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>> The persistent bailouts are making losers of people who make good long term decisions > How, exactly? Keeping interest rates very low is hurting people who

by chewz 6y ago

>> The persistent bailouts are making losers of people who make good long term decisions > How, exactly? Keeping interest rates very low is hurting people who are saving money. Not just in banks also via pension funds[-], retirement schemese, life insurance. It pushes savers into taking risky bets with real estates or stocks or even direct consumption (spending money instead of saving them is very risky bet on the future of events). [-] The pensions will be low because 1) compound interest on riskless part of one's pension assets is low 2) Other assets that one will be purchasing with retirement money will be grossly inflated with cheap money chasing yields, via consumption etc.

StillBored 6y ago
You forgot inflationary pressure from all the "free" money. That is what really upset me the most about the 2008/etc situation. I was looking to buy a house, and you would have never known there was a housing crisis where I lived (Austin). The banks were more than willing to sit on assets than actually sell foreclosed properties at market values. So while the housing prices went down slightly, your talking maybe a 10% after a decade of 10% a year increases. The "dip" didn't even last 2 years. I myself made an offer on a forclosed/vacant house, and the bank counter offered above the listing price. I had friends who tried to buy already forclosed houses and literally sat around for a year+ waiting for the banks to accept their offers. Eventually like me, actually buying other properties.
- chewz 6y ago
  I did mention pushing savers into real estate and other assets. Lots of people are flipping houses simply because thay cannot get decent returns on bank savings anymore. Same goes for professional money managers of all kinds who simply cannot provide decent returns to their customers by buying bonds like old school. So they are forced to chase yields in other risky assets. Also with bank savings everyone has an equal chance. With risky assets - richer people are priviledged with better access to higher returns (via better access to information, scale of investment, credit etc.). So disparities grow.
  - pjc50 6y ago
    Why are people entitled to a positive return on capital, a particular form of unearned income?
    - peterwoerner 6y ago
      Its not some much they are entitled to it, but rather that if they don't get positive return on capital, it loses value because of inflation. Edit: spelling
    - stickfigure 6y ago
      People are entitled to allocate their savings as they choose. It naturally gravitates to positive returns.
marcosdumay 6y ago
You know, the GGP is complaining about high government debt levels; you are complaining about low interest levels. That's not coherent. I do agree that something is broken, but "debt is too high and interest is too low" is a bad problem statement.
- raducu 6y ago
  How is that not coherent? Low interest rates is how governments can keep the pretense that they are not printing money out of thin air and they "service" their debt and that they will repay it at some point in the future.
  - marcosdumay 6y ago
    It' not coherent because both printing money and borrowing cause the interest rate to increase. Low interest rates is a reaction from the market to the conditions the government puts on the table, not something that the government sets at will to push an agenda.
    - chewz 6y ago
      You must have not been paying attention to financial news over last decade. > When the Federal Open Market Committee wishes to reduce interest rates they will increase the supply of money by buying government securities. When additional supply is added and everything else remains constant, the price of borrowed funds – the federal funds rate – falls. https://en.wikipedia.org/wiki/Federal_funds_rate#Explanation_of_federal_funds_rate_decisions https://en.wikipedia.org/wiki/Federal_funds_rate#Explanation...
      - marcosdumay 6y ago
        Yes. "When everything else remains constant" here means people choosing to take that extra money and immediately lending it to the government. It's not the government that makes this choice.

by chewz 6y ago

StillBored 6y ago

You forgot inflationary pressure from all the "free" money. That is what really upset me the most about the 2008/etc situation. I was looking to buy a house, and you would have never known there was a housing crisis where I lived (Austin). The banks were more than willing to sit on assets than actually sell foreclosed properties at market values. So while the housing prices went down slightly, your talking maybe a 10% after a decade of 10% a year increases. The "dip" didn't even last 2 years. I myself made an offer on a forclosed/vacant house, and the bank counter offered above the listing price. I had friends who tried to buy already forclosed houses and literally sat around for a year+ waiting for the banks to accept their offers. Eventually like me, actually buying other properties.

chewz 6y ago
I did mention pushing savers into real estate and other assets. Lots of people are flipping houses simply because thay cannot get decent returns on bank savings anymore. Same goes for professional money managers of all kinds who simply cannot provide decent returns to their customers by buying bonds like old school. So they are forced to chase yields in other risky assets. Also with bank savings everyone has an equal chance. With risky assets - richer people are priviledged with better access to higher returns (via better access to information, scale of investment, credit etc.). So disparities grow.
- pjc50 6y ago
  Why are people entitled to a positive return on capital, a particular form of unearned income?
  - peterwoerner 6y ago
    Its not some much they are entitled to it, but rather that if they don't get positive return on capital, it loses value because of inflation. Edit: spelling
  - stickfigure 6y ago
    People are entitled to allocate their savings as they choose. It naturally gravitates to positive returns.

marcosdumay 6y ago

You know, the GGP is complaining about high government debt levels; you are complaining about low interest levels. That's not coherent. I do agree that something is broken, but "debt is too high and interest is too low" is a bad problem statement.

raducu 6y ago
How is that not coherent? Low interest rates is how governments can keep the pretense that they are not printing money out of thin air and they "service" their debt and that they will repay it at some point in the future.
- marcosdumay 6y ago
  It' not coherent because both printing money and borrowing cause the interest rate to increase. Low interest rates is a reaction from the market to the conditions the government puts on the table, not something that the government sets at will to push an agenda.
  - chewz 6y ago
    You must have not been paying attention to financial news over last decade. > When the Federal Open Market Committee wishes to reduce interest rates they will increase the supply of money by buying government securities. When additional supply is added and everything else remains constant, the price of borrowed funds – the federal funds rate – falls. https://en.wikipedia.org/wiki/Federal_funds_rate#Explanation_of_federal_funds_rate_decisions https://en.wikipedia.org/wiki/Federal_funds_rate#Explanation...
    - marcosdumay 6y ago
      Yes. "When everything else remains constant" here means people choosing to take that extra money and immediately lending it to the government. It's not the government that makes this choice.