Jerome Powell Says the Fed is Prepared To Raise Rates To Tame Inflation (nytimes.com) 104
Jerome H. Powell, the Federal Reserve chair, told lawmakers on Tuesday that a rapidly healing economy no longer needed as much help from the central bank and that keeping inflation in check -- including by raising interest rates -- would be critical for enabling a stable expansion that benefits workers. From a report: Mr. Powell, whom President Biden recently nominated for a second term as chair, is confronting a complicated economic moment as he moves toward another four-year stint as head of the world's most powerful central bank. He provided his latest thoughts on the Fed's challenge during his confirmation hearing before the Senate Banking Committee.
The economy is growing swiftly, but it has been buffeted by repeated waves of the coronavirus and by a surge in inflation that has proved stronger and longer lasting than economists had expected. Workers are finding jobs and winning wage increases, but the rising costs of housing, gas, food and furniture are pinching shoppers and tanking consumer confidence. The Fed is charged with maintaining price stability, and its officials have recently signaled that they could raise interest rates several times this year to try to cool the economy and prevent rapidly rising prices from becoming permanent. Mr. Powell -- who is widely expected to win confirmation -- reiterated that commitment on Tuesday.
The economy is growing swiftly, but it has been buffeted by repeated waves of the coronavirus and by a surge in inflation that has proved stronger and longer lasting than economists had expected. Workers are finding jobs and winning wage increases, but the rising costs of housing, gas, food and furniture are pinching shoppers and tanking consumer confidence. The Fed is charged with maintaining price stability, and its officials have recently signaled that they could raise interest rates several times this year to try to cool the economy and prevent rapidly rising prices from becoming permanent. Mr. Powell -- who is widely expected to win confirmation -- reiterated that commitment on Tuesday.
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If a mechanic fucks up your car, you don't pay him again to 'fix' it.
Sure we do... over and over [wallstreetonparade.com]
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What they want is some sort of god with perfect knowledge of all past, present and future events. Anything less than utter perfection must be punished... unless, of course, the guy plays for your team, in which case he can be the most mentally deficient jaw droppingly stupid corrupt halfwit, and he must be supported absolutely and without question.
At any rate, plenty of economists initially assumed that inflation would be short lived, assuming (rightly or wrongly) that supply chain issues would resolve them
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I'm not a financial pro and it was obvious the nature of Inflation is systemic a year ago just by watching Blolomberg and Y-Finance interviews and charts alone.
So no, not looking for perfection, just not someone obviously wrong for a year about economics just to satisfy the desired politics, someone that could do better than me. We don't have that yet.
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assuming (rightly or wrongly) that supply chain issues would resolve themselves as the pandemic waned
The global supply chain is a massive house of cards and that was known before the pandemic. Everything from lean manufacturing to just-in-time inventory has an externalized cost and the bill finally came due.
However, economists are not exactly qualified to speculate about that. I'm not sure who is - it takes a long time to build a new house of cards if someone is shaking the table constantly.
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Sounds like a false dilemma between incapable-of-change and incompetent-but-pliable Y-Finance and Bloomberg had Industry CEOs and fund managers reporting the inflation is systemic fully A Whole Year before it dawned on the current Chairman that it might not be transitory. Why does he have to be in the running at all?
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Same Guy said inflation was Temporary. Why would you hire this guy again?
If a mechanic fucks up your car, you don't pay him again to 'fix' it.
If the economy were an automobile you might have a point. If you want to us a vehicle analogy, the economy more like a system of railroad tracks with trains heading in different directions, each of which dealing with various issues such as weather, derailments, maintenance issues, rush hours, and people-driven delays to the schedule. The problems evolve, and eventually require a different solution.
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Yes even dummer than trump.
But able to spell and punctuate correctly.
Thanks for the comment by the way. I now know exactly how stupid you are and I can happily ignore every opinion you express on this site.
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You do realize that I told me the problem didn't evolve, and then listed the evolutions one-by-one?
Lower supply, more printed money, less spending on discretionary things like travel...
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They already razed the rates. Now they need to raise them.
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Yeah, because I hear that guys that are both wrong and stubborn about it are exactly who you want running massively important organizations.
Hint: I'd rather hire someone who can admit they were going down the wrong path and correct it, than hire someone who is stupid enough to continue down that wrong path out of pride or whatever horseshit reason they would use to justify continuing to be wrong.
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How is it not temporary? Did he give a timeline when it would end? A year of inflation is temporary if the total time frame you are talking about is 100+ years (just an example feel free to pick and small period of time compared to large period of time).
