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Shows just how sensitive our economy is to small interest rate fluctuations, having lived around the zero bound for over a decade. We've encouraged everyone to

Shows just how sensitive our economy is to small interest rate fluctuations, having lived around the zero bound for over a decade. We've encouraged everyone to lever out as far as possible while at the same time making real production more and more difficult (or, during the early lock downs, impossible) and, well, the long run is here. Keynes was right: he's dead. Unfortunately, we, and our children, are not.

kasey_junk 5y ago
The US Fed didn’t raise interest rates until March, much too late to cause this number.
- recursivedoubts 5y ago
  They began talking about raising rates much earlier. Markets and the economy are forward looking.
  - VHRanger 5y ago
    Markets didn't react until around Feb 2022. Look at mortgage rates for instance. Or just equities indeces.
  - kasey_junk 5y ago
    All of the predictions ahead of this number and the article itself were predicting this based on inventory surpluses that had been built up in the previous 2 quarters. That seems a more directly attributable cause than fears of interest rate increases. In fact, if you anticipate interest rate increases it makes more sense to bring spending forward not to delay it.
  - jlmorton 5y ago
    I'm not sure what you're suggesting. What was the mechanism by which talk of higher rates reduced GDP? Consumer and business spending both increased. Personal consumption expenditures increased at 2.7%, and business investment increased at 2.1%. The big drag in the report is from inventories and trade, which are being impacted by pandemic-related supply chain issues and geopolitics.
- newaccount2021 5y ago
- gruez 5y ago
  It was already priced in. On jan 3 the markets were predicting a 57.12% chance of interest rate increase to 25-50bp, 3.6% chance of increasing to 50-75bp. https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html https://www.cmegroup.com/trading/interest-rates/countdown-to...
  - riku_iki 5y ago
    But market is not economy.
    - gruez 5y ago
      It trickles down. If the banks knew the interest rates are going to rise at the next fed meeting, they're not going to wait until the announcement to raise their rates. That means the effect of a rate increase is felt way ahead of it being announced.
      - riku_iki 5y ago
        > they're not going to wait until the announcement to raise their rates they will do what market will allow them to do. One bank can raise rates, but others won't, they will secure pre-hike loans, and win customers because of lower rates. Also, I am not sure if commenter above referred on loan rates market or maybe stock market..
bko 5y ago
> We've encouraged everyone to lever out as far as possible Household debt to GDP has gone down since the low interest rate environment kicked off in 2010. Same is true for household debt as a percentage of personal income. Although I will note that its debt payments, not absolute amount of debt and obviously lower rates lower the interest portion of debt payments. I agree there is something troubling going on but it's not a personal debt crisis https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/TDSP https://fred.stlouisfed.org/series/TDSP
- lumost 5y ago
  There are many troubling things happening at the moment. From a US centric point of view. - Inflation is at it's highest since the 1970s in the US - There is a large military conflict in Europe. - There are shortages of chips, energy, and food on the horizon. - Unprofitable growth stocks have valuations as high as 100:1 on revenue. - There is increasing militarized tension on many portions of the global supply chain (Russia:EU, China:US, China:Taiwan). - Housing has appreciated by up to 40% YoY in major US cities. - A global pandemic has introduced lockdowns, and potentially permanently changed people's relationship with work. While killing a million people. - The US legislative branch is utterly paralyzed. - The US business cycle hasn't seen a recession since ~2010. I'm sure I missed a few, but the fact that a recession hasn't happened should be more surprising than a recession happening.
  - deleted 5y ago
    [deleted]
  - miohtama 5y ago
    There is also financialization that has been going for a while: https://en.wikipedia.org/wiki/Financialization https://en.wikipedia.org/wiki/Financialization Finance industry share going up vs. Real economy output, which could be cause or the consequence of high valuations.
    - lumost 5y ago
matthewdgreen 5y ago
Maybe also losing 1.1 million people (according to the CDC's "excess deaths" website) wasn't that good for our economy either.
- buscoquadnary 5y ago
  Actually as callous as it sounds extra deaths are good for the economy. More dead people means fewer competitors for all resources except labor. What that means is fewer people need stuff and there are fewer people to make stuff, so the stuff the dead people had is easy to obtain for the living while employers have to pay more for labor because there is less of it. As evidence the black plague was considered one of the major events that ended the dark ages and the oppressions (relatively speaking) of the peasant class. Suddenly lord's needed to start giving their peasants rights and things to do or risk losing them to a lord that would give them those things. It's horrible and callous but it is also a fact, especially when you consider many of those deaths were not among the most productive segments of society.
  - muh_gradle 5y ago
    This sounds almost like some version of the broken window fallacy. But there is no way that ~1 million dead Americans from COVID has helped this country economically. Supply chains have been hurt by COVID. Hospitalizations means unproductive workers. Deaths means unproductive workers. We are not thriving at all right now.
    - beamatronic 5y ago
      Many tech workers were thriving (making and spending money) until their RSU’s crashed 75% or more
    - imtringued 5y ago
      That's the broken window fallacy. Abundant capital must be destroyed. In this case the abundant capital is people.
  - johnsimer 5y ago
skybrian 5y ago
I, for one, consider myself fortunate that I'm not dead. :) I guess you're saying that Keynesian doesn't work all that well when growth in supply is constrained. This doesn't seem necessarily to be the case, to the extent that people can be convinced to buy things that aren't in short supply? Demand for many essentials is inelastic, though.
LatteLazy 5y ago
Remember, going from 0.25% to 0.5% is a tiny, 0.25% changes. But it's also a DOUBLING of the rate...
wolverine876 5y ago
> Keynes was right: he's dead. Unfortunately, we, and our children, are not. That's the opposite of Keynes' meaning. Keynes was satirizing economists who say, 'it might be bad now, but things will work out in the long run'.
imtringued 5y ago
That's what you get for not listening to Keynes and Silvio Gesell. Instead of introducing a negative interest rate on cash to prevent people from accumulating capital in a low growth environment we are forced to play the endless debt game to artificially increase the return on capital to satisfy liquidity preference. If people stop borrowing, the interest rate on existing financial capital would fall way below 0% but since cash has a 0% interest rate, it's the working population that get screwed over during deflation through involuntary unemployment (also known as a economic depression). Eternal money is a farce, it is inherently unstable and can't exist over the long term which is why it constantly collapses and all you can do is delay the collapse as if the economy was a roguelite where you are supposed to get as much progress inbetween runs. Demurrage currencies allow the economy to represent negative interest rates and therefore eliminate the need for endless borrowing and inflation while simultaneously achieving full employment as predicted by Say's Law, decentralization of jobs, reducing wealth inequality and rewarding long term thinking.

