8 ms·

I'll echo what some folks have said in other threads, we've had rates down near zero for fifteen years, and we've got to get them back somewhere near historic n

I'll echo what some folks have said in other threads, we've had rates down near zero for fifteen years, and we've got to get them back somewhere near historic normals at some point. If only so they can be cut again during the next crisis. How much is our entire culture the result of cheap money?

ferdowsi 4y ago
A substantial chunk of the tech industry are speculative zombie companies that are built on the edifice of zero interest.
- Victerius 4y ago
  Let them fail.
- arberx 4y ago
  Since tech companies use other tech company's products this implies the tech industry is a speculative bubble.
  - mym1990 4y ago
    I'm not sure dependency implies a bubble, rather a risk. For companies like Amazon(AWS), there certainly is an element of being too big to fail because AWS and similar cloud operations provide so much of the infrastructure for other applications. The bubble can clearly be seen by the disassociation of valuations from the underlying value, which for many new companies is nothing.
  - hot_gril 4y ago
    It is partially. There's some basis in reality since it's actually very profitable overall, but the investment goes beyond reality. I'm not saying you shouldn't invest in tech. It's possible this bubble never goes away.
  - spaceman_2020 4y ago
    Valuations are definitely in a bubble Most of these unicorns simply can't turn a profit with their current cost structures. And even if they do, the profits will be so small that the valuations will simply not be justifiable.
- Alex3917 4y ago
  Startups generally have only very limited (if any) access to money anyway, so making money more expensive for established companies is probably a net positive for folks who are legitimately trying to start real software businesses.
  - JamesBarney 4y ago
    Not really. The money a startup is going to make is farther in the future than an established company. If you look at discounted future cashflow, a startup as an investment opportunity is much more influenced by the interest rate than an established company because a larger % of the value is coming from money farther in the future. Basically 20% of net present value of Microsoft comes from the money it'll make next year and 5% from the money it'll generate 5 yrs from now. But a startup is the opposite where 0% of the value of the startup comes from the profit it'll make next year, and 20% from the profit it'll make in 5. And when interest rates change it reduces the present value of the profits in 5 years by far more than it reduces the profits next year. Reducing the value of the startup relative to Microsoft, reducing the startups ability to get funded more than Microsofts.
    - Alex3917 4y ago
      > reducing the startups ability to get funded more than Microsofts. So for 99% of startups (who don't raise venture capital anyway) there is no difference. But for Microsoft there is a huge difference, which is why the big tech companies are doing layoffs. Whereas we're not seeing many Indiehackers posts about people working out of their parents' basements who are laying themselves off.
- idoh 4y ago
  Can you elaborate? When I think of tech I think of venture funded (equity side), not debt funded.
  - bombcar 4y ago
    The argument is that easy "free money" causes money to flow into equities, and that money goes in search of better returns which includes venture funding. The moment the economy tightens up, suddenly the venture funds have less money. I'm not sure what's causal in it all, but from the outside it certainly looks like that's what happens.
    - selectodude 4y ago
      >suddenly the venture funds have less money. It's not that they have less money, it's just that when 1yr treasuries are paying over 4%, the returns in risk-adjusted investments need to either return a lot more or die.
      - jhallenworld 4y ago
        Probably both matter: suppose your grandma is your angel investor. If suddenly equities plummet, grandma sees less in her portfolio, so the funds available for angel investing are no longer there. This is happening to me right now with my parents not being able to help as much with my kids' college tuition.
- eftychis 4y ago
