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The longer interest rates stay at zero, the longer this assumption gets baked into the structure of the economy and the more chaos that'll be unleashed when and

The longer interest rates stay at zero, the longer this assumption gets baked into the structure of the economy and the more chaos that'll be unleashed when and if they finally go up. There were no interest rate hikes between 2006 and 2015, and interest rates have been at zero for 8 out of the last 13 years. It's easy to blame COVID for the latest rate cut, but interest rates were already dropping in late 2019. The Fed slashed rates 3 times from July-December, and then went straight to zero in March. I've heard (from finance industry professionals) that the reason was that corporate debt loads rapidly become unsustainable when interest rates go up. They need to roll their debt when it comes due, but debt levels are now such that they rapidly become insolvent when borrowing costs rise. I'm seeing more people reach the obvious conclusion that interest rates are simply not going to rise. The Fed has an incentive to keep them low - they'll get mass bankruptcy and mass unemployment otherwise, contrary to their full-employment mandate. The government has an incentive to keep them low, since it keeps borrowing costs on the rapidly-ballooning federal debt low. Retirees have an incentive to keep them low, feeding 401K bubbles that they need to live on. Young adults have an incentive to keep them low: it keeps student loan and car payments manageable, and inflation reduces the real value of their debt. Homeowners have an incentive to keep them low: the value of their home will drop if mortgage rates go up. The only people with an incentive to see them go up are vulture funds & shorts, who nobody likes anyway, and prospective homeowners, who are largely the same people with loads of student loan debt that they'd like to see inflated away. If everybody has an incentive for rates to stay low, they will stay low. This ends in hyperinflation.

