Fed likely to keep raising rates

Could you elaborate on this? I'm not familiar with the changes made.

Do houses, health and education just eat up any surplus money that could cause inflation?

I don't know why this is downvoted. Inflation in the USA absolutely is mysteriously low right now. It's a lot easier to explain 5% growth and 3% inflation than 2% growth and zero inflation, even if they work out the same for the median (average?) worker who has no assets and no debt.

It's not a mystery. Inflation is everywhere, but the government isn't measuring it. Clinton moved the goalposts by saying that people would downgrade the quality of their purchases as the price increased. So for example, instead of buying authentic Levi's jeans, they claimed that people would buy cheaper Chinese-made jeans.

As well, have you noticed that the size of food products has been cut by 10% or more? A "pint" of ice cream is actually 14 oz now. That's a decrease of 12.5%, but same price. Same goes for orange juice, packages of bacon are 375g instead of 500g, etc.

Gas has been at multi-year lows (until recently) and yet in CA the price of gas was still almost $4. Now, as oil rises, gas will rush towards $5/gallon and we are like the boiled frog because it happened so slowly we didn't notice.

Even at zero percent, there is always the helicopter drop, as non-conventional as that is.

A corollary to this is the theory that the bull cycle may actually be what causes the bear cycle. Irrational exuberance and all that. Best to pour water on the flames, not gasoline.

The Feds balance sheet is nuts. We all knew they’d need to deleverage at some point.

Low interest rates are no longer a very good stimulus during slumps because few want loans then anyhow. We are no longer a capital intensive economy. It's better to pay down debt during high points so that say infrastructure projects can be created and paid for during slumps. Infrastructure wages flow quickly into the the "99%" economy, unlike many alternative stimuli.

I’m waiting for housing to drop in price over the next few years. The boomers are dying. Their houses, and I mean all those investment properties as well as their private homes, will hit the market when their kids don’t want them.

The price of education will only decrease when more people take up manual labor jobs. You can get paid 24$ here in Florida if you’re willing to work on a ladder.

Let’s not forget medical care.

I'm a systems engineer in Seattle. Thanks to my student loans I can't afford a house, I can't afford to have a child with my wife - thankfully my employer is kind enough to provide health insurance or else I'd probably be screwed there, too. Anyone who thinks this economy is booming is kidding themselves.

There's been plenty of inflation in sectors like education and healthcare except the government, conveniently, doesn't count that as 'core.'

You're saying the cause is an increase in household debt? That would seem to cause inflation, not keep it low?

Hedonic adjustment as it's called and the weird games governments play over housing is a part of it, but not as impactful as you'd think (I looked into this some time ago).

There's unfortunately a simple reason why costs like housing and education can explode without triggering inflation - if everyone reallocates their spending to these two areas, they are buying less in other areas. Less demand = lower prices. That is, a rise in prices in some areas does not imply inflation goes up even if those areas are very important.

That said I do think the "mystery" of where the inflation went is easier explained in other ways. It's not housing or education necessarily. It's debt and stocks. The bulk of the money poured into investment assets that aren't counted in inflation stats at all.

We used to think that Presidents can't unilaterally enact new trade policy. That also turned out to be wrong.

What's more, the active term is "for cause," which is an exceedingly low bar.

So if the president stacked the supreme court, he might have a chance at overturning that precedent?

Thanks.

Given that it's cash payments "each month", how can that be short term? If all recipients simultaneously wanted to spend the money on burritos, by month 2 there's going to be a lot more restaurants selling burritos.

A better use of the money is infrastructure spending. It provides employment across multiple sectors and targeted correctly is one of the best investments a government can make.

If money were neutral, prices would rise uniformly, but this is in fact not what happens.

Thanks. I know this site but it has (or I just can't find where are the full lists there) really short lists - just 10 last rate changes for every country.

Exactly! Waiting would just be the Fed preferring slower movers to faster ones.

I tend to agree here. Any tolerance for "slowness" is anti-free-market. I don't necessarily think completely free markets are optimal, but I can't see a reasonable argument for slower being better than faster in general.

Does the Fed have some privileged information that everyone else does not?

Because a huge number of the voters that demand lower taxes are on the dole.

Deficits implies spending, as a deficit occurs when spending is greater than receipts.

The general economic principle in play is that the government should act counter-cyclically. That is, it should tax high and spend low during good years, then tax low and spend high during bad years. What the government spends the money on is not particuarly relevent [0]. Hiring an army to fill in ditches that your other army digs would serve this purpose just fine. If you are able to spend this money doing productive work, that is a plus; but not particularly relevant to the core economics.

Of course, the problem with this economic philosophy is that it can be difficult to implement given political constraints. During bad years, there is a sense that the government needs to tighten its bootstraps, and during good years there is a sense that the government has the money to invest. While this is a good philosophy for household budgeting, it just turns the government into a pro-cyclic actor, which is the opposite of what we want.

