27 ms·

What if your entire worldview was just because of near-zero interest rates?

283 points by antonomon 4y ago

antonomon 4y ago
The old economic world may be leaving us, but its pathologies stubbornly remain.
dangus 4y ago
I think the article brings up too many separate concepts without sufficiently tying them together. One of the most basic concepts you have to accept to agree with the premise of the article is that the Fed kept interest rates low to transfer wealth to the wealthy. > After the Great Recession, the Federal Reserve instituted a zero or near-zero interest rate regime. The philosophy behind it was simple: > > The Fed’s “strong and creative measures” would inflate stock prices, which would lead those holding stocks to feel wealthier and more confident, and then they’d spend a little more, and some droplets of this might trickle down to the people that are working in the real economy.5 Of note is the fact that the citation for this quote is some random dude Wolf Richter's website. The guy's a former car dealership manager, and that's the extent of his financial background. A much less sinister and simpler explanation exists: high inflation rates are bad for pretty much the entire economy regardless of level of wealth. We already saw this in action in the 1970s. I also take issue with a lot of the numbered points in the article. These points seem to avoid the more nuanced multiple factors behind those specific developments: 1. Tech companies are flushed with cash because it's the highest margin business out there. There was no such thing as software company profit margins in the olden days of corporate behavior. 3. The buyback graph didn't show R&D spending decreasing at all or otherwise being impacted by stock buybacks. The cited HBR article doesn't directly link the lack of R&D expenditures to stock buybacks. Aren't there companies out there that have minimal R&D expenses? S&P 500 companies like Dollar General, Costco, Robert Half, and CBRE Group? 4. Isn't the biggest reason to link CEO pay to stocks to avoid personal income tax? That's just a tax efficiency issue. 5. Aren't there other reasons why Vanguard is popular besides the popularity of stocks in general? I always thought it was because the Boglehead ideology spread and Vanguard's low expense ratios proved to be attractive. I see this as "passive versus active investing" not "investing in stocks versus investing in something else." 7. Who says FIRE isn't productive? Where do you think those "tech companies flush with cash" got the cash from?
- s1artibartfast 4y ago
  I never understood the negative attention stock buybacks have received relative to dividends. They do basically do the same thing, but nobody is offended when companies pay a dividend.
  - salawat 4y ago
    In a stock buyback, the investor only is made whole by "exiting" the stock. I.e., if that stock has voting rights, and you're more interested in being able to influence as a shareholder, you're left out of the "lifting of every risk sinker" when a company does a buyback. In fact, it guarantees that the amount of shareholder influence as a whole decreases, because if someone were to reacquire that share it would be more expensive now. Stock buybacks are basically attempts to shirk leashes, freeing execs/other shareholders from the ongoing influence of exiting shareholders. Dividends on the other hand, are straightforward returns on what was a commitment to sink risk. An ongoing source of income for the shareholder as a result of the company thriving. It's a straight up payment of a coupon off a bond. There is no need to exit/re-enter required. Your # of shares do not move. Therefore your relative investment stays as it was, whereas with the buyback, you're handing back your ongoing leash and influence on the company. Stock buybacks are therefore not equivalent in any way to paying of dividends. I don't know why this is so hard to understand.
    - s1artibartfast 4y ago
      If a company does a buyback, shouldn't you still have a higher percent control if you dont sell any of your holdings, and the same % control if you do sell the dividend equivalent Imagine a company has 100 shares and I own 10. If they company buys back 50, the stock price will double, and my % ownership goes up from 10 to 20%. I can sell down to 10%, the same control I had before to take my profits. What am I missing here?
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awinder 4y ago
“All of this has led to weird idiosyncrasies, euphoria, and contradictions. Stocks ballooned, tripling in value since 2009” This is like 9% compounded for 13 years, which is in line with historic averages.
- antonomon 4y ago
  It continuing unabated for 13 years is a historical anomaly, however
  - awinder 4y ago
    We’ve had 3 bull cycles that lasted around 13 years covering periods in the 50s, 80s and 90s. https://www.uidaho.edu/-/media/UIdaho-Responsive/Files/Extension/county/Latah/finance/history-of-bull-and-bear-markets.pdf https://www.uidaho.edu/-/media/UIdaho-Responsive/Files/Exten... The +9% average is long-lived and covers periods with drawdowns so no abnormality there.
- dnissley 4y ago
  Hm, but we've had zero interest rates that entire time so shouldn't we have expected even higher returns? E.g. what would the 90s have looked like with zero rates?
  - carlivar 4y ago
    And by that thinking, if we could only manage historical averages during pronounced low interest rates, what does it say about the prospect of returns for the next few years?
  - shock-value 4y ago
    Lowering rates will give a boost to the stock market in the short to medium term. In the long term, returns will settle closer to the interest rate in question (plus a risk premium). See: Japan over the last couple of decades.
    - 4y ago
lokar 4y ago
People who complain about extreme fed policy should look to congress. The inability of congress to address core economic and financial issues forces the feds hand.
- Proven 4y ago
  Complete nonsense. The Fed isn't supposed to address any "issues", but simply be neutral. Instead they've spent a century saving entities that socialized private losses.
  - kube-system 4y ago
    The fed has a mandate to follow: https://en.wikipedia.org/wiki/Federal_Reserve_Reform_Act_of_1977 https://en.wikipedia.org/wiki/Federal_Reserve_Reform_Act_of_...
  - viscanti 4y ago
    They're meant to use monetary policy to maintain price stability and keep the unemployment rate low. Lots of issues come up where monetary policy would need to react. There are many places where fiscal policy might be better (it can be more finely targeted) and we generally don't see it materialize. So we're left with central bank technocrats using monetary policy.
    - amluto 4y ago
      The alternative to monetary policy isn’t necessarily fiscal policy. The current situation seems to be a combination of fiscal (demand side) problems [0] and supply problems. Congress can, slowly, address supply problems. The Fed can only usefully affect the demand side. As examples that have come up, various shipping laws make shipping expensive. Energy should be cheap to improve economic output, but energy prices are quite high, especially in places like CA. Medical services, drugs, and drug development are wildly expensive and inefficient, and government policies help keep them that way. Various environmental laws, while well intentioned, raise costs of all kinds of things while providing little or even negative environmental benefit [1]. [0] Hello, Covid stimulus policies. [1] As an example in California, water is quite useful, and desalinating water is not fundamentally particularly expensive. But so many environmental groups have veto power over desalination that the cost of large scale desalination might as well be infinite. Never mind that CA has plenty of coastline, plenty of solar resources near the coast, and plenty of valuable goods that could be produced if cheap solar power and reasonably priced water were actually available. And never mind that actual peoples’ actual living expenses (hello, inflation!) would be reduced if their utility bills, their restaurants’ utility bills, etc weren’t so high.
627467 4y ago
Is the current cadre of politicians trained to set policy under high interest rate? I ask of those from main economies.
- blitzar 4y ago
  They are not well suited to set policies under any regime.
smitty1e 4y ago
> The point of this silly question is to consider just how much of an outsized role the Fed now holds. Among the overarching points of the U.S. Constitution is that people who wield vast power stand for election. The Federal Reserve urinates all over this point. Reforming the Federal Reserve is sine qua non IMO if there is to be any improvement.
- AnthonyMouse 4y ago
  The issue is it's not just the Fed, it's the administrative state as a whole. The President appoints the Fed board and the FCC commissioners and the DoJ and the FDA, and then they make policy though nobody elected them. The rulemaking role of these agencies should be a subset of the legislature and the Congress should have to vote on their proposals before they become law.
  - thebradbain 4y ago
    Congress can barely agree on a debt ceiling without playing football every year. Having them vote on the price tiers of postal service package weights or Amtrak route schedules seem like a surefire way to bring the management of every public agency to a standstill. In fact, the only example we really have of our congress being in charge of setting rules for a public agency is the tax code— and its a mess of carve-outs, loopholes, stopgaps (AMT minimums?) that most lay people need to use a certified professional to simply perform a required function ever year. And it’s consistently subject to political football, drastic policy changes based on whatever party is in power, and core issues that congress was originally supposed to solve by running it (like supposed to balance how much money it brings in against public expenses) are often ignored anyways. The point of a republic is not to put every decision to a vote, but to elect people we trust to be in charge— which includes who they appoint to run agencies, etc. In fact, that’s where most of the president’s power Tiber policy comes from— and it makes sense why, since he’s the only person in our government we all have a say nationwide in electing.
    - smitty1e 4y ago
      Great thoughts, but you invite the question: should techies like the readers of this site attempt to offer a more coherent system? People seem to scale poorly, and the US government needs reform. What to do?
blockwriter 4y ago
My friend that has been a general contractor for around ten years acts like it's not even worth doing his job anymore now that interest rates are going up.
- thedudeabides5 4y ago
  He's prolly right.
- lambic2 4y ago
  why is that? what kind of contractor?
  - blockwriter 4y ago