Were you expecting deflation? There would be just as much if not more complaints if we actually hit a deflationary period.*
*Ok, maybe not a deflation but definitely a recession would prompt complaints.
student loans need to stay locked in place and not (Score:2)
student loans need to stay locked in place and not have there rates go up.
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Why? Other than you don't want to fulfill your obligation to pay back a debt you took on voluntarily?
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I want the same sweet interest free deals that the banks give the government.
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"It's impossible to survive well these days without a college education."
There are millions of electricians, machinists, plumbers, welders and self-taught tech folks who would disagree.
And how's that art history or *-studies degree doing for your career?
You don't have to buy a Ferrari (Score:4, Insightful)
For my bachelors, I went to a state school. Tuition at that school is currently $6,670 - 1,500 tax credit = $5170. So $430 / month.
For several of the classes, the final exam was an industry certification such as Cisco CNNA. Halfway through I had several certifications and that helped double my income.
So my income increased by over $1,000/month, while tuition was $430/month. I graduated with MORE money. In the bank than I started with. Precisely the opposite of going into debt, getting loans.
Of course there are schools that cost a lot more. There are also Ferraris and McLarens. Just because they exist doesn't mean you have to buy them. I bought a Toyota Corolla that was a few years old when that's what I could afford. Because that'll get you around just fine. If you aren't yet making a ton of money, a used Corolla and Western Governors University are appropriate purchases. A brand new Porsche and Yale are put of your price range. Even though you want them.
For my masters, I went to a top three university in my field. By shopping carefully, I found a top school that's under $10K for the whole degree if I took my classes online.
You CAN borrow a ton of money to go to a school far beyond what you can afford. Just like you can do that with cars. You don't have to.
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Someone held a gun to his head and told him to sign the papers and then go to college?
No? Then it was voluntarily.
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You must be so proud of your english skills.
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Student loan rates, mortgage rates, credit card rates, all of the interest rates that the average person might pay aren't what's being talked about here. The "fed rate" that they manipulate is the rate that giant banks and corporations pay when they need money to cover short-term gaps (wouldn't it be nice if we all had a buddy who bailed us out when we were short at the end of the night). While ordinarily this might ripple down to consumer rates, the fed rate has been held so low for so long that there's pl
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A lot of those rates will certainly go UP if the fed rate goes up of course
They never learn, do they? (Score:5, Interesting)
However, I'm not convinced this inflation is entirely due to excess supply. There's just as much evidence that this is a supply chain issue, where Covid has forced the shutdown of factories, and in many cases, entire suppliers. Raising rates would only make it more difficult for new suppliers to receive the funding they need to capitalize and start up again.
This is the exact situation we had ourselves in the 1970s, and stagflation was only made worse by raising rates.
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I'm not sure how true this is. If we look at $$ borrowed (https://fredblog.stlouisfed.org/2020/04/household-debt-meets-corporate-debt/) about half of it is corporate debt. And even among household debt, only about half is borrowed by families of 1-4.
So interest rates actually help corporations and single-proprietor businesses the most.
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Printing money and giving it to the poor is politically far easier and faster than taking money away directly from the rich, that's why in a crisis everyone is a Keynesian.
Stagflation happens when the rich sees it comes down to the same thing and start to get their media to print hyperinflation scare stories to stop the redistribution.
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When we print money, we give only to the very richest [wallstreetonparade.com], insane prices on Wall Street are what is "trickling down"
Re: They never learn, do they? (Score:2)
Full employment didn't just appear out of thin air, it took massive amounts of stimulus.
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That is not a "stimulus", it is a heist. That money should go to public works, not Wall Street gamblers, the very same people that caused the last big crash.
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Er, high school economics said inflation was low supply relative to willingness to buy. "Too much money chasing too few goods". And that seems to be exactly what we have going on. Minimum wages going up, government stimulus, easy credit, and, as you said, supply chain issues. Reducing money is valid in this case. Taxes are also a way to reduce the money/demand, but the problem is when recession comes again and those taxes are difficult to repeal. Fed intervention is more responsive, and doesn't have a
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Keep in mind how this happened.
Back in March of 2020, the stock market tanked on the concerns of Corona Virus. At that point, the fed stepped in to say - nope. We can't have that. They then poured Virtual Money into the stock market, and the US had the best-ever stock market day with just about the worst-almost-ever unemployment period.