adamcstephens 6y ago
Or it ends in a market crash. When interest rates are zero, savers have no choice to build on wealth except the market. This is why the market continues to hit higher and higher records, and at some point people will lose trust in the market and flee. Hyperinflation can always come after the bubble bursts.
- thinkingkong 6y ago
  Flee to where?
  - the-dude 6y ago
    Crypto?
    - toomuchtodo 6y ago
      Central banks will outlaw it because they can't control it and devalue it (either through negative interest rates or helicopter money). Remember when the US outlawed holding gold? [1] [1] https://en.wikipedia.org/wiki/Executive_Order_6102 https://en.wikipedia.org/wiki/Executive_Order_6102
      - kinghajj 6y ago
        1. Central banks (at least, the US Fed) doesn't have the authority to declare crypto tokens illegal unilaterally. 2. EO 6102 made sense with the gold standard. It wasn't just an "FU" to gold hoarders, but a way to raise revenue to counter the depression. It's not clear to me that it would make sense for such a confiscation of crypto, especially if the legislature were to try option #1.
        deleted 6y ago
        [deleted]
      - nostrademons 6y ago
        They probably will, but central government authority tends to collapse when hyperinflation begins. Venezuela (and the international community recognizing Venezuela) can't even agree on who the president is, and 60% of the Venezuelans who do work do so in the informal sector.
      - PragmaticPulp 6y ago
        People are giving too much credit to cryptocurrencies as the only vehicle for dodging inflation. Any asset that rises with inflation (most of them) is a sufficient vehicle for avoiding having your cash devalued. People could simply exchange their domestic currencies for foreign currencies of more stable countries. That's what happens in countries with hyperinflation right now, despite access to cryptocurrency. The only real advantage of cryptocurrency is that it could be transferred around hypothetical government controls. That's more of an extreme edge case scenario, though. To be clear: The US inflation is too high, IMO, but it's nowhere near hyperinflation or government collapse. The average citizen is more likely to benefit from recent stimulus packages than to lose out from it. It's not like everyone keeps their 401K invested in pure cash. That said, we're overdue for interest rates to start creeping up. COVID is coming to an end quickly and the unemployment never really got out of control in the first place. People aren't going to go bankrupt if their mortgages go back to 4-5% instead of 2-3%
- wait_a_minute 6y ago
  The majority of Americans do not have any real (or any at all) amounts of money invested in the market. That may change slowly as more people come online, but right now the majority of the stock is owned by a small percentage of the workers of the country. I'd expect there to be a very long road ahead of us before we find most Americans holding a sizable amount of their capital in the market or even in a bank account at all.
  - robotresearcher 6y ago
    "Around 42% of the working-age population with a full-time job has a 401(k) or similar plan, and those funds are overwhelmingly invested in stocks" https://www.reuters.com/article/us-health-coronavirus-stocks-retail-expl/explainer-coronavirus-fears-hit-the-market-hard-how-much-did-ordinary-americans-lose-idUSKBN20Y1BZ https://www.reuters.com/article/us-health-coronavirus-stocks...
    - wahern 6y ago
      > only 33 percent of the population worked full time or more in 2016. Source: https://www.peoplespolicyproject.org/2018/05/01/only-1-in-3-americans-work-full-time/ https://www.peoplespolicyproject.org/2018/05/01/only-1-in-3-... > In 2018, the average account balance for Vanguard participants was $92,148; the median balance was $22,217. [emphasize added] Source: https://pressroom.vanguard.com/nonindexed/Research-How-America-Saves-2019-Report.pdf https://pressroom.vanguard.com/nonindexed/Research-How-Ameri... 33% * %42 = ~14%. And while the number is debatable, depending on how we define "significant", only a portion of that 14% has significant wealth invested in the stock market. I agree with the previous poster. The vast majority of Americans (including employed Americans) aren't invested in the stock market in any meaningful way.
  - ErikAugust 6y ago
    "Just a modest majority of Americans, some 55%, own stocks, according to an April 2020 poll by Gallup, which asks whether households owned stocks either directly or as part of a fund." https://www.forbes.com/sites/teresaghilarducci/2020/08/31/most-americans-dont-have-a-real-stake-in-the-stock-market/?sh=2e9a5d1b1154 https://www.forbes.com/sites/teresaghilarducci/2020/08/31/mo...
- JMTQp8lwXL 6y ago
  Is there anything wrong with using markets to store value? Must we also have government bonds to store value? If you're in a diversified US index fund, it's basically a bet that the US will continue to do well. If it doesn't, you have bigger problems than the financial.
  - Barrin92 6y ago
    the primary purpose of a market is supposed to be to accurately allocate productive resources and pick winners and losers. In a market constantly flush with cash where everyone just buys index funds that discriminatory function basically vanishes and you have a political commitment to always make the stonks go up even if it supports zombie firms. Which is already the case tbh. Same with housing. Nimbyism is such a big deal in the US because rather than seeing housing as a utility that should be cheap, it's become a store of value that must always go up.
    - tachyonbeam 6y ago
      There's a growing movement to get away from index funds. This year, tech stocks have exploded. ARK Invest has vastly outperformed the S&P 500 and Nasdaq-100. Ultra-low interest rates tend to have people going for increasingly high-risk, speculative investments, such as tech companies. The bolder and more futuristic the vision, the better. Obviously, this could end badly as well, but, people are starting to pick individual stocks instead of index funds.
      - JMTQp8lwXL 6y ago
        The problem is knowing when to enter and exit the sector-specific funds. It might beat the S&P in a trailing 12 month window, but it's unlikely to do so over a 5 or 10 year window.
      - hyko 6y ago
        It will definitely end badly. I guess it’s driven by desperation for returns. Diversification is a risk reduction strategy as old as the Bible; stock picking is not about preserving wealth or growing wealth, it’s about bootstrapping it.
- jacquesm 6y ago
  That and real estate prices. People borrow insane amounts of money right now because they can due to the ridiculously low (in some places negative!) interest rates. Once those go up to reasonable levels (say, 5...10 % annually) suddenly they won't be able to pay for their house anymore and it's 2008 all over again.
  - Cthulhu_ 6y ago
    When getting a mortgage, at least on my side of the pond, you get the option to fix the interest. I've set mine to 30 years fixed (the duration of the mortgage), because a few years ago it already seemed like the rates were bottoming out. I was wrong, but I don't regret fixing my mortgage interest rate. A more pressing matter is that people are no longer able to afford a house, especially if they're young / early in their career.
    - deleted 6y ago
      [deleted]
    - bambax 6y ago
      Same here. I would never have borrowed money on a variable interest rate.
      - panarky 6y ago
        I bought a home in 1998 with a variable-rate mortgage. The interest rate was 7.5% and my friends told me I was foolish not to pay 9.0% for a 30-year fixed rate mortgage. They calculated nightmare scenarios if rates doubled or tripled while theirs held constant. Every year since then, my interest rate reset downward until it hit the lower limit of 2%. Even though my required payment decreased, I kept paying the original payment amount and paid off the loan 10 years early. My friends paid hundreds of thousands in additional interest over the years for the peace of mind of a fixed rate. PSA: 2021 to 2031 might be different than 1998 to 2018.
        zepto 6y ago
- cft 6y ago
  Or the dollar could just hyperinflate, which would end the market bubble. In which case the market bubble will never burst, as denominated in USD. Look at Venezuela's IBVC.
  - adamcstephens 6y ago
    Hyperinflation of the dollar will be nothing like Venezuela. The dollar is the reserve currency in many nations, and the primary currency for oil. If we hyperinflate the entire global economic system will be impacted.
gher-shyu3i 6y ago
All this is because money lending is a business. We've known for literally thousands of years (Islam, Judaism, Christianity at least) that lending money with interest is predatory, harmful, and destructive. Couple that with the government being able to print money at will to cover its ever increasing debts (again, due to interest), and we see how the hole keeps getting deeper. It saddens me that we don't learn from past wisdom, and that greed drives the world. We see people vouch for clean energy, what we also need is clean finance and economics.
- schoen 6y ago
  I know YC purchases equity rather than debt with its investments (and that equity stakes are rarely considered "usury" and not always considered "lending"), but it's a little odd to see this comment on a forum hosted by a venture capital firm, whose whole business is about letting people have some money in the hope of profiting from it later on.
  - gher-shyu3i 6y ago
    Purchasing equity is the moral approach. This means that the investor also bears the risk. If the company succeeds, the investor makes money, if it doesn't, then he lost money. > but it's a little odd to see this comment on a forum hosted... Why? They're not lending money, they're investing, two very different things.
    - ahepp 6y ago
      Creditors certainly bear risk of default. In fact, isn't that why VC exists? If banks were insulated from the consequences of their lending, wouldn't you expect them to loan to risky startups?
      - vineyardmike 6y ago
        > isn't that why VC exists Not entirely. VC exists for things where debt doesn't work. You can use debt to fund some things, eg. real estate, because a failed business still has a valuable asset to sell. If a vc funded tech company goes under, the only thing to sell is source code, which is not nearly as fungible.
mbesto 6y ago
> If everybody has an incentive for rates to stay low, they will stay low. This ends in hyperinflation. As long as the world runs on the dollar, it doesn't.
- z3ugma 6y ago
  This is what is actually so scary. Iirc the petrodollar system has kept American economic hegemony in place for ~50 years but new debt is more likely to be denominated in a mix of Euro, dollar, and RMB. At some point there will be a breaking point in foreign policy (not least of all because the end of American empire has us so focused on domestic fights) and the petrodollar will be over with the signing of a pen. That will trigger a massive reorganizing of the domestic economy and launch China’s primacy.