    His firm develops multi-unit buildings in Chicago, mostly residential. I think he is just annoyed that the easy money is drying up, and that it hurts his bottom line or business in general. Based on his attitude, though, I'm just amazed that the type of project his firm takes on were so dependent on money being cheap. They also operated a lot on a fixed cost basis, and sudden price increases were not accurately factored into those contracts. He wants without price stability and cheap money and has neither.
    - Qwertious 4y ago
      >He wants without price stability and cheap money and has neither. He wants what?
  - bumbledraven 4y ago
    > what kind of contractor? https://en.wikipedia.org/wiki/General_contractor https://en.wikipedia.org/wiki/General_contractor : A general contractor…is responsible for the day-to-day oversight of a construction site, management of vendors and trades, and the communication of information to all involved parties throughout the course of a building project.
- positr0n 4y ago
  Interesting. I just asked the builder that built my house* and he said his business hasn't slowed down at all. His primary location since I'm sure that matters a lot: suburbs north of Dallas. * We got the land right before the boom in prices. Paid super inflated prices for materials. Finalized a mortgage before the recent rate increases. I guess overall we came out ahead?
mensetmanusman 4y ago
Just wait until we enter the ‘decades long workforce population decline’ period. Once GDP growth decreases by population shrinkage, investing will be fun again!
- thatguy0900 4y ago
  Well just keep desperately importing people from other countries, unlike Japan and Co. Or, for the other side of the political spectrum, ban abortions/birth control.
  - MonkeyMalarky 4y ago
    The first option reminds me of the Netflix show 3%.
  - Qwertious 4y ago
    Banning abortions/birth control has already been tried by Romania. It was the inspiration for the book The Handmaid's Tale. In Romania today, banning abortions/birth control would be a political death sentence due to peoples' memories of the results the last time it was tried.
    - boppo1 4y ago
      >memories of the results the last time it was tried. What happened?
  - rayiner 4y ago
    While slowly turning the country into Bangladesh. Fantastic.
    - ch4s3 4y ago
      We have a TON of space, unlike Bangladesh and we’re already a developed economy with strong institutions and rule of law. From a lot of vantage points, the US has enviable problems.
neilv 4y ago
> It became the new normal, and the generation that entered Wall St. during this time is now disoriented, for they “do not know a world without cheap money.” [...] Whenever people are humbled by the melting away of things they took for granted, now that’s a topic worth exploring. I'm trying to figure out parallels and implications for tech jobs. Where in tech jobs will be first to decide they need to "rediscover the ways of our ancestors", and willing to pay to speed that up.
- mitthrowaway2 4y ago
  Low interest rates created a preference for subscription models over up-front sales. It may have felt like the transition to cloud software and subscription pricing was due to technology shifts or mobile phones, but it was probably driven by interest rates. If higher interest rates stay around for the long term, it's quite possible that tech going forward will be a little more like the '90s: An up-front sticker price, plus an extra charge for support. Ad funding (as a continuous revenue stream) may also get somewhat less powerful, but will still be a big deal.
  - colinjoy 4y ago
    Given how subscription models are also pushed down the throat of consumers, who do not want them, I would believe that the love for ARR plays an even bigger role.
- EdwardDiego 4y ago
  I'm waiting for the inevitable swing back from the Clouds to colos and dedicated DCs. Eventually, the cost difference is going to get a bunch of CTOs twitching. I mean, the fact that "cost engineering" is an often used term these days makes me sad.
  - WrtCdEvrydy 4y ago
    In the background, it's already happening for test and dev environments. The technical term is "repatriation" and I can tell you those snowballs coming from S3 to your onsite aren't just for looks ;)
CoastalCoder 4y ago
> "What if your entire worldview was just because of near-zero interest rates?" Worldviews typically include who we are, why we're here, what purpose (if any) we have in life, etc. It seems strange to me that someone's worldview could be thoroughly based on interest rates.
- vermilingua 4y ago
  You (thankfully) mustn't know many crypto/optionbros.
- balsam 4y ago
  The worldviews of the originators of HN and YC are probably built on cheap debt. Airbnb may have revenue, but I would say its their stock sales to speculators, also burgeoned by cheap debt, that resulted in these VCs thinking they are smarter than everyone else. Now that they are smarter than everyone else, their purpose in life is to tell people what they should do, how they should live, like the puritans of old. Get frustrated by other smart people who didn’t get their self-assurance from God or Market given prosperity. Thats a worldview ain’t it.
- sennight 4y ago
  > Worldviews typically include.. For people who are their own favorite subject, maybe. For everyone else it is an internal model of the way the world works, which allows you to make sense of things. So when you are interested in the way the world actually works, not how you feel it should work, economics is very important.
- mym1990 4y ago
  I think the question aims to say that one's world view, which is a combination of your experiences, interactions, and learnings...might be based off of the adverse effects of zero interest rates(things happening around you or to you) rather than one's world view being solely based off of an understanding of interest rates(which I am pretty confident that most people don't have any deep knowledge about).
- mclightning 4y ago
  People's concerns start from food, housing and many other immediate pressing issues, before it gets to identity and purpose. (i.e. Maslow's Hierarchy of Needs) It is not very possible to buy a house with high interest rates. So, most of your earnings go to rental cost. You shape your life with what you have left to spend.
Guthur 4y ago
Western economies are thoroughly capture by financiers and US dollar hegemony and in particular the petrodollar. All of these converge to push up asset prices irrespective of actual productivity. The world has had no option but to buy US debt and or non controlling stakes in US companies. All of this has allowed asset prices to explode while the productive economy and our standard of living has stagnated or declined.
rayiner 4y ago
I suspect near-zero interest rates for a decade also contributed to the political realignment of affluent suburbs trending Democrat. So long as the Fed would buy federal debt cheaply and there was no significant inflation, Democrats could advocate multi-trillion social programs while promising to maintain Reagan-era tax rates on even quite affluent folks.
- cma 4y ago
  Am I misremembering or.. didn't republicans with full control of congress do the tax breaks while increasing spending and later, in partnership with dems after losing congress, expanding social programs like Obamacare to be more universal (free pandemic-related care)? Biden's eventual infrastructure bill also was smaller in scope than Trump's proposed one that wanted $2 trillion instead of $1 trillion.
- mc32 4y ago
  I want to know what happened to the promised "Peace Dividend". Military spending was supposed to go way down, not just down, and civilians were supposed to reap the benefits... Instead Industrialists took up the Globalization mantra and forgot the little guys (the guys and gals working in factories) and happily told them it would mean lower cost of living --conveniently leaving out that they would also earn much less, if they even got to keep their jobs. Ross Perot and Bernie Sanders warned people, but they were made fun of and now Bernie has sold out and pretends.
  - roflyear 4y ago
    How did Bernie sell out?
    - miguelazo 4y ago
      They told him he was a Kremlin asset in 2016 and he believed it. They gave him committee chairmanship as a consolation prize and now he’s one of the biggest hawks for the Dems’ proxy war in Ukraine. Even called out the CPC letter calling for diplomacy alongside military aid.
neilwilson 4y ago
Given that putting interest rates up is an artificial intervention into the market for money, what if your worldview is based around allowing financial institutions to extract rent by taxing people for setting up home? Why is setting the price of money artificially - which gives free government money to financial institutions - better than the alternative: setting the base price of labour by guaranteeing people a job? It would be better if we stopped talking about the false dichotomy of fiscal and monetary policy and started talking about stabilisation policy instead.
- mitthrowaway2 4y ago
  For what it's worth, I don't fundamentally disagree with the MMT viewpoint that you're coming from. But it's not so clear cut. > gives free government money to financial institutions By this, the parent means that nonzero interest rates on government debt represents "free money" that the government pays voluntarily even though it doesn't have to. I'm not so sure. First of all, most of the institutions getting these payments hardly seem happy to be getting them, and would much rather see interest rates drop. Secondly, the money does not come free to the recipients. It comes with a very high opportunity cost. That's exactly the point, because it's an attempt to encourage people to save money when they'd rather spend it because inflation is high. A job guarantee sounds nice, and I do think we should be encouraging full employment without worrying about wage growth. But with a jobs guarantee, who decides what the job is in service of? The point of not having a command economy is that price signals should influence such decisions.
  - neilwilson 4y ago
    "That's exactly the point, because it's an attempt to encourage people to save money when they'd rather spend it because inflation is high." Except that can't happen can it. If Loans create deposits, then to get more savings, you need more loans. You can't have one without the other. What they are trying to do its get people to pay off loans. How many people do you know who pay off loans in the middle of an inflation?
    - 4y ago
throwawayftx 4y ago
Print more and dump on the world strategy will end in the near future since big countries are planning to ditch trade in dollars. Funnily monster that the west created is about to eat it alive.
- spaceman_2020 4y ago
  Ray Dalio says that we are entering an era of currency competition. Instinct tells me that he is right.
- chii 4y ago
  When the GFC happened, there's also a lot of people claiming that it's the end of the dollar hegemony.
benjaminwootton 4y ago
