[dragontamer]

> The economy is in the early phases of the biggest Fed tightening since at least the 1980s.

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.

[scottLobster]

Plus we pretty much lowered rates to 0. Europe's experimentation with negative interest rates yielded... well it's debatable whether it yielded anything of substance (pun intended).

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.

[dragontamer]

On the contrary. We're not complacent. The Fed is raising rates, like it should be.

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.

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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.

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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.

[scottLobster]

I'm referring to the complacency of the last 10 years, when every time the fed even muttered about raising rates they caved to Wall St panics and politics. Those super low rates are primarily responsible for everything from the insane wealth inequality we've developed over the last 10 years to housing becoming largely unaffordable to people losing their shirts gambling on bitcoin.

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.

[dragontamer]

> What kept inflation at 2% was a perfect historical moment in global growth/globalization that will not come again in our lifetimes.

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.

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We probably could have afforded to rock the boat a bit more than we did those 10 years though.

[scottLobster]

A target chosen completely arbitrarily. Obviously deflation is playing with fire, but I see no reason why something closer to 0% inflation would have been an issue. Maybe even a quarter or two of deflation wouldn't have killed things. Things more or less cost the same year to year? People would be less incentivized to invest unless they have an idea they think will have a return that beats a savings account? Cool, maybe slow, steady growth and savings could have stored up a decent cash pile for... oh, I don't know, a pandemic and a full blown war amongst (by world standards) wealthy nations? Those fun unforeseen events that I guess those in power (in the west at least) arrogantly deemed were no longer possible?

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.

[Wowfunhappy]

How do low rates lead to wealth inequality?

[zeusk]

Because the rich get to borrow and buy assets and assets go up in prices.

The haves benefit way more from cheap debt than have nots who can't take out debt or have appreciating assets to begin with.

[pempem]

Explain it like I'm 5 (or pls link me, happy to read more):

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.

[dhruval]

“ 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.

[DebtDeflation]

>Its warped all of our thinking.

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.

[behaveEc0n00]

I maintain that this Fed tightening is manufactured consent to be ruled by an aristocratic class in charge of government. Rent seekers in their twilight years convinced future agency must directly build upon their efforts by propping up their wealth working in the industries they own all the valuable real land and infra capital.

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.

[AnotherGoodName]

I think another factor is the rise of china, which ramped up massively in that time, hid inflation.

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.

[dragontamer]

Inflation everywhere? Like in car prices? Food costs? Eggs? Milk? Butter? Paper? Wood? Lumber? Orange Juice?

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?

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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.

[Aunche]

>The main issue with the Fed, was that they made the wrong call on Inflation in 2021, thinking it was "transitory".

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.

[fspeech]

Real yields on treasuries have surpassed the average GDP growth rate of the 21st century. That’s restrictive by any measure.