  Scratch that (true, but the whole economy I counter needs cheap enough money to grow); the U.S. government is the biggest borrower I counter-claim. So taxes got to go up while the economy somehow keeps growing for this to be sustainable. Ergo, it is not in a matter of years, and I would say that is the common "secret." The hope is that everyone is going to march in line and not go out asking for raises due to inflation; so that we end up with "hyper-inflation" before the supply chain system stabilizes, maybe the Russo-Ukraine conflict sees some light, and the U.S. Treasury can decide they can't sustain this any longer. Thus, we are praying for all these pieces to kinda fall into place, so we don't end up with hyper-inflation, recession and interest rates going down all at the same time. P.S. You can follow the target to actual rates here https://www.newyorkfed.org/markets/desk-operations/reverse-repo https://www.newyorkfed.org/markets/desk-operations/reverse-r... Click All to see the difference in scale we are talking about to the past. 2 Trillions are parked to the Fed by banks, accumulating the new high interest, waiting for a signal to be re-enter.
- paulpauper 4y ago
  What were interest rates in the late 90s? hmm...even higher than today, yet that was the biggest tech bubble ever. If VCs and other investors expect to make >100% in a year , what does it matter if the interest rate is 3% or 1%?
jollyllama 4y ago
>How much is our entire culture the result of cheap money? Only the parts involving housing, education, transportation, employment, and investments.
- rustybelt 4y ago
  Healthcare too. Cheap debt and outsized investment returns have been keeping health systems fat for years.
  - paulpauper 4y ago
    you have to take into account individual preferences and quality of care. Many countires which have cheaper healthcare either it's ignoring private care coexisting with public , taxes (people with universal care opting for private care but still having to pay higher taxes for universal care, which seems really unfair)
- kyrra 4y ago
  College Education pricing has many blames beyond cheap money. The fed getting involved in student loans have totally broken that segment of the economy. 1) Federal loans do not have limits on amount. 2) Loans are non-discharged (you can't shed them in bankruptcy). 3) There is no intensive for schools to charge less. (schools likely should have skin in the game if borrowers end up shedding debt through time expiration or bankruptcy). 4) Loans or the amount of the loans are not weighted at all by the future prospects of the person. I have other issues with college today. They weren't originally set up for getting people trained for work, but many people now look at them as a form of trade school. But many of the majors available aren't actually job training in any fashion. Most people would be better served by trade schools or apprenticeship, but the US hasn't figured out how to do this well yet. This is more of a cultural problem, that I hope employers can figure out. Coding bootcamps seem to be an answer for the software industry, but we need to push more people that way, rather than college.
  - paulpauper 4y ago
    you forgot the most important variable: the college wage premium, which is the widest ever and shows no signs of narrowing. As long as college grads earn a lot more, tuition will go up. Even after factoring in debt, grads still earn more than non-grads. Most people would be better served by trade schools or apprenticeship, but the US hasn't figured out how to do this well yet. This may apply to college dropouts, but college still pays way more than trades, and also trades work req. a lot of training and time and you have to join a guild. Coding bootcamps seem to be an answer for the software industry Except that bootcamp grads tend to be woefully deficient in skills and also have a hard time finding jobs, also bootcamps can be very expensive and inflate their success metrics. I am not saying that college is the answer, but it's not bootcamps.
ProfessorLayton 4y ago
>we've got to get them back somewhere near historic normals at some point. Not a monetary expert here, but do we? Japan has been at zero/near zero since the mid 90s.
- plandis 4y ago
  Japans declining population is surely influenced to some extent by their fiscal policy. I don’t think being near as low as it has for them has been a huge success?
- sbaiddn 4y ago
  They've also been stagnant since the 90s
  - HelloMcFly 4y ago