I definetly think a lot of the startup world view is just a function of low rates. Startups could run for decades with $billions in losses and only a passing focus on eventual profits. All of those losses flowed into the bank accounts of big tech (via AWS credits, Google and Facebook Ads). All of the high salaries, employee expectations and leverage in tech startups and big tech derive from that spigot of cheap money. What if it was all just an illusion for a few decades? It’s going to be a bumpy readjustment when it’s all that most of us have known.
- miguelazo 4y ago
  It has skewed the labor market to an insane degree. So much talent went into idiotic pursuits, and away from anything that had to do with public service.
  - spaceman_2020 4y ago
    My wife's uncles is one of the top doctors in his field in the country, and was the head of department in the country's top medical university. He makes less money than me, even though I'm 35 years younger and my "skills" include some basic coding, some marketing, and some understanding of social media. Whereas this man has spent nearly 50 years in the medical field and has treated multiple presidents. None of the startups I've consulted for are profitable. Most, by all means, will never be profitable. Meanwhile, my maid, who works harder in a day than I do in a week, makes 1/50th of my annual income. All that free money has seriously misaligned societies incentives. Enrollment in the medical field is falling drastically because no one wants to work years to make less money than some 24 year old with two years of coding experience. I'll be okay with a pay cut if it means a more equitable, more fair society.
    - lmm 4y ago
      > All that free money has seriously misaligned societies incentives. Enrollment in the medical field is falling drastically because no one wants to work years to make less money than some 24 year old with two years of coding experience. Sounds like a problem that's sorting itself out. There were far too many people who wanted to be doctors; maybe if the supply drops the medical industry might have to - gasp - do something about their working conditions, or even pay more.
moose_man 4y ago
This dude is complaining about the 1990s. Low interest rates are a factor behind a lot of trends in the startup world, but CEO stock pay, stock buybacks ect, a lot of this is 1990s era trends.
RayVR 4y ago
I just can’t take this person seriously. Clearly written by a non-expert and the questions/ideas are, as a result, well-trodden ground without anything original to add. Take this representative quote “It’s Jerome Powell’s world: never before have I seen markets move so erratically in response to a once-boring Jackson Hole conference. Actually, the first time I ever heard of this event was this year since some acquaintances of mine were trying to ‘trade’ it.” So, essentially, this person had no clue what Jackson Hole means in the financial world but makes a huge judgement on past events, then says immediately they know nothing of the past and just learned of them this year. No analysis of market volatility around these events, just a blanket statement that makes them look foolish. Basically they are now opening their eyes to the huge role central banks play in the economy.
- moose_man 4y ago
  He's right in one sense, that the implications of Fed policy for the last decade are truly astounding, but I'm not sure he actually understands why he is right.
  - RayVR 4y ago
    It’s a discussion that’s been had countless times and written about almost as often. maybe I’m gatekeeping a bit but I also think the amount the average person understands about share buybacks and their relationship to ceo compensation packages, interest rates, and corporate tax law is lacking and this person has not improved that situation and probably hurt it through their own ignorance. That’s just one of many issues with the article.
- benjaminwootton 4y ago
  As someone semi familiar with this stuff, it is fairly notable how rates are moving markets right now. Say the payroll number misses consensus by 5%, meaning there’s a fraction of a percent less chance of a 0.75% rise in rates vs 0.5%. The stock market then rallies by 2% or a few hundred $billion in market cap. Surely that isn’t a healthy market when changes in fractional rate expectations create so much volatility.
jongjong 4y ago
I've been saying this for the last 5 years. People don't realize how powerful the 'money printer' is. All the money which exists in the system was created out of nothing and injected into the economy through a few specific channels (mostly as credit backed by debt). IMO, everything in modern society is influenced in some way by interest rates; even culture and morality. Money printing can distort the market pricing mechanism and distort all economic activities. IMO, a low interest rate environment is about luck, first mover advantage and media exposure. A high interest rate environment is about value creation. IMO, as interest rates increase, many successful people of the past decade are going to wake up to a new reality; those who have the humility to understand that they were lucky will be able to adapt their strategy to suit the new environment but most will go out of business. I believe that in this new high interest environment, some people who were previously unsuccessful will thrive while some who used to be successful will start failing. The majority of investors will not be able to escape the mindset that they should only invest in successful people (since that has worked consistently in the past) and they will end up chasing loss after loss and not understand why their proven strategy of track-record-based investing is no longer working.
- benjaminwootton 4y ago
  I agree with your thesis that genuine value creation will become more important. I think this is a more exciting market to operate in as opposed to one where we simply need to raise and spend cash as quickly as possible.
  - jongjong 4y ago
    For the first time in my career I'm also feeling cautiously optimistic about the future. I'm one of these people who was absolutely terrible in this low-rate environment. At least I got to learn about some of the reasons why I absolutely suck at it. One of my worst character traits is that I'm missing the hair-trigger opportunist factor (AKA "you've got one shot" factor) and this is precisely one of the traits which was rewarded heavily by the low-rate environment since it tends to reward first movers disproportionately.
forgingahead 4y ago
I'm old enough to remember in university economics class, the professor would joke about how financial media would closely watch press conferences that Alan Greenspan would give after FOMC meetings, down to watching the thickness of the briefcase to guess as to whether the fed funds rate (which determines interest rates) would increase or decrease. I am happy rates have risen, and I hope they stay at a sane level more in line with historical values rather than the insane period of the past 14 years. As another commenter here points out, when rates are not-zero, business defaults back to value-creation, instead of other silly game-the-system metrics that have arisen in this time frame. Of course it will be painful, both for a generation of younger people who have never experienced "high rates", and also for the finance "professionals" who built reputations on nothing more than gaining access to easy-money and deploying them randomly to things which only rise in value because others also pumped in easy-money down the line. It may also address some of the woke-time-wasting initiatives at companies, as anything not actually adding value will be dropped. The main thing will be to see if the Fed actually stays the course, or if the allure of the money-printer is too seductive and they decide to drop rates back down again even after (or worse, before) inflation is tamed. If so, then the currency will continue to debase until the crypto exit is inevitable.
- boppo1 4y ago
  Can you point me in the direction of something that explains the mechanics of how the FFR determines (prior to market sentiment) the rest of the yield curve? I know they do, but most explainers stop at that.
- baandang 4y ago
  How many people under 35 know that Greenspan held an "emergency" Fed meeting in 1994 to RAISE rates 25 bps? This idea the Fed exists to print money and keep rates low is just not reality. This is over extending the recent past as some kind of stable process. This is going to be extraordinarily painful. So much of the economy, risk preferences, expectations have over aligned to an unsustainable zero interest rate environment that is gone for a generation. The biggest bubble ever popped last year if you look at Wilshire 5000 vs GDP but most people don't even realize we were in such a massive bubble yet. We were not talking about the dot com bubble in summer 2000 either though. We were just talking about how do we get back to the bull market. We are still at the denial stage.
lamontcg 4y ago
What if you're just too young to remember a business cycle because you weren't an adult or were still in college so were insulated from 2008? Its funny to read all these takes from "kids" who think that all the fundamentals have totally changed at this point like the economy has turned some fundamental 180 degree turn and we're heading back towards >6% rates forever. It hasn't. The Fed is going to crash the economy into a brick wall to bring down inflation via raising unemployment (we're probably still 6-12 months out) but then the Fed will slash rates in a panic and go "oopsie". This will bring back yet another low interest rate / cheap money period. I suspect the next cycle will be shorter and a decade of ZIRP won't happen again, but we're going back to ZIRP again once the recession hits.
- blitzar 4y ago
  Born in the 80's I see. Complaining that people born in the90's have seen less than someone born 10 years earlier. There are people born 20 years before you that have seen 2x as much.
  - lamontcg 4y ago
    > Born in the 80's I see incorrect.
- notahacker 4y ago
  > What if you're just too young to remember a business cycle because you weren't an adult or were still in college so were insulated from 2008? This. Whole article is trying to blame a whole lot of trends which were already very much present in 2008 (and in some cases specifically responsible for 2008) on what happened afterwards when interest rates were lower It's not low interest rates that make people believe that Uber has a route to profitability (higher interest rates might kill off some small-margin businesses reliant on debt funding and reduce valuation of all companies; they won't make people investing sovereign wealth funds in US equities smarter about which companies they allocate their funds to), and higher interest rates certainly aren't going to encourage companies to reinvest their cash piles in R&D or help new market entrants compete away the monopoly power that generates those cash piles
- 4y ago
LarsDu88 4y ago
