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This so called bubble isn't tech at all. This is the everything bubble caused by excessively low interest rates, held down by the government for inappropriatel

This so called bubble isn't tech at all. This is the everything bubble caused by excessively low interest rates, held down by the government for inappropriately long periods of times. Sure, 0% may have been justified in the wake of the 2008 crash, for maybe a year or two, but not 10+ years!! People shouldn't be surprised that SOOO much money is sloshing around looking for increasingly risky returns when interest rates have been 0 for so long. And here we are, at barely 2.5% (far below where it should be) and the fed is already considering rate cuts even though we're in the biggest bull market. This article is doing the world a great disservice by trying to blame the tech industry without even once mentioning the real reason: excessively low interest rates forced on us by the Fed. And it's not just the Fed, other 1st world countries are doing the same thing. They're all following the call of Keynesian economics: Keep the party drunk as long as you can by refilling the punch bowl. By creating every incentive in the world to separate people from their money as quickly as possible in a hopeless attempt to spur money flow, ultimately resulting in increasingly risky investments.

apta 7y ago
> without even once mentioning the real reason: excessively low interest rates forced on us by the Fed. No. The real reason is that interest (usury) exists in the first place. It is prohibited in Islam, Christianity, and Judaism for a reason. And I wouldn't be surprised if it were also prohibited in other religions. An economic system that relies on usury is exploitative and predatory. The rich get reacher with basically no risk on their part, and the poor are left to struggle. Eventually the cycle completes and the entire system crashes as we've seen it happen many times now.
lkrubner 7y ago
"the fed is already considering rate cuts even though we're in the biggest bull market" Inflation is extremely low, so the Fed should consider cutting rates. Lower rates means lower unemployment, which should eventually lead to higher wages. As a model for what the Fed rate should be, assume that it should always be 0% plus whatever amount is needed to limit inflation. Since inflation has been low and stable, the rate should remain close to 0%. After all, we should want a world where unemployment goes low enough that wages eventually go up. And, it is important to notice, in today's world, even an unemployment rate of 3.6% has not been low enough to cause the kinds of wage gains that were normal for most of the 20th Century. If wages aren't rising and if inflation is low, then the Fed should be pushing the rate back toward 0%. The lower the rate, the easier it is for entrepreneurs to get money, to build a business, and thus to stimulate economic activity, and if enough entrepreneurs do so, then presumably unemployment will eventually go down to whatever level is needed to raise wages.
- UncleOxidant 7y ago
  Isn't an unemployment rate of 3.6% effectively full employment? It seems I can recall in the past that 5% unemployment was considered effectively full employment. The core rate of inflation may be low by the government's accounting, but there are problems with the way we calculate inflation, it seems, given how much rents and medical expenses have risen even during what was considered slow economic growth.
  - cardiffspaceman 7y ago
    Last time this concept was popular I read the Wikipedia article on "Non-Accelerating Rate of Unemployment" NARU. This is the (lowish) level of unemployment that doesn't cause huge wage inflation. Folks were worried where that level was in the 90's.
  - mandelbrotwurst 7y ago
    Full employment is "the condition in which virtually all who are able and willing to work are employed." Arguably, because the commonly cited U3 unemployment rate is the percentage of people who are able to and actively looking for work and unable to find it, any unemployment rate above zero means that you're not at full employment. That said, because even in the "best" economies that we've ever actually experienced there is always at least some level of job loss and it's always going to take at least some amount of time to find a new job, many people / economists tend to view full employment as something more like "the lowest level that we can realistically expect unemployment to reach given some unavoidable level of job churn". This is why you see statements like "4% unemployment is full employment". Personally, I don't agree with this redefinition because I think it is at least _theoretically_ possible to get to a state where those who lose their jobs due to layoffs etc. are employed again extremely rapidly and the rate ends up being much closer to zero.
    - mywittyname 7y ago
