying workers more for us to get out of this mess.

fjp 8y ago
The fact that somehow just giving banks money at near-zero interest and letting them loan it at higher interest to speculators that drive up home and asset prices is 'good policy' but god forbid we give money to people that actually spend it on things made by other people... that's bad/socialism/some scary word. We have socialized risks and privatized profits.
- Fjolsvith 8y ago
  It occurs to me that the tight labor market is forcing wages higher naturally. Additionally, the recent tax cuts have helped inject cash into the economy.
  - kadendogthing 8y ago
    > Additionally, the recent tax cuts have helped inject cash into the economy. Source? Typically this doesn't actually happen. In fact there is very little evidence for tax cuts "injecting" (whatever this actually means) cash into the economy. >It occurs to me that the tight labor market is forcing wages higher naturally. It's a well understood fact that labor markets actually don't equalize in a supply/demand fashion. I want to know why you think this is the case?
    - Fjolsvith 8y ago
      Common sense. Lets say you previously was paying 30% taxes on your (e.g.) 10k annual income - $3000. Taxes get reduced to 25%. So, the next year you have an extra $500 in your pocket and not in the goverment treasury. Where does that $500 go? One or two places. You either 1) spend it on something or 2) invest it in something (which will result in that getting spent by the entity "borrowing" it). > I want to know why you think this is the case? I have had to raise the wages paid by my business to retain employees due to other businesses in my industry raising their wages. No research needed for these two thoughts. Direct observation and application of logic.
    - Fjolsvith 8y ago

microtherion 8y ago

"Keynesian stimulus" is provided by fiscal policy, not monetary policy.