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Comment by floren | Hacker News Reader

This is where people who were still in elementary school in 2007 post about hyperinflation because all they've ever known is sub-2% federal funds, right? Clicking "All" on the chart at https://www.newyorkfed.org/markets/reference-rates/effr is illuminating.

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Interest rates like this were a lot more manageable when the cost of homes was less. Adjusted for inflation, the average home price today is about 60% higher than it was in 1998.

Adjusted to 2023 dollars and assuming interest rates of 5.5% in 1998 and 4.5% now (source: https://fred.stlouisfed.org/series/FEDFUNDS), home owners on average are spending about 43% more money on their mortgage payment per month.

And real wages were higher. People got to keep more of their money.

And house prices were lower because people could borrow less. The price is determined entirely by what people are capable of borrowing.

I would take a few issues with that claim. The average price of a home is a function with a lot of inputs, supply and demand chiefly among them. We see issues with both, but the demand is surely the largest issue: as single-family homes are seen increasingly as investments to be collected rather than basic human necessities, the price shifts from the "average" income to the income of corporations or moneyed individuals, and they consume a huge number of these homes. That creates a supply issue for real people.

Real wages have been stagnant for a long time. The average person is not likely to be borrowing more than they were able to in 1985 adjusted for inflation and assuming the same loan terms. While real wages have stayed stagnant, all homes sold today will cost their new owners ~43% more of their individual purchasing power than the same homes would in 1985.

And taxes were substantially lower in terms of inflation-adjusted dollars.

It actually is not!

I think this applies more on the way up when interest is decreased. When interest go up, home owners may not afford to sell at a lost as they could have borrowed more, so you hold on to it. So I imagine house prices raise much faster than they decrease with interest changes.

This chart is even better:

https://fred.stlouisfed.org/series/FEDFUNDS

Just a few more points and we'll be back at the levels of the late 90s, a period of time most millennials associate with prosperity and happiness (possibly because we were 8 years old).

Just plop me back in front of the tv with an n64 and a pile of animorphs books. This adult responsibility stuff has gotten old.

I think there is some path dependency to prosperity and happiness being at this level coming off the 80s at higher rates would mean that sure rates were higher than now but people had bought assets at much lower prices (because higher past rates pushed values down). Now we’ve got the opposite where everyone blew their brains out at high asset prices because there was no interest rate / capital creation discipline AND now we’ve got higher rates so we are doubly punished.

We’re just about there, no? 5.51% in 1998; 5% as of today

> the levels of the late 90s

We're going into a period of elevated military risk and spending. In the 1990s, we were exiting one.

> We're going into a period of elevated military risk and spending. In the 1990s, we were exiting one.

That was certainly a common-though-mistaken impression early in the year 1990; it wouldn't last through the year, and it definitely doesn't describe the late 1990s (when the US was a direct participant in the most significant European conflict between WW2 and the present, which was also where the renewed Cold War at which the later Clinton “Reset Button” was directed began, simultaneously with escalating threats & conflict in and beyond the Middle East involving Iraq, Hezbollah, and al-Qaeda.)

> a common-though-mistaken impression early in the year 1990

American military spending as a fraction of GDP plummeted in the 90s [1].

[1] https://en.wikipedia.org/wiki/Military_budget_of_the_United_...

Wasn’t the late 90s a period of prosperity because it was the upswing of a bubble that ended with the dotcom crash?

The rising part of a bubble always has massive economic growth. It used to be better for everyone when there wasn’t a permanent housing shortage

It was prosperous because of (IMHO):

* Political stability: As we are re-learning, that is necessary for everything.

* Economic stability

* Large productivity improvements due to the IT revolution

The bubble was only one small part of it for one sector of the economy, afaik. When it popped, we didn't reset to 1992; most or even all of the gains remained (was there even a quarter of negative GDP?).

Adding to your points

* Globalization/off-shoring

* The west had growing share of higher-paying service jobs

* New markets in Eastern europe and China

* Increasing disposable income at home. The rust-belt wasn't rusty yet.

Good points; I wasn't very thorough at all.

> Increasing disposable income at home. The rust-belt wasn't rusty yet.

This one I don't know about. The term 'rust belt' goes back to the 1980s.

Ha! I remember getting 5.25% on my Savings Account at Silverado... Until I got 0% and was forced to learn what F.S.L.I.C. stood for. But yes... they were heady days!

It is funny because right up until 2015 I lived in a South East Asian country and interest rate was always close to 10% all my life.

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