In the early 80s a 13% mortgage rate was not uncommon. People survived. Very little blood was spilled
You gotta look at the derivative.
Rising interest rates are really, really bad. Anyone who relies on revolving business debt, credit card debt, or other non-fixed-rate debt goes bankrupt.
I kinda wish I entered the economy when we still had 12% interest rates. Each time a recession hits, we level it off by lowering them a bit, and we've kinda hit the floor.
I don't think we can get back to 12% interest within my lifetime without some kind of economic collapse or cataclysmic event.
This is hyperbole. Rising interest rates aren't fun, but they aren't cataclysmic. Rates have gone up and down for decades. Further, if you signal that you're taking the option to raise rates off the table, risk tolerance and asset prices will explode (some would say this has already happened due to Fed signaling).
The extent to which you might be right or wrong depends to some extent on how much debt there is in the system (or how leveraged/wound up the economy is).
A debt-based economy is much more vulnerable. Last time we raised interest rates rapidly, in the eighties, household debt was less than half of what it is today, adjusted for GDP.
...the problem is people think: interest rates go up, economy slows down, we can never raise interest rates. This logic takes on a life of its own.
The US economy was in this position in the late 60s: the Fed was under pressure to accommodate govt financing, they raised rates in 1959 and were blamed for causing a recession that influenced the outcome of the 1960 election, in 1967 they attempted to raise rates briefly but did so at the wrong time...eventual result (combined with some unfortunate timing with oil price changes) is rates never rise, inflation does, serious problems.
When the discussion moves to this point, and we have been moving this way for years, I think it is a sign that something has gone quite wrong. And that expectations around interest rates and Fed behaviour are actually adding volatility and uncertainty, not reducing it.
You are quite correct though. Rising interest rates are not bad. It is just the price of money. Falling interest rates can be just as bad too, but the problems are usually subtle (i.e. financial repression, which is what is happening now, no-one will realise what has happened until they try to retire in 20/30 years and realise they can't). Public policy has moved to this risky stage where people blame everything on politicians...the result is, unfortunately, inevitable.
The Federal Reserve is supposed to have independence from the government. It will develop its own monetary policy which doesn't need government approval. In reality, the President appoints all the Governors, so people get selected based on doing what the President wants done.
The Fed's monetary policy is typically an inflation target - keep the money supply growing to encourage growth, but keep inflation in check as well.
The problem is the political influence starts to impact the pure decisions about what's best for the economy. Election coming up? Well, hold off on increasing rates since we need good employment numbers for the next few months.
If the economy gets unstable the Fed ends up riding the razor's edge trying to stick to policy but not piss off the President. Problem is that the economy can go off the rails faster than the Fed can response.
The issue highlighted after 2008 was that "yeah, printing new dollars and buying distressed assets worked pretty well! and no massive inflation so far. But there will be incredible pressure to not raise rates later and if the Fed waits too long to apply the brakes, they won't be able to get ahead of it and inflation will skyrocket."
I don't think the impact is necessarily elections anymore, if it ever was. But the Fed was supporting bond auctions through 2020. I don't think it will stop them raising rates but it has stopped them raising rates fast enough imo.
Interest rates merely balance the supply and demand of/for labor.
Growth usually happens when there is high demand for labor and that means interest rates are high during periods of growth. When you think about it, interest is just the risk adjusted yield of a labor saving investment plus minus bank fees and profit share of the borrower. That means the existence of high yielding investments is what drives interest rates up as lots of borrowers got to the bank and present their fantastic business ideas and the bank picks the highest yielding ones.
Well, I also have to say something. Growth didn't really stop with lower interest rates. The economy is much bigger than 30 years ago.
Also about negative interest rates, it's a fallacy to think they are supposed to stimulate borrowing. They are supposed to balance people's desire to be in debt with people's desire to hold onto credit (equivalent to demand/supply of labor). That means negative interest rates exist as a disincentive to save money because nobody wants to borrow money.
Also, I think rates need to be looked at in comparison to GDP growth. High rates are fine when GDP growth is greater. If rates shoot higher because the fed is trying to stop runaway supply-side driven inflation while GDP growth is low it could easily kick off a depression.
There is a reason major religions regulated debt in general, because that is how societal slavery develops. Of course we, the modern people of technology, 'know better' than our primitive ancient ancestors.
Charging 0% interest is absolutely fantastic. The only problem is that we don't do the debt forgiveness. We bail out banks and then expect tax payers to shoulder some or all of the losses. It was especially bad with Germany vs Greece. German banks were bailed out and public healthcare was basically eliminated in Greece.
The only reason why anyone would be against low interest rates is that they noticed that those interest rates eat into economic rents and therefore the owner of money benefited from the economic rents rather than the owner of the monopoly. In that sense, the only difference is that the money goes to the land owner instead of going to the bank. People don't realize that if they buy a $600k house with 0% interest that they would still have to pay $600k at 5% interest except most of the money goes to the bank instead of the seller who only gets $250k (made up number).
This sounded so strange that I had to look it up and found this article https://www.federalreservehistory.org/essays/anti-inflation-...
The people who bought in the 80s and 90s refinanced as rates fell and saw massive appreciation in the value of their homes.
People buying today will see the opposite