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The era of cheap money is over. Interest rates can't come down without making inflation worse. The tide is going out and we're starting to see what was real or

The era of cheap money is over. Interest rates can't come down without making inflation worse. The tide is going out and we're starting to see what was real or not. Crypto got wiped out and now the tech and real estate bubbles are popping. Home Price to Median Household Income Ratio is even worse than 2008. https://www.longtermtrends.net/home-price-median-annual-income-ratio/ https://www.longtermtrends.net/home-price-median-annual-inco... Redfin and banks have started layoffs as they're seeing demand quickly drop with mortgage rate increases. Savings have dried up. https://fred.stlouisfed.org/series/PSAVE https://fred.stlouisfed.org/series/PSAVE Consumer debt is at an all time high. https://fred.stlouisfed.org/series/CCLACBW027SBOG https://fred.stlouisfed.org/series/CCLACBW027SBOG We're in the early stages and I fear we're looking at a combination of the dot com crash + 2008, but longer lasting because the Fed won't be able to bail us out this time.

almost_usual 4y ago
> Crypto got wiped out and now the tech and real estate bubbles are popping. Crypto got wiped out but a BTC is still hovering around 20k? > now the tech and real estate bubbles are popping I sincerely doubt it, things might slow down and plateau but with the cost of everything going up (including rent) people will still desire a home with a mostly fixed cost. We also haven’t seen any massive layoffs yet coming from tech companies. Also if home prices plateau and inflation rips the value of those homes are deprecating without price reductions.
- bink 4y ago
  Home prices have been rising far faster than inflation. The "people will always desire a home" and "plateau" talk is straight out of the Realtors playbook and is said before every pullback. People have forgotten what a real estate downturn looks like because it's been propped up by the Fed for so long, but in the good old days (before 2004 or so) it wasn't uncommon to go through periods where the average house took 9-12 months to sell and sellers went through 3-4 Realtors before it sold. Do the Realtors still say that 6 months is the average time to sell or have they forgotten that too? The fact is that people buy homes based on monthly payment and significant rate hikes are something we haven't seen in decades. When the monthly payment doubles housing prices go down.
  - deleted 4y ago
    [deleted]
  - nilkn 4y ago
    Monthly payments haven't doubled. Here's an example. Imagine a $500k house in Texas with a 2% property tax rate and $2k/year in home insurance. Suppose a hypothetical buyer is putting 20% down. At a 3% mortgage interest rate, the monthly PITI payment would be $2686. At a 6% mortgage interest rate, the monthly PITI payment would be $3398. That's a substantial increase, to be sure, but if payments had doubled then it would cost $5372, not $3398. How high would mortgage interest rates need to be for the payment to actually double? Answer: about 12.8%. So interest rates would need to more than double from where they are today to see actual housing payments double.
- grumple 4y ago
  > Crypto got wiped out but a BTC is still hovering around 20k? Yes, losing 2/3 of your value is getting wiped out.
  - almost_usual 4y ago
    Still 5x pre-covid March 2019.
    - deleted 4y ago
      [deleted]
    - grumple 4y ago
      Great for people who happened to buy at that time. Terrible for most.
  - int_19h 4y ago
    By that metric, it has been wiped, what, 4 times now?
    - grumple 4y ago
      Yes. This happens in gambling too, sometimes you win large amounts of money, sometimes you lose it all, and the cycle repeats.
- randomsearch 4y ago
  Not hovering, gradually dropping. Crashes are not instantaneous. They occur in patches.
ascendantlogic 4y ago
> Crypto got wiped out Crypto is in another winter cycle. We've seen this before. The interest rate/inflation story had a part to play in that but this is a normal market cycle for this sector. > now the tech and real estate bubbles are popping. I don't think the real estate bubble has "popped", rather cooling off from the massively overheated valuations in 2021. I don't see a cratering of existing home values (yet). > I fear we're looking at a combination of the dot com crash + 2008 Turn off the news that spends all its time trying to convince you the sky is falling 24/7.
- mellavora 4y ago
  > Crypto is in another winter cycle. We've seen this before. The interest rate/inflation story had a part to play in that but this is a normal market cycle for this sector. Curious. What do you see as the forces which drive a crypto market cycle? What is a normal crypto market cycle? As an illustration, Ray Dalio talks about short-term debt cycles as driving the economy; where the debt is (hopefully) linked to investment in activities which increase the economic outputs. Or a business cycle is "business cycles are marked by the alternation of the phases of expansion and contraction in aggregate economic activity,... the aggregate measures of industrial production, employment, income, and sales, which are the key coincident economic indicators used for the official determination of U.S. business cycle peak and trough dates." For crypto, I don't see anything more than simple supply/demand, and it is really unclear what drives that besides pure speculation. If it is just driven by speculation, then what makes for "normal market cycles" in speculation?
  - ntoskrnl 4y ago
    > If it is just driven by speculation, then what makes for "normal market cycles" in speculation? Miners are rewarded in BTC for keeping the network secure, and they sell these BTC to cover operating costs. Every four years, the mining rewards are cut in half (per the consensus protocol). Miners have less coins to sell, which results in a supply shock. The price floor between these supply shocks is ostensibly determined by economic activity outside of speculation. This has resulted in a repeating four-year market cycle. Of course this pattern will only continue until it doesn't. You can search "halving" or "halvening" for more info. https://www.investopedia.com/bitcoin-halving-4843769 https://www.investopedia.com/bitcoin-halving-4843769
mark_l_watson 4y ago
+1 I totally agree with you: the US government has been printing money (if you will allow an imprecise analogy) like crazy to prop up property values and stock equities. I don't know anyone who thinks that the future will be anywhere as good as 1990-2015 (even allowing for 2001 and 2007-2008 downturns). Both political parties service wall street and our defense industry, not regular people and don't really care about inflation and other problems that slam the poor and lower middle class. Printing money is good for the republican's and democrat's constituents (the elites).
- asdajksah2123 4y ago
  And yet the dollar is getting stronger relative to other currencies. This whole "government printing money" framing is very wrong. The government was printing money and it led to tremendous growth. In other words, the economy was able to absorb the money which meant the money printing was absolutely appropriate. However, we had several external supply side shocks due to the pandemic, and Russia's war on Ukraine, which drove the cost of goods higher. Since the US government cannot really stop Russia from killing civilians in Ukraine, or force China to get rid of its zero COVID policy, or single handedly fix the logistical breakdowns in all the shipping lines, etc, it has to rely on the only tool it has, which is cooling the economy. In essence, it's solving a supply chain shock with a demand side response, because that's all it controls. In fact, the fact that the Fed had kept interest rates low and "printed money" meant that it has a lot of leeway to actually tackle this situation right now without causing too much pain. After several significant increases, the target rate is still 1.5-1.75, which takes us back to what the Fed had reduced it to during the peak of the 2008 crisis. Which means that thanks to its policies, the Fed still has a lot of room to help control inflation without causing too much pain, something which wouldn't have been possible if it had prematurely raised rates earlier.
  - burntoutfire 4y ago
    Dollar is getting stronger because other countries either had similar irresponsible policies or are a shitstorm for different reasons. All things considered, the US, with its world-dominating and extremely robust economy, is the safest bet for weathering the storm, and so the whole world buys dollars to invest in the US.
deleted 4y ago
[deleted]
commandlinefan 4y ago
> Home Price to Median Household Income Ratio is even worse than 2008. And don't forget, the people that were lucky enough to get houses before they became unaffordable have to (somehow) fork over the real estate tax on the insane valuations of those houses - which newly unemployed folks won't be able to do, so there are going to be even more houses for investment firms to buy.
mempko 4y ago
You have it backwards. Interest rates increase the cost of doing business. They cause more inflation. Not only that, higher interest rates encourage banks to create more risky /predatory loans. They add to risk and add to cost of everything. What would reduce inflation is to improve supply side. More diverse services and goods for people to spend money on will reduce inflation. Increasing interest rates just increases inflation to the point people start going bankrupt and demand drops because people are destitute. Not a great way to do it...