  - epistasis 6y ago
    The trade deficit has also given the US power, and as the petrodollar disappears with fossil fuel no longer being the driver of energy, the US's purchasing power will keep it afloat. With T-bills trading at negative rates, the US is in a really strong position. People are paying the US for the ability to hold US currency. This is why I find it so odd that supposedly nationalists in the US rail against the trade deficit and US "debt." Our "debt" is actually just the currency of the world, and as the world grows wealthier and wants to hold our currency, there needs to be more of it out there. This is good for the US and puts other countries at a disadvantage!
    - nostrademons 6y ago
      It hurts different parts of America to different degrees. A strong U.S. dollar is generally good for U.S. consumers and bad for people who work in U.S. export industries. The dollar being the global reserve currency is good for the financial industry and bad for everyone else. So basically Wall Street (and workers in industries where America is dominant anyway, like tech, defense, biotech) should favor a strong dollar, while Main Street should favor a weak dollar. This isn't far off from reality: many of the "U.S. nationalists" represent constituents whose jobs have been eviscerated by foreign competition.
jmann99999 6y ago
I generally agree with your comment. However, retirees should want rates to rise. As you age, you want less of your money in more risky assets like the stock market. You want your money in CDs, money market accounts, and bonds. You want these safer instruments to pay a decent interest rate (say 5%) and not 1%. However, as you point out, rates have been low for a long time. This has caused retirees and people approaching retirement to invest in riskier assets. They have been forced into a loser’s game. That’s going to cause a lot of pain if we get a massive correction. Those of us who have time to recover from a correction will be OK. Those who lose 50% of their assets in a correction, and don’t have the time to make that up, are going to have their lives turned upside down.
- wskinner 6y ago
  If you already hold fixed income assets, you do not want rates to rise, because when rates rise, the price of your holdings will fall. When rates fall, those interest bearing assets look better in comparison to the new bonds (e.g.) that are being issued, so their price rises.
  - jmann99999 6y ago
    That is correct, if you are currently holding with the idea of selling before maturity. However, if you are holding to maturity or investing in money markets or CDs (that are short-term), you do want high interest rates. Imagine yourself in 1981 and could have locked up a 30 year U.S. treasury at 14.5%. Sure, there are riskier investments that may have beat that. However, if you are a retiree, that type of consistent, non-risky return is what you would want.
    - YZF 6y ago
      When you sell doesn't really matter. The current value of your bonds (e.g.) will still drop if interest rates go up. If you bought that 30 year at 14.5% and we had hyperinflation then you wouldn't be so happy. There was a reason why those rates were at that point, inflation was >10%. Conversely you could try to short bonds now but if rates stay at zero for the next few decades or go negatively that's not gonna be so great. In the rear-view mirror someone will say how we were stupid(?) for not shorting bonds when the rates shoot up to >10% again, or they don't. It's hard to win this game. What is true is that retirees might have a shorter horizon (though people keep living for longer and longer) and so they may be forced into safer/shorter duration investments and possibly into smaller returns. Efficient markets something something ;)
omegaworks 6y ago
> This ends in hyperinflation. If productivity continues apace, if value added to the economy continues apace, I don't see why it ends in hyperinflation.
- nostrademons 6y ago
  An unstated assumption in my post is that productivity growth does not continue apace. When interest rates are low, companies are incentivized to invest in lower marginal productivity investments, because those investments still remain profitable when cost of capital is low. When rates suddenly go up, a number of these investments become unprofitable: the income streams from them don't exceed the new higher interest rates companies would have to pay to roll their bonds. Therefore the central bank is stuck unable to raise rates. Note that there is another potential ending for this: a deflationary trap like Japan is in, or like the U.S. was in from 2009-2020. I'm betting on hyperinflation, though. The reason is that nearly all past hyperinflationary events have come from large sector shifts in aggregate demand and aggregate supply, notably when coming down from a war or transitioning from a command economy to a market economy. COVID just provided exactly such a supply/demand shock: large quantities of production were shifted into medical devices and remote work, while demand shifted away from travel, experiences, and gasoline to home improvement & home office supplies. When demand shifts back, those industries will have significantly reduced capacity, and a lot of bargaining power to raise prices. The raised prices cascade through the economy, and that's what triggers inflation. It's like the economy is your heater, money-printing is turning up the gas because it's not getting hot enough, low productivity is not realizing that your igniter is broken, and COVID is lighting a match. Without COVID you'd just open your windows and air out the gas (although it still wouldn't fix your broken igniter). With it, we go boom.
  - thewarrior 6y ago
    We have had low interest rates and massive QE even before this. We did not come close to hyper inflation. Why will this time be different ?
    - 6y ago
74d-fe6-2c6 6y ago
username checks out ... </reddit> this world is like a wheel with hamsters running ever faster and faster. obviously not going to end well.
nknealk 6y ago
> This ends in hyperinflation. Except for the part where the fed said (and continues to say) it would raise rates if it saw sustained high inflation
- tengbretson 6y ago
  The price of nearly everything has gone up about 40% in the last 12 months, so I guess we'll get to see if that was a lie rather soon.
  - arawde 6y ago
    core CPI last month was 1.4% and has consistently been under 2% for a long time
  - nealabq 6y ago
    The U.S. Bureau of Labor Statistics reports (10-Feb-2021) that the Consumer Price Index (all items index) increased 1.4 percent over the last 12 months. https://www.bls.gov/news.release/pdf/cpi.pdf https://www.bls.gov/news.release/pdf/cpi.pdf
    - quiescant_dodo 6y ago
      Thanks for the link. There's a lot of content in there.
  - Clewza313 6y ago
    That's a rather extraordinary claim, would you have a source for that?
    - deleted 6y ago
      [deleted]
    - tengbretson 6y ago
      In the last 12 months: Nasdaq 100 - up 40% Cotton - up 25% Corn - up 40% Gold - up 15% Silver - up 25% Steel - up 30% lumber - up 100% Copper - up 46% Aluminum - up 22% https://markets.businessinsider.com/commodities https://markets.businessinsider.com/commodities
phkahler 6y ago
>> There were no interest rate hikes between 2006 and 2015, and interest rates have been at zero for 8 out of the last 13 years. Right. The increase in 2005-6 was what set off the 7'8 financial crisis. I never understood that one. The previous cuts seemed like an over reaction to the tech bubble popping, but the rapid rise was even worse. I thought they were very slowly raising rates prior to Covid, but using housing market to judge how slow to raise them.
nimbius 6y ago
>When the one year treasury yield gets back above 2%, we are leaving the easy money era. zero percent and negative interest are like a roach motel for investors in 2021. no ones leaving anything. in 2008 the fed introduced quantitative easing and by 2020 they'd never left it. the fed just..."decided" that they didnt want stocks to crash, ever, and increased the amount of liquidity in the market without thinking twice. in 2010 they tried to ween the market off QE and were rewarded with an 800 point tantrum plunge. now its 2021, the feds 1993 crisis to real earnings (cheap credit) is now de-facto how most of American society runs. their 2008 stop-gap (QE) cannot be undone without a massive economic depression and every day hyperinflation looms on the horizon. This means there is also no possibility of a minimum wage increase (doubling to $15)...ever, as no one knows if it would be good enough to trigger a collapse or not. despite the furious protest of real-estate moguls many people see housing as a bubble, and when it pops, QE will not solve the problem a second time around.
aaron_m04 6y ago
> The Fed has an incentive to keep them low - they'll get mass bankruptcy and mass unemployment otherwise, contrary to their full-employment mandate. News to me! If that's their mandate they have utterly failed. Where is this written?
- AngrySkillzz 6y ago
  Federal Reserve act of 1977. Dual mandate: price stability and maximum sustainable employment. Inflation around 2% and unemployment under 4% pre-COVID doesn't smell like failure to me, but that's up to you. Especially if you compare to other developed economies with even more sluggish inflation and insane unemployment rates since 2008.
  - aaron_m04 6y ago
    To me, "full employment" means 0% not close to 4%.
    - AngrySkillzz 6y ago
      That's not how employment works. There is a certain amount of natural unemployment even in a full employment economy: this is called "frictional unemployment." Like, you just moved or quit your job or got laid off and are looking for a new one. You are unemployed for a couple weeks or months, or longer if you're retraining. There's also structural unemployment, people who are unemployed (or underemployed) because their skills are not suited to the current environment. Central banks can't do anything about that with interest rates. There will always be some people unemployed. Full employment is defined by the concept of the NAIRU, the non-accelerating inflation rate of unemployment. The lowest sustainable unemployment before inflation begins to take off in a feedback loop (as higher inflation pushes expectations of future inflation up, resulting in a spiral).
    - pjc50 6y ago
      Yeah, there's a big fight about this - AngrySkillz is entirely correct about "NAIRU", but it's one of those parameters that's difficult to measure because you can only find out when it's "too late". Heck, even the "4%" is a percentage of people "looking for work", which is obviously a quantity that can vary depending on how good or bad the outlook is.
deleted 6y ago
[deleted]
pueblito 6y ago
Your comment was more informative to me than the article
collyw 6y ago
