5 ms·

Yes, because interest rates clearly need to go a lot higher to get inflation under control around the world, yet banks are already starting to fail from the str

by hanoz 4y ago

Yes, because interest rates clearly need to go a lot higher to get inflation under control around the world, yet banks are already starting to fail from the stress of it at these low rates, and the central banks' bailout mechanism is itself inflationary. Although, strictly speaking the answer should be no, this is not the start of a new financial crisis, it is a continuation of the 2008 crisis.

qaq 4y ago
This. I think people are not paying enough attention to the fact that the "fix" is negating anti inflation measures.
- TearsInTheRain 4y ago
  But also bank failures are disinflationary so is the bailout negating the rate hikes or just negating the new regime of tighter lending standards by banks? I dont think anyone has a solid answer to that question
  - mattbrewsbytes 4y ago
    I think the repeating pattern is the banks end up over leveraging based on value of things like MBS or this one is maybe interest rates because money has been free to them for so long (holding lots of worthless bonds I think). In the end, none of it is their money they are playing with so they have a high risk tolerance and a history of getting bailed out, bought out and at a minimum getting bonuses paid out. And then they lobby for deregulation or self-policing. I think having a shot at solving problems involves less lobbying and more criminal prosecution and loss of operating licenses.
    - adamhp 4y ago
      > solving problems involves less lobbying I think we can all agree this pretty much sums it up. Basically every major problem we face in America is the result of lobbying and gerrymandering.
- pas 4y ago
  people rarely invest into new ventures, raise wages, or hire more employees during a bank run. the FDIC stepping in doesn't negate that (it probably prevented a serious crash that could have lead to even more supply chain fluctuations, which itself causes a significant portion of the inflation.)
mrzimmerman 4y ago
Honest question, how is (in the case of SVB and Select) making sure depositors don’t lose money while the bank itself is closed and assets sold off, holders of it’s debt (those who lent money to the bank), and those that owned the stock all lose their investments? I understand the 2008 bailouts were actually giving money to the banks that were/are deemed “too big to fail” and allowing them to more or less operate as if nothing had happened (outside of regulation changes), which seems on its face inflationary. But that’s not happened in this case, correct? Again, honest question if I seem to be missing something.
- chrismcb 4y ago
  What is the actual question here?
- mattbrewsbytes 4y ago
  Guarantee of everything tells the banks they can do whatever they want with everyone else’s money to possibly make more money with zero repercussions. If people could get bailed out of their credit card debt, how reckless would peoples spending be?
  - AnimalMuppet 4y ago
    Zero repercussions? How about stockholders losing 100% of their investment, and management losing their jobs? Those sure look like repercussions to me...
- quickthrower2 4y ago
  Biden said the depositors money is paid out of the insurance scheme that banks pay into. Investors get a bath naturally.
chrismcb 4y ago
How is it a continuation of the 2008 crisis?
- TheAlchemist 4y ago
  Like that: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
alxmng 4y ago
Yes. It’s counter-intuitive but both lowering and raising interest rates are inflationary. A rise in rates means more bond coupon and more bonds sold (new money), and lowering rates results in more bank lending (new money). A rise in rates is actually more inflationary, since bank lending won’t necessarily increase with lowering rates, but a rise in rates necessarily means more bonds and bond coupon from banks purchasing bonds. The system is designed (fractional banking + government bonds) such that the money supply must continue to increase.
- thethimble 4y ago
  Even if your argument were true there would have to be a theoretical interest rate that minimizes inflation (how can a function increase in both directions but not have a minimum?). That said I think there’s reason to be skeptical about the link between rising rates implying more bonds sold - particularly as you consider other factors like creditworthiness.
  - alxmng 4y ago
    The connection between monetary policy and inflation is weak. But the connection between how the monetary system is structured and an ever increasing money supply is clear and factual. Some MMT theorists suspect rising rates is at least not price deflationary as is assumed by Keynesian monetary theory. And the basis is simple: An increase in debt interest has to be serviced by money creation. So the tool used to reduce bank lending creates money, and increasing bank lending creates money. Both roads lead to the money printer. The following points are taken from https://www.reddit.com/r/mmt_economics/comments/wchq55/raising_interest_rates_to_fight_inflation/ https://www.reddit.com/r/mmt_economics/comments/wchq55/raisi... 1. When central banks raise interest rates, this means governments spend more on their interest payments. This translates into increased income for bondholders. Higher incomes lead to more consumer demand, pushing up prices. Similarly, banks benefit from higher interest payments from the Federal Reserve. In other words, the interest from the higher interest rates goes to someone in the economy, and their demand increases rather than decreasing. 2. Interest rates are a cost for businesses. When central banks raise interest rates, businesses pass this new cost on to consumers in the form of higher prices, which is inflation by definition. 3. Higher interest rates make it harder to start a business and harder to hold inventory. This reduces supply, leading to higher prices aka inflation. 4. Finally, MMT economists point to the fact that there is no empirical research at all showing that higher interest rates decrease inflation. In fact, the correlation runs in the opposite direction.
deleted 4y ago
[deleted]
namrog84 4y ago
But isn't there really not inflation going on but late stage unregulated capitalistic greed?
- dragonwriter 4y ago
  Consumer price increases are inflation whether or not they are caused by “late stage unregulated capitalistic greed”.
nscalf 4y ago
Out of curiosity, what makes you think interest rates need to go higher to stop inflation? I know that’s the standard response to inflation, but economics is wildly complex. My read on this situation was always that we needed to decrease the feds balance sheet, get some marginal increase in interest rates, and the rest is supply side.

by hanoz 4y ago

qaq 4y ago

This. I think people are not paying enough attention to the fact that the "fix" is negating anti inflation measures.

