> The economy is stabilizing.
The economy is in the early phases of the biggest Fed tightening since at least the 1980s.
If you know where that will end up, congrats. For the rest of us, it's very much uncharted waters.
The economy is in the early phases of the biggest Fed tightening since at least the 1980s.
If you know where that will end up, congrats. For the rest of us, it's very much uncharted waters.
But the 2010s through 2020s period is a myth, a figment of cheap money. This money was made cheap to help us get out of the 2007/2008 recession, but the cheap money clearly went on too long.
Its warped all of our thinking. We should have been raising rates and paying down the Fed's balance sheet a long, long time ago. To be fair, we began the process in 2019, but COVID19 wrecked us in 2020.
Now its 2022 and inflation is growing out of control. We have no choice but to raise rates now.
So there's pretty much nowhere else to go, and if we want to have the option to lowering rates to combat future crises... well it looks like we'll have to pay for the option.
Human complacency never ceases to fuck things up. Those who seriously plan ahead are a minority, and don't control the ballot box.
Sadly true.
And sometimes this reduces the benefits of planning ahead.
If the fed money printer will bail is out every time then it makes financial sense to splurge.
Its a known fact that the Fed Rate takes months, maybe years, before its effects propagate through the economy. The 2.25% raise in just a few months is the steepest increase in decades, one of the most proactive moves ever done.
--------
But we as a society need to also be proactive and understand what this means. It means higher mortgage rates, higher rates for car loans, more difficult student loans, more expensive debt.
There are a couple of... other state banks... who are ignoring the issue and are dropping rates right now, despite the current state of the economy. Those are the ones who seem to have a short-sighted view on the world.
USA is actually leading the charge and is more proactive than most other countries on this matter. Furthermore, our political system is talking about it, and we're right now talking about it here on news.ycombinator.com.
We're all being proactive and forward looking right now. And even back in 2020, the political system had the debates and forward looking statements about inflation risk vs COVID19 recession risks. No one ever stopped looking forward.
Was it perfect? No. But no one's perfect when looking into the future. But the political system absolutely discussed and decided upon what we should do. I don't think anybody was short-term thinking at any of these points, we were just trapped between bad choices.
--------
For the most part, the super-low rates from 2010 through 2019 have been confirmed to be a good idea, as it kept inflation at the 2% for the duration. We were roughly on target. But we also were in a mystical time, of warped thinking of cheap money for the duration.
What kept inflation at 2% was a perfect historical moment in global growth/globalization that will not come again in our lifetimes. Now when we need to borrow and invest in our economies the most, the cheap money is nowhere to be found up because we spent it all.
It was a big party, and instead of having a few drinks and going home slightly buzzed we binged out, threw up in the toilet and are now waking up in a puddle of our own making with a raging hangover. And now all of a sudden we're being proactive because we've decided drinking a glass of water might be a good idea? Yeah, it was a good idea last night. It's the only idea left now.
If that "perfectly balanced 2% inflation" was pushed away with say, the central bank raising interest rates, what do you think would have happened?
We would have had deflation. Which is incredibly dangerous. Its not even a question, all of that inflationary pressure (low rates, QE1, QE2, QE3, etc. etc.) the central bank pushed from 2010 through 2019 was just barely able to sustain 2% inflation... the target.
-----
We probably could have afforded to rock the boat a bit more than we did those 10 years though.
There are probably literally a thousand proverbs in a thousand languages, probably more in languages lost to time, that amount of some version of "when times are good, prepare for the bad". This is fundamental human knowledge.
I guess we generally agree, I just get frustrated when institutions like the fed, who are politically insulated by design, fail to appreciate their responsibility or make full use of their privileged position. Seems like for most of the last ten years leadership in general was conflict-avoidant to a fault.
The haves benefit way more from cheap debt than have nots who can't take out debt or have appreciating assets to begin with.
Previously the rich were borrowing easily and buying assets that go up in price bc...easy money. i.e. Houses appreciate really quickly, people can't afford them, the median income is outstripped by the median price etc. etc.
Now rates are going up but more people need to lose their job and be able to afford even less just at a lower price? i.e. Houses appreciate slowly but cost so much that even though the median price of a home is lower, most people still can't afford it bc the monthly is too high?
It seems like in both scenarios most working people can't afford things despite the interest rate being in the single digits unlike the 80s bc the interest rate on your money is so low and the cost/ownership of day to day items (say, a phone which was $15 for a house and is now ~100 per person per month) is wildly more.
Now when the economy is in a crisis, sometimes you want those inefficient, unproductive jobs just to throw anything at the wall and see what sticks to stimulate the economy. That's when you lower rates.
The issue is we've lowered rates to near zero and held them there for so long the economy has gotten addicted to them, so now when the next crisis comes we have nowhere to go. If you think the working man will suffer from raising interest rates now, I think you'd be horrified by the experiment where we keep rates at zero and then a legit crisis comes along, and there's just nothing the fed can do but let market forces play out. That's one way to get great depression part II.