almost_usual 4y ago

> Crypto got wiped out and now the tech and real estate bubbles are popping. Crypto got wiped out but a BTC is still hovering around 20k? > now the tech and real estate bubbles are popping I sincerely doubt it, things might slow down and plateau but with the cost of everything going up (including rent) people will still desire a home with a mostly fixed cost. We also haven’t seen any massive layoffs yet coming from tech companies. Also if home prices plateau and inflation rips the value of those homes are deprecating without price reductions.

bink 4y ago
Home prices have been rising far faster than inflation. The "people will always desire a home" and "plateau" talk is straight out of the Realtors playbook and is said before every pullback. People have forgotten what a real estate downturn looks like because it's been propped up by the Fed for so long, but in the good old days (before 2004 or so) it wasn't uncommon to go through periods where the average house took 9-12 months to sell and sellers went through 3-4 Realtors before it sold. Do the Realtors still say that 6 months is the average time to sell or have they forgotten that too? The fact is that people buy homes based on monthly payment and significant rate hikes are something we haven't seen in decades. When the monthly payment doubles housing prices go down.
- deleted 4y ago
  [deleted]
- nilkn 4y ago
  Monthly payments haven't doubled. Here's an example. Imagine a $500k house in Texas with a 2% property tax rate and $2k/year in home insurance. Suppose a hypothetical buyer is putting 20% down. At a 3% mortgage interest rate, the monthly PITI payment would be $2686. At a 6% mortgage interest rate, the monthly PITI payment would be $3398. That's a substantial increase, to be sure, but if payments had doubled then it would cost $5372, not $3398. How high would mortgage interest rates need to be for the payment to actually double? Answer: about 12.8%. So interest rates would need to more than double from where they are today to see actual housing payments double.
grumple 4y ago
> Crypto got wiped out but a BTC is still hovering around 20k? Yes, losing 2/3 of your value is getting wiped out.
- almost_usual 4y ago
  Still 5x pre-covid March 2019.
  - deleted 4y ago
    [deleted]
  - grumple 4y ago
    Great for people who happened to buy at that time. Terrible for most.
- int_19h 4y ago
  By that metric, it has been wiped, what, 4 times now?
  - grumple 4y ago
    Yes. This happens in gambling too, sometimes you win large amounts of money, sometimes you lose it all, and the cycle repeats.
randomsearch 4y ago
Not hovering, gradually dropping. Crashes are not instantaneous. They occur in patches.