For me interest rates hovering close to zero since 2008 seemed to be a sign that we had never really recovered from that recession. But I am in no way a financial expert.
ajsharp 6y ago
The Fed can only directly set the Federal Funds rate, which effectively allows them to set a floor on short-term interest rates. Short term rates influence longer-term rates, but the longer you go out on the yield curve the weaker the effect. So, yes, while the Fed wants lower interest rates generally because lower cost of capital is good for growth, the Fed cannot artificially will long-term interest rates to be at a certain level. Eventually, the yield curve will start to look somewhat normal again, and we'll start to have a yield curve that rewards longer-term fixed income investors. Longer-term interest rates reflect market forces, and eventually investors will demand higher yields for longer-dated US government and corporate debt. Finally, though I increasingly see the term "hyperinflation" thrown around in conversation, hyperinflation in the US is just not even a remote possibility. The last time an actual hyperinflation occurred in a major economy was Germany after WW1. The differences between then and now are too many to mention, but here are a few: fiat current vs gold standard, reserve currency status (the US today), massive debt burden denominated in a foreign currency (Germany then), immature and non-independent central banking (Germany then). A Weimar Republic style hyperinflation is just off the table; so let's stop throwing the term around. Maybe you're referring to something akin to the US 1970s era "very high but not event close to hyper-" inflation, e.g. 5-20+% per year. While possible, it's highly unlikely. Maybe we get to something like 5% annualized inflation for a year or so, but I wouldn't bet on much more than that. The inflation period in the 70s (stagflation) perplexed monetary policy-makers at the time, who weren't used to seeing high inflation coupled with stagnant or negative growth. This period of inflation was caused largely by market characteristics that simply don't exist today: energy price shocks that caused raw materials supply constraints throughout the economy. The US was a much more concentrated economy in the 70s, with a relatively large portion of GDP tied to raw materials and thus imported oil. Today the US is largely energy independent and does not have such a narrow concentration of supply dependencies in the economy. The US has evolved into a much more diversified and service-based economy, as opposed to the manufacturing-focused economy of the post-war period. There is no one commodity that we rely heavily on that, if unable to access would effectively stagnate economic growth. In the 1970s, OPEC basically said, "hey, no more oil!", and we were like "yea but we need it for pretty much everything and if we can't have it we're fucked" and OPEC basically said "yea well tough shit". There is not a modern equivalent of imported oil that is the lifeblood of the economy controlled by a cartel that when supply is artificially constrained we would be completely fucked. Even something like semi-conductors while worrisome, is fundamentally different than a commodity like oil. We can decide to produce semi-conductors if it's in our economic interest, but we can't just decide to have more oil. Finally, central bankers are not stupid. They're very aware of inflation risks. And while they are committed to keeping short-term interest rates low for an unusually long period of time, long-term interest rates do and will reflect market conditions. This does not end in hyperinflation; it ends with moderately elevated inflation and that outcome is undeniably better than a deflationary outcome.
roenxi 6y ago
Same story; different perspective: The US has a bunch of real resources. They are being directed to companies that are basically burning them for no reason ($X off resource in, $X less a bit out). If they demand that companies show any sort of ability to generate more than they consume, then too many companies fail. So instead they are encouraging wasteful companies to keep on doing what they do. At some point, the deadweight builds up and a series of worsening crisises emerge as people start fighting over what is left, which is no longer enough to have a peaceful society. The problem is that if losers don't lose, they will end up in control of the economy. I could out-compete almost anyone on vast amounts of borrowed money while making a loss.
- pjc50 6y ago
  Money is not a real resource, though. The real burning resource for no reason is petroleum flaring.
- nerdponx 6y ago
  Companies like Uber "burning" money is a wealth transfer from Uber investors to Uber customers, employees, and vendors, creating tremendous value where there was once none (labor exploitation notwithstanding). Is it sustainable? No. But I disagree that it represents waste from anyone's perspective but the shareholders'.
  - tppiotrowski 6y ago
    I think there are economic losers like taxi cab companies so it’s not a clear wealth transfer for most people.
  - stelcodes 6y ago
    More like a wealth transfer to AWS, corporate lawyers, and software engineers. Poor people are not becoming enriched by Uber
    - nradov 6y ago
      Ultimately much of the wealth is transferred to landlords in areas where Uber has facilities and employees.
teekert 6y ago
In my country young people don't have loans (edit, they may have some nowadays indeed) and we pay for cars out of pocket. Effectively The only loans are mortgages. Young people are not even able to build any debt now because they can't afford a house anymore. So they have a big incentive to see the interest go up again. But I guess this housing crisis is also driven by the insanely low supply, so building a lot more would also help.
- rwmj 6y ago
  What country is this? While I'd like to see consumer debt reigned in a bit, I think not being able to borrow at all for cars is a bit extreme. What happens if you need to buy a car in order to accept a particular job? (If the idea of being a polluting commuter offends you, then consider other job-related items such as office equipment or tools).
  - teekert 6y ago
    I live in the Netherlands, almost every place is accessible by either public transport of bike or (usually) a combination of both, no real need for a car. If you do really need it I'm sure parents are there, a small, ok car can be had for under 1000, right? If you still live at home you can buy it from your first wage. Otherwise it may take a bit longer. Government advices people to have a buffer of at least 5000 so you can have you washing machine fixed or get a new furnace (the thing that heats your house) and fix other house related issues (or your car). Most people I know try to maintain that buffer.
    - adrianb 6y ago
      Dutch young people do have student debt though afaik. Wouldn't rising rates affect their payments?
      - teekert 6y ago
        Maybe a bit, I did indeed have a 6000 eur debt. My knowledge may be a bit outdated. But school (BSc/MSc) will cost a max o 2000/year and the interest is basically zero and you have to pay it back in 20 years if you can't it's forgiven (it was in my time). I paid back the 6000 (parents didn't want to pay for uni) at a rate of 50 euro/month, until I just paid it off in one go.
nemo44x 6y ago
Don’t forget that municipalities are counting on interest rates staying low so that assessed values of homes can stay high and property taxes remain high. If interest rates were to cut home values in half then numerous municipalities would face extremely hard decisions or even bankruptcy. Interest rates have declined for 40 years. There is no reason to believe they will trend up long term. I don’t know if it ends in hyperinflation though as the number of people that can access the cheap money is limited.
throw0101a 6y ago
> The longer interest rates stay at zero, the longer this assumption gets baked into the structure of the economy and the more chaos that'll be unleashed when and if they finally go up. […] > If everybody has an incentive for rates to stay low, they will stay low. This ends in hyperinflation. Japan has had rates ≤1% since April 1995: * https://fred.stlouisfed.org/series/INTDSRJPM193N https://fred.stlouisfed.org/series/INTDSRJPM193N The rate was 0.1% for five years (2001-2005). Japan's inflation: * https://fred.stlouisfed.org/series/FPCPITOTLZGJPN https://fred.stlouisfed.org/series/FPCPITOTLZGJPN
pjc50 6y ago
> This ends in hyperinflation. The system is structured to prevent even the slightest bit of inflation by raising rates. The Fed has not forgotten that, and the politics of mass unemployment are readily manageable. Years of conservativism has seen to that. Call me back when inflation exceeds 4%. It's currently below the 2% target. Look, interest rates are the market price of money. Money - investment - is not scarce. That's where the asset bubbles are coming from, after all. And it's not just a question of money creation, it's wealth creation and concentration that's driven this. Everything from Apple's cash pile to the unaccountable wealth of Saudi and Russian fossil fuel extractors to all the capital flight from China that's been bloating Western real estate markets. The world is awash with money looking for a return which it simply can't find any more. Maybe my most controversial opinion is that if we don't get wealth taxes we'll end up having to have negative interest rates anyway. Something has to pay for the preservation of society around the pile of wealth. Switzerland has been doing good business charging people for stability with negative rates: https://edition.cnn.com/2020/01/23/investing/switzerland-cash-negative-rates/index.html https://edition.cnn.com/2020/01/23/investing/switzerland-cas... Let's not forget the pension funds. Something like a third of a Western society is basically forced to be bond investors - they need low-volatility investments and annuities. > Retirees have an incentive to keep them low, feeding 401K bubbles that they need to live on. ... they tend to be the main complainers about low rates since they live more off interest rates than asset prices and don't have mortgages.
panarky 6y ago
> If everybody has an incentive for rates to stay low, they will stay low Your list of stakeholders who like low rates is the same today as it was in the 2010s, the 2000s, the 1990s, the 1980s and the 1970s when rates were much higher. If stakeholders who like low rates had the power to set the rates, the rates would have been lower then, too. > This ends in hyperinflation Counterpoint: low rates are a consequence of a sluggish economy, not Soviet-style central planning. If the economy comes roaring back with double-digit GDP growth eight quarters in a row, and central banks continue printing tens of trillions of new money in the face of an overheated economy, then we'll see a wage-price spiral. But if the economy remains sickly, or central banks ease off the stimulus, then it's hard to see hyperinflation on the horizon.