Plus super low rates has other knock on effects. Savings accounts become essentially worthless in the face of even mild inflation, so people speculate/gamble more in the markets. Also the super low interest rates exacerbated the housing shortage by making it profitable, for the first time in history, for financial firms to invest in single family homes en-masse.
I'd say trimming the unproductive jobs from the economy now, and the subsequent relatively mild unemployment it will produce, is the lesser of two evils choice. Interest rates are an incredibly blunt instrument, raise or lower someone always gets hurt.
We thought the near 0% rates had no consequences except for housing and a few other non china influenced products. It turns out the inflation was there but china's ramp up hid it. In fact, in hindsight we saw inflation everywhere except in china's manufacturing (and perhaps an oil sands boom helped too). But china manufactured so much of what we consume we didn't notice the consequences.
These things aren't made in China (or at least, the USA largely eats milk-and-eggs from USA and/or Canada), and for the 2010 through 2019 period, their prices were incredibly stable.
What American manufactured product (or agricultural product) inflated from 2010 through 2019 to a degree beyond which was reasonable?
--------
The main issue with the Fed, was that they made the wrong call on Inflation in 2021, thinking it was "transitory". Now that we've had a year, I can agree with the inflation doomers that the inflation was in fact sticking this time around.
However, the inflation doomers were wrong from 2010 through 2019, so you'll have to forgive me for not listening to the boys who cried wolf.
They made the wrong prediction, but the Fed isn't in the business of making predictions. It makes sense that they didn't want to crash the economy while people were still largely intent on staying at home. The Fed's mistake was caving into Trump's pressure to reverse quantitative tightening when the economy was healthy in 2019. When an unexpected disaster inevitably struck, they little headroom to lower interest rates, so they had no choice but to ramp up quantitative easing.
A minority has monopolized agency and insulated themselves from real work using a historical basis that there’s always been bean counters who divvy up public production, take 5 for themselves and give 1 to the next person in the public line. It’s a hard job being stingy, after all.
It’s government quota on free trade abstracted into technical jargon and made unfalsifiable.
Sort of. People who entered the workforce after around 2015 have no idea what is coming. Those of us who entered the workforce in the mid to late 1990s have already seen the movie a couple of times and know exactly what is coming. For those that don't know, the real economic pain typically comes during the 2-4 year period after the recession has technically ended. When you're actually in the recession it doesn't feel like it and people debate whether we really are in one, as they are doing today. It becomes apparent a little later.
We are not stabilizing. There are serious supply issues, staffing issues, wild currency fluctuations, and fear -- including of nuclear conflict.
I am not sure in what world this is stabilization. It is easy to hit on the "mule" i.e. the average Joe and say "I gave you too much money, that you never saw, thus why Yada Yada, so learn not to eat and that will work fine." This is the naive explanation offered to the public masses to make them feel bad and that they deserve the recession. Aka anything to avoid political suicide. Other countries don't go out saying this fyi-- because e.g. they have a freaking war in the doorsteps during a pandemic and can't produce goods, because no natural gas. Because of sabotage.
Only stabilization is to the bottom.
If that's where the economy should be (I don't know), then moving towards it is stabilizing, no?
In TX energy prices are already up a lot this year. We generate a substantial percentage of electricity from natural gas, and exports are up for obvious reasons.
Winter is coming.
It's the Europeans and East Asians who are being royally screwed by gas prices at the moment, and that pressure isn't likely to cease anytime soon, particularly with the destruction of Nordstream.
It certainly wasn't "free" in Feb 2021. We have about a 3% hike on our bills now to pay down the record profits gas producers received.
My bill last cycle was 20% higher than last year with near identical usage. UK has already seen incredible energy cost increases. European winter is going to drive energy prices even higher.
Yeah, "we" will be fine because computers. But lower income families are getting hit hard with this and inflation.
Even still there is the Applebee's effect; people with money are paying more attention to those commercials because a lunch for two is pushing past 50$ dollars these days! That's gonna dry up investment even more. In the UK Liz Truss comes in and immediately commits political suicide with these tax cuts. Putting aside critiques aimed at trickle down economics, the timing is TERRIBLE. Startups are laying off because investment is drying up; tax cuts on high earners are going into savings and low-risk market investments.
All this combined is, IMHO, going to lead to a massive global recession.
Now that shale has calmed down and global demand has spiked, there's now a cost for the actual natural gas itself. A doubling of prices may seem like a lot, but historically the price is still well below average. Much like we've gotten used to free money over the last ten years, we've also gotten used to free gas.
That's not to say it isn't a problem, but we aren't in danger of running out of gas or any runaway price spikes.
When's the last time they were "charted" economically? Things have been changing constantly for a century, basically.
Aren't economies all uncharted waters until they aren't (e.g. hindsight)? 2 years ago we hit a global pandemic and tech stocks were trading at absurd PE levels 6 months later. So, no one really knows "where this will end up".