kasey_junk 5y ago

The US Fed didn’t raise interest rates until March, much too late to cause this number.

recursivedoubts 5y ago
They began talking about raising rates much earlier. Markets and the economy are forward looking.
- VHRanger 5y ago
  Markets didn't react until around Feb 2022. Look at mortgage rates for instance. Or just equities indeces.
- kasey_junk 5y ago
  All of the predictions ahead of this number and the article itself were predicting this based on inventory surpluses that had been built up in the previous 2 quarters. That seems a more directly attributable cause than fears of interest rate increases. In fact, if you anticipate interest rate increases it makes more sense to bring spending forward not to delay it.
- jlmorton 5y ago
  I'm not sure what you're suggesting. What was the mechanism by which talk of higher rates reduced GDP? Consumer and business spending both increased. Personal consumption expenditures increased at 2.7%, and business investment increased at 2.1%. The big drag in the report is from inventories and trade, which are being impacted by pandemic-related supply chain issues and geopolitics.
newaccount2021 5y ago
gruez 5y ago
It was already priced in. On jan 3 the markets were predicting a 57.12% chance of interest rate increase to 25-50bp, 3.6% chance of increasing to 50-75bp. https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html https://www.cmegroup.com/trading/interest-rates/countdown-to...
- riku_iki 5y ago
  But market is not economy.
  - gruez 5y ago
    It trickles down. If the banks knew the interest rates are going to rise at the next fed meeting, they're not going to wait until the announcement to raise their rates. That means the effect of a rate increase is felt way ahead of it being announced.
    - riku_iki 5y ago
      > they're not going to wait until the announcement to raise their rates they will do what market will allow them to do. One bank can raise rates, but others won't, they will secure pre-hike loans, and win customers because of lower rates. Also, I am not sure if commenter above referred on loan rates market or maybe stock market..

