Submitted by ThetaGangThroweway t3_zwj0ve in wallstreetbets
ThetaGangThroweway OP t1_j1v9ahe wrote
Reply to comment by CoffeeMaster000 in Why Interest Rates Should Stay High (ish). by ThetaGangThroweway
The market is full of perverse incentives to take excessive risk and create bubbles around innovative products and services. This can be fixed either by keeping interest rates where they are now or perhaps higher, and/or setting the targeted inflation rate to zero.
CoffeeMaster000 t1_j1va966 wrote
Inflation target at 0??? No way.
ThetaGangThroweway OP t1_j1vbd2a wrote
It's definitely sustainable, the question is if we really want it (a positive inflation number keeps granny from stuffing her money in a mattress).
Invest0rnoob1 t1_j1vdyp7 wrote
You do know that we have to pay interest on our debt right?
ThetaGangThroweway OP t1_j1veal1 wrote
Of course. Inflation is actually a net positive for me due to my mortgage and student loans.
kifra101 t1_j1vkqt3 wrote
You do realize that the government also owes debt and pretty much keeping it at those elevated levels will eventually lead to default? Sure, the short term debts can be rolled over to higher interest bearing debts but how long can you keep that going if tax revenues decrease (due to higher unemployment, lower demand, lower profits, etc.)? Even if Yellen does funny accounting on the back-end, the government still has to service those higher interest payments one way or another. We are not talking billions at that point. We are talking trillions in just interest payments before spending a single penny on the welfare, military, government jobs, etc.
The fed can keep raising rate but they defeat their main objective if the government defaults and people lose faith in the dollar overnight. We are risking hyperinflation if rates stay high for too long (because government defaults) or if the rates drop too quickly (turn on the money printer before we reach 2% inflation). The window for a soft(ish) landing is extremely narrow which is why folks are thinking it won't be attainable.
This is why people are putting money into alternate assets -> gold, buttcoin (lol), real estate. It's good that you are drawing from history but we have never been in this exact situation before so there isn't a clear roadmap. Shit can go south very quickly.
ThetaGangThroweway OP t1_j1vmm8q wrote
The government has a money printer and has been deficit spending for its entire existence. What we should worry about is countries with economies highly correlated to the US, but whose government bank's are working at cross purposes to ours. This is America, it's not hard to turn a profit as parts of the country are still receiving new settlers. And the Fed is full of men smarter and more responsible than you and me.
And as several pointed out, current rates aren't very high in absolute terms.
kifra101 t1_j1vnzs3 wrote
SMH. You really need to read up on the collapse of the Roman empire. You cannot dilute the money supply indefinitely. There is a limit at which it's not sustainable.
ThetaGangThroweway OP t1_j1vp0ac wrote
I literally am a historian. And the late Roman Empire's pursuit of fiat currency was actually a success and I have written my own arguments for both their rise and fall which are pretty unique. The point here is an inflation target of zero isn't too much to ask for as we do run a developed and profitable country here. We target net positive inflation to deter hoarding rather than because we need the money (we have taxes for that).
kifra101 t1_j1vqojq wrote
Look, by the end of Roman empire, their coin had less than 1% of the original gold content then when they were at the peak of the empire. Their purchasing power collapsed to the point that they left the safety of the empire to move outside the walls and survive on the land to feed themselves. This left them open to invaders later on.
They had taxes then as well. In fact, they realized after taxation that they did not have enough to sustain the extravagances of the city which is why they started money dilution to begin with. Enormous government spending eventually leads to collapse. The point I am making here is that our spending and debt have reached a point now where it is near unsustainable. Raising the interest rate to 7% or higher is no longer a practical reality because our real debt is substantially greater than they were in the Volcker-era. No amount of money printing will bring back the purchasing power of the dollar unless something changes -> supply chains explode, technology advances massively, energy becomes near abundant, etc.
ThetaGangThroweway OP t1_j1vsdyh wrote
Don't get me started on the fall of Rome, I could literally go on all day. Suffice it to say that was a symptom, not the cause, and their fiat currency kept prices stable even as the gold content fell. By the time Rome started losing territory, the population size across the empire had already fallen massively and the legions had been cannibalized in a list of ways long before then.
And regardless, that's not the proof you're looking for as deliberate inflation acts like a hidden tax on savings and we're not looking to increase spending, but rather change the manner in which we raise revenue. I.E. We can reduce inflation and raise income taxes for higher brackets, as long as net revenue is the same... Who cares?
kifra101 t1_j1vskzf wrote
I am just saying man, you should have studied economics more than history. LMAO.
ThetaGangThroweway OP t1_j1vsz5u wrote
You'd be surprised to the degree they overlap.
Also, literally the last class I finished was doctoral level history of US economics. I did my research paper on Wichita aerospace manufacture.
CoffeeMaster000 t1_j1vcqgg wrote
No, it's not. Major Central banks have 2% target for good reasons.
ThetaGangThroweway OP t1_j1veij3 wrote
We all know the positives, but the whole point is it helps create bubbles. Either way, we could do as you say and keep interest rates at 3-5% for the same correction.
CoffeeMaster000 t1_j1vhpq4 wrote
Booms and busts are normal economic cycles. It slows down then we'll pick up again.
ThetaGangThroweway OP t1_j1vjkys wrote
Yes, but we can do it consistently. In fact, every new marketable invention has produced some kind of bubble in recent decades. There are even single-stock bubbles, and bubbles that form around successful companies. Like how right now college athletes found they can make more on OnlyFans than they ever will make in the real world. That isn't just sad, but will definitely right itself as soon as all the small-scale porn shows move onto the platform and squeeze the true amateurs out (fortunately).
CoffeeMaster000 t1_j1vkqha wrote
lol idk wtf you're talking about, buddy. Very regarded.
ThetaGangThroweway OP t1_j1vl28j wrote
There are micro-bubbles all the time that depend on ease of equity and cheapness of debt. Ever heard of Amazon Aggregators?
I forget the exact study, but investments with lottery like payoffs tend to be systemically overvalued whether it's micro-cap stocks, short-term options, or innovative startups. People feel better about a chance of extremely high returns than they do about giving that chance up. Until this year, any new business could be given a lottery like payoff (or even be turned into a ponzi scheme).
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