[basementcat]

The Fed only lends funds to financial institutions for a short term. These institutions still need deposits to meet reserve ratios (hence why they offer certificates of deposit and similar products).

It isn't immediately clear to me if there is a problem in the repo market (experts, please chime in!). It appears there were some side effects of various new regulations put in place since the last recession which resulted in a recent short term high demand for liquidity. This need for liquidity was satisfied by the central bank and everything worked the way it was supposed to work.

[roenxi]

The Fed has been maintaining emergency interest rates for a decade now. When do we expect the emergency to end and rates to go back to the good old 3-5% band from prior to 2008? Short-term is looking decidedly long-term now. Interest rates are in a structural downward trend and probably going to break below 0. People keep saying 'temporary' and 'short term' around these economic decisions before they become business as usual.

If the banks mis-manage money to the point where the health of the system is at risk, the Fed creates more money to rescue them from their bad decisions. The Fed is then hailed as a heroic and necessary institution for 'saving [the economy|the banks|people's savings|our way of life]' by said banks. The incentive structures here are outrageous.

Problems will not be resolved if the punishment for running out of money is being given money. However if that is the approach to be taken there is no justification for not giving everyone free money when they run in to troubles. Except the fact that we all know the unfair advantage being given to the banks can't be scaled up to everyone without collapsing the economy.

[ISL]

If you have access to the Economist's plot of long-term interest rates since 1750, you'll find that the interest rates that many of us came to accept as "normal" (5+%) are historically quite high. Humanity has spent quite a bit of time at or below 4%.

https://www.economist.com/sites/default/files/images/2019/09...

[roenxi]

I can see 3-5% was off the mark. From now on I shall say 2-6%.

Point remains that 0%-2% is decidedly a 2 times in 250 years style emergency rate.

[dragonwriter]

> The Fed has been maintaining emergency interest rates for a decade now

There is no such thing as “emergency interest rates”. Rate targets are set based on, primarily, balancing employment and inflation concerns, and there is no special “emergency” threshold.

> When do we expect the emergency to end ad rates to go back to the good old 3-5% band from prior to 2008?

That 3-5% band “prior to 2008” only goes back to 2005, when rates were again below 3%, for longer than the period from 2005-2008 where they were in that range.

Some of it is broad economic conditions, but mostly it's just that the Fed has been covering for the failure of Congress to act when needed; Congress has more powerful and focussed economic tools and is really intended to be the primary actor for everything but smoothing the edges of economic fluctuations, but has been largely asleep at the switch (when not actively reinforcing negative conditions) for the past couple of decades.

[0x8BADF00D]

> The Fed has been maintaining emergency interest rates for a decade now. When do we expect the emergency to end and rates to go back to the good old 3-5% band from prior to 2008?

The emergency will never end until the US defaults. When the Fed started quantitative tightening, by something like 25 bps, it caused the markets to tank. The Fed is no longer an independent institution; just like Yellen made Obama look good, Powell is making Trump look good. The right thing to do is raise interest rates to 10-15%; I suspect the real rate is somewhere there, possibly even higher. It will be very painful in the short-term, but recovery/rehabilitation always is.

[StanislavPetrov]

They can't raise rates because that debt servicing would bankrupt every county, city, state, municipality and everyone else with a lot of outstanding debt. They also want ~0% (or negative) rates so that people are forced to spend all of their money to "stimulate" the lagging economy rather than sock it away. If they raise rates and make it worthwhile for people to start saving again spending and growth will very quickly turn negative. The bottom line is that our byzantine debt structure has been cobbled together because we have been borrowing against the future, making economic promises that were impossible to keep. Once you pull one brick out of the illusory pyramid it all comes tumbling down.

[coliveira]

The game of infinite growth has to stop at some point. The idea of extremely low interest rates is to make the scam go further. However, the problem is spilling over to other markets, like the stock market, real estate, and other assets.

[StanislavPetrov]

>The game of infinite growth has to stop at some point.

I couldn't agree more, but I don't think that anyone in a position to stop it will ever do so given the dire consequences that are sure to follow. Unfortunately our entire economic and political system is based on kicking the can down the road and hoping that it doesn't fall apart until someone else is in charge.

[coliveira]

My best illustration for the world economy is a group of people owning pieces of a balloon. As the balloon expands, everybody is happy to see that their property is growing and expanding as well. The only problem is that they don't seem to realize that blowing the ballon forever will certainly cause it to pop, reducing their property to nothing.

[rossdavidh]

Recovery/rehabilitation always is painful, but that doesn't mean painful = the right thing for recovery.

I respectfully disagree that interest rates of 10-15% would be good for the economy, in either the short or long term.