The folks reading this are going to get the wrong message. They are going to believe that rising interest rates will magically make it so that the most highly valued companies are the ones that produce the most societal good. This may start to happen more to a certain extent, but it's a totally false assumption. The most valuable companies before and after this era of low interest rates were and continue to be monopolies. That's what Warren Buffet invests in (Davita Dialysis, Exxon, Apple, rail lines ---> all monopolies). That's what Peter Thiel tries to invest in (Zero to One). That's what successful Y Combinator companies ultimately strive to become. Societal value creation is not the same as value creation to shareholders. The latter can be achieved by the former, but the former is not a requirement for the latter. The question for many of the readers of HackerNews is whether their jobs (mostly as software engineers) ever needed to exist. The answer for many is going to be -- probably not. On the flip side of things, lowering wages for software engineers is going to enable many institutions and companies that do not operate as tech monopolies or startups to start to get some of the benefits of skilled software engineers!
- huijzer 4y ago
  > That's what Warren Buffet invests in (Davita Dialysis, Exxon, Apple, rail lines ---> all monopolies). That's what Peter Thiel tries to invest in (Zero to One). That's what successful Y Combinator companies ultimately strive to become. Buffett invests in companies with a durable competitive advantage which is also often called a "moat". A monopoly is a situation where there is no competition. As a counterexample, although I agree that Coca-Cola has unfair advantages, such as brand name and economies of scale, over new competitors, they do not have a monopoly. > The most valuable companies before and after this era of low interest rates were and continue to be monopolies. That's not necessarily true. The most valuable companies, that is, the companies with the highest valuations are those which make the most money. Or, as Joel Greenblatt puts it: "Price follows earnings." If you want to buy a barn which very likely earns 10 mln per year for now until 2032, then a fair price would be at least 10 x 10 million discounted for the fact that money today is worth more than money tomorrow. Then, after 10 years you still own a farm and any extra income that is produced by it. Of course, this value fluctuates a lot depending on all kinds of factors, but this is generally the process that value investors use to determine the fair value. In the long run, it works as you can see when looking at the net worth of value investors such as Buffett. The only thing that a monopoly "does" is that it makes it easier to predict what the future earnings are going to be. What is typically the case after bubbles is that people take actual earnings into account again. During speculative bubbles, it is very hard to buy things based on reasonable future earnings calculations. The price is driven purely by speculation. What historically has happened after bubbles is that prices become more reasonable again. That's why big companies with unreasonable valuations such as Tesla and Cloudflare have gone down respectively 55% and 62% in price in this year while big companies with more reasonable valuations such as Macy's, Citigroup, or JPMorgan have gone down only 20%. > Societal value creation is not the same as value creation to shareholders. The latter can be achieved by the former, but the former is not a requirement for the latter. Agreed. Capitalism is a ruthless and terrible system, but better than the alternatives. > On the flip side of things, lowering wages for software engineers is going to enable many institutions and companies that do not operate as tech monopolies or startups to start to get some of the benefits of skilled software engineers! Agreed!
ygouzerh 4y ago
The central banks are controlling the rates, but they don't have so many freedom in doing so then we think. They need to think about inflation projection, consumer spending, geopolitical factors,... They seems more responding to the environment than dictating the market.
EGreg 4y ago
Perhaps Austrian Economics has something to it after all: https://m.youtube.com/watch?v=d0nERTFo-Sk https://m.youtube.com/watch?v=d0nERTFo-Sk
andirk 4y ago
Borrowing money can be expensive. It's also how we get to the next level.
huijzer 4y ago
> The 2010s were a decade that “disrupted everything but resolved nothing,” as Andy Beckett wrote, and I tend to agree. These kinds of sentiments are great for drawing attention and might be true on a macro level, but I do not agree at all. Although there is currently a lot of nonsense going around, there are also great things going on if you look carefully. For example, I think that electric cars do have their problems about battery minerals and such, but the idea that we can use solar and wind to locally put energy in the car is mind blowing. Some car makers, such as Lightyear, Sono Motors, and Aptera, are actually putting the solar panels on the car itself. Also, cars like the BYD Seal can drive 550 km / 340 miles on one charge and go from 0-100 / 0-60 in about 5 seconds for 35 000 dollars. Furthermore, SSDs and processors have come a long way since the start of 2010. EUV systems are producing chips below 10 nm. Partially due to this, HDDs cost less than a cent per GB nowadays while SSDs are at about 5 cents per GB according to https://diskprices.com https://diskprices.com. The Crucial 1 TB costs 53 dollars! I've looked in my order history and payed about the same for a 120 GB SSD in 2016. Also, note that GitHub was founded in 2008. Although I'm not so optimistic about the vendor lock-in taking place, I am very optimistic about the quality of the work. For example, Rust appeared for the first time in 2010! Finally, what also makes me optimistic about the future is what Michael Dell stated nicely in a commencement speech (https://youtu.be/sIyGA1MlbwY https://youtu.be/sIyGA1MlbwY). He said he is optimistic about the future because he has never met such an involved younger generation who care about the world and care about changing it. I think this also holds more generally, for example, since 2010, climate change is taken much more seriously (for example, see https://news.gallup.com/poll/1615/environment.aspx https://news.gallup.com/poll/1615/environment.aspx). So no, I do not agree at all with the "resolved nothing" sentiment. A lot of bad stuff happened for sure, but a lot of great stuff happened too.
- sph 4y ago
  I don't think TFA meant "resolved nothing" as a literal nothing, and they meant in a more general sense of the world, not just seen from the tech point of view. Sure, we made cool things in tech during this era, but was it worthwhile on a global scale, on a social level, in an economic sense? That is debatable. It is nonsensical to say that the creation of the SSD or Github has created a more fair society. Apples and oranges.
boppo1 4y ago
Can anyone explain to me why we don't have a policy of 'natural' or 'equilibrium' interest rate? As I studied finance in college in the 2010s I was aghast to realize that the US had basically turned into a centrally planned economy, and could not wrap my head around how any serious economist could advocate for the paradigm with a straight face. I'll never forget my freshman year investment analysis professor angrily and incoherently (to us hungover, careless freshmen) ranting about QE and going out for chain-smoking-breaks. It's so clear now.
- dgellow 4y ago
  > I'll never forget my freshman year investment analysis professor angrily and incoherently (to us hungover, careless freshmen) ranting about QE and going out for chain-smoking-breaks. It's so clear now. Could you enlighten us? What is so clear?
  - boppo1 4y ago
    Asset inflation, erosion of the middle class, rise of unprofitable business getting lots of investment, etc.
- hdhejenennd 4y ago
  What would a "natural" interest rate mean to you? No open market operations, or what?
  - boppo1 4y ago
    Yes, that. Not sure how the market for FF would work since that's not impacted by OMO, but I'm sure there'd be a way to just 'leave it to the market'.
- hef19898 4y ago
  What makes you think that the economy featuring the most un-chained capitalism is a centrally planned economy? I wasn't aware of any government dictated 5 year plans or similar thing anywhere in the western world.
bigpeopleareold 4y ago
My worldview was prior to near-zero interest rates but the bulk of my career has been in the 2010s. Mine was: you work hard and others and yourself recognize value. Heh ... it didn't work during the last decade and it is my own naivete that led me to think that way. My view is purely anecdotal though. I know others had different experiences. It took me a long time to learn that motivators for executives, shareholders, etc. were different than having a necessarily productive workforce. I can't help but say this is just my own experience and what I read though: cheap money seems to be really influential. I worked in a place for a long time that kept buying other companies with access to cheap credit lines and plenty of willing investors. I am not sure if that correlates to how little we were producing ourselves (that is, if there was a corporate strategy of buying companies precedes a product strategy.) However, this strategy would immediately stop when interest rates would jump. I am too scared to speculate though and only walk away with a better sense of when red flags like this start to raise. Maybe there will be different things to look out for though when these influences are not present. However, I am thinking that maybe the return to "work hard and you'll be seen" will sort of come back again. Well, hopefully for myself it would. Seeing others recognize and value what I did is really encouraging.
myshpa 4y ago
The whole system is so dysfunctional, it's no longer funny. - fiscal policies (money printing) - prevalence of bullshit jobs (70%+ of jobs are unnecessary/harmful)[0] - exploitation of nature / future for profit motives of individuals - systemic economic inequality - subsidizing the most harmful things (oil, animal agriculture, plastics) - agriculture based on degrading soils and spraying poisons - health/medicine focused on perpetual treatment instead of prevention of diseases If it doesn't work as it should, it's always the money somewhere behind the curtain. One can't but think of the final chapters of the Hitchhiker's guide to the galaxy, where administrative workers and phone headset cleaners hoard tree leaves, in an attempt to reconstruct the economic system (note to myself: read it again). [0] https://libcom.org/article/phenomenon-bullshit-jobs-david-graeber https://libcom.org/article/phenomenon-bullshit-jobs-david-gr...
- jean_tta 4y ago
  Isn't "money printing" monetary policy, as opposed to fiscal policy?
  - myshpa 4y ago
    You're right, of course.
mikewarot 4y ago
The ability to just buy replacements for things instead of repairing them might be coming to an end. A focus on reparability and reusability for physical goods could be making a comeback.

