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> They just give it right to the finance industry I don't think this is the whole story. It passes through the finance industry, but when interest rates are l

by nverno 5y ago

> They just give it right to the finance industry I don't think this is the whole story. It passes through the finance industry, but when interest rates are low, everyone outside the finance industry (who is taking out loans) benefits as well. Interest rates are levers that the central bankers can use to control the amount of outflow through the dam that is the finance industry.

stormbrew 5y ago
The thing is it wasn't flowing out, except in some specific ways, and in spite of decades of low to virtually zero interest rates. Every QE event has led to a ballooning of the stock market and asset holdings on things that can be mortgaged, which are both things that disproportionately benefit only some of 'everyone'. This is the point I'm making. Interest rates stopped being a lever a long time ago, whether by choice or because the abstractions economists have built up are proving to be less universal than they believed them to be. Either way, the money has largely just sloshed around everywhere but regular people's cashflow. It definitely does also lead to 'easier' lending to those people as well but the interest rates that get paid on consumer debt (ie. credit cards) aren't really related to central banking interest rates, and are often bordering on usurious anyways. Through that, the finance industry effectively collects taxes on the poor that the government is unwilling to (for good reason).
- nverno 5y ago
  I agree, it doesn't seem to be working as well as you'd hope. I wonder how much of that is due to people not taking advantage of the opportunity for cheap money, either because they don't know about it, or have no ideas how to use it.
  - trashface 5y ago
    Generally US banks require medium to high W-2 income and a secured asset (house) to get a reasonable interest rate loan, a lot of people in the US don't have one or both.
  - stormbrew 5y ago
    I mean, like I said most people only have access to expensive (but readily given) credit, because they have nothing to secure a loan against. Low central interest rates make the risk/reward of handing out high interest credit cards to high risk customers slanted towards the reward, as we saw in 2008. Some of that got clamped down on, obviously, but the basic incentives haven't really changed. I think the immediate issue for this question is the same as it's ever been, but made worse by the growth of asset value. For most of the 20th century, since "everyone should be able to buy a home" became a government meme, the way out of that trap was to leverage yourself into asset ownership with a mortgage. Now that's becoming increasingly out of reach to people in an economy largely built on service jobs that pay poorly on one side, and an asset bubble that they can't pop without blowing up the economy on the other. So imo it's some combination of "people have no idea how to use it" and "even if they do it may not be possible for them to pull it off unless the stars align now."
  - hackerfromthefu 5y ago
    It's never really intended to work as advertised, that's just a narrative to push it politically. The real reason it's done this way is regulatory capture, ie corruption of the system.

by nverno 5y ago

stormbrew 5y ago

The thing is it wasn't flowing out, except in some specific ways, and in spite of decades of low to virtually zero interest rates. Every QE event has led to a ballooning of the stock market and asset holdings on things that can be mortgaged, which are both things that disproportionately benefit only some of 'everyone'. This is the point I'm making. Interest rates stopped being a lever a long time ago, whether by choice or because the abstractions economists have built up are proving to be less universal than they believed them to be. Either way, the money has largely just sloshed around everywhere but regular people's cashflow. It definitely does also lead to 'easier' lending to those people as well but the interest rates that get paid on consumer debt (ie. credit cards) aren't really related to central banking interest rates, and are often bordering on usurious anyways. Through that, the finance industry effectively collects taxes on the poor that the government is unwilling to (for good reason).

nverno 5y ago
I agree, it doesn't seem to be working as well as you'd hope. I wonder how much of that is due to people not taking advantage of the opportunity for cheap money, either because they don't know about it, or have no ideas how to use it.
- trashface 5y ago
  Generally US banks require medium to high W-2 income and a secured asset (house) to get a reasonable interest rate loan, a lot of people in the US don't have one or both.
- stormbrew 5y ago
  I mean, like I said most people only have access to expensive (but readily given) credit, because they have nothing to secure a loan against. Low central interest rates make the risk/reward of handing out high interest credit cards to high risk customers slanted towards the reward, as we saw in 2008. Some of that got clamped down on, obviously, but the basic incentives haven't really changed. I think the immediate issue for this question is the same as it's ever been, but made worse by the growth of asset value. For most of the 20th century, since "everyone should be able to buy a home" became a government meme, the way out of that trap was to leverage yourself into asset ownership with a mortgage. Now that's becoming increasingly out of reach to people in an economy largely built on service jobs that pay poorly on one side, and an asset bubble that they can't pop without blowing up the economy on the other. So imo it's some combination of "people have no idea how to use it" and "even if they do it may not be possible for them to pull it off unless the stars align now."
- hackerfromthefu 5y ago
  It's never really intended to work as advertised, that's just a narrative to push it politically. The real reason it's done this way is regulatory capture, ie corruption of the system.