5 ms·

Rising interest rates won't reduce the price of anything. Best it can do is slow the inflation down.

arcticbull 4y ago
Oh it absolutely can, it has in the past and if interest rates get too high you will see deflation. Higher interest rates and quantitative tightening reduce the supply of money. However that is not the goal. That would be a policy failure.
- lokar 4y ago
  The only thing worse then uncontrolled inflation is uncontrolled deflation
  - WalterBright 4y ago
    The notion that inflation is good for the economy is pushed by the people who benefit from running the government printing press.
    - arcticbull 4y ago
      Nah, not that. New supply is necessary to maintain price stability in a growing economy. If you stop adding supply you get a deflationary spiral. Similarly the ability to contract supply is necessary to maintain stability in a contracting economy. Honestly even Austrians generally agree with that statement. Their theory is inflation is a result of increasing supply in excess of productivity and that it shouldn't under any circumstances be measured. Which is stilly and rejected in favor of actually measuring price change, but I digress. The theory you're espousing there, the 'cantillon effect' has to my knowledge never once been quantified. Nobody seems to have any idea to what extent it actually exists, and if it exists, what the magnitude of its impact is. If you have a peer-reviewed study I'd love to see it but I sure haven't found one.
      - WalterBright 4y ago
        The "new supply" happens naturally as banks create money in exchange for collateral. [1] Inflation happens when banks create money with no collateral, which is our fiat money system. [1] Contracting supply happens when the loans are paid off.
        arcticbull 4y ago
        That’s not actually when inflation happens. Every dollar in the fiat system is fully collateralized by the obligation to repay the debt that created it and the social infrastructure (courts, etc) which enforces that. The first part is correct but only part of the story. Demand for loans and repayment is controlled by interest rate which is how central banks control the supply and hence inflation.
    - Rury 4y ago
      Yes it's pushed by those people, but does inflation really benefit them? I mean whether a currency deflates or inflates, it's not like it matters to the guys who have the money printer, as after all, they can at any time, make themselves more or less money, inflation/deflation be damned. Additionally, supposedly at some level the currency would be abandoned by the markets, if either inflation or deflation became too bad, so they actually don't benefit from too much inflation, but instead from a stable value which creates a need for their currency. Anyhow, as far as I can see, inflation mainly benefits those who own assets, and disadvantages those who don't (ie people hoarding cash or the young & working poor who have few assets). Deflation is the opposite. It advantages those who hoard cash and those who have few assets, and disadvantages people who own many assets.
      - WalterBright 4y ago
        > Yes it's pushed by those people, but does inflation really benefit them? The inflation is a side effect of the benefit they get by printing money to spend. In effect, the value that others see as inflation is the value the printer gets by printing it. Counterfeiting works the same way. Inflation benefits people who have borrowed money at fixed rates. Owning assets does not inure one against inflation, because one gets to pay capital gains tax on the inflated value of the asset. (Another reason the government loves inflation, as we get to pay taxes on illusory "capital gains".) This is why the government tries so hard to blame inflation on Putin, greedy corporations, supply chain disruptions, anything but the real cause. It always does this, remember Gerald Ford with his WIN buttons (Whip Inflation Now), where he pushed the complete nonsense that inflation could be stopped if merchants would just stop raising prices?
