Remember everyone at the Fed who refused to raise rates last year and hand waved inflation as transitory still has their job. They only started accepting inflation as real after introducing stock trading transparency rules which forced many to start unwinding their personal portfolios [1].
Suppose I were a Fed bank president who wanted to profit from advance knowledge of changes to rates.
When I know rates are going to decrease, I buy a growth ETF, like VIGRX, or a tech index like QQQ. Or I buy a bigger house, safe in the knowledge that prices will go up and I can refinance soon at lower rates. And if options are allowed and I want more gains, I buy calls on ETFs like the ones I mentioned.
When I know rates are going to increase, I instead simply get out and hold cash. Or if options are allowed, I buy puts on QQQ, or at least sell calls.
In all of these hypothetical transactions, I have benefited from my advance knowledge of rate changes, without picking a single individual stock.
I can even make an argument that these diversified trades are more reflective of rate changes, since those changes have broad impact across the economy, whereas specific stocks are confounded by all sorts of idiosyncratic things. Using these ETFs, I average out more of the random variables that aren't "interest rates".
So I don't see how this new rule, which bans stock picking by people at the Fed, matters a lot. These people don't regulate specific industries; they set rates. About the only exception I can think of is bank stocks: Maybe the Fed's interactions with specific banks are significant. But apart from that -- this seems good for appearances, but does it actually accomplish much?
For congresspeople on the other hand, or for people in regulatory agencies, I get it. You don't want a regulator siding with one company over another, or, indeed, from being overinvested in whatever sector they're regulating ("Let pharma get profits at all costs! What do I care about opioids?").
But for people at the Fed? It's not a crazy rule, but I also don't think it does much.
First it was inflation is transitory, then inflation is good for economy, then big interest hikes are coming. So far we see tiny .75% hikes. Fed refuses to increase interest rate so it at least matches inflation.
We need congress to stop writing blank checks. There's almost so much rate hikes can do, but this affects more than just the USA: Rate hikes will kill third world and developing nation's economies. And no, the answer isnt "mor taxes!", because one, that literally has never worked (we've raised taxes thousands of times now), but we don't tell and alcoholic to drink more water to dilute the alcohol, we tell them to stop drinking. s/alcohol/spending/
If we disregard that alcoholism is a sickness and will trump all other spending and make you lose every penny, then increasing taxation and removing money from people by raising rates would prevent the alcoholic from buying more booze.
However, the example is silly the macro economics are much more complex with individuals and businesses spanning across many different sectors.
I'd say it's fantastic news that the Fed is finally being forced to do what they should have done decades ago. The real analogy to alcohol is the economy's addiction to low rates.
The agglomeration, centralization, and intermediation of everything is not merely "late stage capitalism". Rather it directly follows from the decades-long policy of creating massive amounts of new money, just dumping it into the financial industry, and then writing that action off as "value neutral" while it's anything but. Given the choice between newly created money just continuing to fuel the everything bubble or spending it on specific policies, the latter is at least more deliberate in its effects.
In general, higher interest rates will slow down the economy, which is a great thing for sustainable use of natural resources. If we want to conserve resources, then we need to change our time preference to not use them all as fast as possible! It's nonsensical to give lip service to global warming, and then continue pushing the economy to run as hot as possible with speculative malinvestments enabled by ZIRP.
Freedom wise, long term higher rates encourage distributed ownership of capital rather than centralized financialization. For example an escooter is merely several hundred dollars, but under ZIRP it made sense for investors to (produce and) buy thousands of them to rent out, hoping to create some kind of future revenue stream. Our society is much better off if things, especially simple consumer goods, are under private ownership rather than administered by centralizing companies.
>which is a great thing for sustainable use of natural resources
Also great for keeping sustainable business models from getting out-competed by a bunch of dolts with monopoly bucks.
> Freedom wise, long term higher rates encourage distributed ownership of capital rather than centralized financialization. For example an escooter is merely several hundred dollars, but under ZIRP it made sense for investors to buy thousands of them to rent out, to try and create some kind of future revenue stream. Our society is much better off if things, especially consumer goods, are under private ownership rather than leased out by centralizing companies.