    This is an honest question borne of ignorance: in what ways does that matter? I'm sure it does, but people over there are employed, they have a larger safety net, more accessible healthcare access AND better outcomes, seemingly less crime, education seems to be something of a wash (though there is so much variability in the US it's almost a waste of time to do a nation-to-nation comparison). I only know the major bullet points though, and I haven't found this terribly easy to parse myself. I'm also quite confident that stagnation in the US would manifest differently (not that it must but that it would) so this is really just overall curiosity.
    - marcusverus 4y ago
      This seems like a very hand-wavy comparison. By the numbers, the difference is enormous--Japan's average household net-adjusted disposable income per capita is $28,900. For direct comparison, the USA's average is 77% higher than Japan's at $51,100. Japan's average is even below the OECD average (which includes a mix of leading Western countries and less developed countries like Costa Rica and and Hungary) by 5%. [0]https://www.oecdbetterlifeindex.org/countries/japan/ https://www.oecdbetterlifeindex.org/countries/japan/ [1]https://www.oecdbetterlifeindex.org/countries/united-states/ https://www.oecdbetterlifeindex.org/countries/united-states/
JumpCrisscross 4y ago
> we've got to get them back somewhere near historic normals Estimating the neutral interest rate, i.e. "the real (net of inflation) interest rate that supports the economy at full employment/maximum output while keeping inflation constant" [1], is closer to art than science. It's almost certainly not a simple historical average, particularly not in a dynamic economy.
- credit_guy 4y ago
  It does not need to be that complex. It could be the interest rate where the supply and demand of money meet, assuming the Fed stays out of the way. The Fed does not need to skew the market for money by conducting QE or QT, or manipulating short term rates. I'm not a "no-Fed"-type of guy. The Fed is great at a lot of things. Their research arm is top-notch. They regulate and oversee banks. They are the bank of the commercial banks; in particular they are a lender of last resort for them. Also they can be a lender of last resort for US dollars for other central banks, and for the World Bank and the IMF. They can monitor and interdict financial crime. There are lots of things to do. Stimulating the economy should not be their business.
hot_gril 4y ago
Money-"printing" creates the need to stash money away, which leads to passive investing since most people who have savings aren't market experts, which leads to perpetual bubbles. There's no option to simply hold money. This investment at least tends to go into profitable things like stocks, but not in a proportionate way. It hardly matters how profitable a company is; you just expect the stock to go up regardless because people are parking money there. Basically, ridiculous startups and ridiculous corporate projects get funding when they shouldn't.
- hot_gril 4y ago
  Oh and house prices in some places are ridiculous too, not in the whiny "I can't afford a house" way (I can) but just looking at the market. They have little to do with the actual utility you get out of home ownership, but that's ok because you're getting a growth asset under an effectively govt-subsidized loan. How can you tell, compare to rent, which is just the price of living.
JamesBarney 4y ago
People get this backwards all the time. The fed did not cause cheap money, an aging population, sovereign wealth funds, and increasing inequality caused cheap money. The fed just responds by setting the interest rate to appropriately set the interest rate so we have full employment.
- hot_gril 4y ago
  The Fed creates money, which nothing else can do. Of course the money supply has its own ebb and flow from private banks and such offering loans, but it's hard to ignore M2 doubling every 10 years.
  - a-user-you-like 4y ago
    Yep, we print 40% of all known money in the last 2 years, needlessly lock everyone down, and then complain that the rent is too damn high
    - encryptluks2 4y ago
      Poor landlords must be suffering owning houses and all while everyone else is enjoying facing homelessness
  - qeternity 4y ago
    I agree with your sentiment but this isn’t true, in fact for most of the Fed’s life it was not the primary creator of money. Fractional reserve banking (which, by definition, the Fed is) creates money. If I deposit $1,000 into my local bank, and they turn around and lend $900 of that back out, that creates money.