The too-much-money is virtual money. The stimulus checks. The stock market dumps to the rich. Two TRILLION dollars in corporate welfare, after the stock market surge. Twice o
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How many people are aware that the money supply has shot up about 40% in the last 12 to 18 months? Also note that a large amount was dispensed to "people" (rich, poor, whatever) as stimulus checks, no strings attached. This means that a HUGE swath of "spenders" just got a windfall. While the savings rate has gone up (a good thing), a lot of that money has been spent into the economy. So that's a kind of "way more money chasing the sam
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Doesn't it stand to reason that when 1X goods are offered to a 1X money supply, and thereafter 1X goods is offered to a 1.4X money supply, prices are going to go up?
Yes - that would be enough to drive up prices. But low amounts of travel and entertainment spending leaves a lot more money than usual to spend on "stuff" instead. So it's being hit from all sides. Also, we have less than 1X goods right now.
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Its no longer a supply chain issue and its not transitory. Fixed costs have been raised to cover the increased variable costs. Clearest example of this is rents, those will not go back down. If your rent went up wages have to go up too to prevent people from leaving town. Its locked in now.
Raising rates in the 70-80s did retard growth but it was necessary to protect middle class wealth. We need fixed income solutions that at least pace with inflation when we don't have them we see more wealth concentratio
Money (Score:2)
Money is too damn cheap, and has been for at least ten years. Keeping interest rates artificially low encourages speculation (housing bubble) discourages banks from making money using traditional methods (risky investment instruments) and pushes regular people to not park their money in savings accounts as their interest rates are terrible, also taking on more risk.
It's *way* past time for interest rates to go up. If the fed had increased interest rates ten years ago, they could have lowered them during the
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That's why it's interesting that inflation didn't kick in until supply faltered, which was only much more recently with Covid.
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I am not sure that it did not 'kick in until supply faltered' it was just restricted to specific asset classes. Supply side faltering simply spread it out in the general economy. All that wealth piling up in equity positions in 401ks was going spill into the market sometime - Eventually people were going to retire eventually those assets were going to be sold (to smaller working force) and that money was going to go out into the economy without the underlying productivity to back it. COVID just moved the c
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This is typical. Pump it up and time it so that it explodes right as The New Guy takes over, and you can blame them instead. Except the pandemic happened.
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Raising taxes is going to increase inflation.
If you have people doing skilled jobs that require training, education and what not and you tax them down to having hardly more than unskilled labor, they either won't do the harder work or they'll increase the cost of their services to make up for it. The latter is the more likely.
What's causing inflation is the 'redistribution of wealth'. People are sitting on their duff contributing nothing having an excess of money to spend. The more money the government spen
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That may be the case (probably not) but since taxes haven't changed (aside from being lowered a few years ago), it's not the cause of the current inflation. Supply chain issues are most likely the problem
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I should have clarified better, it's not taxes that are creating the current issue.
It's the printing of money to give away to everyone which is causing inflation. Either way it's like a tax though. If you make 100$, and I charge you a 50$ tax, I took half your money. Imagine if all that was ever printed was that 100$ for this example.
If you make 100$, then I print another 100$ and give it to someone else, so there is a total of 200$ out there. I also just took half your money, because whatever that money wa
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Sounds like the solution is to raise taxes in order to reduce the supply of money. If you make $100, then I print out another $100 and give it to someone, then I take $50 in taxes from everyone, it's even again!
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Sounds like the solution is to raise taxes in order to reduce the supply of money. If you make $100, then I print out another $100 and give it to someone, then I take $50 in taxes from everyone, it's even again!
No, then I worked for 100$, you devalued to 50$, then you took 50$ from me, who worked, which leaves actual currency of 50$, at half value, so you leave me with a purchasing power of 25$. The other person has a purchase power of 50$.
Or, I worked for 100$, you devalued it to 50$. So my purchasing power is 50$, and so is theirs. Then you tax 25$ from each of us, now we both have a purchasing power of like 33$.
When you do that, most of the population, (Who by the way are not your slaves), we're not going to wo
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I think most people will work for more money. There's a big difference between getting enough money for the bare necessities and getting enough money to live comfortably
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I think most people will work for more money. There's a big difference between getting enough money for the bare necessities and getting enough money to live comfortably
That I agree with.
I think safety nets are important for any country to consider themselves civilized.
The problem is it's been turning into a safety hammock. People in "poverty" that can "barely get by" but with the latest 1500$ iphone.
Some of it is just filtering, there are people who are in actual need, and there's people doing better off abusing the social programs.