I agree. However, many people see this as a bad thing. To continue with the scooter example, say we discover better scooter batteries but they aren't quite economically viable. With centralized ownership you can just financially penalize companies to make them switch. Even if people have to pay more they're at least not directly targeted which makes the change less politically expensive. With distributed ownership you have to enforce against more people, many of them individuals and possibly take enforcement action against them which is more laborious and expensive and runs much more risk of offending people's sensibilities and other backlash.
I don't think the scooter battery example is particularly great. It seems like you're saying that perhaps ongoing battery use might be creating some ongoing harm where we would be better off prematurely end-of-lifing the existing ones. But either way the battery needs to be disposed of, and round trip storage efficiency is already high enough to make ongoing inefficency not much of a consideration.
I'd also point out that centralization is more likely to make destructive sweeping changes. An individual could keep limping along with their old battery with only 30% capacity, just for short trips and whatnot. Whereas a company would be inclined to scrap old scooters much earlier to keep their fleet uniform and ready for the needs of any user.
A better example is the automobile market, where we've already got the distributed-incentives situation. This seems to be getting handled just fine with EV subsidies and "cash for clunkers" (criticism of that program notwithstanding). Perhaps adoption is slower than we want, but there could also be more direct incentives to upgrade if they were needed, or even just higher gas taxes. Operating on the distributed model where individuals are free to judge their own situation seems better than centralizing things so that they can be changed quicker just in case the need arises.
I don't think resource utilization is bad, per se. But I certainly agree that the low rates is destructive for the health and robustness of the economy. It's perhaps more akin to sugar addiction.
However, why would the Fed want to raise rates? The Fed members are precisely the group who benefit the most from the Cantillion-ization of the economy. The VC folks who fund escooters flops are just later stage effects.
But the banks who makeup the Fed and control 2/3 of the board members benefit a lot from having that printed cash flowing through their coffers. They also get game the markets even further by knowing where and when the fed will change rates. Why would they change?
Fed could deflate the currency now by telling member banks to keep more in reserve. They can't steal value from the future (to drink off your lifeblood today) as the middleman if money doesn't flow. That's why that will not happen. Simple as.
The party ends for the banksters when the purchasing power completely runs out on their currency. Who knows what happens now.
Usually we have a big war and pandemic/plague at this stage to wipe the slate and provide cover for a currency reboot, but it appears we are fortunately not having that.
Will we get free from the banksters? (Please say yes!)
Does anyone know why raising the reserve requirements isnt an option bring discussed? My understanding was dropping it to zero was a reaction to covid, but it hasn’t been talked about as a lever since (afaik)
I cannot believe the student loan forgiveness when inflation is rampant. I am getting money back, as I paid my loans during the freeze. I'm just barely in the income level required. I believe nobody earning $125k or $250k household needs any forgiveness.
I bought more things with those news(spent $12k vacation and ebikes), I know others purchasing more things due to those news and knowing that things will probably get even more expensive in the future.
This bill doesn't change anything for future generations......and the timing is just awful...we need to take money away and make buying things hard not inject cash into pockets.
Edit: Before anyone attacks me, I voted blue in last election.
With this "forgiveness" the "blue" bought several generation of people to vote for them. This type of "forgiveness"/"discrimination" is common in many countries, they just color it differently to make it look like it's good for society.
If you actually use your e-bike to displace gasoline consumption, thats probably a significant net positive on inflation. So much of this has been driven by high energy prices.
“People think that the President of the United States has the power for debt forgiveness. He does not. He can postpone. He can delay. But he does not have that power. That has to be an act of Congress.”
-- (D) house speaker Pelosi regarding the constitutionality of debt forgiveness via EO
My understanding is that the law authorizing those student loans allows the executive to forgive the loans during a declared emergency. I'm sure the courts will sort it out.
I would hope if the courts are sorting this out they will put an injunction in place to prevent cancelling the debt until a disposition and all appeals have been exhausted, as that may be something rather difficult to undo.
The court can issue an emergency injunction to prevent an irreversible action like that before the courts are finished with it. Considering the president can just keep postponing the debt there's no real rush here to complete the cancellation before the courts can rule on the constitutionality.
...and then we have Newsom saying he'll provide gas rebates because gasoline is too expensive in the state where gasoline is regulated the most... and they accuse service stations to refiners of being "price gougers". Oh, well.