      > Personally, I don't agree with this redefinition because I think it is at least _theoretically_ possible to get to a state where those who lose their jobs due to layoffs etc. are employed again extremely rapidly and the rate ends up being much closer to zero. This has never happened though. U3 being the Official Rate appears to because it's the metric comprised of orthogonal data points. The U4-6 rates are linearly related to the U3 rate; when the U3 doubles, so does the U5 and U6, likewise when the U3 halves. Which makes reporting the U4+ pointless for trending, it doesn't matter if you pick the rate that goes from 4% to 8% or the one from 7% to 14%. The U1 & 2 rates do not demonstrate this correlation. The U1 can remain flat while the U2 spikes because they represent different pools of people. So while we intuitively think that including discouraged workers make since, from an analytical perspective, including them doesn't give us any more predictive power than we had before. Calling sub-5% U3 unemployment "full employment" is more of an empirical definition than a logical one; it just happens to be the lowest point we've ever measured.
UncleOxidant 7y ago
Mostly agree, though tech has been one of the bigger recipients of all that money sloshing around. Another being housing (again) which is a big part of why housing is so expensive now. At this point in the recovery cycle and with a strong economy (which we supposedly have) the fed rate should be closer to 4-4.5% - we shouldn't be talking about lowering rates. But both ends of the political spectrum seem to be pushing for 0% - the progressives with MMT and of course Trump keeps bullying the Fed to lower (not only because he thinks it'll help his re-election prospects, but because he's a real estate guy and would benefit greatly from 0% rates).
mempko 7y ago
What's amazing is that despite all the money sloshing around, the great filter of high private interest rates and rent-seeking makes sure that it never benefits the majority of people. This can be seen by higher levels of inequality.
deogeo 7y ago
Could you explain this a bit more, or link to something that does? I'm don't know much about the Fed or the effect of bond interest rates. In particular: 1. The idea that interest rates should be high to prevent other, riskier investments, reads rather like we have to bribe investors into not gambling too much. 2. How do low interest rates 'refill the punch bowl', as you said? 3. How do they incentivize separating people from their money? The interest on those bonds is ultimately paid out of taxes, no? So wouldn't high interest rates be separating people from their money, making things better now at the cost of having to repay more later? 4. The bonds the government issues basically act as a loan the govt. takes from whoever buys the bonds, no? So shouldn't the interest rate be set as low as possible while there are still willing buyers? Honestly none of this makes sense, and I'm pretty sure I'm missing something major.
- thorwasdfasdf 7y ago
  When interest rates go down, it means safer investments become less attractive. For example, lets say you have 1 million dollars in the bank account. if the bank pays you 0% then you're not very likely to keep your money there. You're much more likely to put it in the stock market, a hedge fund, a high yield muni bond or anywhere else. What all those "anywhere else" have in common, is that they're all higher risk. So, collectively by reducing interest rates you are incentivizing risky behavior. And it's not just individual players. Think about all those pension funds and insurance company funds that need to make returns to fund people's retirements. Collectively they have trillions of dollars on the line, and no choice but to invest in increasingly risky funds. Once you understand the connection between low interest rates and risk, as a follow up, watch this: https://www.youtube.com/watch?v=k9_bWbrYPKg https://www.youtube.com/watch?v=k9_bWbrYPKg Brian Reynolds has a ton of experience working in the pension industry and this is an extremely fascinating interview (though a bit advanced, but you can still understand some of it)
  - deogeo 7y ago
    So literally pay investors so they can get richer without risk? "A legal mandate requires these funds to generate 7.5% returns, and when they fail to do so, taxpayers foot the bill." - it sounds like it would be much cheaper for taxpayers to pay pension funds directly, instead of paying all investors, and hoping some of that money finds its way to pensions. Actually, let me get back to "by reducing interest rates you are incentivizing risky behavior". Phrased this way, it sounds obvious that 'of course you should try to reduce risky behavior'. But risky behavior of what? Is a car manufacturer going to take more risks because of low interest rates? No - they make a profit from selling cars. Same for farming, mining, pharma, advertising... literally every industry, except the purely financial ones. So... are we just paying tax money to bankers, and getting nothing in return? Because they convinced us that if their profits were any lower, they'd start taking so many risks banking would collapse (instead of more prudent banks emerging)?
hi5eyes 7y ago