[0] As long as the money makes it throughout the economy that is.

Because the majority of American adults pay either no income taxes or very close to that.

Which is another way of saying, it's unpalatable to politicians to focus on spending side cuts, in pretty much every regard. Even Republicans have become a party of no spending cuts, they've entirely abandoned the premise (which was a core party pitch for decades).

More realistically, problematically, there's very little spending to cut except for military (which neither party will argue for, save for a few outlier politicians). Nearly all of the above-inflation spending growth is in entitlements, debt interest and military.

The budget deficit and debt interest are high enough now, that they nearly equal (or do equal) the cost of all military spending. So if you want to balance the budget, you'd have to wipe out the US military; or cut military spending in half (shave $300b-$350b), and very considerably raise taxes on the top 1/3.

There's nobody interested in touching the third rail of entitlement cuts. Few are interested in arguing for military spending cuts. There isn't much that can be done about debt interest expenses, US debt per dollar is already historically very cheap (they'll have to go the way of Japan sooner than later, slashing that cost as low as possible with perma low rates, that creep lower with every cycle, reducing economic dynamism and growth along with it, culminating in Japanese style economic stagnation). So in short, all that is left to cut - things that enough people will agree on cutting - is relatively little edge expenses.

That's the reality of why spending isn't looked at more often for cutting.

It's actually still possible to fix this fiscal mess, there's no will for it however, few are willing to eat the shit necessary to do it.

Here's the sane, Save America From Financial Ruin, plan:

1) Slash military spending by $350 billion. Pull back from global policing. Cut almost everywhere as it pertains to the military. This will leave a vacuum for Russia and China, which they will expand into, that has to be accepted. Regional militaries will have to step up to counter that, such as Japan, South Korea, Germany, France, UK, etc. The military is primarily a human employment cost, slashing the military in half would result in two million unemploymend persons, that would have a serious cost initially to it. Over time those persons would become net tax contributors, instead of primarily a net spending cost (soldiers sitting in buildings are epic net cost centers and very poor producers of economic activity and tax contribution).

2) Raise several hundred billion dollars per year by increasing taxes on the top 1/3. Needs to be at least $300 billion, ideally more.

3) Abuse the USD global reserve standard while we have it, and while the dollar is relatively high. Use it to cheaply refinance our debt to as low of an interest cost as we reasonably can. Every $100 billion per year we can shave off of the annual debt interest cost, is a big plus.

4) Freeze entitlement spending increases for ten years. This will involve pain, nobody will be happy about it. It's better than cuts, which is even more ideal. Slightly increase worker contributions to these programs to shore them up further.

5) Freeze nearly all other government spending for ten years, no matter what. It will be painful, that's part of the process. Raise the gasoline taxes by quite a bit, that all goes into infrastructure to offset that that segment isn't going to get any inflation adjustment for ten years.

6) Hammer down costs in education and healthcare, which will free up capital for economic investment and wages. The top 1/4 income bracket receives an income / wealth transfer in the form of the outsized US spending on healthcare. Redistribute that back to the bottom 3/4, by slashing healthcare costs by a lot. This will push up wages for the bottom 3/4, and reduce wages for the top 1/4 (who are the overwhelming beneficiaries of healthcare spending). Doing this right, can both broaden healthcare access/coverage, and offset the hit the bottom 3/4 will take from various freezes on spending increases.

The first five items will get you to a balanced budget, plausibly a modest surplus. After a decade of freeze, relax spending increases to something modest, 2% max, for another decade. You'll be at a budget surplus, the economy will hopefully be larger in real terms, and your ratio of debt to GDP will rapidly begin to decline, as you both outgrow it and modestly pay down some of it. You can also continue to somewhat abuse the USD reserve to have the Fed buy and cancel out the most expensive US debt (effectively debasing some of the wealth held in USD, by slightly debasing the currency, but that wealth is overwhelmingly held by the top 1/3, so it's really a stealth tax on the wealthier block of the population).

The list of "maddening" items in this article are so comically low-budget it's hard to take this complaint seriously.

None of the 9 listed in the article sound particularly egregious. Almost all are grants to research institutions, which as a process has a lot of flaws, sure, but unilaterally cutting all grant funding is definitely not the solution.

The report totals at $5 billion, but the supposedly most egregious are not even in an order of magnitude near that cost.

Meanwhile, federal income is measured in trillions.

If you want to actually cut federal spending, you have to cut pensions or military spending—political suicide.

Because nobody agrees what to cut.

Democrats don't want to cut social programs like Medicaid and Medicare. I mean, everybody needs health care so those costs are not avoidable. Unfortunately, health care costs too much because the industry overcharges.

So what does that leave us with? Well mostly military, and the Republicans (and probably many Democrats) only want to increase it. It's over $700B a year now.