"We'll fight inflation with inflation causing instruments (more liquidity)!!!" "People don't have enough money; let's print more."
States have been spending printed money nonstop since 2020.
Federal Reserve buys treasuries -> Federal Government hands trillions of borrowed dollars to state and local governments as “Covid relief” -> States spend well beyond their means.
It may not change things for you or me, but there are many, many people it will change things for and the grand majority of those changes are positive.
It's a big ask but people should stop from time to time to remember that the world doesn't begin and end at the tip of their own noses. Let good things happen to people even when that good has no impact on you.
The PPP program disbursed around 800 billion dollars, most of which was forgiven.
The student loan forgiveness, if it happens, would total between 440 billion and 600 billion over the next 10 years.
Which one do you think is more responsible for inflation? Which one are more upset about? Who told you to be? Are those people ever going to have student loans? Did they go to college for almost free? What are their material economic interests now? Do you think they care about the next generation? Is a more educated populace going to be good or bad for their political base? Food for thought.
I border on killing myself daily as a form of punishment for selling TBT a couple weeks before the Fed finally took action.
Bought in at ~$21 on the very first high CPI print I saw. Then the Fed took 1.5 years to actually make the correct move, during which time it went as low as $15. Sold out when it finally, painfully climbed back up positive because the Fed started reversing course and I lost all hope.
Two weeks later they finally decided to act like Keynesias and started the rate hike. Now it's in the lower $30s. Not killing myself has been difficult.
42 comments
[ 3.6 ms ] story [ 25.2 ms ] thread[1] https://www.usnews.com/news/business/articles/2022-02-18/fed...
> are limited to diversified investments such as mutual funds
which are wrecked by rate hikes plenty. I don't think stock-picking has much to do with this.
Suppose I were a Fed bank president who wanted to profit from advance knowledge of changes to rates.
When I know rates are going to decrease, I buy a growth ETF, like VIGRX, or a tech index like QQQ. Or I buy a bigger house, safe in the knowledge that prices will go up and I can refinance soon at lower rates. And if options are allowed and I want more gains, I buy calls on ETFs like the ones I mentioned.
When I know rates are going to increase, I instead simply get out and hold cash. Or if options are allowed, I buy puts on QQQ, or at least sell calls.
In all of these hypothetical transactions, I have benefited from my advance knowledge of rate changes, without picking a single individual stock.
I can even make an argument that these diversified trades are more reflective of rate changes, since those changes have broad impact across the economy, whereas specific stocks are confounded by all sorts of idiosyncratic things. Using these ETFs, I average out more of the random variables that aren't "interest rates".
So I don't see how this new rule, which bans stock picking by people at the Fed, matters a lot. These people don't regulate specific industries; they set rates. About the only exception I can think of is bank stocks: Maybe the Fed's interactions with specific banks are significant. But apart from that -- this seems good for appearances, but does it actually accomplish much?
For congresspeople on the other hand, or for people in regulatory agencies, I get it. You don't want a regulator siding with one company over another, or, indeed, from being overinvested in whatever sector they're regulating ("Let pharma get profits at all costs! What do I care about opioids?").
But for people at the Fed? It's not a crazy rule, but I also don't think it does much.
Less money in circulation = less spending.
If we disregard that alcoholism is a sickness and will trump all other spending and make you lose every penny, then increasing taxation and removing money from people by raising rates would prevent the alcoholic from buying more booze.
However, the example is silly the macro economics are much more complex with individuals and businesses spanning across many different sectors.
The agglomeration, centralization, and intermediation of everything is not merely "late stage capitalism". Rather it directly follows from the decades-long policy of creating massive amounts of new money, just dumping it into the financial industry, and then writing that action off as "value neutral" while it's anything but. Given the choice between newly created money just continuing to fuel the everything bubble or spending it on specific policies, the latter is at least more deliberate in its effects.
In general, higher interest rates will slow down the economy, which is a great thing for sustainable use of natural resources. If we want to conserve resources, then we need to change our time preference to not use them all as fast as possible! It's nonsensical to give lip service to global warming, and then continue pushing the economy to run as hot as possible with speculative malinvestments enabled by ZIRP.