283 points by antonomon 4y ago

The old economic world may be leaving us, but its pathologies stubbornly remain.

I think the article brings up too many separate concepts without sufficiently tying them together. One of the most basic concepts you have to accept to agree with the premise of the article is that the Fed kept interest rates low to transfer wealth to the wealthy. > After the Great Recession, the Federal Reserve instituted a zero or near-zero interest rate regime. The philosophy behind it was simple: > > The Fed’s “strong and creative measures” would inflate stock prices, which would lead those holding stocks to feel wealthier and more confident, and then they’d spend a little more, and some droplets of this might trickle down to the people that are working in the real economy.5 Of note is the fact that the citation for this quote is some random dude Wolf Richter's website. The guy's a former car dealership manager, and that's the extent of his financial background. A much less sinister and simpler explanation exists: high inflation rates are bad for pretty much the entire economy regardless of level of wealth. We already saw this in action in the 1970s. I also take issue with a lot of the numbered points in the article. These points seem to avoid the more nuanced multiple factors behind those specific developments: 1. Tech companies are flushed with cash because it's the highest margin business out there. There was no such thing as software company profit margins in the olden days of corporate behavior. 3. The buyback graph didn't show R&D spending decreasing at all or otherwise being impacted by stock buybacks. The cited HBR article doesn't directly link the lack of R&D expenditures to stock buybacks. Aren't there companies out there that have minimal R&D expenses? S&P 500 companies like Dollar General, Costco, Robert Half, and CBRE Group? 4. Isn't the biggest reason to link CEO pay to stocks to avoid personal income tax? That's just a tax efficiency issue. 5. Aren't there other reasons why Vanguard is popular besides the popularity of stocks in general? I always thought it was because the Boglehead ideology spread and Vanguard's low expense ratios proved to be attractive. I see this as "passive versus active investing" not "investing in stocks versus investing in something else." 7. Who says FIRE isn't productive? Where do you think those "tech companies flush with cash" got the cash from?

s1artibartfast 4y ago
I never understood the negative attention stock buybacks have received relative to dividends. They do basically do the same thing, but nobody is offended when companies pay a dividend.
- salawat 4y ago
  In a stock buyback, the investor only is made whole by "exiting" the stock. I.e., if that stock has voting rights, and you're more interested in being able to influence as a shareholder, you're left out of the "lifting of every risk sinker" when a company does a buyback. In fact, it guarantees that the amount of shareholder influence as a whole decreases, because if someone were to reacquire that share it would be more expensive now. Stock buybacks are basically attempts to shirk leashes, freeing execs/other shareholders from the ongoing influence of exiting shareholders. Dividends on the other hand, are straightforward returns on what was a commitment to sink risk. An ongoing source of income for the shareholder as a result of the company thriving. It's a straight up payment of a coupon off a bond. There is no need to exit/re-enter required. Your # of shares do not move. Therefore your relative investment stays as it was, whereas with the buyback, you're handing back your ongoing leash and influence on the company. Stock buybacks are therefore not equivalent in any way to paying of dividends. I don't know why this is so hard to understand.
  - s1artibartfast 4y ago
    If a company does a buyback, shouldn't you still have a higher percent control if you dont sell any of your holdings, and the same % control if you do sell the dividend equivalent Imagine a company has 100 shares and I own 10. If they company buys back 50, the stock price will double, and my % ownership goes up from 10 to 20%. I can sell down to 10%, the same control I had before to take my profits. What am I missing here?
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awinder 4y ago

“All of this has led to weird idiosyncrasies, euphoria, and contradictions. Stocks ballooned, tripling in value since 2009” This is like 9% compounded for 13 years, which is in line with historic averages.

antonomon 4y ago
It continuing unabated for 13 years is a historical anomaly, however
- awinder 4y ago
  We’ve had 3 bull cycles that lasted around 13 years covering periods in the 50s, 80s and 90s. https://www.uidaho.edu/-/media/UIdaho-Responsive/Files/Extension/county/Latah/finance/history-of-bull-and-bear-markets.pdf https://www.uidaho.edu/-/media/UIdaho-Responsive/Files/Exten... The +9% average is long-lived and covers periods with drawdowns so no abnormality there.
dnissley 4y ago
Hm, but we've had zero interest rates that entire time so shouldn't we have expected even higher returns? E.g. what would the 90s have looked like with zero rates?
- carlivar 4y ago
  And by that thinking, if we could only manage historical averages during pronounced low interest rates, what does it say about the prospect of returns for the next few years?
- shock-value 4y ago
  Lowering rates will give a boost to the stock market in the short to medium term. In the long term, returns will settle closer to the interest rate in question (plus a risk premium). See: Japan over the last couple of decades.
  - 4y ago

lokar 4y ago

People who complain about extreme fed policy should look to congress. The inability of congress to address core economic and financial issues forces the feds hand.

Proven 4y ago
Complete nonsense. The Fed isn't supposed to address any "issues", but simply be neutral. Instead they've spent a century saving entities that socialized private losses.
- kube-system 4y ago
  The fed has a mandate to follow: https://en.wikipedia.org/wiki/Federal_Reserve_Reform_Act_of_1977 https://en.wikipedia.org/wiki/Federal_Reserve_Reform_Act_of_...
- viscanti 4y ago
  They're meant to use monetary policy to maintain price stability and keep the unemployment rate low. Lots of issues come up where monetary policy would need to react. There are many places where fiscal policy might be better (it can be more finely targeted) and we generally don't see it materialize. So we're left with central bank technocrats using monetary policy.
  - amluto 4y ago
    The alternative to monetary policy isn’t necessarily fiscal policy. The current situation seems to be a combination of fiscal (demand side) problems [0] and supply problems. Congress can, slowly, address supply problems. The Fed can only usefully affect the demand side. As examples that have come up, various shipping laws make shipping expensive. Energy should be cheap to improve economic output, but energy prices are quite high, especially in places like CA. Medical services, drugs, and drug development are wildly expensive and inefficient, and government policies help keep them that way. Various environmental laws, while well intentioned, raise costs of all kinds of things while providing little or even negative environmental benefit [1]. [0] Hello, Covid stimulus policies. [1] As an example in California, water is quite useful, and desalinating water is not fundamentally particularly expensive. But so many environmental groups have veto power over desalination that the cost of large scale desalination might as well be infinite. Never mind that CA has plenty of coastline, plenty of solar resources near the coast, and plenty of valuable goods that could be produced if cheap solar power and reasonably priced water were actually available. And never mind that actual peoples’ actual living expenses (hello, inflation!) would be reduced if their utility bills, their restaurants’ utility bills, etc weren’t so high.

627467 4y ago

Is the current cadre of politicians trained to set policy under high interest rate? I ask of those from main economies.

blitzar 4y ago
They are not well suited to set policies under any regime.

smitty1e 4y ago

> The point of this silly question is to consider just how much of an outsized role the Fed now holds. Among the overarching points of the U.S. Constitution is that people who wield vast power stand for election. The Federal Reserve urinates all over this point. Reforming the Federal Reserve is sine qua non IMO if there is to be any improvement.

AnthonyMouse 4y ago
The issue is it's not just the Fed, it's the administrative state as a whole. The President appoints the Fed board and the FCC commissioners and the DoJ and the FDA, and then they make policy though nobody elected them. The rulemaking role of these agencies should be a subset of the legislature and the Congress should have to vote on their proposals before they become law.
- thebradbain 4y ago
  Congress can barely agree on a debt ceiling without playing football every year. Having them vote on the price tiers of postal service package weights or Amtrak route schedules seem like a surefire way to bring the management of every public agency to a standstill. In fact, the only example we really have of our congress being in charge of setting rules for a public agency is the tax code— and its a mess of carve-outs, loopholes, stopgaps (AMT minimums?) that most lay people need to use a certified professional to simply perform a required function ever year. And it’s consistently subject to political football, drastic policy changes based on whatever party is in power, and core issues that congress was originally supposed to solve by running it (like supposed to balance how much money it brings in against public expenses) are often ignored anyways. The point of a republic is not to put every decision to a vote, but to elect people we trust to be in charge— which includes who they appoint to run agencies, etc. In fact, that’s where most of the president’s power Tiber policy comes from— and it makes sense why, since he’s the only person in our government we all have a say nationwide in electing.
  - smitty1e 4y ago
    Great thoughts, but you invite the question: should techies like the readers of this site attempt to offer a more coherent system? People seem to scale poorly, and the US government needs reform. What to do?

blockwriter 4y ago

My friend that has been a general contractor for around ten years acts like it's not even worth doing his job anymore now that interest rates are going up.