adamcstephens 6y ago

Or it ends in a market crash. When interest rates are zero, savers have no choice to build on wealth except the market. This is why the market continues to hit higher and higher records, and at some point people will lose trust in the market and flee. Hyperinflation can always come after the bubble bursts.

thinkingkong 6y ago
Flee to where?
- the-dude 6y ago
  Crypto?
  - toomuchtodo 6y ago
    Central banks will outlaw it because they can't control it and devalue it (either through negative interest rates or helicopter money). Remember when the US outlawed holding gold? [1] [1] https://en.wikipedia.org/wiki/Executive_Order_6102 https://en.wikipedia.org/wiki/Executive_Order_6102
    - kinghajj 6y ago
      1. Central banks (at least, the US Fed) doesn't have the authority to declare crypto tokens illegal unilaterally. 2. EO 6102 made sense with the gold standard. It wasn't just an "FU" to gold hoarders, but a way to raise revenue to counter the depression. It's not clear to me that it would make sense for such a confiscation of crypto, especially if the legislature were to try option #1.
      - deleted 6y ago
        [deleted]
    - nostrademons 6y ago
      They probably will, but central government authority tends to collapse when hyperinflation begins. Venezuela (and the international community recognizing Venezuela) can't even agree on who the president is, and 60% of the Venezuelans who do work do so in the informal sector.
    - PragmaticPulp 6y ago
      People are giving too much credit to cryptocurrencies as the only vehicle for dodging inflation. Any asset that rises with inflation (most of them) is a sufficient vehicle for avoiding having your cash devalued. People could simply exchange their domestic currencies for foreign currencies of more stable countries. That's what happens in countries with hyperinflation right now, despite access to cryptocurrency. The only real advantage of cryptocurrency is that it could be transferred around hypothetical government controls. That's more of an extreme edge case scenario, though. To be clear: The US inflation is too high, IMO, but it's nowhere near hyperinflation or government collapse. The average citizen is more likely to benefit from recent stimulus packages than to lose out from it. It's not like everyone keeps their 401K invested in pure cash. That said, we're overdue for interest rates to start creeping up. COVID is coming to an end quickly and the unemployment never really got out of control in the first place. People aren't going to go bankrupt if their mortgages go back to 4-5% instead of 2-3%
wait_a_minute 6y ago
The majority of Americans do not have any real (or any at all) amounts of money invested in the market. That may change slowly as more people come online, but right now the majority of the stock is owned by a small percentage of the workers of the country. I'd expect there to be a very long road ahead of us before we find most Americans holding a sizable amount of their capital in the market or even in a bank account at all.
- robotresearcher 6y ago
  "Around 42% of the working-age population with a full-time job has a 401(k) or similar plan, and those funds are overwhelmingly invested in stocks" https://www.reuters.com/article/us-health-coronavirus-stocks-retail-expl/explainer-coronavirus-fears-hit-the-market-hard-how-much-did-ordinary-americans-lose-idUSKBN20Y1BZ https://www.reuters.com/article/us-health-coronavirus-stocks...
  - wahern 6y ago
    > only 33 percent of the population worked full time or more in 2016. Source: https://www.peoplespolicyproject.org/2018/05/01/only-1-in-3-americans-work-full-time/ https://www.peoplespolicyproject.org/2018/05/01/only-1-in-3-... > In 2018, the average account balance for Vanguard participants was $92,148; the median balance was $22,217. [emphasize added] Source: https://pressroom.vanguard.com/nonindexed/Research-How-America-Saves-2019-Report.pdf https://pressroom.vanguard.com/nonindexed/Research-How-Ameri... 33% * %42 = ~14%. And while the number is debatable, depending on how we define "significant", only a portion of that 14% has significant wealth invested in the stock market. I agree with the previous poster. The vast majority of Americans (including employed Americans) aren't invested in the stock market in any meaningful way.
- ErikAugust 6y ago
  "Just a modest majority of Americans, some 55%, own stocks, according to an April 2020 poll by Gallup, which asks whether households owned stocks either directly or as part of a fund." https://www.forbes.com/sites/teresaghilarducci/2020/08/31/most-americans-dont-have-a-real-stake-in-the-stock-market/?sh=2e9a5d1b1154 https://www.forbes.com/sites/teresaghilarducci/2020/08/31/mo...
JMTQp8lwXL 6y ago
Is there anything wrong with using markets to store value? Must we also have government bonds to store value? If you're in a diversified US index fund, it's basically a bet that the US will continue to do well. If it doesn't, you have bigger problems than the financial.
- Barrin92 6y ago
  the primary purpose of a market is supposed to be to accurately allocate productive resources and pick winners and losers. In a market constantly flush with cash where everyone just buys index funds that discriminatory function basically vanishes and you have a political commitment to always make the stonks go up even if it supports zombie firms. Which is already the case tbh. Same with housing. Nimbyism is such a big deal in the US because rather than seeing housing as a utility that should be cheap, it's become a store of value that must always go up.
  - tachyonbeam 6y ago
    There's a growing movement to get away from index funds. This year, tech stocks have exploded. ARK Invest has vastly outperformed the S&P 500 and Nasdaq-100. Ultra-low interest rates tend to have people going for increasingly high-risk, speculative investments, such as tech companies. The bolder and more futuristic the vision, the better. Obviously, this could end badly as well, but, people are starting to pick individual stocks instead of index funds.
    - JMTQp8lwXL 6y ago
      The problem is knowing when to enter and exit the sector-specific funds. It might beat the S&P in a trailing 12 month window, but it's unlikely to do so over a 5 or 10 year window.
    - hyko 6y ago
      It will definitely end badly. I guess it’s driven by desperation for returns. Diversification is a risk reduction strategy as old as the Bible; stock picking is not about preserving wealth or growing wealth, it’s about bootstrapping it.
jacquesm 6y ago
That and real estate prices. People borrow insane amounts of money right now because they can due to the ridiculously low (in some places negative!) interest rates. Once those go up to reasonable levels (say, 5...10 % annually) suddenly they won't be able to pay for their house anymore and it's 2008 all over again.
- Cthulhu_ 6y ago
  When getting a mortgage, at least on my side of the pond, you get the option to fix the interest. I've set mine to 30 years fixed (the duration of the mortgage), because a few years ago it already seemed like the rates were bottoming out. I was wrong, but I don't regret fixing my mortgage interest rate. A more pressing matter is that people are no longer able to afford a house, especially if they're young / early in their career.
  - deleted 6y ago
    [deleted]
  - bambax 6y ago
    Same here. I would never have borrowed money on a variable interest rate.
    - panarky 6y ago
      I bought a home in 1998 with a variable-rate mortgage. The interest rate was 7.5% and my friends told me I was foolish not to pay 9.0% for a 30-year fixed rate mortgage. They calculated nightmare scenarios if rates doubled or tripled while theirs held constant. Every year since then, my interest rate reset downward until it hit the lower limit of 2%. Even though my required payment decreased, I kept paying the original payment amount and paid off the loan 10 years early. My friends paid hundreds of thousands in additional interest over the years for the peace of mind of a fixed rate. PSA: 2021 to 2031 might be different than 1998 to 2018.
      - zepto 6y ago
cft 6y ago
Or the dollar could just hyperinflate, which would end the market bubble. In which case the market bubble will never burst, as denominated in USD. Look at Venezuela's IBVC.
- adamcstephens 6y ago
  Hyperinflation of the dollar will be nothing like Venezuela. The dollar is the reserve currency in many nations, and the primary currency for oil. If we hyperinflate the entire global economic system will be impacted.