    - andrekandre 4y ago
      > If I deposit $1,000 into my local bank, and they turn around and lend $900 of that back out, that creates money im kind of ignorant so please forgive if this is not correct, but i've heard its not necessarily "creating" money since its (the 900 dollars) all on the balance sheets as liabilities?
Analemma_ 4y ago
What does "historic normals" mean? Obviously rates need to be going up right now, but if you look at the very long (i.e. centuries) trend of natural interest rates, there's a clear monotonic downward trend. Who's to say the natural rate of interest isn't zero?
- Victerius 4y ago
  8-15%. I'm looking forward to it. It'll force more people to be more financially responsible. No one should finance furniture, ATVs, or electronics. If you can't pay cash for these things, save, or don't buy. Edit: @Analemma That's just the extreme end of the scale. 30yr fixed mortgage rates were above 10% during all the 1980s[♤]. I'd like to see a return to that. [♤] https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US
  - Analemma_ 4y ago
    This definitely needs a citation. Why would the natural rate be 8%, never mind 15%? Apart from the Volcker Shock it's been less than that for literally all of American history [1]. Are you sure you're not just assuming that whatever the rate was in your formative years is "natural"? [1]: https://advisor.visualcapitalist.com/wp-content/uploads/2020/10/MM17_U.S._Interest_Rate-3.jpg https://advisor.visualcapitalist.com/wp-content/uploads/2020...
  - bryanlarsen 4y ago
    The historical interest rate for savers is negative. Before the invention of fractional rate banking, if you had money you had to pay guards to protect it for you.
- pfortuny 4y ago
  Either you can create value (which seems reasonable as long as we receive free energy from the sun) in time or not. If you can, the natural interest rate cannot be zero. We are at the moment in time when we can make the most out of “thin air”. It makes no sense that the rate is effectively zero.
fny 4y ago
I'll mention something that most people are forgetting. The Fed was forced to cut rates to zero for a long time because fiscal policy was not stimulative enough. Rates are a shitty stimulative tool. Here's Bernanke in 2012: https://www.theatlantic.com/business/archive/2012/12/ben-bernankes-secret-message-to-congress-more-stimulus-please/266594/ https://www.theatlantic.com/business/archive/2012/12/ben-ber... Low rates help people with money borrow more cheaply, accrue more wealth, and kick bankruptcy cans down the road indefinitely. It also royally screws over your average saver and pension fund who's forced to take on more and more risk for any sort of meaningful return.
- nine_zeros 4y ago
  > The Fed was forced to cut rates to zero for a long time because fiscal policy was not stimulative enough. It's not just fiscal stimulus but "how" the stimulus was applied. It's not like the government isn't spending enough. It is spending. Until recently, all the spending went on tax credits and military. What we need is fiscal stimulus in industries of the future. Only the current administration gets it and made it happen with the recent bill to support new energy transition. We need more fiscal stimulus in cheap production of pills, medical practitioners, hospitals, daycare services and housing. Literally just give incentives to produce more units of these.
  - WalterBright 4y ago
    Government subsidy tends to attract a lot of malinvestment in order to get those dollars. For example, in Biden's bill, there's a subsidy for so-called "smart" glass that darkens when an electric current is applied. This is supposed to reduce solar input from windows by 20%. Of course, if this mattered, people would have already installed window blinds, which are cheap and easy. External eyebrows and eaves also work. "Smart" glass is an expensive solution, it's been around for 25 years, and nobody wants it.
    - mattmoose21 4y ago
      Do you have a source for the smart glass subsidy? I haven't been able to find anything that mentions it.
lamontcg 4y ago
This is going to generate a recession though which will drag down long interest rates, and they'll slash short rates in a panic and we're back at groundhog day again. If you want persistently higher long interest rates then you want persistently higher inflation expectations.