"They’re. Not. Even. Pretending. Anymore" They completely fucked the financial system and are trying to keep it afloat/"growing" at any cost https://www.reuters.com/article/switzerland-bonds/swiss-50-yr-yield-falls-below-0-entire-swiss-curve-now-negative-idUSL8N24Q31B https://www.reuters.com/article/switzerland-bonds/swiss-50-y... official statements: everything is fine meme look at how much growth we have!
- nostromo 7y ago
  Longest expansion in history, low inflation, low unemployment... the sky is clearly falling, wake up sheeple!
  - mandelbrotwurst 7y ago
    Low unemployment doesn't imply strength if it's due to a decline in labor force participation, which has barely budged from historic lows set in 2015 (1). Rising asset prices aren't worth much to those who own little. 1 - https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm https://www.bls.gov/charts/employment-situation/civilian-lab...
- hi5eyes 7y ago
  https://www.bloomberg.com/news/articles/2019-07-13/the-black-hole-engulfing-the-world-s-bond-markets-quicktake https://www.bloomberg.com/news/articles/2019-07-13/the-black... everything is fine lmao
nostromo 7y ago
The Fed doesn't have a target interest rate, they have a target inflation rate -- and the current policy has not been causing inflation -- so by all measures they've been successful at doing exactly what they're supposed to be doing: helping the economy grow without creating high inflation. I notice that goldbugs in particular get very upset about low interest rates -- as if there is something "natural" or "normal" about 7% vs 3%. But there is no magical number -- if you can create wealth without inflation, you should obviously continue to create wealth. Also, the government doesn't owe you a risk-free return of 7%. In theory, the risk-free return should be equal to the rate of inflation -- nothing ventured nothing gained.
- rm445 7y ago
  Yes, if you measure inflation as a basket of consumer goods, you can pat yourself on the back doubly for having an asset bubble at the same time as "low" inflation. Nice that the population can still afford bread and eggs, not so nice that the prices of property, artwork and the like disappear into the stratosphere far beyond their reach.
  - nostromo 7y ago
    Housing nationwide isn't actually that expensive: https://fred.stlouisfed.org/series/USSTHPI https://fred.stlouisfed.org/series/USSTHPI Remember: the Fed governs the entire US economy, not just San Francisco and Seattle like HN would prefer.
    - sfkdjf9j3j 7y ago
      The vast majority of people live in, and the vast majority of economic activity takes place in, major urban areas. So yeah, housing inflation is very relevant.
      - nostromo 7y ago
        And all of those sales are included in the link I provided, which shows that housing has gone up 13% nationwide since the peak twelve years ago.
robocat 7y ago
> People shouldn't be surprised that SOOO much money is sloshing around looking for increasingly risky returns Surely investors demand an interest rate that is higher than the risk. Gross simplification: their actual expected return is the difference between the sticker rate and the risk e.g. if risk of default is 2%, that sets lower limit on interest rate. If investor seeks return of 5% return then interest rate needs to be 7% (simplification). So saying investors are seeking more risk has no meaning to me. Saying investors are willing to accept lower returns for the same risk makes sense. Can someone with investment experience say that more clearly?
- robocat 7y ago
  Negative interest rates on bonds show that investors are willing to get less return than the risk. https://news.ycombinator.com/item?id=20547731 https://news.ycombinator.com/item?id=20547731 But surely that it isn't money "looking" for risk, it is money that can't find less risky investments?
paganel 7y ago
> 0% may have been justified in the wake of the 2008 crash, for maybe a year or two, but not 10+ years!! And yesterday someone in the Financial Times's opinion page was asking the ECB to start going into negative figures with their lending rate. Very crazy times indeed.
pishpash 7y ago
The Fed is implicitly causing venture capitalists and other capital holders to subsidize the labor market and grow yhe economy. All the gig economy with money-losing companies is basically a private sector jobs program. To assume there is a bubble in assets is assuming things will go back to a high interest-rate environment. That may never happen. We'll just get lower lows, even negative interest rates if there are no money making opportunities.
bartimus 7y ago
This Also the lower interest rates have caused housing prices to increase causing the younger generations to live with their parents longer. Owning a car is perceived to kill the planet. So what do you do when you're not saving up for a house or a car? It appears those iPhones, MacBooks and other shiny tech devices are the new status symbols of the younger generations. Are people buying more expensive phones? Or has it just become the cheaper alternative for owning a laptop or desktop?