gher-shyu3i 6y ago

All this is because money lending is a business. We've known for literally thousands of years (Islam, Judaism, Christianity at least) that lending money with interest is predatory, harmful, and destructive. Couple that with the government being able to print money at will to cover its ever increasing debts (again, due to interest), and we see how the hole keeps getting deeper. It saddens me that we don't learn from past wisdom, and that greed drives the world. We see people vouch for clean energy, what we also need is clean finance and economics.

schoen 6y ago
I know YC purchases equity rather than debt with its investments (and that equity stakes are rarely considered "usury" and not always considered "lending"), but it's a little odd to see this comment on a forum hosted by a venture capital firm, whose whole business is about letting people have some money in the hope of profiting from it later on.
- gher-shyu3i 6y ago
  Purchasing equity is the moral approach. This means that the investor also bears the risk. If the company succeeds, the investor makes money, if it doesn't, then he lost money. > but it's a little odd to see this comment on a forum hosted... Why? They're not lending money, they're investing, two very different things.
  - ahepp 6y ago
    Creditors certainly bear risk of default. In fact, isn't that why VC exists? If banks were insulated from the consequences of their lending, wouldn't you expect them to loan to risky startups?
    - vineyardmike 6y ago
      > isn't that why VC exists Not entirely. VC exists for things where debt doesn't work. You can use debt to fund some things, eg. real estate, because a failed business still has a valuable asset to sell. If a vc funded tech company goes under, the only thing to sell is source code, which is not nearly as fungible.

mbesto 6y ago

> If everybody has an incentive for rates to stay low, they will stay low. This ends in hyperinflation. As long as the world runs on the dollar, it doesn't.

z3ugma 6y ago
This is what is actually so scary. Iirc the petrodollar system has kept American economic hegemony in place for ~50 years but new debt is more likely to be denominated in a mix of Euro, dollar, and RMB. At some point there will be a breaking point in foreign policy (not least of all because the end of American empire has us so focused on domestic fights) and the petrodollar will be over with the signing of a pen. That will trigger a massive reorganizing of the domestic economy and launch China’s primacy.
- epistasis 6y ago
  The trade deficit has also given the US power, and as the petrodollar disappears with fossil fuel no longer being the driver of energy, the US's purchasing power will keep it afloat. With T-bills trading at negative rates, the US is in a really strong position. People are paying the US for the ability to hold US currency. This is why I find it so odd that supposedly nationalists in the US rail against the trade deficit and US "debt." Our "debt" is actually just the currency of the world, and as the world grows wealthier and wants to hold our currency, there needs to be more of it out there. This is good for the US and puts other countries at a disadvantage!
  - nostrademons 6y ago
    It hurts different parts of America to different degrees. A strong U.S. dollar is generally good for U.S. consumers and bad for people who work in U.S. export industries. The dollar being the global reserve currency is good for the financial industry and bad for everyone else. So basically Wall Street (and workers in industries where America is dominant anyway, like tech, defense, biotech) should favor a strong dollar, while Main Street should favor a weak dollar. This isn't far off from reality: many of the "U.S. nationalists" represent constituents whose jobs have been eviscerated by foreign competition.

jmann99999 6y ago

I generally agree with your comment. However, retirees should want rates to rise. As you age, you want less of your money in more risky assets like the stock market. You want your money in CDs, money market accounts, and bonds. You want these safer instruments to pay a decent interest rate (say 5%) and not 1%. However, as you point out, rates have been low for a long time. This has caused retirees and people approaching retirement to invest in riskier assets. They have been forced into a loser’s game. That’s going to cause a lot of pain if we get a massive correction. Those of us who have time to recover from a correction will be OK. Those who lose 50% of their assets in a correction, and don’t have the time to make that up, are going to have their lives turned upside down.

wskinner 6y ago
If you already hold fixed income assets, you do not want rates to rise, because when rates rise, the price of your holdings will fall. When rates fall, those interest bearing assets look better in comparison to the new bonds (e.g.) that are being issued, so their price rises.
- jmann99999 6y ago
  That is correct, if you are currently holding with the idea of selling before maturity. However, if you are holding to maturity or investing in money markets or CDs (that are short-term), you do want high interest rates. Imagine yourself in 1981 and could have locked up a 30 year U.S. treasury at 14.5%. Sure, there are riskier investments that may have beat that. However, if you are a retiree, that type of consistent, non-risky return is what you would want.
  - YZF 6y ago
    When you sell doesn't really matter. The current value of your bonds (e.g.) will still drop if interest rates go up. If you bought that 30 year at 14.5% and we had hyperinflation then you wouldn't be so happy. There was a reason why those rates were at that point, inflation was >10%. Conversely you could try to short bonds now but if rates stay at zero for the next few decades or go negatively that's not gonna be so great. In the rear-view mirror someone will say how we were stupid(?) for not shorting bonds when the rates shoot up to >10% again, or they don't. It's hard to win this game. What is true is that retirees might have a shorter horizon (though people keep living for longer and longer) and so they may be forced into safer/shorter duration investments and possibly into smaller returns. Efficient markets something something ;)

omegaworks 6y ago

> This ends in hyperinflation. If productivity continues apace, if value added to the economy continues apace, I don't see why it ends in hyperinflation.