ascendantlogic 4y ago

> Crypto got wiped out Crypto is in another winter cycle. We've seen this before. The interest rate/inflation story had a part to play in that but this is a normal market cycle for this sector. > now the tech and real estate bubbles are popping. I don't think the real estate bubble has "popped", rather cooling off from the massively overheated valuations in 2021. I don't see a cratering of existing home values (yet). > I fear we're looking at a combination of the dot com crash + 2008 Turn off the news that spends all its time trying to convince you the sky is falling 24/7.

mellavora 4y ago
> Crypto is in another winter cycle. We've seen this before. The interest rate/inflation story had a part to play in that but this is a normal market cycle for this sector. Curious. What do you see as the forces which drive a crypto market cycle? What is a normal crypto market cycle? As an illustration, Ray Dalio talks about short-term debt cycles as driving the economy; where the debt is (hopefully) linked to investment in activities which increase the economic outputs. Or a business cycle is "business cycles are marked by the alternation of the phases of expansion and contraction in aggregate economic activity,... the aggregate measures of industrial production, employment, income, and sales, which are the key coincident economic indicators used for the official determination of U.S. business cycle peak and trough dates." For crypto, I don't see anything more than simple supply/demand, and it is really unclear what drives that besides pure speculation. If it is just driven by speculation, then what makes for "normal market cycles" in speculation?
- ntoskrnl 4y ago
  > If it is just driven by speculation, then what makes for "normal market cycles" in speculation? Miners are rewarded in BTC for keeping the network secure, and they sell these BTC to cover operating costs. Every four years, the mining rewards are cut in half (per the consensus protocol). Miners have less coins to sell, which results in a supply shock. The price floor between these supply shocks is ostensibly determined by economic activity outside of speculation. This has resulted in a repeating four-year market cycle. Of course this pattern will only continue until it doesn't. You can search "halving" or "halvening" for more info. https://www.investopedia.com/bitcoin-halving-4843769 https://www.investopedia.com/bitcoin-halving-4843769

mark_l_watson 4y ago

+1 I totally agree with you: the US government has been printing money (if you will allow an imprecise analogy) like crazy to prop up property values and stock equities. I don't know anyone who thinks that the future will be anywhere as good as 1990-2015 (even allowing for 2001 and 2007-2008 downturns). Both political parties service wall street and our defense industry, not regular people and don't really care about inflation and other problems that slam the poor and lower middle class. Printing money is good for the republican's and democrat's constituents (the elites).

asdajksah2123 4y ago
And yet the dollar is getting stronger relative to other currencies. This whole "government printing money" framing is very wrong. The government was printing money and it led to tremendous growth. In other words, the economy was able to absorb the money which meant the money printing was absolutely appropriate. However, we had several external supply side shocks due to the pandemic, and Russia's war on Ukraine, which drove the cost of goods higher. Since the US government cannot really stop Russia from killing civilians in Ukraine, or force China to get rid of its zero COVID policy, or single handedly fix the logistical breakdowns in all the shipping lines, etc, it has to rely on the only tool it has, which is cooling the economy. In essence, it's solving a supply chain shock with a demand side response, because that's all it controls. In fact, the fact that the Fed had kept interest rates low and "printed money" meant that it has a lot of leeway to actually tackle this situation right now without causing too much pain. After several significant increases, the target rate is still 1.5-1.75, which takes us back to what the Fed had reduced it to during the peak of the 2008 crisis. Which means that thanks to its policies, the Fed still has a lot of room to help control inflation without causing too much pain, something which wouldn't have been possible if it had prematurely raised rates earlier.
- burntoutfire 4y ago
  Dollar is getting stronger because other countries either had similar irresponsible policies or are a shitstorm for different reasons. All things considered, the US, with its world-dominating and extremely robust economy, is the safest bet for weathering the storm, and so the whole world buys dollars to invest in the US.

deleted 4y ago

[deleted]

commandlinefan 4y ago

> Home Price to Median Household Income Ratio is even worse than 2008. And don't forget, the people that were lucky enough to get houses before they became unaffordable have to (somehow) fork over the real estate tax on the insane valuations of those houses - which newly unemployed folks won't be able to do, so there are going to be even more houses for investment firms to buy.

mempko 4y ago

You have it backwards. Interest rates increase the cost of doing business. They cause more inflation. Not only that, higher interest rates encourage banks to create more risky /predatory loans. They add to risk and add to cost of everything. What would reduce inflation is to improve supply side. More diverse services and goods for people to spend money on will reduce inflation. Increasing interest rates just increases inflation to the point people start going bankrupt and demand drops because people are destitute. Not a great way to do it...