apta 7y ago

> without even once mentioning the real reason: excessively low interest rates forced on us by the Fed. No. The real reason is that interest (usury) exists in the first place. It is prohibited in Islam, Christianity, and Judaism for a reason. And I wouldn't be surprised if it were also prohibited in other religions. An economic system that relies on usury is exploitative and predatory. The rich get reacher with basically no risk on their part, and the poor are left to struggle. Eventually the cycle completes and the entire system crashes as we've seen it happen many times now.

lkrubner 7y ago

"the fed is already considering rate cuts even though we're in the biggest bull market" Inflation is extremely low, so the Fed should consider cutting rates. Lower rates means lower unemployment, which should eventually lead to higher wages. As a model for what the Fed rate should be, assume that it should always be 0% plus whatever amount is needed to limit inflation. Since inflation has been low and stable, the rate should remain close to 0%. After all, we should want a world where unemployment goes low enough that wages eventually go up. And, it is important to notice, in today's world, even an unemployment rate of 3.6% has not been low enough to cause the kinds of wage gains that were normal for most of the 20th Century. If wages aren't rising and if inflation is low, then the Fed should be pushing the rate back toward 0%. The lower the rate, the easier it is for entrepreneurs to get money, to build a business, and thus to stimulate economic activity, and if enough entrepreneurs do so, then presumably unemployment will eventually go down to whatever level is needed to raise wages.

UncleOxidant 7y ago
Isn't an unemployment rate of 3.6% effectively full employment? It seems I can recall in the past that 5% unemployment was considered effectively full employment. The core rate of inflation may be low by the government's accounting, but there are problems with the way we calculate inflation, it seems, given how much rents and medical expenses have risen even during what was considered slow economic growth.
- cardiffspaceman 7y ago
  Last time this concept was popular I read the Wikipedia article on "Non-Accelerating Rate of Unemployment" NARU. This is the (lowish) level of unemployment that doesn't cause huge wage inflation. Folks were worried where that level was in the 90's.
- mandelbrotwurst 7y ago
  Full employment is "the condition in which virtually all who are able and willing to work are employed." Arguably, because the commonly cited U3 unemployment rate is the percentage of people who are able to and actively looking for work and unable to find it, any unemployment rate above zero means that you're not at full employment. That said, because even in the "best" economies that we've ever actually experienced there is always at least some level of job loss and it's always going to take at least some amount of time to find a new job, many people / economists tend to view full employment as something more like "the lowest level that we can realistically expect unemployment to reach given some unavoidable level of job churn". This is why you see statements like "4% unemployment is full employment". Personally, I don't agree with this redefinition because I think it is at least _theoretically_ possible to get to a state where those who lose their jobs due to layoffs etc. are employed again extremely rapidly and the rate ends up being much closer to zero.
  - mywittyname 7y ago
    > Personally, I don't agree with this redefinition because I think it is at least _theoretically_ possible to get to a state where those who lose their jobs due to layoffs etc. are employed again extremely rapidly and the rate ends up being much closer to zero. This has never happened though. U3 being the Official Rate appears to because it's the metric comprised of orthogonal data points. The U4-6 rates are linearly related to the U3 rate; when the U3 doubles, so does the U5 and U6, likewise when the U3 halves. Which makes reporting the U4+ pointless for trending, it doesn't matter if you pick the rate that goes from 4% to 8% or the one from 7% to 14%. The U1 & 2 rates do not demonstrate this correlation. The U1 can remain flat while the U2 spikes because they represent different pools of people. So while we intuitively think that including discouraged workers make since, from an analytical perspective, including them doesn't give us any more predictive power than we had before. Calling sub-5% U3 unemployment "full employment" is more of an empirical definition than a logical one; it just happens to be the lowest point we've ever measured.

