Hacker News Reader

Comment by defertoreptar | Hacker News Reader

I will say that I agree that the prolonged, near-zero interest rates is an issue. It's one less tool we'll have at our disposal once the going gets tough. We shouldn't slow the raising of interest rates, or reducing the balance sheet for that matter, while we're in a bull market.

That said, they didn't really point to anything that compelling to make me worry about 2020. At least, they didn't any more than I was worried in 2019, 2018, or 2017. They say the initial benefits of the tax cut will wear off, but doesn't the structure itself not change until at least 10 years? Are they saying that the tax cuts are a bandaid for an underlying issue? If so, what's the underlying issue?

View on HN

The problem we have right now is that interest rates are too low, but inflation is also low, and raising interest rates is deflationary. That's why it normally makes sense to raise interest rates when times are good -- that's also commonly when there is a lot of inflation and curbing it a little helps.

But that isn't the case right now. So to raise interest rates right now would require some additional inflationary pressure to counteract that. Which is actually pretty easy to do -- you can print money and use it to give everybody tax credits. Literally just give everybody $10,000 every year for as long as inflation remains reasonable.

The "problem" is that it sounds too good to be true, so even if it would work, people start looking for the catch, even if there isn't one. Meanwhile it would cost banks business because the combination of having more money and paying higher interest rates would cause people to use the money to pay back (or not take out) bank loans, so you get well-financed opposition.

You can't really raise short term rates while increasing money supply. I'm certainly not going to dispute your point about bank profits, but what you are suggesting has been tried in the past many many times in many countries, and failed every time.

> You can't really raise short term rates while increasing money supply.

You can't create the money through making new loans, obviously, because at a higher interest rate people will borrow less. Instead the government does it, analogous to how it mints coins, but by changing number in a computer rather than necessarily physically minting new currency.

It could be that new money would cause consumer interest rates to stay low even if the Fed raises the rate the banks pay to borrow money, because they could lend out some of the new money instead of borrowing from the Fed, but if that happens it can be counteracted by increasing their reserve requirements.

People have been saying that there will be a "crisis" next year for the past 1000 years. The truth is nobody can reliably predict economic downturns like this. If we could, they would not happen.

Some people can predict a crisis, they make films about these people: https://en.wikipedia.org/wiki/The_Big_Short_(film)

But yes, a significantly large number of people cannot predict a crisis, it is catch-22.

When so many people make so many predictions, some are bound to come true from raw chance. That does not give the lucky person any actual predictive powers.

Michael Lewis himself has made bad predictions, as have thousands of others.

After every large financial event you are going to find some person who predicted it. Since there is a nearly unlimited number of people making contradictory predictions at all times, you're also going to find someone making a correct prediction. In fact, if be more surprised if you didn't.

I think you'll have a hard time finding someone who made more than one correct prediction (and none, or at least very few incorrect ones). It's easy to be correct if you just throw everything at the wall as see what sticks.

> After every large financial event you are going to find some person who predicted it.

Yes, but not so many made a fortune from it, and even fewer who gave a proper explanation of why the crisis is going to happen and weren't just lucky.

These guys from "The Big Short" movie were explicitly betting against CDO, not against SNP500 as other lucky folks who also made a lot of money.

> I think you'll have a hard time finding someone who made more than one correct prediction (and none, or at least very few incorrect ones).

Predicting one of 5 crisis during lifetime (with real money) and simply not losing money during other 4 crisis is a huge success for predictor I think.

> It's easy to be correct if you just throw everything at the wall as see what sticks.

Only those predictors who throw real money at the wall count, not these endless newspaper analysts.

TL;DR I don't believe those folks from the movie were just lucky.

Have you considered the possibility that these are predicted but we don't elect people who will effectively listen to qualified individuals on these matters?

And that the system currently in place rewards those who use these crisis to their advantage?

Yes, but that scenario has a few issues in my mind:

1) the people running the fed are not particularly rich. If there is some grand economic engineering scheme, these people would be 100x more wealthy.

2) if these things are predictable, where are the predictions? Besides one lucky guy who nobody knew of beforehand, nobody publicly predicted the 2008 crisis. Why aren't these qualified individuals stepping forward? The Big Short guy has gotten tons of fame and money from his prediction. If people could reliably predict these things, they would do so much more often.

3) I don't see any obvious way that a financial crisis benefits the fed or politicians or whatever shadow governments you're alluding to.

4) if such sophisticated economic engineering was possible, surely the benefactors would go about it in a much more subtle way.

I think you get the point. Believing your version takes a lot more leaps of faith than accepting that an incredibly complicated and sometimes irrational system is hard to predict.

Reply on news.ycombinator.com