ferdowsi 4y ago

A substantial chunk of the tech industry are speculative zombie companies that are built on the edifice of zero interest.

Victerius 4y ago
Let them fail.
arberx 4y ago
Since tech companies use other tech company's products this implies the tech industry is a speculative bubble.
- mym1990 4y ago
  I'm not sure dependency implies a bubble, rather a risk. For companies like Amazon(AWS), there certainly is an element of being too big to fail because AWS and similar cloud operations provide so much of the infrastructure for other applications. The bubble can clearly be seen by the disassociation of valuations from the underlying value, which for many new companies is nothing.
- hot_gril 4y ago
  It is partially. There's some basis in reality since it's actually very profitable overall, but the investment goes beyond reality. I'm not saying you shouldn't invest in tech. It's possible this bubble never goes away.
- spaceman_2020 4y ago
  Valuations are definitely in a bubble Most of these unicorns simply can't turn a profit with their current cost structures. And even if they do, the profits will be so small that the valuations will simply not be justifiable.
Alex3917 4y ago
Startups generally have only very limited (if any) access to money anyway, so making money more expensive for established companies is probably a net positive for folks who are legitimately trying to start real software businesses.
- JamesBarney 4y ago
  Not really. The money a startup is going to make is farther in the future than an established company. If you look at discounted future cashflow, a startup as an investment opportunity is much more influenced by the interest rate than an established company because a larger % of the value is coming from money farther in the future. Basically 20% of net present value of Microsoft comes from the money it'll make next year and 5% from the money it'll generate 5 yrs from now. But a startup is the opposite where 0% of the value of the startup comes from the profit it'll make next year, and 20% from the profit it'll make in 5. And when interest rates change it reduces the present value of the profits in 5 years by far more than it reduces the profits next year. Reducing the value of the startup relative to Microsoft, reducing the startups ability to get funded more than Microsofts.
  - Alex3917 4y ago
    > reducing the startups ability to get funded more than Microsofts. So for 99% of startups (who don't raise venture capital anyway) there is no difference. But for Microsoft there is a huge difference, which is why the big tech companies are doing layoffs. Whereas we're not seeing many Indiehackers posts about people working out of their parents' basements who are laying themselves off.
idoh 4y ago
Can you elaborate? When I think of tech I think of venture funded (equity side), not debt funded.
- bombcar 4y ago
  The argument is that easy "free money" causes money to flow into equities, and that money goes in search of better returns which includes venture funding. The moment the economy tightens up, suddenly the venture funds have less money. I'm not sure what's causal in it all, but from the outside it certainly looks like that's what happens.
  - selectodude 4y ago
    >suddenly the venture funds have less money. It's not that they have less money, it's just that when 1yr treasuries are paying over 4%, the returns in risk-adjusted investments need to either return a lot more or die.
    - jhallenworld 4y ago
      Probably both matter: suppose your grandma is your angel investor. If suddenly equities plummet, grandma sees less in her portfolio, so the funds available for angel investing are no longer there. This is happening to me right now with my parents not being able to help as much with my kids' college tuition.
eftychis 4y ago
Scratch that (true, but the whole economy I counter needs cheap enough money to grow); the U.S. government is the biggest borrower I counter-claim. So taxes got to go up while the economy somehow keeps growing for this to be sustainable. Ergo, it is not in a matter of years, and I would say that is the common "secret." The hope is that everyone is going to march in line and not go out asking for raises due to inflation; so that we end up with "hyper-inflation" before the supply chain system stabilizes, maybe the Russo-Ukraine conflict sees some light, and the U.S. Treasury can decide they can't sustain this any longer. Thus, we are praying for all these pieces to kinda fall into place, so we don't end up with hyper-inflation, recession and interest rates going down all at the same time. P.S. You can follow the target to actual rates here https://www.newyorkfed.org/markets/desk-operations/reverse-repo https://www.newyorkfed.org/markets/desk-operations/reverse-r... Click All to see the difference in scale we are talking about to the past. 2 Trillions are parked to the Fed by banks, accumulating the new high interest, waiting for a signal to be re-enter.
paulpauper 4y ago
What were interest rates in the late 90s? hmm...even higher than today, yet that was the biggest tech bubble ever. If VCs and other investors expect to make >100% in a year , what does it matter if the interest rate is 3% or 1%?

jollyllama 4y ago

>How much is our entire culture the result of cheap money? Only the parts involving housing, education, transportation, employment, and investments.

rustybelt 4y ago
Healthcare too. Cheap debt and outsized investment returns have been keeping health systems fat for years.
- paulpauper 4y ago
  you have to take into account individual preferences and quality of care. Many countires which have cheaper healthcare either it's ignoring private care coexisting with public , taxes (people with universal care opting for private care but still having to pay higher taxes for universal care, which seems really unfair)
kyrra 4y ago
College Education pricing has many blames beyond cheap money. The fed getting involved in student loans have totally broken that segment of the economy. 1) Federal loans do not have limits on amount. 2) Loans are non-discharged (you can't shed them in bankruptcy). 3) There is no intensive for schools to charge less. (schools likely should have skin in the game if borrowers end up shedding debt through time expiration or bankruptcy). 4) Loans or the amount of the loans are not weighted at all by the future prospects of the person. I have other issues with college today. They weren't originally set up for getting people trained for work, but many people now look at them as a form of trade school. But many of the majors available aren't actually job training in any fashion. Most people would be better served by trade schools or apprenticeship, but the US hasn't figured out how to do this well yet. This is more of a cultural problem, that I hope employers can figure out. Coding bootcamps seem to be an answer for the software industry, but we need to push more people that way, rather than college.
- paulpauper 4y ago
  you forgot the most important variable: the college wage premium, which is the widest ever and shows no signs of narrowing. As long as college grads earn a lot more, tuition will go up. Even after factoring in debt, grads still earn more than non-grads. Most people would be better served by trade schools or apprenticeship, but the US hasn't figured out how to do this well yet. This may apply to college dropouts, but college still pays way more than trades, and also trades work req. a lot of training and time and you have to join a guild. Coding bootcamps seem to be an answer for the software industry Except that bootcamp grads tend to be woefully deficient in skills and also have a hard time finding jobs, also bootcamps can be very expensive and inflate their success metrics. I am not saying that college is the answer, but it's not bootcamps.