UncleOxidant 7y ago

Mostly agree, though tech has been one of the bigger recipients of all that money sloshing around. Another being housing (again) which is a big part of why housing is so expensive now. At this point in the recovery cycle and with a strong economy (which we supposedly have) the fed rate should be closer to 4-4.5% - we shouldn't be talking about lowering rates. But both ends of the political spectrum seem to be pushing for 0% - the progressives with MMT and of course Trump keeps bullying the Fed to lower (not only because he thinks it'll help his re-election prospects, but because he's a real estate guy and would benefit greatly from 0% rates).

mempko 7y ago

What's amazing is that despite all the money sloshing around, the great filter of high private interest rates and rent-seeking makes sure that it never benefits the majority of people. This can be seen by higher levels of inequality.

deogeo 7y ago

Could you explain this a bit more, or link to something that does? I'm don't know much about the Fed or the effect of bond interest rates. In particular: 1. The idea that interest rates should be high to prevent other, riskier investments, reads rather like we have to bribe investors into not gambling too much. 2. How do low interest rates 'refill the punch bowl', as you said? 3. How do they incentivize separating people from their money? The interest on those bonds is ultimately paid out of taxes, no? So wouldn't high interest rates be separating people from their money, making things better now at the cost of having to repay more later? 4. The bonds the government issues basically act as a loan the govt. takes from whoever buys the bonds, no? So shouldn't the interest rate be set as low as possible while there are still willing buyers? Honestly none of this makes sense, and I'm pretty sure I'm missing something major.

thorwasdfasdf 7y ago
When interest rates go down, it means safer investments become less attractive. For example, lets say you have 1 million dollars in the bank account. if the bank pays you 0% then you're not very likely to keep your money there. You're much more likely to put it in the stock market, a hedge fund, a high yield muni bond or anywhere else. What all those "anywhere else" have in common, is that they're all higher risk. So, collectively by reducing interest rates you are incentivizing risky behavior. And it's not just individual players. Think about all those pension funds and insurance company funds that need to make returns to fund people's retirements. Collectively they have trillions of dollars on the line, and no choice but to invest in increasingly risky funds. Once you understand the connection between low interest rates and risk, as a follow up, watch this: https://www.youtube.com/watch?v=k9_bWbrYPKg https://www.youtube.com/watch?v=k9_bWbrYPKg Brian Reynolds has a ton of experience working in the pension industry and this is an extremely fascinating interview (though a bit advanced, but you can still understand some of it)
- deogeo 7y ago
  So literally pay investors so they can get richer without risk? "A legal mandate requires these funds to generate 7.5% returns, and when they fail to do so, taxpayers foot the bill." - it sounds like it would be much cheaper for taxpayers to pay pension funds directly, instead of paying all investors, and hoping some of that money finds its way to pensions. Actually, let me get back to "by reducing interest rates you are incentivizing risky behavior". Phrased this way, it sounds obvious that 'of course you should try to reduce risky behavior'. But risky behavior of what? Is a car manufacturer going to take more risks because of low interest rates? No - they make a profit from selling cars. Same for farming, mining, pharma, advertising... literally every industry, except the purely financial ones. So... are we just paying tax money to bankers, and getting nothing in return? Because they convinced us that if their profits were any lower, they'd start taking so many risks banking would collapse (instead of more prudent banks emerging)?

hi5eyes 7y ago

"They’re. Not. Even. Pretending. Anymore" They completely fucked the financial system and are trying to keep it afloat/"growing" at any cost https://www.reuters.com/article/switzerland-bonds/swiss-50-yr-yield-falls-below-0-entire-swiss-curve-now-negative-idUSL8N24Q31B https://www.reuters.com/article/switzerland-bonds/swiss-50-y... official statements: everything is fine meme look at how much growth we have!