thedudeabides5 4y ago
He's prolly right.
lambic2 4y ago
why is that? what kind of contractor?
- blockwriter 4y ago
  His firm develops multi-unit buildings in Chicago, mostly residential. I think he is just annoyed that the easy money is drying up, and that it hurts his bottom line or business in general. Based on his attitude, though, I'm just amazed that the type of project his firm takes on were so dependent on money being cheap. They also operated a lot on a fixed cost basis, and sudden price increases were not accurately factored into those contracts. He wants without price stability and cheap money and has neither.
  - Qwertious 4y ago
    >He wants without price stability and cheap money and has neither. He wants what?
- bumbledraven 4y ago
  > what kind of contractor? https://en.wikipedia.org/wiki/General_contractor https://en.wikipedia.org/wiki/General_contractor : A general contractor…is responsible for the day-to-day oversight of a construction site, management of vendors and trades, and the communication of information to all involved parties throughout the course of a building project.
positr0n 4y ago
Interesting. I just asked the builder that built my house* and he said his business hasn't slowed down at all. His primary location since I'm sure that matters a lot: suburbs north of Dallas. * We got the land right before the boom in prices. Paid super inflated prices for materials. Finalized a mortgage before the recent rate increases. I guess overall we came out ahead?

mensetmanusman 4y ago

Just wait until we enter the ‘decades long workforce population decline’ period. Once GDP growth decreases by population shrinkage, investing will be fun again!

thatguy0900 4y ago
Well just keep desperately importing people from other countries, unlike Japan and Co. Or, for the other side of the political spectrum, ban abortions/birth control.
- MonkeyMalarky 4y ago
  The first option reminds me of the Netflix show 3%.
- Qwertious 4y ago
  Banning abortions/birth control has already been tried by Romania. It was the inspiration for the book The Handmaid's Tale. In Romania today, banning abortions/birth control would be a political death sentence due to peoples' memories of the results the last time it was tried.
  - boppo1 4y ago
    >memories of the results the last time it was tried. What happened?
- rayiner 4y ago
  While slowly turning the country into Bangladesh. Fantastic.
  - ch4s3 4y ago
    We have a TON of space, unlike Bangladesh and we’re already a developed economy with strong institutions and rule of law. From a lot of vantage points, the US has enviable problems.

neilv 4y ago

> It became the new normal, and the generation that entered Wall St. during this time is now disoriented, for they “do not know a world without cheap money.” [...] Whenever people are humbled by the melting away of things they took for granted, now that’s a topic worth exploring. I'm trying to figure out parallels and implications for tech jobs. Where in tech jobs will be first to decide they need to "rediscover the ways of our ancestors", and willing to pay to speed that up.

mitthrowaway2 4y ago
Low interest rates created a preference for subscription models over up-front sales. It may have felt like the transition to cloud software and subscription pricing was due to technology shifts or mobile phones, but it was probably driven by interest rates. If higher interest rates stay around for the long term, it's quite possible that tech going forward will be a little more like the '90s: An up-front sticker price, plus an extra charge for support. Ad funding (as a continuous revenue stream) may also get somewhat less powerful, but will still be a big deal.
- colinjoy 4y ago
  Given how subscription models are also pushed down the throat of consumers, who do not want them, I would believe that the love for ARR plays an even bigger role.
EdwardDiego 4y ago
I'm waiting for the inevitable swing back from the Clouds to colos and dedicated DCs. Eventually, the cost difference is going to get a bunch of CTOs twitching. I mean, the fact that "cost engineering" is an often used term these days makes me sad.
- WrtCdEvrydy 4y ago
  In the background, it's already happening for test and dev environments. The technical term is "repatriation" and I can tell you those snowballs coming from S3 to your onsite aren't just for looks ;)

CoastalCoder 4y ago

> "What if your entire worldview was just because of near-zero interest rates?" Worldviews typically include who we are, why we're here, what purpose (if any) we have in life, etc. It seems strange to me that someone's worldview could be thoroughly based on interest rates.

vermilingua 4y ago
You (thankfully) mustn't know many crypto/optionbros.
balsam 4y ago
The worldviews of the originators of HN and YC are probably built on cheap debt. Airbnb may have revenue, but I would say its their stock sales to speculators, also burgeoned by cheap debt, that resulted in these VCs thinking they are smarter than everyone else. Now that they are smarter than everyone else, their purpose in life is to tell people what they should do, how they should live, like the puritans of old. Get frustrated by other smart people who didn’t get their self-assurance from God or Market given prosperity. Thats a worldview ain’t it.
sennight 4y ago
> Worldviews typically include.. For people who are their own favorite subject, maybe. For everyone else it is an internal model of the way the world works, which allows you to make sense of things. So when you are interested in the way the world actually works, not how you feel it should work, economics is very important.
mym1990 4y ago
I think the question aims to say that one's world view, which is a combination of your experiences, interactions, and learnings...might be based off of the adverse effects of zero interest rates(things happening around you or to you) rather than one's world view being solely based off of an understanding of interest rates(which I am pretty confident that most people don't have any deep knowledge about).
mclightning 4y ago
People's concerns start from food, housing and many other immediate pressing issues, before it gets to identity and purpose. (i.e. Maslow's Hierarchy of Needs) It is not very possible to buy a house with high interest rates. So, most of your earnings go to rental cost. You shape your life with what you have left to spend.

Guthur 4y ago

Western economies are thoroughly capture by financiers and US dollar hegemony and in particular the petrodollar. All of these converge to push up asset prices irrespective of actual productivity. The world has had no option but to buy US debt and or non controlling stakes in US companies. All of this has allowed asset prices to explode while the productive economy and our standard of living has stagnated or declined.

rayiner 4y ago

I suspect near-zero interest rates for a decade also contributed to the political realignment of affluent suburbs trending Democrat. So long as the Fed would buy federal debt cheaply and there was no significant inflation, Democrats could advocate multi-trillion social programs while promising to maintain Reagan-era tax rates on even quite affluent folks.

cma 4y ago
Am I misremembering or.. didn't republicans with full control of congress do the tax breaks while increasing spending and later, in partnership with dems after losing congress, expanding social programs like Obamacare to be more universal (free pandemic-related care)? Biden's eventual infrastructure bill also was smaller in scope than Trump's proposed one that wanted $2 trillion instead of $1 trillion.
mc32 4y ago
I want to know what happened to the promised "Peace Dividend". Military spending was supposed to go way down, not just down, and civilians were supposed to reap the benefits... Instead Industrialists took up the Globalization mantra and forgot the little guys (the guys and gals working in factories) and happily told them it would mean lower cost of living --conveniently leaving out that they would also earn much less, if they even got to keep their jobs. Ross Perot and Bernie Sanders warned people, but they were made fun of and now Bernie has sold out and pretends.
- roflyear 4y ago
  How did Bernie sell out?
  - miguelazo 4y ago
    They told him he was a Kremlin asset in 2016 and he believed it. They gave him committee chairmanship as a consolation prize and now he’s one of the biggest hawks for the Dems’ proxy war in Ukraine. Even called out the CPC letter calling for diplomacy alongside military aid.

neilwilson 4y ago

Given that putting interest rates up is an artificial intervention into the market for money, what if your worldview is based around allowing financial institutions to extract rent by taxing people for setting up home? Why is setting the price of money artificially - which gives free government money to financial institutions - better than the alternative: setting the base price of labour by guaranteeing people a job? It would be better if we stopped talking about the false dichotomy of fiscal and monetary policy and started talking about stabilisation policy instead.

mitthrowaway2 4y ago
For what it's worth, I don't fundamentally disagree with the MMT viewpoint that you're coming from. But it's not so clear cut. > gives free government money to financial institutions By this, the parent means that nonzero interest rates on government debt represents "free money" that the government pays voluntarily even though it doesn't have to. I'm not so sure. First of all, most of the institutions getting these payments hardly seem happy to be getting them, and would much rather see interest rates drop. Secondly, the money does not come free to the recipients. It comes with a very high opportunity cost. That's exactly the point, because it's an attempt to encourage people to save money when they'd rather spend it because inflation is high. A job guarantee sounds nice, and I do think we should be encouraging full employment without worrying about wage growth. But with a jobs guarantee, who decides what the job is in service of? The point of not having a command economy is that price signals should influence such decisions.
- neilwilson 4y ago
  "That's exactly the point, because it's an attempt to encourage people to save money when they'd rather spend it because inflation is high." Except that can't happen can it. If Loans create deposits, then to get more savings, you need more loans. You can't have one without the other. What they are trying to do its get people to pay off loans. How many people do you know who pay off loans in the middle of an inflation?
  - 4y ago

throwawayftx 4y ago

Print more and dump on the world strategy will end in the near future since big countries are planning to ditch trade in dollars. Funnily monster that the west created is about to eat it alive.

spaceman_2020 4y ago
Ray Dalio says that we are entering an era of currency competition. Instinct tells me that he is right.
chii 4y ago
When the GFC happened, there's also a lot of people claiming that it's the end of the dollar hegemony.