        Rury 4y ago
        Do you look at what the Fed actually spends their printed money on? Almost all of it is financial contracts which simply yield them their money back, which if defaulted on, have no repercussions on them since they own a money printer that makes what the contracts yield in the first place. So to say they're benefiting in some way by printing and spending money on such things, is kind of like saying, a car manufacturer benefits when they manufacture a car, lend it out for someone to use, simply in exchange for getting their car back in the future. I mean I guess, but not really since they could also save themselves some hassle, by manufacturing themselves the thing and not lending it out in the first place? But sure, the people at the Fed also pay themselves a nice wage which they spend in exchange for personal goods and services and to live and stuff, but to the extent they do is not anything like you think it is. Heck, there are people elsewhere which make more money. And considering it takes work to manufacture dollars, and lend it to other in need of having some stable metric to do trade with, do they not deserve a wage in exchange for the work involved for doing such a service? > Inflation benefits people who have borrowed money at fixed rates Agreed, such as everyone who has borrowed money from the Fed, and almost all money is borrowed from the Fed. (Now do you see why they might push the argument that inflation is good for the economy?) > Owning assets does not inure one against inflation, because one gets to pay capital gains tax on the inflated value of the asset The problem with this argument, is twofold. One is in assuming taxes completely negate gains on capital. Obviously taxes are a drag on gains, but it is a fractional amount of the gains. Meaning, you still make some gains. So in this sense, it still does insure you from inflation, just not completely. But the second and real issue, is that you don't have to realize gains and incur taxes to benefit from owning assets during inflation. If you already own and still need, say a truck, and inflation has caused trucks to appreciate in value, you simply benefit from not needing to purchase another truck at now inflated prices.
legohead 4y ago
It stopped the exploding housing prices dead in its tracks, and houses are actually losing value.
- __alexs 4y ago
  People keep saying this but MSPUS keeps on going up https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS
  - rootusrootus 4y ago
    That's just the average transaction price right? Anecdotally, what happened in my area is not that prices dropped, it's that a whole bunch of houses just went off the market and aren't for sale now. Hard to see the loss in value because they did not sell for any price, and aren't reflected in the average transaction price at all.
    - __alexs 4y ago
      A drop in volume is in no way the same thing as a drop in prices. A valuation is a prediction of a (possibly very short term) future price, as such it does influence the price, but it isn't the same thing as the price. A drop in valuations might have happened but I don't think there's good data on that and doesn't seem to align with the prices things are actually selling for very well if MSPUS is still going up. You may find this interesting: https://en.wikipedia.org/wiki/Price_discovery https://en.wikipedia.org/wiki/Price_discovery