nostromo 7y ago
Longest expansion in history, low inflation, low unemployment... the sky is clearly falling, wake up sheeple!
- mandelbrotwurst 7y ago
  Low unemployment doesn't imply strength if it's due to a decline in labor force participation, which has barely budged from historic lows set in 2015 (1). Rising asset prices aren't worth much to those who own little. 1 - https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm https://www.bls.gov/charts/employment-situation/civilian-lab...
hi5eyes 7y ago
https://www.bloomberg.com/news/articles/2019-07-13/the-black-hole-engulfing-the-world-s-bond-markets-quicktake https://www.bloomberg.com/news/articles/2019-07-13/the-black... everything is fine lmao

nostromo 7y ago

The Fed doesn't have a target interest rate, they have a target inflation rate -- and the current policy has not been causing inflation -- so by all measures they've been successful at doing exactly what they're supposed to be doing: helping the economy grow without creating high inflation. I notice that goldbugs in particular get very upset about low interest rates -- as if there is something "natural" or "normal" about 7% vs 3%. But there is no magical number -- if you can create wealth without inflation, you should obviously continue to create wealth. Also, the government doesn't owe you a risk-free return of 7%. In theory, the risk-free return should be equal to the rate of inflation -- nothing ventured nothing gained.

rm445 7y ago
Yes, if you measure inflation as a basket of consumer goods, you can pat yourself on the back doubly for having an asset bubble at the same time as "low" inflation. Nice that the population can still afford bread and eggs, not so nice that the prices of property, artwork and the like disappear into the stratosphere far beyond their reach.
- nostromo 7y ago
  Housing nationwide isn't actually that expensive: https://fred.stlouisfed.org/series/USSTHPI https://fred.stlouisfed.org/series/USSTHPI Remember: the Fed governs the entire US economy, not just San Francisco and Seattle like HN would prefer.
  - sfkdjf9j3j 7y ago
    The vast majority of people live in, and the vast majority of economic activity takes place in, major urban areas. So yeah, housing inflation is very relevant.
    - nostromo 7y ago
      And all of those sales are included in the link I provided, which shows that housing has gone up 13% nationwide since the peak twelve years ago.

robocat 7y ago

> People shouldn't be surprised that SOOO much money is sloshing around looking for increasingly risky returns Surely investors demand an interest rate that is higher than the risk. Gross simplification: their actual expected return is the difference between the sticker rate and the risk e.g. if risk of default is 2%, that sets lower limit on interest rate. If investor seeks return of 5% return then interest rate needs to be 7% (simplification). So saying investors are seeking more risk has no meaning to me. Saying investors are willing to accept lower returns for the same risk makes sense. Can someone with investment experience say that more clearly?

robocat 7y ago
Negative interest rates on bonds show that investors are willing to get less return than the risk. https://news.ycombinator.com/item?id=20547731 https://news.ycombinator.com/item?id=20547731 But surely that it isn't money "looking" for risk, it is money that can't find less risky investments?

paganel 7y ago

> 0% may have been justified in the wake of the 2008 crash, for maybe a year or two, but not 10+ years!! And yesterday someone in the Financial Times's opinion page was asking the ECB to start going into negative figures with their lending rate. Very crazy times indeed.

pishpash 7y ago

The Fed is implicitly causing venture capitalists and other capital holders to subsidize the labor market and grow yhe economy. All the gig economy with money-losing companies is basically a private sector jobs program. To assume there is a bubble in assets is assuming things will go back to a high interest-rate environment. That may never happen. We'll just get lower lows, even negative interest rates if there are no money making opportunities.

bartimus 7y ago

This Also the lower interest rates have caused housing prices to increase causing the younger generations to live with their parents longer. Owning a car is perceived to kill the planet. So what do you do when you're not saving up for a house or a car? It appears those iPhones, MacBooks and other shiny tech devices are the new status symbols of the younger generations. Are people buying more expensive phones? Or has it just become the cheaper alternative for owning a laptop or desktop?