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Comment by UncleOxidant | Hacker News Reader

> inability to take control of the situation by WhiteHouse.

I see this sentiment a lot here, but it's really unclear what the WhiteHouse can do about it. Maybe they should take Gerald Ford's lead and start printing up "Whip Inflation Now!" buttons? Maybe you want a wage and price freeze à la Richard Nixon? The Federal Reserve is where your ire should be aimed. They left rates way too low for way too long kicking the can down the road and now the next kick of the can could reveal it to be a bomb. The way to deal with inflation is the way Paul Volcker dealt with it in 1980: raise interest rates significantly - not these piddly 1/4% raises.

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> The way to deal with inflation is the way Paul Volcker dealt with it in 1980: raise interest rates significantly - not these piddly 1/4% raises.

The market is pricing in a 87% chance the next hike is 50 bps, and a roughly 95% chance of the rate being at least 2.25-2.5% by the end of the year.

https://www.cmegroup.com/trading/interest-rates/countdown-to...

The market isnt always right, and even a series of back to back 50 bp hikes might not be enough. We'll see.

There is so much leverage in the economy that an abrupt shift towards anything approaching Volker-level rates would mean a catastrophic level of defaults in all sectors. By keeping rates so low for so long what they've really done is paint themselves into a corner.

The best case I see is that they raise rates by 1-2 pct and accept a few years of elevated inflation followed by a gradual normalization towards a long term mean. I really don't believe hyperinflation is a big risk.

There was an abrupt shift in the bond market already. BND fell by 8% this year, which is a terrible 3.5 month return for an intermediate bond fund (prices move inversely to market interest rates). Corporate bond funds have fallen even more.

> anything approaching Volker-level rates would mean a catastrophic level of defaults in all sectors

That’s the point: raise interest rates until they cause a recession, that suppresses demand and so kills inflation.

The Fed's contribution is small. What an be done avoiding dramatic intervention re: monetary policy, working to unclog ports, fix supply chains and shore up domestic manufacturing of silicon for next time. And potentially leverage the defense production act to make more oil.

Then sit back and wait as it blows over. It's already blowing over, prices are stabilizing. Month over month 0.3% increase in CPI is 3.6% annualized inflation.

> working to unclog ports, fix supply chains and shore up domestic manufacturing of silicon

Much of this is outside of the purview of the US president. These are areas where the private sector has to take the lead. AFAICT there have been efforts to increase domestic manufacturing of semiconductors - Intel is taking a big lead here, but it's going to take at least a couple of years (probably closer to 3 or 4) to get these new fabs online. There's not much a US president can do about that. And much of what he could/can do is limited by congress passing laws.

> The Fed's contribution is small.

It's not. ZIRP has had a huge impact on this inflation and fueled lots of market speculation both in housing and the stock market (not to mention crypto). With interest rates closer to their historical mean this speculation wouldn't have happened.

Again your speculation about low interest rates is unfounded. Housing prices are driven by zoning as evidenced by the Japan housing CPI being dead flat with similar interest rate policies. Housing prices across the US on an inflation adjusted $/sqft basis are the same as they were in the 70s. Outside metros the average new house is twice as big; and inside councils refuse to allow supply to meet demand - these are both zoning issues.

There aren’t really “historical average” interest rates, they’ve been going down continuously for like 40 years.

Crypto is the same kind of speculation that drew folks to beanie babies. The entire crypto world market cap is like 2/3 of apple, it’s really not a big thing.

> Housing prices are driven by zoning

All the tax cuts that give real estate advantages over other investments have arguably more to do with it. People don't leverage 5x their net worth into a single asset in a single location that produces nothing but for housing that's the norm.

This is such a misconception. Air is similarly valueless ..

Real estate produces something very valuable, and if you can't understand that try living homeless for a few months .. its the only way without a house you will get to be near amenities ¯\_(ツ)_/¯

In financial terms it produces rent or saving of paying rent.

Nothing is produced by buying and selling land. This is different from investment in capital which is created and destroyed.

Housing is a productive investment because it fulfills the need of all humans to have a place to live.

Historically the mean rate on a 30 year mortgage is right around 7%. We've been under that for a good 20 years now and we've been way under that for a good dozen years now.

> they’ve been going down continuously for like 40 years.

Cycles. They go down... they go up.

I don't disagree about zoning playing a part, but again, this is something the US President has little control over. Yes, he should probably be using the bully pulpit to support building more affordable housing, but it's not something that's going to result in a quick reduction of inflation.

> Japan housing CPI being dead flat with similar interest rate policies

Japan has an aging, declining population with essentially no immigration. Of course their housing prices have been essentially flat, they're experiencing a decline in household formation.

> Cycles. They go down... they go up.

They do but the cardinal directionality has been down and to the right.

> Japan has an aging, declining population with essentially no immigration. Of course their housing prices have been essentially flat, they're experiencing a decline in household formation.

Totally! What you're describing there is the equilibrium of supply and demand. In their case, demand went down. In our case, demand is going up and we're refusing to add supply. It's the same thing. Or at least, two sides of the same coin. We're both arguing that housing prices are fundamentally - primarily - driven by supply and demand of housing, not supply of money.

> I don't disagree about zoning playing a part, but again, this is something the US President has little control over. Yes, he should probably be using the bully pulpit to support building more affordable housing, but it's not something that's going to result in a quick reduction of inflation.