nostrademons 6y ago
An unstated assumption in my post is that productivity growth does not continue apace. When interest rates are low, companies are incentivized to invest in lower marginal productivity investments, because those investments still remain profitable when cost of capital is low. When rates suddenly go up, a number of these investments become unprofitable: the income streams from them don't exceed the new higher interest rates companies would have to pay to roll their bonds. Therefore the central bank is stuck unable to raise rates. Note that there is another potential ending for this: a deflationary trap like Japan is in, or like the U.S. was in from 2009-2020. I'm betting on hyperinflation, though. The reason is that nearly all past hyperinflationary events have come from large sector shifts in aggregate demand and aggregate supply, notably when coming down from a war or transitioning from a command economy to a market economy. COVID just provided exactly such a supply/demand shock: large quantities of production were shifted into medical devices and remote work, while demand shifted away from travel, experiences, and gasoline to home improvement & home office supplies. When demand shifts back, those industries will have significantly reduced capacity, and a lot of bargaining power to raise prices. The raised prices cascade through the economy, and that's what triggers inflation. It's like the economy is your heater, money-printing is turning up the gas because it's not getting hot enough, low productivity is not realizing that your igniter is broken, and COVID is lighting a match. Without COVID you'd just open your windows and air out the gas (although it still wouldn't fix your broken igniter). With it, we go boom.
- thewarrior 6y ago
  We have had low interest rates and massive QE even before this. We did not come close to hyper inflation. Why will this time be different ?
  - 6y ago

74d-fe6-2c6 6y ago

username checks out ... </reddit> this world is like a wheel with hamsters running ever faster and faster. obviously not going to end well.

nknealk 6y ago

> This ends in hyperinflation. Except for the part where the fed said (and continues to say) it would raise rates if it saw sustained high inflation

tengbretson 6y ago
The price of nearly everything has gone up about 40% in the last 12 months, so I guess we'll get to see if that was a lie rather soon.
- arawde 6y ago
  core CPI last month was 1.4% and has consistently been under 2% for a long time
- nealabq 6y ago
  The U.S. Bureau of Labor Statistics reports (10-Feb-2021) that the Consumer Price Index (all items index) increased 1.4 percent over the last 12 months. https://www.bls.gov/news.release/pdf/cpi.pdf https://www.bls.gov/news.release/pdf/cpi.pdf
  - quiescant_dodo 6y ago
    Thanks for the link. There's a lot of content in there.
- Clewza313 6y ago
  That's a rather extraordinary claim, would you have a source for that?
  - deleted 6y ago
    [deleted]
  - tengbretson 6y ago
    In the last 12 months: Nasdaq 100 - up 40% Cotton - up 25% Corn - up 40% Gold - up 15% Silver - up 25% Steel - up 30% lumber - up 100% Copper - up 46% Aluminum - up 22% https://markets.businessinsider.com/commodities https://markets.businessinsider.com/commodities

phkahler 6y ago

>> There were no interest rate hikes between 2006 and 2015, and interest rates have been at zero for 8 out of the last 13 years. Right. The increase in 2005-6 was what set off the 7'8 financial crisis. I never understood that one. The previous cuts seemed like an over reaction to the tech bubble popping, but the rapid rise was even worse. I thought they were very slowly raising rates prior to Covid, but using housing market to judge how slow to raise them.

nimbius 6y ago

>When the one year treasury yield gets back above 2%, we are leaving the easy money era. zero percent and negative interest are like a roach motel for investors in 2021. no ones leaving anything. in 2008 the fed introduced quantitative easing and by 2020 they'd never left it. the fed just..."decided" that they didnt want stocks to crash, ever, and increased the amount of liquidity in the market without thinking twice. in 2010 they tried to ween the market off QE and were rewarded with an 800 point tantrum plunge. now its 2021, the feds 1993 crisis to real earnings (cheap credit) is now de-facto how most of American society runs. their 2008 stop-gap (QE) cannot be undone without a massive economic depression and every day hyperinflation looms on the horizon. This means there is also no possibility of a minimum wage increase (doubling to $15)...ever, as no one knows if it would be good enough to trigger a collapse or not. despite the furious protest of real-estate moguls many people see housing as a bubble, and when it pops, QE will not solve the problem a second time around.

aaron_m04 6y ago

> The Fed has an incentive to keep them low - they'll get mass bankruptcy and mass unemployment otherwise, contrary to their full-employment mandate. News to me! If that's their mandate they have utterly failed. Where is this written?

AngrySkillzz 6y ago
Federal Reserve act of 1977. Dual mandate: price stability and maximum sustainable employment. Inflation around 2% and unemployment under 4% pre-COVID doesn't smell like failure to me, but that's up to you. Especially if you compare to other developed economies with even more sluggish inflation and insane unemployment rates since 2008.
- aaron_m04 6y ago
  To me, "full employment" means 0% not close to 4%.
  - AngrySkillzz 6y ago
    That's not how employment works. There is a certain amount of natural unemployment even in a full employment economy: this is called "frictional unemployment." Like, you just moved or quit your job or got laid off and are looking for a new one. You are unemployed for a couple weeks or months, or longer if you're retraining. There's also structural unemployment, people who are unemployed (or underemployed) because their skills are not suited to the current environment. Central banks can't do anything about that with interest rates. There will always be some people unemployed. Full employment is defined by the concept of the NAIRU, the non-accelerating inflation rate of unemployment. The lowest sustainable unemployment before inflation begins to take off in a feedback loop (as higher inflation pushes expectations of future inflation up, resulting in a spiral).
  - pjc50 6y ago
    Yeah, there's a big fight about this - AngrySkillz is entirely correct about "NAIRU", but it's one of those parameters that's difficult to measure because you can only find out when it's "too late". Heck, even the "4%" is a percentage of people "looking for work", which is obviously a quantity that can vary depending on how good or bad the outlook is.

deleted 6y ago

[deleted]

pueblito 6y ago

Your comment was more informative to me than the article

collyw 6y ago

For me interest rates hovering close to zero since 2008 seemed to be a sign that we had never really recovered from that recession. But I am in no way a financial expert.

ajsharp 6y ago

The Fed can only directly set the Federal Funds rate, which effectively allows them to set a floor on short-term interest rates. Short term rates influence longer-term rates, but the longer you go out on the yield curve the weaker the effect. So, yes, while the Fed wants lower interest rates generally because lower cost of capital is good for growth, the Fed cannot artificially will long-term interest rates to be at a certain level. Eventually, the yield curve will start to look somewhat normal again, and we'll start to have a yield curve that rewards longer-term fixed income investors. Longer-term interest rates reflect market forces, and eventually investors will demand higher yields for longer-dated US government and corporate debt. Finally, though I increasingly see the term "hyperinflation" thrown around in conversation, hyperinflation in the US is just not even a remote possibility. The last time an actual hyperinflation occurred in a major economy was Germany after WW1. The differences between then and now are too many to mention, but here are a few: fiat current vs gold standard, reserve currency status (the US today), massive debt burden denominated in a foreign currency (Germany then), immature and non-independent central banking (Germany then). A Weimar Republic style hyperinflation is just off the table; so let's stop throwing the term around. Maybe you're referring to something akin to the US 1970s era "very high but not event close to hyper-" inflation, e.g. 5-20+% per year. While possible, it's highly unlikely. Maybe we get to something like 5% annualized inflation for a year or so, but I wouldn't bet on much more than that. The inflation period in the 70s (stagflation) perplexed monetary policy-makers at the time, who weren't used to seeing high inflation coupled with stagnant or negative growth. This period of inflation was caused largely by market characteristics that simply don't exist today: energy price shocks that caused raw materials supply constraints throughout the economy. The US was a much more concentrated economy in the 70s, with a relatively large portion of GDP tied to raw materials and thus imported oil. Today the US is largely energy independent and does not have such a narrow concentration of supply dependencies in the economy. The US has evolved into a much more diversified and service-based economy, as opposed to the manufacturing-focused economy of the post-war period. There is no one commodity that we rely heavily on that, if unable to access would effectively stagnate economic growth. In the 1970s, OPEC basically said, "hey, no more oil!", and we were like "yea but we need it for pretty much everything and if we can't have it we're fucked" and OPEC basically said "yea well tough shit". There is not a modern equivalent of imported oil that is the lifeblood of the economy controlled by a cartel that when supply is artificially constrained we would be completely fucked. Even something like semi-conductors while worrisome, is fundamentally different than a commodity like oil. We can decide to produce semi-conductors if it's in our economic interest, but we can't just decide to have more oil. Finally, central bankers are not stupid. They're very aware of inflation risks. And while they are committed to keeping short-term interest rates low for an unusually long period of time, long-term interest rates do and will reflect market conditions. This does not end in hyperinflation; it ends with moderately elevated inflation and that outcome is undeniably better than a deflationary outcome.