bko 5y ago

> We've encouraged everyone to lever out as far as possible Household debt to GDP has gone down since the low interest rate environment kicked off in 2010. Same is true for household debt as a percentage of personal income. Although I will note that its debt payments, not absolute amount of debt and obviously lower rates lower the interest portion of debt payments. I agree there is something troubling going on but it's not a personal debt crisis https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/TDSP https://fred.stlouisfed.org/series/TDSP

lumost 5y ago
There are many troubling things happening at the moment. From a US centric point of view. - Inflation is at it's highest since the 1970s in the US - There is a large military conflict in Europe. - There are shortages of chips, energy, and food on the horizon. - Unprofitable growth stocks have valuations as high as 100:1 on revenue. - There is increasing militarized tension on many portions of the global supply chain (Russia:EU, China:US, China:Taiwan). - Housing has appreciated by up to 40% YoY in major US cities. - A global pandemic has introduced lockdowns, and potentially permanently changed people's relationship with work. While killing a million people. - The US legislative branch is utterly paralyzed. - The US business cycle hasn't seen a recession since ~2010. I'm sure I missed a few, but the fact that a recession hasn't happened should be more surprising than a recession happening.
- deleted 5y ago
  [deleted]
- miohtama 5y ago
  There is also financialization that has been going for a while: https://en.wikipedia.org/wiki/Financialization https://en.wikipedia.org/wiki/Financialization Finance industry share going up vs. Real economy output, which could be cause or the consequence of high valuations.
  - lumost 5y ago

matthewdgreen 5y ago

Maybe also losing 1.1 million people (according to the CDC's "excess deaths" website) wasn't that good for our economy either.

buscoquadnary 5y ago
Actually as callous as it sounds extra deaths are good for the economy. More dead people means fewer competitors for all resources except labor. What that means is fewer people need stuff and there are fewer people to make stuff, so the stuff the dead people had is easy to obtain for the living while employers have to pay more for labor because there is less of it. As evidence the black plague was considered one of the major events that ended the dark ages and the oppressions (relatively speaking) of the peasant class. Suddenly lord's needed to start giving their peasants rights and things to do or risk losing them to a lord that would give them those things. It's horrible and callous but it is also a fact, especially when you consider many of those deaths were not among the most productive segments of society.
- muh_gradle 5y ago
  This sounds almost like some version of the broken window fallacy. But there is no way that ~1 million dead Americans from COVID has helped this country economically. Supply chains have been hurt by COVID. Hospitalizations means unproductive workers. Deaths means unproductive workers. We are not thriving at all right now.
  - beamatronic 5y ago
    Many tech workers were thriving (making and spending money) until their RSU’s crashed 75% or more
  - imtringued 5y ago
    That's the broken window fallacy. Abundant capital must be destroyed. In this case the abundant capital is people.
- johnsimer 5y ago

skybrian 5y ago

I, for one, consider myself fortunate that I'm not dead. :) I guess you're saying that Keynesian doesn't work all that well when growth in supply is constrained. This doesn't seem necessarily to be the case, to the extent that people can be convinced to buy things that aren't in short supply? Demand for many essentials is inelastic, though.

LatteLazy 5y ago

Remember, going from 0.25% to 0.5% is a tiny, 0.25% changes. But it's also a DOUBLING of the rate...

wolverine876 5y ago

> Keynes was right: he's dead. Unfortunately, we, and our children, are not. That's the opposite of Keynes' meaning. Keynes was satirizing economists who say, 'it might be bad now, but things will work out in the long run'.

imtringued 5y ago

That's what you get for not listening to Keynes and Silvio Gesell. Instead of introducing a negative interest rate on cash to prevent people from accumulating capital in a low growth environment we are forced to play the endless debt game to artificially increase the return on capital to satisfy liquidity preference. If people stop borrowing, the interest rate on existing financial capital would fall way below 0% but since cash has a 0% interest rate, it's the working population that get screwed over during deflation through involuntary unemployment (also known as a economic depression). Eternal money is a farce, it is inherently unstable and can't exist over the long term which is why it constantly collapses and all you can do is delay the collapse as if the economy was a roguelite where you are supposed to get as much progress inbetween runs. Demurrage currencies allow the economy to represent negative interest rates and therefore eliminate the need for endless borrowing and inflation while simultaneously achieving full employment as predicted by Say's Law, decentralization of jobs, reducing wealth inequality and rewarding long term thinking.