[hanoz]

Yes, because interest rates clearly need to go a lot higher to get inflation under control around the world, yet banks are already starting to fail from the stress of it at these low rates, and the central banks' bailout mechanism is itself inflationary.

Although, strictly speaking the answer should be no, this is not the start of a new financial crisis, it is a continuation of the 2008 crisis.

[nscalf]

Out of curiosity, what makes you think interest rates need to go higher to stop inflation? I know that’s the standard response to inflation, but economics is wildly complex. My read on this situation was always that we needed to decrease the feds balance sheet, get some marginal increase in interest rates, and the rest is supply side.

[qaq]

This. I think people are not paying enough attention to the fact that the "fix" is negating anti inflation measures.

[TearsInTheRain]

But also bank failures are disinflationary so is the bailout negating the rate hikes or just negating the new regime of tighter lending standards by banks? I dont think anyone has a solid answer to that question

[mattbrewsbytes]

I think the repeating pattern is the banks end up over leveraging based on value of things like MBS or this one is maybe interest rates because money has been free to them for so long (holding lots of worthless bonds I think). In the end, none of it is their money they are playing with so they have a high risk tolerance and a history of getting bailed out, bought out and at a minimum getting bonuses paid out. And then they lobby for deregulation or self-policing.

I think having a shot at solving problems involves less lobbying and more criminal prosecution and loss of operating licenses.

[adamhp]

> solving problems involves less lobbying

I think we can all agree this pretty much sums it up. Basically every major problem we face in America is the result of lobbying and gerrymandering.

[pas]

people rarely invest into new ventures, raise wages, or hire more employees during a bank run. the FDIC stepping in doesn't negate that (it probably prevented a serious crash that could have lead to even more supply chain fluctuations, which itself causes a significant portion of the inflation.)

[mrzimmerman]

Honest question, how is (in the case of SVB and Select) making sure depositors don’t lose money while the bank itself is closed and assets sold off, holders of it’s debt (those who lent money to the bank), and those that owned the stock all lose their investments?

I understand the 2008 bailouts were actually giving money to the banks that were/are deemed “too big to fail” and allowing them to more or less operate as if nothing had happened (outside of regulation changes), which seems on its face inflationary. But that’s not happened in this case, correct?

Again, honest question if I seem to be missing something.

[chrismcb]

What is the actual question here?

[mattbrewsbytes]

Guarantee of everything tells the banks they can do whatever they want with everyone else’s money to possibly make more money with zero repercussions.

If people could get bailed out of their credit card debt, how reckless would peoples spending be?

[AnimalMuppet]

Zero repercussions? How about stockholders losing 100% of their investment, and management losing their jobs? Those sure look like repercussions to me...

[quickthrower2]

Biden said the depositors money is paid out of the insurance scheme that banks pay into. Investors get a bath naturally.

[alxmng]

Yes. It’s counter-intuitive but both lowering and raising interest rates are inflationary. A rise in rates means more bond coupon and more bonds sold (new money), and lowering rates results in more bank lending (new money). A rise in rates is actually more inflationary, since bank lending won’t necessarily increase with lowering rates, but a rise in rates necessarily means more bonds and bond coupon from banks purchasing bonds.

The system is designed (fractional banking + government bonds) such that the money supply must continue to increase.

[dragonwriter]

> It’s counter-intuitive but both lowering and raising interest rates are inflationary.

Counterintuitive, sure, but less counterintuitively, it is also false.

> A rise in rates means more bond coupon and more bonds sold (new money)

No, it doesn’t mean more bonds sold.

(Purchasing bonds is lending; the idea that lending increases with both rate increases and rate decreases is…wrong. Borrowing, whether via banks or via bonds, is more common when it is cheaper because of low rates, and less common when it is expensive because of high rates.)

And exchange of equity instead of interest for money follows the same patterns, because those with capital will trade it for less valuable (in expected future value) equity when they’d make less money in its alternate use (lending), and demand more valuable equity for it when they’d make more lending. So, equity financing (which, despite the structural difference, also gets the money moving in the economy) is also more active with lower rates and less with higher rates.

[tomatocracy]

Some measures of inflation include the cost of a typical mortgage, so in that sense rate rises are by definition inflationary; however it's also true that raising rates puts downward pressure on economic activity, which in the medium term is disinflationary (though weird things can happen sometimes when raising rates has a signalling effect that the central bank thinks the economy is doing better, which in turn can increase economic activity).

[thethimble]

Even if your argument were true there would have to be a theoretical interest rate that minimizes inflation (how can a function increase in both directions but not have a minimum?).

That said I think there’s reason to be skeptical about the link between rising rates implying more bonds sold - particularly as you consider other factors like creditworthiness.

[alxmng]

The connection between monetary policy and inflation is weak. But the connection between how the monetary system is structured and an ever increasing money supply is clear and factual.

Some MMT theorists suspect rising rates is at least not price deflationary as is assumed by Keynesian monetary theory. And the basis is simple: An increase in debt interest has to be serviced by money creation. So the tool used to reduce bank lending creates money, and increasing bank lending creates money. Both roads lead to the money printer.

The following points are taken from https://www.reddit.com/r/mmt_economics/comments/wchq55/raisi...

1. When central banks raise interest rates, this means governments spend more on their interest payments. This translates into increased income for bondholders. Higher incomes lead to more consumer demand, pushing up prices. Similarly, banks benefit from higher interest payments from the Federal Reserve. In other words, the interest from the higher interest rates goes to someone in the economy, and their demand increases rather than decreasing.

2. Interest rates are a cost for businesses. When central banks raise interest rates, businesses pass this new cost on to consumers in the form of higher prices, which is inflation by definition.

3. Higher interest rates make it harder to start a business and harder to hold inventory. This reduces supply, leading to higher prices aka inflation.

4. Finally, MMT economists point to the fact that there is no empirical research at all showing that higher interest rates decrease inflation. In fact, the correlation runs in the opposite direction.

[dragonwriter]

> Some MMT theorists suspect rising rates is at least not price deflationary as is assumed by Keynesian monetary theory. And the basis is simple: An increase in debt interest has to be serviced by money creation.

An increase in interest rates is not an increase in interest, because it decreases borrowing. (And even if it did mean an increase in interest, that’s a delayed effect, the impact on borrowing is immediate.)

[alxmng]

Interest rates correlate strongly with treasury yields. https://en.macromicro.me/charts/762/us-fed-funds-rate-treasu...

To increase the federal funds rate the fed has to sell treasuries (pushing up coupon rate, which is government interest payments), or pay banks interest on reserves (give banks money), or buy assets from banks (give banks money). So from every angle, the government is creating money when it increases funds rate. https://www.stlouisfed.org/open-vault/2020/august/how-does-f...

If we zoom out, the two ways the Fed increases the rate is by giving banks free money, or pushing up bond prices (and the interest on bonds comes from new money).

Despite the enormous complexity of monetary policy, the only actual tool the Fed has underlying everything is the ability to print money.

[chrismcb]

How is it a continuation of the 2008 crisis?

[TheAlchemist]

Like that: https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

[namrog84]

But isn't there really not inflation going on but late stage unregulated capitalistic greed?

[dragonwriter]

Consumer price increases are inflation whether or not they are caused by “late stage unregulated capitalistic greed”.