If I could wave a magic wand I would:

1) Tweak social security witholding rates to ensure continued solvency. Probably the easiest thing to do.

2) Bring health care costs (ie what providers charge) down to developed world standards.

3) Either raise taxes enough and/or lower defense spending enough to balance the deficit.

It seems simple to me. But it means some people in healthcare and the defense contractors will make less. They would fight it so that's why everything stays the same.

If I'm Googling correctly, there's $1.5 trillion in US student loan debt right now. We spent about that on the F-35 thus far, and it's only an extra year and a half of the current annual deficit to pay it off entirely.

Or, to put it another way, wiping out all student debt in the US would increase the national debt about 7%. Hardly catastrophic sounding.

Student Debt is a weird one. The purpose of all debt is to act as an investment to increase net productivity for the borrower at a rate higher than the interest rate.

When phrased like that, you realize there is literally no debt an individual could possibly take out which offers a higher return on investment than student debt. For example, lets say you take out $60k @ 4% and plan to pay it off over 20 years. You'd pay $27k in interest. But if that enables you to upgrade from a $40k/year job to a $70k/year job, you've literally paid for the interest in the first year.

The reason it gets complicated is because not everyone invests their student debt as well as they could. So not everyone sees a rate of return like that. Lets say we solve that by allowing student debt to be subject to default; sounds like an interesting idea because banks would make smarter investments. That means investing in students who take traditionally high-earning degrees (STEM?) and students who have a good academic history.

Uh oh. Now this doesn't sound so good. We'd probably see discrimination against lower income students because they statistically show poorer academic success in high school, discrimination against poorer performing schools, centralization of students into high performing schools causing wait lists and overcrowding, discrimination against liberal arts and low-performing degrees, the list goes on. This probably isn't a better world we've created.

The big things schools need to fix is overwhelming growth in administrative costs. I don't think that problem is in student debt itself and as a concept, but where the problem actually lies doesn't have an easy answer.

Everyone will be trading in <strike>gold</strike> bitcoin.

You won't find the quotes from US Presidents (present excluded). Heads of state who comment harshly on reserve bank decisions are typically met with steepening rates enforced by the sovereign debt market's perception of higher credit risk.

Why can't the government do that with structural changes? What is the role of the money supplier?

I'm not so naive to think that FED's goal is restraining inflation. Also, I don't know why people think of inflation as if it was some force of nature - it isn't. Inflation is created artificially by central banks, as a form of hidden tax on all of the citizen's wealth. Increasing inflation is the easiest way to help repaying government debts, because government is first to spend the money that FED creates out of thin air, thus screwing everyone else over.

The boom and bust cycle was actually a good thing: it gave badly managed companies an "opportunity" to go bankrupt before they grew "to big to fail". Now that FED tries to regulate market cycles it actually makes things worse. It's not a coincidence that The Great Depression happend mere 16 years after creation of FED. And while some people did loose their savings during "bust", they could quite easily make up for it during the "boom" that followed.

I don't expect economy to reach equilibrium, some mythical state of neverending growth. I want economy to stay dynamic, with boom periods interlaved with occasional, small crises.

The best explanation. Thank you.

I wonder if there's a better way to do this though. Maybe letting lenders fail, arresting bankers for not pricing risks in loans and setting an example is a better way to set up the money supply?

The busts are only painful if they affect non-speculators. Speculators (lenders and borrowers) should handle their own risk?

I'm sure it's not easy but the current system really really favors the rich with resources at the expense of retail retirement stock holders.

Very good explanation. Thank you!

> Its easy to say "we should just get rid of debt", but the issue there is that we know debt works, when used well, even over the long run. Think about it: If I want to open a business, there's no way I can afford that without Debt. So I take out $100k. In five years, lets say I've made $500k total

This is the part where I fumble. In a society with 2 citizens and one bank, if citizen 1 borrows $100k, the maximum profit they can make = money borrowed by citizen 2.

Three cases in the above example with 10% interest:

1. Citizen 2 doesn't borrow but instead just lives by hunting deer. Citizen 1 and the bank will go bust

2.Citizen 2 borrows 200k and spends 100k on something citizen 1 provides. Citizen 1 makes 100k profit and repays the loan with interest, say total 110k. Now citizen 2 is still on the hook for 220k. How will Citizen 2 get 220k if he has only 100k left and the other citizen has only 90k left? The only way I see it is they produce another kid who takes another loan.

3. Citizen 1 takes 100k loan, Citizen 2 takes 5k loan. Citizen 2 pays 5k to Citizen 1. Citizen 1 did not make enough to repay the 10% interest. So bank sucks it up and gets back 105k. Citizen 2 absolutely doesn't have any money to repay that 5k loan they took. So both Citizen 1 and 2 are busted. What now? They have to take more loans infinitely? (Short of producing other citizens who take loans)

I would really appreciate your views.