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I tend to agree with that first statement, but not the second. The easy money has primarily been targeted to companies and the upper classes, and low interest rates have fueled over-valued stock market investments rather than middle/lower class savings ac
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Well I think in reference to what you quoted there is safety net vs safety hammock.
You're statement in my opinion falls more under safety net and that's important. The fact that people and companies not affected were given benefits, and even quit working to sit on them, falls under my safety hammock comment.
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I don't think inflation comes only from one thing. There are clearly still supply chain problems which are bound to raise prices. That's true in electronics for instance.
But there is also cheap debt fueling prices up. The housing market is blowing up and that is partially due to cheap debt. I recently refinanced an ARM during the teaser period for a lower interest rate on a 30 year fixed rate. I have lots of friends saying "prices are going up and interest rates have never been lower in my lifespan, it's ti
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The problem is, taxes are not an easy or simple issue - that's a mirage. The United States was founded on a tax revolt.
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Not sure that's entirely true. Many of the revolutionary leaders were eager to try a republic independent of any tax issues. The Boston Tea Party was a revolt against forced trade with the crown's monopoly trading company, and was actually triggered by England dropping the taxes on tea imports, since that was reducing the smugglers' business.
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I get the distinct impression it was the British crown's attempt to extract more and more money from the colonies that led to the Revolution. [state.gov] The purpose of the colonies was to provide wealth to the colonizer. It just went too far - it became intolerable.
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The wealthiest Americans have no desire for higher rates (Recall Trump talking about pushing rates to zero or even negative and saying that the economy would take off "like a rocket ship" [google.com]).
Asset holders (primarily the wealthier tiers of society) love low rates, as do borrowers, such as businesses, and government. There is absolutely no appetite to raise rates if at all a
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in the 1970s, and stagflation was only made worse by raising rates.
That's not the normal interpretation of the events.
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This is the exact situation we had ourselves in the 1970s, and stagflation was only made worse by raising rates.
FWIW, I don't think that view matches the consensus (such as it is) of economists. As I understand it, the consensus is that Carter's appointment of inflation hawk Volcker, and Volcker's subsequent interest rate hikes are what stopped stagflation. At the cost of a couple of recessions, granted.
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If you really want the consensus from that time, everyone wanted Carter out and Reagan in as Reagan promised to cut the top tax tier from 70% down to 35%. What's more likely: the fed tanking the economy to purposely make Carter look bad in order to get Reagan in, or Volcker being stup
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If you really want the consensus from that time
No, I was talking about the modern consensus, with the benefit of history and hindsight, which AFAICT is specifically that it was increasing interest rates that ended stagflation.
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The difference between taxes & rates is being "I take what you earned" vs "You pay back more on a loan". The first doesn't go down well. The second a bit better.
Also the first is done by politicians, who need to get reelected. The second is a dictate by some banker (appointed by said politician, but that is already enough distance)
Appearances are everything.
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The only way what you suggest would be an equivalence is if the government raised taxes AND cut spending. Really they could just cut spending, because the government deficit spends today. They are actually expanding the money supply through spending because they are borrowing, every bond they sell either to the public of the FED means even more money is lent into existence. Those bonds are considered so safe they are even used to collateralize even more debt elsewhere.
Reality is taxation will only increas
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If money supply is truly at issue, there is a far better way of removing excess capacity from circulation: raising taxes. Taxes can be a focused instrument, in that we can target the socio-economic brackets where monetary supply is in greatest excess. Raising rates is a blunt weapon that regressively hurts the poorest and those just attempting to climb our of their tier to the next level.
This is no case of either-or. Rates have been way too damn low for way too damn long. This has to be corrected and then not fucked with. Money saved in banks is losing value and housing costs are skyrocketing due in part to prolonged periods of insanely low rates.
Tax structures should be restored returned to what they were in the late 70s when the top bracket was in the high 80s. Corrupted taxing policy leading to insane aggregation of wealth is singularly responsible for pushing up Gini coefficients.
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https://en.wikipedia.org/wiki/... [wikipedia.org] FTW
Rates and inflation (Score:2)
I'm not against raising interest rates -- they're way too low for way too long. But I have my doubts about how much effect this really has on inflation.
Interest rates aren't going to unclog shipping ports or increase production. And it's not going to train more and more workers to fill the jobs that are needed right now. And it's not going to convince people who were out of work during the pandemic who decided they didn't need to work to come back to the workforce.
