[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.

[scottLobster]

Raising rates kills relatively inefficient, unproductive jobs, as it's harder to get a loan. So a business needs to be more profitable to survive in a higher-rate environment, to pay down the interest.

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.

[PreachSoup]

Housing is a supply problem. Unless we all learn from Japan and Singapore, there is no other way to increase supply

[fredestine]

not only that. if houses prices go down and it looks like a trend for the coming years people who could now afford a house won't put the money into it