benjaminwootton 4y ago

I definetly think a lot of the startup world view is just a function of low rates. Startups could run for decades with $billions in losses and only a passing focus on eventual profits. All of those losses flowed into the bank accounts of big tech (via AWS credits, Google and Facebook Ads). All of the high salaries, employee expectations and leverage in tech startups and big tech derive from that spigot of cheap money. What if it was all just an illusion for a few decades? It’s going to be a bumpy readjustment when it’s all that most of us have known.

miguelazo 4y ago
It has skewed the labor market to an insane degree. So much talent went into idiotic pursuits, and away from anything that had to do with public service.
- spaceman_2020 4y ago
  My wife's uncles is one of the top doctors in his field in the country, and was the head of department in the country's top medical university. He makes less money than me, even though I'm 35 years younger and my "skills" include some basic coding, some marketing, and some understanding of social media. Whereas this man has spent nearly 50 years in the medical field and has treated multiple presidents. None of the startups I've consulted for are profitable. Most, by all means, will never be profitable. Meanwhile, my maid, who works harder in a day than I do in a week, makes 1/50th of my annual income. All that free money has seriously misaligned societies incentives. Enrollment in the medical field is falling drastically because no one wants to work years to make less money than some 24 year old with two years of coding experience. I'll be okay with a pay cut if it means a more equitable, more fair society.
  - lmm 4y ago
    > All that free money has seriously misaligned societies incentives. Enrollment in the medical field is falling drastically because no one wants to work years to make less money than some 24 year old with two years of coding experience. Sounds like a problem that's sorting itself out. There were far too many people who wanted to be doctors; maybe if the supply drops the medical industry might have to - gasp - do something about their working conditions, or even pay more.

moose_man 4y ago

This dude is complaining about the 1990s. Low interest rates are a factor behind a lot of trends in the startup world, but CEO stock pay, stock buybacks ect, a lot of this is 1990s era trends.

RayVR 4y ago

I just can’t take this person seriously. Clearly written by a non-expert and the questions/ideas are, as a result, well-trodden ground without anything original to add. Take this representative quote “It’s Jerome Powell’s world: never before have I seen markets move so erratically in response to a once-boring Jackson Hole conference. Actually, the first time I ever heard of this event was this year since some acquaintances of mine were trying to ‘trade’ it.” So, essentially, this person had no clue what Jackson Hole means in the financial world but makes a huge judgement on past events, then says immediately they know nothing of the past and just learned of them this year. No analysis of market volatility around these events, just a blanket statement that makes them look foolish. Basically they are now opening their eyes to the huge role central banks play in the economy.

moose_man 4y ago
He's right in one sense, that the implications of Fed policy for the last decade are truly astounding, but I'm not sure he actually understands why he is right.
- RayVR 4y ago
  It’s a discussion that’s been had countless times and written about almost as often. maybe I’m gatekeeping a bit but I also think the amount the average person understands about share buybacks and their relationship to ceo compensation packages, interest rates, and corporate tax law is lacking and this person has not improved that situation and probably hurt it through their own ignorance. That’s just one of many issues with the article.
benjaminwootton 4y ago
As someone semi familiar with this stuff, it is fairly notable how rates are moving markets right now. Say the payroll number misses consensus by 5%, meaning there’s a fraction of a percent less chance of a 0.75% rise in rates vs 0.5%. The stock market then rallies by 2% or a few hundred $billion in market cap. Surely that isn’t a healthy market when changes in fractional rate expectations create so much volatility.

jongjong 4y ago

I've been saying this for the last 5 years. People don't realize how powerful the 'money printer' is. All the money which exists in the system was created out of nothing and injected into the economy through a few specific channels (mostly as credit backed by debt). IMO, everything in modern society is influenced in some way by interest rates; even culture and morality. Money printing can distort the market pricing mechanism and distort all economic activities. IMO, a low interest rate environment is about luck, first mover advantage and media exposure. A high interest rate environment is about value creation. IMO, as interest rates increase, many successful people of the past decade are going to wake up to a new reality; those who have the humility to understand that they were lucky will be able to adapt their strategy to suit the new environment but most will go out of business. I believe that in this new high interest environment, some people who were previously unsuccessful will thrive while some who used to be successful will start failing. The majority of investors will not be able to escape the mindset that they should only invest in successful people (since that has worked consistently in the past) and they will end up chasing loss after loss and not understand why their proven strategy of track-record-based investing is no longer working.

benjaminwootton 4y ago
I agree with your thesis that genuine value creation will become more important. I think this is a more exciting market to operate in as opposed to one where we simply need to raise and spend cash as quickly as possible.
- jongjong 4y ago
  For the first time in my career I'm also feeling cautiously optimistic about the future. I'm one of these people who was absolutely terrible in this low-rate environment. At least I got to learn about some of the reasons why I absolutely suck at it. One of my worst character traits is that I'm missing the hair-trigger opportunist factor (AKA "you've got one shot" factor) and this is precisely one of the traits which was rewarded heavily by the low-rate environment since it tends to reward first movers disproportionately.

forgingahead 4y ago

I'm old enough to remember in university economics class, the professor would joke about how financial media would closely watch press conferences that Alan Greenspan would give after FOMC meetings, down to watching the thickness of the briefcase to guess as to whether the fed funds rate (which determines interest rates) would increase or decrease. I am happy rates have risen, and I hope they stay at a sane level more in line with historical values rather than the insane period of the past 14 years. As another commenter here points out, when rates are not-zero, business defaults back to value-creation, instead of other silly game-the-system metrics that have arisen in this time frame. Of course it will be painful, both for a generation of younger people who have never experienced "high rates", and also for the finance "professionals" who built reputations on nothing more than gaining access to easy-money and deploying them randomly to things which only rise in value because others also pumped in easy-money down the line. It may also address some of the woke-time-wasting initiatives at companies, as anything not actually adding value will be dropped. The main thing will be to see if the Fed actually stays the course, or if the allure of the money-printer is too seductive and they decide to drop rates back down again even after (or worse, before) inflation is tamed. If so, then the currency will continue to debase until the crypto exit is inevitable.

boppo1 4y ago
Can you point me in the direction of something that explains the mechanics of how the FFR determines (prior to market sentiment) the rest of the yield curve? I know they do, but most explainers stop at that.
baandang 4y ago
How many people under 35 know that Greenspan held an "emergency" Fed meeting in 1994 to RAISE rates 25 bps? This idea the Fed exists to print money and keep rates low is just not reality. This is over extending the recent past as some kind of stable process. This is going to be extraordinarily painful. So much of the economy, risk preferences, expectations have over aligned to an unsustainable zero interest rate environment that is gone for a generation. The biggest bubble ever popped last year if you look at Wilshire 5000 vs GDP but most people don't even realize we were in such a massive bubble yet. We were not talking about the dot com bubble in summer 2000 either though. We were just talking about how do we get back to the bull market. We are still at the denial stage.

lamontcg 4y ago

What if you're just too young to remember a business cycle because you weren't an adult or were still in college so were insulated from 2008? Its funny to read all these takes from "kids" who think that all the fundamentals have totally changed at this point like the economy has turned some fundamental 180 degree turn and we're heading back towards >6% rates forever. It hasn't. The Fed is going to crash the economy into a brick wall to bring down inflation via raising unemployment (we're probably still 6-12 months out) but then the Fed will slash rates in a panic and go "oopsie". This will bring back yet another low interest rate / cheap money period. I suspect the next cycle will be shorter and a decade of ZIRP won't happen again, but we're going back to ZIRP again once the recession hits.

blitzar 4y ago
Born in the 80's I see. Complaining that people born in the90's have seen less than someone born 10 years earlier. There are people born 20 years before you that have seen 2x as much.
- lamontcg 4y ago
  > Born in the 80's I see incorrect.
notahacker 4y ago
> What if you're just too young to remember a business cycle because you weren't an adult or were still in college so were insulated from 2008? This. Whole article is trying to blame a whole lot of trends which were already very much present in 2008 (and in some cases specifically responsible for 2008) on what happened afterwards when interest rates were lower It's not low interest rates that make people believe that Uber has a route to profitability (higher interest rates might kill off some small-margin businesses reliant on debt funding and reduce valuation of all companies; they won't make people investing sovereign wealth funds in US equities smarter about which companies they allocate their funds to), and higher interest rates certainly aren't going to encourage companies to reinvest their cash piles in R&D or help new market entrants compete away the monopoly power that generates those cash piles
4y ago