TearsInTheRain 4y ago
But also bank failures are disinflationary so is the bailout negating the rate hikes or just negating the new regime of tighter lending standards by banks? I dont think anyone has a solid answer to that question
- mattbrewsbytes 4y ago
  I think the repeating pattern is the banks end up over leveraging based on value of things like MBS or this one is maybe interest rates because money has been free to them for so long (holding lots of worthless bonds I think). In the end, none of it is their money they are playing with so they have a high risk tolerance and a history of getting bailed out, bought out and at a minimum getting bonuses paid out. And then they lobby for deregulation or self-policing. I think having a shot at solving problems involves less lobbying and more criminal prosecution and loss of operating licenses.
  - adamhp 4y ago
    > solving problems involves less lobbying I think we can all agree this pretty much sums it up. Basically every major problem we face in America is the result of lobbying and gerrymandering.
pas 4y ago
people rarely invest into new ventures, raise wages, or hire more employees during a bank run. the FDIC stepping in doesn't negate that (it probably prevented a serious crash that could have lead to even more supply chain fluctuations, which itself causes a significant portion of the inflation.)

mrzimmerman 4y ago

Honest question, how is (in the case of SVB and Select) making sure depositors don’t lose money while the bank itself is closed and assets sold off, holders of it’s debt (those who lent money to the bank), and those that owned the stock all lose their investments? I understand the 2008 bailouts were actually giving money to the banks that were/are deemed “too big to fail” and allowing them to more or less operate as if nothing had happened (outside of regulation changes), which seems on its face inflationary. But that’s not happened in this case, correct? Again, honest question if I seem to be missing something.

chrismcb 4y ago
What is the actual question here?
mattbrewsbytes 4y ago
Guarantee of everything tells the banks they can do whatever they want with everyone else’s money to possibly make more money with zero repercussions. If people could get bailed out of their credit card debt, how reckless would peoples spending be?
- AnimalMuppet 4y ago
  Zero repercussions? How about stockholders losing 100% of their investment, and management losing their jobs? Those sure look like repercussions to me...
quickthrower2 4y ago
Biden said the depositors money is paid out of the insurance scheme that banks pay into. Investors get a bath naturally.

chrismcb 4y ago

How is it a continuation of the 2008 crisis?

TheAlchemist 4y ago
Like that: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

alxmng 4y ago

Yes. It’s counter-intuitive but both lowering and raising interest rates are inflationary. A rise in rates means more bond coupon and more bonds sold (new money), and lowering rates results in more bank lending (new money). A rise in rates is actually more inflationary, since bank lending won’t necessarily increase with lowering rates, but a rise in rates necessarily means more bonds and bond coupon from banks purchasing bonds. The system is designed (fractional banking + government bonds) such that the money supply must continue to increase.

thethimble 4y ago
Even if your argument were true there would have to be a theoretical interest rate that minimizes inflation (how can a function increase in both directions but not have a minimum?). That said I think there’s reason to be skeptical about the link between rising rates implying more bonds sold - particularly as you consider other factors like creditworthiness.
- alxmng 4y ago
  The connection between monetary policy and inflation is weak. But the connection between how the monetary system is structured and an ever increasing money supply is clear and factual. Some MMT theorists suspect rising rates is at least not price deflationary as is assumed by Keynesian monetary theory. And the basis is simple: An increase in debt interest has to be serviced by money creation. So the tool used to reduce bank lending creates money, and increasing bank lending creates money. Both roads lead to the money printer. The following points are taken from https://www.reddit.com/r/mmt_economics/comments/wchq55/raising_interest_rates_to_fight_inflation/ https://www.reddit.com/r/mmt_economics/comments/wchq55/raisi... 1. When central banks raise interest rates, this means governments spend more on their interest payments. This translates into increased income for bondholders. Higher incomes lead to more consumer demand, pushing up prices. Similarly, banks benefit from higher interest payments from the Federal Reserve. In other words, the interest from the higher interest rates goes to someone in the economy, and their demand increases rather than decreasing. 2. Interest rates are a cost for businesses. When central banks raise interest rates, businesses pass this new cost on to consumers in the form of higher prices, which is inflation by definition. 3. Higher interest rates make it harder to start a business and harder to hold inventory. This reduces supply, leading to higher prices aka inflation. 4. Finally, MMT economists point to the fact that there is no empirical research at all showing that higher interest rates decrease inflation. In fact, the correlation runs in the opposite direction.

deleted 4y ago

[deleted]

namrog84 4y ago

But isn't there really not inflation going on but late stage unregulated capitalistic greed?

dragonwriter 4y ago
Consumer price increases are inflation whether or not they are caused by “late stage unregulated capitalistic greed”.

nscalf 4y ago

Out of curiosity, what makes you think interest rates need to go higher to stop inflation? I know that’s the standard response to inflation, but economics is wildly complex. My read on this situation was always that we needed to decrease the feds balance sheet, get some marginal increase in interest rates, and the rest is supply side.