And it's not going to heal the tension betw
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I'm not against raising interest rates -- they're way too low for way too long. But I have my doubts about how much effect this really has on inflation.
Interest rates aren't going to unclog shipping ports or increase production. And it's not going to train more and more workers to fill the jobs that are needed right now. And it's not going to convince people who were out of work during the pandemic who decided they didn't need to work to come back to the workforce.
And it's not going to heal the tension between the US and its biggest trading partner.
True.
But it will make it appear as though "someone is doing something".
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1. Raise interest rates
2. It becomes harder to borrow $$
3. Individuals and companies borrow less money.
4. Thus, they spend less.
5. Less demand means lower prices.
6. AKA inflation counteracted.
There's way more to it than that, but I think that's the main cause-and-effect.
Turkey is trying the opposite. The guy in charge there, Erdogan, has pretty much become a dictator, and he doesn't believe this relationship. He's trying to fix Turkey's inflation p
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Didn't Venezuela also try that approach?
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What is missing from your equation is that right now a lot of activity can go on because rates are effectively zero coupled with a FED that continues to directly toe into the bond market slurping up the good debt, creating a willingness for others desperately seeking yield to slurp up bad debt.
You can continue operating a business in that environment that makes no profit because more financing is available and additional debt has little cost. It lets you just break even or even lose money every reporting pe
Puzzle (Score:2)
It's one piece of the puzzle. It encourages saving and discourages speculation. It tamps down speculative bubbles built on cheap capital. When the economy tanks again, it's another lever the fed can use to try to stimulate things (it's hard to stimulate the economy when interest rates are practically zero.)
clown world (Score:1)
inflation that has proved stronger and longer lasting than economists had expected
Inflation that has inconveniently insisted on reflecting the policies inflicted on the economy by politicians: make workers stay home and provide them with checks to buy stuff. OMGWTFBBQ inflation! How could that have happened?!?
Inflation that has failed to obey the preferred narrative:
- It's temporary
- And if it's not temporary it's minor
- And if it's not minor it's ok because you can afford it
- And if you can't actually afford it then just stop buying stuff because you're a bunch of mindless consu
Raises hand ... (Score:1)
Fed is Prepared To Raise Rates To Tame Inflation
Can't this simply be fixed with blockchain? (*snicker*)
Prepared until the market goes down (Score:2)
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Don't hold your breath while you wait for mortgage rates to "hit normal". There's nothing magical about what the interest rates happened to be for a few years in the early 2000's. The historical trend is that of a continuous decline since 1980, and if something about our economic structure changes so radically that it'll be reversed there's no reason to expect it to stabilize at any particular interest rate.
You gonna to do something about housing prices? (Score:2)
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Its more than just speculators. Once rates go up the month mortgage payment follows. A lot of buys especially first time buyers start with "how much can I spend for on housing each month" and work backward from there in terms of how big a loan to take and how much house to buy.
buy a 200k house with 40k down - so finance 160k at 3.8% that is about 1,000 a month in payments
take that to 6.8% and its more like 1300 a month. 300 a month is a lot of money to a lot people in that price range currently. They are
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Does anyone take out a variable interest rate loan when the fixed rates have been so low? I'm sure there's some, but is it big part of the market? My current fixed rate is silly-low.
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and, to state the obvious; if you have a fixed rate, and inflation also makes your wages rise, you are actually winning with respect to your mortgage. That's one reason why the banks can't stand it.
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"For every problem there is a solution that is simple, neat—and wrong."
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You can't just move to the Midwest
Correct. You can't do this so don't imagine you can. It's not possible. Never think that it might be possible. Just select some new urban hellscape with marginally lower costs on the coasts or Texas or New Mexico or somewhere and move there. There is nothing but jobless snaggletooth racists are far as the eye can see the in Midwest and they'll hate you and key your SUV and stuff so stay clear.
kthxbye
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I would add that houses in the Midwest are not cheap. They only seem cheap relative to other places.
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Your ignorance of any place other the squalid urban hellscape you live in is showing again. If you live in the middle of nowhere you have a well, their is not city to cut off your water.
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That says more about Trump than Biden.
The lost income of savers was transferred (Score:2)
To those doing the socialized* betting on the markets. I can't really complain too much other way. My money was/is deposited in both a savings account, which provides diddly even though getting the best rate, and Annuity funds, which benefited from the quantitative easing's effect on the stocks that they are ultimately invested in.
*Losses were greatly shared, profits not so much.
Which economists didn't see this coming? (Score:2)