ProfessorLayton 4y ago

>we've got to get them back somewhere near historic normals at some point. Not a monetary expert here, but do we? Japan has been at zero/near zero since the mid 90s.

plandis 4y ago
Japans declining population is surely influenced to some extent by their fiscal policy. I don’t think being near as low as it has for them has been a huge success?
sbaiddn 4y ago
They've also been stagnant since the 90s
- HelloMcFly 4y ago
  This is an honest question borne of ignorance: in what ways does that matter? I'm sure it does, but people over there are employed, they have a larger safety net, more accessible healthcare access AND better outcomes, seemingly less crime, education seems to be something of a wash (though there is so much variability in the US it's almost a waste of time to do a nation-to-nation comparison). I only know the major bullet points though, and I haven't found this terribly easy to parse myself. I'm also quite confident that stagnation in the US would manifest differently (not that it must but that it would) so this is really just overall curiosity.
  - marcusverus 4y ago
    This seems like a very hand-wavy comparison. By the numbers, the difference is enormous--Japan's average household net-adjusted disposable income per capita is $28,900. For direct comparison, the USA's average is 77% higher than Japan's at $51,100. Japan's average is even below the OECD average (which includes a mix of leading Western countries and less developed countries like Costa Rica and and Hungary) by 5%. [0]https://www.oecdbetterlifeindex.org/countries/japan/ https://www.oecdbetterlifeindex.org/countries/japan/ [1]https://www.oecdbetterlifeindex.org/countries/united-states/ https://www.oecdbetterlifeindex.org/countries/united-states/

JumpCrisscross 4y ago

> we've got to get them back somewhere near historic normals Estimating the neutral interest rate, i.e. "the real (net of inflation) interest rate that supports the economy at full employment/maximum output while keeping inflation constant" [1], is closer to art than science. It's almost certainly not a simple historical average, particularly not in a dynamic economy.

credit_guy 4y ago
It does not need to be that complex. It could be the interest rate where the supply and demand of money meet, assuming the Fed stays out of the way. The Fed does not need to skew the market for money by conducting QE or QT, or manipulating short term rates. I'm not a "no-Fed"-type of guy. The Fed is great at a lot of things. Their research arm is top-notch. They regulate and oversee banks. They are the bank of the commercial banks; in particular they are a lender of last resort for them. Also they can be a lender of last resort for US dollars for other central banks, and for the World Bank and the IMF. They can monitor and interdict financial crime. There are lots of things to do. Stimulating the economy should not be their business.

hot_gril 4y ago

Money-"printing" creates the need to stash money away, which leads to passive investing since most people who have savings aren't market experts, which leads to perpetual bubbles. There's no option to simply hold money. This investment at least tends to go into profitable things like stocks, but not in a proportionate way. It hardly matters how profitable a company is; you just expect the stock to go up regardless because people are parking money there. Basically, ridiculous startups and ridiculous corporate projects get funding when they shouldn't.

hot_gril 4y ago
Oh and house prices in some places are ridiculous too, not in the whiny "I can't afford a house" way (I can) but just looking at the market. They have little to do with the actual utility you get out of home ownership, but that's ok because you're getting a growth asset under an effectively govt-subsidized loan. How can you tell, compare to rent, which is just the price of living.