Freedom wise, long term higher rates encourage distributed ownership of capital rather than centralized financialization. For example an escooter is merely several hundred dollars, but under ZIRP it made sense for investors to (produce and) buy thousands of them to rent out, hoping to create some kind of future revenue stream. Our society is much better off if things, especially simple consumer goods, are under private ownership rather than administered by centralizing companies.
Also great for keeping sustainable business models from getting out-competed by a bunch of dolts with monopoly bucks.
> Freedom wise, long term higher rates encourage distributed ownership of capital rather than centralized financialization. For example an escooter is merely several hundred dollars, but under ZIRP it made sense for investors to buy thousands of them to rent out, to try and create some kind of future revenue stream. Our society is much better off if things, especially consumer goods, are under private ownership rather than leased out by centralizing companies.
I agree. However, many people see this as a bad thing. To continue with the scooter example, say we discover better scooter batteries but they aren't quite economically viable. With centralized ownership you can just financially penalize companies to make them switch. Even if people have to pay more they're at least not directly targeted which makes the change less politically expensive. With distributed ownership you have to enforce against more people, many of them individuals and possibly take enforcement action against them which is more laborious and expensive and runs much more risk of offending people's sensibilities and other backlash.
I'd also point out that centralization is more likely to make destructive sweeping changes. An individual could keep limping along with their old battery with only 30% capacity, just for short trips and whatnot. Whereas a company would be inclined to scrap old scooters much earlier to keep their fleet uniform and ready for the needs of any user.
A better example is the automobile market, where we've already got the distributed-incentives situation. This seems to be getting handled just fine with EV subsidies and "cash for clunkers" (criticism of that program notwithstanding). Perhaps adoption is slower than we want, but there could also be more direct incentives to upgrade if they were needed, or even just higher gas taxes. Operating on the distributed model where individuals are free to judge their own situation seems better than centralizing things so that they can be changed quicker just in case the need arises.
However, why would the Fed want to raise rates? The Fed members are precisely the group who benefit the most from the Cantillion-ization of the economy. The VC folks who fund escooters flops are just later stage effects.
But the banks who makeup the Fed and control 2/3 of the board members benefit a lot from having that printed cash flowing through their coffers. They also get game the markets even further by knowing where and when the fed will change rates. Why would they change?
The party ends for the banksters when the purchasing power completely runs out on their currency. Who knows what happens now.
Usually we have a big war and pandemic/plague at this stage to wipe the slate and provide cover for a currency reboot, but it appears we are fortunately not having that.
Will we get free from the banksters? (Please say yes!)
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
I bought more things with those news(spent $12k vacation and ebikes), I know others purchasing more things due to those news and knowing that things will probably get even more expensive in the future.
This bill doesn't change anything for future generations......and the timing is just awful...we need to take money away and make buying things hard not inject cash into pockets.
Edit: Before anyone attacks me, I voted blue in last election.
US just isn't very bike friendly in general. I mostly want to use the ebike to make my rides longer.
Im glad I live in a place where biking is taken seriously (even if there is plenty of room for improvement in the infrastructure)
"We'll fight inflation with inflation causing instruments (more liquidity)!!!" "People don't have enough money; let's print more."
Federal Reserve buys treasuries -> Federal Government hands trillions of borrowed dollars to state and local governments as “Covid relief” -> States spend well beyond their means.
"Don't blame me, I voted for them!"
It's a big ask but people should stop from time to time to remember that the world doesn't begin and end at the tip of their own noses. Let good things happen to people even when that good has no impact on you.
How are you 'getting money back', from a loan in your name being paid off?
The student loan forgiveness, if it happens, would total between 440 billion and 600 billion over the next 10 years.
Which one do you think is more responsible for inflation? Which one are more upset about? Who told you to be? Are those people ever going to have student loans? Did they go to college for almost free? What are their material economic interests now? Do you think they care about the next generation? Is a more educated populace going to be good or bad for their political base? Food for thought.
Bought in at ~$21 on the very first high CPI print I saw. Then the Fed took 1.5 years to actually make the correct move, during which time it went as low as $15. Sold out when it finally, painfully climbed back up positive because the Fed started reversing course and I lost all hope.
Two weeks later they finally decided to act like Keynesias and started the rate hike. Now it's in the lower $30s. Not killing myself has been difficult.