Oh it absolutely can, it has in the past and if interest rates get too high you will see deflation. Higher interest rates and quantitative tightening reduce the supply of money. However that is not the goal. That would be a policy failure.

lokar 4y ago
The only thing worse then uncontrolled inflation is uncontrolled deflation
- WalterBright 4y ago
  The notion that inflation is good for the economy is pushed by the people who benefit from running the government printing press.
  - arcticbull 4y ago
    Nah, not that. New supply is necessary to maintain price stability in a growing economy. If you stop adding supply you get a deflationary spiral. Similarly the ability to contract supply is necessary to maintain stability in a contracting economy. Honestly even Austrians generally agree with that statement. Their theory is inflation is a result of increasing supply in excess of productivity and that it shouldn't under any circumstances be measured. Which is stilly and rejected in favor of actually measuring price change, but I digress. The theory you're espousing there, the 'cantillon effect' has to my knowledge never once been quantified. Nobody seems to have any idea to what extent it actually exists, and if it exists, what the magnitude of its impact is. If you have a peer-reviewed study I'd love to see it but I sure haven't found one.
    - WalterBright 4y ago
      The "new supply" happens naturally as banks create money in exchange for collateral. [1] Inflation happens when banks create money with no collateral, which is our fiat money system. [1] Contracting supply happens when the loans are paid off.
      - arcticbull 4y ago
        That’s not actually when inflation happens. Every dollar in the fiat system is fully collateralized by the obligation to repay the debt that created it and the social infrastructure (courts, etc) which enforces that. The first part is correct but only part of the story. Demand for loans and repayment is controlled by interest rate which is how central banks control the supply and hence inflation.
  - Rury 4y ago
    Yes it's pushed by those people, but does inflation really benefit them? I mean whether a currency deflates or inflates, it's not like it matters to the guys who have the money printer, as after all, they can at any time, make themselves more or less money, inflation/deflation be damned. Additionally, supposedly at some level the currency would be abandoned by the markets, if either inflation or deflation became too bad, so they actually don't benefit from too much inflation, but instead from a stable value which creates a need for their currency. Anyhow, as far as I can see, inflation mainly benefits those who own assets, and disadvantages those who don't (ie people hoarding cash or the young & working poor who have few assets). Deflation is the opposite. It advantages those who hoard cash and those who have few assets, and disadvantages people who own many assets.
    - WalterBright 4y ago
      > Yes it's pushed by those people, but does inflation really benefit them? The inflation is a side effect of the benefit they get by printing money to spend. In effect, the value that others see as inflation is the value the printer gets by printing it. Counterfeiting works the same way. Inflation benefits people who have borrowed money at fixed rates. Owning assets does not inure one against inflation, because one gets to pay capital gains tax on the inflated value of the asset. (Another reason the government loves inflation, as we get to pay taxes on illusory "capital gains".) This is why the government tries so hard to blame inflation on Putin, greedy corporations, supply chain disruptions, anything but the real cause. It always does this, remember Gerald Ford with his WIN buttons (Whip Inflation Now), where he pushed the complete nonsense that inflation could be stopped if merchants would just stop raising prices?
      - Rury 4y ago
        Do you look at what the Fed actually spends their printed money on? Almost all of it is financial contracts which simply yield them their money back, which if defaulted on, have no repercussions on them since they own a money printer that makes what the contracts yield in the first place. So to say they're benefiting in some way by printing and spending money on such things, is kind of like saying, a car manufacturer benefits when they manufacture a car, lend it out for someone to use, simply in exchange for getting their car back in the future. I mean I guess, but not really since they could also save themselves some hassle, by manufacturing themselves the thing and not lending it out in the first place? But sure, the people at the Fed also pay themselves a nice wage which they spend in exchange for personal goods and services and to live and stuff, but to the extent they do is not anything like you think it is. Heck, there are people elsewhere which make more money. And considering it takes work to manufacture dollars, and lend it to other in need of having some stable metric to do trade with, do they not deserve a wage in exchange for the work involved for doing such a service? > Inflation benefits people who have borrowed money at fixed rates Agreed, such as everyone who has borrowed money from the Fed, and almost all money is borrowed from the Fed. (Now do you see why they might push the argument that inflation is good for the economy?) > Owning assets does not inure one against inflation, because one gets to pay capital gains tax on the inflated value of the asset The problem with this argument, is twofold. One is in assuming taxes completely negate gains on capital. Obviously taxes are a drag on gains, but it is a fractional amount of the gains. Meaning, you still make some gains. So in this sense, it still does insure you from inflation, just not completely. But the second and real issue, is that you don't have to realize gains and incur taxes to benefit from owning assets during inflation. If you already own and still need, say a truck, and inflation has caused trucks to appreciate in value, you simply benefit from not needing to purchase another truck at now inflated prices.

legohead 4y ago

It stopped the exploding housing prices dead in its tracks, and houses are actually losing value.

__alexs 4y ago
People keep saying this but MSPUS keeps on going up https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS
- rootusrootus 4y ago
  That's just the average transaction price right? Anecdotally, what happened in my area is not that prices dropped, it's that a whole bunch of houses just went off the market and aren't for sale now. Hard to see the loss in value because they did not sell for any price, and aren't reflected in the average transaction price at all.
  - __alexs 4y ago
    A drop in volume is in no way the same thing as a drop in prices. A valuation is a prediction of a (possibly very short term) future price, as such it does influence the price, but it isn't the same thing as the price. A drop in valuations might have happened but I don't think there's good data on that and doesn't seem to align with the prices things are actually selling for very well if MSPUS is still going up. You may find this interesting: https://en.wikipedia.org/wiki/Price_discovery https://en.wikipedia.org/wiki/Price_discovery