JamesBarney 4y ago

People get this backwards all the time. The fed did not cause cheap money, an aging population, sovereign wealth funds, and increasing inequality caused cheap money. The fed just responds by setting the interest rate to appropriately set the interest rate so we have full employment.

hot_gril 4y ago
The Fed creates money, which nothing else can do. Of course the money supply has its own ebb and flow from private banks and such offering loans, but it's hard to ignore M2 doubling every 10 years.
- a-user-you-like 4y ago
  Yep, we print 40% of all known money in the last 2 years, needlessly lock everyone down, and then complain that the rent is too damn high
  - encryptluks2 4y ago
    Poor landlords must be suffering owning houses and all while everyone else is enjoying facing homelessness
- qeternity 4y ago
  I agree with your sentiment but this isn’t true, in fact for most of the Fed’s life it was not the primary creator of money. Fractional reserve banking (which, by definition, the Fed is) creates money. If I deposit $1,000 into my local bank, and they turn around and lend $900 of that back out, that creates money.
  - andrekandre 4y ago
    > If I deposit $1,000 into my local bank, and they turn around and lend $900 of that back out, that creates money im kind of ignorant so please forgive if this is not correct, but i've heard its not necessarily "creating" money since its (the 900 dollars) all on the balance sheets as liabilities?

Analemma_ 4y ago

What does "historic normals" mean? Obviously rates need to be going up right now, but if you look at the very long (i.e. centuries) trend of natural interest rates, there's a clear monotonic downward trend. Who's to say the natural rate of interest isn't zero?

Victerius 4y ago
8-15%. I'm looking forward to it. It'll force more people to be more financially responsible. No one should finance furniture, ATVs, or electronics. If you can't pay cash for these things, save, or don't buy. Edit: @Analemma That's just the extreme end of the scale. 30yr fixed mortgage rates were above 10% during all the 1980s[♤]. I'd like to see a return to that. [♤] https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US
- Analemma_ 4y ago
  This definitely needs a citation. Why would the natural rate be 8%, never mind 15%? Apart from the Volcker Shock it's been less than that for literally all of American history [1]. Are you sure you're not just assuming that whatever the rate was in your formative years is "natural"? [1]: https://advisor.visualcapitalist.com/wp-content/uploads/2020/10/MM17_U.S._Interest_Rate-3.jpg https://advisor.visualcapitalist.com/wp-content/uploads/2020...
- bryanlarsen 4y ago
  The historical interest rate for savers is negative. Before the invention of fractional rate banking, if you had money you had to pay guards to protect it for you.
pfortuny 4y ago
Either you can create value (which seems reasonable as long as we receive free energy from the sun) in time or not. If you can, the natural interest rate cannot be zero. We are at the moment in time when we can make the most out of “thin air”. It makes no sense that the rate is effectively zero.

fny 4y ago

I'll mention something that most people are forgetting. The Fed was forced to cut rates to zero for a long time because fiscal policy was not stimulative enough. Rates are a shitty stimulative tool. Here's Bernanke in 2012: https://www.theatlantic.com/business/archive/2012/12/ben-bernankes-secret-message-to-congress-more-stimulus-please/266594/ https://www.theatlantic.com/business/archive/2012/12/ben-ber... Low rates help people with money borrow more cheaply, accrue more wealth, and kick bankruptcy cans down the road indefinitely. It also royally screws over your average saver and pension fund who's forced to take on more and more risk for any sort of meaningful return.

nine_zeros 4y ago
> The Fed was forced to cut rates to zero for a long time because fiscal policy was not stimulative enough. It's not just fiscal stimulus but "how" the stimulus was applied. It's not like the government isn't spending enough. It is spending. Until recently, all the spending went on tax credits and military. What we need is fiscal stimulus in industries of the future. Only the current administration gets it and made it happen with the recent bill to support new energy transition. We need more fiscal stimulus in cheap production of pills, medical practitioners, hospitals, daycare services and housing. Literally just give incentives to produce more units of these.
- WalterBright 4y ago
  Government subsidy tends to attract a lot of malinvestment in order to get those dollars. For example, in Biden's bill, there's a subsidy for so-called "smart" glass that darkens when an electric current is applied. This is supposed to reduce solar input from windows by 20%. Of course, if this mattered, people would have already installed window blinds, which are cheap and easy. External eyebrows and eaves also work. "Smart" glass is an expensive solution, it's been around for 25 years, and nobody wants it.
  - mattmoose21 4y ago
    Do you have a source for the smart glass subsidy? I haven't been able to find anything that mentions it.

lamontcg 4y ago

This is going to generate a recession though which will drag down long interest rates, and they'll slash short rates in a panic and we're back at groundhog day again. If you want persistently higher long interest rates then you want persistently higher inflation expectations.