roenxi 6y ago

Same story; different perspective: The US has a bunch of real resources. They are being directed to companies that are basically burning them for no reason ($X off resource in, $X less a bit out). If they demand that companies show any sort of ability to generate more than they consume, then too many companies fail. So instead they are encouraging wasteful companies to keep on doing what they do. At some point, the deadweight builds up and a series of worsening crisises emerge as people start fighting over what is left, which is no longer enough to have a peaceful society. The problem is that if losers don't lose, they will end up in control of the economy. I could out-compete almost anyone on vast amounts of borrowed money while making a loss.

pjc50 6y ago
Money is not a real resource, though. The real burning resource for no reason is petroleum flaring.
nerdponx 6y ago
Companies like Uber "burning" money is a wealth transfer from Uber investors to Uber customers, employees, and vendors, creating tremendous value where there was once none (labor exploitation notwithstanding). Is it sustainable? No. But I disagree that it represents waste from anyone's perspective but the shareholders'.
- tppiotrowski 6y ago
  I think there are economic losers like taxi cab companies so it’s not a clear wealth transfer for most people.
- stelcodes 6y ago
  More like a wealth transfer to AWS, corporate lawyers, and software engineers. Poor people are not becoming enriched by Uber
  - nradov 6y ago
    Ultimately much of the wealth is transferred to landlords in areas where Uber has facilities and employees.

teekert 6y ago

In my country young people don't have loans (edit, they may have some nowadays indeed) and we pay for cars out of pocket. Effectively The only loans are mortgages. Young people are not even able to build any debt now because they can't afford a house anymore. So they have a big incentive to see the interest go up again. But I guess this housing crisis is also driven by the insanely low supply, so building a lot more would also help.

rwmj 6y ago
What country is this? While I'd like to see consumer debt reigned in a bit, I think not being able to borrow at all for cars is a bit extreme. What happens if you need to buy a car in order to accept a particular job? (If the idea of being a polluting commuter offends you, then consider other job-related items such as office equipment or tools).
- teekert 6y ago
  I live in the Netherlands, almost every place is accessible by either public transport of bike or (usually) a combination of both, no real need for a car. If you do really need it I'm sure parents are there, a small, ok car can be had for under 1000, right? If you still live at home you can buy it from your first wage. Otherwise it may take a bit longer. Government advices people to have a buffer of at least 5000 so you can have you washing machine fixed or get a new furnace (the thing that heats your house) and fix other house related issues (or your car). Most people I know try to maintain that buffer.
  - adrianb 6y ago
    Dutch young people do have student debt though afaik. Wouldn't rising rates affect their payments?
    - teekert 6y ago
      Maybe a bit, I did indeed have a 6000 eur debt. My knowledge may be a bit outdated. But school (BSc/MSc) will cost a max o 2000/year and the interest is basically zero and you have to pay it back in 20 years if you can't it's forgiven (it was in my time). I paid back the 6000 (parents didn't want to pay for uni) at a rate of 50 euro/month, until I just paid it off in one go.

nemo44x 6y ago

Don’t forget that municipalities are counting on interest rates staying low so that assessed values of homes can stay high and property taxes remain high. If interest rates were to cut home values in half then numerous municipalities would face extremely hard decisions or even bankruptcy. Interest rates have declined for 40 years. There is no reason to believe they will trend up long term. I don’t know if it ends in hyperinflation though as the number of people that can access the cheap money is limited.

throw0101a 6y ago

> The longer interest rates stay at zero, the longer this assumption gets baked into the structure of the economy and the more chaos that'll be unleashed when and if they finally go up. […] > If everybody has an incentive for rates to stay low, they will stay low. This ends in hyperinflation. Japan has had rates ≤1% since April 1995: * https://fred.stlouisfed.org/series/INTDSRJPM193N https://fred.stlouisfed.org/series/INTDSRJPM193N The rate was 0.1% for five years (2001-2005). Japan's inflation: * https://fred.stlouisfed.org/series/FPCPITOTLZGJPN https://fred.stlouisfed.org/series/FPCPITOTLZGJPN

pjc50 6y ago

> This ends in hyperinflation. The system is structured to prevent even the slightest bit of inflation by raising rates. The Fed has not forgotten that, and the politics of mass unemployment are readily manageable. Years of conservativism has seen to that. Call me back when inflation exceeds 4%. It's currently below the 2% target. Look, interest rates are the market price of money. Money - investment - is not scarce. That's where the asset bubbles are coming from, after all. And it's not just a question of money creation, it's wealth creation and concentration that's driven this. Everything from Apple's cash pile to the unaccountable wealth of Saudi and Russian fossil fuel extractors to all the capital flight from China that's been bloating Western real estate markets. The world is awash with money looking for a return which it simply can't find any more. Maybe my most controversial opinion is that if we don't get wealth taxes we'll end up having to have negative interest rates anyway. Something has to pay for the preservation of society around the pile of wealth. Switzerland has been doing good business charging people for stability with negative rates: https://edition.cnn.com/2020/01/23/investing/switzerland-cash-negative-rates/index.html https://edition.cnn.com/2020/01/23/investing/switzerland-cas... Let's not forget the pension funds. Something like a third of a Western society is basically forced to be bond investors - they need low-volatility investments and annuities. > Retirees have an incentive to keep them low, feeding 401K bubbles that they need to live on. ... they tend to be the main complainers about low rates since they live more off interest rates than asset prices and don't have mortgages.

panarky 6y ago

> If everybody has an incentive for rates to stay low, they will stay low Your list of stakeholders who like low rates is the same today as it was in the 2010s, the 2000s, the 1990s, the 1980s and the 1970s when rates were much higher. If stakeholders who like low rates had the power to set the rates, the rates would have been lower then, too. > This ends in hyperinflation Counterpoint: low rates are a consequence of a sluggish economy, not Soviet-style central planning. If the economy comes roaring back with double-digit GDP growth eight quarters in a row, and central banks continue printing tens of trillions of new money in the face of an overheated economy, then we'll see a wage-price spiral. But if the economy remains sickly, or central banks ease off the stimulus, then it's hard to see hyperinflation on the horizon.