LarsDu88 4y ago

The folks reading this are going to get the wrong message. They are going to believe that rising interest rates will magically make it so that the most highly valued companies are the ones that produce the most societal good. This may start to happen more to a certain extent, but it's a totally false assumption. The most valuable companies before and after this era of low interest rates were and continue to be monopolies. That's what Warren Buffet invests in (Davita Dialysis, Exxon, Apple, rail lines ---> all monopolies). That's what Peter Thiel tries to invest in (Zero to One). That's what successful Y Combinator companies ultimately strive to become. Societal value creation is not the same as value creation to shareholders. The latter can be achieved by the former, but the former is not a requirement for the latter. The question for many of the readers of HackerNews is whether their jobs (mostly as software engineers) ever needed to exist. The answer for many is going to be -- probably not. On the flip side of things, lowering wages for software engineers is going to enable many institutions and companies that do not operate as tech monopolies or startups to start to get some of the benefits of skilled software engineers!

huijzer 4y ago
> That's what Warren Buffet invests in (Davita Dialysis, Exxon, Apple, rail lines ---> all monopolies). That's what Peter Thiel tries to invest in (Zero to One). That's what successful Y Combinator companies ultimately strive to become. Buffett invests in companies with a durable competitive advantage which is also often called a "moat". A monopoly is a situation where there is no competition. As a counterexample, although I agree that Coca-Cola has unfair advantages, such as brand name and economies of scale, over new competitors, they do not have a monopoly. > The most valuable companies before and after this era of low interest rates were and continue to be monopolies. That's not necessarily true. The most valuable companies, that is, the companies with the highest valuations are those which make the most money. Or, as Joel Greenblatt puts it: "Price follows earnings." If you want to buy a barn which very likely earns 10 mln per year for now until 2032, then a fair price would be at least 10 x 10 million discounted for the fact that money today is worth more than money tomorrow. Then, after 10 years you still own a farm and any extra income that is produced by it. Of course, this value fluctuates a lot depending on all kinds of factors, but this is generally the process that value investors use to determine the fair value. In the long run, it works as you can see when looking at the net worth of value investors such as Buffett. The only thing that a monopoly "does" is that it makes it easier to predict what the future earnings are going to be. What is typically the case after bubbles is that people take actual earnings into account again. During speculative bubbles, it is very hard to buy things based on reasonable future earnings calculations. The price is driven purely by speculation. What historically has happened after bubbles is that prices become more reasonable again. That's why big companies with unreasonable valuations such as Tesla and Cloudflare have gone down respectively 55% and 62% in price in this year while big companies with more reasonable valuations such as Macy's, Citigroup, or JPMorgan have gone down only 20%. > Societal value creation is not the same as value creation to shareholders. The latter can be achieved by the former, but the former is not a requirement for the latter. Agreed. Capitalism is a ruthless and terrible system, but better than the alternatives. > On the flip side of things, lowering wages for software engineers is going to enable many institutions and companies that do not operate as tech monopolies or startups to start to get some of the benefits of skilled software engineers! Agreed!

ygouzerh 4y ago

The central banks are controlling the rates, but they don't have so many freedom in doing so then we think. They need to think about inflation projection, consumer spending, geopolitical factors,... They seems more responding to the environment than dictating the market.

EGreg 4y ago

Perhaps Austrian Economics has something to it after all: https://m.youtube.com/watch?v=d0nERTFo-Sk https://m.youtube.com/watch?v=d0nERTFo-Sk

andirk 4y ago

Borrowing money can be expensive. It's also how we get to the next level.

huijzer 4y ago

> The 2010s were a decade that “disrupted everything but resolved nothing,” as Andy Beckett wrote, and I tend to agree. These kinds of sentiments are great for drawing attention and might be true on a macro level, but I do not agree at all. Although there is currently a lot of nonsense going around, there are also great things going on if you look carefully. For example, I think that electric cars do have their problems about battery minerals and such, but the idea that we can use solar and wind to locally put energy in the car is mind blowing. Some car makers, such as Lightyear, Sono Motors, and Aptera, are actually putting the solar panels on the car itself. Also, cars like the BYD Seal can drive 550 km / 340 miles on one charge and go from 0-100 / 0-60 in about 5 seconds for 35 000 dollars. Furthermore, SSDs and processors have come a long way since the start of 2010. EUV systems are producing chips below 10 nm. Partially due to this, HDDs cost less than a cent per GB nowadays while SSDs are at about 5 cents per GB according to https://diskprices.com https://diskprices.com. The Crucial 1 TB costs 53 dollars! I've looked in my order history and payed about the same for a 120 GB SSD in 2016. Also, note that GitHub was founded in 2008. Although I'm not so optimistic about the vendor lock-in taking place, I am very optimistic about the quality of the work. For example, Rust appeared for the first time in 2010! Finally, what also makes me optimistic about the future is what Michael Dell stated nicely in a commencement speech (https://youtu.be/sIyGA1MlbwY https://youtu.be/sIyGA1MlbwY). He said he is optimistic about the future because he has never met such an involved younger generation who care about the world and care about changing it. I think this also holds more generally, for example, since 2010, climate change is taken much more seriously (for example, see https://news.gallup.com/poll/1615/environment.aspx https://news.gallup.com/poll/1615/environment.aspx). So no, I do not agree at all with the "resolved nothing" sentiment. A lot of bad stuff happened for sure, but a lot of great stuff happened too.

sph 4y ago
I don't think TFA meant "resolved nothing" as a literal nothing, and they meant in a more general sense of the world, not just seen from the tech point of view. Sure, we made cool things in tech during this era, but was it worthwhile on a global scale, on a social level, in an economic sense? That is debatable. It is nonsensical to say that the creation of the SSD or Github has created a more fair society. Apples and oranges.

boppo1 4y ago

Can anyone explain to me why we don't have a policy of 'natural' or 'equilibrium' interest rate? As I studied finance in college in the 2010s I was aghast to realize that the US had basically turned into a centrally planned economy, and could not wrap my head around how any serious economist could advocate for the paradigm with a straight face. I'll never forget my freshman year investment analysis professor angrily and incoherently (to us hungover, careless freshmen) ranting about QE and going out for chain-smoking-breaks. It's so clear now.

dgellow 4y ago
> I'll never forget my freshman year investment analysis professor angrily and incoherently (to us hungover, careless freshmen) ranting about QE and going out for chain-smoking-breaks. It's so clear now. Could you enlighten us? What is so clear?
- boppo1 4y ago
  Asset inflation, erosion of the middle class, rise of unprofitable business getting lots of investment, etc.
hdhejenennd 4y ago
What would a "natural" interest rate mean to you? No open market operations, or what?
- boppo1 4y ago
  Yes, that. Not sure how the market for FF would work since that's not impacted by OMO, but I'm sure there'd be a way to just 'leave it to the market'.
hef19898 4y ago
What makes you think that the economy featuring the most un-chained capitalism is a centrally planned economy? I wasn't aware of any government dictated 5 year plans or similar thing anywhere in the western world.

bigpeopleareold 4y ago

My worldview was prior to near-zero interest rates but the bulk of my career has been in the 2010s. Mine was: you work hard and others and yourself recognize value. Heh ... it didn't work during the last decade and it is my own naivete that led me to think that way. My view is purely anecdotal though. I know others had different experiences. It took me a long time to learn that motivators for executives, shareholders, etc. were different than having a necessarily productive workforce. I can't help but say this is just my own experience and what I read though: cheap money seems to be really influential. I worked in a place for a long time that kept buying other companies with access to cheap credit lines and plenty of willing investors. I am not sure if that correlates to how little we were producing ourselves (that is, if there was a corporate strategy of buying companies precedes a product strategy.) However, this strategy would immediately stop when interest rates would jump. I am too scared to speculate though and only walk away with a better sense of when red flags like this start to raise. Maybe there will be different things to look out for though when these influences are not present. However, I am thinking that maybe the return to "work hard and you'll be seen" will sort of come back again. Well, hopefully for myself it would. Seeing others recognize and value what I did is really encouraging.

myshpa 4y ago

The whole system is so dysfunctional, it's no longer funny. - fiscal policies (money printing) - prevalence of bullshit jobs (70%+ of jobs are unnecessary/harmful)[0] - exploitation of nature / future for profit motives of individuals - systemic economic inequality - subsidizing the most harmful things (oil, animal agriculture, plastics) - agriculture based on degrading soils and spraying poisons - health/medicine focused on perpetual treatment instead of prevention of diseases If it doesn't work as it should, it's always the money somewhere behind the curtain. One can't but think of the final chapters of the Hitchhiker's guide to the galaxy, where administrative workers and phone headset cleaners hoard tree leaves, in an attempt to reconstruct the economic system (note to myself: read it again). [0] https://libcom.org/article/phenomenon-bullshit-jobs-david-graeber https://libcom.org/article/phenomenon-bullshit-jobs-david-gr...

jean_tta 4y ago
Isn't "money printing" monetary policy, as opposed to fiscal policy?
- myshpa 4y ago
  You're right, of course.

mikewarot 4y ago

The ability to just buy replacements for things instead of repairing them might be coming to an end. A focus on reparability and reusability for physical goods could be making a comeback.