This is where we disagree! We should federalize zoning rules yesterday. The federal government has the right to do this, for instance Chicago residents ability to install satellite dishes is already governed by federal law. [1] Time to stop obstructionist city councils from the top and maximize the freedom of individuals to build housing as they see fit.

[1] https://www.chicagotribune.com/news/ct-xpm-2005-03-06-050306...

High inflation caused in large part by many years of increasing deficit spending does not make me think 'federalize zoning'. Land and building is local. People can be involved in local politics where they have some influence. One size does not fit all.

Removing house finance interest tax deduction would help reduce speculation and reduce prices.

Im sure it doesn't make you think that - but the deficit spending is a red herring, and the local zoning causing housing to go up exponentially is the real issue here. One of many. Deficit spending is an investment, you're looking at the liabilities without looking at the assets purchased. That's half the puzzle.

$2.3T flushed in Afghanistan was not a productive investment. Government spending is often malinvestment.

https://www.brown.edu/news/2021-09-01/costsofwar

'... 20 years of post-9/11 wars have cost the U.S. an estimated $8 trillion and have killed more than 900,000 people. '

Western USA has large land tracts owned by federal forest service and BLM. Maybe you could advocate for feds changing their zoning to allow house building?

Not all investment is good, but finding a few bad investments doesn't make all investments bad, obviously.

I already advocate for zoning reform at all levels including federalizing the zoning rules to preclude obstinate city councils from banning the desperately needed development within towns.

Large tracts of forest are kind of useless if your job is in a city and the city council won't let you build a house to live near it lol. "If you want houses so bad why don't you build them in a forest well away from anything" is among the worst arguments I've ever heard.

> They do but the cardinal directionality has been down and to the right.

You expected that to last forever?

> driven by supply and demand of housing, not supply of money.

Yes, it's driven by supply and demand, but easy money means more demand than there would be with higher interest rates and tighter monetary policy.

> We should federalize zoning rules yesterday. The federal government has the right to do this, for instance Chicago residents ability to install satellite dishes

I suspect this Chicago instance has more to do with FCC than anything else. Federalizing zoning would likely be an uphill battle that would go to the SCOTUS and I'm going to guess with the current composition they won't look favorably on that.

Ok but more demand for housing plus more supply means an amazing economic growth opportunity right? Nerfing supply means keeping ourselves from it. This is why low interest rates are good - the stimulate development!

And yes I see little appetite for federalizing zoning however it’s both an option with precedent and would actually help unlikely raising interest rates :)

The month over month was 1.2% though? And .3% month over month is 4% annualized because of compounding. and 1.2% is 15% annualized inflation so not slowing at all.

edit: my bad 3.66% my calculator rounded to 4.

What they could have done is not cancel the Keystone pipeline. Enact common sense energy policy instead of pushing all their chips into green technology, a key component of which is battery based and whose supply chain is heavily linked to Russia.

Isn't it more "common sense" to support green energy than to further invest in fossil fuels that we know will need to be phased out AND has price volatility that is currently causing major issues? Doubling down on fossil fuels right now seems like the exact opposite of "common sense", especially considering that investments now won't do anything to help in the short term.

The Keystone pipeline isn't the issue here. We still get that Canadian oil, it just comes by train instead of pipeline. As I understand it oil producers are currently sitting on oil leases that they could take advantage of to increase production, but they aren't because the investors think this oil bump is going to be too short-lived especially as we're transitioning more in the direction of EVs.

You realize that the original pipeline is still there? KXL was a shortcut that would save some money.

Also, the fuel processed from the pipeline is chiefly an export, so it wouldn't have affected prices in the USA.

Lastly, the XL pipeline was a huge risk to the American agriculture industry. There was opposition to it it on the right, particularly from ranchers in the region. Do you really think it's wise to put the beef and wheat industries in the north at risk just so refineries can sell oil overseas at a slightly lower cost?

> Also, the fuel processed from the pipeline is chiefly an export, so it wouldn't have affected prices in the USA.

Oil is (mostly) fungible. An export from Canada is additional capacity that doesn't compete for American oil that can stay in America.

What key part of the battery supply chain is Russia involved in?

Russia is the third largest producer of nickel in the world:

https://qz.com/2139399/surging-nickel-prices-are-bad-news-fo...

Nickel isn't essential, or cobalt for that matter. It's used in high-end batteries, but LFP is good enough for use in EVs and using nickel-based batteries for grid storage is just plain wasteful.

Probably they meant Ukraine and Nickel.

Ford took office in August 1974 amidst one of the worst economic crises in US history. Inflation had risen to 12.3% that year following the 1973 oil crisis.

They can't do a whole lot because they already fucked up monetary policy in the last 10 years. They spent the last decade dismantling the breaks from the car to get it going and now that it's going, they can't slow down anymore.

That makes no sense, of course they can, they can raise interest rates which decreases the supply of money. The thing is that would hurt the economy and their goal is to maximize employment.

They can not, because the enormous amount of money that they printed the last 10 years is not in circulation yet. They can't simply take that back (only very indirectly through ways that are both illegal and would political suicide). The private banks who hold that money now decide when to put it into circulation; the central bank has no power here.

Maximizing employment is one goal. The other is to keep inflation in check.

I’m aware but really their goal is to do both at the same time not to sacrifice one at the expense of the other.

Sure, but right now unemployment is under 4% (pretty much at record low levels) while inflation is running hot at 8.5%. Seems like they've got some room on the employment side.

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